In Shellington v. Howland the plaintiff relied upon the fact that by force of the Bankrupt Law of the United States the prosecution of an action against the corporation was prevented and the performance of the condition became legally impossible.Summary of this case from Hirshfeld v. Bopp
Argued June 5, 1873
Decided September 23, 1873
John Van Voorhis for the appellant.
Theodore Bacon for the respondent.
There is nothing in the objection taken to the order of the justice at the circuit reserving the case for further consideration. The order was authorized by section 264 of the Code. The circumstance that the verdict was directed by the justice, there being no disputed questions of fact to be passed upon by the jury, did not take the case out of this provision of the statute. The right is given to the justice presiding at a circuit, in all cases of trial by jury, to reserve the case for further consideration upon the questions of law involved.
The objection that the plaintiff has not complied with the conditions imposed by statute, upon which his right to an action against the defendant depends, is more serious.
Whether the act regulating and prescribing the liability of stockholders of manufacturing corporations, for the corporate debts (Laws of 1848, chap. 40, § 24), requires, as a condition precedent to an action against a stockholder, that the remedy against the corporation shall be exhausted by the return of an execution against it unsatisfied in whole or in part, is a question not free from difficulty, but we do not find it necessary to consider or pass upon it, for the reason that if the construction of the statute is as contended for by the appellant, we regard the compliance with the condition as dispensed with in this case. The plaintiff did commence his action within the year after the maturing of the debt, as required by the statute, but was prevented from prosecuting it to judgment and execution by the act of the defendant and the operation of the bankrupt act of the United States. After the proceedings in bankruptcy against the corporation, commenced by the defendant, it was unlawful for the plaintiff to prosecute his action, and any further proceedings would have been fruitless. (Bankrupt Act of U.S., § 21.) The defendant procured from the District Court of the United States in Bankruptcy an order enjoining and forbidding the further prosecution of the action. The suit was terminated as well by the operation and effect of the bankrupt law, as by the direct and active interposition of the defendant in enforcing the law by the positive sanction of a court of competent and paramount jurisdiction. The action was, in fact, terminated, and a compliance with the condition precedent, imposed by statute, rendered impossible by the paramount law of the United States put in operation by the defendant. When the performance of a condition becomes impossible by the operation and effect of a statute, that is, becomes illegal, the performance is excused, and the rights of the parties will be preserved. ( Cohen v. Mutual Life Ins. Co., 50 N.Y., 610; Semmes v. Hartford Ins. Co., 13 Wallace, 158; Hanger v. Abbott, 6 id. 532.)
It is true the act of Congress did not, except as it was put in operation by the commencement of proceedings under it, prevent or make unlawful the prosecution of an action against the corporation to judgment and execution; but when made operative and effectual, a performance of the condition precedent became legally impossible. Although not essential to the validity and sufficiency of the excuse for non-performance, the proceedings in bankruptcy against the corporation were instituted by, and the prosecution of the plaintiff's action enjoined at the instance of the defendant, who thereby himself obstructed and prevented the performance of the condition. He cannot be heard to object that a condition precedent to the right of action has not been performed, the performance of which he has prevented. (Com. Dig., Condition, D. 1.) But it is enough that, without fault on the part of the plaintiff, the effect of judicial proceedings under a paramount law of Congress, an action against the corporation was not only legally impossible, but, if possible, would have been fruitless. ( Lovett v. Cornwell, 6 Wend., 369; People v. Bartlett, 3 Hill, 570; Loomis v. Tifft, 16 Barb., 541.)
The commencement of the action against the corporation, and the proceedings therein before the justice, were well proved. The objections now taken were not taken at the circuit, and, if taken, they might have been obviated, and therefore were waived. It was not objected that the process issued was not produced, or the service thereof proved. The jurisdiction of the justice was not questioned at the circuit, and that being assumed, all the other proceedings were regular, and the evidence of them competent.
The proof of the debt against the corporation in bankruptcy did not bar an action against the plaintiff upon his contingent liability. It did not even bar an action against the corporation after the termination of the proceedings in bankruptcy. (Bankrupt Act, §§ 21, 33, 37.) The proof of the debt was partially equivalent to the commencement and prosecution of an action and a proximate compliance with the condition imposed by statute to the liability of the stockholders, if not a substitute for a literal compliance with such condition. ( In re Robinson, 2 B.R., 109; In re Firemen's Ins. Co., 7 Am. Law Reg., 567.)
There may have been a transfer by the defendant of his stock to the corporation in 1869, valid as between the parties to the transaction, and sufficient to vest the equitable title in the transferree, but the transfer was not consummated in the form required by statute, so as to affect the rights of strangers, or to relieve the defendant from his legal liability to third persons for the debts of the corporation. The statute requires a book to be kept by the corporation, open to the inspection of stockholders and creditors, showing the names of all stockholders, and the number of shares held by each, and declares that no transfer of stock shall be valid for any purpose whatever, except to render the transferree liable for the debts of the company, until it shall be entered on this book, by an entry showing to and from whom transferred. The transfer of stock, quoad the public, is not complete until entered on the book designated by statute. An entry upon the books of registry of stockholders is required for the protection of the company and its creditors, and each may hold the stockholders to their liability as such until they have divested themselves of the title to their shares by a completed transfer, as prescribed by law. No secret transfer will avail to release the stockholder from his obligations, or deprive the creditors of the corporation of the right to look to him as the responsible party liable for the debts of the corporation.
There was no error committed to the prejudice of the defendant, and the judgment must be affirmed.
All concur, except RAPALLO, J, not voting
GROVER, J., concurs in result on ground that defendant, by his own act, prevented a judgment against the corporation, expressing no opinion as to the other propositions discussed.