People v. Bank of Staten Island

Sewell, J.: The determination of the Special Term is based upon the theory that it was the plain duty of the receiver to bring an action or proceeding to enforce the liability of the stockholder before the Statute of Limitations attached, and that his failure to prosecute was such an omission of duty that he should be held personally liable as for a devastavit. I do not so understand the law. Prior to the amendment of section 52 of the Banking Law of 1892 (Gen. Laws, chap. 37; Laws of 1892 chap. 689) by chapter 441 of the Laws of 1897, there was no statutory provision authorizing receivers .to enforce the individual liability of stockholders, and it was held that the appropriate remedy was by a suit in equity by a creditor for himself and on behalf of those who chose to come in and share in the benefits and expenses of the litigation. . The amendment, so far as material upon the question under consideration, provided that “Except as prescribed in the Stock Corporation Law, the stockholders of every such corporation shall be individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of such corporation to the extent of the amount of • their stock therein, at the par value thereof, in addition to the amount invested in such shares. In case any such corporation shall have been or shall be dissolved by final order or judgment of a court having jurisdiction, and a permanent receiver or receivers of the said, corporation shall have been or shall be appointed, all actions or proceedings to enforce' the liability of stockholders under this section shall be taken and prosecuted only in the name and in behalf of such receiver or receivers, unless such receiver or receivers shall refuse to take such action or proceeding upon proper request in that behalf made by any creditor, and in that event such action or proceeding may be taken by any creditor of the corporation.” This provision was re-enacted and mcórporarated into section [381] 71 of the Banking Law of 1909 (Consol. Laws, chap. 2; Laws of 1909, chap. 10). It is to be observed that the language of this statute does not clearly evince a legislative determination that an action or proceeding shall be actually taken and prosecuted by the receiver himself. On the contrary, when it is construed in the light of the former practice it seems to include the idea of an action or proceeding by a creditor in the name and behalf of the receiver, if he shall consent or authorize the use .of his name for that purpose. But assuming that the statute should be construed as if the words “in the name and in behalf of such receiver or receivers ” were omitted, and it had clearly provided that all actions or proceedings to enforce the liability of stockholders -shall be taken and prosecuted by the receiver unless he shall refuse to take such action or proceeding upon proper request, it by no means follows that the Legislature intended to make it the absolute duty of a receiver to bring an action or proceeding to enforce the liability of stockholders. The statute contains no such • provision. It does not in terms impose an active duty upon the receiver to commence or prosecute an action or proceeding. It does not profess or propose to do so. It in no way acts upon the receiver himself. On the contrary, it clearly recognizes his right to refuse to proceed. The obligation of the statute is that any action or proceeding must be instituted and conducted in the name and behalf of the receiver or receivers. The whole scope and design of the statute is to extend these remedies to the receiver and to confine them to him unless he shall, ref use or neglect to proceed. Had they been confined exclusively to the receiver, or if the public had a direct or immediate interest in the question, it might have been said with some force that the power and authority to sue was a duty which a receiver was bound to fulfill. In the case of Persons v. Gardner (42 App. Div. 495) Presiding Justice Hardin, in considering the effect of this statute, said: “ After the adoption of that section, as thus amended, an action was maintainable- by the receivers at their election. The Legislature was careful to provide that, in case the receiver or receivers refuse to take such action, with. the view to the [382] enforcement of the liability of stockholders, upon proper request made by any creditor, an action might be taken by any creditor of the corporation. The right of a creditor to proceed in an action to enforce a stockholder’s liability is not taken away except upon condition that the receivers act. ” I know of no rule of law which requires or permits the courts to hold that an act authorized under such circumstances is mandatory, and imposes a positive and absolute duty, and not a mere discretionary power. This view with, respect to the intention of the Legislature seems to me only just and reasonable. It would seem to require no argument to show that it would be unreasonable to charge a receiver with gross negligence for failing to do for the creditors what they could and would have done for themselves if they had proceeded with diligence. . If, however, it were conceded that the appellant was charged with a duty in respect to the bringing of an action 'against' the stockholder, still the proofs in the case fall far short of establishing actionable neglect. The taking of such legal steps as the law required the appellant to take against stockholders was necessarily left to his attorney. The appellant did not control the appointment of the attorney. He applied to the court for his discharge and the appointment of another, and the motion was denied. I think it is entirely clear that if any damage resulted from the failure of the receiver to prosecute the stockholder, it was occasioned by the neglect of an attorney practically forced upon him, and not his personal neglect. I am, therefore, of the opinion that the court erred in surcharging the account of the receiver with the liability of the stockholder. As to the claim of the appellant that he is entitled to have the commissions allowed to receivers by the statute in force at the time he was appointed, and that his right to commissions is not affected by the amendment thereof, it is sufficient to say that he acquired no vested right, upon his appointment, • to prospective or unearned commissions. The right which he acquired by becoming a receiver was only to have commissions at the rate allowed by the statute which may be in force when his services are rendered. Nothing appears in the papers before us to show when any sum was actually received or dis-. [383] bursed. So far as appears all sums were received and paid out after May 1, 1906, when the amendment took effect (Laws of 1906, chap. 349, amdg. Laws of 1883, chap. 318, as amd.). As the burden was on the appellant to establish his right to commissions, we are presented with no legal reason for requiring their increase beyond the amount allowed. For these reasons I think that the order appealed from should be modified by striking therefrom the provision sustaining the exceptions filed to the report of the referee and surcharging the account of the. receiver with the sum of $5,000, the liability of the stockholder, and as thus modified should be affirmed, with ten dollars costs and disbursements to the appellant, to be-paid out of the fund in the hands of the receiver. All concurred; Kellogg, J., in result in memorandum; except Smith, P. J., not voting.