Pondville Co. v. Clark

Storrs, J. If one or more natural persons were the plaintiffs in this case, there is no doubt that, under our statute of set-off, (Rev. Stat., 81,) the defendant would be entitled to the set-off which he claims. The mere insolvency of the plaintiffs, using that term in its ordinary sense, to denote generally an inability to pay their debts, would not prevent them from paying the debt due to the defendant, in prefer-ence to any other of their debts, or of applying it towards the payment of the plaintiffs’ claim, or of making any other arrangement for the liquidation of their indebtedness which they chose, in the same manner as if they were solvent; and it might equally be collected of them by a suit in favor of the defendant, or by a set-off in a suit brought by them against [101] him, or it might be factorized by the defendant’s creditors. The occurrence of such insolvency would not take away, or at all impair, their previous power to manage their affairs, nor would it convert of itself, their property into a trust fund for the benefit of their creditors. These principles are so familiar that it would be unnecessary to state them, were it not .proper for the purpose of showing their applicability to a suit like the present, which is brought to recover a debt due to an insolvent corporation, between which and natural persons, it has been claimed that, in the respects which have been mentioned, there is a difference, in the event of insolvency. That these principles are applicable to an insolvent corporation, as well as to an insolvent individual, and to as full an extent, is decisively settled in the case of Catlin v. The Eagle Bank of New Haven, (6 Conn. R., 233.) The particular question there presented was, whether a corporation, after it had become insolvent, could prefer one of its creditors to another, by paying or giving security to the former; and this depended on the question whether the mere insolvency of the corporation converted its estate into a trust fund for all its creditors. It was held that it did not, and therefore that such preference might be given ; and that the insolvency of the corporation no more impaired its power to manage its concerns and deal with its property, than if it had been a natural person. The reasons for the opinion of the court in that case, are given so fully, and are so satisfactory, that we need only to refer to them. From the doctrine there established it necessarily results, that the insolvency of the plaintiffs in this case, constitutes no objection to the claim of set-off made by the defendant, which is in the nature of a cross-action against the plaintiffs, and a mode provided by law by which a debtor, sued by his creditor, may, in that suit, recover an independent claim which he has against such creditor, by having it applied on the debt due from him, and to which, as well as to any other legal mode, the defendant has a right to resort for the recovery of his claim. All the estate of the plaintiffs, of whatever description, including the debt due from the defendant, was liable, as well after, as before [102] they became insolvent, to be taken and appropriated for the payment of their debts, by any of their creditors who should take the requisite steps for that purpose; and the circumstance that the defendant was a stockholder, as well as creditor, of the plaintiffs’ corporation, deprived him of no right to recover his claim against it, to which any of its other creditors was entitled. The plaintiffs claim that as the note, on which this suit is brought, was given for the defendant’s share of the stock of the corporation, it constituted a part of its capital, and by allowing the set-off claimed by the defendant, he is permitted to withdraw a part of such capital; and that this would be a fraud on the other creditors of the company, and a violation of the 214th section of the act relating to joint stock corporations, which provides that “ if the capital stock of any such corporation shall be withdrawn and refunded to the stockholders, before the payment of all the debts of the corporation for which such stock would have been liable, the stockholders of such corporation shall be liable to any such creditor of such corporation, in an action founded on [that] statute, to the amount of the sum refunded to them respectively as aforesaid.” (Rev. Stat., 230.) The answer to this claim is obvious. The defendant would withdraw no part of such capital as a stockholder, but would only appropriate according to law, as a creditor of the plaintiffs, in payment of his debt against them, a portion of that capital which was designed to be protected as a fund for the benefit of their creditors, and would only exercise the same right as any other creditor, whether a stockholder or not, would possess. And why should he as a creditor stand on worse ground, in recovering his debt, than any other creditor? And, so far from contravening that provision of the act referred to, such set-off would be in exact accordance with its design, as it was its very object, to have the capital first appropriated to the payment of the debts of the corporation ; and the defendant, moreover, instead of withdrawing or refunding to himself, as a stockholder, any part of the capital, diminishes his [103] interest as such to the extent of the amount of his proportion of what he thus appropriates to himself as a creditor. We therefore advise the superior court to allow the set-off claimed by the defendant, and to render judgment accordingly. In this opinion, Hinman, J. concurred. Set-off allowed, and judgment accordingly.