Armstrong v. Cowles

Loomis, J. The New England Gas Carbonizing Company was formed and organized under the statute relating to joint-stock corporations in November, 1872, and transacted business as such until June, 1874, and the defendants, being officers and directors of the company during all that time, intentionally neglected to file certificates of organization with the secretary of the state and the town clerk, as required by section 401, title 7, page 171, of the General Statutes of 1866. In January, 1873, the company became indebted to one Samuel Whitney in the sum of one thousand dollars, and Whitney about the same time became indebted to the plaintiffs in the sum of four hundred dollars. In March, 1873, the plaintiffs brought a suit against Whitney, in which, by process of foreign attachment, they attached the debt due from, the corporation to Whitney, and having obtained judgment thereon, execution issued and demand was made of Whitney and the garnishee in due form of law. Afterwards scire facias was brought by the plaintiffs against the corporation and judgment was obtained thereon in October, 1873, which judgment has never been paid or satisfied. The present action is brought to recover the amount of such judgment from the defendants, pursuant to the provisions of section 416, title 7, [48] page 174, of the General Statutes of 1866, which provides that, “if the president, directors or secretary of any such corporation shall intentionally neglect or refuse to comply with the provisions of this act, and to perform the duties therein required of them respectively, such of them as so neglect or refuse shall be jointly and severally liable, in an action founded on this statute, for all debts of such corporation contracted during the period of any such neglect or refusal.” The first question is, whether the plaintiffs’ judgment in the scire facias can be regarded as “a debt contracted” within the meaning of the above statute. We think not. There cannot be a “ debt contracted ” without two or more contracting parties, one of whom in this case must be the corporation. The phrase therefore necessarily implies some act on the part of the corporation with some party dealing with it, whereby an obligation is incurred, the company receiving and the other party giving credit on the faith of their solvency and proper organization as a corporation ; and if the directors intentionally withhold a knowledge of the condition of the corporation, persons dealing with them and giving them credit may have protection by resorting to the personal responsibility of the directors for the debts so contracted. A further reason for giving this construction to the statute may be found in the absurd and unjust result to which the construction claimed by the plaintiffs would directly lead. The liability of the defendants, it is conceded, can be only for debts contracted during the time of the neglect referred to. If then the plaintiffs’ judgment on the scire facias was a “ debt contracted,” as the plaintiffs claim, the time when it was so contracted was when the judgment was rendered and the corporation became liable to pay it. Now suppose that when Whitney’s debt against the corporation was contracted the officers had not been in default, but they were in default at the time the judgment was obtained, the result would he that while the corporation alone would be liable to Whitney for his debt against them, yet the plaintiffs, having sued [49] Whitney and attached the same debt due from the corporation to him, could make the directors liable to them, when there would have been no liability whatever to Whitney. It is not claimed that the facts of the case bring it within the statute thus construed. The corporation never had dealings with the plaintiffs, never invited them into their confidence, and never sought or received any credit from them. There is also a like want of privity between the plaintiffs and defendants. It was a matter of entire indifference to the plaintiffs whether the directors complied with the statute or not. They were neither damaged by non-compliance with the statute, nor benefited by compliance. It seems clear that the plaintiffs cannot stand on any merits of their own, or upon any thing in their own relation to the corporation or the' defendants. And this brings us to the second inquiry: whether the plaintiffs can stand in the shoes of Whitney and enforce by an action at law in their own names such rights as he had against these defendants ? We do not say that the plaintiffs have no remedy through Whitney; on the other hand we incline to think there is one. But we hold that the present suit is inadequate for the purpose.. We do not regard this action as predicated at all upon Whitney’s right to recover his debt from the defendants. In all. the counts the action is brought expressly upon one and the same provision of the statute to which we have already referred. All the counts except the last are based on the-statute, minutely referred to as title 17, part 8, art. 4, sec. of the Revision of 1875, and the other count is based on title 7, sect. 416, of the Revision of 1866; and in all the counts it is the plaintiffs’ own debt (to wit, the .judgment in their favor on scire facias,) against the corporation that they attempt to bring within the statute as. a debt contracted while the defendants as directors were in default. It is true that incidentally in setting forth the process of foreign attachment and the steps by which they obtained judgment, they refer to the debt from the corporation to Whitney, which they factorized, but it is obvious that they claim the benefit of the statute on their [50] own account; in other words they stand in their own shoes and not in Whitney’s. They nowhere claim to be subrogated to the rights of Whitney, they neither' count upon nor refer to the act of 1850 as giving them Whitney’s right to sue the defendants, nor do they by any averment claim to be the assignees and equitable boná fide owners of any chose in action in favor of Whitney and against the deféndants. Independently of the aid which the statute passed in 1850 may furnish, we suppose on the authority of Judah v. Judd, 1 Conn., 309, that the'plaintiffs by virtue of their process of foreign attachment and the judgment in the action of scire facias acquired no right except to collect their debt against Whitney out of the property of the corporation; and that the proceedings did not operate as an'assignment or transfer to them of Whitney’s right to sue the defendants. But by the act of 1850 it was provided “that the plaintiff in foreign attachment shall be entitled to all the security which his debtor has for the debt attached.” General Statutes, Revision of 1866, p. 74, sect. 322. In Candee v. Penniman, 32 Conn., 228, the benefit of the statute was given to an attaching creditor, who upon a bill in equity was protected in his right to the funds holden as security for the debt attached. ' Assuming for the present purpose that Whitney’s right to sue the defendants and collect of them his debt against the corporation, was a “ security” within the meaning of the statute, and that by means of the premises and by force of the statute the plaintiffs became subrogated to the rights of Whitney, the remedy instituted ought to be in such form as that all the equitable rights as between the defendants and Whitney could be shown, adjusted and settled. As the plaintiffs have no independent claim against the defendants, if, before the attachment of this debt, Whitney had sold or discharged his right of action against the defendants, or the defendants had any other superior equities against the plaintiffs, it would prevent the plaintiffs from recovering. A new trial is not advised. In this opinion the other judges concurred.