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Gold v. Clyne

12 N.Y.S. 531 Court N.Y. Gen. Term Decision date 1890-12-29 English

Delivered by Van Brunt, P. J.

Contents

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Gold et al. v. Clyne et al.
(Supreme Court, General Term, First Department.
December 29,1890.)

Headnote

Corporations—Liability of Officers—Annual Report.
Under Laws N. Y. 1875, c. 611, § 18, making officers of a corporation, created under that act, liable, on failure to file the annual report required, for all debts of the corporation then existing, or which shall be contracted before such report shall be made, the failure to file such report does not make the officers liable for a payment becoming due from the corporation on the completion of work under a contract with it, where such work is not completed until after the time limited for the continuance of the corporation in its certificate of incorporation, notwithstanding the provision of section 38 that the dissolution of such a corporation shall not take away or impair any remedy given against it, its stockholders or officers, “for any liability incurred previous to its dissolution. ” Following Garrison v. Howe, 17 N. Y. 458 .
Appeal from judgment on report of referee.
Action by Edward E. Gold and Frederic W. Wright against James Clyne and others. Plaintiffs appeal from a judgment for defendants entered on the report of the referee before whom the cause was tried.
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Argued before Van Brunt, P. J., and Brady and Daniels, JJ.
Lamed & Curtis, (Ira D. Warren, of counsel,) for appellants. Vanderpoel Green & Cuming and Martin & Smith, (Henry Thompson and George A. Strong, of counsel,) for respondents.

The defendants were directors of the Central Park Building Company, Limited, and the action was brought to charge them with liability for an alleged debt of the company as penalty for a failure to file the annual report of 1885. The corporation was organized in 1883 under the business act of 1875, and was by its articles of incorporation to continue for two years from the date of filing its certificate. This was filed on or about the 6th of June, 1883, and no annual report was ever filed. On the 23d of April, 1884, the corporation entered into a contract with the plaintiff to furnish and put up steam-heating apparatus in four buildings known as the “Navarro Flats, ” for which said company agreed to pay the plaintiffs $25,000 in four separate payments. The plaintiffs at once commenced work on their contracts, and received payments from time to time until the sum of $15,333.32 had been paid, which comprised all the payments which were to be made under the contract prior to the final completion of the work. The plaintiffs completed their work according to the terms of their contract on or about the 7th of December, 1885. Upon this state of facts the learned referee found in fayor of the defendants, and from the judgment thereupon entered this appeal is taken.

The decision of the learned referee was put upon the ground that the existence of the corporation ended in J une, 1885, by the terms of its certificate, and at that time no debt was due to the plaintiffs from the corporation. It is claimed, however, that by virtue of section 38 of the act of 1875, notwithstanding the dissolution of the corporation, their remedy still existed. Section 38 is as follows: “Sec. 38. The dissolution, for any cause whatever, of any corporation created as aforesaid, shall not take away or impair any remedy given against such corporation, its stockholders or officers, for any liability incurred previous to its dissolution.” And it is urged that, by section 18 of the act in question, the directors must, within 20 days from.the 1st of January in each year, file an annual report; and, if they fail to do so., a liability is imposed upon them, generally and severally, to pay all debts then existing, or that shall be contracted before such report shall be made. Attention must be called to the words of the statute making the directors liable for “all debts then existing;” and it is probable that the meaning of this term is the one which must control the decision of this case. It is easy to see the reasons why section 38, above quoted, was passed, because it had been held in the cases of McCulloch v. Norwood, 58 N. Y. 562 , and Sturges v. Vanderbilt, 73 N. Y. 384 , that the dissolution of a corporation even terminated an action then pending, and that all subsequent proceedings against the defendant were void, .unless the action were continued by an order of the court, as provided by the Laws of 1832. If an action actually pending against a corporation terminated by the expiration of the term of its existence, it is clear that no action could be commenced against a corporation after its dissolution; and the dissolution referred to in this case was a dissolution by expiration of time, and the action had to be revived by order of the court, precisely the same as in the case of the decease of an individual pending action. In order to avoid this condition of affairs, undoubtedly, section 38 was inserted in the statute to which attention has been called.

This brings us to a consideration (of what section 18 means, when it imposes a liability to pay all debts then existing, and that shall be contracted before such report shall be made. It is urged upon the part of the appellant that, even though the debt may not have existed during the existence of the corporation, yet it had been contracted during such existence. Upon that point the case of Garrison v. Howe, 17 N. Y. 458 , seems to be conclusive;

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and our attention has not been called to, neither have we been able to find, any adjudication interpreting in a different manner the language of the statute there construed, which is precisely the same as that of the section referred to in the case at bar. In the case cited a contract had been entered into by the corporation with the plaintiff to furnish lumber, for which they were to pay a certain price. Subsequent to the entering into the contract, there was a default in the filing of the annual report, but such omission was repaired prior to the time of the delivery of the lumber, and the court held that the debt for the lumber furnished under the contract subsequent to its execution was not contracted when the agreement was signed; and the court say: “If the statute was simply remedial, it might be said that plaintiff’s case was within its equity; but, the provisions being highly penal, the rules of law do not permit the court to extend it by construction to cases not fairly within the language;” and that the statute contemplated the simple case of a debt contracted during the default in making the report. Attention may be called to the case of Leggett v. Bank, 24 N. Y. 283 , where a different interpretation was placed upon words of similar signification, but yet of a different character. It was there held that a provision in the articles of a banking association, that the shares of its stock should not be transferable until the shareholder shall discharge all debts due by him to the association, includes liabilities of the shareholders which have not yet matured; and that sucli a provision creates a valid lien as against the assignee of the shareholder, who takes with knowledge thereof, while the shareholder is under a contingent liability as indorser, and gives no notice to the bank of his claim until the indorser’s liability had become fixed. In that case the shareholder was an indorser upon the note held by the bank, which at the time of the transfer of the stock was not due. After the transfer he became charged as indorser; and it was held that the language in the articles of association included the liability of an indorser who had not been charged as indorser, the note not having become due. It may be claimed that the case of Garrison v. Howe is not applicable to the case at bar, because at the time that the debt became due, in the case cited, the default did not exist, the trustees of the corporation having filed the an. nuai report, whereas in the case at bar no such annual report was ever filed-We think, however, that this makes no difference, because at the time at which the debt become due and the liability arose the corporation was dead; so dead that even actions against it abated. Ho action could be commenced against it except by the permissive force of the statute passed for the purpose of meeting this contingency; but for all purposes of corporate action, and of the action of its directors or trustees as such, it had ceased to exist, and consequently there was no corporation in being who could perform the act of filing the annual report. We think, therefore, that, the corporation having ceased to exist before the debt arose, there was nothing to which the statute could apply, as it was evidently not intended that, a default having occurred, there was no possibility of its ever being repaired. Even if it were not for the rule laid down in the case of Garrison v. Howe, above cited, we think upon principle it would be necessary to come to the same conclusion. The ground upon which the appellant bases his appeal seems to be that, in the case of an executory contract, the debt arises from the moment that the contract is signed. This clearly cannot be so, because non constat the contractor may never complete his contract. In the case at bar the payment which forms the subject-matter of this action was not to be due until the completion of the contract, and it was uncertain at the time of the death of the corporation whether anything whatever would become due to the contractor, because he might never complete his contract. In other words, a debt cannot be contracted until a liability has been incurred; and no liability had been incurred by the corporation until the contract had'been fulfilled. Under all the circumstances, therefore, we are of opinion that the statute did not intend to
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impose a penalty upon the trustees of a corporation for not doing a corporate act after the corporation had ceased to exist. The judgment appealed from mnst be affirmed, with costs. All concur.

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