Wallace & Sons v. Walse — 5 N.Y.S. 351

Majority

p. 351

Wallace & Sons v. Walse et al.

(Supreme Court, General Term, Fourth Department.

May 10, 1889.)

Headnote

Corporations—Officers—Report of Trustees.

Laws N. Y 1848, c. 40, § 12, as amended by Laws 1875, o. 510, requires an annual report to be published, signed by a majority of the trustees of a corporation, containing certain statements relative to its financial condition, and imposes a penalty on the trustees for non-compliance. Laws 1860, c. 269, as amended by Laws 1878, c. 316, provides that the majority of the trustees of any corporation may reduce the number of trustees by signing a certificate declaring what number shall constitute the hoard, copies of which shall be filed with the secretary of state, etc. A corporation had, by its certificate of incorporation, 12 trustees. Vacancies occurring, the remaining trustees determined to reduce the number of trustees to 9, but no certificate of the reduction was made, as provided by said act. A majority of the nine élected thereafter signed reports complying with the statute first mentioned, said reports being honestly designed to conform to the law, and not intended to deceive .any one. Held, that the law authorizing the reduction was substantially complied with, and that, therefore, a majority of the trustees had signed the reports, within the meaning of the law requiring such signature.

Appeal from special term, Onondaga county.

Plaintiff is a foreign corporation under the name of Wallace & Sons, existing under tlie laws of the state of Connecticut. In February, 1883, a cor

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poration was organized in the city of Syracuse under the provisions of the act of the legislature entitled “An act to authorize the formation of corporations for manufacturing, mining, mechanical, or chemical purposes,” passed February 17, 1848, and the acts amending the same, under the name of the “Wolfe Stove Manufacturing Company.” Its principal place of business was the city of Syracuse. In March, 1885, the name of the corporation was changed to “Syracuse Stove Company” by an order of a special term held in Onondaga county. In the certificate of incorporation filed, the number of trustees mentioned who should manage the affairs of the company for the first year was fixed at 12. The number was not reduced in accordance with the terms of chapter 269 of the Laws of 1860, or the amendment thereof passed in 1878. From and after the 1st day of January, 1887, and until the 26th day of June, 1888, the date of the commencement of this action, tire defendants were trustees of the Syracuse Stove Company. In the months of March and April, 1888, the Syracuse Stove Company made its five several promissory notes, in all amounting to the sum of $2,591.43, and delivered the same to the plaintiff. It appears the notes were given for goods sold by the plaintiff in tire fall of 1887. There was found by the trial court from the evidence the following facts: “Between January 1st and January 20th, in each of the years 1886, 1887, and 1888, the Syracuse Stove Company made, filed in the Onondaga county clerk’s office, and published in a newspaper published at Syracuse, H. Y., a report or statement in writing purporting to be the annual report of said corporation made pursuant to the provisions of section 12, c. 40, Laws 1848, as amended by chapter 510, Laws 1875, which said statements or reports were in words and figures as follows: ‘ Annual Beport of Syracuse Stove Company. State of Hew York, Onondaga County—ss.: We, J. Emery Eaton, L. É. Marquisse, F. O. Alsop, F. A. Hale, Charles B. Alsop, David Stevens, trustees of the Syracuse Stove Company, and a majority thereof, and the said J. Emery Eaton being president; of said company, do hereby certify and report that the capital stock of said company is $100,000; that, of the said capital stock, sixty thousand five hundred dollars thereof has been paid in in cash, and thirty-nine thousand and five hundred dollars thereof has been issued in payment for property necessary for the company’s business; that the existing debts of said company do not exceed seventy-nine thousand dollars. Witness our hands, the 18th day of January, 1888. J. Emery Eaton, President. L. E. Marquisse, F. O. Alsop, David Stevens, F. A. Hale, Charles Alsop, Trustees. State of Hew York, Onondaga County—ss.: J. Emery Eaton, being duly sworn, says that he is president of the Syracuse Stove Company aforesaid, and that the foregoing annual report is true, to the best of his knowledge, information, and belief. J. Emery Eaton. Sworn to before me this 18th day of January, 1888. Samuel B. Stearn, Hotary Public, Onondaga County, H. Y. [Indorsed.] Filed January 18, 1888.’ (A report bearing date the 15th day of January, 1886, and a report bearing date the 19th day of January, 1887, of like character, were made and filed and published in the respective years mentioned, in a newspaper published in the city of Syracuse.)”' It was also found by the trial court, viz.: “Each of said reports was signed and verified by the president of the said Syracuse Stove Company, or of its. board of trustees, and was also signed by four or five other trustees of said company. Each of said reports contained all the statements, and was in form and substance as required by section 12, c. 40, Laws 1848, as amended by chapter 510, Laws 1875, and the trustees so signing each of said reports were-a majority of the elected and acting trustees of said Syracuse Stove Company at that time.” It was also found by the trial court, viz.: “The trustees of' said Syracuse Stove Company, in making, filing, and publishing the annual report aforesaid, intended honestly and in good faith to comply .with the provisions of section 12, c. 40, Laws 1848, as amended, and there was no intent, or design on their part to evade the provisions of said section, or to make any-

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untrue or incorrect statement as to the financial condition and affairs of said corporation, or to deceive or mislead any of its creditors, or other persons having dealing with said corporation, in any particular whatever, but said Syracuse Stove Company and its trustees, in making said reports, endeavored honestly and in good faith to correctly state and make public all the information as to the financial affairs and conditions of said company which the statute requires to be stated and published.” The trial court refused to find, viz.: “The reports made, filed, and published by said Syracuse Stove Company, as hereinbefore found, were in form and substance as required by section 12, c. 40, Laws 1848, as amended, and were signed and verified by the president of said corporation, and were signed by a majority of the trustees of said corporation, within the meaning of the provisions of section 12.” The defendants took an exception to that refusal. The trial court also refused to find that the plaintiff has “failed to establish a cause of action against the defendants herein, or either of them, and its complaint should be dismissed, with costs.” There was an exception to such refusal. There was a motion by the defendants for a nonsuit, which was refused, and an exception was taken. Several of the trustees having resigned, the directors concluded to reduce the number to nine, and to elect only nine trustees, and in January, 1886, and in January, 1887, and in January, 1888, only nine trustees were elected by the stockholders of the said company, and during those years the company in fact had but nine trustees, who constituted the board of trustees during such years.

Argued before Hardin, P. J„ and Martin and Merwin, JJ.

Smith, Kellogg & Wells, for appellant Stevens. Knapp, Knottingham & Wells, for appellants Welch, Lane, and McCarthy. Ide & Hubbard, for appellants Alsops, Eaton, Hale, and Marquisse. Hastings & Gleason, for respondent.

Plaintiff is not a creditor of the defendants. It seeks to enforce a liability imposed upon trustees of a manufacturing corporation in virtue of section 12 of the manufacturing act. As the provisions of the statute are penal in their nature, they must receive a strict construction. Arms Co. v. Barlow, 63 N. Y. 63 . As was said in Bruce v. Platt, 80 N. Y. 381 , “the statute in question is penal, and not to be extended by construction; that, in an action to enforce a liability thereby created, nothing can be presumed against the defendants, but that every fact necessary to establish their liability must be affirmatively proved. Garrison v. Howe, 17 N. Y. 458 ; Miller v. White, 50 N. Y. 137 ; Arms Co. v. Barlow, 63 N. Y. 62 . ” The same principle was recognized in Blake v. Griswold, 104 N. Y. 617 , 11 N. E. Rep. 137 , where the court remarks: “The ‘rights and liabilities’ of parties under the penal provisions of the manufacturing act are not only ‘ regulated ’ by special provisions of law, but are wholly created by such special provisions, and have no existence outside of the exceptional and peculiar authority and regulation of the statute.”

It has been repeatedly held that the object of the provision requiring reports to be made, in so far as it “relates to creditors, or persons dealing with the corporation, appears to have been to give such notoriety to the pecuniary condition of the company, through the publication of its annual statements, as to deprive it of credit, if it should be unworthy of it.” Quarry Co. v. Bliss, 27 N. Y. 297 . To the same effect is Garrison v. Howe, 17 N. Y. 465 , and in annoúncing that doctrine, as well as in considering the general features of the case then in hand, Judge Denio observes: “But the provision is highly penal, and the rules of law do not permit us to extend it by construction to cases not fairly within the language. ” See, also, Bank v. Bliss, 35 N. Y. 412 ; Wiles v. Suydam, 64 N. Y. 173 . Chapter 316, Laws 1878, (amending chapter 269, Laws 1860,) prescribes a mode for increasing the number of trustees to not more than 13, and for reducing the number to not less

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than 3, in permissive language. The mode there prescribed, in effect, is that existing trustees of any corporation, or a majority of them, shall make and sign a certificate declaring how many trustees of a corporation shall have the future management of its business. Said certificate shall be acknowledged by the trustees signing the same, and filed in the office of the clerk where the original certificate was filed, and a duplicate in the office of the secretary of state. And this act also provides that, if the number shall be reduced, “the-number stated in each certificate * * *” shall be deemed the number of trustees of such corporation to be elected according to the said act, and who shall have the management and regulation of such corporation until the next election. It is to be observed that the section does not in terms forbid any other mode of reduction of the number of trustees. It is well understood that a corporation may cease to exist by abandonment or by non-user. Here we have a case that indicates that the trustees and stockholders voluntarily abandoned the number of trustees prescribed in the original certificate. Vacancies had been brought about by resignations, and the number reduced to nine, and the stockholders in 1886, 1887, and 1888 accepted the situation, and only elected nine trustees, so that in point of fact there were actually in existence only nine trustees; and it is literally true that the trustees who managed the said corporation’s affairs in office in 1886,1887, and 1888 were limited to nine, in virtue of- the action of the board of trustees, and in virtue of the actions and acquiescence of the stockholders; and when we take up section 12 of the manufacturing act, which requires a “majority of the trustees” to make, sign, and publish a report, we find that the reports in question corresponded with the physical fact, to-wit: That six were a majority of the existing nine trustees, there being no other trustees then in office constituting the board of management of the corporation in question. Vine persons were defacto the trustees. The majority of that number in each of the years already referred to signed the report in question. The trustees exercised the power conferred upon them to reduce the number who should manage the affairs, but they omitted to certify and file the evidence of such action in the public offices.

We have given attention to the case of Moore v. Rector, 4 Abb. N. C. 51 , cited in the opinion of the learned judge at special term. That was a case ihvolving the validity of a bond and mortgage given by a religious corporation organized under chapter 60 of the Laws of 1813. That statute provided in terms that unless the rector, if there was one, and at least one of the churchwardens and a majority of the vestry-men, should be present, there should be no quorum for the transaction of business; and it was there held that a lesser number could not exercise the statutory powers of the corporation. We do not regard that case as satisfactorily supporting the conclusion reached at the special term. It has been held that the statute requiring the report to be made, signed, filed, and published within 20 days from the 1st of January is directory, and the publication thereafter will avoid the penalty. Here we have a case -where the object of the statute, to-wit, the giving of proper information to the public of the financial condition of the company, seems to have been attained; and we have a case where a majority of the trustees having charge and control of the affairs of the company, a majority of the trustees in office, a majority of the number of trustees assented to by the board of trustees year after year, and also assented to by the stockholders year after year, signed, filed, and published the reports of the financial condition of the company. Apparently there was a substantial compliance with the requirements of the statute. Under these circumstances, we are not inclined to impose the penalty prescribed by the statute, which declares “a joint and several liability” upon the trustees, as they have in good-faith made and published-reports, unless the ultimate court shall so hold. These views lead us to differ with tile special term in the conclusion reached upon the facts appearing in the ap

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peal-book. Judgment reversed, and a new trial ordered, with costs to abide the event.

Mebwin, J., concurred. Mabtin, J., not voting.

Cases cited

Garrison v. Howe 17 N. Y. 458 N.Y. p. 353
Miller v. White 50 N. Y. 137 N.Y. 1872-11-12 p. 353
Whitney Arms Co. v. Barlow 63 N. Y. 62 N.Y. 1875-10-08 p. 353
Shaler & Hall Quarry Co. v. Bliss 27 N. Y. 297 N.Y. p. 353
Merchants' Bank of New Haven v. Bliss 35 N. Y. 412 N.Y. p. 353
Wiles v. Suydam 64 N. Y. 173 N.Y. 1876-02-08 p. 353