Beardsley v. Johnson — 30 N.Y. St. Rep. 691

Majority

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Denman N. Beardsley et al., App’lts, v. Martin G. Johnson et al., Resp’ts.^[1]

(Court of Appeals,

Filed April 15, 1890.)

Headnote

1. Corporations—Service of summons upon—Code, § 431, subd. 3.

The animal election of the Eastern R. R. Co. of Long Island, was fixed for November. In 1879 thirteen directors were elected, of whom Johnson was one, and he was elected president. In 1880 nothing was done at the annual meeting, and in October, 1881, Johnson having sold his stock, a, set of directors were elected, Johnson not acting as officer or agent after-September, 1881. Held, that the service of a sumfnons upon him in July, 1883, was a nullity.

2. Same—Provision as to time of annual meeting merely directory.

Provisions in statutes and by-laws requiring the election of directors to be held on a specified day are regarded as directory, and the election, if not held on the regular day, may be held at a later day; and the directors, then chosen, if there be no other irregularity or infirmity in their title,, will be directors dejuie.

3. Same—Laws 1864, chap. 582, § 3.

In 1882. the annual meeting was adjourned to December 19,when the-number of directors was reduced to seven. Held, that as upon the trial there was no proof of the,Iengtk“of the road except that the articles of association stated the total length of the road and branches to be about thirty-five miles, this did not show the length of its main route, which may have been but fifteen miles, which would authorize the reduction of the number of directors under Laws 1864, chap, 582, § 3, to seven.

Appeal from judgment of the supreme court, general term, first department, affirming a judgment entered upon a dismissal of the complaint upon a trial before the court without a jury.

T. B. Wakeman, for app’lts ; James Armstrong, for resp’ts.

At some time prior to September, 1881, the plaintiffs became creditors of the Eastern Bailroad Company of Long Island; and they claim that on the 28th day of July, 1883, they commenced an action for the recovery of their debt against the company by the service of the summons therein upon Martin G. Johnson, who was claimed at the time to be vice-president, or president, and a director of the company. In pursuance of such, service they entered judgment against the company by default on. the 28th day of August thereafter, for upwards of $14,000. Execution was issued upon that judgment and returned unsatisfied, and then in December, 1883, they commenced this action, under § 10 of the general railroad act of 1850 against the defendants, stockholders in the company, to recover of them the amount unpaid on their stock, which was conceded to be ninety per cent, thereof.

Upon the trial of the action the sole defense of the defendants was that at the time of the service of the summons in the action against the company Johnson was not a managing agent or an officer of the company as prescribed in subdivision 3 of § 431 of the Code, and that, therefore, that action was never commenced, and the judgment was a nullity; and so the trial judge held, and. we think the facts justified his decision.

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The articles of association of the company, filed and recorded in December, 1878, contain the names of thirteen directors, who were to manage the affairs of the company for the first year, and until others should be chosen in their places, and Johnson’s name is among them. The by-laws of the company provided that the .affairs of the company should be under the management and control of the board of directors, consisting of thirteen stockholders, and that the annual meeting for the election of directors should be held at the office of the company, unless some other place should be duly designated, on the third Tuesday of November of each year. On the third. Tuesday of November, 1879, at the regular annual meeting of the stockholders, thirteen directors were chosen for the ensuing year, and Johnson was one of them ; and, at a meeting of the directors held on the same day, he was •elected president of the company.

Due notice was given for the annual .meeting of the stockholders for the third Tuesday of November, 1880; but as all the stockholders were not present, the meeting was without any action adjourned. The company proceeded with the construction of its road until September, 1881, when the further construction thereof was abandoned. Prior to that time the company had not issued •certificates of stock to the subscribers thereof, and on the 21st day of that month Johnson sold and transferred all his stock in the company. Pursuant to notice, on the 15th day of October, 1881, there was a meeting of the stockolders for the election of directors, for the reason that none had been elected' at the previous regular annual meeting, and thirteen directors were elected, Johnson not being one of them; and at a meeting of the directors on that day W. S. Myton was elected president of the company. The next regular annual meeting of the stockholders was held on the third Tuesday of November, 1882, at which a resolution was offered to amend the by-laws so that the board of directors should consist of seven instead of thirteen. On account of the small attendance of stockholders that meeting was adjourned to the 19th day of December, at which time the meeting was held .and the resolution reducing the number of directors to seven was adopted, and then seven directors, of whom Johnson was not one, were chosen for the ensuing year, and they elected E. T. McDonald president of the company. There is no evidence that Johnson ever acted as an officer or agent of the company after September, 1881.

Upon these facts it is utterly impossible to find that Johnson was an officer or agent of the company on the 28th day of July, 1883, when the summons was served upon him. It may be assumed that he continued a director of the .company notwithstanding the sale of his stock until October 15, 1881, when a new board of directors was chosen, of which he was not one. It is provided in § 5 of the act of 1850 that no person shall be a director of a railroad company organized under that act unless he is a stockholder, and so the by-laws of this company provided-that its directors should be stockholders.

After Johnson sold and transferred his stock, therefore, he •ceased to be a director de jure, but if he continued to act and was

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permitted to act as such, he could probably be treated as a director de facto. He could not, however, thereafter be legally chosen a director. By the same section directors once legally chosen would hold their offices until others were chosen in their places. The election of directors on the 15th day of October, 1881, was legal, although it did not take place at a regular annual meeting of the stockholders. That election took place in pursuance of notice, as we must assume, to all the stockholders. Bor aught that appears all the stockholders were present and participated in the election, and none of them, so far as appears, objected to its regularity. Provisions in statutes and by-laws requiring the election of directors to be held on a specified day are regarded as directory, and the election if not held on the regular day may be held at a later day, and the directors then chosen, if there be no other irregularity or infirmity in their title, will be directors de jure. Vandenburgh v. Broadway Railway Co., 29 Hun 348 ; Hughes v. Parker, 20 N. H., 58 ; Nashua Fire Ins. Co. v. Moore, 55 id., 48; Pierce on Railroads, 25, 26. If therefore Johnson was dejure or de facto a director prior to that election, he ceased to be thereafter. But this is not all. In 1882 the regular annual meeting was held, and it was adjourned to December 19th, when the number of directors was reduced to seven, and a board of seven was chosen, and they elected a president of the company and assumed to act and represent the company. The plaintiffs claim that that election was invalid for the reason that the reduction of the number of directors to seven was unauthorized by the statute. It is provided in § 3 of the act, chapter 582 of the Laws of 1864, that “ any railroad company whose main route of road does not exceed fifteen miles may elect seven of its stockholders as a board of directors to manage its affairs at any annual election after the passage of this act.” There was upon the trial no proof of the length of this road except that furnished by the articles of association, as follows: “ The total length of said railroad and its branches, as near as may be estimated, is thirty-five miles.” This ■does show the length of its main route, and that may have been, and in the absence of proof we must assume it to have been, not greater, than fifteen miles. Hence that election appears to have been regular.

Although the further construction of the road was abandoned in September, 1881, the corporation did not thereby cease to exist. If it had vitality enough to be brought into court as a defendant in 1883, it had sufficient vitality for the election of directors at any previous time.

Something is vaguely said in the brief for the plaintiff about fraud, which should prevent the defendants from claiming that Johnson was not a director when he was sefved. But no fraud was alleged in the complaint or proved upon the trial.

It is probably true that the elections of directors of this company after September, 1881, were merely formal, and that the directors had nothing to do, and little or no purpose to serve. But they were nevertheless chosen, and became the directors of the company, and for every legal purpose were to be so regarded.

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We, therefore, see no reason to doubt that the judgment below was right, and it should be affirmed, with costs.

All concur.