Whitaker v. Masterton — 8 N.Y. St. Rep. 888

Majority

p. 888

Caleb E. Whitaker, App’lt, v. John M. Masterton, Resp’t.^[1]

(Court of Appeals,

Filed June 28, 1887.)

Headnote

Manufactubino cobpobations—Annual eepobt—Liability of tbustbes—Laws 1848, Chap. 40.

An annual report, which, in giving the amount oí paid in capital, states: that “ all of which has been paid in cash, patent rights, merchandise, machinery, accounts, etc., necessary to the business, and for which stock, to-the amount of the value thereof, has been issued by the company.” Held, to be in form a full compliance with section 12, chap. 40, of the Laws of' 1848. as amended. The section does not require the report to specify how much of the stock was paid for in cash and how much in property.

Appeal from supreme court, general term, first department.

The Imperial Skirt Manufacturing Company, organized under the act of 1848, chap. 40, gave its notes to plaintiff for $13,000, and not paying them plaintiff obtained judgment. The' judgment not being fully paid, plaintiff began this action against defendants as trustees, alleging:

First. That defendants, as such trustees, aid not within, twenty days from January 1. 1878, file the annual report required by the statute, although they did file a report, but that it did not state the proportion of capital paid in, nor the amount of 'stock issued for money and how much for property.

Second. That such report was false in a material representation.

Third. That the defendants, in organizing the corporation, conspired to deceive and defraud the plaintiff.

Geo. V. N. Baldwin, for app'lt; Flamen B. Candler, for resp’t.

The trial judge found that there was no fraud or conspiracy as alleged by the plaintiff in the second and third causes of action, and the findings against the plaintiff' in reference to those causes of action being based upon sufficient evidence, and having been affirmed by the general term, conclude us, and we have no power to review or interfere with them. Our sole duty, therefore, is to determine whether the court below erred in reference to the first cause of action.

It is undisputed that the defendants, as trustees of the corporation, made, filed, and published a report on the eighteenth of January, 1878, which is as follows:

“ Amount of the capital of the company, $50,000; amount, of the capital paid in, $50,000, all of which has been paid in cash, patent rights, merchandise, machinery, accounts, etc., necessary to the business, and for which stock, to the amount of the value thereof, has been issued by the corn

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pany. Amount of the existing debts of the company does-not exceed $38,500.

“ John M Masterton, President.

' R S. Masterton,

“ E. D. Smith,

“ A. Masterton,

“ Majority of the Trustees.”

The contention of the plaintiff is that this report was-wholly inadequate and inoperative, because it did not state the proportion of the capital paid in, and what amount thereof was paid in ca.sh, and what amount in property; and therefore it is claimed that the report did not comply with section 12 of chapter 40 of the Laws of 1848, which, as originally enacted, provided that every corporation organized under that act should annually within twenty days from the first day of January, make, verify, publish, and file a report, stating “the amount of capital, and of the proportion actually paid in, and the amount of its existing debts;” and that, if any corporation should fail so to do, all its trustees should be jointly and severally liable for all its debts then existing, and for all that should be contracted before such report should be made.

As we have repeatedly held, this section is highly penal, and it should be construed like other penal statutes. Its scope should not be enlarged by construction or implication, and the courts should not impose the penalty except in cases where the plain language of the section requires it. Whitney Arms Co. v. Barlow, 63 N. Y., 62 ; Wiles v. Suydam, 64 id., 173 ; Bonnell v. Griswold, 80 id., 138 ; Brackett v. Griswold, 103 id., 425. The report made by the defendants was in form a full compliance with the section referred to. It stated the amount of the capital; that it was all actually paid in; and the amount of the existing debts of the company. That was all that was required to be stated, and the penalty was imposed for an omission to make publish, and file a report containing such matters, The penalty could not be incurred, as we have held, if the report in form complied with the section, unless it was false, in which event liability was imposed by section 15.

The act, chapter 333 of the Laws of 1853, purports to be an act amending the general manufacturing act of 1848, and section 2 of that act provides as follows: “The trustees of such company may purchase mines, manufactories, and other property necessary for their business, and issue stock to the amount of the value thereof in payment therefor; and the stock so issued shall be declared and taken to be full stock, and not liable to any further calls; neither shall the holders thereof be liable for any further payments under the provisions of the tenth section of the said act; but in all statements and reports of the company to be published, this stock

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shall not be stated or reported as being issued for cash paid into the company, but shall be reported in this respect, according to the fact ” This section imposes no penalty for non-compliance with its requirements, and section 12 of the manufacturing act cannot be so incorporated into this section, or this section so incorporated into that, as to make the penalty prescribed by that section applicable to this.

There was no violation of this section in the report which these defendants made. They stated that all of the capital was paid in, some of it in cash, and the balance in the property mentioned; and thus the report was according to the fact. This section does not require the report to specify how much of the stock was paid for in cash, and how much in property. It would be too rigorous to hold that, for a failure to make such specifications, trustees are to be held liable for .all the debts of the corporation. This is made clearer by a reference to the act, chapter 510 of the Laws of 1875, which is an act simply amending section 12 of the act of 1848, by re-enacting the same with amendments; and the section, so far as is material to this case, was not changed. It still requires a report to state only “ the amount of capital, and the proportion actually paid in, and the amount of its existing debts,’’ and for a failure to make such report the trustees are made liable for all the debts of the corporation. If it had been the intention of the law-makers to impose the penalty for non-compliance with the act of 1853, it is to be supposed that such intention would have been embodied in some form in this section as amended. But, with the statute of 1853 before them, they specified in the section as amended precisely what the report should contain, and for what the penalty should be incurred.

There is no good reason for extending the penal provisions ■of section 12, as amended, to cases not plainly within the language used. The capital is required to be paid in cash or property, and stock can be issued only for cash and the .actual value of the property. It, therefore, cannot be very important, in any case, to creditors to be informed by the report of a corporation how much of its capital was paid in cash, and how much in property. The capital of a manu - facturing corporation is not kept in cash, but is invested in property, and it cannot usually be very important to creditors to know whether á corporation upon its organization received property, or whether it received cash which was subsequently invested in property. If property necessary to the business of a corporation is taken at its value, it is frequently better than cash. Such a report as this is sufficient to put creditors upon inquiry. They can see by it that some portion of the capital was paid in cash and some in property, and they can by inquiry ascertain what the truth is. We cannot, therefore, say that the legislature intended to inflict upon trustees of a manufacturing corporation a penalty for not specifying in their report how much of the capital stock

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of the corporation was issued for cash, and how much for property. And, while this point has not been precisely decided in this court, our present views in reference to it receive much countenance from the following decisions: Bonnell v. Griswold, 80 N. Y., 128 , and 89 id., 122; Pier v. Hanmore, 86 id., 95.

We are therefore of opinion that the judgment should be affirmed.

All concur.