Nimmons v. Tappan — 32 N.Y. Super. Ct. 652

Majority

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SAMUEL NIMMONS and Another, Plaintiffs, v. J. NELSON TAPPAN, Defendant.

[Decided December 31, 1870.]

Headnote

The pendency of an action against all the trustees of a mining company, to enforce their liability for falsely certifying that all the capital had been paid in, is no bar to an action against one of such trustees, to enforce his individual liability, for a default of the company to file its annual report.

The recovery of a judgment against such company is conclusive evidence of a debt against the company, and is open to attack by others only for fraud or collusion.

When it is shown that a person had been elected a trustee of a corporation, his acceptance will be presumed.

Corporations are not dissolved by insolvency or non-user. Those are grounds for judicially declaring them dissolved. Dissolutions can be effected only in the manner prescribed by statute.

The liability of a trustee for the omission of a corporation to make an annual report, is in the nature of a penalty, and within the three years’ limitation of action for penalties or forfeitures.

A trustee in office at the time a corporation fails to make its annual report, is liable for all the existing debts of the company, and such as may thereafter be contracted, until the report is filed.

And such liability attaches upon each default of the company, so long as the trustee remains in office. So that although there have been several successive defaults of the company, and the first of which was more than three years before suit brought, but the last was within three years, the action is maintainable upon the last default, and the statute of limitations is not a bar.

A new and original liability is created on each default, and if any of the defaults is within three years, it may be made the foundation of the action; and the creditor is not bound to confine himself to the first default.

Before Monell, McCunn, and Spencer, JJ.

The action was against the defendant, to enforce his joint and several liability as one of the trustees of the Montana Mill Company, a corporation formed under the laws of this State, arising from the omission of such company to file its annual report, pursuant to the provisions of the statute.

The complaint alleged the formation of the company, and the making of their promissory note on the 27th of November, 1865

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for the sum of $5,076.77, payable in sixty days, to the order of Samuel Lawrence, and by him indorsed to the plaintiffs. The complaint then alleged the recovery of a judgment upon the note against the company, and the return of an execution unsatisfied. It further alleged, and was also admitted on the trial, that at the time the note was made, and ever since, the defendant was and has been a trustee of the company. It then alleged that the company did not, within twenty days from the first day of January, 1866, nor within twenty days from the first day of January, 1867, make and publish, nor have they at any time since made and published the report required by law. And the plaintiffs demanded judgment for the amount of the note.

The defendant, in his answer, alleged that at the time of commencing this action another action was pending between the same parties, and for the same cause of action, and was still pending. He further alleged that the cause of action stated in the complaint did not accrue within three years before the commencement of the action. He further alleged that he had ceased to be a trustee on or about the first of September, 1866. That since the last-mentioned day the company has been insolvent, and had ceased to do business. This action was commenced on the tenth day of January, 1870.

The action was tried before Hr. Justice Jones and a jury.

The plaintiffs produced the by-laws of the company, which provided for the election of five trustees at an annual meeting on the first Tuesday in April in each year. They then introduced the minutes of the company, showing that at the annual meeting on the first Tuesday in April, 1866, five trustees of the company, of which the defendant was one, were elected for the ensuing year. ;

They then proved that no report of the company had ever been filed.

Evidence was given tending to show the insolvency of the company at all times since the making of the note, and that it had from that time ceased to do business..

The defendant proved the pleadings in the suit alleged to be

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pending, which was an action in favor of these plaintiffs against all of the trustees to enforce their joint liability for falsely making a certificate that all the capital had been paid in, which action it was admitted was commenced before this action, and was still pending.

At the close of the evidence a motion was made to dismiss the complaint on the following grounds:

1. That there was another action pending in this court for the same cause of action, brought by the same plaintiffs against this defendant.

2. That this action was barred by the statute of limitations.

3. That the authority of the treasurer to make the note in the complaint averred had not been proved.

4. That there was no proof that the defendant had ever accepted the office of trustee under the election of April 10, 1866.

5. That as to its creditors, said company was dissolved before January 1,1867.

6. That the defendant ceased to be a trustee of the company before January 1,1867.

The court denied the motion, and refused to dismiss the complaint, to which the defendant excepted.

The jury were instructed by the court to render a verdict for the plaintiffs for the amount claimed.

To which direction the defendant excepted.

The court ordered the exceptions to be heard in the first instance at the General Term, and the judgment in the mean time to be suspended.

Mr. Everett P. Wheeler for defendant.

This action is brought to recover a penalty from the defendant for his failure to file the certificate required by section 12 of the general manufacturing act.

It must be brought within three years from the time the cause of action accrued.

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Both the points were expressly adjudicated in McHarg v. Eastman (7 Robertson, 137), Bird v. Hayden (2 Abb. Pr., N. S., 61), Merchants’ Bank v. Bliss (1 Robertson, 391), affirmed by Court of Appeals ( 35 N. Y., 412 ).

No certificate was filed in 1866. The plaintiffs’ debt became due January 27,1866. The very next day their cause of action accrued against the defendant. They were not required to wait for judgment and execution against the company, but could sue at once (McHarg v. Eastman, 7 Robertson, 137).

The statute then barred their action, January 28, 1869. And even if the cause of action was held to accrue when they recovered judgment against the company, and execution thereon was returned unsatisfied, it was barred three years from June 13, 1866.

The plaintiffs claim that a new cause of action accrues to them January 20,1867.

There is no proof in the case that the defendant was trustee at that time. The only evidence on the subject is the admission by both parties that he was trustee from November 27,1865, to September 1,1866. That limits the inference that might otherwise be drawn from the fact of his election in April, 1866.

But no one was bound to file any certificate for the Montana Mill Company in 1867. The statute does not apply to insolvent corporations whose property has all been sold on execution, and who have ceased to do business. There is nothing to certify. The act requires that the certificate shall be filed “ where the business of said company is carried on ” (Laws of 1848, ch. 40, §12; 3 Edmond’s Stat., 735). If the business has ceased, there is no place where the certificate can be filed.

The company, as to its creditors, was dissolved by its insolvency—its loss of all its property, and its ceasing to do business. It had, and could have, no further existence, not even for the purpose of winding up its affairs, because there were no assets (Briggs v. Penniman, 8 Cowen, 387; Slee v. Bloom, 19 Johns., 456 ).

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Mr. Albert Stickney for plaintiffs.

The only two objections taken to the admission of the note in evidence were that the corporate existence of the company had not been shown; that the authority of the treasurer to make the note on behalf of the company was not proved.

The incorporation was proved by the certificate of incorporation.

The authority of the treasurer and the point that the note was the note of the Montana Mill Company, were shown by the judgment roll in the action by these plaintiffs against the company.

In that action the company admitted that the note was made by the company for goods sold and delivered to the company.

The judgment roll was properly admitted.

No charge was made of any fraud. No evidence was offered to impeach it in any manner (Belmont v. Coleman, 1 Bosw., 188 ; affirmed, 21 N. Y., 96 ; Squires v. Brown, 22 How., 35 ; Moss v. Oakley, 2 Hill, 265 ; Dayton v. Borst, 7 Bosw., 115 ; Hoagland v. Bell, 36 Barb., 57 ).

The defendant admits that he was a trustee from the making of the note, 27th November, 1865, to 1st September, 1866.

The term for which he was elected was one year from 10th April, 1866.

H, as the defendant admits, he was a trustee on 1st September, 1866, he was such trustee only by virtue of his election.

He had then accepted this term of one year, and was such trustee certainly as late as 10th April, 1867.

The fact that no report was filed in 1867 is not disputed.

This makes a default if the company then had an existence.

If the company, in January, 1867, had an existence, and there was a default, the trustees were, in the language of the statute, “jointly and severally liable for all the debts of the company then existing.”

Was not this note then an existing debt of the company?

If so, the defendant was then liable for this note and interest then accrued.

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The statute provides fully for the proceedings for the dissolution of corporations in certain cases (2 R. S., 463).

One of the causes is insolvency, continued for more than a year. And in that case the statute provides for regular proceedings in the Supreme Court.

The defense claims a dissolution without proceedings of any kind.

When was this dissolution ?

The defendant admits that he was a trustee till 1st September, 1866.

The dissolution claimed by him took place in the spring of 1866, when the business was discontinued and the company became insolvent.

Of what was he a trustee in September ?

The cause of action accrued on the 21st January, 1867, and the action being brought on the 10th January, 1870, is within the-three years.

The statute fixes a penalty for not filing a report. The trustees and corporators have great privileges. They have the chance-of large profits, and avoid all personal liability so long as they obey the statute.

They can protect themselves and their creditors.

If the corporation is losing money, and they wish to discontinue the business, the statute provides the proper way for them to end it, and distribute its property equally among the creditors.

If they continue its business, they can warn creditors of its condition by filing the report.

In either way the plaintiffs would have been protected. In the one they would have been warned of the company’s condition, and would not have given credit. In the other they would have had, on the dissolution, their share of the property.

The defendant, by raising the point of the statute of limitations, expressly places himself on the position that this is a penalty and not an original liability. Otherwise the time is six years, and not three.

The penalty is utterly distinct from the debt. It is a penalty

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for a default, and accrues when the default takes place, and not sooner.

“ The liability of the defendant does not arise from any act connected with the creation of the debt to the plaintiff ” (Merchants’ Bank v. Bliss, 13 Abb., 237 ).

“ Besides these considerations, the period of limitations is made to run from the time the cause of action accrued, not from the time the debt was incurred ” ( 35 N. Y., 412 ).

The cause of action in the other suit was for a different penalty, arising entirely from a distinct violation of the statute.

The basis of computation alone is the same.

Of course, whenever the plaintiffs’ claim is paid from any source, it cannot be again collected.

By the Court:

The objections to a recovery in this action may be disposed of nearly in the order they were stated.

First.—The pending of another action against this and other defendants, as trustees, to enforce their joint liability under the statute for falsely making, as was alleged, a certificate that all the capital of the company had been paid in, was not a defense io this action. The liability which was sought to be enforced in .the other action was for a different cause, and to recover a different penalty.

Second.—The authority of the treasurer of the company to make the note on its behalf was, I think, sufficiently established. The judgment-roll, in the action against the company, which was given in evidence for the purpose of establishing the making of .the note and the authority of the treasurer, was conclusive upon .the company, and was open to attack by the defendant only for fraud or collusion (Horry v. Ten Broeck, 3 Robt., 319, and cases there cited).

Third.—The proof was also prima facie sufficient that the -defendant had accepted the office of trustee under the election of April., 1866. Indeed it was, I think, substantially admitted by -him in ¡his answer. Besides, it was sufficient to show his election,

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and it then lay with him to show his non-acceptance of the office.

Fourth.—The two objections, that as to creditors of the company the company was dissolved, and that the defendant ceased to be a trustee previous to the first of January, 1867, were put upon the ground that the company had, prior to that time, become insolvent, and had ceased to do business. It was admitted that no meeting of the company, or of its stockholders or trustees, had been held or business transacted since April, 1866, at which time the company became insolvent.

The objections, however, were untenable. Corporations are not dissolved either by insolvency or by non-user. These are grounds for judicially declaring a corporation dissolved, but do not operate to create a dissolution. That can be effected only in the mode prescribed by statute (2 R. S., 466; N. Y. Marbled Iron Works v. Smith, 4 Duer, 362 ). So long, therefore, as the term of office of the defendant continued, he remained a trustee, notwithstanding the insolvency and non-user of the company. He was elected a trustee in April, 1866, for the ensuing year, and was therefore in office diming January, 1867.

But the principal objection relied upon by the defendant arises upon the defense of the statute of limitations. It was claimed that more than three years had elapsed, after the cause of action had accrued, before the commencement of the action.

The statute (Laws of 1848, chap. 40, p. 54, § 12) requires that corporations formed under it shall annually, within twenty days from the first day of January, make and publish a report of their financial condition; and, upon failure to do so, all the trustees “shall be jointly and severally liable for all the debts of the company then existing,” etc.

The statute has uniformly been held to create a liability, which is in the nature of a penalty, and therefore within the limitations of actions for penalties and forfeitures (Code, § 92, sub. 2; Bird v. Hayden, 1 Robt., 382; McHarg v. Eastman, 7 id., 137; Merchants’ Bank v. Bliss, 35 N. Y. R., 412).

• It is conceded that the defendant, being" a trustee at the time

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the company failed to make its report within the first twenty days in January, 1866, was liable upon that default, and could immediately thereupon have been prosecuted for the existing debts of the company. And it must be conceded that if thereafter, and before another default of the company had occurred, the defendant had ceased to be a trustee, his liability would have been confined to such previous default. So that it is quite clear that, as respects the liability of the defendant for the omission of the company which happened in January, 1866, the statute began to run at that time, and is a complete bar as to that liability.

But it appears that the,defendant continued in office, and was a trustee in and during January of the succeeding year, when another default of the company occurred; and it is claimed that, as respects the cause of action in this suit, the statute began to run only from that time.

Whether that is so depends upon whether there can be several and separate liabilities created by several and separate defaults of the company.

I think the proper construction of the statute is, that for each default of the company the trustees in office at the time are re sponsible to the creditors, and that such responsibility is not confined to a single default, or to one or more defaults, but for every time the company fails to comply with the statute the trustees then in office become liable for all existing debts. And, although the defendant was a trustee in January, 1866, and became liable to the plaintiff at that time, nevertheless he became again and freshly liable in the January of the succeeding year, and a creditor of the company could elect upon which default he would proceed. The creating of a new liability each year that a default is made does not deprive the creditor of the right to seize upon the penalty at any time. The statute declares, that upon a failure to make an “annual” report the liability shall arise for all debts then existing. So that the penalty for any failure is the existing debts of the company. When the company failed to discharge its duty in January, 1866, the defendant

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became liable for the penalty which was then imposed. But for that penalty this action doubtless was barred by the statute. But in January, 1867, the. company again failed to discharge its duty, and the defendant, as one of its trustees, again became liable for the penalty, namely, for all debts then existing, and among them this debt due to the plaintiffs. If it could be said that, because there was a right of action against the defendant in January, 1866, he could not be held responsible for the company’s default in the succeeding year, then this action would be barred. But it cannot be pretended that a mere previous liability would screen the defendant from the consequences of a subsequent default of the company. On the contrary, a new and fresh liability was created on each successive failure of the company, and the statute would begin to run only from the last default. The action, therefore, was very properly founded upon the company’s default in January, 1867, and the statute commenced running only from that time.

This new or original liability, created by each successive default, is fully recognized in Boughton v. Otis (21 N. Y. R., 261). The company, in that case, had failed to make its annual report in January, 1857, but the defendant was not made a trustee until the subsequent March, and the court held, that only such trustees as were in office when the default occurred were liable for existing debts. In the course of the opinion Judge Comstock says:

“A single case may occur where successive boards may be liable for the same debts, and that is where there are successive defaults in January. By the express terms of the statute, the trustees, omitting to file their statement within the first twenty days of that month, are liable for all debts then existing. Now, the debts then existing may be, wholly or partly, the very debts for which their predecessors became liable by reason of a previous default in the January of the preceding year. But from this simple liability there is a chance of escape by a simple performance of the duty required.”

And in Shaler and Hall Quarry Co. v. Bliss (27 N. Y. R., 297),

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the court says three things must concur, in point of time, to render a trustee liable, viz., the existence of the debt, a default in making the report, and the trusteeship. Where these concur the trustee is liable for all debts, “ if he was such trustee when the default occurred.”

Upon our construction of the statute, therefore, there was no error in overruling the defense.

The exceptions must also be overruled, and judgment ordered for the plaintiff on the verdict, with costs.