Hyperlawhypertext legal database Deming v. Puleston 33 N.Y. Super. Ct. 231

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Deming v. Puleston

33 N.Y. Super. Ct. 231 1 Jones & S. 231 Court N.Y. Super. Ct. Decision date 1871-04-01 English

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GEORGE K. DEMING, Plaintiff and Respondent, v. JOHN H. PULESTON, Defendant and Appellant.

Headnote

One stockholder in a corporation created under the general manufacturing act of this State, cannot, at law, enforce the liability of another stockholder of the same corporation, under any of the provisions of the act (Bailey ®. Bancker, 3 Bill, 188; Richardson ®. Abendroth, 43 Barb. 163 ; Beers ®. Waterbury, 8 Bosw. 396 ). Such liability can be reached only by an action in equity against all the stockholders, for contribution.
Section 3 of this act provides for the annual election of the trustees and section 4 has a further provision that declares if an election be not made, all acts of trustees shall be valid and binding as against the company until their successors shall be elected.
Beld, that section 4 continues trustees in their office after the expiration of their terms, and until their successors are elected, so far at least as to make their acts binding upon the company, and may, therefore, be regarded as a continuance in office, so as to render the
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incumbent liable as a trustee, if, after thq expiration of the term for which he was elected, he continues to act; but if, at the expiration of his term, the trustee retires from the company, and after-wards performs no official act, and assumes no official authority, he cannot be held liable as trustee under the provisions of the act.
If he acts, however, as trustee after the term of his office has expired, he will be held to a faithful discharge of all the duties of the office of trustee, and responsible for any failure to perform them.
A person whose term as trustee had expired, was afterwards present at a meeting of the trustees of the company, but it did not appear that he had done any official act before that time, or that he acted as trustee at that meeting. Held, that the fact of his mere presence at the meeting was insufficient to charge him as trustee. It did not establish or prove any official act, and upon this evidence the defendant had a right to have the jury instructed “ that if there was no evidence that the defendant was acting as trustee, the defendant could not recover.”
In case of a liability of the trustees for certain debts of the company, it is immaterial whether said debts exist in simple contract, or that the contract has been merged in a note or judgment. It is, nevertheless, an existing debt in either form.
Before Monell, Jones and Freedman, JJ.
Decided April 1, 1871.
Appeal from a judgment.
The plaintiff alleged, that he was employed to superintend the operations of the “Hocking Valley Oil and Coal Company,” a corporation organized under the general manufacturing act of this State, at a salary of one hundred and twenty-five dollars for the first month, and one hundred and fifty dollars per month afterwards. That he continued in their employment for one year and eight days, when there was found to be due to him the sum of one thousand and four dollars and twenty-eight cents, for which the company gave to the plaintiff their promissory notes. The notes not being paid at maturity, the plaintiff obtained judgment against the company for the amount.
The defendant was a trustee and stoelcholder of the
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company, and the plaintiff sought to charge the defendant for the debt of the company, on three several grounds, namely:—First, as a stockholder, that no certificate that the capital stock had been paid in, had been filed; and, Second, that the indebtedness of the company was for services. Third, as trustee, that the company had never filed an annual report.
It appeared on the trial that the company was incorporated November 21, 1864. In the certificate of formation, it was provided that the number of trustees who should manage the concerns of the compan y, for the first year,” should be five, and the defendant is named as one of the five.
The plaintiff continued in the employment of the company until May 8, 1866. One of the company’s notes given to the plaintiff, bears date April 1, 1866, and was payable in thirty days. The other bore date June 28, 1866, and was payable one day after date.
No certificate of the paying in of the capital stock of the company, had ever been filed; nor had the company, at any time, filed any annual report; nor was there any proof that there had or had not been, at any time after the formation of the company, any election of trustees.
It was proved that the plaintiff was also a stockholder of the company.
There was some evidence which it was claimed tended to show that the defendant had acted as trustee down to the time the notes were given.
That evidence was, that the defendant was present when the settlement was made with, and the notes given to, the plaintiff, and took part in the meeting. The only evidence in respect to the nature of the services, was as follows:—
The plaintiff, who was examined on his own behalf, was asked if he had been employed by the company, and he answered:
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I was. I was employed by Mr. Puleston the defendant and Dr. King, in the Spring of 1865, the first of May. Mr. Puleston did not tell me he was secretary of the company at that time. I was there to oversee the work and to develop their property in forcing wells. That was my business there, to endeavor to obtain oil.
Q. Did you bore wells ? A. Yes, sir. I was one of a gang that undertook to bore.
Q. State what you did ?
A. I was one that helped to put down wells. I sharpened the tools, and did any kind of work that was done, a portion of it.
Q. When did you commence to work for the company ?
A. I commenced the first day of May, 1865.
Q. What was said to you in respect to working before you went there, at the time you were employed ?
A. There was considerable said.
Q. State what was said by Mr. Puleston ?
A. Mr. Puleston gave me a history of the work and the way it had been conducted.
Defendant’s counsel moved to dismiss the complaint on the grounds:
First. This action being brought against the defendant as a stockholder, the plaintiff cannot recover, it being in evidence that he is himself a stockholder in the company.
Second. The plaintiff cannot recover against the defendant as trustee, because he has not proved that at the time of the creation of the debt the defendant was a trustee.
Third. This action cannot be maintained to charge the defendant upon his individual liability as stockholder upon the ground of service rendered to the corporation, because the services of a superintendent are not such services as are contemplated by the statute.
Fourth. The plaintiff having recovered against the
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company a judgment which, upon its face, shows simply a debt of the company upon promissory notes, cannot, upon the evidence furnished by such judgment, maintain an action against the defendant to charge him upon his individual liability as stockholder for services rendered to the company.
The motion was denied, and the defendant excepted.
The defendant asked the court to charge the jury, that if they found, that after the making of the note, and at the time of its maturity, there was no evidence to show that the defendant was acting as trustee, the plaintiff could not recover.
The request was refused, and the defendant excepted.
The court directed a verdict for the amount claimed.
The defendant appealed.
Mr. H. S. Bennett, for appellant, defendant.
Mr. W. B. Putney, for respondent, plaintiff.

It appears to be quite well settled, that one stockholder in a corporation, created under the general incorporating act of this State, cannot, at law, enforce the liability of another stockholder of the same corporation, under any of the provisions of the act (Bailey v. Bancker, 3 Hill, 188 ; Richardson v. Abendroth, 43 Barb. 162 ; Beers v. Waterbury, 8 Bosw. 396 ). It seems, that such liability can be reached only in equity, by an action against all the stockholders for contribution.

The first objection taken upon the motion to dismiss tne complaint is, therefore, fatal to a recovery against the defendant as a stockholder. But he is also sought to be made liable as a trustee, by reason of the default of the company to file an annual report pursuant to

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section 12 of the act (Laws of 1848, p. 54) which provides that for such omission, the trustees shall be jointly and severally liable, for all the debts of the company then existing, and such as shall be contracted before such report shall be made.

The company never, at any time, made or filed a report, and if the defendant was a trustee at any time when the company made default, he became liable for the debts of the company existing at the time of such default, and for such as were afterwards contracted.

The incorporating act provides (§ 3) that, except for the first year, the trustees shall be annually elected, at such time as shall be directed by the by-laws of the company; and there is a further provision (§ 4) that if an election be not made, “all acts of trustees shall be valid and binding as against the company, until their successors shall be elected.”

The defendant was named as a trustee for the first year, which expired November 21, 1865, It does not appear that there was either an election or a failure to elect after that. The by-laws, if there were any, are not before us.

It was the duty of the company, I think, to make and file a report, as required by section 12 of the act, within the first twenty days of January, 1865. The language of that section is, that the company shall annually, within twenty days from the first day of January, make a report. The meaning of which is, that every company shall, in each year, within the first twenty days of every January, after the company is formed, make a report; and the prescribed period has no reference to the time the company comes into existence.

For the omission of the company to make its report in January, 1865, the defendant, as a trustee, at that time in office, became liable for the debts of the com

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pany then existing, and such as might thereafter be contracted so long he remained a trustee.

The plaintiff’s debt was not contracted until May, 1865, and, I think, for any part of it which fell due previous to November 21, of that year, if it was unpaid, the defendant would be liable. It was, to that extent, a debt contracted after the company’s default, and while the defendant was a trustee.

No report of the company was filed in January, 1866. For that default the defendant would be liable, if he continued a trustee, as well for the existing as the afterwards contracted debts.

The official term of a trustee, of a manufacturing or mining corporation, is one year, and, except for the provision in section 4 of the act, he became functus officio, after that time. There is no common law right of holding over (People v. Tieman, 8 Abb. Pr. 359 ). That section impliedly continues trustees in office after the expiration of their terms and until their successors are elected, so far, at least, as to render their acts valid and binding, as against the company. And it may, therefore, be regarded as a continuance in office so as to render the incumbent liable as trustee, if, after the expiration of his term, Tie continues to act.

I am not prepared to go to the extent, that, upon >a failure to elect a successor, a trustee, who merely has the right to hold over, but who does not act, can be charged as a trustee, for any default of the cbmpany. Being elected for a year, if at the éxpiration of that time, he retires from the company, performs thereafter no official act, and assumes no official authority, I do not think he can be held under any of the provisions of the incorporating act. If, however, he continues to act in his official capacity, after his term of office has expired, the law will regard him as a trustee for all purposes of liability under the act. Having the right

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to act., if he assumes and continues to act, he will be held to a faithful discharge of all the duties of his office, and will be responsible for any failure to perform them.

There was evidence that the defendant was present and took part at the meeting when the notes -were given. It does not appear what he did, or whether he was acting as a trustee. There was no proof that at any previous time he had done any official act.

This evidence does not seem to me sufficient to charge the defendant as trustee. It does not prove any official act, and it would not have been error if, on that ground, the motion for a nonsuit had prevailed.

But the defendant had a right to have the jury instructed as he requested, that if there was no evidence that the defendant was acting as trustee, the plaintiff could not recover. That was equivalent to asking to have the question of the sufficiency of the proof, passed upon by the jury, and the request should have been granted.

The liability of a trustee under the statute, is in the nature of a penalty (Bird v. Hayden, 1 Robt. 383), to the extent of the existing debts of the company. Whenever, therefore, the trustees become liable, by reason of the failure of the' company to comply with the statute, it is for such debts of the company as then exist. And it is immaterial whether such debts exist in simple contract, or that»the contract has been merged in a judgment. It is, nevertheless, an existing debt for which the trustees are liable.

The view taken in this case renders it unnecessary to examine any of the other questions presented by the defendant’s exceptions.

The burden in this case rests on the plaintiff. Proof of once a trustee is not- sufficient. Any default of the company happening after the expiration of the term of office of a trustee, cannot be charged upon him, except

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by proof of Ms continuance in office by Ms afterwards assuming to act and acting as a trustee.

The judgment must be reversed and a new trial ordered, with costs to appellant to abide the event.

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