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Whitney Arms Co. v. Barlow

38 N.Y. Super. Ct. 554 6 Jones & S. 554 Court N.Y. Super. Ct. Decision date 1875-01-11 English

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p. 554
THE WHITNEY ARMS COMPANY, Plaintiff and Respondent, v. SAMUEL L. M. BARLOW, FRANKLIN W. BROOKS, and EDWARD PARKMAN, Defendants and Appellants.

Headnote

I. REPORTS UNDER SECTION 13 OF THE MANUFACTURING-ACT. LAW OF 1848, CHAP. 40, P. 54.
1. What ihshpeioibht.
1. A report stating “the amount of the capital stoalc of this company, and which has been issued .for the purchase of patent rights, and which has been paid in cash, is three hundred thousand dollars; amount of existing debts, forty-five thousand three hundred and seventy-three dollars and eighty-eight cents, ” is insufficient.
p. 555
Before Mokell, Oh. J., Sedgwick and Speir, JJ.
Decided January 11, 1875.
It does not state the amount of the deposit, nor the proportion thereof actually paid in.
a. Trustees liable under section 12, notwithstanding the filing of such report.
2. Pleading. Averment of default in filing report.
Under an averment that the corporation did not within twenty days from January 1, 1871, nor at anytime during that year, make and publish, nor have they at any time whatever made and published a report, as required by law, &c., and filed the same, an action commenced after January 20, 1873, may be sustained upon a default in filing the report which should have been filed within twenty days after Janua/ry 1, 1873, no report having previously been filed in compliance with the statute.
JI. ULTRA VIRES.
1. When no defense.
1. One who has received benefits from, or fruits of, a contract with a corporation, can not set up the defense of ultra vires until he restores such benefits, or fruits, or their equivalent.
2. Who can not insist on the defense.
1. Trustees.—When the corporation can not insist on the defense, its trustees when proceeded against, under section 12, chapter 40, of Law of 1848,' can not.
3. What does not fall within specified corporate powers.
1. Where the corporate powers are the manufacturing every variety offtre-a/rms and other implements of war applicable to the use of fire-arms and all kinds of machinery adapted to the construction thereof, they do not include a power to manufacture and deliver circular railroad lochs.
The action is brought by a foreign corporation ■created by a private aht of incorporation of the legislature of the State of Connecticut against the defendants as trustees of the American Seal Lock Company, a corporation created under the laws of this State upon the ground of their failure as such trustees to cause to •be filed the' reports required by law under the act for the formation of corporations for manufacturing, &c.,
p. 556
passed February 17, 1848. The averment of failure, as contained in the complaint, was as follows :
“The plaintiff further avers, upon information and. belief, that said last named company, The American Seal Lock Company, did not, within twenty days from January 1, 1871, nor at any time during that year, make and publish, nor have they at any time-whatever since their organization, made and published a report as required by law in such case made and provided, verified by the oath of the president and secretary thereof, and filed the same in the office of the clerk of the county where the business of the company was-carried on, or in the office of the clerk of any county of this State ; nor did said last named corporation make, publish, sign, cause to be verified, and file any such report whatever, until the plaintiff’s cause of action had. arisen, and until after said contract had been made and delivered as aforesaid ; nor has said last named company either made, published, signed, verified, or caused to be verified or filed, any such report as by law required, but wholly failed to do so.”
The contract upon which the action is brought is-dated October 6, 1871. The plaintiff agrees to manufacture for and deliver to The American Seal Lock Company twenty thousand circular railroad locks of the best quality, upon certain conditions specified as to quantity, when and where to be delivered, and finished in a thorough and workmanlike manner, subject to the decision of the United States inspector, and any locks not accepted by him, shall be returned to the Whitney Arms Company, at Whitneyville, Connecticut, they paying the freight and charges both ways.” Some modifications of the contract were mutually made by the parties. It appeared on the trial that no-report whatever was filed until January 19,1872. That on January 19, 1872, a report in the following form was filed:
p. 557
“Annual Report oe the American “Company. Seal Look
(Stamp 5c. ) \ Canceled, f.
“ The amount of the capital stock of this company and which has been issued for the purchase of patent rights, and which has been paid in cash, is $300,000-Amount of existing debts, $45,393 88.
“E. Parkman, “ F. W. Brooks, Trustees.
“ Samuel L. M. Barlow,
“ Presidents
And on January 18, 1873, there was filed a report in the same fofm.
The action was commenced on or subsequent to January 31, 1873. Other facts also appeared which are-noticed in the opinion.
The court directed a verdict for the plaintiff. Judgment having been entered on the verdict, the defendants appealed therefrom.
Barlow, Laroque & Macfarland, attorneys for appellant Barlow, Sol. Hanford, attorney for appellant. Brooks & Parkman, and W. W. Macfarland, of counsel among other things,
urged ;—I. The contract between the plaintiff and the American Seal Lock Company, which is the foundation of this action,, was manifestly ultra vires as to the former company. It is therefore void, and no cause of action can arise out of it (Chitty on Cont., 11 Am. Ed., p. 385, and note ; Brady v. Mayor, 2 Bosw. 173 ; Life and Fire Ins. Co. v. Mechanics’ Fire Ins. Co., 7 Wend. 31 ; People v. Utica Fire Ins. Co., 15 Johns. 358 ;, Sewall v. Allen, 6 Wend. 335 ; DeGroff v. American Linen Thread Co., 21 N. Y. 124 ; McMasters v. Reed, 1 Grant (Pa.) 36 ; N. Y. Firemen Ins. Co. v. Sturges, 2 Cow. 664 ; Same v. Ely, Id. 678 ; Catlin v. Eagle Bank 6 Conn. 233 ; Ocum Co. v. Sprague
p. 558
Manuf. Co., 34 Conn. 552 ; City of New London v. Brainard, 22 Conn. 552 ; Gray v. Hook, 4 Comst. 449 ; Chitty on Cont. 11 Am. Ed., 972). There is a class of 'Cases called sometimes exceptions to the rule now under discussion,—cases where the defendant is held to be estopped from raising the question of authority. It is, however, apparent, upon a little reflection, that they are not exceptions to the rule, and have nothing to do with it. They are all cases where the defendant has, by contracting with the corporation, obtained money, goods, or services, and seeks to avoid payment, on the ground that the transaction was on the part of the corporation ultra vires. Or they are cases where the defendant being a corporation seeks to defraud in like cases, on the ground of its own want of authority in the premises. In these cases, courts do not always -consider the question of authority and the doctrine of ultra vires. The transaction may be ultra vires the corporation, but the law considers it to be a fraud to allege it to be so. The law will not permit that to be alleged which, if true, is against honesty and good faith, and puts its seal on the lips of the defendant, condemning him to silence in respect to the question. He is concluded by an estoppel (Moss v. Rossie Lead Manuf. Co., 5 Hill, 137 ; DeGroff v. Am. Linen Co., 21 N. Y. 126 ; Steam Nav. Co. v. Weed, 17 Barb. 378 ; Sackett’s Harbor Bank v. Lewis Co. Bank, 11 Barb. 213 ). But to bring this rule into operation, there must be privity of contract or estate. Here there is neither. The defendants sustain no relation to the plaintiff. Their liability rests upon the terms of a highly penal statute (Garrison v. Howe, 17 N. Y. 458 ). They are not estopped, therefore, from setting up this defense.
II. Assuming this contract to have been in all respects .a valid contract, still the defendants are not liable because there was no existing debt before or in Jan-
p. 559
nary, 1871, and the. action is predicated solely on the default in filing the report for the year 1871. (1). The plaintiff must have been a creditor of the company at the time of the alleged default—not a creditor in posse, but a creditor in esse. There must have been a “ debt ’ ’ —subsisting—in esse, not in posse, either at the time of the default, or some time during its continuance. In the case at bar, therefore, there must have been a debt subsisting against this company, and in favor of this plaintiff, prior to January 1, 1873. (3). A subsisting debt, according to any, even the largest interpretation, can not mean a subsisting liability, such as an execu tory agreement for the manufacture of commodities. It may mean, in its broadest acceptation, a sum certain, owing presently, but payable in the future. While it is manifest that under any possible construction of the words, “ debts then existing,” the defendant can not be liable, the true construction, it is submitted, is, that at the time of the default there must be a subsisting debt, for the recovery of which an action would lie. This is the natural and ordinary meaning. The statute is a penal statute. The plaintiff takes his remedy strietissimi juris (Merchants’ Bank v. Bliss, 1 Robt. 391). The point made in this second branch of the defense is sustained by Garrison v. Howe ( 17 N. Y. 458 ). In this case there was a contract for the delivery of lumber at a future day. It was held that no debt arose within the meaning of the statute till the delivery of the property.
D. M. Porter, attorney and of counsel for respondent,
urged;—I. The liability of the defendant in this case is in the nature of tort and not of contract (Strong v. Sproul, 4 Daly, 326 ; Andrews v. Murray, 33 Barb. 354 ; Miller v. White, 50 N. Y. 137 ). “It is clear that the liability of the defendant is not imposed as an indemnity, because it has no relation to the actual loss
p. 560
or injury sustained by the party in whose favor the action was-given. It is sufficient that the party prosecuting the actio,n, should be a creditor when the violation of the law takes place” (Merchants’ Bank v. Bliss, 35 N. Y. 412 ).
II. “The trustees of a manufacturing corporation are neither parties nor privies to the original contract, nor to any note or judgment’’"(Miller v. White, supra). “ The defendants are neither principal debtors nor sureties, but are liable for the penalties- prescribed by the statute” (Miller v. White, supra).
III. The defendants are so far disconnected with the state of the original indebtedness that ‘a judgment recovered.in the original cause of action, as against the corporation, is no evidence against the trustees.” The liability of the trustees can only be established upon and by proving the original demand (Miller v. White, supra). And the defendants are liable for the indebtedness existing at the time of the default,' any changes in the state of the original indebtedness to the contrary notwithstanding (Vincent v. Sands, 33 N. Y. Sup’r Ct. R. 511; Deming v. Puleston, Id. 231 ; Miller v. White, supra). In each of these cases notes have been taken, and subsequently passed into judgment. And even .if the trustees had been sureties, as they claim, the renewals having been made at their request, they would still remain liable, notwithstanding the extension (Wright v. Storrs, 6 Bosw. 600 ; Affirmed, 32 N. Y. 691 ).
IV. It is submitted that the papers intended for reports do not meet the requirements of the statute. They do not state the amount of capital, nor the proportion actually paid in, but simply state the amount which had not been paid in, in cash, and the amount issued for patent rights, as required by section 6 of the act, add the report required by section 12 has never bepn made, and consequently leaving the items required
p. 561
by section 12 wholly nnmentioned. There is a distinction between the amount of capital and the amount paid for patent rights, section 6, and the amount of capital, and the proportion actually paid in, section 12 of the laws of 1848. Again the verification to it is imperfect, being upon knowledge and belief only.
XT". It is admitted in the answer that no report was filed until January 19, 1872, and that the contract was made when there was a positive default; but it is submitted that there were, in fact, no reports under section 12, the alleged reports being insufficient and of no ■effect, for the reasons above stated. The defendant’s motion to dismiss the complaint was properly overruled, because, to have decided as requested would have been error. .
VI. It is submitted that the charter of the plaintiff authorizes making these locks, which were intended! for the government to protect supplies during war ; but , even if it did not, the Seal Lock Company having dealt, with the company and received the benefit of the contract, and given notes for the balance due, it and the-trustees are estopped from disputing the right to con-, tract (Steam Navigation Co. v. Weed, 17 Barb. 87 8 ; Mott v. U. S. Trust Co., 19 Id. 568 ; Palmer v. Lawrence, 3 Band. 170).

The American Seal Lock Company was organized in May, 1870, and during that year very little business was transacted. The contract on which the action is based is dated October, 1871, and it is conceded that up to January 19, 1872, no report was made or filed. From the organization of the company, until the action was brought in February, 1873, the defendants were the sole trustees of the corporation.

It appears from the evidence that the locks were not delivered at the several times specified in the contract,

p. 562
but a few were delivered in December, 1871; how many does not appear. The most definite testimony produced ón the subject of deliveries was by Mr. Whitney, the president of the plaintiff’s company, who says: “They were delivered in January, 1872; the majority of the ten thousand was delivered in the month of January, 1872 - pretty much all during the month of January. 1872.”

The plaintiff proved as evidence of indebtedness of the American Seal Lock Company, two promissory notes, one for three thousand four hundred and forty-three dollars and nineteen cents, dated June (I, 1872, three months after date; the other for two thousand four hundred and seventy-nine dollars and thirteen cents, dated May 30, 1872, two months after date.

These were renewals of previous notes dated respectively, January 24, and January 31,1872, given by the Américan Seal Lock Company, in the year 1872, in payment for locks that had been delivered at their respective dates. On the trial the plaintiff offered to return the renewed notes.

It is comparatively of little importance, in the view Í take of the case, to ascertain whether any portion of the locks were delivered in December, 1871, or indeed, whether any of the certificates were verified and filed within the time required by the twelfth section of the statute. It is very plain that the certificates which were filed, do not comply with the requirements of the section.' They do not state the amount of capital, nor the proportion actually paid in. They do state the amount of the existing debts, and that is all.

It has been repeatedly held that the general object of the law was, besides enforcing the duty of making reports for the benefit of all concerned, to enable persons proposing to deal with the corporation to see whether they could safely do so. These certificates

p. 563
would afford no useful information to anybody inquiring as to amount of capital, or thq proportion' actually paid in.

The learned counsel for the appellant, I think, must have taken this view of the case, as he has placed his objections substantially on other grounds. First, that the contract between the two companies, which is the foundation of the action, was ultra vires as to the plaintiff; and second, that at the time of the alleged default, the plaintiff must have been a creditor of the company in esse, and not in posse. In other words, there must have been a debt subsisting, and in favor of this plaintiff prior to January, 1872.

The first objection fairly stated is that the plaintiff agrees to “ manufacture and deliver to the American Seal Lock Company twenty thousand circular railroad locks,”—that the subject-matter under the contract bears no relation whatever to any of the articles which the company is authorized under its charter to make and sell. It is quite apparent, I think, that a body politic and corporate created and organized for the purpose of manufacturing every variety of fire arms and other implements of war applicable to the use of fire-arms, and all kinds of machinery adapted to the construction thereof, and otherwise, can not be construed into a corporate authority to manufacture and deliver circular railroad locks, any more than they could to make and deliver railroads, or railroad cars.

But are the defendants at liberty to discuss with the sovereign power of the State of Connecticut the extent of the plaintiff’s chartered privileges, until they have restored the property, or its value, which they unjustly hold without proper compensation. I)uer, J., says: “A defendant who has contracted with a corporation defacto is never permitted to allege any defect in its organization as affecting its capacity to contract or sue, but all such objections, if valid, are only available on

p. 564
behalf of the sovereign power of the State” (Palmer v. Lawrence, 3 Sand. S. C. R. 170; The Chester Glass Co. v. Dewey, 16 Mass. 102 ). The defendants should not be permitted in law or equity to rescind a contract the fruits of which they retain, and can never be compelled to restore if this doctrine is carried out. It was decided in Moss v. The Rossie Lead Mining Co. ( 5 Hill 137 ) that a corporation can never' avoid its obligation on the ground that it was given for property which the corporation was not authorized to purchase. If the company was bound, I see no reason why the trustees should not also be bound by the contract. But defendant’s counsel say there must be privity of contract or estate to apply the rule of estoppel from setting up this defense,—and the argument is, that the liability resting upon the terms of a penal statute, an estoppel can not arise against the defendants. A little consideration only, is required to see that this penal statute, for such it doubtless is, can have no operation whatever, except as applied to a contract express or implied between parties to it, which is the first condition of privity of contract.. It is, I think, this feature in the transaction which gives to the statute its chief value.

Tne second objection is that the trustees are only liable for debts of the company then, existing. It is claimed that inasmuch as the plaintiff took the notes of the company which did not mature until after the reports were filed, the debt was not subsisting against the defendant’s company in favor of the plaintiff prior to the time of tiling the report; that it was not a sain certain owing presenting but payable in the future. In the case at bar we have already seen that the reports do not meet the requirements of the statute. Even if the proposition of the counsel be sound, it cannot avail, for the notes fell due on or prior to September 10, 1872, and remained unpaid at the time'of the trial when they were tendered to defendants, so that there was on Sep

p. 565
tember 10, 1872, a subsisting debt then due, and which continued to be due at the time of the commencement of this action, which was on or after January 31, 1873, and still continues to be due.

Therefore there was a subsisting debt due at the time of the default in filing the report, which should have been filed within twenty days after January 1, 3873.

The case must be disposed of as though there had never been any reports filed. I fully agree that the statute is penal, and is to be strictly construed, and that the rules of law do not permit us to extend it by construction to cases not fairly within the language. As, however, the debt was actually due when the notes were tendered to the plaintiff when the defendant’s liability attached under the statute, it is not necessary to extend the discussion of the question raised.

The judgment is affirmed, with costs

Monell, Ch. J. and Sedgwick, J. concurred.

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