Case ID: ny-super-ct_30/html/0137-01.html
Source: Caselaw Access Project
Author: {"author": "\n      By the Court, Monell, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Rufus K. McHarg, plaintiff and respondent, vs. Albert L. Eastman, defendant and appellant.
    1. An error, in a reference in a complaint, to the section of a statute under which an action is brought, and plainly a mistake of the draftsman or copyist of the pleading, may be disregarded as clerical.
    2. A public statute need not be recited, or- even referred to, in a pleading. It is sufficient if the case is brought within it.
    3. A reference, in a complaint, to one section of a public statute, instead of another, is mere surplusage, and the error will be disregarded; more especially where all question as to the section intended, is removed by a subsequent averment in the complaint, that the defendant has failed to perform a specified duty, as required by “ said law,” which is one mentioned in the latter section of the statute only.
    4. The liability imposed by the general manufacturing law upon trustees of manufacturing companies, for neglecting to file an annual report, is in the nature of a penalty for misconduct in office, and the amount of the penalty imposed is debts, during such neglect, contracted by the corporation.
    6. Although, the recovery of a judgment against á manufacturing corporation, in such case, extinguishes the debt as to it, such recovery does not affect the liability of a trustee, for the prescribed penalty. A judgment continues a debt; and although it extinguishes the simple contract debt as regards the company, and merges it in the debt of a higher order thus created, it does not expressly or by implication, discharge the liability of the trustee. It may operate as a bar to another action against the corporation, but it lays no foundation for an action against a trustee. Such latter action is not for the recovery of the debt, but to recover a penalty, the measure of the extent of which is regulated by the debt. ,
    6. While the statute does not require a judgment to be obtained against such corporation, as a condition precedent to charging a trustee, which is required in order to fix the liability of stockholders, in certain cases, it does not make the recovery of such a judgment a discharge of such trustee. The liability, of the corporation is for a debt contracted by it, but the judgment is neither evidence of such debt, nor is the amount of it the measure of damages against a trustee.
    7. No trustees can be made liable for the default or misconduct of their predecessors or successors in office. They are only liable for their own, and the action to recover any penalty incurred by them for such misconduct, must be brought within three years after the cause of action shall have accrued. Hence it must appear that the penalty was incurred while they were in office.
    8. The debt, therefore, must exist at the time of the default, arid be contracted by the corporation, while the trustees sought to be made liable are in office. The statute has reference to such debts, and no others.
    9. The “ debt ” mentioned in the statute, for which a -trustee may become liable, is only the original debt contracted by the corporation; not the judgment which the creditor may have recovered thereon against the corporation. The recovery of such judgment is, therefore, wholly useless in enabling a creditor of the corporation to maintain an action against a trustee thereof.
    10. A complaint, in such an action, which does not aver that the debt was-existing at the time the default was made by the trustees, or show that it was contracted afterwards, is defective.
    11. A complaint is also defective which merely alleges the recovery of a judgment and the return of an execution thereon unsatisfied, without alleging the judgment, or the debt against the corporation to be unpaid, or that it was unpaid when the trustees failed to make the report required by the - statute, within the time therein specified. An averment that both the judgment and the debt have been assigned to the plaintiff, and that “there-is now due to the plaintiff from the defendant ” a certain specified sum, without saying whether such amount is due upon the judgment, or for the debt, or upon the defendant’s liability as a trustee, or otherwise, is insufficient.
    12. Although the president of a corporation must be chosen from the trustees, and therefore necessarily a trustee, yet he must be sued as trustee, and not as president. Hence a complaint which does not ayer the defendant was a trustee, at the time of the default, but merely that he has at all times been president of the corporation, is defective.
    (Before Monell, Garvin and McCunn, JJ.)
    Heard February 11, 1867;
    decided April —, 1867.
    This was an appeal from an order overruling a demurrer" to the complaint.
    The complaint alleged that the defendant was one of the trustees of the “Washington Medallion Pen Company,” organized under the general incorporating act of this state. That the certificate of incorporation was filed February 10, 1857. That said company purchased machinery and gave their promissory note for the price thereof; upon which note an action was brought against the company, judgment recovered, and an execution thereon returned unsatisfied. That the said debt and judgment were afterwards duly assigned to the plaintiff. That said company had not annually, within twenty days from the first day of January of any year since its organization, made and published a report as required by the eleventh section of the said act. That the business of the company was carried on in the city of blew York. The complaint demanded judgment for the amount of the judgment against the company, with interest.
    The defendant demurred to the complaint because it did not state facts sufficient to constitute a cause of action. The demurrer was overruled, and the defendant appealed.
    
      Mr. Fuller, for the appellant.
    
      Mr. Sawyer, for the respondent.
   By the Court, Monell, J.

The reference in the complaint to the “ eleventh ” section of the general manufacturing law, instead of the twelfth, which prescribes the duties of corporations in respect to making annual reports, was apparently a mere error of the draftsman or copyist of the pleading. It is wholly immaterial. Public statutes need not be recited, or even referred to, in a pleading. It is sufficient, if the case is brought within the statute. (Bayard v. Smith, 17 Wend. 88. Cole v. Jessup, 10 How. Pr. 524.) In pleading a private statute, or a right derived therefrom, it is sufficient to refer to such statute by its title, &c. (Code, § 163.) The reference, therefore, to the eleventh section was mere surplusage, and the error must he disregarded; more especially, as all question is removed by a subsequent averment in the complaint, that such company has not published and filed any such report as is required by “ said law.”

The liability imposed by the act upon trustees of manufacturing companies for neglecting to file an annual report, is in the nature of a penalty for misconduct in office. (Bird v. Hayden, 2 Abb. Pr. N. S. 61.) The penalty imposed is the debt contracted by the corporation. Although the recovery of a judgment against the corporation extinguishes the debt" as to it, I do not think that such recovery affects the penal liability of a trustee. A judgment is a debt, and the extinguishment of a simple contract debt, and its merger into the higher debt, does not in terms, nor by implication, discharge the liability of a trustee. It may operate as a bar to another action against the corporation, but it lays no foundation for an action against a trustee. Such latter action is not for the recovery of the debt, but to recover a penalty, the measure of which is regulated by the debt.

While the statute does not require a judgment against the corporation, as preliminary to charging a trustee, as is required to fix the liability of stockholders, in certain cases, it does not forbid such a judgment. The liability is for a debt contracted by the corporation, but the judgment is not evidence of such debt, nor is the amount of the judgment, the measure of damages against a trustee. Trustees are only liable for their own default or misconduct, and not for the default or misconduct of their .predecessors or successors in office. (Boughton v. Otis, 21 N. Y. Rep. 261. Shaler v. Hall Quarry Company, 27 id. 297.) Hence, it must appear that the penalty was incurred while they held office. So, an action to recover such a penalty must be brought within three years after the cause of action shall have accrued. (Code, § 92, sub. 2. Merchants’ Bank v. Bliss, 13 Abb. Pr. 225. S. C. 21 How. Pr. 365.) The debt, therefore, must exist at the time of the default, and be contracted by the corporation while the trustees sought to be made liable are in office; and the statute has reference to such debts and no others. (Boughton v. Otis, supra.) A different construction would render the three years limitation nugatory. A creditor could delay suing the corporation upon its contract until the day immediately before that on which the statute of limitations would attach, then, having obtained his judgment, wait nearly three years longer before attempting to charge the trustees, and. then claim the judgment to be the debt, and that the statute began to run only from its recovery.

Upon the construction I have given the statute, the . “ debt ” for which the trustee may become liable, is the original debt contracted by the corporation; not the judgment which the creditor may have recovered against the corporation. The recovery of such judgment was therefore, unnecessary; and the allegations in the complaint in respect to it entirely immaterial. It did not extinguish the debt, in the sense that the trustee would not be liable for his default; nor does it become any material fact, in the statement of the plaintiff’s cause of action.

But the complaint is defective, I think, in not averring that the debt was existing at the time the default was made, or was contracted afterwards. The debt was contracted in April, 1863. For such debt, the trustees in office at the time, became liable by omitting to file a report within twenty days from the first of January, 1864. The complaint does not allege that such debt existed at the time default was made by the trustees. The judgment was recovered in October 1863, and it is alleged that an execution was at the same time issued, which has been returned unsatisfied. It is not alleged that the judgment or the debt against the corporation is unpaid, or that it was unpaid when the trustees failed to make their report; the only, averment being, that the judgment and the debt have been assigned to the plaintiff and “ there is now due to the plaintiff from 'the defendant a certain sum ($399.04.) ” Whether such amount is due upon the judgment, or for the debt, or upon the defendant’s liability as a trustee, or otherwise, does not appear. This criticism of the complaint is justified by Chambers v. Lewis, (28 N. Y. Rep. 454.)

Again, the statute makes the trustees liable; but it is not averred in the complaint, that the defendant was a trustee at the time of default, unless the allegation, that he has at all times been president of the corporation, is to be regarded as sufficient. The president, it is true, must be selected from the trustees, and is necessarily a trustee; but, I think, he must be sued as trustee and not as president.

For the reasons assigned, I am of opinion, that the facts • stated in the complaint are not sufficient to constitute a cause of action, and therefore the demurrer should have been sustained.

The order overruling the demurrer must be reversed, and judgment .rendered for the defendant thereon, with costs; with leave to the plaintiff to amend his complaint, on payment of such costs.

hfo costs to either party on the appeal.