Case ID: ad_52/html/0135-01.html
Source: Caselaw Access Project
Author: {"author": "Williams, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Union Bank, Buffalo, N. Y., Respondent, v. John R. Keim, Appellant.
    
      Failure of the directors of a corporation to file an annual report — liability of one who became a director after January — allegation that the corporation was not a moneyed or railroad corporation — evidence of acceptance of the office of director.
    
    A director of a business corporation, elected April 3, 1896, who never resigned and made no attempt to protect himself from the liability imposed upon the directors of other than moneyed' or railroad corporations by section .30 of the Stock Corporation Law (Laws of 1892, chap. 638) by filing .the certificate and report permitted by. that section, is liable for a debt contracted by the corporation May 20, 1896, where it failed to file its annual report in January of that year. . '
    An allegation in the complaint in an action brought to enforce such liability, that the corporation was a domestic business corporation, considered in connection with section 2 of the General Corporation Law, which divides stock corpora- ■ tians into moneyed, transportation .or business corporations, is sufficient to show that the corporation was not á moneyed or a railroad corporation.
    An averment of the answer in such action that the defendant attended a meeting . of the board of directors on or about the 18th day of April, 1896, but that upon subsequently learning that, the representations made to induce him to attend such meeting were false he refused to further act as a director, is '¡¡rima fad& evidence that he served as a director after his election, and thereby accepted the office.
    Appeal by the defendant, John B,. Keim, from a final judgment of the Supreme Court in favor of the plaintiff, entered in the office-of the clerk of the county of Erie on the 17th day of February,, 1899, upon the verdict of á jury, and also, from an order entered in said clerk’s office on the 17th day of February,. 189-9,. denying the. defendant’s motion for a new trial.
    
      Charles E. Rushmore, for the appellant.
    
      William L. Marcy, for the respondent.
   Williams, J.:

The action was brought by the plaintiff as a creditor of the Eclipse Electric Lamp Company, a domestic corporation, against the defendant as a director of the corporation, to recover the amount of a debt owing by the corporation to the plaintiff, by reason of a failure to make and file an annual report. The lamp company was. organized under the Stock Corporation Law (Chap. 688, Laws of 1892) in the latter part of November, 1895, and commenced doing-business at once. It opened an account with the plaintiff, and on. May 20, 1896, procured its note for $1,000, payable 60. days after-date, to be discounted by plaintiff. Whén this note-became-.due it. was not paid. This constituted the indebtedness by the lamp- com-pony to the plaintiff for .which a recovery was had. The directors of the lamp company did- not make or file a report in January, 1896.. The defendant was elected a director of the lamp company April 3,, 1896, and also the treasurer of the company, and served as such-director until its insolvency, in July, 1896. Defendant, after he was. elected a director, took no steps to procure an annual report to be; made or filed.

One question raised by the defendant was that the complaint did not show that the lamp company was a stock corporation, other than a moneyed or a railroad corporation. - Section 30 of the Stock Corporation Law relates to annual reports, and provides for the liability of directors for failure to make siich reports, and limits the section to corporations other than moneyed or railroad corporations. The allegation in the complaint was that the lamp company was a domestic business corporation. By section 2 of the General Corporation Law it is provided that stock corporations shall be moneyed, transportation or business corporations. So that when the complaint alleg’ed that the lamp company was a business corporation, organized under the Stock Corporation Law, it by that allegation took it out of the class of moneyed or railroad corporations, the latter being a-transportation corporation.

Another question raised by the defendant was that it was not proved that the defendant accepted the office of a director, or acted as such after he was elected. Statements, admissions and allegations in pleadings are always in evidence for all the purposes of the trial; they are before the court and jury, and may be used for any legitimate purpose.” (Holmes v. Jones, 121 N. Y. 461.)

The defendant, in paragraph 10 of. his answer, stated that he had' attended a meeting of the board of directors on or about the 18th day of April, 1896 (he had been elected April 3,1896), that he subsequently learned that representations made to induce his attendances at such meeting were false, and he then refused to further act as a director.

This was sufficient evidence to make out & prima facie case as to his. having served as a director after his election, and thereby accepted the office. No particular point seems to have been made of this objection at the trial.. The court several times during the charge stated as a fact that the defendant was a director, having been elected as such, and no exception to such statement was made at the end of the charge.

Another question raised by the defendant, and really the only important question involved in this appeal, was whether, under a proper construction of the statute, the defendant could be made liable for the indebtedness of the corporation to the plaintiff. The facts are not in dispute here. Whatever differences existed at: the trial were submitted to the jury, and were settled by their verdict.

The statute (§ 30) provided that the corporation should annually,, during the month of January, make a report as of January first,. which should be signed by a majority of the directors, and verified by the oath of the president or vice-president and treasurer or secretary and tiled in the office of the Secretary of State and county clerk of the county, and “If such report is not so made and filed, all the directors of the corporation shall jointly and severally be personally liable for all the debts of the. corporation then existing, and for all contracted before such report shall be made. No director shall be liable for the failure to make and file such report if he shall file with the secretary of state within thirty days after the first day of .February * * * a verified certificate, stating that .he has endeavored to have such report made and filed, but that the officers or a majority of the directors have refused and neglected to make and file the same, and shall append to such certificate a report con-_ taining the items required to be stated in such annual report, so far as they are within his knowledge or are obtainable from sources of information open to him, and verified by him to be true to the best •of his knowledge, information and belief.”

The report which should have been filed under this statute in •January, 1896, was not filed at any time during that year, nor did the defendant take any steps to protect himself from liability by filing the certificate, etc., as permitted by the statute. The defendant was elected a director April 3, 1896, and never resigned the ■office. The debt was contracted'May 20, 1896.

Upon these facts there can be no doubt as to the liability of' the •defendant. It is not claimed on behalf of the defendant that there is any authority holding he would not be liable, but merely that it ■ought to be so held, and that the cases in which the judges have ■said such liability existed did not involve the question, and the language of the judges was obiter and'did. not decide the question. There has been so much said upon the subject, however, that we think we should follow what has been written -rather than attempt to lay down a new rule ourselves.

In Boughton v. Otis (21 N. Y. 261) Judge Comstock said that A board of trustees guilty of the default in January, and retiring from office, is 'liable for all antecedent debts and for those only; and that the successors, if they continue the default until the next January, and no longer, are liable for the debts afterwards contracted •during that year, and for no other.

“ If the persons succeeding to office promptly obey the requirement of the act they will escape all liability, and it is plainly just that they should, because' there is no failure of duty on- their part. If they do not, they very properly incur the -hazard of the debts which they themselves as trustees contract.”

While Judge Denio said that if directors coming into the board after the January default in making the report would not be liable for prior- debts, they would not for those subsequently contracted, unless they should remain in office until the next annual period of making the report; for it is those who are liable for the debts then existing who are made liable for those subsequently contracted.” In that case it did not appear that the debt was contracted after the defendant became a director, and, therefore, he was held not liable. It may, therefore, very likely be said that the question we are here considering was not necessarily involved. Four judges concurred in Judge Comstock’s, and one in Judge Denio’s opinion, while one judge expressed no opinion.

In Shaler & Hall Quarry Company v. Bliss (27 N. Y. 297) Selden, J., laid down the same rules as were stated by Comstock, J., in Boughton v. Otis (supra), but in that case the trustees sued were those who. had gone out of office before the debt'in question was contracted so that the question we are here considering was, very likely, not necessarily involved, but all the judges concurred in the opinion.

In Vincent v. Sands (42 How. Pr. 231, which was affirmed in 58 N. Y. 673, without opinion) Freedman, J., laid down the same principles, citing Boughton v. Otis and Shaler c& Hall Quarry Company v. Bliss. In that case the default in a January report extended through several years while defendant was a trustee, so that he was held liable by reason of his own default as to such report, and the question we are here considering may not necessarily have been involved.

In Chandler v. Hoag (2 Hun, 613, which was affirmed in 63 N. Y. 624, on the opinion of the court below) Mr. Justice Tappen held the doctrine contended.for by this plaintiff. There was default in the January report in 1872. The defendant became a trustee January 27, 1872, and continued as such until August 20,1872, when he resigned. The debt was contracted July 6, 1872, and was for printing at the rate of $230 per week, and it was held that the defendant, was liable for this amount per week during the time he was actually trustee. Shaler & Hall Quarry Company v. Bliss was cited as authority for the decision. It would seem that the question we are-here considering was directly involved in that decision.

These are the only cases we- need consider here. We see no-reason to question the principles laid down in all these cases and approved of in the case of Chandler v. Hoag (supra),where the question was directly up. . That case must be regarded as settling-the law of this State, even if it was uncertain before. It is said that: a director coining upon the board during a year after a January default in' making a report would be helpless. He could very likely cause a report to be made- himself, or, failing in that, file the certificate, etc., provided for by the section. We think either of these-things could he done at any time during the year, but in any event' he could refuse to act or he could resign and cease to be a trustee and then protect himself.'

We think the judgment and order appealed from should be* affirmed, with costs. '

All concurred, except Spring, J., not sitting.

Judgment and order affirmed, with costs.