Case ID: ad_71/html/0313-01.html
Source: Caselaw Access Project
Author: {"author": "Patterson, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Horrocks Desk Company, Appellant, v. John P. Fangel and Elna F. Fangel, Respondents.
    
      Corporation—liability of its directors for a failure to file an annual report — what excuses such filing.
    
    The directors of a corporation are not relieved from the liability imposed upon them by section 30 of the Stock Corporation Law for a failure to file an annual report of the corporation as required by that section, by the fact that prior to the time when the default in filing the annual report occurred the corporation had made a general assignment for the benefit of creditors, and did not carry on any business or exercise any of its corporate franchises thereafter.
    
      Semble, that in order to relieve the directors of a corporation from the duty of filing the annual report, it must appear that the corporation is insolvent; that it has ceased to exist by dissolution, or as a matter of fact, from a total abandonment of its business, and its being placed in such a position that it does not intend to and cannot continue or resume operations under its franchise.
    Appeal by the plaintiff, the Horrocks Desk Company, from an interlocutory judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of New York on the 27th day of January, 1902, upon the decision of the court, rendered after a trial at the New York Special Term, overruling the plaintiff’s demurrer to the defendants’ answer.
    
      William P. Maloney, for the appellant.
    
      A. M. Wattenberg, for the respondents.
   Patterson, J.

The defendants were trustees of the J. P. Fangel Manufacturing Company, and it is sought to hold them liable for neglect to file during the month of January, 1901, an annual report of that company as required by section 30 of the Stock Corporation Law. As an affirmative defense they set up in their answer that on the 2d day of January, 1901, the directors of the company made a general assignment of all the goods, etc., of the corporation to an assignee for the benefit of creditors, which assignment was duly filed on the 3d day of January, 1901, in the office of the clerk of the city and county of New York, and that thereupon the corporation ceased to carry on any business whatever and has since that time never in any way exercised any of its corporate franchises. The plaintiff demurred to this.defense. The demurrer was overruled, and the question arising on this appeal is as to the sufficiency in law of the defense.

The provision of the statute upon which the action is brought is highly penal and the courts have been astute to find reasons for exonerating trustees from the liability imposed by it or similar statutes preceding it. Thus in Huguenot National Bank v. Studwell (74 N. Y. 621) it was held that the appointment of a receiver of a manufacturing corporation so far dissolves the corporation that the duty .to file an annual report no longer rests upon the trustees. In Kelly v. West (80 N. Y. 139) a corporation had been adjudged a bankrupt, its entire property was in the hands-of an assignee, the company had ceased doing business and the trustees were held not liable. In Losee v. Bullard (79 N. Y. 404) it appeared that the company was practically abandoned and broken up. * * * It had not only ceased business but was incapable of transacting any. It had no trustees or officers who could manage its affairs or make the required statement. All its powers were suspended if not finally extinguished.” The court held the statutory requirements had ño application in such a case. In Gold v. Clyne (134 N. Y. 262) it :was held that when the corporation ceased to exist as by dissolution which operates its death, the liability does not attach notwithstanding the provision of the statute which declares that the dissolution of a corporation shall not take away or impair a remedy against 'stockholders or officers for any previously incurred liability: But in First National Bank v. Lamon (130 N. Y. 371), upon a review of some of the cases before cited, their general result seems to have been regarded as authorizing the conclusion that where there is no action by the corporation with a view to the discontinuance of its business or the abandonment of its franchises, the liability of the trustees is not extinguished and that conclusion is said to be supported by Sanborn v. Lefferts (58 N. Y. 179) where it was held that the'cessation of corporate businéss and proceedings to close up its affairs in the absence of a legal dissolution of the company does not relieve the trustees from the duty of making and filing the annual statement or report.

From the decided cases it may be gathered that to render inapplicable the provisions of section 30 of the Corporation Law it must appear that the corporation is insolvent, that it has ceased to exist by dissolution or as matter of fact from a total abandonment; of its business and its being put in such a position that it does not intend to and cannot continue or resume operations under its franchise.

What then is tile situation as disclosed by the defense demurred to?- The corporation was indeed insolvent. Insolvency is the inability to pay and discharge obligations as they accrue in the ordinary course of businesss. (Brouwer v. Harbeck, 9 N. Y. 594; Denike v. N. Y. & R. L., etc., Co., 80 id. 608.) This -corporation made a general assignment for the benefit of its creditors, which fact indicates its insolvency, but it does not necessarily follow that it abandoned its franchise and was put in such a position that it could never resume business. It might settle with its creditors. Merely ceasing to do business does not affect the question. (Matty v. Sampson, 64 App. Div. 1; Ginsburg v. Von Seggern, 59 id. 595.) There was no dissolution of the company either in law or in fact. There is nothing in Osborn v. Gilliams (33 Misc. Rep. 312; affd., 65 App. Div. 614) conflicting with this view. There was in that case an actual dissolution of the corporation and a certificate of such dissolution was issued by the Secretary of State. The corporation was, as the court said, defunct.

I think the interlocutory judgment was wrong and should be reversed and the demurrer should be sustained, with costs, with leave to the defendants to answer over on payment of costs in this court and in the court below.

Van Brunt, P. J., O’Brien, McLaughlin and Laughlin, JJ., concurred.

Judgment reversed, with costs, and demurrer sustained, with costs, with leave to defendants to answer over on payment of costs in this court and in the court below.