Case ID: ny-super-ct_38/html/0142-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Van Vorst, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

THOMAS JONES, Plaintiff and Respondent v. SAMUEL L. M. BARLOW, et al., Defendants and Appellants.
    When the trustees of a manufacturing company failed to make, file and publish the annual report required by statute, and a creditor of the company at the time of such default subsequently took the promissory notes of the company in renewal, which were not paid at maturity, and one of which was not due at the time of the commencement of the action against the trustees.
    
      Jleld, that under the statute, the liability of the trustees became fixed at the time of the default; that such liability was in the nature of a penalty for neglect of duty ; that the trustees are neither parties nor privies to the original contract between the creditor and the corporation, nor to an^ judgment which might be recovered against the corporation thereon ; and that, consequently, neither the creditor’s effort to collect bis debt from the corporation, nor the taking of notes in renewal, is a waiver or abandonment of his remedy against the trustees.
    The debt against the corporation is not canceled by the creditor taking notes for the same. The notes are simply the company’s promise to pay the debt at a futuro time, the indebtedness still . remaining (Doming y. Puleston, 35 Superior Ot. [3 J. <6 S.]; 55 A. T. 655); nor is the liability of the trustees affected by the recovery of a judgment by the creditor against the corporation for the debt (Vincent y. Binds, 33 Superior Ct. [1 J. df if.] 511).
    
      Before Freedman, Van Vorst and Speir, JJ.
    
      Decided October 31, 1874.
    Appeal from a judgment.
    This action is brought against the defendants as trustees of the American Seal Lock Company, a corporation organized under the laws of New York, providing for the formation of corporations for manufacturing, mining, mechanical or chemical purposes, passed May 17, 1348.
    The company was incorporated May 17, 1870. The ■defendants were original trustees of the company, and continued thereafter to be trustees.
    No report, such as is called for by section 12 of the act of 1848. was published and filed until January 19, 1872. •
    In the mean time, and during the years 1870 and 1871, the plaintiff had sold and delivered to the company merchandise, on account of which there was due and owing plaintiff, on December 26, 1871, a balance of six thousand two hundred and ninety-two dollars and sixty-eight cents.
    Afterwards, and on June 9, 1872, the corporation gave the plaintiff ten promissory notes dated on that, day for six hundred ánd twenty-nine dollars and twenty-six cents each, in the aggregate amounting to the sum of six thousand two hundred and ninety-two dollars and sixty-eight cents, and which were given in renewal of former notes of the corporation for the same amount, and which had become due and were unpaid. One of the notes given on June 6, 1872, was not due at the time of the commencement of this action. The others had matured and were unpaid. The plaintiff in open court offered to surrender the notes to the defendants.
    When the plaintiff rested his case the defendants moved to dismiss the complaint on the following grounds:
    
      “First. That there is no proof in the case tending to •establish the fact that there was any occasion to file a certificate in January, 1871.
    
      “ Second. That if in error in that respect, then by what was subsequently done between these parties, touching the indebtedness of the corporation to this plaintiff, it assumed an entirely new form in the shape of the promissory notes given in 1873, and the plaintiff’s action in that respect is to be regarded in point of law as a waiver of the technical default of the trustees in not filing the report in 1871. - That the plaintiff had his election to insist upon the liability of the defendant, and when, in 1873, he gave further credit by surrendering the old notes, and taking the new ones, the defendants were relieved from any liability.” The motion was denied by the court, and the counsel for the defendants excepted.
    At the close of the case the defendants’ counsel renewed his motion to dismiss, which was denied. The defendants’ counsel requested the court to instruct the jury that as to the amount of the notes not due at the commencement of the action, the plaintiff can not recover. The court refused so to rule, and a verdict was directed for the plaintiff for the sum of seven thousand two hundred and seventy-two dollars, and sixty-eight cents, to this direction the counsellor the defendants excepted.
    
      W. W. MacFarland, for appellants.
    
      D. M. Porter, for respondent.
   By the Court.—Van Vorst, J.

Through the failure of the corporation to make, publish and file the annual report, provided for in section 13 of the act of February 17, 1848, in January, 1871, the trustees, the duty of a majority of whom it was to sign same, became jointly and severally liable for all the debts of the company then existing, and for all that should be contracted before such report should be made.

The making and filing of such report is imperatively demanded by the statute.

As the corporation filed no report until January 19, 1872, and the debt in plaintiff’s favor for the merchandise sold and delivered to the corporation, had been contracted and existed before such report was filed, the liability of the defendants as trustees therefor would seem to be clearly established, unless the taking of the notes of the corporation by the plaintiff has impaired his claim against the trustees. The liability imposed upon the trustees for the debts of the company is a penalty for a neglect of duty clearly defined. The trustees are not sued for their own debts, they have incurred none. The corporation is the debtor. The defendants are neither parties nor privies to the original contract, nor to any judgment which might be recovered against the company thereon (Miller v. White, 50 N. Y. 137).

Directly, therefore, there is a failure to make and file the report the liability of the trustees to the penalty becomes fixed. Not as a debtor, but for the neglect of a duty growing out of his relation as a trustee, and through which neglect creditors of the corporation are presumed to be injured.

Nor in this view does any attempt on the part of the creditor to collect his debt of the company, affect his-claim against the trustee. Such effort is no waiver or abandonment of his remedy against the trustees.

In Vincent v. Sands (33 Supr. Ct. [1 J. & S.] 511), the creditor had sued a stockholder for the debt and had recovered a judgment against him, before proceeding against the trustees under section 12, yet it was held that the debt “against the corporation was not merged' by such recovery, nor was the claim of the plaintiff against the trustees affected by the suit and judgment against the stockholder under another section of the act, by which an additional right of action was given against another class of persons. In Deming v. Puleston (35 Sup'r Ct. [3 J. & S.] 309), since affirmed in the court of appeals (55 N. Y. 655), the objection was distinctly taken on the part of the trustees, that the liability of the corporation was merged in promissory notes which had been taken by the creditor from the corporation, and that the creditor had waived any demand he may have had against the trustee, under the statute, by taking the notes of the company and recovering judgment thereon. The court held that the notes did not cancel the debt, they amounted to the company’s promise to pay at a future day, the indebtedness still remaining. The obtaining of the judgment and the attempt to collect it out of the corporate property was •favorable to the defendant, and in . no manner- affects the liability imposed upon him under section 12 of the act of 1848.

Where a party has an election between two distinct remedies, which are inconsistent, he is confined to that which he first chooses (Rodermund v. Clark, 46 N. Y. 854 ; Goss v. Mather, 2 Lans. 283).

A familiar application of this principle is found in •cases where a vendor of goods parted with the possession through the fraudulent representations of the vendee. The vendor can reclaim the goods, but in doing so he disaffirms the sale and can not afterwards sue for the price (Morris v. Rexford, 18 N. Y. 552). The principle involved in the doctrine above stated, is that the remedies are not concurrent and are inconsistent.

Although the trustees have violated their duty, and are liable to the penalty therefor, imposed by section 12, the creditor may attempt to collect his claim against the corporation, he may do so without action, and take the company’s note as in this case. Such note is no payment of the debt. If not paid the original indebtedness still remains. The creditor may sue the corporation for his claim and recover a judgment therefor, and if an execution is returned unsatisfied he may under the act in question prosecute a stockholder and attempt to collect the debt of him. But all this has no true relation to the distinct cause of action against the trustee for his own omission of duty, which is still open and unsatisfied, by which he became liable for the debts existing at the time of his failure, and for all that should be contracted before the report should be made.

The remedy against the trustee is distinct, and concurrent, and not inconsistent with the other remedies in favor of the creditor against either the corporation or a stockholder, but his action must be brought within three years after the right of'action accrued (Merchants’ Bank v. Bliss, 35 N. Y. 412).

The judgment should be affirmed, with costs, to the respondent.

Freedman and Speir, JJ., concurred.