Case ID: misc_11/html/0526-01.html
Source: Caselaw Access Project
Author: {"author": "McAdam, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

James P. Witherow, Appellant, v. John D. Slayback et al., Respondents.
    (New York Superior Court —General Term,
    March, 1895.)
    Failure to file an annual report within the statutory time does not render the officers of a corporation liable for its debts where a report is filed before any claim, accrues against the corporation.
    The trustees are under no obligation to file an annual report after the corporation has abandoned its business and franchises and has passed into the hands of a receiver.
    'No liability attaches against officers of a corporation for a false report for debts contracted or liabilities incurred before the filing of such report.
    
      Appeal by plaintiff from judgment entered on direction of trial judge dismissing the complaint.
    
      William G. HoTbrooh, for appellant.
    
      II. Bacon and G. Strauss, for respondents.
   McAdam, J.

The action is to .recover $11,072.68, with interest, from the defendants as officers of the Port Henry Steel & Iron Company, Limited, upon a note alleged to have been indorsed by that corporation for the accommodation of one Thomas F. Witherbee. The corporation was formed under the Business Corporation Act of 1875 as a limited liability company, and the defendants, together with Thomas F. Witherbee and Andrew Dickey, were its officers,.

The plaintiff alleges five grounds of liability, making each a separate cause of action. These grounds are as follows:

I. Failure to file a report within twenty days after January. 1, 1886.

, II. Failure to file a report within twenty days after' January 1, 1887.

III. Failure to file a report within twenty days after January 1, 1888.

IV. The filing in January, 1887, of a false certificate .of the full payment of stock.

V. The making of the following statements in an annual report filed February 16, 1887, which were alleged to be false: (a) That the capital stock of said corporation had been actually and fully paid in cash; (5) that the existing assets of the corporation were none; (e) that one T. F. Witherbee was a stockholder of the corporation.

The liability sought to be enforced was based on a note made by T. F. Witherbee in October, 1886, and indorsed “ Andrew Dickey, Treasurer,” which by its terms became due April 6, 1887. Assuming, for present purposes, that the act of Dickey bound the corporation, its obligation was that if Witherbee did not, on April 6, 1887, pay the note upon presentation at the place where it was payable, and if it was duly notified of the presentation of the note and the failure of Witherbee to pay, then the corporation would pay. This was not an absolute engagement to pay, but a conditional one, and would have been avoided if the maker had paid the note at maturity; or if the plaintiff had failed to present it at the time and place fixed for its payment, and neglected to follow the default by notice to the corporation, as indcrser, of such presentation and nonnayment. The report filed in February, 1887, was, therefore, filed two months before any claim against the company accrued to the plaintiff, and consequently no liability of the defendants was established on either of those grounds. Laws 1875, chap. 611, § 18; Torbett v. Godwin, 62 Hun, 407 ; 17 N. Y. Supp. 48 ; Garrison v. Howe, 17 N. Y. 458; Oviatt v. Hughes, 41 Barb. 541; Victory Webb Co. v. Beecher, 26 Hun, 48 ; 97 N. Y. 651 ; Gold v. Clyne, 134 id. 262. The sufficiency of the defense arising upon these facts to the first and second causes of action is not affected by the alleged falsity of the report, even if such falsity had been established. Bonnell v. Griswold, 80 N. Y. 128; Whitney Co. v. Barlow, 68 id. 34.

Another complete answer to the failure to file a report in 1887 is that in August, 1886, the' corporation had abandoned its business and franchises, and after that there was no duty imposed upon the trustees to file any report. The cessation of business by the corporation to the extent proven was tantamount to its dissolution. Losee v. Bullard, 79 N. Y. 404; Bruce v. Platt, 80 id. 379 ; Kirkland v. Kille, 99 id. 390.

The company passed into the hands of a receiver in June, 1887,. and for this and the reason previously assigned there was. no obligation to make a report in 1888.

Those three alleged causes of action having been disposed of, and the fourth having been waived, the fifth remains to be considered. As to this there was not sufficient evidence to go to the jury, and hence the trial judge properly dismissed the complaint.

Another reasoq which seems to justify the conclusion reached is that the fifth alleged cause of action relates to the falsity of the report filed February 16, 1887, and, while the liability of the corporation as indorser on the note did not become complete until April 6, 1887, the debt represented by it, and presumably owing by Witherbee, the maker, was contracted in October, 1886. The statute being highly penal, and, therefore, one which must receive a strict construction, no liability attaches against officers of a corporation for a false report, unless it appears that the report was filed before the credit was given. Torbett v. Godwin, supra. For the purpose of the report is that the public may be correctly informed of the financial condition of the corporation, in order that it may judge whether credit should be given it or not. As to debts contracted or liabilities incurred' before the filing of the report, clearly no one could be misled to his prejudice; and the plaintiff, being in no manner injured, cannot complain.

The judgment appealed from must be affirmed, with costs.

Sedgwick, Ch. J., and Beekman, J., concur.

Judgment affirmed, with costs.