Case ID: ny-super-ct_32/html/0663-01.html
Source: Caselaw Access Project
Author: {"author": "Monell, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

SAMUEL NIMMONS and Another, Plaintiffs, v. ANDREW J. HENNION, Defendant.
    
      [Decided December 31, 1870.]
    A trustee of a corporation, created under the general act for the incorporation of manufacturing and mining companies, being made liable, upon the default of the company to file an annual report, for the existing debts of the company, is liable for such debts, although they were contracted before he became a trustee.
    The meaning of “ existing debts,” in the statute, is such debts as were due at the time of the default of the company.
    Therefore, where the company had. given its promissory note, which, by its terms, was not due or payable until after the default of the company to file its report—held, not to be an existing debt for which a trustee then in office would be made liable.
    Before Monell, McCunn, and Spencer, JJ.
    The action was against the defendant to enforce his joint and several liability, as one of the trustees of thé Montana Mill Company, a corporation formed under the laws of this State, arising from the omission of such company to file its annual report, pursuant to the provisions of the statute.
    The pleadings and the facts established at the trial were substantially the same as in the case of these plaintiffs against Tap-pan, another of the trustees of such company, decided at this term. The defendant was elected a trustee on the ninth of January, 1866, and was in office when the company made default in that month, and the defendant claimed that his liability attached to the omission to file the report in the first twenty days in January, 1866, and as the action was not commenced until the nineteenth of January, 1870, the statute of limitations was a bar.
    It, however, appeared that the defendant continued in office as a trustee until and during January, 1867, and that the company in that year also omitted to file an annual report.
    
      The same objections to a recovery as were taken in the Tappan case were taken in this; and also the further objection, that the liability of a trustee extended only to such debts as were contracted while he was in office.
    The objections were overruled, and the jury were directed to find a verdict for the plaintiffs for the amount claimed.
    The defendant excepted, and the exceptions were sent to the General Term, to be there heard in the first instance.
    
      Mr. A. B. Capwell for defendant.
    The liability of a trustee for omission to make, file, and publish an annual report, as required by the twelfth section of the manufacturing act of 1848, is in the nature of a penalty, and an action thereon must be commenced within three years after the cause of action shall have accrued (Code, sections 74 and 92, subdivision 2; Merchants’ Bank of New Haven v. Bliss, 1 Robertson, 391; same case, 35 New York, 412).
    The cause of action in this case arose, if at all, by reason of the failure to make and publish an annual report in January, 1866.
    The indebtedness of the corporation arose by contracting the debt for which their note was given November 27,1865, and was an existing debt on the 1st day of January, 1866.
    As defendant was made trustee January 9, 1866, he became liable, if liable at all, for this debt by reason of the non-filing and publishing an annual report in January, 1866; and this statute of limitations of three years began to run January 21, 1866.
    This action was commenced January 19, 1870, more than three years after the default.
    The court erred in not dismissing the complaint for this reason, the defense having been specially set up in the answer.
    But if the court was right in denying the motion to dismiss the complaint for the reason above stated, it erred in directing the jury to find a verdict for the plaintiffs, because the debt sought to be collected from the defendant was contracted before the defendant became a trustee. Debt contracted on or before November 27, 1865. Defendant first elected trustee January 9, 1866.
    The liability of trustees under the manufacturing act, for failure to file and publish annual reports, should be confined to debts contracted while they are trustees.
    “ The twelfth section of the statute must be construed as if it read for all debts then existing (contracted by them), and for all that shall be contracted (by them) before such report shall be filed ” (McHarg v. Eastman, 4 Robertson, 635; same case, General Term, 7 Robertson, 137).
    
      Mr. Albert Stickney for plaintiffs.
    The defendant admits, by his pleading, that the company existed, and that he was a trustee, in January, 1867. The proof showed the same state of facts.
    On the pleadings, too, it is not disputed that the note was still an “existing debt” of the company in January, 1867.
    There being a default in January, 1867, and the note being then, in the language of the statute, “ an existing debt of the company,” the defendant became liable as a trustee for the statutory penalty, when the default took place, i. <?., 20th January, 1867.
    The company’s debt and the penalty are entirely distinct.
    The debt is merely the basis of computation.
    No suit could be brought against the defendant at all if there was no default.
    The suit cannot, then, be brought until the default takes place. The default on which this suit is brought is the default in January, 1867, which was complete on the 20th January, 1867, and not before.
    The default is not destroyed by the fact that there has been a previous default.
    
      And whether the previous default has been of the same or other trustees is completely immaterial.
    “ A single case may occur where successive boards may be liable for the same debts : and that is, where there are successive defaults in January. By the express terms of the statute the trustees omitting to file their statement within the first twenty days of that month are liable for all debts then existing. Wow the debts then existing may be wholly or partly the very debts for which their predecessors became liable by reason of a default in January of the previous year. But from this liability there is a chance of escape by a simple performance of the duty required ” (Boughton v. Otis, 21 N. Y., 264).
    “ The liability of the defendants does not arise from any act connected with the creation of the debt due the plaintiff ” (Merchants’ Bank v. Bliss, 13 Abb. Pr., 237).
    “Besides these considerations, the period of limitations is made to run from the time the cause of action accrued, not from the time the debt was incurred ” (same case, p. 238, affirmed, 35 N Y., 412; Peck v. Hurlburt, 46 Barb., 559; Corning v. Southland, 3 Hill, 554; Brick v. Campbell, 15 Johns., 456).
    The defendant insists very strongly that this is a penalty. Otherwise the plaintiffs have, on his own position, six years from 29th January, 1866, instead of three, to bring this action.
    The penalty is not the debt, and is entirely distinct from it in every way.
   By the Court:

Monell, J.

All the questions which are presented by the exceptions in this case, except one, have been determined by the decision at this term in the case of these plaintiffs against Tappan, another of the trustees of the Montana Mill Company.

The question not decided by the Tappan case is, whether the defendant is liable for the debts of the' company contracted before he became a trustee.

1 The question arising upon the statute of limitations is the same as arose in Tappan’s case, except that to make the objection available in this case, it was and had to be claimed that the debt prosecuted in the action was an “ existing debt” in January, 1866, although the note had not then become due.

But I think that this was not an existing debt, within the meaning of the statute.

There was no default of the company until after twenty days from the first day of January, 1866, and the note of the company did not fall due until after such default had occurred.

The obligation to pay was made in the previous November, when the company gave its promissory note, and it may, perhaps, be said that a debt was then created. But there was no obligation to pay until sixty days afterwards, and when the payment of a debt is imposed as a penalty, it must be construed to mean a present obligation which is capable of being immediately enforced. Otherwise the penalty would be nugatory, as it could not be prosecuted or collected.

Debt, it is true, is ordinarily understood to mean any obligation to pay, either in presentí or in futuro, and it is commonly understood to be equivalent with liability. Bouvier says, “ debt is a sum of money due by certain and express agreement;” in a more enlarged sense, any kind of a just demand, and he describes the liquid debt to be one the payment of which may be immediately enforced, and not one which is due at a future time.

At the time of the company’s default, in January, 1866, an action was not maintainable against it upon this obligation or promise to pay. It therefore follows, it appears to me, that an action against a trustee would also have failed! And this furnishes a proper test of what the legislature are supposed to have meant by “existing debts;” and it is, therefore, to be presumed that they intended to create a liability for such debts only as were due and payable at the time the penalty was affixed.

In Garrison v. Howe (17 N. Y. R., 458) the plaintiff contracted to deliver, and the corporation to receive and pay for, a large quantity of lumber at a future day; and it was held not to be a “debt” within the meaning of the statute, nor until the delivery of the property.

And in Oviatt v. Hughes (41 Barb., 541) a trustee was sued for a claim of the plaintiff against the company. The former was employed by the latter as its general agent at a per annum salary. As the salary was not due at the time of the company’s default, it was held not to be a debt within the meaning of the statute. The court says, the statute speaks of debts existing or contracted, not of liabilities which may ultimately ripen into debts.

If, therefore, the decision of this case depended upon bringing it within the intended meaning' of “ existing debt,” I think it might be correctly disposed of by holding that this was not such a debt as attached to the default of January, 1866.

The remaining objection is, that the debt was contracted before the defendant became a trustee, and that he is liable for such debts only as were contracted while he was trustee. But I think the defendant’s counsel has misunderstood or overlooked that part of the statute which creates a liability for the “existing debts” of the corporation. That is one liability, and is apart from the other liability, which is for debts “ afterwards contractedP The meaning' of the statute is, that the trustees of a corporation which shall omit to make its annual report, who are in office at the time of such omission, shall be liable for all debts existi/ng at that time whenever contracted, and shall also be further liable for all debts which may be contracted after such time, and until such report is filed. That is the plain letter and intent of the statute, and is recognized in the following cases: Garrison v. Howe (ubi supra), Shaler and Hall Quarry Co. v. Bliss (ubi supra), Boughton v. Otis (ubi supra), and McHarg v. Eastman (7 Robt., 137).

If these views are correct there was no error in overruling the defense, and is none in overruling the exceptions.

The plaintiff should have judgment on the verdict with costs.