Case Name: Thomas M. Costello and William McConnell, Respondents, v. Charles E. Outterson and William N. Cornell, Appellants. Impleaded with George W. Barbour, Defendant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1906-05-02
Citations: 112 A.D. 680
Docket Number: 
Parties: Thomas M. Costello and William McConnell, Respondents, v. Charles E. Outterson and William N. Cornell, Appellants. Impleaded with George W. Barbour, Defendant.
Judges: 
Reporter: Appellate Division Reports
Volume: 112
Pages: 680–686

Head Matter:
Thomas M. Costello and William McConnell, Respondents, v. Charles E. Outterson and William N. Cornell, Appellants. Impleaded with George W. Barbour, Defendant.
Fourth Department,
May 2, 1906.
Corporations — director of insolvent corporation not liable for failure to , - file annual report.
The directors of a business corporation are not liable to the creditors of the corporation for a failure to file an annual report in the year 1895 as- then required by section 30 of the Stock Corporation Law, when as a matter of fact all the p'roperty of the corporation had been seized and sold on execution and- the corporation was insolvent, had ceased,to do business, had no ability to raise funds, and had been abandoned by its incorporators without intention to renew business.
.• Appeal, by the' defendants, Charles E. Outterson and another,, from a judgment of the Supreme Court- in favor of the plaintiffs, entered in the office of the clerk of the county of Jefferson-on the 8th day of January, 1906, upon the decision of the court rendered after a trial at the Jefferson Trial Term, a jury having been waived.
Henry Purcell, for the appellants.
Joseph Atwell, for the respondents.

Opinion:
Nash, J.:
This action was brought to recovér an indebtedness of the Columbian Box Company to the plaintiffs because of the failure of the defendants, who were directors of the corporation, to make and file, as provided by section 30 of the Stock Corporation- Law (Laws of 1892, chap. 688), the annual report of the company during the mouth of January, 1895.
The company was organized as a corporation under the Business Corporations Law (Laws of 1892, chap. 691), for the manufacture and sale of fancy boxes, with a capital of $10,000. Its principal office was at Brownville, N. T. Its capital stock was fully paid in in cash prior to October 5,1893. Annual reports were filed in 1893 and 1894. The last was on the 31st day of January, 1894. The defendants were elected trustees in January, 1894. In addition to the recovery of the judgments by the plaintiffs, judgments amounting to $1,850.45 were recovered against the corporation in the months of July and August, T894, upon which executions were issued to the sheriff of Jefferson county and returned unsatisfied, except as to sums amounting to less than $100. On August 7, 1893, the corporation placed a mortgage upon its plant and real property for $6,000, to secure bonds issued thereon, and bonds to that amount were issued, upon which default in the payment of interest occurred in December, 1894, at which time an action was commenced to foreclose the mortgage. The action proceeded to judgment on the 26th of January, 1895, and to a sale on the 16th of March, 1895. The mortgage covered the entire real estate of the company, and a deficiency judgment arose upon foreclosure of the mortgage for $4,588.46, which was docketed in Jefferson county clerk's office June 29, 1895. A receiver of the corporation was appointed June 1, 1895.
The defendants upon the trial gave proof which was not in any manner controverted, to the effect that all of the movable property of the company was sold prior to August, 1894, on executions upon the judgments recovered against the. corporation; that, after the sale .on execution no further help was employed, lpbor done or business carried on at the factory, and the business was not at any time thereafter resumed. ISTo stock or material vras purchased by. the company after the sales .on execution, and the company had no money or means to make purchases of stock of material with which to conduct its business. The company had a boiler and engine which had been purchased conditionally of .the Watertown Steam-Engine Company, which was removed by that company in the summer or fall of 1894 ; that after this property was removed there' was. no. power with which .to turn the machinery. After the sales of the movable property on executions, no meeting of the directors of the company was held; the corporation' had no property or means of resuming business, and there was no intention on the part, of the company or any of its trustees to resume business after August, 1894.
The,contention of the appellants is that section 30 of the Stock Corporation Law (Laws of 1892, chap. 688), relative to the filing of annual reports,, which was in force in the year 1895, and .since repealed, never was intended to apply, and did not apply to a. corporation where all- of its property had been seized on execution and sold, where it had become insolvent, had ceased doing business, had no ability to raise funds to carry on business, had been entirely abam doned by its incdrporators, and there: was no intention on its part or on the part of its incorporators to -resume business; that under the facts proven the corporation was in fact dissolved, had become defunct and could not be called' upon by creditors to file an' annual report, and that so far as the public was concerned' or those with whom it - was doing business, inclusive of the pláintiffs, whose debt accrued March 22,1894, it was just as effectually dead as if dissolved, by legal procedure. . . '
The authorities were reviewed by Judge Danforth in his opinion in Bruce v. Platt (80 N. Y. 379), and. the decision of the court formulated thereon is as follows : " Where it appeared that in December, 1874, the entire property of such a corporation was sold under execution; that before January 1, 1875, every person interested in it as a corporator had abandoned it; that it was carrying on no business, had no means of procuring money, and intended to do no further act in pursuance of the object of its incorporation; held] that the statute did not require the filing of a report for the' year 1875 ; that for every practical purpose the corporation might be deemed to have been dissolved, and so, that its obligation to file a report had ceased before the arrival of the-time when the report was required."
The question was again before the court in Kirkland v. Kille (99 N. Y. 390), where it was said that " when the condition of the company is such that the end and object for which it was formed are destroyed, and there is neither an ability nor intention on its part at any time to farther prosecute its business, it is no longer required to make the report mentioned in " section 12 of the General Manufacturing Act of 1848.
In the case of First National Bank v. Lamon (130 N. Y. 366), cited by respondents' counsel, in which it was held that the trustees were not, under the circumstances in that case, relieved from the duty of filing the report, Judge Brown, writing the opinion, said: " This court has decided that on the appointment of a receiver of a manufacturing company the corporation is so far dissolved that thereafter the duty is no longer upon the trustees to make the report (Huguenot Bank v. Studwell, 74 N. Y. 621), and that when the corporation has been practically abandoned the requirement as to filing reports does not apply to tlie trustees. (Losee v. Bullard, 79 N. Y. 404; Bruce v. Platt, 80 id. 379; Van Amburgh v. Baker, 81 id. 46.)
".In Losee v. Bullard the default was alleged to have been made in 1873, and it appeared that the corporation had suspended business in 1865 and never resumed, and had contracted no debts after that time.
" In Bruce v. Platt the alleged default was in January, 1875, but more than a year previous all the property of the corporation had been sold under execution, and from that time the corporation bad no property or business, no means of procuring money, and no ability or intention of resuming business. ' r
" The result of these cases is summed up by Judge Danforth in Kirkland v. Kille (99 N. Y. 390, 395), as follows: When the condition of the company is such that the end and' object for which it was formed are destroyed, and there is neither an ability or intention on its part at any time to further prosecute its business, it is no,longer required to make the report mentioned in section 12 of the Manufacturing Act.
' " This case does not fall within the rules enunciated in any of 'the cases cited; The corporation was not in the hands of a receiver at the time of the default. Nor does the evidence show that it was insolvent. Nor had its franchises been abandoned."
In Sanborn v. Lefferts (58 N. Y. 179), it was held that " the fact that a manufacturing corporation, organized under' the act authorizing the formation of manufacturing and Other corporations (Chap. 40, Laws of 1848) has ceased to do business and is engaged in closing up its affairs is not an excuse for a failure to comply wifli the requirement of Section 12 of said act as to the filing of a report; and in the absence of any legal dissolution of the company these facts do not, nor does knowledge upon the part of a creditor of the financial condition and embarrassments of the corporation -affect the liability of the trustees to him imposed by that "section for the failure to file a report." ' "
Sanborn v. Lefferts is distinguished in Losee v. Bullard (79 N. Y. 408) and Bruce v. Platt (80 id. 389);. in the latter case Judge Danforth said it was not an exception "to tlié rule there applied, and in Losee v. Bullard Judge Batallo said: "In Sanborn v. Lefferts (58 N. Y. 179) the corporation had not at the time, of the default even.suspended its ordinary business for one year;, the defendant held over and acted as trustee until vafter the time the annual-statement should have been filed."
In Horrocks Desk Co. v. Fangel (71 App. Div. 313) the rule contended for by the appellant is specifically re,cognized. The headnote reads: " 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 corpo ration 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 creditoi's, 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 repbrt.it must appear that the corporation is insolvent; that it has ceased to exist by dissolution, or as armatter 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."
In Matty v. Sampson (64 App. Div. 1), where it was held that the fact that a corporation does no business for several years does not relieve the directors from the necessity of filing annual reports in those years, the appellants had become directors and continued in office as such down to the time of the trial, and no report had' ever been filed by them as directors.
In Stevenson v. Cowan (84 App. Div. 135) it was held that " the abandonment of the company's business during the years 1895 and 1896 was merely temporary, and that the directors of the corporation were not relieved from the consequences of the failure of the corporation to file annual reports during those years."
In that case Mr. Justice Chase said : " Merely ceasing to do business does not relieve directors from filing an annual report. While a technical dissolution of the company is not necessary to relieve directors from the consequences of not filing an annual report, the abandonment of the business and its franchises must be certain and final, and such as to put the company beyond the possibility of resuming business." This means,, as indicated by the qualifying words used, that the abandonment of the business and franchise which will relieve the directors- from filing an annual report occurs when the corporation is entirely without property or means of continuing or resuming its business, and there is no intention of so doing.
The. doctrine and the reasons for the rule which has since been followed were stated by Spencer, Ch. J., in Slee v. Bloom (19 Johns. 456) as follows : "In point of good sense this corporation" was dissolved within the meaning and intent of the act as regards creditors, when it ceased, to own any property, real or- personal, .and when it ceased for such a space, of time from doing any one act manifesting an "intention to resume their corporate functions. The end, being and design of- the corporation were completely determined, and if even it had the capacity to reorganize- and reinvigorate itself,- the case has happened, when, as relates' to its creditors, it is dissolved."
The judgment should be reversed.
Ail concurred.
Judgment reversed and- new trial ordered, with costs to the appellant to abide event. ' • .
See Stock Corp. Law (Laws of 1892, chap. 688), § 30, as amd. by Laws of 1897, chap. 384; Laws of 1901, chap. 354 and Laws of 1905, chap. 415.— [Rep.
See Laws of 1848, chap. 40, § 12, as amd. by Laws of 1871, chap. 657.— [Rep.
See Laws of 1848, chap. 40, § 12, as amd. by Laws of 1875, chap. 510.— [Rep.
Huguenot Nat. Bank v. Studwell.— [Rep.
See Laws of 1892, chap. 688, § 30, as amd. by Laws of 1897, chap. 384.— [Rep.
See Laws of 1811, chap. 67, § 7, as amd.— [Rep.