Case Name: Thomas Jones, Respondent, v. Samuel L. M. Barlow et al., Appellants
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1875-06-01
Citations: 62 N.Y. 202
Docket Number: 
Parties: Thomas Jones, Respondent, v. Samuel L. M. Barlow et al., Appellants.
Judges: 
Reporter: New York Reports
Volume: 62
Pages: 202–214

Head Matter:
Thomas Jones, Respondent, v. Samuel L. M. Barlow et al., Appellants.
The liability imposed by the general manufacturing act (§ 12, chap. 40, Laws of 1848) upon trustees of a corporation, organized under said act, to pay the debts of the corporation in case of failure to file the annual report required by the act, is subject to the same conditions and qualifications that attach to the original indebtedness; and whatever will defeat or abate an action against the corporation will be a defence to the trustees. They are only liable to an action for debts actually due, and for which a present right of action exists against the corporation. (Folger, J., dissenting.)
(Submitted April 22, 1875;
decided June 1, 1875.)
Accordingly, held (Folger, J., dissenting), where an indebtedness of the company fell due during the time its trustees were in default for not making such report, for which notes were given which were renewed, and an action was commenced against the trustees to enforce the statutory liability prior to the maturity of a portion of the renewed notes, that plaintiff was only entitled to recover the sum actually due from the corporation at the time of the commencement of the action. Regarding the defaulting trustees simply as sureties, they are not discharged by giving to the corporation time for payment, as the act of extension is to be regarded as a transaction between them and the creditor, and they thus assent to it.
The short statute of limitations (Code, § 92) made applicable to such actions only begins to run from the time a cause of action accrues, not from the time of default in making the report.
As to whether trustees, made liable for a debt under the statute, will, upon payment by them, be subrogated to the right of the creditor against the corporation, qumre.
The required annual report must be filed each year after the organization of the corporation; the fact that it has not commenced business at the time prescribed for such filing, is not an excuse for an omission so to do ; the information called for is not intended for the benefit of those who have, but of those who may, become creditors. (Folger, J.)
Appeal from judgment of the General Term of the Superior Court of the city of Mew York, affirming a judgment in favor of plaintiff, entered upon a verdict.
This action was brought against defendants as trustees of the American Seal-Lock Company, a corporation organized under the general manufacturing act (chap. 40, Laws of 1848), to enforce the liability imposed by section 12 of said act, by reason of failure on their part to file an annual report in January, 1871. The corporation was incorporated May 17th, 1870.
Plaintiff, during the year 1871, sold and delivered to the corporation goods for which, on the 26th December, 1871, it was indebted to him in the sum of $6,292.68. The company gave its notes for the amount. „ On June 6th, 1872, these notes were taken up, and ten new notes given, severally maturing the first one month from date, and the others successively at intervals of one month.
This action was commenced February 7th, 1873. At that time three of the notes were not due. At the close of the evidence defendants’ counsel moved to dismiss the complaint, which was denied. Said counsel requested the court to charge, that for the amount of the three notes not due at the commencement of the action plaintiff could not recover. The court refused so to charge. The court directed a verdict for the full amount of the indebtedness. To which several rulings said counsel duly excepted.
W. W. MacFarland for the appellants.
D. M. Porter for the respondent.
Defendants’ liability was in the nature of a tort and not of a contract. (Strong v. Sproul, 4 Daly, 326; Andrews v. Murray, 33 Barb., 354; Miller v. White, 50 N. Y., 137; Mer. Bk. v. Bliss, 35 id., 412.) Defendants are liable for the indebtedness existing at the time of the default. (Vincent v. Sands, 1 J. & S., 511; Deming v. Puleston, id., 231; Wright v. Storrs, 6 Bosw., 600; affirmed, 32 N. Y., 691.) The debt having become due before the extension, defendants not being parties to it, the time for them to pay would not be extended by any extension of the contract as against the company. (Mer. Bk. v. Bliss, 21 How., 365, 371; Venell v. Salmon, 22 Barb., 647; O’Toole v. Garvin, 3 S. C., 118; Thomas v. Austin, 4 Barb., 265; Paige v. Willet, 38 N. Y., 28; Johnson v. McIntosh, 31 Barb.,267.)

Opinion:
Allen, J.
The appellant and his cotrustees of the American Seal-Lock Company, became liable for the debts of the corporation by reason of the failure of the corporation to make and file a report as required by law. There was a default in making such report in January, 1871. The entire indebtedness accrued and became due between May, 1871, and January, 1872, after the default in making the report and before any report had been made and filed.
The trustees of the corporation became, and were from the time the debt was contracted, liable for its payment under the statute. (Laws of 1848, chap. 40, § 12.)
The statute is, that upon the failure to make the report mentioned, "all the trustees of the company shall be jointly and severally liable for all the debts of the company then existing and for all that shall be contracted before such report shall be made."
Their liability is coextensive and concurrent with that of the corporation. It is subject to the same conditions and qualifications that attach to the original indebtedness and whatever would defeat or abate an action against the corporation will serve as a shield and defence to the trustees.
If the debt of the corporation is qualified or payable in the future it does not become an absolute obligation or a debt payable in presentí, when sought to be enforced against the trustees. Ho penalty attaches for the default if there be no debt, it is the debt which under the statute gives the right of action and which is recovered. If there be no obligation giving a present right of action against the company, no debt or duty which may be presently demanded from the corporation, there is no debt or duty which can be demanded under the statute as a penalty against the trustees. The language of the act is quite explicit and imposes the liability for " the debts of the company; " and there is no debt within the meaning of the statute if the day of payment has not arrived. The object of the statute was to give to the creditors of corporations, founded under it, security for the performance of the obligations and payment of the debts of the company. The creditor gets all the protection designed by the statute if he has a cotemporaneous and concurrent remedy against the defaulting trustees and the company. Although the obligation is wholly statutory and adjudged to be a penalty, it is in substance as it is in form, a remedy for the collection of the corporate debts. The act is penal as against the defaulting trustees but is remedial in favor of creditors. The liability of defaulting trustees is measured by the obligation of the company, and a discharge of the obligations of the company or a release, of the debt, bars the action against the trustees. Ho action lies for any penalty independent of a debt due by the corporation ; so too a recovery, against the trustees and a payment by them of the recovery operates to discharge the obligation of the company to the creditor, and bars an action at his suit. The remedies against the company and the trustees are concurrent but there can be but one satisfaction. Whether the trustees would be subrogated to the right of the creditor against the corporation, upon payment by them, will not be considered. The penalty is incurred by the default but the liability to any individual creditor does not become absolute until a debt shall exist which is within the terms of the statute, and a default in payment has been made by the corporation. It would not be contended by any one that for merchandise sold the corporation, upon an agreed credit, while the trustees are in default for not making the statutory report, an action would lie against the trustees at once, and before the expiration of the term of credit. The law does not vary the contract of the parties, or absolve either from its performance or an observance of its terms. In such cases there would be a liability, but it would be dormant, and not constitute a cause of action until the debt shall become due. If this be so, it follows, as a necessary sequence, that if, after the debt should become payable by the corporation, the right to demand payment and the cause of action against the corporation should, by the act and consent of the creditor, be Suspended, the liability of the trustees, as the incident of th% principal obligations, would become suspended, pro tempore dormant, to be revived by a new default of the corporation. Whatever limitations and conditions attach to the corporate and primary obligations, whether attaching to it at its inception or growing out of subsequent lawful agreements of the parties, necessarily limit and qualify the liability of the trustees, which, as before said, although final in its character, as adjudged as founded upon the debt, can only be enforced by reason of its existence, and according to the terms annexed to it.
The Merchants' Bank of New Haven v. Bliss (35 N. Y., 412), applies the short statute of limitations, prescribed to actions for penalties by section 92 of the Code, to this class of actions, but does not purport to define who are " creditors " authorized to sue, or from what time the statute begins to run. It can only commence to run from the time a cause of action accrues. It does not begin to run from the time of the default in making the report, else, upon a continued default of three years or more, no action would lie against the trustees for debts contracted after that time. Miller v. White (50 N. Y., 137), is only authority for the statement that a judgment against the corporation is not evidence of the existence of the debt as against the trustees. This does not militate against the claim of the appellant that the debt against the corporation, however it may be proved, must be actually due at the time of the commencement of the action against the trustees.
The principle which is invoked, that the trustees are not, technically and conventionally, sureties of the corporation, and, therefore, are not discharged from their liability by dealings of the creditor with the primary debtor, does not aid the plaintiff. The liability may be collateral to the original undertaking and still not capable of being enforced, except at the time and upon the terms and conditions prescribed by the original and primary obligation. A sufficient reason would exist for not holding the trustees discharged by giving time to the principal, even if the strict relationship of surety existed. The act of extension is the act of the trustees, and, regarding them as sureties, they have assented to it, and are, therefore, not discharged. ( Wright v. Storrs, 32 N. Y., 691.) Upon the same principle, the act of extension being regarded, as it must, a transaction between the creditor and the trustees, it cannot be presumed that, the time of payment of the original debt having been extended upon good consideration, either party contemplated that the trus tees, thus arranging and agreeing, could be sued the next moment for the same debt. Such an action would be a breach of good faith, even if allowable by a strict interpretation of the act. But, I am of the opinion that the trustees are not liable to an action, except for debts actually due, and for which a present right of action exists against the corporation. It follows from these views, that the plaintiff was not entitled to recover, except for the sum actually due from the corporation at the time of the commencement of the action. This would exclude from the recovery the three notes, two for $629.26 each, and one for $629.34, payable, respectively, in eight,, nine and ten months from the date thereof, with the interest thereon.
The judgment must, therefore, be reversed, and a new trial granted, costs to abide event, unless the plaintiff stipulates to reduce the recovery by deducting from the judgment the sum of $1,187.86, and interest from June 6, 1872, to the 18th of March, 1874, amounting, in the aggregate, to $2,056.44; and, in case the plaintiff so stipulates, the judgment, as thus modified, is affirmed, without costs to either party in this court.