HALL against SIGEL

HALL against SIGEL. Supreme Court, Second Department, Second District; General Term, October, 1872. Corporations .—Individual Liability of Trustees.—Short Limitation. —Penal Statutes. Under the Laws of 1865 (p. 992, ch. 368, § 7),—which makes the trustees of societies or clubs for social and recreative purposes formed under that act, “jointly and severally liable for all debts due from said company or corporation, contracted while they are trustees, provided such debts are payable within one year from the time they shall have been contracted, and provided a suit for the collection of the same shall be brought within one year after the debt shall become due and payable,”—an action against the trustees to hold them liable for a debt of the corporation must be brought within a year after the debt became due and payable. The action referred to is not the suit against the corporation, but the action to enforce the individual liability of the trustees. The general words of a penal statute are to be restrained for the benefit of him against whom it is inflicted. Appeal from a, judgment. Edward Hall sued Francis Sigel, John F. Grerdes, and Carl Buchheister, and a number of others, in the supreme court, to recover from them as trustees of “ The Association of the United Sharp Shooters of New York and Vicinity,” a debt of the corporation due to the plaintiff, for which he alleged his assignor had recovered judgment against the corporation, and issued execution, which had been returned unsatisfied. The association referred to was incorporated in May, 1868, under the act of 1865, which authorizes the formation of corporations for social and recreative purposes. In June, 1868, the corporation became indebted to Phillip Gruttman for goods and services, the indebtedness being payable within a year from the time it was contracted. In January, 1869, Gruttman sued the corporation, and in February of the same year recovered judgment against it. At the time that the debt was contracted, and at the time that judgment was recovered, the defendants were trustees of the corporation. Execution was issued on the judgment, against the property of the corporation, and returned unsatisfied, & and the judgment remained unpaid. The judgment was assigned to the plaintiff, who, accordingly brought this suit against the trustees, in October, 1871. The cause was referred to L. A. Fuller, Esq. The assignment was an indenture reciting the recovery of the judgment against the corporation, and witnessing that the plaintiff in the judgment assigned “the said judgment and all sum and sums of money that may be had or obtained by means thereof or any proceedings to be had thereupon,” to the present plaintiff, with the usual power of attorney and substitution, and covenant not to collect. On the trial-, among other objections, the defendant moved for a dismissal of the complaint, on the ground that the assignment of the judgment against the corporation did not assign the alleged claim against the defendants, the trustees, which claim formed no part of, and was not included in the judgment against the corporation ; also on the ground that the present action was not commenced within one year after the alleged debt became due. Also on the ground that the representatives of one of the trustees, deceased, were not made parties defendant. The defendants also moved that the sum of fifty-five dollars, included in the judgment, should be disallowed, on the ground that that amount, part of the alleged debt, was contracted before the corporation was formed. This sum consisted of items of expenses for circulars and other incidental expenses preliminary to the original formation of the society. The referee denied the motion, and reported in favor of the plaintiff. In his opinion, the referee yielded to the authority of reported cases on the point that the judgment recovered in the action against the corporation was evidence against the stockholders (see Miller v. White, 10 Abb. Pr. N. S., 385, and cases there cited). On the question whether the action, which the statute required to be brought within the year, was the action against the trustees personally, he expressed the opinion that the letter of the statute was satisfied by bringing an action against the corporation, within that time, and that this construction would be most for the protection of the trustees, because it would favor diligence in prosecuting the corporation, and would give time before suit against the trustees. In respect to the objection that some of the items of indebtedness covered by the judgment appeared by the bill of particulars to have accrued before the corporation was formed, he held that it did not follow that the judgment was therefore not binding on the corporation. It might well have been that the corporation, after its formation was completed, adopted and ratified the indebtedness previously - contracted. By so doing the corporation and its officers would be as completely bound as they would have been had the corporation originally contracted the debt. The fact of the recovery of the judgment must be taken to prove, that in a legal and proper manner, the corporation had become the debtor. Hawes v. Anglo-Saxon Petroleum Co. (101 Mass., 385), is exactly in point and sustains these views. By the recovery of judgment against the corporation, the original indebtedness merged and thereafter has no separate existence. The assignment of the judgment therefore transferred the whole claim and all the.incidental and collateral securities, including the right to resort to these defendants. The indebtedness being joint and several, it is entirely clear that the non-joinder of the representatives of a deceased trustee was not an error (11 How. Pr., 569; 15 Barb., 528; 16 Id., 33; 28 N. Y., 172). Upon these principles the referee awarded judgment in favor of plaintiff. Judgment having been entered, the defendants, Sigel, Gerdes and Buchheister appealed. Edward Salomon and James Eschwege, for defendants, appellants. I. The complaint does not state facts sufficient to constitute a cause of action; for there is no allegation of a breach of duty, or breach of contract, on the part of the defendants ; and the absence of such an allegation is fatal to the complaint (Witherhead v. Allen, 3 Keyes, 562). II. The record of the judgment against the corporation is no evidence, in this action, of the alleged indebtedness of the corporation, as against the trustees individually. Citing and reviewing Moss v. Oakley, 2 Hill, 265; Moss v. Cullough, 5 Id., 131; Moss v. McCullough, 5 Den., 567; Moss v. McCullough, 7 Barb., 279; Peckham v. Smith, 9 How. Pr., 436; Belmont v. Coleman, 1 Bosw., 188; Squires v. Brown, 22 How. Pr., 35; Belmont v. Coleman, 21 N. Y., 96; Strong v. Wheaton, 38 Barb., 616; McHarg v. Eastman, 35 How. Pr., 205; Miller v. White, 8 Abb. Pr. N. S., 45. See Baker v. Dillmann, 12 Abb. Pr., 313; Conklin v. Furman, 8 Id., 161. III. The assignment to the plaintiff does not entitle him to sue the defendants as trustees. It is confined to the judgment, and the debt is nowhere mentioned. It cannot be said that the trustees’ liability is, in any proper sense, collateral to the judgment; and there is no evidence of any intent on the part of the original creditor to assign his right of action against the trustees. IY. The action should have been dismissed, because not brought within one year after the debt became due and payable. The statute is not to be extended by construction. To sustain an action the case must be not only within the letter, but within the intent of the statute (Millered v. R. R. Co., 9 How. Pr., 238; McCluskey v. Cromwell, 11 N. Y., 593; Freethy v. Freethy, 42 Barb., 641; Gray v. Coffin, 9 Cush., 199; Erickson v. Nesmith, 4 Allen, 233-235; Corning v. McCullough, 1 N. Y. (1 Comst.), 47; Merchants’ Bank v. Bliss, 35 N. Y., 412; Hasbrook v. Paddock, 1 Barb., 635. V. Plaintiff cannot recover for an alleged debt of the corporation, which appears by his own showing to have been contracted before the corporation was formed. Royal S. Crane, for plaintiff, respondent. I. An allegation that no part of the original debt had been paid before judgment was entered against the association, is unnecessary. The fact sufficiently appears by the judgment. The complaints in these cases are sustained by Miller v. White, 8 Abb. Pr. N. S., 46. II. The judgment against the corporation is conclusive evidence of the debt against the corporation, and against the trustees, unless impeached by fraud. This has been decided in at least fourteen cases in this State (10 Abb. Pr. N. S., 385; S. C., 59 Barb., 434; affirming 8 Abb. Pr. N. S., 46; Miller v. White, above; Squires v. Brown, 22 How. Pr., 35; Slee v. Bloom, 20 Johns., 669; Belmont v. Coleman, 1 Bosw., 188, afterward affirmed; Moss v. Oakley, 2 Hill, 265; Moss v. McCullough, 7 Barb., 279; Andrews v. Murray, 9 Abb. Pr., 8; Conklin v. Furman, 8 Abb. Pr. N. S., 161; Nimmons v. Tappen, 2 Sweeny, 652; Hovey v. Ten Broeck, 3Robt., 319; Dayton v. Borst, 7 Bosw., 115; Hoagland v. Bell, 36 Barb., 57; Lewis v. Ryder, 13 Abb. Pr., 5; Peckham v. Smith, 9 How. Pr., 436). This doctrine is approved in Ang. & A. on Corp., §§ 614 and 615. In sister States the doctrine has been sustained as well as in England. III. The action against the corporation within the year satisfies the statute. Corning v. McCullough, 1 N. Y. (1 Comst.), 47, holds that actions against stockholders, on their individual liability, are not penal in their nature, and that the limitation applicable to contracts, and not that applicable to penalties, applied to such actions. If the statutes were intended to give creditors only one-sixth of the time that is given creditors to sue trustees generally, and only one-third of the time given to creditors in penal actions, the wording of the statute would have been positive and unmistakable. Unless the statute is unequivocally against the rights of creditors in the pursuit of their remedy, such an interpretation is universally given as protects and does not defeat them. IY. The society having perfected its organization, and ratified and adopted the indebtedness incurred in so doing, the debt is one which the trustees cannot escape. V. By the absolute assignment of the judgment, the assignee acquired all the rights that the assignors had, upon the well known principle that an assignment of a debt or cause of action carries with it all collateral securities. This principle should especially apply here, as the debt against the society had proved to be worthless. VI. Burger, having died before the commencement of the action, was not served, and therefore was not a party; and it is no objection, that his representatives are not joined. Again: the statute allows the creditor to sue the trustees jointly and severally, so that it is not material whether Burger was served or not. Compare Briggs v. Easterly, 62 Barb., 51. [MAJORITY — Gilbert, J.] By the Court. Gilbert, J. With respect to the effect of the judgment recovered against the corporation we feel bound to adhere to the decision of the court, in the case of Miller v. White (59 Barb., 504; S. C., 10 Abb. Pr. N. S., 385). That case was deliberately determined, and nothing has been presented on the argument of this case, which was not then duly considered. That decision must stand, therefore, as the rule of law on this subject, until reversed. The case shows that this action was not brought until several years after the debt sought to be recovered became due and payable. It also shows, that a suit-was commenced against the corporation and prosecuted to judgment within a year after such debt became due and payable. The question is thus presented whether the defendants are liable. The seventh section of the statute on this subject (Laws of 1865, ch. 368), provides that £$ the trustees of any company or corporation organized under the provisions of this act shall be jointly and severally liable for all debts due from said company or corporation, contracted while they are trustees, provided such debts are payable within one year from the time they shall have been contracted, and provided a suit for the collection of the same shall be brought within one year after the debt shall become due and payable.” The respondents contend that the commencement of a suit against the corporation within the year to which the section quoted refers, was a sufficient compliance with the last condition therein contained. We are of opinion, that by a fair and reasonable construction of that section, the trustees are rendered liable for the debts of the corporation only upon condition that a suit to enforce such liability shall be brought within one year after the debt became due and payable. This section creates several qualifications of the liability which it imposes by general words on the trustees, and it is quite manifest that the sole object of each of them was their protection. They are made liable only for debts contracted while they are trustees. They are not made liable for such debts, but only for such as are payable within a year, and then is super-added the further condition that a suit for the collection of the same shall be brought within one year after the same shall become due and payable. The object of this latter condition was to insure prompt action on the part of creditors, so that the trustees might be apprised of the claim made against them, and to afford them a timely opportunity for indemnifying themselves against their liability. The mere commencement of a suit against the corporation would not certainly secure these objects, for it might be commenced by service of process upon an officer of the corporation, and in many cases the facts might not come to the knowledge of the trustees, and the suit might be commenced after they had ceased to be trustees. In the latter case there would be no ground for a presumption of notice of the fact to them. If it had been the intention of the legislature to afford protection to the trustees by means of a notice that a suit had been brought against the corporation, we think the provision would have been couched in language more explicit and better adapted to accomplish the object. They would have required a notice in express terms, as they did in the general railroad act (Laws of 1850, ch. 140, § 12), and in other cases. If they intended that the trustees should derive any other benefit from such a suit, they would have required the creditor to exhaust his remedy, or at least proceed to judgment against the corporation. Taking the letter of the statute, it may mean either that the suit shall be brought against the corporation or the trustees. The phrase “ a suit for a collection of the same ” indicates nothing one way or the other. It is quite as applicable to a suit against the trustees as to one against the corporation, because the trustees are made liable primarily for the debts, and not, as in most similar cases, only after default of the corporation. Having a due regard, however, to the apparent object of the proviso, the connection in which it stands, and the fact that the subject matter of the section relates exclusively to the liability of the trustees, we think the construction we have given to it is the better one. The statute is in the nature of a penal one ; and this construction is in accordance with the maxim that the general words of a penal statute shall be restrained for the benefit of him against whom it is inflicted (Dwarris, 936; Sedg. Con., 324). We, therefore, think it should govern this case. This conclusion renders it unnecessary to consider the other questions presented. The judgment must be reversed, and a new trial granted at the circuit, with costs to abide the event. In the case of Miller v. White, it was held, on a review of the authorities, that the principle must be deemed settled that a creditor, having once established his claim against the corporation by judgment, could not be compelled, in seeking his remedy thereon against stockholders or trustees, to establish the fact of the original indebtedness of the corporation, unless the judgment was impeached for fraud or collusion. This decision was, however, reversed in the court of appeals in November, 1872, upon the ground that it could be no hardship on the creditor to be required to prove his debt again, and to' treat the judgment as conclusive would favor collusive and fraudulent judgments. (Not yet reported.) See also Conklin v. Furman, 48 N. Y., 527.