Wallace & Sons v. Walse

Plaintiff is not a creditor of the defendants. It seeks to enforce a liability imposed upon trustees of a manufacturing corporation in virtue of section 12 of the manufacturing act. As the provisions of the statute are penal in their nature, they must receive a strict construction. Arms Co. v. Barlow, 63 N. Y. 63. As was said in Bruce v. Platt, 80 N. Y. 381, “the statute in question is penal, and not to be extended by construction; that, in an action to enforce a liability thereby created, nothing can be presumed against the defendants, but that every fact necessary to establish their liability must be affirmatively proved. Garrison v. Howe, 17 N. Y. 458; Miller v. White, 50 N. Y. 137; Arms Co. v. Barlow, 63 N. Y. 62. ” The same principle was recognized in Blake v. Griswold, 104 N. Y. 617, 11 N. E. Rep. 137, where the court remarks: “The ‘rights and liabilities’ of parties under the penal provisions of the manufacturing act are not only ‘ regulated ’ by special provisions of law, but are wholly created by such special provisions, and have no existence outside of the exceptional and peculiar authority and regulation of the statute.”

It has been repeatedly held that the object of the provision requiring reports to be made, in so far as it “relates to creditors, or persons dealing with the corporation, appears to have been to give such notoriety to the pecuniary condition of the company, through the publication of its annual statements, as to deprive it of credit, if it should be unworthy of it.” Quarry Co. v. Bliss, 27 N. Y. 297. To the same effect is Garrison v. Howe, 17 N. Y. 465, and in annoúncing that doctrine, as well as in considering the general features of the case then in hand, Judge Denio observes: “But the provision is highly penal, and the rules of law do not permit us to extend it by construction to cases not fairly within the language. ” See, also, Bank v. Bliss, 35 N. Y. 412; Wiles v. Suydam, 64 N. Y. 173. Chapter 316, Laws 1878, (amending chapter 269, Laws 1860,) prescribes a mode for increasing the number of trustees to not more than 13, and for reducing the number to not less *354than 3, in permissive language. The mode there prescribed, in effect, is that existing trustees of any corporation, or a majority of them, shall make and sign a certificate declaring how many trustees of a corporation shall have the future management of its business. Said certificate shall be acknowledged by the trustees signing the same, and filed in the office of the clerk where the original certificate was filed, and a duplicate in the office of the secretary of state. And this act also provides that, if the number shall be reduced, “the-number stated in each certificate * * *” shall be deemed the number of trustees of such corporation to be elected according to the said act, and who shall have the management and regulation of such corporation until the next election. It is to be observed that the section does not in terms forbid any other mode of reduction of the number of trustees. It is well understood that a corporation may cease to exist by abandonment or by non-user. Here we have a case that indicates that the trustees and stockholders voluntarily abandoned the number of trustees prescribed in the original certificate. Vacancies had been brought about by resignations, and the number reduced to nine, and the stockholders in 1886, 1887, and 1888 accepted the situation, and only elected nine trustees, so that in point of fact there were actually in existence only nine trustees; and it is literally true that the trustees who managed the said corporation’s affairs in office in 1886,1887, and 1888 were limited to nine, in virtue of- the action of the board of trustees, and in virtue of the actions and acquiescence of the stockholders; and when we take up section 12 of the manufacturing act, which requires a “majority of the trustees” to make, sign, and publish a report, we find that the reports in question corresponded with the physical fact, to-wit: That six were a majority of the existing nine trustees, there being no other trustees then in office constituting the board of management of the corporation in question. Vine persons were defacto the trustees. The majority of that number in each of the years already referred to signed the report in question. The trustees exercised the power conferred upon them to reduce the number who should manage the affairs, but they omitted to certify and file the evidence of such action in the public offices.

We have given attention to the case of Moore v. Rector, 4 Abb. N. C. 51, cited in the opinion of the learned judge at special term. That was a case ihvolving the validity of a bond and mortgage given by a religious corporation organized under chapter 60 of the Laws of 1813. That statute provided in terms that unless the rector, if there was one, and at least one of the churchwardens and a majority of the vestry-men, should be present, there should be no quorum for the transaction of business; and it was there held that a lesser number could not exercise the statutory powers of the corporation. We do not regard that case as satisfactorily supporting the conclusion reached at the special term. It has been held that the statute requiring the report to be made, signed, filed, and published within 20 days from the 1st of January is directory, and the publication thereafter will avoid the penalty. Here we have a case -where the object of the statute, to-wit, the giving of proper information to the public of the financial condition of the company, seems to have been attained; and we have a case where a majority of the trustees having charge and control of the affairs of the company, a majority of the trustees in office, a majority of the number of trustees assented to by the board of trustees year after year, and also assented to by the stockholders year after year, signed, filed, and published the reports of the financial condition of the company. Apparently there was a substantial compliance with the requirements of the statute. Under these circumstances, we are not inclined to impose the penalty prescribed by the statute, which declares “a joint and several liability” upon the trustees, as they have in good-faith made and published-reports, unless the ultimate court shall so hold. These views lead us to differ with tile special term in the conclusion reached upon the facts appearing in the ap*355peal-book. Judgment reversed, and a new trial ordered, with costs to abide the event.

Mebwin, J., concurred. Mabtin, J., not voting.