President & Directors of the Manhattan Co. v. Kaldenberg

Patterson, J.:

This action was brought against directors of a manufacturing corporation to charge them with the liability imposed by the terms of section 30 of the Stock Corporation Act, for the failure of the corporation to make and file a properly verified report, as required by law, for the year 1892, such default continuing up to and including the 30th of January, 1893. ■ At the last-mentioned date a proper report was filed. Between the 21st and 30th days (inclusive) of January, 1893, the F. J. Kaldenberg Company became indebted to this plaintiff upon discounts of commercial paper in a large sum of money, and the indebtedness arising on such promissory notes, due and payable at the time this action was brought, is sought to be charged against the defendants, appellants herein. At the trial of the cause a verdict was directed for the plaintiff, and from the judgment entered upon the verdict, and from an order denying the defendants’ motion for a new trial, this appeal is-taken.

There was an issue of fact litigated on the trial in respect of which there was conflicting evidence. The withdrawal of that issue from the jury would require a reversal of the judgment if the case turned upon it; but its determination becomes unimportant in the final disposition of the cause. The rights of the parties depend upon questions of law, and in the view we entertain of these questions the course pursued by the court below was the correct one That the plaintiff was not a judgment creditor at the time the action was brought does not affect the right to recover. An amendment to the complaint was allowed on the tidal which showed that certain judicial action had been taken restraining creditors of the corporation from prosecuting claims, and due proof thereof was -made ; but, in addition to that, we have held in several cases that a simple contract creditor may maintain an action of this kind, under such circumstances as are shown in this record. Camp Mfg. Co. v. Reamer, 14 App. Div. 408; Donnelly v. Pancoast, 15 id. 323; Rose v. Chadwick, 9 id. 311.)

It appeared in evidence that in 1892, and long before the indebtedness of the Kaldenberg corporation to this plaintiff accrued, the-, directors of that company signed an annual report which, as to its. contents, complied with the requirements of section 30 of the Stock Corporation Act as amended in 1892. It was signed by a majority of the directors ; it was also verified by the president of the company and was filed in the office of the Secretary of State and in the: office of the clerk of Westchester county; but it was verified only by the president of the company. The contention made by the defendants (appellants) is, that the authentication thus made was sufficient within the fair interpretation of the provision of section 30, relating to the subject of verification of such reports. It is claimed, and rightfully so, that the law is a penal statute, and that it. is to be construed strictly in favor of the directors of a corporation-It is needless to cite authorities to that point, for they are abundant: and unmistakable in their effect; but it has not yet been decided by any court of final authority that judicial construction of the admittedly penal provisions of the act of 1892, or of any other of the-statutes in pari materia, from the General Manufacturing Law of 1848 down to the present time, is to be carried to the point of' judicial nullification; and that would be the effect of the establishment of the appellants’ contention in this case. Section 30 of the-Stock Corporation Act, as amended in 1892, requires the report to-be signed by a majority of directors and verified by the oath of the: president or vice-president and treasurer or secretary. That is a. specific requirement, that two officers shall verify the report. It. may be that the same person may fill two offices and discharge the: duties of both, but that situation does not arise in this case. Section 27 of the Stock Corporation Act provides that the directors, may appoint from their number a president and secretary and treasurer, and may-appoint such other subordinate ■ agents or employees as the by-laws may designate. By article 4 of the-by-laws of the Kaldenberg Company,, read in evidence, it appeared that “ The officers of the company shall consist of a president, a vice-president, a secretary and a treasurer.” The corporate organization of the company, therefore, provided for the four distinct officers. The appellants would read the provision of the statute under consideration as if it presented this alternative situation, namely, that the annual report should be verified by the oath of the president, and if not by the president, then by the vice-president amd secretary or treasurer. That construction carries the alternative beyond the manifest meaning of the provision. The true interpretation, as we understand it, is, that the report shall be •verified by the -oath of either the president or vice-president, together with the oath of either the treasurer or secretary. The disjunctive conjunctions are interposed in the sentence so as to limit the alternative, and the copulative conjunction is so placed as to require plurality in the verification.

This interpretation is the only admissible one in view of the course of legislation upon-the subject. In the General Manufacturing Law of 1848, section 12, the provision was, that the verification by either the president or the secretary would suffice; and the same requirement appeared in the amendment to section 12 of the General Manufacturing Law made by chapter 510 of the Laws of 1875, but when the Stock Corporation Act came to be passed in 1890, the policy of the law was entirely changed, and it was required that the report should be signed by the president and a majority of thé directors and be verified by the president and treasurer, thus introducing into the statute the feature of a double verification. The amendment of 1892, which is the one now in question, merely carries out the same requirement of a double verification, but does not limit the making of that verification to the president and treasurer, but allows the vice-president, if there be one, and the secretary to make the verification.

It is very strenuously urged by the learned counsel for the appellants that there was no secretary or treasurer of the Kaldenberg Company during the year 1892, and up to the 30th of January, ■ 1893, by whom the verification could be made; and that consequently there was no way of complying with the provisions of the statute, under consideration, and that an excuse for non-compliance is, therefore, furnished. It is claimed that, inasmuch as, at the time of the making and filing the report of 1892, the president was performing the duties of secretary and treasurer, his single verification was sufficient under the reasonable and liberal construction of the statute. We do not think that argument can be made available. We will assume that there was neither secretary nor treasurer actually having -an official status by election or appointment, from the time Mr. Paber handed to Mr. Kaldenberg the letter of resignation in November, 1891, down to the latter part of January, 1893, when Mr. Rankin was formally appointed. But the statute established the offices of secretary and treasurer, and the by-laws of the corporation expressly declare that there should be such officers of that corporation. The neglect of the directors of the corporation to select or appoint such officers cannot be a legal excuse for their failure to perform an act which the statute required to be done, to exempt them from liability to a penalty. If the contrary were to be allowed, directors could very readily escape from the performance of their statutory duties. The case is not like that of directors resigning at the end of their terms and leaving the corporation without any directorate, as was the case in Wade v. Baker (14 Hun, 615). Here, there was a failure on the part of the directors to select officers required by the by-laws of the corporation, which officers, had they been selected, would have had imposed upon them, under the supervision of the directors, the duty of making, verifying and filing a report; for the report to be filed is a report of the corporation, to be signed by a majority of the directors and verified in the manner required by the statute. The whole report, in other words, is a matter of the directors and two of the officers specified in the statute. If the directors neglect to fill the offices, so that the statutory duty may not be performed, they cannot rely upon that neglect to escape the consequences of their failure to carry out the provisions of law.

We, therefore, are of the opinion that the court below properly instructed the jury that the plaintiff was entitled to recover, and the judgment should be affirmed, with costs...

Van Brunt, P. J., and O’Brien, J., concurred; Ingraham and McLaughlin, JJ., dissented.