
    The First National Bank of Jersey City, Resp’t, v. Archibald Lamon, impl’d, App’lt.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed January 24, 1890.)
    
    Corporations—Trustees—Annual report need not be piled after
    PROCEEDINGS TO DISSOLVE BEGUN.
    In December, 1886, application was made by three trustees of a corporation to the attorney-general to bring action to dissolve such corporation. Such proceeding was begun January 15, 1887, which resulted in the appointment of a receiver. The order to show cause, granted January 18, contained a clause restraining creditors from issuing executions. Held, that after the commencement of such proceedings the trustees were not required to file an annual report to shield themselves from liability.
    Appeal from judgment entered on report of referee.
    
      W. J. Townsend, for app’lt; Hamilton Wallis, for resp’t
   Brady, J.

This action was brought against the defendant as one of the trustees of the Atlantic Steam Engine Works to recover a penalty for the failure to file the annual report in January, 1887.

The defense interposed was two-fold: First, that the defendant was not a trustee during the time necessary to charge him in the action; and, second, that the trustees were under no obligations to file a report in January, 1887.

It appeared that the defendant was hired by the company as foreman in 1862, and thereafter was elected as a trustee, his last election taking place in 1880, after the date of one year from which he had nothing to do with the management of the affairs of the corporation, and never attended any of its meetings, and was never informed or notified of any of them, nor was he consulted by the other trustees ; and, indeed, it may be said that there is no proof that he did any act or assumed any authority as trustee after his term of one year by virtue of the election in 1880 had expired, except his opposition to the proceedings instituted by the attorney general in 1886 to dissolve the company, when in an affidavit for the purposes of such opposition he stated that he was a trustee of the company.

It also appeared that the company stopped doing business about the 10th or 15th of December, 1886, their shop being closed and locked, the men discharged, from which time no work or business of any kind was done by it or its representatives. On the 29th December, 1886, an application was made by three of the trustees to the attorney general to bring an action to dissolve the corporation. The hearing upon that proceeding was adjourned until the 6th day of January, 1887.

On the 15th of that month an action was commenced in this court by the People to dissolve the corporation, and on the 18th of January an order was granted, returnable on the 20th, for the company to show cause why a receiver should not be appointed and that order contained a temporary restraining clause prohibiting all creditors of the corporation from issuing executions against the defendant’s property, and on the 17th of March, 1887, an order was entered appointing a receiver of the property of the company with the usual powers in virtue of these proceedings.

It may be that, notwithstanding the passive character of the-defendant’s connection with the company as trustee, his opposition to its dissolution attended by the statement that he was a trustee would be sufficient under the authorities to subject him to responsibility as such, although it is by no means certain that such would be his legal attitude. The question is not discussed, however, because for the purpose of this appeal it is unnecessary.

The proceedings instituted in the month of December, 1886, by the acting trustees to dissolve the corporation applying to the attorney-general, followed as they were by the action commenced before the expiration of the 20th of January, until which time the-trustees had the right to report, and the insertion in the order to-show cause of the prohibitory clause already suggested, was at least the initiation of a proceeding to wind up the corporation, and was, in effect, a prohibition against any business transaction or any act on the part of the trustees indicating a continued existence, or an intention to transact any business. After the commencement, of such proceedings, to require the trustees, in order to shield themselves from personal liability, to make a report, the design of which is to advise the public of the condition of the association with a view to business transactions with it, seems to be at variance with the whole purpose and design of the statute and within, the general principle that the report shall not be necessary where the corporation has ceased to do- business and is actually dissolved.,.

It seems to be clearly within Van Amburgh v. Baker, 81 N. Y.,. 46, and certainly within the reasoning of that case. There the defendants were elected trustees of a manufacturing corporation which, before the expiration of the year, had become insolvent,, and discontinued its business and passed a resolution that the corporation should cease to transact business, resigning their offices, to take effect at the end of that term, after which they did not act as trustees. The court held that they were not liable as trustees for the failure to file the annual report. It is also within the principle of the Huguenot Bank of New Paltz v. Studwell, 74 N. Y., 621, where it was held that where a receiver was appointed before the expiration of the twenty days in which the trustees were required to report they were not liable to the penalty imposed for a failure to make and file the same.

It was held also in Bruce v. Platt, 80 N. Y., 379, that when the company had ceased to exist in fact, it was in a sense dissolved within the meaning of the act as regards creditors. And reference is made to the case of the Bank of Poughkeepsie v. Ibbotson, 24 Wend., 473, where Nelson, Oh. J., said, in discussing the act of 1811, which imposed upon persons composing the company an individual responsibility for its debts, “It has been repeatedly held that the dissolution here spoken of to> subject the shareholder may be shown short of judicial proceedings for that purpose. Having ceased to act, and being without funds and indebted, it is to be deemed dissolved so far as to give a remedy to the creditor.”

The court says in Bruce v. Platt, referring to the case cited, that under the act of 1811 the liability of the stockholder began upon dissolution, and that occurred the moment the corporate property was disposed of and the corporation ceased to act. Under the act of 1848 the obligation of the company to report as to its affairs ceases upon the happening of the same event, viz., upon dissolution effected by the same cause, for it then is carrying on no business, and is deprived of the means of carrying it on.

In Kirkland v. Kille, 99 N. Y., 390, it appeared that the company was formed in 1874, and that it incurred no debts after November, 1875, did no business after that time, and that everything that was done after that by the company, after the middle of January, 1875, was in connection with the foreclosure proceedings that had been taken about that time, and after that all that was done was to foreclose that mortgage and sell out the property of the company. It is true, that in that case it was declared that there was no evidence that any other than formal acts were performed by the company in furtherance of the objects of its organization. But it was proven without contradiction that it never carried on any business. Nevertheless it was regarded as dissolved, and it was considered that under the circumstances no report of 1876 was required of the company.

The court said in that case: “The statute invoked by the plaintiff has been declared to be highly penal, not to be extended by construction. The case made comes neither within its phraseology nor its intention.”

Here a kindred case is presented. The action of the trustees in December, 1876, was declarative of an intention to abandon the further transaction of any business, made emphatic by asking the attorney-general to consummate that intention by an absolute legal dissolution, and by that act the corporation surrendered its existence to the people of the state, a surrender accepted by the institution of proceedings for its dissolution which were begun during the twenty days in January and subsequently accomplished. It certainly never was in the contemplation of the legislature, and therefore not within the intention of the act, that trustees, under such circumstances, would be bound to make a report when the dissolution of the company was virtually accomplished by the circumstances detailed.

The judgment should be reversed and new trial ordered, with costs to appellant to abide event

Yah Bruht, P. J., and Dahiels, J., concur.  