
    Amos W. Morgan, Plaintiff, v. Arthur E. Hedstrom, Erastus F. Holden and Others, Defendants.
    
      Manufacturing corporation — liability of its directors, neglecting to file a/n annual report, for its mortgage bonds —joinder of causes of action against directors liable because of different defaults.
    
    Bonds issued by a manufacturing corporation, incorporated in 1879 under the General Manufacturing Law, having ten years to run and secured by a mortgage deed of trust covering its real property, are “debts” of the corporation within the meaning of section 13 of that act and of the Stock Corporation Law, making directors liable therefor if they fail to file the annual report of the corporation required by the statute.
    Where the corporation has never filed any annual report, a director, who became such after the maturity of the bonds and, by reason of a failure to file such a report after their maturity, became liable therefor, cannot, in an action brought within three years from the date of such maturity to enforce such liability, plead as a defense thereto that there has been a misjoinder of causes of action, in that he is only liable for a default occurring after his accession to office, while his co-defendants are liable for defaults occurring prior to that time, as all the defendants have become and are jointly and severally liable to pay the same debt.
    Motion by the defendants, Arthur E. Hedstrom and others, for a new trial made upon a case containing exceptions, ordered to be heard at the Appellate Division in'the first instance, upon the verdict of a jury in favor of the plaintiff, rendered by direction of the court after a trial at the Erie Trial Term.
    
      Norris Morey, for the plaintiff.
    
      William Nottingham, for the defendants Holden.
    
      William A. Douglas, for the defendant Hedstrom.
   Green, J.:

This action was brought, under section 30 of the Stock Corporation Law, to recover of the defendants, as directors of a manufacturing company, the principal and interest of ten bonds of $1,000 each, as the penalty thereby imposed for the failure to make and file, in the month of January, 1896, the annual report provided for by that section. The company was incorporated in 1879, under the Manufacturing Act of 1848, for the purpose of mining ore and manufacturing pig iron.

In December, 1883, an issue of bonds, amounting to $175,000, payable ten years from date, was duly authorized by the company and secured by a mortgage deed of trust covering all its real property and appurtenances thereto. Of such bonds only $120,000 were actually issued, and these were subscribed for by the then directors-of the company, viz. : E. R. Holden, E. F. Holden, E. L. Hedstrom and C. H. Smythe, who took $25,000 each, and A. B. Meeker, who took $20,000 of the same.

The plaintiff claims to have purchased, on the 21st day of January, 1884, these bonds involved in this suit of E. L. Hedstrom, who he knew was, at that time, a director and the president of this company. It appears that none of the other bonds had been transferred by the parties who originally subscribed for and took them.

Neither the company, nor its directors, have, since its incorporation in 1879, made or filed .any annual report; and, so far as it appears, the company owes no indebtedness save this issue of bonds.

Meeker ceased to be a trustee in.'1885, and H. S. 'Holden was elected at that time in his stead. E. L. Hedstrom died in .1894, and his son, Arthur E. Hedstrom, was elected director in his place in June, 1895. Messrs. E. F. Holden, E. R. Holden and C. H. Smythe have been directors since the-organization of the company.

No action has been brought to foreclose the mortgage.

The counsel for the defendants contend that it was not the legislative intent to embrace within the scope of the penal provisions of section 12 of the Manufacturing Act, or of section- 30 of the Stock Corporation Law, obligations like those in question, running for a long period of years, secured' by a mortgage upon the entire property of the corporation and subscribed for, and taken wholly upon the strength of, such security; and that obligations of such a character are not such debts” as wére within the contemplation of the Legislature, and intended to be secured by the personal liability imposed upon the directors as a penalty for neglect to make and filé an annual report.

It is-undoubted that the issuing óf corporate bonds and their transfér to a purchaser create a debt and constitute him á creditor of the company. In Kirkland v. Kille (99 N. Y. 393) “ The plaintiff proved that the bonds in question were part of. a series of first mortgage bonds, issued by the Globe Smelting Company, and authorized by its trustees, for the sole purpose of borrowing money, in order to successfully conduct the business for which it was incorporated.’ ” The plaintiff in that case was precluded from maintaining the action against the trustees; upon the ground that the bonds had been diverted from the purpose for which they were intended and authorized, to his knowledge; but it appears to have been assumed, without question or argument, both by the court and the defendants’ counsel, that the mortgage bonds constituted a debt within the purview of the statute.

In Carr v. Risher (50 Hun, 148) the action was founded upon bonds, payable in three years, but it does not appear that they were secured by mortgage. A judgment for the plaintiff was reversed upon other grounds, and the question here presented was not passed upon; but in view of the decision in 99 New York, 390, and the assumption implied therefrom, I am of the opinion that the rule there assumed to be the true rule must be here adopted in the disposition of this question.

The defendants further contend that the plaintiff’s cause of action is barred by the Statute of Limitations, by reason of the neglect to file the annual report long prior to the maturity of the bonds. The bonds became due and payable December 1, 1893, at which time, and not before, the plaintiff’s right of action against the company, or the directors, accrued.

This action was commenced May 13,' 1896, and, consequently, within three years after the accrual of the right of action to recover the debt, either of the company or of the directors.

This cause of action, as it existed on the 1st day of December, 1893, could not be extended by subsequent defaults, as respects those trust.eees, whose liability for the debt had then become fixed by reason of the previous defaults. So that, if this action had been brought after the expiration of three years-from the time the cause of action accrued (December 1,1893), the defendants Holden would be discharged from liability.

But, since the action was brought in time, and the proofs and the admissions of the parties show that the defendants Holden have incurred a legal liability to pay the plaintiffs bonds, it is immaterial to them, in point of law, whether the complaint is founded upon the last or the first default, or any of the intermediate defaults. There has been no alteration of the debt in any manner or form during all this period of time, and a technical objection of that character is utterly insufficient to constitute a substantial defense' to the action.

It is admitted that there have been continuous defaults in each and every year since the plaintiff became the owner of the bonds in suit, and, consequently, that the defendants Holden have incurred a statutory liability to pay them.

A complaint founded upon the last default in no way increases, alters or affects the measure of their liability, or injuriously affects them in their defense to the action; on the contrary, it is beneficial to them, since it brings into the action a co-director who is also liable for the payment of the same clebt".

And this brings us to the objection that there is an improper joinder of causes in this, that the defendant Hedstrom is liable only for the default in January, 1896, and not for any previous default before he became a director, and that the Holdens are not liable to an action based upon .the default of that year.

The answer to this objection is that when the defendant: Hedstrom became liable for the payment of the plaintiff’s bonds, the defendants Holden were also liable for the sanie identical debt, no more and nó less, although their liability had theretofore accrued, and since they failed to comply with the requirements of the statute by neglecting to file a report in the year 1896, it is no defense for them to say that their obligation to pay the same debt accrued upon the previous defaults.

Their obligation was continuing and existed at the time when their co-director became obligated to pay the same debt, and thus, a joint and several liability accrued. (See Vincent v. Sands, 42 How. 231; affd. without an opinion, 58 N. Y. 673.)

That the plaintiff’s cause of action is not barred by the Statute of Limitations is. clear upon the authorities. (Losee v. Bullard, 79 N. Y. 406; Rector of Trinity Church v. Vanderbilt, 98 id. 170; Bruce v. Platt, 80 id. 379; Duckworth v. Roach, 81 id. 49; Allen v. Clark, 108 id. 269; Gold v. Clyne, 134 id. 262; Chapman v. Comstock, 58 Hun, 325.)

I have considered the other objections made to the plaintiff’s right of action, but find them untenable.

The motion for a new trial should be denied and judgment ordered for the plaintiff upon the verdict.

All concurred.

Motion denied, with costs, and judgment ordered on the verdict for the plaintiff, with costs.  