
    BEDFORD v. SHERMAN et al.
    (Supreme Court, General Term, Fifth Department.
    April 13, 1893.)
    1. Corporations—Directors—Liability on Notes of Corporation—Payment
    In an action against the directors of S. B. & Go., a corporation, to recover the amount due on notes of the company, held by plaintiff, because of failure of defendants to make and file their annual report as required by Laws 1875, c. 611, it appeared that such company was a grain broker; that one of defendants was manager of certain elevators, and of an association of “Associated Elevators” formed by corporations owning the former, and had authority to issue warehouse receipts for grain, and that he issued such receipts for a large amount subject to the order thereon of S. B. & Co., which the latter pledged to banks as security for its notes. Thereafter it fraudulently removed from the elevators, and converted to-its own use, the grain represented by the receipts, which exceeded in value the amount of the notes. The stockholders of the elevators afterwards paid the banks the amount due thereon, and the banks indorsed the notes in blank, and delivered them and the warehouse receipts to such stockholders, who, with the elevator companies, assigned and delivered them to plaintiff. Held, that the notes were not paid by the payment to the banks of the amount due thereon by such stockholders, and the transferee could maintain an action on the same against defendants.
    3. Same—Dissolution of Corporation—Effect on Liabilities.
    It appeared that the transfer to plaintiff was for the purpose of bringing suit, and that prior thereto, but after the indebtedness accrued, S. B. & Co. was dissolved by judgment of the court. Held, that under Act 1875, § 38, providing that the dissolution of a corporation “shall not take away or impair any claim or remedy existing against the corporation, its stockholders, or officers, for any liability incurred previous to its dissolution,” plaintiff could maintain such action, and the direction of a verdict in his favor was proper.
    3. Same—Evidence.
    The entries in the books of such company during the period of the directorship of one of defendants was properly admitted in evidence against him.
    Exceptions from circuit court, Erie county.
    Action by John M. Bedford against Durfee A. Sherman, Stephan F. Sherman, and Henry L. Fish, Jr., to recover the amount due on certain promissory notes of Sherman Bros. & Company, Limited, a corporation, of which defendants were directors. There was a verdict for plaintiff by direction of the court, and a motion by defendants for a new trial on exceptions was ordered to be heard at general term in the first instance.
    Motion denied.
    Argued before DWIGHT, P. J., and LEWIS, MACOMBEB, and HAIGHT, JJ.
    Tracy C. Becker, for plaintiff.
    Seward A. Simons, for defendants Sherman.
    Martin Clark, for defendant Henry L. Fish, Jr.
   LEWIS, J.

In the year 1883, Sherman Bros. & Company, Limited, was incorporated under chapter 611 of the Laws of 1875 of the state of Hew York, relating to the organization and regulation of business corporations. The defendants in March, 1886, were elected directors of said corporation, for the term “until the next annual election.” They accepted the trust, and entered upon the discharge of their duties as directors. Ho election of directors was thereafter had. In July, 1889, an action was commenced in behalf of the people of the state of Hew York to dissolve said corporation. A temporary receiver was appointed in July, 1889. The action came on for trial in January, 1890, and a decision was made that the corporation should be dissolved. Final judgment of dissolution was entered in January, 1890. The temporary receiver was made permanent receiver. The affairs of the company were closed on the 15th day of January, 1891, and the receiver discharged. Sherman Bros. & Company, Limited, was engaged in buying and selling grain, and doing a general brokerage and commission business, in the city of Buffalo. There were during these years three corporations in the city of Buffalo engaged in the business of elevating and storing grain, viz. the International Elevating Company, the Buffalo Elevating Company, and the Lake Shore Elevating Company. These several corporations formed an association known as the "Associated Elevators.” The business of this association- was elevating and storing grain in the elevators of these three corporations. The association issued warehouse receipts for grain delivered to and stored in said elevators, respectively. The defendant Stephan F. Sherman, during all the times mentioned, was the general manager of the individual elevators and of said association of elevators, and as such had authority to issue warehouse receipts for grain received and stored therein. Sherman Bros. & Company, Limited, from time to time, during the years 1888 and 1889, for the purposes of its business, made its promissory notes, and procured them to be discounted by the American Exchange Bank of Buffalo, or the Merchants’ Bank of Buffalo, and the said Stephen F. Sherman, as such manager, issued, or caused to be issued, by the Associated Elevators, warehouse receipts for grain stored in said elevators, subject to the order thereon of Sherman Bros. & Company, Limited, and the company pledged said warehouse receipts to said banks as collateral to its notes, discounted by said banks, as aforesaid. The company suspended payment on the 8th day of July, 1889, and at that time there were held by the banks the promissory notes of said corporation, amounting to some $243,000. Said banks also held as collateral to said notes the warehouse receipts of said Associated Elevators issued and pledged as aforesaid, calling for grain exceeding in value the amount of the notes thus held by them. Intermediate the time of the issuing of the said warehouse receipts, respectively, and the suspension of Sherman Bros. & Company, Limited, said corporation had fraudulently removed from the said elevators, and converted to its own use, substantially all the grain represented by said receipts. Said notes matured, and, not being paid, the holders appropriated and sold all the grain in the elevators, and applied the proceeds upon the said notes, and thereupon called on the said Associated Elevators to honor their receipts. The stockholders of said elevators finding that the banks held such receipts calling for grain exceeding in value the amount due upon the notes, paid the amount due thereon, and the banks indorsed the notes in blank, and delivered them, with the warehouse receipts, to said stockholders. The receiver thereafter paid upon said notes their percentage of the assets of Sherman Bros & Company, Limited, leaving due from the company on account of said promissory notes a sum which, with interest to the time of the trial, amounted to $268,516.78. Thereafter, and before the commencement of this action, the stockholders, individually, and the elevators composing said association, by proper instruments in writing, assigned, transferred, and delivered to the plaintiff said promissory notes and said warehouse receipts, and by said instruments constituted and appointed the plaintiff their attorney, in their names or otherwise, to take all legal measures for the recovery and enjoyment of the assigned premises. The plaintiff thereupon commenced this action against the defendants to recover the amount of said indebtedness, with interest, basing his claim upon the failure of the said corporation and the defendants, its directors, to make and file the annual report required by section 18 of chapter 611 of the Acts of 1875. At the conclusion of the evidence the plaintiff and the defendants requested the court to direct a verdict in their favor, respectively. The defendants’ motion was denied, and proper exceptions were taken. The court thereupon directed a verdict in favor of the plaintiff against the defendants for $268,516.78, and directed the defendants’ exceptions to be heard at the general term in the first instance.

There was evidence tending to show that the defendant Henry L. Fish, Jr., was elected a director of Sherman Bros. & Company on the 1st day of March, 1886. His term of office was for and until the next annual election. As we have seen, no other election of directors was thereafter had. Being a director, and taking part, as such, in the affairs of the corporation, the entries in its books during the period of his directorship were properly admitted in evidence against him. Huntington v. Attrill, 118 N. Y. 379, 380, 23 N. E. Rep. 544; Blake v. Griswold, 103 N. Y. 434, 9 N. E. Rep. 434.

Two reasons are urged by the counsel for the defendants Sherman why the plaintiff was not entitled to a direction of a verdict against them:

First, that the banks used the property of Sherman Bros. & Company, Limited, to pay the notes, and consequently, the debt having been discharged, the simple transfer of the evidence of indebtedness vested no right of action in the transferee of the notes; the argument being that the warehouse receipts, being payable to the order of the company, represented property in store belonging to that corporation, and that the transfer of the certificates to the banks carried with them the ownership of the property represented by the receipts, and that Avhen the stockholders of the elevators paid Sherman Bros. & Company’s debt to the banks, and received the notes and warehouse receipts, the notes were, in effect, paid, and no right of action passed to the transferee. Ho account is taken in the counsel’s argument of the important circumstance that his clients had fraudulently removed from the elevators, and converted to their own use, the grain called for by the warehouse receipts. The holders of the notes, not being able to find the grain, called upon the warehousemen to make good their receipts. They did so by paying the amounts due the pledgees, the banks. The banks indorsed the notes in blank, and delivered them, with the receipts attached, to the representatives of the elevators, who had paid them the money. They thereby, we think, became the creditors of Sherman Bros. & Company, and, as such, had the right to maintain an action against the defendants to recover the penalty provided by the act of 1875 for the failure of the directors io make their annual report.

It is further contended by appellants’ counsel that the plaintiff never became the creditor of the corporation, so as to entitle him to sue for the penalty, for the reason that at the time he took title to the notes the corporation-of Sherman Bros. & Company, Limited;, had been by the judgment of the court dissolved, and was no longer in existence. As we have seen, for the purpose of convenience, by proper instruments in writing,' the legal title to the notes and receipts was put in the plaintiff. As between plaintiff and the-elevators and their stockholders, the evidence tends show he occupied the relation of trustee. He testified that he paid nothing-for the notes or the stock. He had acted for the stockholders in. settling, their affairs with Sherman Bros. & Company, and he took an assignment of the claim for the purpose of bringing the action. The indebtedness to the banks' was incurred in 1888 and‘ 1889, before the corporation was dissolved. The notéis were transferred to the stockholders of the elevators by the banks in September, 1889. They were assigned to the plaintiff on the 17th day of March, 1891, after the dissolution of the corporation. It is provided by section 38 of the act of 1875 that “the dissolution of the corporation shall not take away or impair any claim or remedy existing against the corporation, its stockholders or officers, for any liability incurred previous to its dissolution.” The claims were unquestionably valid in the hands of the transferees of the banks,, and no reason is apparent why they could not transfer their claim to the plaintiff. It has been held that a naked transfer of the penalty cannot be made without a transfer of the claim, but the penalty is an incident of the claim, and passes to its transferee. The notes, indorsed in blank, were delivered to the plaintiff, accompanied by written transfers in form sufficient to pass the title,, and this gave the plaintiff valid title as against the assignors.. The defendants would be protected, should they pay to the plaintiff any judgment which he might recover thereon. Plaintiff’s assignors would be estopped from thereafter making any claim against the defendants. The plaintiff having obtained the legal title to the claim, the defendants are not concerned to inquire as-to what consideration he may have paid therefor. Sheridan v. Mayor, etc., 68 N. Y. 30. The assignment of a debt, though made-after the liability of directors for failing to file an annua! report had accrued, carries with it a cause of action for the penalty. Pier v. George, 20 Hun, 210; Bolen v. Crosby, 49 N. Y. 183; Blake v. Griswold, 103 N. Y. 435, 9 N. E. Rep. 434. We think the plaintiff was. entitled to the verdict, as directed. The motion for a new trial should be denied, and judgment ordered for the plaintiff, as directed! at the circuit. All concur.  