Watertown National Bank v. Bagley

Andrews, J. In the years 1899 and 1900 the defendants were two of the directors of the E. S. Stiles Press Company, a stock corporation, organized by and existing under the laws of this State. The statute then in force with regard to such corporations provided that they should annually, during the month of January, make a report of their condition, and that, when such a report was not made, the directors of the corporation should be jointly and severally liable for all of its debts then existing and for all contracted before the report was made, if, within three years of the occurrence of the default, a creditor served upon such directors written notice of his intention to hold them personally liable for the claim. ¡Notwithstanding this statute, the press company made no such report, either in January, 1899, or thereafter. In ¡November, 1898, and in January, 1899, the press company became indebted to the plaintiff on two notes upon which there are now due, after deducting certain payments made thereon, the sums of $2,872.32 and $1,713.54 respectively. On January 2, 1900, in proceedings brought for its voluntary dissolution, the press company passed into the hands of a receiver. By chapter 354 of the Laws of 1901, which was approved by the Governor April sixteenth of that year, the provisions' making the directors liable where the company filed no re-j port were repealed. But the statute contained this clause:; “ This act shall take effect immediately but shall not affect * * * any right of any creditor of any corporation * * * against any director under the existing law, providing action thereon he commenced within six months after this takes effect.” Such being the condition of affairs, on July 23, 1901, the plaintiff procured from defendants an agreement that, in consideration of its holding its claim against them until the! receivership should be closed, without taking any action thereon, they waived any defense by way of the Statute of [382] Limitations, or on account of the failure to serve a written notice upon the directors of intention to hold them liable, such waiver being “ intended to prevent defenses which are now ripening from lapse of time from becoming established.” Meanwhile the receiver of the Stiles Press Company had duly qualified under the order appointing him and had entered upon the discharge of the duties of his trust. Such trust was finally ended, the receivership proceedings were fully closed and the receiver and his bondsmen were duly discharged by an order of the court made on the 23d day of March, 1907. On September 14, 1908, this action was begun to enforce the liability of the defendants as directors of the press company. Eo answer was interposed upon the part of Mr. Knowlton; but, on the part of Mr. Bagley, it is alleged that the plaintiff cannot recover for the reason that the action was not begun within six months of the discharge of the receiver. The written agreement of the defendants, even assuming that originally it could not have been, enforced for lack of mutuality or of consideration, bound them so far as these grounds were concerned after the plaintiff, relying upon it, had actually delayed bringing its action against the directors until the termination of the receivership. Willetts v. Sun Mutual Ins. Co., 45 N. Y. 45; Marie v. Garrison, 83 id. 14; Todd v. Weber, 95 id. 181; Miller v. McKenzie, 95 id. 575; 9 Cyc. 333, cases cited; Id. 335, cases cited; Id. 343, cases cited. It is also evident that in making this contract the parties had in mind not only the three years’ limitation prescribed in actions for penalties, but the provision requiring suits against directors to be begun within six months of April 16, 1901. Eo one could then know how long the receivership proceedings would last. They certainly would not be completed by October. Indeed the defendant does not deny that such is the proper construction. Precisely what is the legal effect in this State of such a contract with regard to the statute of limitations is not clear. It is invalid if not in writing. Even if in writing it does not [383] operate as an estoppel. It does, however, probably operate at least as an acknowledgment of the debt or as a new promise, so as to prevent the running of the statute until its date. Shapley v. Abbott, 42 N. Y. 443. But whether valid at all as a contract to waive the statute is doubtful. Judge Earl, in Shapley v. Abbott, seems to be of the opinion that to enforce such a contract would be against public policy; that the spirit and purpose of the statute are such that the debtor should not be permitted to deprive himself of such a defense. “A party may undoubtedly, without trenching upon public policy waive the defense of usury, or of the statute of frauds or of the statute of limitations by omitting to set up the defense when sued. * "* * But no case has occurred to me in which a party can, in advance, make a valid promise that a statute founded in public policy shall be inoperative.” Even if such a general agreement to waive the statute is en-forcible, however, it cannot be construed as an agreement to waive it forever. At most it sets the statute running from its date, or from the date, if such be specified, when the action is to be brought — in this case from the termination of the receivership. Wells Fargo Co. v. Enright, 127 Cal. 669; Randon v. Foley, 11 How. (U. S.) 493, 519. If, therefore, the clause in the act of 1901 is a Statute of Limitations, whatever rule the courts in this State may adopt with regard to such agreements, at least this action was begun too late. Whatever it may be called, however, in popular language or ■ by the parties themselves in their agreement, it is not such a statute. It is rather a condition precedent which the Legislature has imposed on the right to bring the action. The liability of directors for failure to file a report was statutory only and was in the nature of a penalty. This penalty was abolished, not in all cases as might have been done, but in all cases except where an action was begun in six months. The whole statute, with its amendments, taken together, was a penal one, and must be strictly construed in favor of directors. Such a construction requires that the saving clause be considered a condition and not a limitation — a constituent part of the cause of action, not a defense. [384] That it is introduced- by the word “ provided ” is no answer to this contention. It does not follow that the succeeding words constitute a proviso within .the strict sense of the term. In a proper case that word may be equally used to create a condition. Forscht v. Green, 53 Penn. St. 138; Selma, etc., Railroad Co. v. United States, 139 U. S. 560; Reining v. City of Buffalo, 102 N. Y. 308; Rowell v. Janvrin, 151 id. 60; Thrall v. Village of Cuba, 88 App. Div, 410. Further, the principal purpose of statutes of limitations is to limit the time of the bringing of actions upon liabilities created by the acts or contracts of the parties and -so to protect against stale claims. Obviously here the Legislature had an entirely different intent. If, therefore, the clause in question is made a condition precedent to the action, Ioknow of no reason of public policy which prohibits a contract that it should be waived. Such an agreement is no more invalid than one by an indorser that he will waive the demand for payment of a note. Or, to take a case more nearly in point, would there to-day be anything objectionable in a promise made upon adequate consideration by the director of a corporation with a creditor thereof that he would be responsible for the latter’s claim. Yet that is exactly what has been done. The defendants were personally liable for this debt at the time the agreement was made. They contract to remain liable notwithstanding the statute of 1901 which would, under a certain contingency, have relieved them. Nor, this provision being a condition precedent, and the contract to waive it being valid, is the agreement to be construed, as it must necessarily be construed with regard to the three years’ Statute of Limitations, as constituting merely a temporary waiver, that would allow the term of six mvnths to be counted from the termination of the receivership. The general rule is that when a condition precedent is once waived it is gone forever. And this rule simply expresses what must have been the meaning of the parties at the time the agreement was made. It was clearly intended to convert the conditional right of the creditor to sue on the performance of the condition into an absolute liability which could be enforced [385] after the termination of the receivership, irrespective of the six months’ limitation. Otherwise they accomplished nothing. After October 16, 1901, the condition precedent could never by any possibility be performed. It is true that the identical language used with reference to the three years’ Statute of Limitations and to the saving clause is here interpreted as having different meanings. Whatever the parties may have intended, the courts have said that, in view of public policy, such an agreement, if valid at all as a contract, shall with regard to the former be held to import a certain thing. But such a result is not inconsistent with giving the ordinary meaning to the same terms, when such considerations do not apply. In my opinion, therefore, the objection of the defendant Bagley is not well taken and the plaintiff is entitled to the relief demanded in the complaint with costs. Judgment accordingly. '