Jackson v. Clifford

Mr. Chief Justice Alvey delivered the opinion of the court: It is contended on the part of the plaintiff, that it was not competent to Marini to resign his position of trustee or director of the company before the end of the year for which he was appointed by the certificate of incorporation, and thus relieve himself of liability that might be incurred by reason of the possible non-feasance of the president and a majority of the trustees in failing or neglecting to make and publish — 321 — the report as required by Section 566 of the statute. It is argued that because Marini was named in the certificate of incorporation as one of the trustees or directors to serve the first year, therefore he was bound to serve for that length of time, and to incur all the responsibility that attached to the position, by the failure of the president and a majority of the trustees to comply with the requirement of the statute, in making and publishing the report within twenty days from the first day of January next succeeding the date of the incorporation. If this be so, it would seem to be a severe construction of the statute, and a construction that is not in accordance with the decided weight of authority. The two sections, 566 and 567 of the Revised Statutes, upon which this action is founded, were taken almost literally from the twelfth section of the statute of New York, entitled, “An act to authorize the formation of corporations,” etc., passed in 1848, and subsequently amended in particulars not at all affecting the present question. That section has been the subject of repeated adjudication by the highest courts of New York, and it has become the settled interpretation by the courts there that the section is penal in its nature, and therefore not to be extended by construction; that in an action to enforce a liability thereby created nothing can be presumed against the defendants, but that every fact necessary to establish their liability must be affirmatively proved. Without making special reference to the many cases in the New York courts maintaining this principle of construction, we may quote from the decision of the Supreme Court of the United States, in case of Chase v. Curtis, 113 U. S. 452, 457, following the New York cases, a concise statement of the result of the New York decisions, in construing the twelfth section of the statute of 1848, which is as follows : “ It is the well settled rule of decision, established by the Court of Appeals of New York in numerous cases, that this section of the statute, to enforce which the present action — 322 — was brought, is penal in its character, and must be construed with strictness as against those sought to be subjected to its liabilities; citing Merchants’ Bank v. Bliss, 35 N. Y. 412; Wiles v. Suydam, 64 N. Y. 173; Easterly v. Barber, 65 N. Y. 252; Knox v. Baldwin, 80 N. Y. 610; Veeder v. Baker, 83 N. Y. 156; Pier v. George, 86 N. Y. 613; Stokes v. Stickney, 96 N. Y. 323. In the case last cited, the action authorized by it was held to be ex delicto, and that it did not survive as against the personal representative of a trustee sought to be charged.” And the Supreme Court then proceed to say, that “ This rule of construction in reference to this and similar statutory provisions has been heretofore adopted and applied by this court; ” citing Steam Engine Co. v. Hubbard, 101 U. S. 188; Flash v. Conn, 109 U. S. 371, — cases coming up from other jurisdictions than New York. And in the case of Steam Engine Co. v. Hubbard, a case coming up. from the Circuit Court of the District of Connecticut, after stating the general rule as held by the courts of New York, and citing decisions' of other States in support of it, the learned justice, delivering the opinion, says: “Corresponding decisions have been made in other courts, and to such an extent as to justify the remark that the rule is universal.” There is a clear distinction between the case of the liability of stockholders, under provisions of statutes making them liable for the debts of the corporation, which is a contract liability, and the case of the liability of the officers of the corporation, for the failure or neglect to perfoi’m a prescribed duty, intended as means of notice and protection to the public. This distinction is clearly pointed out in the case of Flash v. Conn, supra. We perceive no reason whatever for any departure from the settled construction of the terms of the Sections 566 and 567 of the Revised Statutes. The remedy there given is as for a penalty, and the provision must be construed with strictness as against parties sought to be made liable. Had Marini, then, a right to resign, and if so, did such — 323 — resignation exonerate him from liability for the subsequent failure of the president and a majority of the trustees or directors to make and publish the report as required by the statute? To say that a party who accepts an official position in a private corporation has no right to resign or retire from that position, can only be predicated of an express agreement by the party, or a duty imposed by express terms of a statute. It is not contended that there is any such express agreement, or that there is any such express restrictive provision of a statute, applicable to this case; but it is insisted that public policy requires that such restriction should be observed and enforced by the courts. That vacancies should occur in the board of trustees or directors are among the unavoidable things; and that they should occur by resignation is not precluded or forbidden by anything in the terms of the statute. We do not think that there is any distinction to be made between the rights and liabilities of the trustees named in the certificate of incorporation to serve for the first year, and those subsequently elected. They are all alike nominated and elected by the corporators, only by different processes. The Revised Statutes, Section 556, of the same article and class of corporations, expressly provides, that “ when any vacancy shall happen among the trustees, it shall be filled for the remainder of the year in such manner as may be provided by the by-laws of the company.” The right of resignation has always been conceded to a director of a private corporation, subject, of course, to any and all liabilities that had, by law, been imposed upon him, while in office. If his resignation is effective, he cannot be made liable for any subsequent acts or defaults of the corporation, or of its board of directors, unless by express provision of the statute under which the company is incorporated. In this case, the act of default that is supposed to afford ground for the action, was the neglect or failure of the president and a majority of the trustees, within — 324 — twenty days from the 1st of January, 1887, to make a report and have it published in the District as required by Section 566; and upon failure, all the trustees of such company, it is declared, shall be jointly and severally liable for the debts of the company then existing, and for all that shall be contracted before such report shall be made. When this statute declares that all the trustees shall be liable, it certainly does not mean all the trustees who may have held positions in the board at any previous time. It means only the trustees who are in control of the affairs of the corporation at the time of the default made, and who have incurred the penalty by their neglect of duty. If, therefore, Marini was not one of the trustees or directors of the company at the time when the report should have been made, he did not incur the penalty imposed for the neglect of that duty. This would seem to be in accordance with the plain dictates of reason and justice upon the subject.' That Marini had the right to resign as trustee would seem to have been fully recognized by adjudged cases. In the case of Chandler v. Hoag, 2 Hun, 613, where a trustee had sent in his resignation, and thereafter ceased to act as trustee, it was held that his liability under the statute ceased from that time, although his resignation may not have been accepted. And so it has been held, that if the trustee resign the office, he is not liable for debts of the company in consequence of the subsequent default of the officiating trustees to make and file the report required by the statute. Squires v. Brown, 22 How. Pr. 35. Indeed, the right to resign seems to be well established upon authority. Bruce v. Platt, 80 N. Y. 379; Briggs v. Spaulding, 141 U. S. 132, 154. ’ The reason of the decisions upon this subject, of the statutory right of action against officers of corporations for nonfeasance or neglect of statutory duty, is well stated in the case of Breitung v. Lindauer, 37 Mich. 217, decided in 1877, by a very able court, composed of Chief Justice Cooley, Justices Campbell, Marston and Craves. In that case the action — 325 — was to charge a director of a corporation with a debt of the company, because the directors had failed to file certain reports as required by the general law of the State, relating to mining and manufacturing corporations. It was held that the statute giving the right of action was penal in its nature, and did not create a contract relation between the creditors and the directors. And in a very clear opinion, concurred in by all the judges, in speaking of the liability of the director, Mr. Justice Marston said: “ It cannot be claimed that this defendant is individually liable for the amount of plaintiff’s claim against the corporation from anything contained in the act under which the corporation was organized. Neither his position as a stockholder or as a director, nor both combined, renders him liable, nor does his liability attach as a necessary result of the contract entered into. The debt was one against the corporation only; the relation of debtor and creditor arose and existed between the plaintiff and the corporation, and the directors are not, nor is the defendant as a director or stockholder, made liable for the debts of the corporation, either in whole or in part. His liability is imposed by the statute for a violation of its provisions, by the directors or a majority of them intentionally neglecting or refusing to make and file a report as therein directed. It is intended as a punishment for a breach on the part of the officers of their clear statutory duty, and is wholly independent of any injuries which creditors of the corporation may have sustained in consequence of such neglect. This liability depends, solely upon the positive provisions of a public statute founded on considerations of public policy, and when, in the opinion of the legislature, such considerations cease to exist, the law may be repealed. Such repeal in no way impairs the rights, privileges or franchises of the corporation, nor of the individuals dealing with such corporation. Their rights and remedies against it are in no way affected or impaired; they remain as they were when the contract was entered into, and so long as they have not — 326 — obtained a judgment against the director, they have no such vested right to this remedy against him as would be beyond the power of the legislature to take away. We are of opinion that this liability must be considered in the nature of a penalty, and that part of the statute having been repealed without any saving clause, such penalty cannot now be recovered.” In that case, at the time the debt was contracted, which was sought to be recovered of the director, by certain sections of the general law, relating to mining and manufacturing companies, certain reports were required to be made by the corporation in July of each year, to be signed by a majority of the directors, and filed as therein directed; and by another section of the same general statute, the directors of any such company who should intentionally neglect or refuse to comply with the provisions of the preceding sections, were made jointly and severally liable, in an action founded on the statute, for all the debts of such corporation contracted during the period of such neglect or refusal. By subsequent statutes these provisions were modified, and it was claimed by the defendant that the liability imposed upon the directors before the amendment or modification, for neglect in making the report, was in the nature of a penalty, from which they were relieved by the repeal of the statute; and this defense was fully sustained by the court. Both upon reason and authority we are clearly of opinion that the right sought to be enforced in this case is in the nature of a penalty; that there was no contractual relation between the plaintiff and Marini, one of the original trustees or directors of the corporation; that Marini had the right to resign his position-as trustee of the corporation; and not being one of the trustees or directors at the time when the failure or neglect occurred to make and publish the report, whereby the penalty was incurred, he was not responsible for that penalty. The liability attached to those only whose — 327 — duty it was to make and publish the report, or to the trustees then in office. The qualification that the plaintiff sought to have en-grafted on the court’s instruction, raising and submitting the question of fraud to the jury, in the making and accepting of the resignation of Marini, as trustee, was properly refused, for the reason assigned by the court. Fraud could not be presumed, and there was no sufficient evidence upon which the question of fraud could have been submitted to the jury. The testimony offered, and admitted against the objection of the plaintiff, to prove the fact of the resignation of Marini as trustee, would seem to be admissible under the facts stated. The corporation books or minutes of proceedings that might have furnished evidence of such resignation and acceptance thereof, appear to have been taken beyond the jurisdiction of the courts of this District, and would have been difficult, if not impossible, to trace. The certified copy of the acceptance of the resignation, that the witness testified he had procured, he says, has been lost; and under such circumstances, we think, the testimony of the witness to the facts of resignation and acceptance, was receivable, as being the-best within the power of the defendants. The exception taken by the plaintiff to the refusal of the court to admit in evidence the judgment recovered by the plaintiff against the Chesapeake Fire Insurance Company for the amount of the policy, presents a question, in view of the conclusion reached by this court on the main question, as to the right of the plaintiff to recover, that is quite immaterial. If, however, that were not so, we should hold the record of that judgment to be inadmissible as against the defendants, upon the authority of the cases of Miller v. White, 50 N. Y. 137; Whitney Arms Co. v. Barlow, 63 N. Y. 62, and Chase v. Curtis, 113 U. S. 452, 459. It follows that the judgment of the court below must be affirmed ; and it is so ordered. Judgment affirmed.