Chapman v. . Lynch , 156 N.Y. 551 ( 1898 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] This action was brought to recover the sum of $8,973.37, the amount due and owing the plaintiff by the American Dairy Salt Company, Limited, a business corporation organized under chapter 611 of the Laws of 1875. The action is sought to be maintained against the defendant upon the ground that he was a director of the corporation, and as such, in company with his associates, had failed to file the annual report required by the statute during the years 1881 to 1888, inclusive.

This is a twin action to that of Chapman v. Comstock (reported in 58 Hun, 325, and in this court in 134 N.Y. 509). The evidence reported upon this trial is in substance the same as that in the former case. The facts as stated in the former case, in this court, are as follows: "On and prior to February 11th, 1882, the plaintiff held a promissory note for $10,880.90 of the Onondaga Coarse Salt Association, of which Thomas Molloy was treasurer. That company was winding up its business and desired to pay the note. The plaintiff asked Molloy if he had any place he could use the money for him, saying that he had no place for it and did not want to use it at that time. Molloy said he could take it for the American Dairy Salt Company, Limited, of which he was also treasurer. Further conversation took place with reference to the responsibility of the company and its directors, resulting in the plaintiff's leaving the money with that company, and it issued to him a pass book, in which was entered ``Frank B. Chapman in special account with the American Dairy Salt Company, Limited.' Under the credit column was entered, ``February 11, 1882, cash, $10,880.90,' and semi-annually thereafter interest was credited upon that amount at the rate of six per cent. The plaintiff was subsequently paid $4,300, April 30th, 1885; $1,000, June 1st, 1888, and $1,000, July 11th, 1888, for which receipts were given. Shortly after the last payment was made, the company failed and refused to pay the balance, and in October following a receiver was appointed."

It is alleged in the complaint that the money was deposited with the company by the plaintiff and was payable only upon demand. This allegation was controverted by the answer, in which it was alleged that the money was loaned to the company without time, and was recoverable by the plaintiff at any and all times without demand. It was further alleged in the answer that the corporation was not organized or authorized to do a banking business, or to receive deposits of money, but was forbidden by law from so doing, and that more than three years had elapsed after the cause of action accrued before the commencement of this action.

Upon the trial of the former action the case was submitted to the jury, which found a verdict in favor of the plaintiff. A motion for a new trial was then made upon the minutes of the court, upon the grounds specified in the Code, which motion was denied, and an appeal was then taken to the General Term from the judgment and from the order denying the new trial. The General Term reversed both the judgment and the order and awarded a new trial. In the order of reversal, the General Term certified that it was held and decided, "1. That the verdict ought to have been directed in favor of the defendant, or a nonsuit granted. 2. That the verdict is against the evidence. 3. That the several exceptions taken to the refusal to charge present error."

In the appeal which was brought from the order of the General Term to this court, it was here held that the appeal from the order denying the motion for a new trial, made upon the minutes, brought up for review in the General Term the question as to whether the verdict was against the weight of the evidence; and that question being properly before the court, its order reversing the judgment was not reviewable in this court, unless it appeared from the record that the order was affirmed as to the facts, or the appeal therefrom dismissed, following a long line of authorities, which are cited in the report of that case.

In this case another question is now presented, which was not then considered, and that is, assuming the money to have been delivered by the plaintiff to the corporation as a deposit and not payable until demanded, was such a contract valid and authorized, and did it prevent the running of the Statute of Limitations?

The alleged deposit was made on the 11th day of February, 1882. The directors of the corporation did not make the report required by the statute during the years 1881 to 1888, inclusive. This action was commenced on the 27th day of September, 1889. The action is for a penalty, depends wholly upon the statute, and falls within the third subdivision of section 383 of the Code of Civil Procedure. (Losee v. Bullard, 79 N.Y. 404; Knox v.Baldwin, 80 N.Y. 610; Duckworth v. Roach, 81 N.Y. 49.) The Statute of Limitations commenced to run from the time that the cause of action accrued to the plaintiff. When did it accrue? As we have seen, default in filing the report had already occurred when the deposit was made; but, under the alleged contract for deposit, it is claimed that no action could be maintained thereon until after demand had been made and payment refused. The plaintiff thus had it in his power to prevent the running of the statute by neglecting to make a demand for the money, and thus indefinitely perpetuate the liability of the defendant for the penalty. The claim of the defendant is that the position of the plaintiff is untenable; that if there was a contract that the money should be received by the corporation on deposit, it wasultra vires, unauthorized and void, and that an action as for money had and received was available to the plaintiff from the date of the deposit.

Section 13 of the act under which the corporation was organized provides that it shall be lawful for the corporation to borrow money for its legitimate purposes. It does not, however, authorize it to receive money upon deposit. It is contended on behalf of the appellant that the statute against unauthorized banking, which originally prohibited corporations from receiving deposits unless authorized so to do, was repealed by chapter 402 of the Laws of 1882. However that may be, the Revised Statutes, with reference to the general powers, privileges and liabilities of corporations, were left in force, and so remained until they were incorporated into the General Corporation Law of 1892.

The Revised Statutes, part I, chapter 18, title 3, section 3, first edition, page 600, provide: "In addition to the powers enumerated in the first section of this title and to those expressly given in its charter, or in the act under which it is or shall be incorporated, no corporation shall possess or exercise any corporate powers except such as shall be necessary to the exercise of the powers so enumerated and given.

"Section 4. No corporation created, or to be created, and not expressly incorporated for banking purposes, shall, by any implication or construction, be deemed to possess the power of discounting bills, notes or other evidences of debt, of receiving deposits, of buying gold and silver, bullion, or foreign coins, of buying and selling bills of exchange, or of issuing bills, notes, or other evidences of debt, upon loan, or for circulation as money." Here we have, in the first place, an express statutory provision prohibiting the corporation from exercising powers not given to it, which are not necessary for the exercise of the powers for which it was created; and, in the second place, an express prohibition against receiving deposits unless incorporated for banking purposes. Words could hardly be found that would make the meaning more clear.

The American Dairy Salt Company, Limited, was a business corporation, organized for the manufacture of salt. It was incorporated under a statute which authorized the formation of business companies, was adapted for the purposes of such organizations, and contained none of the safeguards which have always been exacted and required of corporations authorized to do a banking business or the receiving of the money of others on deposit for safe keeping or investment. We thus find a reason founded on public policy, for the prohibition contained in the statute referred to, applying to corporations not expressly incorporated under the statute providing for the incorporation of banks, which contains the safeguards exacted from such corporations which are to engage in the business of dealing with the money of others.

It appears to us that the corporation, in accepting the funds of the plaintiff, in special account upon deposit, exceeded its corporate power and engaged in a business in which it was not authorized, and that, consequently, its contract with the plaintiff, if such was its nature, was ultra vires; if so, the plaintiff's right of action for the moneys delivered to the corporation at once accrued.

It is not our purpose here to enter upon any discussion as to whether the contract in question was malum in se, or was simply a contract unauthorized. The corporation is not here seeking to enforce any of the provisions of the contract. In either case the contract was ultra vires and formed no obstacle to an immediate action for the money. Neither do we deem it necessary to enter upon any extended reference to the authorities. The subject ofultra vires of contracts has recently been considered in this court in the case of Bath Gas Light Company v. Claffy (151 N.Y. 24) in which Chief Judge ANDREWS and Judge VANN have engaged in an elaborate discussion of the authorities. The cases of New York State Loanand Trust Company v. Helmer (77 N.Y. 64), and Pratt v.Short (79 N.Y. 437), while distinguishable in many features, tend strongly to sustain the conclusion which we have reached.

It must be remembered that this action is prosecuted to recover a penalty. The action having once accrued and the statute run against it, the bar becomes complete, notwithstanding the subsequent defaults of the defendant and his associates in filing the annual reports called for by the statute. Neither do we understand that subsequent partial payments by the corporation upon account affect the running of the statute; they may, as to the corporation under its contract to pay, but cannot operate to extend the liability of the defendant for the penalty incurred by him. (Rector, etc., v. Vanderbilt, 98 N.Y. 170-175; Losee v. Bullard, 79 N.Y. 404.)

Nor do we think that the crediting of the interest upon the account semi-annually affects the liability of the defendant. The cause of action having once accrued, and the defendant having become liable for the penalty, the statute commenced to run, and was not stopped by either credits of payment, or the charges of interest accrued thereafter made by the company.

The judgment should be affirmed, with costs.

All concur, except MARTIN, J., not sitting, and VANN, J., not voting.

Judgment affirmed.