Kirkland v. . Kille , 99 N.Y. 390 ( 1885 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] 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." It appeared that the bonds were to the plaintiff's knowledge diverted from the purpose for which they were intended, and for that reason the court below denied a recovery according to the prayer of the complaint, but against the objection of the defendant directed a verdict in favor of the plaintiff for $1,500 and interest. Both parties appealed to the General Term; the plaintiff because he was not permitted to recover according to his claim, and the defendant because the complaint was not dismissed. We agree with the courts below so far as they went against the plaintiff, and as the case is now presented, discover no ground on which even his partial success can be approved.

The complaint states a single cause of action — a debt due from the company to the plaintiff as holder and owner of the bonds. He took part in their creation, and, however honestly conceived, they appear to have been unavailing in any legitimate business of the corporation, and serviceable thus far only as a pretext for subjecting its trustees to a penalty imposed by statute (Laws of 1848, chap. 40, § 12), for the benefit of creditors whose debts, fairly contracted, were enforceable against the company. The recovery is placed, not upon the debt named in the complaint, but upon an alleged indebtedness of the company for the plaintiff's salary as its president. The evidence disclosed that $3,000 of the bonds were turned out to him in payment, and to the extent of that salary the trial court held the defendant liable to the plaintiff. The defendant was not brought into court to answer such a claim. Concerning it there was no allegation, and it may well be that injustice has been done by its allowance. (Code, § 1207; Bank v. Kohn, 85 N.Y. 189; Newdecker v. Kohlberg, 81 id. 296.) But I do not need to go into that question. The circumstances upon another trial, if one is had, may be different, and now for other reasons the defendant's appeal must prevail. Even if the plaintiff is regarded as a creditor having a valid debt against the corporation, he has failed to bring the case within the statute upon which he relies, and by which it is enacted "that every such company shall annually, within twenty days from the 1st day of January, make a report which shall be published" in the place "where the business of the company is carried on" * * * "and filed in the office of the clerk of the county where the business of the company shall be carried on." Nor is it necessary to discuss with any minuteness the cases which have given construction to its provisions. They were referred to with much detail in Bruce v.Platt (80 N.Y. 379), and result in this, that when the condition of the company is such that the end and object for which it was formed are destroyed, and there is neither an ability nor intention on its part at any time to farther prosecute its business, it is no longer required to make the report mentioned in that section. In other words, when these events happen it ceases to be a company "carrying on business," and the direction of the statute has no application. This proposition was presented to the trial court as ground for dismissing the complaint, and it was error to disregard it. The request was justified by the evidence.

Although formed in April, 1874, the company seems at no time to have had existence, except in contemplation of law. Its organization was avowedly for the purpose "of carrying on a mining, smelting and metallurgical business, to accumulate, conduct and supply water for mining purposes." Its capital was fixed at $500,000, but none was paid in nor subscribed. The whole was transferred in payment for mining property, smelting works, water-works and real estate once owned by the "Ingot Mining Company," but it became extinct and was at this time in the hands of one Jones. He received the entire stock of the new company and deeded those things to it. The plaintiff and his son were active projectors of the enterprise; one or the other, as evidence might be credited, receiving under previous arrangement a large amount of these first mortgage bonds of the new company for services in getting together, as one testified "five or six reputable and respectable gentlemen who would file a certificate of incorporation." This was done by the plaintiff and others on the 18th of April, 1874, and on the 20th of that month the plaintiff was chosen president. His salary was fixed at $3,000 per annum. On the 23d of May, the trustees resolved to issue the bonds already referred to, secured by a first mortgage on the entire property of the company, for the purpose above mentioned. The plaintiff, as president, executed the bonds and mortgage, and on the 3d of June the trustees resolved to purchase of Jones $100,000 of the company's stock, and pay therefor $100,000 of the first mortgage bonds just referred to. This transaction was completed, and of these bonds, thirteen, amounting to $6,500, came to the plaintiff and form part of his cause of action. The company received no money for them. He continued president for six months. During that time the property was not worked, but, as he says, "efforts were made to secure a superintendent." On the 17th of July, 1874, a consulting engineer was employed to ascertain and report what was the best course to pursue in developing the property. On the 20th of October, 1874, at a meeting of the trustees, it was stated that immediate action was required to protect the property of the company and "pay expenses already contracted on that account;" that $4,000 would be sufficient for that purpose, and that could be had on a pledge of the company bonds, as collateral to a loan, at ten per cent per annum. The secretary tendered his resignation and asked that in providing funds, enough be raised to pay his salary, then amounting to $600, and his bill of $50 for services in organizing the company. The loan was authorized, "the proceeds to be applied to protecting the property of the company, in redeeming property already pledged and payment of expenses incurred." The plaintiff then resigned as president; so did Bissell, one of the trustees; but all these resignations were laid upon the table, and both president and secretary announced "that for any further services rendered they should make no charge for salary, and although only $1,500 was owing to the plaintiff, the company gave to him and he received bonds to the amount of $3,000 in payment out of $150,000 before authorized. These constitute the other part of those set out in the complaint.

The defendant came into the board of trustees in October, 1874. Proceedings were begun for the foreclosure of the mortgage given to secure the $150,000 of bonds — precisely when does not appear, but they were consummated by a decree so that the mortgaged premises were advertised to be sold December 29, 1875, and after adjournment actually sold in February, 1876. There is testimony from Carnaghan, who succeeded Kirkland as president, that "the company incurred no debts after November, 1875; it did no business after November, 1875; every thing that was done by the company or in connection with it after about the middle of January, 1875, was in connection with the foreclosure proceedings that had been begun about that time, and after that, all that was done was to foreclose that mortgage and sell out the property of the company."

In November, 1875, salaries ceased, and after that time at any rate no meeting of the trustees was held nor any business transacted.

Not only was there no evidence that any other than formal acts were performed by the company in furtherance of the objects of its organization, but it was proven without contradiction "that it never got into business," "that it never conducted or carried on a mining, smelting or metallurgical business, or that of accumulating, storing or conducting a supply of water for mining purposes." In short "that it never performed any part of the business for which it was incorporated." The bonds were not negotiated, and even the preliminary work of examination of the property by the consulting engineer, and "assessment work," that is, work done on the claim to protect the title, ceased in the early part of 1875. "It never dug out any ore with a view to smelting." The last of any kind was in June, 1875. There was at no time a superintendent. Under these circumstances we think no report in 1876 was required from the company. It never had the material capacity to do business. Even its effort to acquire it ceased, and its intention to do so was given up in 1875.

The statute invoked by the plaintiff has often been declared to be highly penal, and not to be extended by construction. We think the case made by him comes neither within its phraseology nor its intent. It follows that the plaintiff must fail on his appeal, and the defendant succeed.

The judgment of the court below should, therefore, be reversed and a new trial granted, with costs to abide the event.

All concur.

Judgment reversed.