Briggs v. Easterly

| N.Y. Sup. Ct. | Mar 5, 1872

By the Court,

Johnson, J.

This case is not distinguishable in its facts, and upon the general merits, from that of 0raw v. Easterly, decided-by this -court in June term last, and must be governed by that decision. ■ We there held that the defendant, Easterly, was not a lawful trustee of the corporation, and had not become personally liable for the debts thereof, by reason of the default of the trustees in making their report as required by statute. We do not propose to review that decision, on that point.

There is one feature of this case, however, which deserves consideration, in view of the possibility of our decision, on the question presented by the case above referred to, being held erroneous by the court of last resort. The plaintiff is assignee of the demands upon which the action is brought. They are debts of the corporation, and the plaintiff seeks, by his action, to charge the defendants personally with the payment of those debts, on the ground that they had refused or neglected to make the report required by section 12 of the act of 1848. (Sess. Laws of 1848, ch. 40.)

All the persons claimed to have been trustees by the plaintiff, are made parties defendant, including' the defendant Easterly. All the defendants, except Easterly make default in the action, and allow j udgment to go against them, and he alone defends. More than two-thirds of the amount of the plaintiff’s recovery consists of claims which belonged to two of the defendants, who were two of the trustees originally appointed, and who were confessedly trustees at the time of the default in making the report-, from which the right of action against any of the defendants springs. The assignment to the plaintiff by these two trustees was after the default. This presents the question whether any right of action in favor of these debts of the- corporation accrued against any of the trustees, under the statute. At the time of the default they were debts of the corporation, in favor of the two trustees who, with the others, were delinquent in making their report. The statute requires the report to be made within twenty days from the first day of January, in each year, which report is to be signed by the president of the company, and a majority of the trustees, and verified, and in case of a failure to make such report, makes the trustees jointly and severally liable “for all the debts of the company then existing, and for all that shall be contracted before such report shall be made.” The language used is broad enough to include the debts of individual trustees against the corporation, and'the question arises whether such debts are within the provision of the act. In the case of Merchants’ Bank v. Bliss, (35 N. Y. 412, 416,) it was held that this liability which the statuté creates against the trustee, was in the nature of a penalty for the violation of its provisions, and was intended for the protection of creditors, and the prevention of frauds upon the public, in respect to the financial condition of such corporations.

The obvious policy and intention were, to aid and protect outside creditors, who had no means of knowing whether the corporation was entitled to credit or not, and not the trustees themselves, by whom all the debts against the corporation are created, and who are charged with the duty of giving the information' to the public. Clearly it was no part of the design of the statute, to enable trustees, by. means of their own wrong and neglect of duty, to create a personal liability against their fellow trustees, in respect to their own claims and demands against the corporation. To impute such an intention would be an unjust and unmerited reproach upon the statute, and the legislature which enacted it. It would place the statute in opposition to the fundamental principles not only of law but of good conscience and morals. ISTo such construction can be allowed.

Notwithstanding the general language of the act, therefore, the fundamental rulé, which lies at the very foundation of all law, that no person, by his own transgression, can create a cause of action in his own favor, against another, must still be applied to trustees of these corporations.

The personal liability is imposed by way of punishment for the transgression, solely, and if the wrongdoer himself is to- share in the benefit resulting from the wrong, it is easy to see to what intolerable mischief and oppression the provision may lead. I conclude, therefore, that although these claims of these two trustees may be within the letter of the act, yet not being within the mischiefs intended to be remedied or prevented by it, nor within its spirit and intention, they are not within its provisions. Even if Easterly were a legal trustee, he cannot be made liable for these demands of his co-trustees, against the corporation. It could make no difference, in that case, that he was equally in fault. Because, in that position, he can defend upon the maxim, that where both are equally in fault, the condition of the defendant is preferable.

It is plain enough that if no cause of action had accrued •in favor of the assignors, at the time of the assignment, the plaintiff has none now, fin respect to these claims derived from the trustees.

One of the plaintiff's assignors was the president of the corporation, and it is a notable and very suggestive circumstance, that each of these assignors, who were trustees, have not only allowed themselves to be sued, with the other trustees, on these large claims thus assigned, but have.allowed judgment to go against them by default. It appears that the defendant Easterly, at the time when the report should have been made, was a resident of the State of Tennessee.

[Fourth Department, General Term, at Rochester, March 5, 1872.

Mullin, P. J., and Johnson and Talcott, Justices.]

The question of the liability, on account of these claims assigned by the two trustees, Was. distinctly raised by the defendant’s counsel, and overruled. In any view, therefore, there must be a new trial, with costs to abide the event.

New trial granted.