Morgan v. Hedstrom

• Decision Date: 02 October 1900
• Citation: 58 N.E. 26,164 N.Y. 224
• Parties: MORGAN v. HEDSTROM et al.
• Court: New York Court of Appeals Court of Appeals

164 N.Y. 224

58 N.E. 26

MORGAN

v.HEDSTROM et al.

Court of Appeals of New York.

Oct. 2, 1900.

Appeal from supreme court, appellate division, Fourth department.

Action by Amos W. Morgan against Arthur E. Hedstrom and others. From a judgment of the appellate division, and an order denying defendants' motion for a new trial (49 N. Y. Supp. 1049), defendants appeal. Affirmed.

Bartlett, J., dissenting.

John G. Milburn, for appellants.

Norris Morey, for respondent.

LANDON, J.

The plaintiff has recovered a judgment against the defendants for the amount of the principal and interest of 10 bonds of $1,000 each, issued by the Franklin Iron Manufacturing Company, a corporation organized in 1879 for the purpose of mining ore and manufacturing iron in this state, under chapter 40 of the Laws of 1848, known as the ‘Manufacturing Act,’ which bonds and the interest thereon were secured by a mortgage duly given by the company upon its real estate. Neither the company nor any of its directors ever filed any annual report. The recovery was had under section 30 of the stock corporation law (chapter 688, Laws 1892), which declares that, ‘if such report is not made and filed, the directors shall jointly and severally be personally liable for all the debts of the corporation then existing.’ The [164 N.Y. 229]10 bonds were part of a total issue of $120,000 issued December 1, 1883, payable 10 years from date, with interest semiannually. The bonds fell due December 1, 1893, and, with interest falling due June 1, 1893, and since accruing, remain unpaid. The mortgage has not been foreclosed.

The defendants contend that bonds of a corporation issued upon the security and credit of a mortgage upon the corporation's real estate are not within the meaning and intent of section 30, and therefore not within the section itself; that there is no need to file any report for the information or protection of creditors thus secured; that the purchaser knows the nature of his security, and accepts and relies upon it; that, if the bonds are not paid, he has his recourse to the mortgage; that the statute is penal in its nature, and was framed for the benefit of those dealing with the corporation and giving it credit, or further extending it, in the ordinary course of business. Reference is made to the history of the legislation. When section 12 of the act of 1848 was enacted, section 2 of the same act prohibited the corporation from giving a mortgage or lien upon its property, and therefore the corporation could have no mortgage-bond creditors. By chapter 517, Laws 1864, the act was amended, permitting the corporation to mortgage its real estate upon the written assent of stockholders owning two-thirds of its stock. This provision was extended to personal property by chapter 481, Laws 1871, and to franchises and privileges by chapter 163, Laws 1878. The argument is that as mortgage debts were not and could not be made under the original act of 1848, and as, when such debts were authorized by subsequent legislation, they would, when contracted, be secured by the mortgage, they formed a new class, with a new security, not within the spirit of the original enactment, and only constructively brought within its letter by the subsequent amendments, which, while authorizing a new class of debts upon mortgage security, failed to state that the original class protected by the annual reports was not intended to be enlarged; that the court should take notice of the sequence of the enactments, and not place a new class of secured debts under an old statute made to protect debts not otherwise secured. The argument of the plaintiff is the section itself, which embraces ‘all the debts of the corporation then existing,’ thus including all and excepting none. lIt is a settled rule of construction that an original statute and all its amendments must be read together and viewed as one act passed at the same time. Blake v. Wheeler, 18 Hun, 496; Lyon v. Railway 402; Rodgers v. Bradshaw, 20 Johns. 735, 402; Rodgers v. Bradshaw, 20 Hohns. 735, 744. When the courts make an exception from the letter of a statute because the subject excepted is not within its spirit and meaning, they do so to avoid a result so unreasonable or absurd as to force the conviction upon the mind that the excepted subject could not have been intended by the legislature, and that, if it had been presented to that body, it would have disclaimed any intention to include it. It will suffice to refer to Riggs v. Palmer, 115 N. Y. 506, 22 N. E. 188,5 L. R. A. 340, and Holy Trinity Church v. U. S., 143 U. S. 457, 12 Sup. Ct. 511, 36 L. Ed. 226, in which the rule is discussed and illustrated. The whole matter was revised and re-enacted in the stock corporation law of 1890, and, presumably, if this particular exception had been overlooked in the previous enactments, it would then have been inserted. This court has held that that act declares the legislative policy in regard to the various laws embraced in the revision made by it, and that section 30 was but a continuation of prior laws. Bank v. Faber, 150 N. Y. 200, 44 N. E. 779. There are not lacking some considerations tending to show the propriety of including debts secured by mortgage within the class covered by section 30, and thus affirmatively supporting the legislative intent to include them. They are no less debts because secured. The court has said that the section embraces every debt of every nature. Roach v. Duckworth, 95 N. Y. 397;Jones v. Barlow, 62 N. Y. 202;Adams v. Mills, 60 N. Y. 533. If they are recovered under this provision, the mortgage is either released, to the greater protection of the other creditors, or the directors are subrogated to the plaintiff's rights under the mortgage by virtue of subdivision 2 of section[164 N.Y. 231]34, added to the stock corporation law by chapter 354, Laws 1899, which provides that ‘any director or officer, who, because of any such existing or future liability, shall pay any debt of the corporation, shall be subrogated to all rights of the creditor in respect thereof against the corporate property.’ We refer to this act as the latest evidence that the legislative construction is that mortgage debts are within the meaning of section 30, and for no other purpose. If the maturity of the mortgage debt is postponed for 10 years or longer, the value of the real estate mortgaged may so depreciate as to be practically valueless as security, and hence the creditor may have the greater need for this remedy. The statute gives to private corporations special franchises and privileges. As the corporation itself can have no sense of legal obligation or of common honesty or fairness, the statute makes an attempt to compel its directors, under penalty of personal liability, to communicate to the public such information about its assets and liabilities as may be useful to its creditors. The extent of this information and of the penalty for withholding it are purely of legislative cognizance. The provision is remedial, and, if necessary, should be liberally and not narrowly construed, so as to embrace the debts within the language of the act, however strictly construed as to the acts of the directors constituting their alleged default, or as to the evidence of the debt of the corporation. Miller v. White, 50 N. Y. 137. Construing section 30 according to its terms and in the light of its history, and of the intention of the legislature, so far as such intention may reasonably be inferred, we find no warrant for...