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Effect of failure to elect directors: see GENERAL CORPORATION LAW, $ 28.
Mode of calling and conducting special election of directors: see GENERAL CORPORATION LAW, $$ 29, 30.
Qualification of voters and canvass of votes at special election : see GENERAL CORPORATION LAW, $ 31.
Powers of Supreme Court respecting elections : see GENERAL CORPORATION LAW, $ 32.
Directors of stock corporations: see Stock CORPORATION LAW, § 25 et seq.
Quorum of directors and powers of majority: see GENERAL CORPORATION LAW, $ 34.
Voting by proxy.- There is no principle “ applicable to the discharge of corporate functions, by which directors or trustees of the corporation can vote at the meeting of the board of directors or trustees by proxy." Craig Medicine Co. v. Merchants’ Bank, (1891) 59 Hun 561, 14 N. Y. S. 16.
§ 11. Powers, duties and liabilities of directors. The directors of
every membership corporation, except a corporation for the prevention of cruelty to children or animals, and a corporation for promoting or maintaining the principles of a political party, created under or by a general or special law, shall present at its annual meeting a report, verified by the president and treasurer, or by a majority of the directors, showing the whole amount of real and personal property owned by it, where located, and where and how invested, the amount and nature of the property acquired during the year immediately preceding the date of the report and the manner of the acquisition; the amount applied, appropriated or expended during the year immediately preceding such date, and the purposes, objects or persons to or for which such applications, appropriations or expenditures have been made; and the names and places of residence of the persons who have been admitted to membership in the corporation during such year, which report shall be filed with the records of the corporation and an abstract thereof entered in the minutes of the proceedings of the annual meeting. The directors of every membership corporation, except a society for the prevention of cruelty to children or animals, a corporation for the promotion of agriculture and which holds annual agricultural fairs, and a corporation formed for promoting or maintaining the principles of a political party, shall be jointly and severally liable for any debt of the corporation contracted while they are directors, payable within one year or less from the date it was contracted, if an action for the collection thereof be brought against the corporation within one year after the debt becomes due, and an execution issued therein to
the county where its office is, or where a certificate of its incorporation is filed, be returned wholly or partly unsatisfied, and if the action against the directors to recover the amount unsatisfied be commenced within one year after the return of such execution; provided, however, that no director of a corporation formed for promoting or maintaining the principles of a political party shall be liable for any such debt unless the contracting of the same shall have been specifically authorized by the board of directors at a meeting thereof, and assented to thereat by the directors sought to be charged therewith.
This section was derived from the Membership Corporations Law of 1895, § 11, as amended by L. 1899, ch. 292, § 1.
Corporations for prevention of cruelty.: see infra, § 120 et seq. 1. Powers and liabilities, 28 II. Actions against directors, 30
I. POWERS AND LIABILITIES Acts of directors generally: see GENERAL CORPORATION LAW, § 43. Quorum of directors and powers of majority: see GENERAL CORPORATION LAW, § 34. Directors as trustees in case of dissolution: see GENERAL CORPORATION LAW, § 35.
Misconduct of directors, officers, agents, and employees of corporations: see PENAL LAW, § 665.
Powers generally.- “The restrictions on the powers of the board of governors of a membership corporation must be strictly construed, for the statute imposed upon each director a liability for the debts of a corporation; and before that liability can be fixed the directors are entitled to the protection afforded them by the statute.” Fischer v. Motor Boat Club of America, (1908) 61 Misc. 66, 113 N. Y. S. 56.
Nature of liability. The directors' liability may “be enforced against them in an action at law to the same extent and in the same manner as any debts they may personally have incurred.” Marsh v. Kaye, (1901) 168 N. Y. 196, 61 N. E. 177, affirming 44 App. Div. 68, 60 N. Y. S. 439. The liability is predicated “ not upon any default of the corporation for which its directing officers should be held liable, but upon the theory that directors of a membership corporation, who actively participated in the contracting of a debt, should not be allowed the exemption of liability for their individual acts upon any rule of corporate liability.” Dunn v. Neustadt), (1911) 72 Misc. 1, 129 N. Y. S. 161. This is the only provision of the Membership Corporations Law “which imposes a personal liability of any description against the directors or members of a membership corporation, and thereby creates to such an extent an exception to the general rule of the non-liability of members of such corporation for its debts.” Op. Atty.-Gen. (1902) 344. The provisions of this section, with regard to the directors' liability, are not penal in their nature. Rogers v. Decker, (1892) 131 N. Y. 490, 30 N. E. 571.
Liability under lease.-An indebtedness of a membership corporation for rent is not contracted, within the meaning of this section, when the lease is made, but when the instalments of rent come due. Dunn v. Neustadt), (1911) 72 Misc. 1, 129 N. Y. S. 161. The directors of a membership corporation are personally liable for the monthly rent of a building leased by the corporation and accruing during their tenure of office, although the lease was executed
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more than a year prior to their election. Thistle v. Jones, (1907) 123 App Div. 40, 107 N. Y. S. 840, reversing 45 Misc. 215, 92 N. Y. S. 113.
Contingent liability. The legislature did not intend that the directors of a membership corporation “should be held liable upon debts contracted by the corporation when they were no longer directors, although they were directors when the corporation was authorized to incur the contingent liability which subsequently ripened into the debt.” Dunn v. Neustadt), (1911) 72 Misc. 1, 129 N. Y. S. 161.
Note given for past indebtedness. It seems that the directors are not liable on a note given by the corporation for a past indebtedness unless it is shown that they were directors at the time such indebtedness was created. But “where, upon the face of a complaint, it does not appear that a promissory note was given. for a past or existing indebtedness, no presumption to that effect will be indulged in for the purpose of destroying the sufficiency of the pleading, but that is a matter to be pleaded, if the facts warrant it, as a defense.” Metzger p. Carr, (1894) 79 Hun 258, 29 N. Y. S. 410. A complaint in an action to charge the directors with liability on a promissory note made by the corporation, which alleges that the note was for a debt “previ. ously contracted,” but does not state that the debt was payable within one year, is insufficient. But it has been held that this defect is cured by appropriate allegations in a subsequent “ separate and distinct cause of action ” of the same complaint. Smith v. Sage, (1893) 5 Misc. 257, 25 N. Y. S. 103.
Presumption as to execution of note.— In an action to enforce the liability of the trustees of a club organized under L. 1875, ch. 267, on a note made by such club, it was held that “in the absence of an allegation from which it will appear that the debt, of which the note is evidence, was contracted, at a time anterior to the note, it must be assumed that the debt was contracted simultaneously with the giving of the note.” Straus v. Sage, (1894) 10 Misc. 118, 30 N. Y. S. 905, reversing 5 Misc. 255, 25 N. Y. S. 93.
Suspension of liability by contract. It seems that a contract executed by a membership corporation, containing a provision relieving its directors from personal liability, is repugnant to the provision of this section and void on grounds of public policy. Greene v. Walton, (1891) 59 Hun 102, 13 N. Y. S. 147.
Presumption of authority to create liability.-" The individual liability of the members for contracts made by the association or its officers or committees, depends upon the application of the principles of the law of agency, and authority to create such liability will not be presumed or implied from the existence of a general power to attend to or transact the business, or promote the objects for which the association was formed, except where the debt contracted. is necessary for its preservation.” Op. Atty.-Gel. (1902) 344. See also McCabe v. Goodfellow, (1892) 133 N. Y. 89, 30 N. E. 728, 17 L. R. A. 204.
Apportionn.ent of liability.-- There can be no apportionment of liability among the directors of a membership corporation, as each is liable for all the debts, and not merely for his share of them. Marsh v. Kaye, (1901) 168 N. Y. 196, '61 N. E. 177. See also Bauer v. Parker, (1903) 82 App. Div. 289, 81 N. Y. S. 995.
Liability as direct contractors.—Where the governing board of a club authorized an expenditure of a specified amount for certain work, the trustees of the club were held liable for the value of the work done as direct contractors in the first instance, where it appeared that they ratified the expenditure, which was in excess of the amount authorized by the board of governors, made payments on account, and requested time in which to pay the residue. Robinson v. Fay, (1892) 64 Hun 634 mem., 19 N. Y. S. 120.
Political corporations. “It scems that in order to give any effect to the provision of the statute making the directors liable for debts contracted in behalf of a political corporation, as indicated in the proviso, it is necessary
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to entirely eliminate the reference to a corporation formed for promoting or maintaining the principles of a political party' from the clause of section 11
and that the legislature could not have intended to exempt from liability the directors of political corporations, but only to limit it in the manner pointed out in the proviso." Acker v. Richards, (1901) 63 App. Div. 305, 71 N. Y. S. 929.
II. ACTIONS AGAINST DIRECTORS Nature of action against directors.-Although " where the liability of the stockholders or directors is limited in amount and the fund to accrue from such liability may be inadequate to satisfy all the claims against the corporation, an action in equity on behalf of all the creditors, in which the fund can be applied ratably on: all claims, is absolutely necessary to secure equality," yet where the only thing to be reached is the liability of the directors which is absolute and unconditional, the action must be at law. Marsh v. Kaye, (1901) 168 N. Y. 196, 61 N. E. 177, affirming 44 App. Div. 68, 60. N. Y. S. 439.
Allegation of incorporation.— The allegation in the complaint in an action to enforce the statutory liability of the directors of the membership corporation “ that the Staten Island Cricket and Baseball Club was a membership corporation, organized and existing under chapter 267 of the Laws of 1875 of the state of New York, and the acts amendatory thereof and supplementary thereto," is in itself a sufficient negative of the idea that the corporation ig one for the promotion of agriculture. Acker v. Richards, (1901) 63 App. Div. 305, 71 N. Y. S. 929.
Judicial notice.- On a demurrer to a complaint to enforce the directors' individual liability, the court will take judicial notice of the provisions of this section. Kugelman v. Hirschman, (1898) 22 Misc. 533, 49 N. Y. S. 1012.
Parties. It is not a misjoinder for a plaintiff to bring his action for the whole amount due him from a membership corporation against more of its directors than are liable therefor, the only effect being that the complaint must be dismissed as to those not shown to be liable. Pascekwitz v. Richards, (1902) 37 Misc. 250, 75 N. Y. S. 291. And in an action to enforce the individual liability of the trustees of an athletic club under L. 1875, ch. 267, § 8, it was held that a misjoinder of parties defendant did not constitute a defense but that judgment may be rendered against those who are found to be liable. Strauss v. Trotter, (1893) 6 Misc. 77, 26 N. Y. S. 20. Similarly where the complaint in an action under this section alleged that the defendants were directors at the time in question” but did not state whether they were or were not all the directors during such time, a demurrer on the ground that there was a “defect of parties defendant in the omission of all the other persons beside the defendants who were directors etc., could not be sustained. Kugelman v. Hirschman, (1898) 22 Misc. 533, 49 N. Y. S. 1012.
Denial of directorship. Where the complaint alleges that each and all of the defendants were directors during the period in question, an answer upon the part of some of them denying this allegation in hæc verba is a negative pregnant, and is not á denial thereof. Pascekwitz v. Richards, (1902) 37 Misc. 250, 75 N. Y. S. 291.
Liability of persons held out as directors.-An allegation that defendants were held out by the corporation as directors and allowed themselves to be so held out, without any allegation of fraud, makes no case of liability. Such an allegation is not inconsistent with an allegation of directorship in fact, but it does not aid the cause of action under the statute. If fraudulent holding out is relied on the fraud must be alleged, and the statute is then available only for the purpose of determining the measure of damages. Davis v. Albee (1916) 172 App. Div. 414, 158 N. Y. S. 623, modifying 92 Misc. 458, 156 N. Y. S. 157.
Evidence as co proceedings at corporate meeting.- Where, in an action brought against the trustees of a membership corporation to enforce their
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personal liability on certain contracts of the corporation, it does not appear that there were any written minutes of the meetings of said proceedings, or any written record of the alleged contracts, it is error to exclude testimony of one who was present at such meetings as to what happened thereat, as to the election of a superintendent, or evidence that the goods alleged to have been sold were delivered at the office of the corporation. Braxmar v. Stanton, (1905) 110 App. Div. 167, 96 N. Y. S. 1096.
Action under Code.—All the members of a mutual aid association, the membership of which fluctuates from time to time, are not liable for the salary of a manager where the officers do not appear to have been authorized to pledge the credit of the individual members and the expenses of the association were to be paid out of a particular fund determined by setting aside the monthly dues payable by members, so as to entitle such manager to bring an action against the treasurer of the association under section 1919 of the Code of Civil Procedure. Georgeson v. Caffrey, (1893) 71 Hun 472, 24 N. Y. S. 971.
$ 12. Prohibitions on officers. No director or other officer of a membership corporation hereafter created shall receive, directly or indirectly, any salary, compensation or emolument from such corporation, either as such officer or director or in any other capacity, unless authorized by the by-laws of the corporation, or by the concurring vote of two-thirds of the directors.
No director or other officer of a membership corporation hereafter created shall be interested, directly or indirectly, in any contract relating to the operations conducted by the corporation, nor in any contract for furnishing supplies thereto, unless expressly authorized by the by-laws of the corporation, and by the concurring vote of all the directors.
The foregoing provisions of this section shall also apply after January first, eighteen hundred and ninety-six, to every membership corporation existing on August thirty-first, eighteen hundred and ninety-five, and theretofore created under any law repealed by this chapter.
This section was derived from the Membership Corporations Law of 1895, § 12.
Misconduct of directors, officers, agents, and employees of corporations : see PENAL LAW, § 665.
Application.-A corporation organized under L. 1848, ch: 319, “ for the distribution of bibles and testaments without note or comment, did not come within the provisions of L. 1872, ch. 104, entitled ‘An Act in relation to trustees and directors of charitable and benevolent institutions, and which parohibited any trustee or director of any charitable or benevolent institution from receiving any salary or emolument from said institution and prohibited the directors or trustees of any institution organized for charitable or benevolent purposes from voting or allowing any salary or compensation for services either as trustee or director, or in any other capacity.” New York Bible Soc. v. Budlong, (1892) 30 Abb. N. Cas. 139.