Chase v. Lord

In October, 1856, the Columbian Insurance Company was organized under the act of 1849, chapter 308, providing for the incorporation of insurance companies. On February 1, 1865, the plaintiff procured a policy of insurance from that company upon the ship “ Eagle Wing,” which was soon after lost, and thereby, as is conceded, a claim arose in his favor against the company. In January, 1866,. the company was dissolved, and its affairs placed in the hands of a receiver, by whom the plaintiff was paid a portion of his claim. The defendants’ testator was a stockholder in the company during all the times above stated, and he dying, this action is brought against the defendants, as his executors, the plaintiff claiming that the testator became personally liable to pay the

It is contended by the appellant—first, that the testator was never liable ; and second, if he was liable, the canse of action did not survive against his estate. With the second proposition we have no difficulty. The defendants took the stock, subject to any liability which existed on account of it (Bailey v. Hollister, 26 N. Y. 112 -116); and if the testator was liable to pay the plaintiff’s demand, the defendants, as his representatives, are equally so. The plaintiff contends that the liability in question was incurred by the testator, because the provisions of section 19 of the statute above named were not complied with. [The learned judge here quoted the section, see p. 261 above.] The question is not free from difficulty; and this difficulty arises from the vague manner in which the legislature has sought to express its meaning. The statute has been before the courts in several cases (Mygatt v. New York Protection Insurance Co., 21 N. Y. 61 ; White v. Haight, 16 Id. 317; People ex rel. Barton v. Rens. Insurance Co., 38 Barb. 323 ; Cooper v. Staver, 41 Id. 151; Thomas v. Achilles, 16 Id. 491) ; and in Hart v. Achilles, 28 Id. 582, Judge Harvest speaks of it as “extremely obscure, faulty and imperfect,” and in Thomas v. Achilles ( 16 Barb. 495 ), as “ambiguous and imperfect,” but the present, so far as we can discover, is the first case in which a judicial decision has been sought, as to the construction of the section above cited, and we are therefore unaided by any authority.

In the first place, it is clear that there was no common law liability on the part of the testator, and the legal presumption is, that all statutory conditions have been complied with. This presumption continues until the contrary is shown. No duty rested upon the stockholder to do this, and it is incumbent on the

At this point it is not necessary to consider whether the requisite amount of capital was paid in, because, if it had been, and the proper certificate was not recorded, the liability would attach (Aspinwall v. Sacchi, 57 N. Y. 335 ). We should naturally expect to find in the .section itself, words to satisfy the reference to the certificate, for we are referred to some antecedent provision by the words “as hereinbefore provided.” There is, however, nothing in the section itself to give information as to the character, form or contents of the certificate, or to indicate by whom it shall be made. We must look elsewhere in the statute for the antecedent. By the 7th section, provision is made for certificates to be furnished by the comptroller, un: der certain circumstances, to companies organized in other States or in foreign countries. Section 8 prohibits a company organized under the act from holding real estate beyond a certain period, “unless it shall procure a certificate from the comptroller,” as therein provided. Neither of the certificates required by these sections can in any manner affect the question before us; those of the 7th section do not relate to domestic corporations, and that of the 8th section relates to a matter having no connection with the case in hand.

By the 3d section, the associates (who are also styled corporators) who have undertaken to form a company under the act, are required to file, in the office of the secretary of state, a declaration signed by them, which, among other things, shall comprise a copy of the charter proposed to be adopted by them ; and by section 10 it is made their duty to declare in this charter the mode and manner in which the corporate powers given by the act are to be exercised, “ together

First, it is antecedent to the provision of the 19th section; Second, it is the only one of all contained in the act which bears a sensible relation to its demand ; Third, it enables us to give the act a reasonable and not strained construction. This we are bound to do ; for so far as it subjects the stockholder to any responsibility for the corporate debts, it is manifestly

Section 1 permits a certain number of persons to associate and form an incorporated company, either, first, to take marine risks ; or secondly, for fire insurance ; or thirdly, on health or life. Such persons are styled corporators. Section 3 requires them to file the declaration and charter in the office of the secretary of state. By section 4 they may then take subscriptions to the stock, or, in case of mutual insurance receive propositions, for insurance as stated in section 5.

Section 5 then provides that no joint stock company shall be organized in the city of New York with a capital less than $150,000 ; or, in case of mutual insurance, until agreements have been entered into for insurance with at least one hundred applicants, the premiums on which, if it be marine, shall amount to $300,000, or if fire insurance, to $200,000, and notes have been received in advance for the premiums on such risks. By section 6 no life or health insurance

The object of section 5 has already been declared by this court. In Mygatt v. N. Y. Protection Ins. Co. ( 21 N. Y. 59 ), it is said by the court, Selden, J., “ The main reliance of all insurance companies for the payment of losses, after becoming once fairly established, is upon the sums received for premiums. But losses may occur before their accumulations from this source are sufficient to meet them. For this reason it was deemed wise and prudent on the part of the legislature to provide that every insurance company, whether joint stock or mutual, should have at the outset a fund sufficient to meet its early losses.....Sections 4 and 5 relate to this preliminary fund, and to nothing else.” See also People ex rel. Barton v. Rens. Ins. Co., and Thomas v. Achilles, supra. Then follow sections 10 and 11 to which we have before adverted, requiring an examination by the comptroller, and his certificate, or the certificate under oath of three appraisers appointed by him, as to the actual payment of capital equal at least to the amount specified in the 5th section, or the receipt by the company of premiums or engagements of insurance to the full extent required by the 5th section of the act, or if a life or health company, to the full amount required by the 6th .section of the act. Section 19 then declares the trustees, corporators, and those entitled to a participation of the profits, jointly and severally liable, “until the whole amount of the capital raised by the company shall have been paid in, and a certificate

This surely is the literal and obvious reading of the statute ; and if correct, it does not entitle the plaintiff to recover, for it is conceded that the capital required by section 5 was paid in, and the certificate required by section 11 was duly recorded.

Again, it is a significant fact, and one that supports the view so far taken of the purpose and object of the certificate required; that “ corporators ” are included in the liability prescribed, or attempted to be, by section 19. The corporators are. the associates (§§ 1, 3), who are the getters-up of the company, and whose functions cease with its organization ; and its organization is complete when the certificate called for by section 11 is given. It is reasonable to hold the corporators until then, and until in truth and in fact the capital prescribed in section 5, and without which it is not lawful for the company to do business (§ 7), is paid in ; but it would be unreasonable and absurd to hold them liable after their functions ceased, and after they ceased to have any control or interest in the company. In the same manner and to the same effect, is to be noticed the omission from section 19, of the stock

The money required to be paid in and the notes to be contributed, as prescribed by section 5, may be considered as capital “raised ” or procured, as contra-distinguishing from “ the full amount specified in the charters” (§ 4), or “its capital” (§ 8), or “the amount of capital to be employed in its business ” (§ 10), or the “ capital .of such company” (§13), or the “ amount of capital fixed by the charter of the company” (§ 13). All these expressions appear in the act, and either one of them repeated in section 19, would have rendered so much of its meaning clear. Neither is there used; on the contrary, the word used is plainly a word of qualification or diminution, showing that something less than the whole is intended. It does not say “until the whole amount of the capital of the company,” but until the whole amount of the capital “ raised ” by the company.

This seems to indicate that there is still a portion of capital not within the term; the word “raised” must be deemed to qualify and restrain the word “ capital.” It is not easy to give the words a definite meaning, but it is obviously something different from the entire capital, so it is different from the amount of “capital to be employed in its business,” or the amount of “ capital fixed,” and indicates a smaller sum. If we imply the words “specified to be” or “required to be,” and insert them, we have a coherent statute. It would then read: “until the whole amount of the capital ‘specified,’ or ‘required’ to be raised

In the case of People v. Hens. Ins. Co., supra, Hogeboom, J., in a case then before the general term of the supreme court, referring to section 5, says the notes spoken of in it constitute the capital stock, or part of it (see also Thomas v. Achilles, and Mygatt v. Protection Ins. Co., supra).

It is contended, however, by the respondent’s counsel, that the judgment should be sustained upon either one of two views which represents, with reference to the certificate—the first, that the certificate required by section 11 should contain a statement that the whole amount, fixed or stated in the charter as the capital of the company, had been paid in; and this seems to have been the view of the learned judge who delivered the opinion of the supreme court, but we see no foundation. for such position. Section 10 provides for a statement in the charter of the amount of capital to be employed in the transaction of the business of the company. This charter is then, by section 11, to be placed before the comptroller, and an examination is required by him or his appointees, and a certificate “that an amount equal, at least, to the amount specified in section 5,” in one case, or, in another, that it has received

The other view presented by the respondent is, that the words “as hereinbefore provided,” contained in section 9, should be so amended as to read “ in the manner hereinbefore provided.” This, doubtless, would create a difference in the reading, and permit a very different ‘construction. But what authority have we for such an interpolation ? So much of the section is plain and unambiguous, “a certificate thereof re-' corded as hereinbefore provided, ’ ’. importing one certificate of which mention has been before made. “A certificate thereof recorded in the manner hereinbefore provided” would permit another certificate, and prescribe merely the manner of recording.

The counsel for the respondent says: “ The latter view contemplates that the company might commence the transaction of business upon a portion of its capital, so that there would be a period of time during which the full capital, as fixed by the charter, would

It seems from the printed argument submitted to us by the respondent, that the view of the court below is not now insisted upon.

No provision is made for a second examination by the comptroller, or for any examination or certificate by him or the appraisers as to any other matter or fact connected with the company than the ones referred to; and while neither the company, nor any person connected with it, could require him to act, if he should voluntarily act and furnish a certificate, it would be of no importance or validity, because not required by the statute (Erickson v. Smith, 2 Abb. Ct. App. Dec. 64 ).

The respondent also says that, technically speaking, the words “and a certificate thereof recorded, as hereinbefore provided ” refer back to the one certificate specified in the act; and the construction would be that it must meet the requirements of section 19, in order to constitute to the "stockholders an exemption from individual liability. The difficulty with this view of the case is, that it is not so written in the statute. The one certificate specified in the act (§ 11) when copies have been properly certified and filed, is made the authority of the company “to commence business and issue policies, and the same may be used in evidence for or against said corporation.” Now, it is important to bear in mind, that every act required by the statute to be done, before the intervention of the attorney-general can be invoked, must be done before the company is organized—before, therefore, there is any

They also provide, as the counsel assures us, for proof, by the oath of certain of the officers of the company, that the capital has been paid in before the company shall commence business. Neither of these provisions are contained in the act in question ; and their omission is a fact of some consequence. But it is said in the same case (Smith v. People, supra), that legislative action at the same session is to be regarded as speaking the mind of the legislature upon a common subject. We find, therefore, among the laws of 1849, an act passed the day after the one in question, incorporating the Watertown water-works company (Laws of 1849, c. 426), in which the stockholders are made liable to the creditors of the company, to an amount equal to the amount of stock held by them respectively, for all debts and contracts made by the company, until the whole capital stock has been paid in, and a certificate thereof made and verified by the president and a majority of the directors, and recorded in the clerk’s office of Jefferson county. Neither of these provisions are contained in the act before us.

It seems to be thought that it is only by construing section 19 as imposing a personal liability that the creditors can have security outside of the corporation ; but that is not so ; by section 17 all companies formed under this act are declared to be bodies politic and

In acts of incorporation, prior to the revision of the.

The constitution of 1846 allowed corporations to be organized under general laws, and, except in special cases and for municipal purposes, declared that they should not be created by special act (art. 8, §, 1). The first general law on the subject of insurance corporations passed after the adoption of the constitution, was that of 1849. It was a compliance with the constitution, and its object was to prevent the necessity of

In 1848, the general law relating to railroads was enacted, and amended largely in 1850. In 1848, the general law in relation to manufacturing corporations was passed Those acts, as well as the one before us, were in compliance with the constitution, and of the same general scope and tendency. We find in the acts of 1848, and in the statute of 1850, a liability on the part of the stockholder, limited and not general; and in the manufacturing law, conditional and not absolute. It was copied almost literally from the Massachusetts act of 1827, and required an action against the corporation within a year after the debt became due, and suit against the stockholder within a year after he ceased to be a member.

We have made this extended examination of different statutes, in an effort to find, if it existed, the type of the section in question, or any similar enactment ; we can find none. And although we have before us, in the elaborate points of the contestant’s counsel, a reference to nearly one hundred statutes, all of which have been examined, there is not one which furnishes a similar provision. We think none can be found.

It is conceded that, upon the literal reading of the section, the testator was not bound. We think it apparent that its limitation is, by its own terms, to the requirements of section 11. So construed, it is reasonable, it limits the risk of its members, and defines the extent of their hazard. Construed as was done in the court below, or as the respondent claims it should be, it becomes unreasonable. Compared with the provisions of any other statute, it is unprecedented. The testator, it is conceded, paid his subscription fully. This would have satisfied the requirements of most statutes. Under others he would be required to pay

It is conceded that the capital stock actually paid in was over $3,000,000, and that the company was duly organized. It thus acquired a corporate capacity. With this a personal liability is wholly inconsistent, and cannot be imposed, except upon the clear direction of the legislature (Myers v. Irvin, 2 S. & R. 731; Harger v. McCulloch, 2 Den. 119 ; Van Sandan v. Moore, 1 Russ. Ch. 458 ; Gray v. Coffin, 9 Cush. 199 ; Spear v. Grant, 16 Mass. 9 ).

We cannot find that direction in this statute.

It has seemed proper, in view of the novelty of the question, and the earnest and elaborate presentation of the various aspects of it by the learned counsel for the respective parties, to consider it at length ; but the question is a simple one, and if we confine ourselves to the statute, not difficult of solution. What certificate is required, and what shall be its effect ? We hold, with the general term, that one certificate only is required, and that certificate is the one specified in section 11. But we hold also, that the certificate in the case of a stock company is sufficient, if it states that an amount of capital equal to the amount specified in section 5 of the act has been paid in, and is possessed by it, in money or in such securities as are required by section 8. This certificate was, as the pleadings admit and the evidence shows, duly made and filed.

The plaintiff therefore failed to establish his cause of action, and the judgment appealed from should be reversed and a new trial ordered.

Church, Ch. J., Raparlo and Andrews, JJ., concurred.

[Dissenting.]—This is an action to enforce the personal liability of a stockholder of the Columbian Insurance Company, which was organized under

The insurance company was organized in 1857, and continued in business until 1866, when it failed and passed into the hands of receivers, who subsequently wound up its affairs, its assets paying but a small portion of its liabilities. The capital stock named in its charter was $500,000, which was from time to time increased to $3,500,000, nearly all of which was paid in.

Rufus L. Lord, the testator, was a stockholder of the company during the whole time of its existence, and the plaintiff was a creditor of the company, under a policy issued to him of the company, and it was to enforce payment of the amount thus due him that this action was commenced.

The act of 1849 was carelessly and loosely framed, and it is difficult to understand the force and meaning of some of its provisions. Some of the language in it is used without legal or grammatical accuracy, and the-arguments of learned counsel show that something may, at least, be plausibly said against any construction we may give it at this time.

We must examine all parts of the act, and considering the objects to be attained and the general policy of the law, arrive as well as we can at the intent of the legislature.

Section 1 provides that any number of persons, not less than thirteen, may form an incorporated company under the act. Section 3 provides that such persons shall file in the office of the secretary of state a declaration expressing their intention to form such company,

This section does not require that the whole amount of the capital stock specified in the charter shall be subscribed or paid in before the company can commence business, but simply that it shall possess the amount of paid up capital mentioned in section 5. That is the only prior section which mentions the amount of capital requisite for the formation of companies under the act. It is not .the general policy of this State to require all the capital' named in the charters of incorporated companies to be subscribed or paid in before business can be commenced. On the contrary, it will be seen by an examination of the general laws for the formation of corporations, that in nearly .all of them business is authorized to be commenced before the entire capital has been paid in. Section 11 provides that the charter, filed as before required, shall be examined by the attorney-general, and if found to be according to law, that he shall certify the same to the comptroller, and that the comptroller

It is plain that the examiners thus to be appointed by the comptroller are not required to certify that the whole of the capital named in the charter has been paid in. If they were, it would have been so stated. The section would then have required them to certify that the whole amount of the capital specified in the charter has been paid in, instead of requiring them, in language the different import of which could not have escaped attention, to certify ‘‘ that an amount equal at least to the amount specified in section 5” has been paid in. No matter what the amount of capital specified in the charter is, whenever at least $150,000 has been paid in the comptroller can be called upon to make the examination, and if the examiners find that at least that sum has been paid in, and is possessed by the company, the certificate must be given, and the company can then commence business. I do not perceive how this construction can work any mischief. No one dealing with" the company need be deceived as to the .amount of its paid-up capital. The credit and financial strength of a company depends not upon the nominal amount of its capital, but upon the amount of paid-up capital possessed by it. The . requirements of law and of public policy are satisfied if such a company possesses the amount of capital which the law

Notwithstanding the filing of this certificate, such a company can continue to take subscriptions and collect them, until the whole amount -of the capital stock mentioned in its charter has been subscribed and paid in, and no further certificate is required to be filed, except for a purpose I will hereinafter mention.

Section 13 requires the officers of such a company annually to prepare and deposit, in the office of the comptroller and in the office of the clerk of the county in which the company is located, and in every other county in which the company shall have an agency, and to publish in at least one newspaper, published in such county, a statement showing its business during the past year, and its financial condition, and also showing the securities representing the capital stock and their condition, and a list of the stockholders, together with the amount of their respective shares ; and then it is provided that if upon examination of such statement, it shall appear to the comptroller that “ the losses and expenses of any stock company during the year have exceeded the premiums, and in consequence thereof, the capital of such company has become deficient, or from any other cause has become impaired to the extent of twenty-five per cent., it shall be the duty of the said comptroller to direct the officers

But for the next clause, the meaning of this section would be quite clear. It is only when the capital has become impaired to the extent of twenty-five per cent., by the excess of losses and expenses over premiums received or from some other cause, that the comptroller can require the impairment to be made up. What is here meant is the cash capital, not the nominal capital. The nominal capital could not become impaired. That would remain the same; the statement would show the amount of the cash capital and its impairment, if any, and that could be required to be made up. The comptroller is not authorized to make his requisition simply because the amount of capital paid in is less than the amount specified in the charter.

But the next clause is somewhat uncertain, and reads thus: “ Any company receiving such requisition from the comptroller, shall forthwith call upon its stockholders for such amounts as will make its capital equal to the amount fixed by the charter.” It cannot be inferred from this clause that the legislature intended that the entire capital specified in the charter must be paid in before a company can commence business. As shown above, when so much as $150,000 of its capital has been paid in, and the requisite certificates have been filed, a company can commence business, and then, so long as its cash capital has not become impaired to the extent named, it may continue business, and the comptroller cannot interfere with it. But reading the last clause literally, when its capital has become thus impaired, and the comptroller makes his requisition to repair it, then the stockholders of the company must make up the capital to the amount specified in the charter. But this literal reading should

We are now prepared to take up section 19, upon the construction of which the rights of these parties depend. It is contended, on the part of the defendants, that the liability there imposed was for debts contracted in some way before the complete organization of the company, and before it could transact any corporate business. Such a provision would be quite extraordinary. It is not to be found in any special charter, so far as I can discover, nor in any of the general laws for the organization of corporations. If this be the true construction, I doubt not that it is the first time that the legislature has attempted to create a joint and several liability for expenses incurred by a proposed company, before its organization. Such expenses are generally small, and are usually incurred by or upon the credit of the promoters. The persons ^engaged in the joint enterprise are jointly liable, and -this common law liability affords all the protection to •creditors that could be desired.

The word trustees, as used here, means directors, and the word corporators means members of the corporation. These two words commonly have such -meaning when used in relation to corporations. The word trustees is used in the sense of directors in other parts of this act, and while the word corporators may have a different meaning in some of the sections, that circumstance can have but little weight, as language is

And this construction is in harmony with the policy of this State, in the constitution of which it is provided that “dues from corporations shall be secured by such individual liability of the corporators and other means as may be prescribed by law” (art. A. 8, § 2). And the same kind of personal liability, though usually not so extensive, is found in all the general laws for the promotion of corporations, passed since 1846. It will be seen that the word corporators is used in the same sense in the constitution as in this section.

The last clause of section 13 reads as follows : “ Any transfer of the stock of any stock (company) organized under this act, shall not release the party making the transfer, from his liability for losses which may have occurred previous to the transfer.” And this shows also that the personal liability imposed by the act is one arising after organization.

It is said in the section that this personal liability shall continue “ until the whole amount of the capital raised by the company shall have been paid in, and a

If the directors and stockholders wish to escape continued personal liability, they must take that course and procure and file such a certificate. But as I .have shown above, the company can be organized and commence business before the entire amount of capital has been paid in, and if that course is taken, then the personal liability attaches and continues. But it is said that there is no provision for a further certificate and that if this construction be given the personal liability could never end. But suppose this be so, the parties interested have placed themselves in this dilemma. They chose to organize and commence business before the whole amount of their capital was paid in, and they must take the consequences which the statute imposes. But there can be a further certificate.

The comptroller can be required to make a further-examination, and give a further certificate, which may

This liability is not in the nature of a penalty for not filing the certificate. The statute simply takes away from the corporators the protection which the incorporation would otherwise give them, and makes them liable as partners except that the liability is several as well as joint (Corning v. McCullough, Comst. 47; Harger v. McCullough, 2 Den. 119 ; Story v. Furman, 25 N. Y. 214 ).

This action was not therefore well defended, and the judgment must be affirmed.

Folger and Miller, JJ., concurred.

Judgment reversed and new trial ordered.