Small v. Herkimer Manufacturing & Hydraulic Co.

The supreme court in this case held, that the stock for which the defendant subscribed, was a security in the nature of a mortgage, for the payment of a debt incurred by the subscription, and that a forfeiture for non-payment was, in effect, nothing more than a strict foreclosure. Upon this branch of the case I have nothing to add to what was written when the case was before the court for the correction of errors.

I agree fully with that learned court, that the plaintiffs had a remedy by action; that the debt of the defendant, created by his subscription, was entire; the calls made by the company, merely ascertaining the amount, and the times when the instalments ot that debt should be paid. This is the view taken by the plaintiffs in their declaration, by their counsel in his points furnished upon the argument. Upon this admission, the authority of the supreme court, and the manifest import of the subscription, we are authorized to assume that the defendant contracted one debt of $2100, which he undertook to pay, at such times, and in such instalments, as the company might, by calls for that purpose duly made, designate.

The next question is, as to the effect of the forfeiture made by the corporation upon the debt of the defendant. The act incorporating the plaintiffs, establishes the capital stock, and the price of the shares; section two directs a subscription, and prescribes the .duties of the directors in making calls, and the right to forfeit the shares of subscribers for non-payment of the purchase money. (§4; Sess. Laws, 1833, pp. 191, 2.) The subscription must be construed, therefore, as if all the provisions of the statute, affecting the liability of the subscriber, or his title to the stock purchased by him, were incorporated in his agreement. This has never been questioned. The subscription, probably with the design of removing all doubt upon this subject, expressly refers to the act, and the defendant engages to pay, in pursuance of its provisions. The defendant then agreed to pay $2100 for 21 shares of stock, at such times, and in such proportion, as the company might direct; under penalty of for feiture to said company, of said shares, and all previous payments, in case of default. • (§ 4.) The company did not sell, nor did the defendant acquire,-by this contract, absolute title to the stock. He could obtain that only by the payment of the purchase money. The sale was, in effect, conditional; with a right reserved to the vendor to reclaim the property upon nonpayment of any instalment of the purchase money. When

An attempt has been made to distinguish the case of Winter v. Livingston, ( 15 John. 54 ,) from the present, by the fact that the. contract of Winter was made voidable at his election, upon the non-payment of the notes of Livingston; while in this case the agreement, it is said, remains, and the forfeiture attaches to the stock and payments. This was the distinction that Winter went upon in the case cited. He did not repudiate the contract; on the contrary, he attempted to enforce it. But when he took back the subject of the sale, the court determined, as a matter of law, that he discharged the defendant from his obligation to pay. Would it have made any difference in the decision if the forfeiture had been limited to the estate, or interest, acquired by Livingston, instead of the agreement by means of which it was granted ? (6 Barn. & Cress. 519.) The result would be the same, either way. Winter would reinvest himself with the whole interest in the land, and Livingston would retain nothing, and for that reason, the court held, that he ought to pay nothing. Those who insist upon a distinction are bound to demonstrate that there can be a sale of lands, or chattels, or a subsisting agreement for a sale, obligatory upon the vendee, under which he neither has the pioperty itself, noi any claim to it. It is not an answer to say that the property in the stock passed to the defendant at the time of the subscription. It vested, subject to the right of forfeiture. Livingston, in like manner, took an equitable title in the lands sold to him, with the right of possession. But the contract in that case, and the law of the contract in this, preserved the right to the vendor to resume the subject of the sale, upon non-payment of the price; and if, by enforcing the right, one vendee was discharged the other should be.

We were told that upon leases containing a clause of forfeiture, and a right of re-entry for non-payment of rent, the rent accruing and due, previous to the re-entry, could be recovered. ( 6 Hill, 507 , ana cases; 6 Bing. N. C. 178; 6 B. & Cress.

The forfeiture in this case, of the stock sold, to the use of the corporation, was then a discharge of all the debt for which the defendant was at the time liable. It discharged the whole debt or nothing. The forfeiture embraces the entire consideration of the defendant’s promise. (13 Ves. 434.) The directors cannot graduate it according to the amount of the call. The right is not divisible, but extends to the whole subject of the contract. The call is made a condition precedent to the forfeiture, the occasion upon which it may be enforced ; but when made, it applies to the “ sum subscribed,” and not to a particular instalment. (§ 4.) This follows necessarily from the principle, in which we all agree, that there is no legal mode of ascertaining the value of the stock. When the corporation, therefore, without legal process, in virtue of the defendant’s coniracrt, or the statute iir reference to which it was made, elected to appropriate this property to their own use, they must be deemed to have taken the stock of the defendant, for the whole debt, then un

It was. admitted that the forfeiture extinguished, at least, tne particular instalment, on account of which it was declared. But no authority, in or out of the act, has been shown, for this limitation. The idea is repudiated by the supreme court, and the application of such a principle would, in many cases, be palpably absurd. For example: th’e defendant paid ten per cent, in cash, at the time of his subscription. Suppose the directors had then called for the remaining ninety per cent, in various sums, the last of which was five per cent.; that they had waited till the time for the payment of the last instalment had expired, and then forfeited for its non-payment, specifically. This instalment, it is said, would be discharged, but the residue of the debt unaffected. The plaintiffs would then receive the ten per cent, in cash, and all the stock, to satisfy a five per cent, instalment, and the defendant would be still liable to a suit for eighty per cent, of the amount of his subscription. With such privileges corporations ought to flourish. It is substantially the course adopted by the plaintiffs in this case.

It was contended that the remedies by action and by forfeiture were cumulative. If by this, nothing more is understood than that the plaintiffs had the right to sue, or the right to forfeit at their election ; or that they might proceed to judgment upon the subscription, and "then forfeit the stock for the same delinquency; I have nothing to object. But the converse of this proposition, that they might exercise the right of forfeiture arid theyi maintain an action, or enforce a judgment, is denied. It presents the distinction between different remedies for the same demand, and a double satisfaction. A forfeiture, wnen made, is more than a means of obtaining satisfaction; it is itself a satisfaction. A remedy, if we choose to give it that name, which, when adopted, involves a satisfaction of the debt, is never concurrent. It is in its own nature exclusive. The

A majority of the court are of the opinion, for these reasons, among others, that the forfeiture extinguished all the rights, legal and equitable, of the defendant under the subscription to the stock, or the proceeds of the stock, therein mentioned; that the forfeiture was recognized by the contract; that its effect was rightfully to annul the relation of vendor and vendee, established by the agreement of the parties, and to discharge the defendant from all existing liability, founded upon that relation. That, consequently, no action can be maintained for the consider alien agreed to be paid for the stock, or any part of it; and that the defendant is entitled to judgment upon the demurrer.

The supreme court of this state by a series ot decisions, commencing with the case of the Goshen Turnpike Company v. Hurtin, ( 9 John. 217 ,) has uniformly held that the mere provision in the charter of incorporated companies, similar to the one in this case allowing the forfeiture of the stock and previous payments, does not deprive the company of their common law remedy, by action to recover from the stockholder the amount of his subscription. ( 14 John. 238 .) In this case they have gone further, and held that although the company exercised the right conferred by the statute and forfeited the stock, they may still recover in an action upon the subscription, unless the value of the stock was equal to the amount due upon the subscription. They liken this case to that of a mortgage, and say, that when the mortgagee takes the thing pledged' and sells it, or finally converts it to his own use, he is paid so- much only

But I do not think this is to be regarded in the light of a mortgage. Upon a foreclosure and sale of property mortgaged, if it bring more than the debt the mortgagor is entitled to the surplus. But no provision is made for the company’s refunding the surplus in this case. And if the company after forfeiture should sell the stock for a sum beyond the amount unpaid thereon at the time of forfeiture, the defendant could not recover such surplus. Again, in all cases of a mortgage, the mortgagor has in equity a right of redemption until a strict foreclosure, or a foreclosure and sale of the mortgaged property. But no such remedy exists for the redemption of stock forfeited under the provisions of a statute like the one in question. Judge Story (Eq. Juris. § 1325,) says that courts of equity in cases of noncompliance by stockholders, with the terms of payment of their instalments of stock at the times prescribed, by which a forfeiture of their shares is incurred under the by-laws of the institution, have refused to interfere, by granting relief against such forfeiture. And such was the ruling of the court of chancery in England, in Sparks v. The Liverpool Water Works Company. (13 Ves. 428.) When a penalty or forfeiture is imposed bv statute upon the doing or omission of a certain act, courts of equity will not interfere to mitigate the penalty or forfeiture incurred, for it would be in contravention of the direct expression of the legislative will. (Story’s Eq. Juris. § 1326; 1 Strange, 447.) 1 cannot see how this can upon principle be regarded as a mortgage. On the contrary, it has I think, more of the properties

Where a party subscribes for stock, he takes it upon, and subject, to the condition imposed by statute; that the corporation may, if he omits to pay the instalments as they are called for and become due, forfeit the stock and all previous payments. It is then left optional with the corporation whether they will prosecute on the subscription, or forfeit the stock and previous payments. The corporation may. doubtless take which ever remedy they elect. But if they elect to forfeit and take back their stock, it seems to me they should not be permitted also to sue and collect the price agreed to be paid, or any part thereof. In that case they take back the whole consideration for the subscriber’s promise, with the right to retain whatever may have been paid. It would, after that, be inequitable and unjust to permit them to retain the stock and still prosecute. And it can make no difference that the instalments for which the suit is brought became due before the forfeiture was declared. The statute simply authorizes a forfeiture of the stock and all previous payments made thereon; but does not declare that the party shall also forfeit the amount of payments which may have become due and remain unpaid.

On the argument of the cause in this court, it was claimed by the counsel for the plaintiffs, that their right to recover upon the subscription, notwithstanding the forfeiture, was like that oí a landlord taking possession of demised premises for the nonpayment of rent; and it was urged that, although by such act the relation of landlord and tenant is determined, yet the right oi action for which the rent accrued is not taken away. (Hinsdale v. White, 6 Hill, 507 .) But in that case, the tenant only contracts for the use of the demised premises for a particular term. He does not contract for the purchase of the property itself. The landlord therefore only takes back the unexpi'red term for which the premises were demised, and there is no reason why the tenant, who was in default, should not pay rent for the time he actually occupied the premises. But I am not aware that it has ever been held that the landlord, in such a case, could recover the rent agreed to be paid by the tenant for that portion

I think, as I have before stated, that this case is more analogous to a contract for the purchase and sale of property, where the vendor reserves the right, on default of payment at the time stipulated, to rescind the sale or forfeit the contract and previous payments. Suppose a person agrees to sell personal property, one-third of the purchase money is paid down, and the purchaser agrees to pay the remainder by instalments, and if he fails tc make either of the payments at the time stipulated, that he will forfeit the property purchased and all previous payments made thereon; and upon such default the vendor repossesses himsell of the property, and takes advantage of the forfeiture. It could hardly be pretended that he could still maintain an action for the price agreed to be paid. I do not see how such a case can be distinguished in principle from the one under consideration. I think the principles decided in Winter v. Livingston, ( 13 John. 54 ,) are equally applicable to this case.

If this view of the case is the correct one, the plaintiffs, by declaring a forfeiture of the stock, have in effect rescinded the contract, and taken back the consideration of the defendant’s promise, and their right further to prosecute is at an end: and it is of no moment whether the value of the stock was more oi less than the whole amount unpaid thereon. The fact that the plaintiffs had commenced their suit, and incurred costs prior tc the forfeiture, cannot aid them ; they were not bound to declare a forfeiture, but having done so, they must abide the consequences of their own act in that respect.

The judgment of the supreme court should be reversed, and the defendants should have judgment on the demurrer.

Ruggles, Cady, Strong and Shankland, JJ., concurred.

The principal question for decision in this case is, whether the company has a remedy against a delinquent subscriber for stock by an action of assumpsit upon his subscription to recover the amount of one or more calls or instalments, less than the full price of the stock, and at the same time a remedy to enforce satisfaction of a future call or instalment, by forfeiture of his stock in respect to that call, without affecting the claim of the company in- respect to such prior calls or its remedy for the recovery thereof by action.

It seems to be well settled, and it was not controverted on the argument, that an action of assumpsit lies by the company against a deliquent subscriber upon an express promise to pay the calls upon stock from time to time as they shall be required by the proper authority; although the act of incorporation contains a provision for the sale of the stock to satisfy the calls or for the forfeiture thereof in case of non- payment; (The Onion Turnpike Co. v. Jenkins, 1 Caines' Rep. 301 ; 1 Caines' Cas. in Error, 95 S. C.; The Goshen Turnpike Co. v. Hurlin, 9 John, 217 ; Dutchess Cotton Manufacturing Co. v. Davis, 14 id. 238 ; Highland Turnpike Co. v. McKean, 11 id. 98; Spear v. Crawford, 14 Wend. 20 ; Harlœm Canal Co. v. Seixas, 2 Hall, 504 ; The Worcester Turnpike v. Willard, 5 Mass. Rep. 80 ; The Delaware & Schuylkill Canal Co. v. Sansom, 1 Binney, 70 ; Justom v. Bridge Co. 2 Bibb, 577 ; Tai River Navigation Co. v. Neal, 3 Hawks, 520 .) The su-. preme court of errors of Connecticut went a step further in the cases of The Hartford & New Haven Rail-Road Co. v. Kennedy, ( 12 Conn. Rep. 499 ;) The same v. Boorman, (12 id. 530 ,) where a corporation was created by the legislature, for the purpose of constructing a rail-road, with the general powers and privileges usually granted to corporations for a similar purpose, with a limited capital, to be divided into shares to be subscribed for by individuals, the directors of the company being by the act authorized to require payment of the sums so sut scribed to the capital stock, at such times and in such proportions, and

In behalf of the defendant it is insisted that although the company has at the common law a remedy by action of as-sumpsit against him to recover the price of the stock for which he subscribed, upon his express promise to pay; and a cumulative remedy provided by the act of incorporation, by forfeiting his stock; yet that the company cannot have both. That either when taken covers the whole subject of litigation and necessarily precludes a resort to the other. The general rule is well established, that where a remedy is given by statute in a case where a remedy also exists at common law, the party may take one or the other at his election, and cannot take both (Clark v. Brown, 18 Wend. 220 , and the cases there cited.) Although where two or more remedies by law exist, in ,a given case resulting from the contract of the parties, each may be pursued at the same time until satisfaction. No question was made on the argument, but that it was competent for the cor

As I read the contract, the defendant engaged to purchase and did purchase of the company twenty-one shares of its capital stock at the price of SI00 per share, and in consideration thereof agreed with the company to pay that sum, in such proportions or instalments, at such times as should thereafter be required by the directors of the company or their successors, pursuant to the provisions of the act of incorporation, and agreeing that in case of non-payment of any one or more proportions or instalments^ thereof as required, the company, in addition to the legal remedy by action upon the contract to enforce pay-' ment, should have the right and power by a resolution of its directors after thirty days’ notice of such requirement, given as prescribed by said act, to cut off all the right and interest which the defendant had acquired in the stock thus purchased and all previous payments by him made thereon, and forfeit it to the said company.

The obligation of the defendant to pay, as well as the right of the company to an action against the defendant to recover any part of the sum subscribed, or to forfeit his stock, was by the contract and the provisions of the charter contingent, depending upon the events of being required by the directors to pay and the non-payment by the defendant on or before the day appointed by the directors for payment, when the right to an action or forfeiture became absolute in the company on the happening of such events. The company in respect to such proportions of the principal sum as were so required to be paid,

It .may be admitted that when the company has taken and perfected its remedy, by forfeiture of the stock of a stockholder, for non payment of a particular call or instalment, an end is put to all personal liability or obligation on the part of such stockholder, to pay any other proportion of the principal sum which should subsequently be attempted to be required by the directors. As by such forfeiture the relation of stockholder ir, the company would, from the time of forfeiture, have ceased, and consequently the company, by its own voluntary act, would have deprived itself of the power to make a call for further proportions of the principal sum, so as to affect such person or operate upon his contract: for to affect him or his contract, it is indispensable that such person should be a stockholder at the. time when the directors make the call or demand, or at least should not have been deprived of his stock bj forfeiture to the company; as otherwise there could be no breach of his contract by non-payment. But although the forfeiture terminated the relation of the defendant as a stockholder, and incapacitated the company to affect the defendant or his contract by any subsequent calls made by the directors, in case the whole sum had not been previously called or demanded; yet it did not in the least affect the then existing rights of the company, or the obligations of me defendant arising upon his contract with the company. We have seen that the defendant agreed to pay the price of his stock, at such times and in such proportions as the same should be called for and demanded of the stockholders by the directors. The several sums for which this suit was brought

I do not see any analogy between the effect of a forfeiture as to the rights of the parties, contemplated by this statute, and the rights of the mortgagor under a foreclosure, having a right of redemption in equity. I am of opinion that the act of forfeiture under this statute, vested the stock forfeited absolutely in the company. The case here is, in some respects, analogous in principle to an entry by a lessor for condition broken, where it was said it had the effect to extinguish a covenant to pay rent and the like. But it was adjudged in Hartshorn v. Watson, (4 Bingham’s N. C. 178,) that an action of covenant lies for rent reserved by indenture, and accruing before a re-entry for a forfeiture, notwithstanding the lessor under such re-entry was to have the premises again “ as if the indenture had never been made,” and that the proper construction of the condition was, that from the time of re-entry the lessor should have the land as if the indenture had not been made. And that it would be a singular construction, to hold that to an action for rent on an instrument under seal, the lessee or assignee might plead, not payment, but that the lessor entered for non-payment—in other words, might deprive the lessor of his rent because he declined to submit to any further loss. No doubt such re-entry would, at the common law, work a discharge of the rent from the time it took place. In the case of Hinsdale v. White, ( 6 Hill, 507 ,) the same principle was sustained. There a lessee had been re> moved from demised premises for non-payment of rent by sum

It was argued that the case of Winter v. Livingston, ( 13 John, 54 ,) could not be distinguished in principle from the case under consideration, and that it was opposed to the decision made by the supreme court in this case. In that case, Wintei contracted to convey certain lands to Livingston, for which Livingston gave three promissory notes to Winter. The contract between the parties provided that if the notes, or either of them, should not be paid at the time they became payable, it should be void and of no effect. The notes were not paid; and Winter then sold and conveyed a large part of the land to other persons, and afterwards brought his suit upon the notes. The court said, 11 The notes in question were given as the consideration for the reconveyance of the land by Winter to Livingston, according to the covenant entered into between them. By this covenant, however, it was provided, that the agreement was to be void, unless Livingston paid his notes as they fell due. He did not pay them, and of course the agreement was void, if Winter elected so to consider it. And the case fully shows that he availed himself of this forfeiture, for he went on and sold the land for his exclusive benefit, and Livingston has, therefore, received nothing for his notes; and Winter has a perfect title to the land.”

I think it is a mistake to say, as has been said, that the land in the case cited was sold by Winter, as the shares of the defendant were, by the corporation. In the case of the land, there was an executor)7 agreement on both sides for the sale and purchase of it, containing an express provision, that in case the purchaser omitted, to pay the consideration agreed upon, the

In the case of Winter v. Livingston, the consideration of the notes being the consideration agreed to be paid for the land, failed when the event happened which, by the terms of the contract, was to put an end to it, and the vendor had otherwise disposed of the subject of the bargain. It has been said that the statute, in this case, makes the contract void, at the election of the corporation, on non-payment by the defendant, and that is inferred from the power given to forfeit the stock for such