People v. Lowe — 15 N.Y. St. Rep. 105

Majority

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The People, etc., App’lts, v John Lowe et al., Resp’ts.

(Supreme Court, General Term, First Department,

Filed March 2, 1888.)

Headnote

Associations—Accumulating fund— Chap. 122, Laws op 1851—Dissolu-tion op.

An association cannot be organized under chapter 122, Laws of 1851, without its being an accumulating fund association. Such an association cannot be dissolved by the action of its trustees, but must continue to exist until its funds shall amount to the sum specified per share in the articles of association, when it is provided by statute that it shall terminate, except for the purpose of settling its affairs.

Appeal from judgment rendered at special term.

J Noble Hayes, for app’lts; Henry Wehle, for resp’ts.

The error into which the learned counsel for the appellant seems to have fallen, and it necessarily permeates the whole of the position taken by him in the action at bar, is that the defendant corporation was a mutual loan and not an accumulation fund association. This claim is based upon the articles of association under which the defendant corporation was formed, which pro

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vided that the object of the society should be by co-operation to enable its members to become their own landlords, by providing funds for each member to purchase real estate within twenty miles of Few York and to make improvements thereon.

A. very brief consideration of the statute under which this association is organized will show that an association cannot be organized under such statute without its being an accumulating fund association. The first section of the statute (chap. 122 of the Laws of 1851) provides that any number of persons, not less than nine, may associate and form an incorporated company for the purpose of accumulating a fund for the purchase of real estate, the erection of buildings or the making of other improvements on lands, or to pay off incumbrances thereon or to aid its members in acquiring real estate, making improvements thereon and removing incumbrances therefrom, and for the purpose of accumulating a fund to be returned to its members, who had not obtained the advances above mentioned when the funds of such association should amount to a certain sum to be specified in the articles of association.

It will thus be seen that in reference to the purchase of real estate to the erection of buildings, to the making of improvements or paying off incumbrances, different schemes may be adopted. But whatever the scheme in reference to these subjects that may be adopted by the association, it must be coupled with a provision for accumulating a fund to be returned to those members who did not obtain advances as above mentioned.

The objects of the association must necessarily be twofold, one purpose being to aid those who desire to purchase real estate and make improvements thereon, and the other to allow those who did not purchase real estate or make improvements thereon to participate in the benefits of the association, and it is for that reason that the statute has provided that each of these associations shall be organized for the purpose of these real estate transactions, and for the further purpose of accumulating a fund to be returned to its members who do not obtain advances.

The association being formed for this dual purpose, each member receives the same benefit whether he chooses to invest in real estate or not. If he invests in real estate he gets his advance. If he does not invest, when the funds of the association arrive at the sum fixed, he is paid his dividend in money, and the corporation becomes dissolved. Such being the condition of the statute, these associations must necessarily be of this character, and ■ they cannot be organized for one of the purposes mentioned in the statute alone.

But it may be said that under the articles of association of this corporation, the subject of an accumulating fund is not mentioned as one of its objects, and that therefore the corporation could not exercise such power. In answer to

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this objection it seems to be sufficient to say that the second section of the act prescribes what the articles of association shall contain, and it nowhere provides that it shall contain any statement of what the object of the society is. It seems to have been the intent of the legislature to allow an association incorporated under this act to have all the powers which are prescribed by the first section thereof, and the insertion in the articles of association of the object of the society cannot limit this provision of the statute because the insertion of such object is mere surplusage and not required, and therefore incapable of any effect.

This corporation then from the very fact of its incorporation must be an accumulating fund association as well as a mutual loan association, and cannot be dissolved by the action of its trustees. Such association must continue to exist until its funds shall amount to the sum specified per share in the articles of association, when it is provided by statute that it shall terminate except for the purpose of setr tling its affairs.

In the case at bar, it is claimed that no such sum was specified in the articles of association in order to comply with the requirements of the statute in this respect. But an examination of the articles of association clearly shows that the shares were regarded as of the value of $1,000 each, as each member was entitled to receive a $1,000 on each share held by him, and although no provisions for accumulations seem to be therein contained, yet that $1,000 was to be the value of the shares is thus clearly indicated.

Such being the condition of the organization, and the funds of the association not being sufficient to pay to the members who had not obtained advances, the sum of $1,000 per share, it is apparent that neither the trustees nor the members, nor both, in opposition to the wish of any one of their number, could dissolve or terminate the business of the corporation, and that the attempt made in the case at bar so to do and to divide the assets of the corporation was illegal and void. It appears, however, from the proof in the case that in consequence of this attempt of the trustees to thus illegally terminate the fife of tins corporation, its affairs have come into such a condition that it is impossible for it to continue properly its business, and that the removal of the trustees who have attempted to perform these illegal acts, will not enable the corporation to continue and complete the purposes of its organization.

It therefore became necessary that a receiver of the corporation, and its assets, should be appointed, and that such a distribution thereof should be made as was just and equitable.

By the decree entered herein, the receiver is directed to execute to some of the mortgagors and members of the society, certificates of satisfaction of their mortgages upon certain terms, and to pay to certain other members of the

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society the par value of their shares, namely, $1,000 with interest. ■ As the funds of the society do not give these members this right, this portion of the judgment is erroneous. The fact that the trustees have violated their duty in attempting to terminate the business of the corporation in violation of the statute does not confer upon some of the members any greater rights to the assets than is enjoyed by the other members, and there must be an equitable distribution, and each member must be allowed the proportionate sum to which he is entitled.

The provisions of the judgment, therefore, so far as it - requires the satisfaction of these mortgages given by some of the members, and the payment to others of $1,000 per share, seems to be erroneous and cannot be upheld, and in this respect the judgment must be modified by directing the receiver to divide according to the principles under which the corporation was organized, its assets, crediting upon the mortgages of members held by the association, their dividends in its assets, and collecting the balance thereof, and paying to those members who have not obtained advances ' their proportionate share in such assets. In other respects the decree should be affirmed.

The objection that the action should have been brought upon the relation of somebody does not seem to be well taken, because, under sections 1781 and 1782, the attorney-general, in behalf of the people of the state, has a right to bring actions compelling the officers of corporations to account for their official conduct in the management and disposition of the funds and property committed to their charge, and- also to procure a judgment suspending them from office where it appears that they have abused their trust. This is the relief which was asked for in the case at bar and it was given by the judgment.

In order to entitle the people to bring an action to dissolve a corporation, according to section 1798 of the Code, leave of the court must be granted before such an action can be maintained, and therefore, in the suit at bar, a judgment dissolving the corporation could not be obtained.

The judgment should be modified as above mentioned, and as modified affirmed, without costs.

Daniels and Brady, JJ., concur.