People v. Buffalo Stone & Cement Co. — 42 N.Y. St. Rep. 753

Majority

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The People, Resp’ts, v. The Buffalo Stone & Cement Co., App’lt.1

(Court of Appeals,

Filed February 9, 1892.)

Headnote

1. Manufacturing companies—Forfeiture for not paving in capital stock.

A corporation is liable to forfeiture of its charter for noncompliance with the condition of the general manufacturing act, § 10, which directs-that the capital stock shall be paid in, one-half in one year, and one-half in two years from its incorporation.

2. Same.

In such a case the attorney general may exercise his discretion based upon all the facts in the case whether the public interests require that lie should commence attraction, and the court may exercise its discretion in the same way. But if they both determine that it ought to he commenced and it is proved that the stock has not been paid in within the two years, then the statute is imperative that the corporation shall he dissolved, and no discretion at that stage of the case is left to the court.

3. Same Parties to action to dissolve.

The fact that some or all of the persons who applied to the attorney general to commence an action for a dissolution were among those who aSion t0 Pay f°r their stock’ can have no legal effect whatever upon the*

Appeal from judgment of the superior court of Buffalo, general term, affirming judgment dissolving the defendant corporation? and forfeiting its franchises.

The defendant was organized as a corporation on the 18th da.y of August, 1885, under the general manufacturing act of 1848. Its

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■capital stock was $90,000, divided into nine hundred shares of one hundred dollars each. Prior to its incorporation, the persons who proposed to take its stock entered into a, written agreement that each subscriber for stock should pay fifteen per cent of the amount of his stock at the time of his subscription, and that the balance should be paid on calls to be made, not exceeding ten per cent at a time within ten years. During the first two years of the defendant’s corporate, existence only seventy-seven and one-half per cent of the capital stock was paid in, and no more has been paid in since, and the annual report required by § 12 of the act for January, 1889, was not made. On the 2d of March, 1889, a petition signed by various stockholders of the defendant was presented to the attorney general asking him to commence an action ■against the defendant to have its franchises forfeited and its charter annulled. Thereafter the attorney general made an application to a special term of the supreme court for leave to commence ■an action to annul the charter, and an order was made by the court on the 23d day of April, 1889, granting such leave, and this ■action was commenced on the following day. The action was brought to trial and resulted in a judgment in favor of the plaintiffs dissolving the defendant and forfeiting its rights, privileges ■and franchises, and appointing a receiver of its property and effects. Prom that judgment the defendant appealed to the general term, and from affirmance there to this court.

G harles Daniels, for app’lt; Henry W. Brendel, for resp’ts.

Section 1798 of the Code provides that upon leave being granted, as prescribed in the preceding section, the .attorney-general may bring an action against a corporation created by or under the laws'of the state to procure a judgment vacating its charter or annulling its existence, upon the grounds that it has: “(1) offended against any provision of an act, by or under which it was created, altered or renewed, or an act amending the same ■and applicable to the corporation ; or (2) violated any provision of law whereby it has forfeited its charter, or become liable to be ■dissolved by the abuse of its powers.” In such a case the attorney-general may, upon his own information, or upon an application made to him by any citizen, move the court for leave to bring the action. He must determine, in the first instance, whether the public interests require that the action should be brought, and thus that it is his duty to bring it, and then he must make application to the court for leave to bring it, and the court may exercise its discretion whether or not it will grant the leave. We have ■several times held that its discretion in such a case is not reviewable in this court Such an action may be brought by the attorney-general in the name of the People without a relator, and it is then strictly a People’s action. It is provided in § 1808, that “in •a case where the action can be brought only by the attorney-general in behalf of the People, if a creditor, stockholder, director or "trustee of the corporation, applies to the attorney-general for that purpose, and furnishes the security required by law, the attorney-general must bring the action, or apply for leave to bring it, if he

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has good reason to believe that it can be maintained. Where such an application is made, § 1986 of this act applies thereto.” Section 1986 provides as follows: “ Where an action is brought by the attorney-general, as prescribed in this title, on the. relation or information of a person having an interest in the question, the complaint must allege, and the title of the action must show, that the action is brought upon the relation of that person. In such a case the attorney-general must, as a condition' of bringing the action, require the relator to give satisfactory security to indemnify the people against the costs and expenses thereof. Where-security is so given, the attorney-general is entitled to compensar tian for his services, to be paid by the relator in like manner as-the attorney and counsel for a private person.”

That provision applies only to cases where the action is instituted in the name of the People to protect or secure the interests of individuals, like the actions specified in § 1781 of article 2, and §§ 1784 and 1785 of article 3 of the Code, and in all cases where mere private interests are sought to be promoted by the commencement of the action by the attorney general in the name of the People. But an action to annul a corporation under article 4 is purely a people’s action and proceeds upon public grounds and it cannot be said, within the meaning of §• 1986, that any person who instigates such an action, or applies to the attorney general to have it commenced, has any interest in the questions involved in the action. The simple question to be determined in such an action is whether the existence of the corporation shall be permitted to continue, and it in no way concerns the rights and interests of the persons interested in the corporation as between each other. It is simply a question between the corporation and the People, and to determine that question no individual need be present as a party to the action. Therefore it is of no legal consequence that some of the persons who applied to the attorney general to commence this action were the very trustees who omitted to make the annual report as required by § 12 of the manufacturing act, or the very stockholders who omitted to pay for their stock. Their acts in no way prejudice the rights of the People. If a cause of forfeiture against the corporation exists, there is nothing in the conduct of any of the stockholders or officers of the corporation which can defeat the right of the People to enforce the-forfeiture.

It is provided in § 12 of the manufacturing act of 1848 that every company formed under that act shall within twenty days from the 1st day of January of each year make the report as required by that section, which shall state the amount of capital,, and of the proportion actually paid in, and the amount of its existing debts, which report shall be signed by the president and a. majority of the trustees, and shall be verified by the oath of the president or secretary of the company and filed in the office of the clerk of the county where the business of the company shall be carried on. The provision is that “ every such company ” shall make the report, and the duty to make it is a corporate duty imposed upon the company. Cornell v. Roach, 101 N. Y., 373 .

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This duty was not performed, and it is claimed on behalf of the People that for the neglect, omission or refusal to perform it there was cause for annulling its charter under the provision of the Code .above set out. The duty is not simply one in which particular persons are alone interested, but it is a duty which the corporation owes to the public generally for the protection of all persons who may have occasion to deal with it, and to subserve a plainly expressed public policy; and for the omission to perform the duty it incurs the liability of forfeiture of its charter. Corporations are formed for definite objects, and their powers and duties are prescribed by law. The state confers upon them valuable franchises, .and to carry out its policy exacts the performance of specified duties. They must exercise their franchises and perform the •duties and obey the commands of the law as conditions of their ■existence. If they fail to travel' in the orbits designated by the laws of their existence, the state may take away the corporate life which it has created. Such was the rule of the common law, and ■such has for a long time been the statute law of this state. In the People v. Kingston & Middletown Turnpike Co., 23 Wend., 193 , it was held-that non-compliance with the requirements of an act •of incorporation of a turnpike company as to the construction of the road is per se a misuser, forfeiting the. privileges and fran•chises conferred; that the duties enjoined by an act of incorporation are conditions attached to the grant of the franchises conferred, and that it is not necessary to work a forfeiture that the neglect or refusal to perform the duties enjoined should proceed from a bad or corrupt motive; that it is enough that the duties be neglected or designedly omitted. Nelson, 0. J., writing the •opinion of the court, and construing provisions of the Revised Statutes substantially like those of the Code which we are now called upon to construe, said: “The statute obviously intended that corporations should fulfill the conditions and perform the duties enjoined by the fundamental law of their creation, as the terms upon which to enjoy their privileges. The principle is not new. It has been always so held at common law as fundamental. Lord Holt said in London City v. Vanaclcre, 1 Ld. Raym, 498, all franchises which are granted are upon condition that they shall be -duly executed according to the charter that settles the constitution ; and that being a condition annexed to the grant the citizens ■cannot make an alteration; but if they neglect to perform the terms of the patent it may be repealed by scire facias.'1 The principiéis so thoroughly and firmly fixed in the law of corporate bodies that I need do no more than refer to some of the authorities. A non-performance, therefore, of the conditions of the act of incorporation is deemed per se a misuser that will forfeit the grant even at common law.”

In Attorney General v. Petersburg, etc., R. R. Co., 6 Ired. L. R., 456, it was held by the supreme court of North Carolina that the failure of a railroad company to comply with a provision of its charter requiring the president and directors of the company to make an annual statement of its income, and return the same to the general assembly, in order to enable the latter to regulate the

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tolls charged by the company, was a cause for declaring the charter forfeited. Chief Justice Baffin delivering the opinion of the court said: “ We entertain no doubt that the omission of an express duty prescribed by a charter to a corporation is cause of forfeiture. Its performance is in the nature of a condition, and the sovereign may insist on resuming his grant for the breach of the condition. * * * When the charter expressly imposes a duty which the company is to perform, not merely to the citizen, but towards the sovereign itself, although it may not declare that non-performance shall make a forfeiture, yet by no latitude of equitable interpretation can it be regarded as a hard bargain, and as such relieved against in a court of law; but it must be taken to have been required by the state as a material stipulation, for the non-performance of which by the corporation the state may put an end to the contract.”

But it is further provided in § 12 that if the corporation shall fail to make the report “ all the trustees of the company shall be jointly and severally liable for all debts of the company then existing and for all that shall be contracted before such report shall be made,” and it is contended by the learned counsel for the appellant that that is the only consequence which is to follow from a failure to make the report; and he invokes the general rule of law that “ when a duty is prescribed, and the consequence of a failure to perform it has been declared, it is in its nature an implied prohibition of all other punishments.” Under the rule referred to it must be held that the statute provides the only -consequence to the trustees, and the only liability or penalty that can be imposed upon them. But § Í2 imposed no liability or penalty upon the corporation for a failure to make the report. Such a failure of duty on the part of a corporation, in the performance of which the public are interested, is left to be dealt with by the general provisions of law applicable to corporations, and its liability to forfeit its charter is the only consequence to it; and thus for tile failure to make the report the corporation may suffer for an omission to perform a corporate duty, and the trustees may suffer for an omission to perform an official duty resting upon them.

But there is still another ground for upholding this judgment, which is liable to less criticism. It is provided in § 10 of the general manufacturing act that the capital stock of every corporation formed under the act, as fixed and limited in its articles of incorporation, “ shall be paid in, one-lialf thereof in one year, and the other half thereof in two years from the incorporation of such company, or the corporation shall be dissolved.” Here was an express duty imposed upon this corporation to see to it that all its stock was paid in within the time specified, and that was made an imperative duty, as it is provided that it shall be paid in, and if that condition is not performed the corporation shall be dis- ' solved. We do not see how it is possible to so construe this language as to relieve a corporation from forfeiture of its charter for .a non-compliance with the condition. Where it is claimed that this provision of the statute has been violated, the attorney-general

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may exercise his discretion, based upon -all the facts in the case,, whether the public interests require that he should commence an action, and when he applies to the court for leave to commence it, it may exercise its discretion in the same way. But if he and it determine that it ought to be commenced, and it has been commenced, and it is proved that the stock has not all been paid in within the two years, -then the statute is imperative that the corporation shall be dissolved; and no discretion at that stage of the case seems to be left to the court. But here, if the court had any discretion, it has exercised it by giving judgment for dissolution. As we have before stated, that some or all the persons who applied to the attorney-general to commence the action for a dissolution were among those who omitted to pay for their stock, can have no legal effect whatever upon this action. It is sufficient for its maintenance that the corporation has omitted to enforce the payment of its stock within the time prescribed by law.

Our conclusion, therefore, is that the judgment should be affirmed, with costs.

All concur (Andrews, Finch, Gray and O’Brien, JJ., on the second ground stated in the opinion).