Syracuse, Phoenix & Oswego Railroad v. Gere — 11 N.Y. Sup. Ct. 392

Majority

p. 392

THE SYRACUSE, PHŒNIX AND OSWEGO RAILROAD COMPANY, Respondent, v. R. NELSON GERE, Appellant.

Headnote

Ghaptw 140, Laws of 1850—Subscriptions to stock of railroads — check taken as cash — agent to pi'ocure subscriptions —power of.

The defendant, having been applied to by an agent employed to procure subscriptions to the stock of the plaintiff, gave his check for the ten per cent, required by the act of 1850 to be paid in cash, upon the express agreement that he should never be called upon to pay the same. In an action brought by the company upon the check, held (1), that the talcing of the check for the ten per cent required to be paid in cash, was not such a violation of the act as

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to render it void; (2), that the agent had no authority to bind the company by his agreement in regard to the liability of the defendant upon the check.

Appeal from a judgment in favor of the plaintiff, entered upon the trial of this action by the court without a jury.

The action was brought to recover the amount due upon a check given by the defendant, 'payable to the order of the treasurer of the plaintiff.

Chamberlin & Knapp, for the appellant.

Hiscock, Gifford & Doheny, for the respondent.

The arrangement not to enforce defendant’s subscription is not a defense, but is a fraud upon the statute, upon defendant’s associates, upon all stockholders that might thereafter take the plaintiff’s stock, and a fraud upon the public. (See Graff v. Pittsburgh and Steubenville R. R., 31 Penn., 489 ; Robinson v. Pittsburgh, etc., R. R. Co., 32 id., 334; Litchfield Bank v. Church, 29 Conn., 137 ; Downer v. White, 12 Wis., 176 ; Kennebeck and Portland R. R. Co. v. Waters, 34 Me., 369 ; Blodgett v. Morrill, 20 Vt., 510 ; Tuckerman v. Brown, 33 N. Y., 297 , and cases there cited.)

The plaintiff sued defendant on a check for $100, which was given for the ten per cent required by the general railroad law, to be paid upon each share of stock of a railroad company, at the time of subscribing therefor. The defense is, that before organization of the company, Patrick H. Agan was engaged with others in procuring subscribers to plaintiff’s stock, with the view of organizing a corporation, under the general railroad law, to construct a road from Liverpool, in Onondaga county, to connect with the Hew York Midland, in Yolney, Oswego county. P. H. Agan applied to defendant to subscribe, and, as an inducement to do so, he assured him he would not be called upon to pay anything upon the subscription; and the defendant gave his check for the ten per cent required to be paid in cash, upon a bank in which he notified Agan he kept no account, and that it would not be paid, and Agan agreed that it should not be presented. It was drawn upon that bank that it should not be paid if presented.

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The court gave judgment for the plaintiff, and the defendant appeals.

There are but two questions of any importance arising on this appeal. The first is, whether taking it for the ten per cent was such a violation of the statute as rendered it void; second, whether the plaintiff acquired such a title to the 'check as enables it to sue upon it.

First. Is the check void? The second section of the general railroad law (3 Statutes at Large, 618), provides that the articles of association shall not be filed and recorded in the office of secretary of State until at least $1,000 of stock for every mile of railroad proposed to be made is subscribed thereto (that is, to the article of association), and ten per cent paid thereon in good faith and in cash to the directors named in the articles of association.

In Crocker v. Crane ( 21 Wend., 211 ), the question was, whether the acceptance of checks in lieu of cash was a compliance with the provision of the charter, which, in that case as in this, called for a percentage to be paid in cash at the time of subscribing. It was held it was not, as in that case the commissioners for distributing the stock received checks or uncurrent money for the percentage of a large number, if not all the subscribers. The action of the commissioners was held to be void, as contrary to the policy of the statute. Cowen, J., who delivered the opinion of the court, says (p. 220): “ Why are they [checks] taken as cash in the ordinary course of business ? Because they are a mere transfer of money which a man has at his banker’s. I do not deny that receiving an occasional check might have been a fair substitute.” The assistant vice-chancellor, in Thorp v. Woodhull ( 1 Sandf. Ch., 411 ), held that the receipt, by the commission appointed to receive subscriptions for, and to distribute the stock of an insurance company, of a check of a subscriber, in payment of a percentage required by the charter to be paid in cash at the time of subscribing, was a proper exercise of power, and the drawer was liable on the check; and he considers the receipt of the check valid, because it was received as cash. It did not appear that the commissioners had any knowledge or suspicion that the check was not good, or that it would not be paid in due course. They received it at their own risk. It seems that the corporation took it from them as equivalent to cash, and it is not

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proved but that the commissioners and the officers of the corporation believed it to be equivalent to money. He further says, that “ it does not appear that a check was taken from any other subscriber for stock.” The considerations that induced the vice-chancellor to hold the subscription valid in this case before him, apply in all their force to the case before us. There is no evidence that a check was received from any other person than the defendant, or that the directors had any knowledge of the understanding between Agan and defendant, that the check should not be presented or • paid, or that the cash to pay it was not in the bank to meet it when presented.

If the directors or the company were bound by the acts and agreement of Agan in the premises, the check must be held void, unless defendant is not in a situation to avail himself of the fraud which was committed, or attempted to be committed, upon the company or its stockholders. There is no proof of the authority given to Agan. We must ascertain it, therefore, from the nature of his employment and the duties which it was probably intended he would perform.

The general railroad act contemplates that persons desiring to subscribe for stock, shall meet together, and agree upon and sign the articles of association, and subscribe for stock. This meeting is made up of persons invited by one or more persons friendly to the enterprise, with the view of inducing them to subscribe for stock, and to become corporator's in the company, and some times to take subscriptions to be presented to the directors when appointed. This is all the duty a person so employed, in the absence of instructions clothing him with more enlarged powers, is expected to perform, or it is necessary he should perform.

Agan had no power to make the arrangement set up in the answer, and if he made it, neither the directors nor the company were bound by it. It is not to be assumed, in the absence of the clearest proof, that the subscriber to the stock, before the organization of the company, or the directors, after that event, would deliberately authorize the doing of an act that would destroy the subscription of any one or more of the subscribers, and endanger the existence of the company after incorporation.

Second. Has the corporation a right to maintain an action on the

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check ? In other words, was the check ever legally transferred to the company ? Although the statute contemplates and permits subscriptions to the stock of a railroad company before incorporation, yet these subscriptions do not bind the subscribers until the company becomes incorporated. When that event occurs the subscription becomes the property of the corporation, and it alone can sue thereon. If it was competent to receive a check for the ten per cent required to be paid down at the time of subscribing, that cheek becomes the property of the company, at the same time and in the same- manner it would have become owner of the money, had it been paid in lieu of the check.

It does not matter, it seems, to whom the check was made payable. It was transferred to the company upon incorporation, just as land intended to be granted for the use of a religious society becomes the property of the corporation upon the incorporation becoming complete.

The judgment must be affirmed.

Judgment affirmed.