Eaton v. Aspinwall — 13 N.Y. Super. Ct. 176

Majority

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Orasmus Eaton, Uri Gilbert and Edward O. Daton v. William H. Aspinwall.

Headnote

Under the act of April 12, 1852, for the incorporation of ocean steam companies, it is not a pre-requisite that the payment of the ten per cent should be stated in the certificate which is to be filed It is a matter to be proven, when necessary, as a fact.

It was found, as a fact in the case, that the ten per cent, had not been paid in, upon the incorporation of The Mexican Ocean Mail and Inland Company. It was also found, that the seventh section, directing a certificate to be filed within thirty days after the last installment had been paid, had not been complied: with.

Upon the testimony in the .cause, it was concluded that the defendant had avowed himself to be a stockholder in the company above named, had registered him-, self as such upon the books, and taken part in the management.

Held, that it was not competent for him to allege against a creditor, that the company had never been legally constituted, by reason of the omissions or default above noticed.

A debt was incurred by such company, to .the plaintiffs, during the period that the defendant was a stockholder. A judgment against the company was obtained, and execution returned unsatisfied.

Held, that the defendant was liable forjihe demand, and that his liability was not restricted to the amount unpaid upon his stock, but was, under the 6th section of the act, for the whole amount of the stock held by him,, for all debts contracted until the certificate has been filed.

(Before Oakley, Ch J., Hoffman and Slosson, J.J.)

General Term,

October, 1856.

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Appeal from a judgment, entered upon the report of a referee, in favor of the plaintiffs.

The cause having been at issue upon the complaint and answer, an order of reference was made to a referee to hear and determine the whole action.

He found, by his report, the following facts and conclusions: That on the eighth day of January, one thousand eight hundred and fifty-three, seven persons filed in the office of the clerk of the city and county of Hew York, and a duplicate thereof in the office of the secretary of state, under and in pursuance of an act of the people of the state of Hew York, entitled “ An Act for the incorporation of companies formed to navigate the ocean by steamships, passed April 12th, 1852,” a certificate made and signed by themselves and others, and acknowledged before a commissioner of deeds by themselves, stating, among other things, that those who signed said certificate did thereby form themselves into a corporation to be called the Mexican Ocean Mail and Inland Company, for the purpose of building for their own use, equipping, furnishing, fitting, purchasing, chartering, navigating, and owning vessels, to be propelled solely or partially by the power or aid of steam, or other expansive fluid or motive power, to be used in lawful commerce and navigation upon the ocean and seas, and for the transportation of passengers, freight and mails, and for holding other property. The principal office for managing the affairs of the company being the city of Hew York, and stating particularly the ports between which such vessels were intended to be navigated ; and that the capital stock of the company should be one million five hundred thousand dollars, to be. divided into fifteen thousand shares of one hundred dollars each; that the term of the existence of said company was to be twenty years from the first day of January, one thousand eight hundred and fifty-three; that there were to be nine directors, and stating their names, who should tiianage the concerns of said company for the first year.

The undersigned has also found, as matter of fact, that ten per cent, of the capital named has not been paid in:

That said company elected officers, hired an office, and went into operation in January aforesaid:

That on the twenty-eighth day of March, one thousand eight

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hundred and fifty-three, the defendant became the owner of two hundred and fifty shares of the stock of said company:

That in April of the said year the said company employed the plaintiffs, who were copartners doing business at the city of Troy, under the firm name of Eaton, Gilbert & Co., to furnish coaches and fixtures for said company, which were made and delivered to said company by said plaintiffs, for which said company, by its company name, and by its president, gave the plaintiff two promissory notes, each for the sum of twelve hundred and twenty-one dollars and thirty cents; one dated September 17, 1853, payable four months after date, and the other dated September 22d, 1853, payable six months after date; and a third promissory note for the sum of $1214f¡n¡, dated September 22d, 1853, payable five months after date:

That a judgment was obtained upon said notes in the Supreme Court of this state, in favor of said plaintiffs, against the Mexican Ocean Mail and Inland Company, on the thirtieth day of June, one thousand eight hundred and fifty-four, for the sum of three thousand seven hundred and fifty-eight dollars and eighty-three cents:

That on the last-mentioned day an execution was issued, upon the said judgment, to the sheriff of the county of New York, which was returned, wholly unsatisfied, on the fifteenth day of July, one thousand eight hundred and fifty-four:

That the certificate required by the seventh section of said act of April 12th, 1852, has not been made, signed, sworn to, or recorded :

That the defendant continued to be a stockholder in said company, and the owner of said two hundred and fifty shares of stock,during the period when the above-named liabilities in favor of plaintiffs were contracted and accrued, and as such stockholder has taken part in the management of the company:

That as matter of law, the omission to pay in ten per cent, of the capital stock of said company is not a defence to the defendant, in the action against the claim of the said plaintiffs:

That the said plaintiffs are entitled to recover from the defendant the amounts of the said several promissory notes, with interest from the time when they respectively became due; amounting altogether at the date of this report, to the sum of four thousand

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and ninety-eight dollars and thirty-four cents, besides their costs of this action.

In addition to the facts thus found, the following are of importance: The seventh article of the association provided, that it should be the duty of the secretary or treasurer, under the direction of the directors, to issue scrip to those who shall be entitled to stock in the company, when ten per cent, upon the whole amount of capital stock subscribed shall have been paid in thereon, which scrip shall be signed by the resident presiding officer of the company, and countersigned by the secretary or treasurer. /

The eighth article provided that it should be the duty of the secretary or treasurer to endorse upon the scrip, which shall be held by any stockholder, every sum which shall be paid thereon, and whenever the capital stock of the said company shall be paid in, certificates of full stock shall, in like manner, be issued, according to the by-laws of the company, and the scrip aforesaid shall be cancelled.

The articles of association were dated the 1st of January, 1853, and the certificate filed the 8th of that month.

Various provisions of the statute, under which the association became a corporation, are noticed in the opinion of the court.

Van Vorst, for the plaintiffs and respondent,

Evarts, for defendant and appellant.

The articles of association, under which The Mexican Ocean Mail and Inland Company was formed, were dated the 1st of January, 1853, and a copy of such articles was filed in the office of the clerk of the county of New York, and a certified copy of the same was filed with the secretary of state on the 25th of January, 1853.

This was a sufficient compliance with the first section of the act of April 12, 1852, directing the filing of a certificate in writing, in order to the incorporation of ocean steam companies.

But by the second section of such act it is provided, “That when the certificate shall have been filed as aforesaid, and ten per cent, of the capital named paid in, the persons who shall have signed and acknowledged the same, and all others who may there

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after be holders of any share or shares of said capital stock, and their successors, shall be a body politic and corporate in fact and in name, by the name stated in such certificate, and shall have and possess all the powers, etc., etc.”

It is to be observed that the first section does not require that the certificate shall state the payment of the ten per cent. The strict letter of the second section imports that the corporate character does not arise until the ten per cent, is paid; but then that may be a fact to be ascertained by testimony.

In connection with this section of the statute, the seventh article of the association should be noticed. Scrip was to be issued when ten per cent, had been paid in. Each successive payment was to be endorsed on this scrip, until the whole was paid up, when certificates of Ml stock were to be issued.

The fourth section authorizes successive calls, by the directors, for payment of installments on the stock; and the seventh section directs a certificate to be filed within thirty days after the last installment has been paid, stating the amount of the capital paid in. This was not done, as the referee finds.

The referee also finds that the ten per cent, was not, in fact, paid in. A witness swears positively that all the stock had been paid up, and much testimony was taken as to the mode in which this was accomplished, We do not propose to enter upon this question, or to scrutinize this transaction. We shall decide the case upon the assumption that the ten per cent, had never been paid in.

There are two prominent facts to be noticed.

First, There is an allegation in the complaint, and an admission in the answer, of no slight consequence. The plaintiff avers that the defendant was a stockholder, and owner of two hundred and fifty shares of stock in the said corporation, to the amount; of $25,000, at the time the coaches were manufactured for, and delivered to, such company, and at the time the notes were given. The defendant admits that he is owner of two hundred and fifty shares of the full shares of said alleged corporation, but puts in issue the allegation of his being such when the debt was contracted.

Next, upon the 28th of March, 1853, the defendant has a transfer made to him, on the stock ledger of the company, by which Rankin, president, transfers to him two hundred and fifty shares.

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This book was kept by the company, as the law prescribed. A certificate was on the same day issued and delivered to him, and a receipt given by the defendant for it, to the president.

The tenth section of the statute of 1842, directs a book to be provided, in which shall be entered the names of the original stockholders, and of all transferees, with their residences. This book is to be open to public inspection. In all proceedings under the provisions of the act, such book shall be presumptive evidence of the truth of the contents thereof, but such presumption may be repelled by evidence by any party or person interested in doing so.

There are other pieces of testimony tending to show recognitions, by the defendant, of his character as a stockholder of the company. But we think those we have referred to are enough to raise the legal question. That question is, Whether one who has openly avowed himself a stockholder of a company, registered himself as such upon its books, and as a stockholder taken part in its management, can be allowed to say, as to third persons, that the corporation was never lawfully created ?

We answer this question in the negative. We so answer it with greater confidence, when the defect is the omission of an act to be proven by testimony to have been performed, not a pre-requisite to be publicly declared and recorded, before the corporation can acquire a legal entity.

The cases referred to determine, that neither a stockholder who has acted as a director, nor a party incurring a debt to a company can set up as a defence, an irregularity which might show that the corporation never existed, or had incurred a forfeiture. (McFarlan v. The Triton Ins. Comp., 4 Denio, 392 ; The Sch. and Sarat Plank Road Comp. v. Thatcher, 1 Kernan, 108; Lawrence v. Palmer, 3 Sand. Rep.; All Saints’ Church v. Lovett, 1 Hall, 191 .)

The principle of these cases must control the present. If a party may not controvert the legality of a corporation when it is enforcing a contract avowedly made with it, he cannot be allowed to defeat a creditor of the company wholly ignorant of the defect or error.

There is a class of authorities decided in England upon the ob ligations of members of joint-stock associations, which may be usefully noticed. (Manderby v. Le Blanc, 2 Carr. & Payne, 409;

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Harvey v. Ray, 9 B. & Cress. 356; Ellis v. Schmoeck, 5 Bing. 521 ; Doubleday v. Mushell, 7 Bing. 110, 4 M. & S. 750.)

In these cases, the prevailing principle is, whether the parties have heldthemselves out as possessing the character, which involves the responsibility ? In one case, letters of the defendant, in which he admitted himself to be a shareholder, were held sufficient.

The defendant takes another defence, which should be noticed. The 6th and 7th of his printed points are to the effect, that the liability imposed by the statute is, that each stockholder should be responsible for his contributory share of the capital, and must respond to creditors only for what he has not paid in, and that the defendant had wholly paid up for the stock he held.

But the 6th section of the act of 1852 is express, that the stockholders shall be severally individually hable to the creditors of the corporation to an amount equal to the amount of stock held by them respectively for all debts and contracts made by such corporation, until the amount of its capital shall have been paid in, and a certificate thereof shall have been made and'recorded or presented in the next (the 7th) section. That section directs the filing of the sworn certificate thirty days after the whole of the installments have been paid up. This was wholly omitted as before stated.

. It seems, to us plain, that even if a stockholder has fully paid up his subscription, or is an assignee of fully paid stock, he is responsible, up to the entire amount he holds, for all debts contracted while he owned the stock.

The case appears to us a clear one, and the judgment must be affirmed, with costs of the appeal.