Hyperlawhypertext legal database Jessup v. Carnegie 44 N.Y. Super. Ct. 260

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Jessup v. Carnegie

44 N.Y. Super. Ct. 260 12 Jones & S. 260 Court N.Y. Super. Ct. Decision date 1878-11-04 English

Contents

Majority

p. 260
MORRIS K. JESSUP, and others, Plaintiffs, v. ANDREW CARNEGIE, and others, Defendants.

Headnote

I. Corporation.
1. Pre-requisites to a legal corporate existence.
(a) Non-compliance with, effect of.
1. See Partnership, infra.
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3. Be facto by user.
(a) Doctrines relating to, when not applicable.
1. Not applicable where a corporation is sought to be formed under the provisions of a general law.
3. Iowa, corporations in State of.
(a) General statutes existing in 1871, relating to the formation of corporations other than railroad corporation.
1. Pre-requisites to a legal corporate existence.
1. Recording of articles of incorporation in the office of the recorder of deeds of the county where the principal place of business is to be, in a proper book kept therefor, and within three months after such recording, filing in the office of the secretary of state a copy of the articles, and publishing a certain prescribed notice for four weeks in succession in some newspaper as convenient as practicable to the principal place of business.
II. Statutes.—Construction op.
1. MANDATORY, WHAT ARE.
1. Negative expressions will impress a mandatory character on a statute.
8. Imposition of a duty and giving the means of performing it will have a like effect.
HI. Partnership resulting by operation op law.
1. Corporation.—Body assuming to be without legal corporate existence, associates in forming, and stockholders in, the proposed company are liable as copartners upon contracts made in the name adopted as its corporate name.
1. This although the parties dealing with the proposed company believed it to be a corporation, and dealt with it as such.
3. This although the associates and stockholders did not intend to become copartners and liable as such.
IV. Comity op States.
1. Statute law of one State to be applied in another.
(a) Existing law at the time of contrract made to be applied.
The rights, liabilities, and obligations of parties to a contract made and to be performed in this State, the parties on one side being all citizens of New York, and on the other not citizens of Iowa, so far as affected by the statute laws of Iowa, must be determined according to the interpretation and construction of the statute as expounded by the courts of Iowa at the time of the making of the contract.
(a) This although the then exposition has been by subsequent decision reversed.
V. Constitutional law.
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1. Impairing obligation of contracts.
(а) By judicial decisions, cannot be.
1. Can no more be impaired by subsequent judicial decisions on the construction of a statute, than by subsequent legislation.
(б) Remedy, impairing of when impairs the obligation.
1. A statute which so affects the remedy existing at the time the contract was entered into as to substantially impair and lessen the value of the contract impairs the obligation of the contract, and is forbidden by the constitution, and is therefore void.
VI. Application of above principles.
1. The, Davenport Bailway Construction Company.
held,
that as to the plaintiffs in this action it must be held:
1. That it is not a railroad corporation.
2. That it has not complied with the pre-requisites to a legal corporate existence.
3. That the associates in its formation, and those who became interested therein, are liable as copartners upon obligations made in the name adopted for the proposed corporation.
Before Speir and Freedman, JJ.
Decided November 4, 1878.
This action was brought against the defendants as copartners on a number of promissory notes made under the name and designation of “ The Davenport Railway Construction Company.”
In addition to the statutory provisions referred to in the opinion, there were read in evidence various provisions of the statutes of Iowa, respecting remedies against corporations and stockholders referred to in the points.
The cause was tried before the court and a jury, and a verdict for plaintiff was directed.
The exceptions were ordered to be heard at the general term in the first instanced
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Lewis Sanders, attorney, and of counsel for defendants, Carnegie, Smith, McCandless and Preston.
I. a. Stockholder not liable under Iowa statute. The precise question which is attempted to be raised here has been definitively decided twice by the. highest court of Iowa (First National Bank v. Davies, 43 Iowa, 435 ), where the court held that a failure to file a copy of the articles of incorporation in the secretary of state’s office was not a failure to comply substantially with requisitions of publicity and organization, required by the statute, b. The decision by the court of last resort of a State upon the statutes of its own State is conclusive on the courts of other States. It becomes a part of the statute law (Elmendorf v. Taylor, 10 Wheat. 159 , 160; Shelby v. Guy, 11 Id. 367; Arguello v. U. S., 18 How. Pr. 539 ; Suydam v. Williamson, 24 How. U. S. 427; Hoyt v. Thompson, 3 Sandf. 421 ; Hoyt v. Sheldon, 3 Bosw. 302 ).
II. 1. Failure to file articles in secretary of state’s office is a question for the State only. 2. The requirement of the statute is simply to duplicate proof (Tarbell v. Amos, 24 Ill. 48 ; Cross v. Pinckneyville Mill Co., 17 Id. 56 ; Mokelmume Hill Mining Co. v. Woodbury, 14 Cal. 427 ; Baker v. Backus, 32 Ill. 97 ).
III. The Iowa statute forbids this suit. The foregoing authorities under point II. illustrate the policy of the law, and show the principle to be uniformly approved. In addition to the policy of the law, as expounded by the courts, we have, under the Iowa statute, a positive inhibition. “ Sec. 1180. Persons acting as a corporation, under the provisions of this chapter, will be presumed to be legally incorporated, until the contrary is shown; and no such franchise shall be declared actually null or forfeited, except in a regular proceeding brought for that purpose.”
IV. The general policy of the law is the same
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(Buffalo and Albany Railroad Co. v. Cary, 26 N. Y. 77 ; Eaton v. Aspinwall, 19 Id. 121, 122 ). Defect in organization is a question of law, and it is for the State alone to take steps to dissolve such corporation (Doyle v. Peerless Petroleum Co., 44 Barb. 244 ; Trustees of Vernon v. Hills, 6 Cowen, 26, 27; The Eagle Works v. Churchill, 2 Bosw. 171 ; Charles River Bridge v. Warren Bridge, 7 Pick. 371 ; Wight v. Shelby R. R. Co., 16 B. Monroe (Ky.) 7; Searsbury Turnpike Co. v. Cutler, 6 Vt. 324 ). That condition precedent to a legal organization of corporation cannot be collaterally questioned (State v. Carr, 5 N. H. 370 ; President, &c., Kishacoquillas and Cent. T. R. Co. v. McConaby, 16 Serg. & Rawle, 145 ; Canal Co. v. Railroad Co., 4 Gill & J. 4, 107; 1 Edw. 84 -110 ; Chamberlain v. Painesville and Hudson R. R. Co., 15 Ohio, 250 ).
V. Proceedings must be had in Iowa. The pro-ceeding against the corporation must be had in the ■ State granting the charter (Persse & Brooks’ Paper Works Co. v. Willett, 19 Abb. Pr. 433 ).
VI. Proof of corporation. “ Evidence of user sufficient” (Eaton v. Aspinwall, 10 N. Y. 121 ; Williams v. Bank of Michigan, 7 Wend. 553 ; McFarlan v. Triton Insurance Co., 4 Denio, 397 ; Rindell v. Fray, 32 Cal. 361 ; Dannebroge Mining Co. v. Allment, 26 Cal. 288 ; President & Trustees v. Thompson, 20 Ill. 200 ; Utica Ins. Co. v. Tilman, 1 Wend. 555 ; Gaines v. Bank of Miss., 7 English (Ark.) 769 ; Bank of Manchester v. Allen, 11 Vt. 302 ; 3 Wend. 296 ; Caryl v. McErath, 3 Sandf. 178 -179 ; Spring Valley Water Works, San Francisco, 22 Cal. 440 , reviewing all the cases). Every presumption indulged in favor of the legal existence of a corporation after it has gone into operation (Dunning v. New Albany and Salem R. R., 2 Ind. 457 ; 1 Greenl. Ev. 65). Exemplified copy of charter and evidence of user under it suf
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ficient proof of incorporation (Utica Ins. Co. v. Tilman, 1 Wend. 555 ). Searsbury Turnpike Co. v. Cutler ( 6 Vt. 322 ), dispenses with proof of record of organization ; parol proof of incorporation under indictment for counterfeiting is admitted (S. C., Id. 323 ). Books of a corporation are competent evidence for the purpose of showing the acts and proceedings of the corporation, and that it has complied with statutory requisites (Ryder v. Alton & Sangamon R. R., 13 Ill. 523 ; Highland Turnpike v. McKean, 10 Johns. 154 ; Owings v. Speed, 5 Wheat. 420 ; Wood v. Jeff. Co. Bank, 9 Cowen, 194; Gray v. Turnpike Co., 4 Randolph, 57 8 ; Duke v. Catawba, Nov. Co., 10 Ala. 82 ; Hall v. Carey, 3 Georgia, 239).
VII. Stockholders improperly joined. Cause of action several. Defendants not jointly liable as stockholders (Young v. New York and Liverpool U. S. Mail Steamship Co., 15 Abb. Pr. 75 ; Aspinwall v. Torrance, 1 Lansing, 384). Statutes of Iowa make the individual property of the stockholders liable; this liability is several» It does not make the stockholders liable.
VIII. Estoppel. “But defendant having undertaken to enter into a contract with the plaintiffs in their corporate name, he thereby admits them to be duly constituted a body politic and corporate, under such name” (Dutchess Cotton Manufactory v. Davis, 14 Johns. 245 ; Henriques v. Dutch West India Co., 2 Ld. Raym. 1535; Judah v. American Live Stock Ins. Co., 4 Ind. 339 , and cases there cited; Franz v. Teutonia Building Asso., 24 Md. 270 ; Wood v. Coosa & Chattanooga R. R., 32 Geo. 291, 292).
VIII. There is no liability of stockholder at common law. “ It is clear by common law only corporation could be sued” (Erickson v. Nesmith, 4 Allen [Mass.] 235). Without a provision in law or charter for individual liability of stockholder, the general rule is,
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none exists (Shaw v. Boylan, 16 Ind. 386 ; Winter v. Baker, 50 Barb. 433 ). Dissolution of corporation does not render stockholders liable as partners (Tarbell v. Page, 24 Ill. 47 ; Central Savings Bank v. Walker, 66 N. Y. 430 ; Wilson v. Fesson, 12 Ind. 285 ). At common law there is no individual liability of a stockholder (Shaw v. Boylan, 16 Ind. 386 ; Trustees of Free Schools So. Parish Andover v. Flint, 13 Metc. [Mass.] 539 ; Woodruff & Beach Iron Works Company v. Chittenden, 4 Bosw. 417 ; Andrews v. Callendar, 13 Pick. 490 ; Winter v. Baker, 50 Barb. 434 ).
IX. This court has not jurisdiction of the subject-matter of the action. This will be apparent from an examination and comparison of the case at bar with Lowry v. Inman, 46 N. Y. 120 . ... “ Whether the obligation is imposed, and the remedy given solely by the statute, or rests upon the assent of the stockholders . . . the result is the same; the obligation, or liability, and the remedy are inseparable ; and the party interested is confined to the remedy prescribed by the act.” The remedies prescribed by the Iowa statute are:—1st. A judgment against the corporation. 2nd. Execution thereon. 3rd. Demand upon the proper officer for- corporate property. 4th. A return of insufficient corporate property. 5th. An action against the stockholder. 6th. Stockholders’ right to a stay of proceedings at any stage of the action against himself upon pointing out corporate property. Before this action could be maintained against any stockholder in Iowa, a judgment must have been recovered against the company, execution issued, demand made, and execution returned unsatisfied. Though the contracts sued upon were made in New York, they are to be governed by the Iowa statute (Hutchins v. New England Coal M. Co., 4 Allen, 583 ). When a statute creates a right and provides a remedy,
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that alone must be followed (Smith v. Lockwood, 13 Barb. 209 ; Moncrief v. Ely, 19 Wend. 407 ; Doe v. Bridges, 1 Barn. & Ad. 859; Hillsdale v. Larned, 16 Mass. 64 -69 ; Stafford v. Ingersol, 3 Hill, 41 ; Almy v. Harris, 5 Johns. 175 ; Renwick v. Morris, 7 Hill, 576 ; Erickson v. Nesmith, 4 Allen, [Mass.] 236, and cases cited). Action in Massachusetts to charge stockholder in New York corporation for corporate debts for failure of company to file annual report, &c. Held, “ Liability of stockholder must be treated as part of the statute system of another State, incapable of execution alieno foro (Halsey v. McLean, 12 Allen, 443 ).
X. Where the statute of a foreign State provides the remedy without becoming a portion of the contract made under it, it may be repealed by the legislature at pleasure. No State interferes with the internal police of another. Nor will it enforce an obligation entered -into with a view to that police, and intended to have no operation except in connection with it. No action can be maintained out of the State, where, by the law of the State authorizing the contract, it is to have effect only in a particular way, not known to the common law. It is the exclusive province of the tribunals of that State (Picheney v. Fisk, 6 Vt. 108 -112). By chap. 32, Laws of Iowa of 1876, the proceedings of the Davenport Railway Construction Co. were validated. The liability of the stockholder for failure to file articles of incorporation in the secretary of state’s office is penal, and is analogous to the penalty imposed upon trustees for not filing the annual report under the laws of this State, which has been held to be a penalty (Merchants’ Bank v. Bliss, 35 N. Y. 412 ). The statute of limitations for penalties' was enforced in Whiting Arms Co. v. Barlow, 63 Id. 57 ; Jones v. Barlow, 62 Id. 205). It being a penalty, the power which prescribes
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formalities to be observed in its creation is able to dispense with them (Black River R. R. Co. v. Barnard, 31 Barb. 258 ).
XI. By a repeal of the penalty the action falls with it (U. S. v. Findley, 1 Abb. U. S. 364 ; Kimbro v. Colgate, 5 Blatchf. 229 ; U. S. v. Six Fermenting Tubs, 1 Abb. U. S. 268; U. S. v. Tynen, 11 Wall. 88 ).
XII. The company’s notes were excepted to as incompetent, irrelevant, and becáuse no foundation had been laid for them. If corporation had no corporate existence, it would not authorize holder of notes made by it to treat Stockholders as partners (Towbridge v. Scudder, 11 Cushing, 86 ; Fay v. Noble, 7 Id. 192 ; and authorities cited, supra, VIII. and IX.). Articles of incorporation, &o., to pfove agency of person making contracts as an authority from stockholder, held inadmissible (Noble v. Fay, 7 Cushing, 189). In Cochran v. Arnold, 58 Penn. 404 , it was held, in an action to charge stockholders as partners doing business as a corporation under name of “ConestogaSteam Mills,” for irregularity in formation, Suit on notes given by G. S. M. for cotton sold by plaintiffs, Held— “ corporate existence of a corporation de facto, cannot be inquired into collaterally.” Not liable as partners (Baker v. Backus, 32 Ill. 107 ).
Alexander & Green, attorneys, and Ashbel Green, of counsel for defendant Davison, Urged:
I. The liability of stockholders is a part of the statute system of Iowa, incapable of execution alieno foró. The remedy is necessarily confined to the sovereignty of Iowa, and can have no recognition or effect beyond the boundary of that State (Halsey v. McLean, 12 Allen, 443 ; Lowrey v. Inman, 46 N. Y. 130 ; Pickering v. Fisk, 6 Vt. 102 ; Doun v. Lippman, 5 Cl. & Fin. 1 ; Ferguson v. Fyffe, 8 Id. 121 ).
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II. The alleged failure to comply with the require1 *- ments of the statute of Iowa, did not, ipso facto, create the relation of partnership between the stockholders. The stockholders cannot, without other evidence than the proof of their interest, be held to have authorized each other, as partners, to pledge the credit, of the whole, and to have empowered any one of the number to bind all in any matter within the ordinary course of business of the corporation (Central Bank v. Walker, 66 N. Y. 424 ; National Bank v. Landon, 45 Id. 410 ; Fuller v. Rowe, 57 Id. 23 ; Noble v. Fay, 7 Cushing, 189; Trowbridge v. Scudder, 11 Id. 86 ; Baker v. Backus, 32 Ill. 82 ).
III. There was no substantial failure to comply with the laws of Iowa (Washington College v. Duke, 14 Iowa, 14 ; National Bank v. Davies, Id. ; S. C. on reargument, 43 Iowa, 435 ).
IY. The exposition of the Iowa courts upon the com struction of statutes of that State is to be- taken by-this court as conclusive, and to be received with the-same force as. if the interpretation contained in such decisions was incorporated in the statute in terms (Hoyt v. Sheldon, 3 Bosw. 302 ; Hoyt v. Thompson,. 3 Sandf. 421 ; Shelby v. Gray, 11 Wheat. 361 ; Tioga R. R. v. Blossburg R. R., 20 Wall. 137 ; Elmwood v. Macy, 2 Otto, 289).
Y. The-passage of the act of 1876, and the-filing of the articles in the office of the secretary of State in 1874, cured any invalidity in the organization if any existed prior thereto. 1. The question is one solely for the. State of Iowa to deal with (Eaton v. Aspinwall, 19 N. Y. 119 ; Buffalo & Allegany R. R. Co. v. Cary, 26 Id. 75; Doyle v. Petroleum Co., 44 Barb. 239 ; Cochran v. A rnold, 58 Penn. St. 399 ). The law of 1876 practically cured the alleged defect (Black R. R. Co. v. Bernard, 31 Barb. 258 ; Green v. Seymour, 3 Sandf. Ch. 285 ; Whitewater Canal Co. v. Vallette, 21 How. U. S.
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414). 2. The liability of stockholder is in nature of penalty (Garrison v. Howe, 17 N. Y. 458 ; Merchants’ Bk. v. Bliss, 35 Id. 412). The act of 1876 took away the penalty, and any cause of action founded thereon fails (Kimbro v. Colgate, 5 Batchf. 229 ; Butler v. Palmer, 1 Hill, 324 ).
Emott, Burnett & Hammond, attorneys, and James Emott, of counsel for defendants, Duff, Dexter, and Ames:
I. The consequences resulting from a violation of, or a failure to comply with, the provisions of the statutes of Iowa in regard to the formation of corporations are two-fold in their character : first, as affecting the corporation; and second, as affecting the individual corporators. First. The consequence upon the corporation is the forfeiture of its franchises and rights, if the failure to comply with the statute or the violation of its provisions is not condoned by the sovereign power. This result can only be reached in a proper action by the State, and such action must be brought and conducted to judgment before any such condonation, or the forfeiture cannot be enforced. It appears in this case that no such action has ever been brought in the State of Iowa, and that the State, by the- act passed March 3, 1876, legalized the formation of this corporation, saving its liability for contracts made prior to the taking effect', of the act, and the liability of the individual members ^thereof to pay up their stock so far as the same is unpaid. Second. The consequences of a failure to comply with-, the provisions of the statute for the formation of corporations, or a violation of that statute, upon those becoming stockholders, is, in the language of the act, “ to render the individual property of the stockholders liable foi’ the corporate debts.” It will be observed that this isi a liability created by the statute, of a penal character, \
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imposed upon the stockholders as such, and a liability to the payment of the debts of the corporation.
II. This is not a case like that presented in Lowry v. Inman, 49 N. Y. 119 , where the liability was imposed by the charter of the corporation, and did not arise from its violation or a failure to observe it. The present case is an action founded upon a liability which the defendant did not incur by becoming a member of the corporation, but solely from the fact that he, or some one for whose acts he is responsible, has done or not done something required by law. It is therefore an action, on the statute, and not on any contract, express or implied (Lawlor v. Burt, 7 Ohio St. 340 ).
III. If this were an action against a stockholder in a New York corporation, under a New York statute, in terms like that of Iowa, it would be barred by the New York statute of limitations (Lawlor v. Burt, supra). But it is an action on a foreign statute, and no such action will lie in the State of New York. Our courts will not entertain a suit of a penal character upon or to enforce a foreign statute (Lowry v. Inman, 46 N. Y. 119 , and cases cited ; Halsey v. McLean, 12 Allen, 438 ; Merchants’ Bank v. Bliss, 35 N. Y. 412 ). The attempt to enforce the statute of Iowa in another State, deprives stockholders in this corporation of important rights- conferred by the statute itself, and therefore the remedy given by the statute is necessarily confined to the State of Iowa, and can have no recognition in any other State (Lowry v. Inman, 46 N. Y. 130 ; Halsey v. McLean, 12 Allen, 438 ; Pickering v. Fisk, 6 Vt. 162 ; Ferguson v. Fyff, 8 Clark & Finelly, 121; Down v. Lippman, 5 Id. 1).
IV. There is no foundation for the doctrine asserted in the complaint, and upon which this action seems to have been brought, that the failure by the persons organizing this corporation to comply with certain requirements of the statutes of Iowa ipso facto created
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them partners, and made the corporation a common law partnership, and. its members, liable as general partners to all persons dealing with it (Fay v. Noble, 7 Cush. 188 -192).
V. The notes upon which this action was brought are the notes of a corporation. The parties who took them, took them as such. The statute creating the liability which is supposed to rest upon these defendants makes them liable for these notes, if at all, as corporate debts; not because they were partners, nor because they directly incurred or authorized these liabilities as their individual debts. The Davenport Railway Construction Company was a corporation defacto, until dissolved by the forfeiture of its franchises, adjudged in a proper action. It filed its articles in the proper county office; it published the proper notice in a county newspaper ; it. commenced business ; it dealt with the plaintiffs and gave its notes. Subsequent to its organization, it is alleged that it failed to comply with the requirements of the statute, that it should file a copy of its articles in the office of the secretary of State. But this subsequent default did not turn it from a corporation de facto into a partnership. If it had, no such statute as that passed in 1876 would have been passed by the Iowa legislature, or could have had any operation or effect. A violation of a charter,- or of laws providing for the organization of corporations, or a failure to observe the requirements of such statutes, does not create the relation of partnership between the stockholders (Central Bank v. Walker, 66 N. Y. 424 ; Fuller v. Rowe, 57 Id. 23; National Bank v. Landon, 45 Id. 410 ; Noble v. Fay, 7 Cush. 189 ; Trowbridge v. Scudder, 11 Id. 86; Cochran v. Arnold, 48 Penn. St. 404 ; Baker v. Backus, 37 Allen, 107 ).
YI. This- case has been decided against the plaintiffs in the courts of Iowa, and the construction given to the statutes here relied upon, by the courts of Iowa,
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will be taken by the courts of this State as conclusive. It must be received as if the interpretation given by such decisions were incorporated in the statute in terms (Hoyt v. Sheldon, 3 Bosw. 302 ; Howe v. Thompson, 3 Sandf. 421 ; Ward v. Gray, 11 Wheat. 361 ; Tioga R. R. Co. v. Bloomsburgh R. R. Co., 20 Wall. 137 ; Elmwood v. Macy, 2 Otto, 289), In the case of the First National Bank of Davenport v. Davies, which was a suit brought against a person who was a stockholder in the Davenport Railway Construction Company, the supreme court of Iowa held that the stockholders in the company were not individually liable for its debts. It "will be observed that the statute provides, as amended in 1858, that it shall not be applicable to railroad corporations or corporators. The supreme court held, by a majority of the judges, that the Davenport Railway Construction Company was a railway corporation, and that it and its stockholders were entitled to the benefit of this exemption. Since the trial of this case a re-hearing of that case has taken place, and the court adhere to their decision. It is thus the law of the State of Iowa, that these defendants are not liable for the debts incurred by or in the name of the Davenport Railway Construction Company, or' for the notes upon which this action is brought (National Bank v. Davis, 43 Iowa, 435 . See also Washington College v. Duke, 14 Id. 14).
VII. The passage of the act of 1876, page 291, together with the previous filing of the articles of this company in the office of the secretary of state in 1874, waived any invalidity in the organization of this company, if any existed prior thereto. The liability of these defendants as stockholders, if any ever existed, was in the nature of a penalty for a failure to observe the statutes of the State. The act of 1876 condoned this failure, and dispensed with this penalty, and the question was one solely for the State of Iowa to deal
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with (Merchants’ Bank v. Bliss, 35 N. Y. 412 ; Black River R. R. Co. v. Barnard, 31 Barb. 258 ; Eaton v. Aspinwall, 19 N. Y. 121 ; Doyle v. Petroleum Co., 41 Id. 244 ; Cochran v. Arnold, 48 Penn. St. 404 ).
Hvarts, Southmayd & Qhoate, attorneys, and Joseph II. Qhoate, of counsel, for plaintiffs:
I. By the true construction of the statutes of Iowa in question, and according to the settled principles of the common law, the defendants, having assumed to act as in a corporate capacity, without a legal organization as a corporate body, are liable as partners to those with whom they contract and to the full extent of the notes given in the name of the company for goods purchased of the plaintiffs (Fuller v. Rowe, 57 N. Y. 23 ; Wells v. Gates, 18 Barb. 554 ; Townsend v. Goewaey, 19 Wend. 424 ; Cross v. Jackson, 5 Hill, 478 ; Dennis v. Kennedy, 19 Barb. 517 . See also opinion of Day, J., in First Nat. Bank of Davenport v. Davies, printed in the case ; Dubuque v. Dubuque, 7 Iowa, 262 ; Dishon v. Smith, 10 Id. 212 ; McKellar v. Stout, 14 Id. 359 ). The recording of the articles of incorporation in the office of the secretary of State, and the due publication in the time prescribed by law are essential to the existence of the corporation, and there being no corporation, there is no shield against the common law liability of the defendants. The situation of the defendants is analogous to that of stockholders carrying on business by agreement after the dissolution of the corporation (Nat. Union Bank of Watertown v. Landon, 66 Barb. 189 ; Cunnaston v. McNair, 1 Wend. 457 ). This case is distinctly reaffirmed by the court of appeals in Bank v. Walker, 66 N. Y. 429 . Defendants seek to present the case as an attempt on the part of the plaintiffs to inflict upon the private property of the defendants as stockholders a liability as if created by statute and by that only imposed on their property as stockholders.
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That is not our position. We claim that there was no corporation existing at the time these purchases were made and these notes given, and that, as a consequence, the defendants were left uncovered and unable to hide their personalty from liability under the corporate shield, and that the statutes of Iowa afford them no protection. This renders inapplicable and ineffective the chief portion of the propositions arrayed in the elaborate brief presented by the defendants. The case is in no wise an attempt to annul or forfeit the charter or franchise of a corporation, which prerogative pertains only to the sovereignty. The cases, from the reports of Illinois and California, set forth under Mr. Sanders’ second point, will be found to have been, in part, suits between companies and stockholders upon subscriptions for stock, where the perfected organization of the corporation was not material to the liability ; in part suits to enforce penal liability of stockholders for failure to comply with statutory requirements imposed upon the corporation; and all arising under different statutes, the language and meaning of which are wholly different from the statute of Iowa. So that the general observations cited from those cases are wholly inapplicable here. What is essential to the perfection of the corporate existence is, of course, dependent upon the particular language and provisions of the statute in each case. But the Illinois cases cited in the brief of defendants’ counsel have been expressly overruled by a recent case in that State (Bigelow v. Gregory, 73 Ill. 197 ), which is a conclusive authority in plaintiffs’ favor. Again: the nature of the action, and the relation of the parties, between whom the controversy arises, is in the highest degree material, if we would avoid confusion. We are suing individuals, as individually liable, not because they are stockholders of a corporation, but because there was no corporation, and they were not stockholders not merely upon a
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statutory liability, but upon a liability against, which they are seeking to interpose a statutory protection as a defense. This distinction, clearly observed, disposes of the long array of cases from our own reports cited in Mr. Sanders’ fourth point. ■ So, too, the propositions that proceedings for a forfeiture of franchises of a corporation must be had in the State of its creation, and that proof of user is sufficient evidence of corporate existence in certain suits between the corporation itself and parties dealing with it, and that liability of stockholders, as such, under 'the provisions of statutes, is always statutory ; and that, as between corporations and parties contracting with them, as such, in suits arising between them, the parties so- contracting are,, for the necessary purposes of justice, and to prevent fraud, estopped to deny the corporate- existence of the. company at the date of the contract; and that, a corporation being created, there is at common law no individual liability of stockholders for its debts—are all propositions well enough in themselves to be applied in proper cases and between proper parties, but are wholly out of place and irrelevant in this contest, where the question is, whether the defendants can find in the statutes of Iowa, and in the proceedings had thereunder, statutory shelter from the individual liability otherwise incurred by them by the purchase and receipt of the plaintiffs’ property and by their notes, given in payment therefor.
II. By the Code of Iowa as amended in 1870, the-filing of a copy of the articles of incorporation in the office of the secretary of State was necessary to the valid creation of the corporation. The language of the statute is mandatory and not simply directory. This certificate not being filed, it followed that there was no corporation (Supreme Court of Iowa, First National Bank of Davenport v. Ludwig S. Davies, administrator, in MSS., see opinion of Day, J.). Even
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without any further provision of statute it necessarily followed by the established principles of common law, as illustrated by the cases in our own courts, cited under our first point, that parties purchasing property in the company name, and giving for it a note in the corporate name, were individually liable upon the note as copartners. But the Code of Iowa (§ 1166), which the defendants invoke for their protection, expressly so declares : “ A failure to comply substantially with the foregoing requisitions, in relation to organization and publicity, renders the individual property of all the stockholders liable for the corporate debts.” The failure to file the certificate in the secretary of state’s office was a “substantial failure to comply with the requirements.” The amendment of 1870 made the filing there fundamental, if it was not before (Yid. on this point also, Day, J.’s opinion). But, secondly, at any rate it was the settled law of Iowa, at the time of the giving of the notes here sued on, that by the true construction of this and similar statutes of that State, as expounded by the supreme court of that State, the failure to file such a certificate was fatal to the attempted creation of the corporation, and left the so-called stockholders exposed, as at common law, to liability for the debts of the company (Township of Dubuque v. City of Dubuque, 7 Iowa, 262 ; Dishon v. Smith, 10 Id. 212 ; McKellar v. Stout, 14 Id. 359 ; opinion of Day, J., ut supra). And, thirdly, by the very principle of comity, contended for by the defendants, and so ably expounded in their briefs, that the construction put upon the statutes of a State by the fixed and settled decisions of the courts of that State in matters of local law, is to be adopted and followed by the tribunals of other States in interpreting the same statutes, this court is bound to say that at the time of the giving of the notes here sued on, it was part of the law of Iowa that the failure to file the certificate
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of incorporation in the secretary of state’s office was fatal to the attempted defense of the defendants against their individual liability upon the notes, either at common law or under the statutes in question (Hoyt v. Thompson, 3 Sandf. 421 ; Hoyt v. Sheldon, 3 Bosw. 302 ; Elmendorf v. Taylor, 10 Wheat. 159 ; Shelly v. Grey, 11 Id. 367; Greene v. Lessee of Neal, 6 Peters, 298).
III. The Davenport Railway Construction Company was not and is not a “railroad corporation,” and its so-called “stockholders” are not therefore exempted from the liability otherwise incurred by section 1338 of the Code of Iowa,—which enacts that section 1166, already cited, “shall not be deemed and construed to be applicable to railroad corporations and corporators; and stockholders in railroad companies shall be liable only for the amount of stock held by them in said companies.” To say that such a construction company, organized for the sole purpose of building railroads for railroad companies to own and operate, but to own and operate no railroads itself, is a railroad corporation, is abhorrent to common sense and common honesty, and no court administering justice would so hold. Consistently with those old fashioned elements of justice, viz., common sense and common honesty, there can be no possible answer to the reasons stated by Beck, J., on the reargument in the Dane’s case, 43 Iowa, 435 , 436. It cannot be denied that at the time of the giving of the notes sued on, wherever railroad corporations were known, not only in Iowa but in all civilized States and. countries, the settled definition of the term did not include, but excluded a construction company, having no power to act as a common carrier, or to own and operate a railroad, or to exercise railroad franchises thereon. This distinction between a railroad corporation and other corporations was clear throughout the statutes of Iowa (Vide Revision of 1.860, passim). It
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was clearly stated by the supreme court of Iowa, long before the notes here sued on were issued ‘(Vide State of Iowa v. County of Wapello, 13 Iowa). Ho suggestion to the contrary had ever been made in the courts of that State. Hothing so monstrous had even yet been whispered or imagined, for the sake of screening some local debtor from his legal liabilities, as that a construction company, which had no one of the elements or features of the corporation known to the people and courts of all English-speaking States, as railroad corporations, was included within that definition. Upon the principle of comity, therefore, to which the defendants have themselves appealed, this court, construing the statute in question at the time of the giving of the notes sued on, according to the' settled principles of law, alike as expounded by the courts of Iowa, as of every other State, must have held that the construction company was not a railroad company, and that, therefore, the defendants were personally liable, as adjudged in the court below.
IV. And this brings us to the final and most interesting question in the case, viz: Whether the courts of this State, in a case arising' here upon a contract made and to be performed here, between defendants, not citizens of Iowa, and plaintiffs, all citizens of Hew York, are bound to follow the supreme court of Iowa in a reversal and change of the law, as it is shown to have there existed at the time of the giving of the note sued on, such reversal and change being first promulgated in a decision made in December, 1875, more than three years after the contract in suit was made, and the rights of the parties thereunder had become vested. We confidently submit that bur courts are not so bound, but that, on the contrary, they must protect the suitors before them in their vested rights, and hold them to their legal liabilities as fixed by the law as it existed when those rights became vested and those
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liabilities fixed, a. It is desirable, in the first place, to ascertain just what the courts of Iowa have done in the premises since that time. In the case of First National Bank of Iowa v. Davies, commenced July 29, 1874, two years after the notes in suit w.ere given, and first decided at the December term, 1875, the supreme court of that State, by a closely contested and divided vote, gave to a lo.cal statute a retrospective and retroactive construction, differing from that which was understood and in force at the time of the making of the contract sought to be enforced, and to the prejudice of the rights and obligations of the parties then and thereby vested and fixed. This certainly cannot be called, even at this time, a fixed and settled construction of the local statute by an unbroken series of decisions such as the supreme court of the United States requires, to establish the rule of comity, even as bearing on subsequent contracts and •subsequent cases. 5. The rule of comity contended 1 for, as applied and expounded by the courts best entitled to administer it, does not admit of any such ■interpretation and result. That rule holds the parties to what, according to the law as expounded at and prior to the time of the making of the contract, they must have understood their respective rights and liabilities to be. This is entirely consistent with the usual method of application of the rule of comity, which, as stated by this court in Hoyt Sheldon, 3 JBosw. 302, accepts the construction of the statute by the courts of the State which enacted it, “ with the same force as if that interpretation was incorporated in the statute in terms.” ¡Neither the legislature nor the •courts of the State enacting the statute, however, will in another forum be permitted, by a subsequent change of the construction of the statute, to impair the obligation of contracts already fixed. This was so ruled in Butz v. City of Muscatine, 8 Wall. 575 ; Von Hoff
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man v. City of Quincy, 4 Wall. 557 . c. We submit, also, that the facts peculiar to this case, that the contract was made here, and by its terms was to be here performed, between parties, none of whom, so far as it appears, resided in Iowa, and that the subsequent decision in Iowa, adverse to our claim, was rendered after great dispute by a closely divided court, and evidently under local prejudice, and for the relief of a resident intestate, are considerations calculated greatly to weaken its influence upon the, judgment of this court. Authority it is conceded by the rule of comity to have none. d. As to the question of what is a railroad corporation, that is not at all a matter of local law, any more than what is a partner, or what is a surety, or what is a bill of exchange. It is a question of general, of common law, of common sense, dependent upon the general principles of law, and the common understanding of the English language.
Y. There is nothing in the point that this court has no jurisdiction of the case. It is based upon the same erroneous notion that we have here nothing but a statutory liability to enforce, and utterly ignores the common law liability of the defendants as partners. All that the much-vaunted case of Lowry v. Inman ( 46 N. Y. 120 ), holds is, that, where there is nothing but a statutory remedy, that remedy must be strictly pursued. There is no intimation that the courts of this State have no jurisdiction over the defendants to enforce the personal liability under which they rest. Sections 1172, 1173, 1174, have no reference whatever to such a common law liability or to suits thereon, but only to any statutory liabilities of the private property of the stockholders as such, created by the act itself. Besides, there is nothing in the facts proved here to create any defense to the action under any or either of these sections. Section 1173 relates wholly to proceedings after judgment, and even as to that the proof re
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quired by this section was given of a judgment and execution returned unsatisfied, and a demand made and not complied with. Section 1174 is alike inapplicable. It does not create a defense. It only provides in a certain contingency for a continuance of the cause or a stay of execution. The act does not require, even for the purposes of a suit to enforce the statutory liability against the property of stockholders, the commencement of suit and issue of judgment and execution on the same claim against the company, but only that, before a levy on the private property of the stockholders, the requisite proof must be given that corporate property cannot be found to satisfy the same. In the nature of things, these sections can have no application to a suit like this, in another jurisdiction against the defendants as copartners.
VI. There was no error in admitting the defendants’ own notes in evidence against themselves, it appearing that they were jointly engaged in business under the name in which the notes were issued, and that the same were given by their representative for goods sold and delivered to them, and used in their common business. The cases cited by defendants from the courts of Massachusetts and Pennsylvania, as bearing upon this point, so far as they are contrary to the well-established law of this State, as illustrated by the cases cited under our first point, are of no moment.

In 1871 the defendants, together with one Edgar Thompson, now deceased, entered into an agreement among themselves, and with others whom they should associate with them as a body corporate in law to transact the business for furnishing materials for, and the building, making, and equipment of railroads in the State of Iowa, and all proper extensions of the same in adjoining States, hav

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ing the principal office or place of business at Davenport in that State. Subsequently the said defendants, with the other defendants who became associated with them in the business, and who also became stockholders of the proposed company, entered upon the transaction of the business so proposed, and continued to conduct it under the name of the Davenport Railway Construction Company, and under that name made and delivered the promissory notes in suit.

The first question presented is: had the defendants a legal, corporate existence, when in the name of the company they made, indorsed and delivered the several notes set out in the complaint ?

What is necessary and essential to create a corporate existence must depend upon the particular construction of the language and provisions of the statute in each case.

It appears that the defendants proposing to become incorporated failed to comply with the requirements of the statute as to the recording of articles of incorporation in the office of the secretary of state, and the due publication in the time prescribed by law. The plaintiffs claim that by this omission, by the true construction of the statutes of Iowa, and according to the settled principles of the common law, the defendants assuming to act in a corporate capacity without legal organization as a corporate body are liable as partners to those with whom they contracted. The suit is therefore brought against the defendants as individuals, liable, not for the reason that they are liable as stockholders of a corporation, but because there was no corporation, and they were not stockholders—not merely upon a statutory liability, but upon a liability against which they seek to shelter themselves by interposing a statutory protection as a defense.

The articles of incorporation in question were filed in the office of the recorder of deeds on May 17,1871. The

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law in force at that time—Revision, § 1152, as amended by chapter 172, Laws of 1870,—provides: “Previous to commencing any business, except that of their own organization, they must adopt articles of incorporation, which must be recorded in the office of the recorder of deeds of the county where the principal place of business is to be, in a book kept therefor, and in the office of the secretary of state in a book kept for that purpose.” Section 1154 provides that a notice must ¡be published for four months in succession in some newspaper, as convenient as practicable to the principal place of business. Section 1155 prescribes the contents of such notices. Section 1156, as amended by •the same chapter, is as follows : “The corporation may commence business as soon as the articles are filed in' thenffice of the recorder of deeds, and their doings shall be valid if the publication in a newspaper is made, and •the copy filed in the office of the secretary of state within three months of such filing in the recorder’s office.”

It is to be observed, first, that the language of section 1152 is mandatory and not merely directory. It affirms the want of any right to enter upon any business except that of organization until the articles of incorporation are adopted and recorded in the office of both the recorder of deeds and the secretary of state. The use of the negative expression determines the mandatory character of the statute. When the statute imposes a duty and gives the means of performing it, it is held to be mandatory (Cooley Constitutional Limitations, 89, 4th ed.; People v. Schermerhorn, 19 Barb. 558 ). The language of section 1156, as amended by the same chapter, permits the corporation to commence business as soon as the articles are filed in the office of the recorder of deeds, but significantly adds, “Their doings 'shall be valid if the publication in the newspaper is made and the copy filed in the office of the secretary of state within three months after such filing in the recorder’ s office.” Section 1166 provides: “A failure to

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comply substantially with the foregoing requisitions in relation to organization and publicity, renders the individual property of all the stockholders liable for the corporate debts.” McKelly v. Stout, 14 Iowa, 359 , decides that the prime object of this requirement is to make individual corporators liable for the failure to do those things which are necessary to the transaction of business (City of Dubuque v. City of Dubuque, 7 Iowa, 262 ; Dishon v. Smith, 10 Id. 212-218). These statutes have received the same construction in the neighboring State of Illinois as in Iowa (Bigelow v. Gregory, 73 Ill. 197 ).

It must, I think, be considered by the construction of these and the like statutes in Iowa, as expounded by the supreme court of that State at the time the notes herein sued on were given, as settled law, that the failure to file the articles of incorporation in the office of the secretary of state, was fatal to the attempted creation of the corporation, and the stockholders, consequently, were left exposed, as at common law, to individual liability for the debts of the company.

The company, then, existing in name only, independent of any sanction of general or special law, can be nothing more than an ordinary partnership, and subject to the same laws. It cannot be said that proceeding to transact business with third parties they incur no liability. They were not liable as stockholders, for there was no corporation. There being no corporation, each must be liable as' a partner at common law. Assuming to act under a corporate name without a legal organization as a corporate body, they must be held liable as partners to those with whom they contracted. At that time they had a community of interest in the property, and they were entitled to share in the profits, and bound to bear the losses resulting from the business (Fuller v. Rowe, 57 N. Y. 23 ; National Union Bank of Watertown v. Landon, 45

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Id. 410; affi’g 66 Barb. 189 ; Wells v. Gates, 18 Id. 554).

The defendants’ liability is not affected by the fact that the plaintiffs, when they took the notes, supposed they were the notes of the corporation, and were ignorant of their corporate existence. They believed the paper to be that of the incorporation, from the fact that the business was done in the same name, and they had a right to proceed against the real makers of the notes, upon discovering who were transacting business under that name (National Bank of Watertown v. Landon, supra). Nor does the fact that because the defendants did not intend to become copartners at common law, and become liable as general partners, furnish any answer to the claim of the plaintiffs. It is enough that the parties assumed to act in a corporate capacity, without a legal organization as a corporate body. The court say, in Fuller v. Rowe, cited above, it cannot be denied that they are liable as partners in such a case to those with whom they contract. Intention of the parties has nothing to do with their liabil- ■ ity. The legal effect of the nature of the agreement into which the defendants entered, was such that it made them partners until they should comply with the essential proceedings declared by the statutes of Iowa, to become a corporation. The only question involved in such a case, relates solely to the liability created by the defendants, to all persons with whom they deal. It is unnecessary to refer to the numerous instances where parties are guiltless of any intention of creating a partnership relation, which the law nevertheless pronounces does exist, and enforces the liability arising out of that relation.

It is claimed that a corporation in fact and user under it were sufficient to show a corporation defacto, and that these omissions to comply with the statutes cannot be urged collaterally against their existence, but only in a direct proceeding. The defendants sought

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to join themselves into a corporation under the provisions of a general law. In such a case it is only in pursuance of the provisions of the statute for such purpose that corporate existence can be acquired. Where a corporation is created by a special charter and there have been acts of user under it the rule may have some application. •

Section 1338 of the revised code, passed March 20, 1858,—which is as follows: “Be it enacted by the general assembly of the State of Iowa, that section 689 of the code” (this section is identical with section 1166 of the revised code) “shall not be deemed and construed to be applicable to railroad corporations and corporators; and stockholders.in railroad companies shall be liable only for the amount of stock held by them in said companies,”—has no application to the present case.

The Davenport Railway Construction Company was organized for the purpose of furnishing materials for constructing railroads generally, and not for the purpose of building and operating railroads. The defendants did not suppose that they were authorized to build and operate railroads, nor did they organize for that purpose. In August and September, 1871, before they made the notes in question, they published in the Daily and Weekly 'Davenport Gazette, a notice of their incorporation—giving the title of their company, place of business and its general nature,—which was “ to make and perform a contract with the Davenport and St. Paul Railroad Company to furnish iron and equipments for the said company’s roads, including the construction of depots, machine-shops, water-stations, and all such other buildings and accessories as shall be necessary to the successful operation of said road.” Can there be any doubt what the real intention of the defendants was % They published to the world what the general nature .of-*1-Mr business was ; not to operate a railroad, but to ma*. md perform a contract with a

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railroad company then in existence, which was owned by and being or to be operated by another and separate company.

An examination of the revision of the statute of 1860 makes it apparent that there is a clear distinction between a railroad corporation and all other corporations, and the supreme court of the State of Iowa has settled that such distinction existed before and at the time the notes in question were issued. State of Iowa v. County of Wapello ( 13 Iowa, 388 ), overruling Dubuque County v. Dubuque & Pacific Railroad Co. (4 G. Green, 1), and approving Stokes v. County of Scott ( 10 Iowa, 166 ) decides that the legislature has no power to authorize counties to become, as corporations, stockholders in railroad companies. A construction company, which contains no element heretofore known to our courts or to the public as railroad corporations, would be a more startling proposition than that counties could become stockholders in railroad corporations.

The case comes up before this court on a contract made and to be performed in New York, between plaintiffs, all citizens of New York, and defendants, not citizens of Iowa. The contract in the suit was-made; and the rights of the parties thereunder became vested at the time the law existed as settled in the State of Iowa. Three years thereafter, the supreme couftof the State reversed the law, which till then had been deemed settled by a decision first made known in December, 1875. Although the case was first heard by two judges, the diversity of their' opinions was so great it may be justly said, that nothing was decided by the court. Day, J., held, that the filing of the articles of incorporation in the office of the secretary of state, was essential to the valid creation of the corporation, but that it was a railroad corporation, and its stockholders were exempt from liability, while the other

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justice, Beck, held the reverse on both propositions. Afterwards, at the June terra, 1876, since the trial of the case at bar, a rehearing was had, and all the five judges of the court took part, and here again they divided, three to two. Beck, Severs, and Bothrick holding the filing to be non-essential, and the other two dissenting from that, and Day, Servers, and Bothrick holding that it was a railroad corporation, and the other two judges dissenting from that.

When we consider what a railroad corporation is— that it has nothing to do with local law, that the term is so well defined, and conveys the idea of oneness so absolutely as to be incapable of two different meanings —that it is simply a definition of a substantive thing— as well and as universally known and understood by all English-speaking people as the definition of law itself, or as'any other term well known and defined in the common and accepted use of our language, the courts of this State and of other States upon principles of comity according to the settled principles of law must, we think, hold that at the time of the giving of the notes the construction company was not a railroad company, and that the defendants were personally liable as adjudged in this court below. Comity holds the parties to what according to the law as expounded at and prior to the time of the making of the contract they must have understood their respective rights and liabilities to be. It accepts the construction of the statute by the courts of the State which enacted it with the same force as if that interpretation was incorporated in the statute in terms. The fundamental law will not permit either the legislature, or the courts of the State enacting the statute, by a subsequent change of the construction of the statute in another forum to impair the obligation of contracts already fixed.

The rule is stated with precision in the case of Butz v. City of Muscatine ( 8 Wall. 575 ). The su

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preme court of Iowa had, by a uniform course of decisions, promulgated after the issue of the city bonds, denied the right of the holders to the remedy sought under the acts in force ■ at the time of their issue. It holds that under the. statute of • Iowa, in force when the contract was made, the relator was entitled to the remedy he asked, and that this right can no more be taken away by subsequent judicial decis-. ions, than by subsequent legislation (Von Hoffman v. City of Quincy, 4 Wall. 535 ). In Edwards v. Kearzy (15 U. S. Sup. Ct., reported in full in Albany Law Journal, May 4', 18.78, p. 346), it was held that a law of North Carolina, exempting personal property and a homestead of. a debtor from sale and execution, was invalid as to debts contracted before its enactment. The court says: “The remedy subsisting in a State ' when and where a contract is made, and is to be performed, is a part of the obligation, and any subsequent law of the State, which so affects that remedy as substantially to impair and lessen the value of the contract, is forbidden by the constitution, and is therefore void.” In Brown v. Kenzie (1 How. U. S. 311), Taney, Ch. J., speaking of the protection of the rem-edy, says, it is this protection which the clause of the constitution now in question mainly intended to secure. In Green v. Ridder ( 8 Wheat. 11 ), Story, J., “If the remedy afforded be qualified and restrained by conditions of any kind, the right of the owner may indeed subsist, and be acknowledged, but it is impaired and rendered insecure, according to the nature and extent of such restrictions ;” and at page 75, “ The prohibition of the constitution embraces all contracts executed or executory between private individuals, or a State and individuals, or corporations, or between the States themselves.”

It appears that the defendants were jointly engaged in business under the name in which the notes were

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issued, and that they were given by their representatives for goods sold and delivered to them and used in their common business. I see no good reason why they should not have been given in evidence against themselves.

We think the exceptions should be overruled, and judgment upon the verdict ordered with costs.

Freedman, J., concurred.

Cases cited