39 N.Y.S. 420 | N.Y. App. Div. | 1896
This action was begun February 3, 1894, to. recover damages alleged to be $200, with interest from. May 1, 1893,- for the, defendant’s failure to subscribe and.pay for two shares of the capital stock of the Buffalo, North Main Street and Tonuwada Electric Railroad Company, as provided- i-n the contract set forth in the. statement of facts. The defendant in his answer alleged that the contract was invalid, was procured by fraud and false representations, -and that.the railroad company had failed to perform, the conditions contained in the contract, and certain - collateral -conditions and stipulations made- when the contract was signed,. At the close of the plaintiff’s evidence the complaint was dismissed-,, and the plaintiff excepted. The dismissal of the complaint was rested on two grounds : (1) That-the contract Was invalid; (2) that the plaintiff acquired no title to the, contract through .the -mortgage and its foreclosure.
The defendant never subscribed for any shares and never paid any sum ori account of his contract to subscribe in the future-for two shares.
Whether the sribscription- contract was signed before or after May 1-8,1892-^ the date of the amendment of the Stock Corporation Law —is not disclosed by the evidence, though it is, alleged in the complaint that it was executed on or about May 15, 1892.
By the Stock Corporation Law, chapter 564, Laws- of 18.90 (Chap.. 38, Gen. Laws), it was provided
“ § 41.. Subscriptions to stooh.— If the whole capital stock, shall not have been subscribed at the time of filing the certificate -of incorporation,, the directors- named in the certificate may open books, of subscription, to fill up the -capital- stock in,such.places,, and after giving-such notices as they may deem expedient, and may continue to receive, subscriptions until- the whole capital stock is subscribed. At the time-of subscribing every subscriber shall pay to the-directors ten per cent upon the amount subscribed by him in .money,, and no .subscription shall -be received or taken without.such .payment,. except as provided in the next section.”: . . ’ .
“ §- 42. Must be paid f or in cash / exceptionsNo corporation shall issue either stock or bonds except for money, labor done or property actually received- for the use and lawful purposes- of such. corporation, at its fair value, and all stock issued in violation of the provisions of this section shall be void.”
“ § 41. Subscriptions to stock.— If the whole capital stock shall not have been subscribed at the time of filing the certificate of incorporation, the directors named in the Certificate may open books of subscription to fill up the capital stock in such places, and after giving such notices as they may deem expedient, and may continue to receive subscriptions until the whole capital stock is subscribed. At the time of subscribing every subscriber, whose subscription is payable in money, shall pay to the directors ten per centum upon the amount subscribed by him in cash, and no such subscription shall be- received or taken without such payment.”
“ § 42. Consideration for issue of stock, cmd bonds — No corporation shall issue either stock or bonds except for money, labor done or property actually received for the use and lawful purposes of such corporation. No such stock shall be issued for less than its par value.
“ No such bonds shall be issued for less than the fair market value thereof.” ^
In this State corporations can be organized only pursuant te special charters or to general' statutes authorizing their organization for certain prescribed purposes. The General Statutes require stock corporations to have a capital, the amount, of which and the par value of the shares are to be'fixed by the certificates of incorporation. These statutes prescribe how shares of stock shall be subscribed, paid for and issued, and it is the policy of this State to require all corporations to be organized honestly, with a bona fide capital stock to be issued only for cash, labor or property, and -thus provide the necessary means for carrying out the purposes of their creation and thereby prevent frauds upon their creditors and the public. The statutes provide that the affairs of the corporation shall be controlled by the shareholders and by directors elected by-shareholders, and thus provide for their management by persons: having a pecuniary interest in their success.
In this State contracts by which individuáis agree to become shareholders in corporations are not governed by the rules applicable to common-law contracts, but áre controlled by the statutes prescribing how such contracts shall be made.
Persons entering into contracts like the one under consideration do -riot be’cdriie shareholders until their shares are paid for and issued, until which time they are entitled to no voice in the manageinént of the affairs of ’ the corporation, which will be wholly under the control of the original incorporators, who may, as in this case,' content' themselves with subscribing for barely, sufficient capital to effect an organization' of a corporation to be controlled and managed in their interests. It has been held, in. this State that conditional subscriptions for the stock of corporation's are contrary to public policy, and void. (Butternuts & Oxford Turnpike Co. v. North, 1 Hill, 518; Fort Edward, etc., Plank. Road Co. v. Payne, 15 N. Y. 583.) The contract before us is not ' only a conditional one, but it provides for securing the capital stock of the corporation in a way not authorized by the statute.
Again, the plaintiff is attempting to enforce this contract in aid of the mortgage which it took December 10, 1892, for $44,000, in. defiance of the 2d section of chapter 688 of the Laws of 1892— the Stock Corporation Law -—which provides :
“ The amount of the obligations issued and outstanding at any one time secured by such mortgages, excepting mortgages given as a consideration for the purchase of real estate, and mortgages authorized by contracts made prior to May 1, 1891, shall not exceed the amount of its paid-up capital stock, or an amount equal to two-thirds of the value of its corporate property at the time of issuing the obligations secured by such mortgages, in case such two-thirds value shall be more than the amount of such paid-up capital stock.”
- The case shows that the' amount for which this mortgage was given greatly exceeded the amount of the paid-up capital stock of the corporation, and it inferehtiall'y appears "from the record that the mortgage was given to secure'a sum, exceeding two-thirds of the value of the property of the corporation.
By the record in Dean v. Biggs (25 Hun, 122; affd., 93 N. Y. 662) it appears that the deféndant executed the certificate of incorporation'by which he subscribed-for five shares, paying twenty-five per cent, and thus became one of the original incorporators of the
June 3, 1876, pursuant to a judgment of foreclosure, the property mortgaged was sold and conveyed to Merritt King by a conveyance which followed the description contained in the mortgage, and thereafter he assigned his title to the stock subscriptions to Dean, the plaintiff in the action. After the foreclosure sale a judgment- was recovered by a creditor of the corporation sequestrating its property and ajDpointing a receiver therefor, who afterwards assumed to sell the claims arising upon the subscriptions for stock. At the receiver’s sale the defendant became the purchaser of his own subscription, and the question- was, which had the better title, the purchaser under the foreclosure, or the purchaser under the receiver ?
Dean sought to sustain his action upon two grounds: (1) That subscriptions were covered by the words “property, possession, claim and demand whatsoever, as well in law as in equity, of the said party of the first part; ” (2) that the subscription having been made by an incorporator for the purpose of organizing the corporation, it was an incident of the franchise and passed under the mortgage. It was held that the mortgage was not a lien upon the subscription and that the purchaser under the foreclosure acquired no title to it.
Assuming that, under the statutes of this State a railroad may mortgage its choses in action, and by general words, I think the purchaser under the foreclosure of such a mortgage acquires no title to choses in action which are not described in the judgment uotice of sale and in the conveyance with sufficient particularity to he identified. (Dean v. Biggs, supra; Milwaukee & Minn. Ry. Co. v. Milwaukee & Western. R. R. Co., 20 Wis. 174 ; Smith v..
To hold that choses in action pass under general words, in judgments and conveyances, would cause confusion and uncertainty in respect to the property which the purchasers under foreclosure sales acquire. Judicial sales must describe with reasonable certainty the property sold.
The judgment should be affirmed, with costs.
All concurred.
Judgment affirmed, with costs.