35 N.Y.S. 689 | N.Y. Sup. Ct. | 1895
By this action the plaintiff seeks to have it adjudged that a policy of life insurance taken out by Richard Worthington upon his life, and made payable to Margaret Worthington, his wife, or to his legal representatives, and thereafter duly assigned for a valuable consideration to these defendants, belongs to him as receiver of the Worthington Company. The ground upon which he bases his claim to the policy is that from the inception of the policy,
“In the application of the doctrine of ultra vires, it is to be borne in mind that it has two phases: One where the public is concerned; one where the question is between the corporate body and the stockholders in it, or between it and its stockholders, and third parties dealing with it, and through it with them. When the public is concerned to restrain a corporation within the limit of the power given to it by its charter, an assent by the stockholders to the use of unauthorized power by the corporate body will be of no avail. When it is a question of the right of a stockholder to restrain the corporate body within its express or incidental powers, the stockholder may in many cases be denied on the ground of his express assent, or his intelligent though tacit consent to the corporate action. If there be a departure from statutory direction, which is to be considered merely a breach of trust to be restrained by a stockholder, it is pertinent to consider what has been his conduct in regard thereto. A corporation may do acts. which affect the public to its harm, inasmuch as they are per se*691 illegal or are malum prohibitum. Then no assent of stockholders can validate them. It may do acts not thus illegal, though there is want of power to do them, which affect only the interest of the stockholders. They may be made good by the assent of the stockholders, so that strangers to the stockholders dealing in good faith with the corporation will be protected in a reliance upon those acts.”
This language was repeated and approved in Skinner v. Smith, 134 N. Y. 240, 31 N. E. 911.
The question that we are considering assumes that the rights o£ creditors and of third parties do not intervene. The payments in such a situation, although illegal, if made without the authority of the stockholders, could be validated by the assent of all of the stockholders. And this rule proceeds upon the theory that the stockholders are the equitable owners of the corporate property, and if the officers or trustees do an unauthorized act,—incur an indebtedness or make a loan of its money or credit outside of the ordinary course of its business,—still, if all the stockholders unite, they may subsequently ratify the acts done, and thus validate that which was originally unauthorized and illegal. This rule is illustrated in Bissell v. Railroad Co., 22 N. Y. 269, and cited with approval in Kent v. Mining Co., supra:
“A bank has no authority from the state to engage in benevolent enterprises, and a subscription, though formally made, for a charitable object, would be out of its powers, but it would not be otherwise an illegal act. Yet if every stockholder did expressly assent to such an application of the corporate funds, though it would still be in one sense ultra vires, no wrong would be done, no public interest harmed; and no stockholder could object, or claim that there was an infringement of his rights, and have" redress or protection. Such an act, though beyond the power given by the charter, unless expressly prohibited, if confirmed by the stockholders, could not be avoided by any of them to the harm of third persons. This arises from the principle that the trust for stockholders is not of a public nature.”
As one of the results of this rule, Mr. Morawetz, in his work on Corporations (section 625), asserts that:
“If the directors of a corporation apply the funds of the company to their own use, or misapply them in any manner, the excess of authority, as between the directors and the corporation, may be cured by the unanimous consent or ratification of the stockholders.”
Other authorities upon this proposition are Martin v. Manufacturing Co., 122 N. Y. 165, 25 N. E. 303; Barr v. Railroad Co., 125 N. Y. 265, 26 N. E. 145.
¡Now, the learned judge at special term asserted, and we think rightly, that not only was there no objection by the stockholders to this way of doing business, but that all the members of the corporation assented to it. It appears that while Miss Sproule nominally held 50 shares of the stock, and Worthington’s nephew 1 share, Mr. and Mrs. Worthington were the real owners of every share. That both of them assented to the payment of these premiums is demonstrated by the fact that both of them signed checks made payable to the order of the insurance company for such purpose; the checks, drawn by Bichard Worthington, being signed by him as general manager, to which position he was chosen by the directors, and as such given full authority to manage the business and use the funds