Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924022794204 KFN5345!s72" ImT"" '""'"^ * *SmillM?i,&I'il[J Manufacturina 3 1924 022 794 204 Olnrnf U IGam ^rljonl Kibrarg A TREATISE ON THE NEW YORK MANUFACTURING CORPORATION ACT OF 1848, AND BUSINESS CORPORATION ACT OF 1875, TOaETHBR WITH SAID ACTS, AS AMENDED, EXTENDED, AND MODIFIED TO MARCH, 1884. WITH FOKMS AI^D BY-LAWS. BY EDWARD W. SOUTHWORTH AND DWIGHT A. JONES, OF THE NEW YOBK BAB. NEW YOKK: g BAKEK, VOOKHIS & CO., PUBLISHEKS, ^ 66 NASSAU STREET. Z 1884. bOt(DG: P /corn EL l\ UNIVtRSITY BRARY Copyright, 1884, By Edvabd W. Southwobth and Dwtoht A. Jonks. PKEFACE. This book does not touch upon the quad corporations known in this State as joint-stock associations ; neither does it attempt to include all the laws of New York under which corporations can be formed for specified industrial or com- mercial purposes. It is confined exclusively to the two general laws under which, from their convenience and scope, the overwhelming majority of industrial and business corporations are, in fact, organized — The General Manufacturing Act, Laws of 1843, c. 40 ; and The Business Corporation Act, Laws of 1876, c. 611. Around the former of these acts a body of law of con- siderable extent and intricacy has grown up ; and though the latter has, as yet, given rise to but few judicial decisions, the almost unlimited number of objects for which corpora- tions can, by its terms, be formed thereunder, renders it of great importance to intending corporators. Ab will be seen, the sections of The General Manufactur- ing Act are not given in the book in their numerical order, but are grouped together according to their subjects ; and under each section are inserted such other statutes as are, in effect, amendatory thereof. It is believed that by this arrangement the law, as now existing, is at once more clearly and more conveniently given IV PREFACE. than it could have been by exactly following the order of the act ; in which, sections, in reality affecting each other and re- quiring to be read together, are, in many cases, widely sepa- rated. "We have also inserted, under the appropriate headings, such other statutes as bear directly upon any of the subjects suggested by the provisions of the act : the aim being to fur- nish under each head all the applicable statute law existing pertinent thereto. The provisions of The General Manufacturing Act itself, and aU statutes cited, are printed in a smaller type than that employed for the text ; so that it can be distinguished at a glance which paragraphs contain the statute law and which are commentary. The original numbering of the sections of the act is re- tained, and the word SEorroN, in small capitals, is prefixed ; while to the citations of other statutes there is prefixed, in ordinary type, a reference, by year and chapter, to the par- ticular session law given. If it is desired to consult any particular section of the act by its number, it can be readily found by a reference to the Index under the heading " Statutes ; " and under the same heading are also indexed such provisions of the Kevised Statutes as we have cited, together with the other statutes contained in this volume, by their respective years and chapters. There are so few amendments to, or decisions under. The Business Corporation Act, that it has seemed advisable to print the sections of that act together in their numerical order, and to reserve any comments upon them for a separate chap- ter. PEBFACB. V We have divided the book into two parts, the first of which is devoted to The General Manufacturing Act, and the second of which is confine* to The Business Corporation Act, with references to such statutes and decisions given in Part I, as seem applicable to that act. For each of these parts a separate index is given. New York, May, 1884 TABLE OF CONTENTS. PART I, THE MANUFACTURING CORPORATION ACT OF 1848. CHAPTEE I. PAGE PURPOSES FOR WHICH CORPORATIONS MAY BE FORMED UNDER THE MANUFACTURING ACT . 3-11 § 1. Scope of act. 3. Amendments to section 1. 3. Extensions of act. — How shown in alphabetical table. 4. Statement as to contents of table. 5. Table. CHAPTER II. FORMATION OF CORPORATIONS 1^-19 § 6. Prorisions as to formation. 7. Requisites of certificate of incorporation. 8. When incorporated. — Duplicate certificate. 9. Incorporators. — ^Promoters. 10. Provisions making certified copy certificate evidence. 11. Amending certificate. CHAPTER III. TRUSTEES 20-34 § 13. Provisions as to number, qualification, election, &c. 13. Who may be a trustee. 14. Annual election of trustees. 16. Provisions authorizing executor, pledgor, &c., to vote. 16. Trustees to manage company. 17. Trustees' meetings. Vlll TABLE OF CONTENTS. Chapter III. — Trustees — continued. page § 18. Provisions allowing election after proper date. — Trustees hold over. 19. Trustees may act until successors are chosen. 30. Provisions as to oflBcers. 21. Trustees to select ofBcers. 23. Duties and powers of officers. 23. Officers' unauthorized acts, how ratified. 24. Provisions as to by-laws. 25. General features of by-laws. 26. Duties of trustees, under act. 27. How to increase or reduce number of trustees. CHAPTEE IV. INDIVIDUAL LIABILITY OP TRUSTEES.— ANNUAL RE- PORT 35-62 § 28. Provisions as to annual report. 29. Section 12 a penal statute. 30. Nature of trustees' liability. 31. Contents of report. 32. Who must sign report. 83. Who to verify report. 34. Time within which report must be made, filed and pub- lished. 35. General nature of debts for which trustees are liable. 36. A contract liability necessary. 37. An accrued liability also necessary. 38. Who liable under section 13. 89. Different boards liable for same debt. 40. Liability once fixed not affected by subsequent defaults. 41. Liability as to renewal notes and notes given for preced- ing indebtedness. 43. When assignee and executor may sue. 43. As to suits against executor of deceased trustee. 44. Fellow stockholder may, but co-trustee cannot sue. 45. Suits not maintainable without the State. 46. Plaintiflf held to great strictness in pleading and proof. — Examples. 47. Requisites of complaint. 48. As to joinder of Eictions under sections 10, 13, 15 and 33. 49. In what county action should be brought. 50. Compulsory reference cannot be ordered, nor trustee arrested. 51. Summons, how indorsed. TABLE OF CONTENTS. IX CHAPTER V. PAGE INDIVIDUAL LIABILITY OF TRUSTEES, Etc.— Continued. 63-81 § 52. Trustee sued under section 13, has three main defenses. 63. Denial of the debt. 34. Judgment against company not evidence against trustee. 65. Judgment in favor of company conclusive in favor of trustee. 56. Defenses denying corporate indebtedness. 67. Defenses based on time debt arose or existed. 58. Denial of the default. 59. Defense established by proof of dissolution. 60. Denial of trusteeship. 61. Liabilities of trustees holding over. 62. De facto trustees. 68. Resignation and its eflfects. 64. Limitation of actions. 65. Provisions as to false reports, statements, etc. 66. Application and construction of section 15. 67. Provisions as to certain dividends. 68. Liability of trustees for paying prohibited dividends. 69. Provisions as to indebtedness exceeding capital. 70. Action, how brought thereunder. 71. Loans to stockholders. 73. Other liabilities of trustees. CHAPTER VI. STOCK AND STOCK CERTIFICATES 82-97 § 73. Provisions as to stock and its transfer. 74. Nature of stock. 75. Certificates, how transferable. 76. Corporate liens ol shares. 77. Lost or destroyed certificates, how replaced. 78. Provisions as to issuing capital stock.' 79. Capital stock, how issued. 80. Certificate of payment of capital stock to be recorded. 81. Provisions as to increase or diminution of capital stock. 83. Increasing or diminishing capital stock. How to increase number of shares of capital stock. TABLE OP CONTENTS. CHAPTER VII. PAGE STOCKHOLDERS 98-108 § 83. Provisions as to calls upon stockholders. 84. Subscribers. 85. When subscribers relieved from subscriptions. 86. Unpaid subscriptions. 87. Forfeiture of shares. 88. Provisions as to stock books and entries therein. 89. Stock books. 90. Stockholders' right to dividends. 91. Provisions authorizing stockholders to demand statement. 93. Stockholders' privileges. CHAPTER VIII. INDIVIDUAL LIABILITr OF STOCKHOLDERS . 109-144 § 93. General statement of individual liability of stockholders under act. 94. Provisions as to stockholders' liability to laborers, serv- ants and apprentices. 95. Nature of the liability. 96. Who are " laborers, servants and apprentices." 97. Requisites to enforcing claims against stockholders. 98. Laborer's claim may be assigned. 99. Provisions as to individual liability of stockholders when capital is not paid in, or certificate of payment is not recorded. 100. Stockholders' individual liability under these provisions. — When it exists. 101. For what debt stockholders liable hereunder. 102. Stockholders relieved from future liability by Jona jfMe and properly consummated sale of stock. 103. Liability as between vendor and vendee, when transfer is not registered. 104. Defects in organization no defense to certain stockholders. 105. No defense to stockholder that stock was represented to him to be full paid. 106. Stockholders only liable to extent of stock held by them. TABLK OF CONTENTS. XI Chaptbk VIII. — Individual Liability, &c. — continued. 107. Stockholders severally liable to such contract creditors as are within section 24. 108. Action at law against single stockholder usually best, but may be defeated by equitable offset. 109. What claims a creditor shareholder may equitably offiet. 110. Eule where such creditor stockholder is also debtor of company, 111. Questionable limitation of this privilege of equitable offset. 112. Creditor may bring equitable suit. 113. Kules governing such equitable suit. 114. Court of equity will restrain in such equitable suit sepa- rate actions at law against stockholder. 115. Section 10 imposes no liability in favor of corporation, and receivers cannot sue stockholders thereunder. 116. Section 10 imposes no penalty. — Action under it may be brought in sister States. 117. Questionable whether stockholder may sue co-stock- holder under section 10. 118. Who may sue. 119. What creditor must Show to recover against stockholder. 120. When action to be brought against company under section 24. 121. Judgment to be recovered therein and execution issued. 122. Judgment against company no evidence of debt in actioa against stockholder. 123. When certain requisites prescribed by section 24 are excused. 124. Stockholders holding stock issued for property freed from liability under section 10. 125. Such stock must, however, have been honestly issued by trustees. 126. Stockholders ceasing to be such, liow long liable there- after. 137. Limitations apply to actions under section 10. 128. As to right of contribution between stockholders. 129. Provisions exempting executors, pledgees, &c., from per- sonal liability. 130. When exemption applies. 131. Liabilities of stockholders apart from act. XII TABLE OP CONTENTS. CHAPTEE IX. PAGE POWERS AND PRIVILEGES OF CORPORATIONS FORMED UNDER ACT 145-166 § 132. Provisions as to general powers. 133. Other general powers. 134. Company may mortgage. 135. Mortgage, when and how made. 136. Privileges of purchasers at mortgage sale of franchise and property of corporation. 137. Two or more companies may consolidate. 138. Company may change corporate name. 139. May hold stock of certain other corporations. 140. May extend duration of corporate existence. 141. May change its place of business. 142. May carry on business out of State. 143. Other special privileges. CHAPTER X. TAXATION AND DISSOLUTION . . 167-182 1. Taxation. § 144. Corporations, where taxable. 145. Tax law 1880, as amended. 146. Construction of act. 147. General method of corporate taxation. 3. Dissolution. 148. Provisions as to alteration or repeal of charter. 149. Where charter is annulled the corporation is extinct. 150. Corporation extinct upon expiration of its term ot existence. 151. Stockholders eeatuis que trust and not partners after ex- piration of charter. 152. Dissolution of companies, how effected. TABLE OF CONTEITTS. XUl PART II. THE BUSINESS CORPORATION ACT OF 1875. CIIAPTEE XI. PAGE THE ACT, L. 1875, 0. 611 185-306 § 153. What corporations may organize hereunder. 154. Greneral powers of companies. 155. Application for license. 156. Secretary of State to issue license to'commissioners. 157. Commissioners to open subscription books. — Sub- scribers, when to meet. 158. What the by-laws must provide. 159. Commissioners' report. — Certificate of incorporation. 160. License deemed revoked, when. 161. Table of companies to be published annually in session laws. 162. Directors. — Officers. — Number of directors, how changed. 163. Capital stock. — Subscriptions, how payable. 164. Stock certificates and their transfer. 165. Corporation may issue bonds. 166. Stock or bonds, for what issued. 167. Capital stock, how increased or reduced. 168. Corporate account books to be kept. 169. Stock book to be kept; its contents, &c. 170. Annual report to be filed. — ^Penalty upon neglect. 171. Certain dividends prohibited. 172. Loans to stockholders prohibited. 173. False certificate or report. — Liability therefor. 174. Liability when indebtedness exceeds capital stock. 175. Executors, &c., not personally liable as stockholders. 176. Executors, &c., may vote at elections. 177; Qualification of stockholders' liability. 178. Annuail election of directors. — "Voting thereat. 179. On failure to elect, directors hold over. 180. Oath of inspectors of election. 181. Extending duration of corpoi-ate existence. 182. Corporations, where taxable. 183. Change of principal place of business. 184. What companies may reorganize hereunder. 185. Corporations under act, of two classes. XIV TABLE OF CONTENTS. Chaptbb XI. — The Act, L. 1875, C. 611 — contimied. pac« § 186. Full liability companies. 187. Limited liability companies. 188. Word " limited" to be used. — Penalty for its omission. 189. Individual liability of stockholders in " limited " com- panies. , 190. Effect of dissolution. CHAPTEE XII. CORPORATIONS UNDER THE BUSINESS ACT.— DISTINC- TIONS BETWEEN SAID ACT AND THE MANUFAC- TURING ACT 207-833 § 191. Introductory. 192. What corporations may form under the Business Act. 193. Formation of corporations. 194. Directors. 195. Officers.— By-laws. 196. Capital stock. 197. Increase or diminution of capital stock. 198. Powers and privileges. 199. Directors' liability. — Annual report. 200. Stockholders. 201. Full liability companies. — Stockholders' liability therein. 202. Limited liability companies. 203. Stockholders' liability in " limited " companies. 204. Taxation and dissolution. 205. Certain provisions not in act. APPENDIX A.— Veeder 8. Judson. .... 227 APPENDIX B. — Provisions of the Penal Code Applicable to Cor- porations Formed Under the Laws Treated of in this volume. .... 236 APPENDIX C. — Forms under the Manufacturing Act. APPENDIX D. — ^Forms under the Business Act. . IinJEX TO PART I.— The General Manufacturing Act. INDEX TO PART H.— The Business Corporation Act. 241 257 279 301 TABLE OF CASES, [BefereDces in this table are to pages,] Abbott V. The Hard Rubber Co., 35. Adams ». Mills, 48, 66. Adderly i>. Storm, 23, 119. Adriance v. Boonie, 39. Agate V. Edgar, 135. Agate V. Sands, 134, 135. Alexander v. Oauldwell, 30, 66. Allen V. Ward, 137. American Grocer v. The Grocer, 14. Anderson v. Speers, 78, 80. Andrews v. Murray, 88, 46, 131. Arthur v. Griswold, 55, 77, 81. Aspinwall v. Sacchi, 120, 141. Aspinwall v. Torrance, 141. Bailey v. Bancker, 133, 131, 136, 141. Baker v. Backus, 90. Ballard v. Burgett, 83. Bank, etc. v. Ibbotson, 70, 133, 134, 138. Bank of Augusta v. Earle, 163, 164. Bank of Buffalo v. Kortright, 85. Bank of California ». Collins, 55. Bank of U. S. v. Dandridge, 35. Bartlett v. Drew, 103, 144. Battershall v. Davis, 89, 100. Beach v. Smith, 89, 319. Beers v. The Phoenix Glass Co., 31. Belmont «, Coleman, 136. Billings V. Robinson, 86, 100, 101. Billings V. Trask, 80, 180. Bird V. Hayden, 57. / Birmingham Nat'l Bank v. Keck, 137. Birmingham Nat'l Bank v. Mosser, 187. Bissell «. Bissell, 44. Bissell v. N. Y. C. & H. R. R. R. Co., 63. Blake «. Wheeler, 73, 74. Blatchford ». R. R. Co., 104. Bliss V. Matteson, 36. Bliven v. Peru Steel & Iron Co., 183. Boardman v. L. 8. & M. S. R. R. Co., 106. Bohn V. Brown, 45. Bolen V. Crosby, 39. 43, 47, 55. Bonnell ®. Griswold, 87, 39, 41, 60, 70, 77. Bonnell v. Wheeler, 55. Bonner v. Am. Spiral Spring Co., 19. Botsford V. Dodge, 59. Boughton V, Otis, 51, 71. Boynton v. Andrews, 140. Boynton v. Hatch, 140. Bradt v. Benedict, 70. Brewster v. Hatch, 19. Brick Church ». The Mayor, 31. Briggs v. Cornwell, 131, 134, 127. Briggs V. Easterly, 56. Briggs V. Penniman, 103, 124, 128. Brinckerhoff v. Bostwick, Receiver, 81. Brinkerhoff®. Brown, 70. Brisbane v. D. L. & W. R. R. Co., 84, 104, 105. Brockway «. Ireland, 139. Bronson «. Dimock, 56. Brown v. Smith, 91, 116, 188. Brown v. Torrey, 138. Bruce v. Driggs, 91, 116. Bruce v. Piatt, 37, 70, 71, 78, 74. Buffalo, &c., R. R. Co. o. Gary, 18, 130. Buffalo & Jamestown R. R. v. Gif- ford, 17. Buffalo Grape Sugar Co. v. Al- burger, 86. Burke o. Smith, 35. Burr V. Wilcox, 98, 99, 133. Burrall ». Bush wick R. R. Co., 83. Byers v. Franklin Coal Co., 47, 50. Byrne v. N. T. Brick & Cement Co., 181. Cable V. McCune, 45, 57. Cameron v. Seaman, 44, 57, 69, 71. Carley v. Hodges, 54. Carpenter v. Black Hawk Mining Co., 150, 333. Carpenter v. N. Y. & R. R. Co., 106. Castle V. Lewis, 26. XVI TABLE OF CASES. Cayuga Lake R. R. Co. v. Kyle, 18. Central Gold Mining Co. v. Piatt, 150. Central City Savings Bank v. Walk- er, 181. Cerbat Mining Co. v. State, 172. Chambers v. Lewis, 58, 80, 123. Chandler v. Hoag, 43, 50, 51, 73, 74. Chase v. Lord, 69, 116, 139. Chase v. Vanderbilt, 36. ChildsB. Smith, 16. Christian Union v. Yount, 164. Claflin V. Farmers' & Cit. Bk., 39. (Uapp V. Wright, 61. Clark ». Myers, 113, 143. Clarke o. Dickson, 133. Coffin V. Reynolds, 113. Cole V. Ryan, 99. CoUes D. Trow City Directory, 147. Collins V. Suau, 136. Coman v. Lakey, 151. Conkling v. Secor Sewing Machine Co., 151. Conro V. Port Henry Iron Co., 25. Cornell v. Moulton, 44. Cornell v. Roach, 59, 75. Corning v. McCullough, 130, 133, 141. Coming v. Southland, 31. Co well V. Springs Co., 164. Cox V. Gould, 118, 151. Craig V. Dimock, 117. Craw ®. Easterly, 21, 73, 73. Cross v. Pinckneyville Mill Co., 4. Curtain v. Father Mathew Society, 33. Curtis V. Leavitt, 36. Cushman v. Thayer Mfg. Jewelry Co., 85. Cutting V. Damerell, 85, 101. Cuykendall v. Coming, 57, 117, 123, 134, 137. • Cuykendall v. Douglass, 96. Cuykendall v. Mills, 131. Dabney v. Stevens, 35, 39, 31, 58. Dayton v. Borst, 100. Dean v. Biggs, 101. Dean v. DeWolf, 113. Dean v. Mace, 114, 135. Dean b. Whiton, 112. De GrofF v. American Linen Thread Co., 148. Deming r>. Puleston, 38, 47, 53, 72, 131. Dempsey v. Willett, 114. Denike v. N. T. & R. L. C. Co., 150, 151, 181, 183. DeWitt V. Hastings, 18. Dikeman v. Pudchafer, 117. Doctor «. Guggenheim, 136, 144. Dodge e. Potter, 1 17. Dorris v. French, 18, 99, 101. Dorris v. Sweeny, 17, 101. Douglass V. Ireland, 60, 131, 139. Draper v. Beadle, 139. DriscoU V. West Bradley & Cary Mfg. Co., 33, 85. Dubois ». Hall, 151. Duckworth v. Roach, 76, 76. Dunham v. Village, &c., 32. Dutches's Cotton Mfg. Co. v. Davis, 103. Easterly it. Barber, 56, 73, 73. East N. Y. R. R. Co. v. Lighthall, 35- Eaton V. Aspinwull, 17, 18, 130. Eddy D. Co-operative Dress Asso'n, 140. Ellis V. Howe Machine Co., 31. Ellis V. Schmock, 123. Elwell v. Dodge, 31. Ely V. Holton, 4. Empire City Bank, 121. Erickaen v. Nesmith, 131. Erie R. R. Co. v. Ramsey, 129. Erwin v. Navigation Co., 74. Esmond v. Bullard, 46, 48, 58. Estes V. Burns, 56. Excelsior Grain Binding Co. v. Stayner, 319. Excelsior Petroleum Co. v. Embury, 78. Excelsior Petroleum Co.'B. Lacey,78. Ex parte Barker, 23. Expa/rte Desdoity, 23. Ex parte Dodge, 44. Ex pwrte Murphy, 33. Ex pwrte Wilcox, 23. Fairbanks v. Davis, 117. Farmers' Loan & Trust Co. of N. Y. V. McKinney, 164. Farmers' & Mechanics' Bank v. Em- pire 8. Dressing Co., 30. Farnsworth v. Wood, 133, 129, 130. First Nafl Bk. v. Pierce, 57. TABLE 01" CASES. XVll Fisher t. Marvin, 134. Flash o. Conn, 57, 133, 180, 131, 137. Fleischauer «. Dittenhoefer, 137, 141. Freeland v. McCuUough, 119. Freemans' Kat'l Bk. of Boston c. Smith, 93, 108. French ». O'Brien, 30. Frothingham «. Barney, 183. Fuller 9. Rowe, 181. Garrison «. Howe, 36, 49, 50, 70, 71, 118, 134, 130. Getty v. Devlin, 19. Gildersleeve o. Dixon, 44, 69. Glens' Falls Paper Co. ». White, 40, 41, 43, 59, 61. Goldsmith v. Swift, 105. Gordon v. Cornes, 176. Graham ». Hoy, 144. Gray ». N. Y. & Virginia S. S. Co,, 81. Greeley ». Smith, 180. Greenpoint Sugar Co. ». Whitin, 147, 150, 151. Griffith ». Mangam, 138. Grynes v. Hone, 86. Gutta Percha & Bubber Mfg, Co. «. McMahon & Tanner, 169. Halsey o. McLean, 131. Handy «. Draper, 133, 134, 135, 136, 141. Harris v. Norvell, 113, 133. Hastings v. Drew, 144. Hatch v. Dana, 103. Haviland ». Ohace, 89. Heath b. Barmore, 147. Henderson «. Royal British Bank, 131. Hermance v. Hilmers, 136. Herries «. Piatt, 113. Herries v. Wesley, 31, 104. Hill ». Conkling, 114. Hill ®. Newichawanick Co., 105.. Hill ®. Spencer, 113. Hoag V. Lament, 54. Hoagland v. Bell, 130, 136. Holmes, Booth & Haydens «. The Holmes, Booth & Atwood Mfg. Co., 14. Hornor n. Henning el al. , 80. Hovey v. Ten Broeck, 113, 114. Howe «. Deuel, 25. B Hoyt V. Thompson, 26, 29. Hughes «. Vermont Copper M. Co., 105. Huguenot Nat'l Bk. v. Studwell, 44, 70. Hyatt V. Allen, 105. Hyatt i>. Esmond, 131. Hyatt 1). Roach, 61. In re N. Y., L. & W. By. Co., 19. In the Matter of Denny, 45. In the Matter of Union Ins. Co., 33. Isham V. Buckingham, 84, 101. Jackson ». Campbell, 39. Jaggerlron Co. v. Walker, 54, 134. Johnson v. Bush, 90. Johnson v. Underbill, 84, 85, 111, 114, 119, 120. Jones ». Barlow, 36, 37, 38, 39, 50, 53, 54, 64, 65, 75. Jones V. Guaranty & Indemnity Co., 150. Jones v. Terre Haute, etc., R. R. Co., 35, 84, 106. Judd ». Fulton, 44. Judson ». Rossie Galena Co., 129. Kane ®. Bloodgood, 106. Karnes ■!). Rochester, etc., R. R. Co., 106. Kent V. Quicksilver M. Co., 36, 81, 166. Kincaid v. Dwinelle, 136, 137, 140. Kirkland ». Kille, 39, 70. Knauer v. Globe Mutual Life Ins. Co., 137, 141. Knight ®. Dederick, 37. Knowlton v. Congress & Empire 8. Co., 89, 96. Knox«. Baldwin, 36, 39, 58, 56, 74. Kraft V. Freeman, etc., Asso'n, 30. Krauser d. Ruckel, 113, 114. Lake Ontario R. R. Co. v. Munson, 18, 98. Lake Superior L'on Co. v. Drexel, 139. Leavitt v. Fisher, 85. Lee v. Pittsburgh 0. & M. Co., 31. Leggett V. Bank of Sing Sing, 50. Leitch D. Wells, 83. Lewis V. Armstrong, 46, 47. Lewis V. Ryder, 118, 136, 139. XVlll TABLE OF CASES. Life & Fire Ins. Co. n. Mechanics', etc., 29. Lindsley v. Simmons, 135, 137. Livingston s. Lynch, 36. Losee n. Bullard, 53, 70, 74. Lovett v. German Ref d Ch., 22. McConn v. N. Y. C. & H. R. R. R. Co., 46. McCullough ». Moss, 25, 26, 29. McCullongh ». Norwood, 137. McDennott ». Board of Police, 31. McHarg v. Eastman, 36, 38, 46, 57, 74, 136. McLityre v. Strong, 118, 221. McLasher «. N. T. Daily Standard, 14. McMahon v. Macy, 136, McMaster «. Davidson, 118. McKeil V. Tenth Nat. Bank, 83, 84. Mahoney Mfg. Co. ». Anglo-Cal. Bank, 26. Mann ». Currie, 101, 102. Manning o. Quicksilver Mining Co., 105. Mappier ». Mortimer, 181, 141. Mason v. N. Y. Silk Mfg. Co., 130. Mathews v. Aiken, 88. Mathez v. Neidig, 122, 123, 124, 125, 128. Matter of Application of Junius R. Van Vechten, 28. Matter of Empire City Bank, 22, 124. Matter of Hudson R. R. R. Co., 22. Matter of L. I. R. R. Co., 22. Matter of Le Blanc, 106. Matter of N. Shore & Ferry Co., 22. Matter of Pyrolusite Manganese Co., 182. Matter of Reciprocity Bank, 120, 121. Matter of Rochester Water Com- missioners, 7. Matter of Syracuse, C. & N. Y. R. R. Co., 24. Matter of Union Ins. Co., 22. Matter of Wheeler, 22. Matter of Woven Tape Skirt Co., 182. Mayor, &c. v. Eisler, 62. Mead o. Keeler, 26, 30. Merchants' Bank v. Bliss, 36, 87, 74, 79. Merchants' Bank o. Livingston, 83. Merchants' Mfg. Co. ■». Grand Trunk Ry. Co., 165. Meriden Tool Co. v. Morgan, 17. Merrick «. Brainerd, 163. Merrill v. Suffolk Bank, 179. Merritt v. Reid, 135, 141. Middlebrook v. Merchants' Bank, 85. Miller ». Fenton, 38. Miller «. White, 37, 38, 42, 58, 65, 128,136. Mills «. Stewart, 102. Mitchell V. Hotchkiss, 37, 55, 131. Mitchell B.Vermont Copper Co., 102. Moore v. Mausert, 4, 39. Moore v. Met. Nat. Bank, 88. Moore s. Rector, &c., of St. Thomas, 42. Moran ». Lydecker, 181. Morse e. McCullough, 136. Moss v. Averell, 81. Moss ». McCullough, 136. Moss V. Oakley, 117, 186. Moss V. The Rossie Lead Co., 25. MoultOn 4). Beecher, 61. Mumma «. Potomac Co., 179. Nassau Gas Light Co. v. City of Brooklyn, 178. National Bank, &c. ». Fenton, 50. Nay V. Levy, 89. Neele v. Berryhill, 117. Newburgh Petroleum Co. v. Weare, 164. Newby n. Oregon Can. R. R. Co., 14. New England Iron Co. v. Gilbert El. R. R. Co., 140. N. Y. Car Oil Co. ■». Richmond, 19. N. Y. Iron Mine v. P. Nat'l Bank, 29 N. Y. & N. H. R. R. Co. v. Schuy- ler, 84. Nimmons ». Tappan, 57, 60, 78. Norris V. DeWolf, 48. Oakes ®. Turquand, 121. Ormsby v. Vermont Copper Co., 27. Osborne & Cheeseman Co. c. Croome, 71. Oswego Starch Factory s. DoUo- way, 168, 169, 179. Otter v. Brevoort Petroleum Co., 89. Oviatt V. Hughes, 49, 56, 118. TABLE OIP CASES. XIX Palmer v. Lawrence, 99. Parrot v. Colby, 134. Parrott e. Sawyer, 134. Partridge v. Badger, 22, 29, 30. Peckham «. Van Wagenen, 105. Penniman v. Briggs, 70. People, &c. V. Albany B. R. Co., 22. V. Albany Ins. Co., 176. 1). A. & S. R. R. Co., 102. ■B. Beach, 4, 15, 16, 165. V. Board of Assessors, 178. V. Cummings, 28. ®. Davenport et al.. Trustees, 177. ■B. Hektograph Co., 182. V. Home Ins. Co., 176. V. Luther, 44. V. McLean, 170. 179. B. Med. Soc'y, 33. V. N. Y. C. &H.R.R.R.CO., 44. «. N. T. Floating & Dry Dock-Co., 176, 178. V. Sailors' Snug Harbor, 32. ». Spring Valley Hydraulic Gold Co., 178. v. Throop, 32. «. Troy House Co., 89. ». Twaddle, 21. V. Walker, 180. Perkins «. Hatch, 121. Pfohl V. Simpson, 122, 128, 129. Phila. & Reading Coal & Iron Co. V. Hotchkiss, 28, 57, 71. Phillips 0. Therasson, 117. Phillips. ». Wickham, 21, 25. Phoenix Warehouse Co. ®. Badger, 99, 101. Pier «. tteorge, 54, 55. Pier V. Hanmore, 87, 40, 41, 77. Pilcher v. Brayton, 114. Plympton v. Bigelow, 165. Pollock V. Nat. Bank, 85. Poughkeepsie, &c.. Plank Road .Co. ■». Griffin, 17. Powis «. Harding, 121. Prentiss ». Nichols, 182. Prosser v. Matthieson, 113. Pugh v. Hurtt, 131. Pugh & Sherman's Case, 131. Railway Age b. Garnett, 14. Railway Co. v. AUerton, 35. Eaisbeck v. Oesterricher, 16, 17. Rector, &c., of Trinity Church v. Vanderbilt, 75. Reed «. Bank of Newburgh, 31. Reed ». Keese, 72. Rensselaer, &c., Plank Road Co. «. Barton, 18. Revere Copper Co., &c. «. Dimock, 47. Reynolds ». Mason, 54. Richardson v. Abendroth, 113, 113, 119, 131. Risley ». I. R. & W. Ry. Co., 29. Robinson v. Nat'l Bank of New- berne, 84, 85. Robinson v. Smith, 81. Rochester Savings Bank ». Averell, 151. Rocky Mountain Nat'l Bank v. Bliss, 135. Eodbum v. N. I. & E. Ry. Co., 129. Rorke v. Thomas, 38, 46, 48, 58, 79. Ruggles' Eec'r ». Brock, 101, 122. Runyan v. Lessee, of Coster et al., 163, 164. Rutter V. Kilpatrick, 98. Sanborn ». Lefferts, 37, 56, 70, 73. Sawyer e. Hoag, 137. Schenck v. Andrews, 138, 139. Scott v. Middletown R. R. Co., 31. Scoville V. Thayer, 89, 97, 137. Shaler & Hall Quarry Co. v. Bliss, 50, 73. Sheldon Hat Blocking Co. ■». Eick- enmeyer Hat B. Co., 25. Shellington «. Howland, 104, 119, 122, 135, 137. Short ». Medbury, 113. Slee «. Blonm, 70, 136. Small V. Herkimer Mfg. Co., 103. Smith V. Alvord, 164. Smith V. American Coal Co., &c., 85, 86, 104. Smith ®. Danzig, 74, 130, 313. Smith «. Law, 36. Smith B. N. Y. Consolidated Stage Co., 25. Sodus Bay, &c., R. R. Co. v. Ham- lin, 101. Spear i>. Crawford, 98, 99, 133. Squires o. Brown, 73. Steam Engine Co. v. Hubbard, 131. Stephens v. Fox, 46, 144. Sterne ». Herman, 60, 131. Stevens v. Pratt, 164. XX TABLE OF OASES. Stover V. Flack, 120, 122, 143. Strong V. Smith, 32, 24. Strong V. Sproul, 37. Strong V. "Wheaton, 112, 114, 123, 136. Sturges V. Vanderbilt, 137, 143, 179, 180. Sturgis V. Stetson, 89. Sutherland v. Olcott, 91, 117. Tallmadge v. Pishkill Iron Co., 122. Taylor ». Earl, 25. Thurber v. Thompson, 138. Tracy v. Yates, 118. Trustees, &c. v. Flint, 33. Twin Lock Oil Co. v. Marbury, 80. Tyng V. Clark, 38, 66. Union Hotel Co. v. Hersee, 99. Union Steamboat Co. v. City of Buflfalo, 169. Vail V. Hamilton, 22, 23, 150, 151. Van Amburgh v. Baker, 57, 71. Van Cott V. Van Brunt, 65, 215. Vanderburgh v. Broadway K. R. Co., 21, 22, 27. Veeder e. Baker, 36, 61, 77. Veeder v. Judson, 89, 116, 117, 129, 133, 183, Appendix A. Veeder v. Mudgett, 138, 139, 183. Veiller v. Brown, 101, 119. Vernon i>. Palmer, 39, 50, 63. Vernon Soc. v. Hills, 22. Victory Webb Printing Co. «. Beecber, 39, 49. Viele D. "Wells, 113, 135. Vincent ». Bamford, 113. Vincent®. Sands, 43, 53, 71. Wade i;. Baker, 71. Waite®. Ferguson, 131, 132. Wakefield ®. Fargo, 5, 112, 113, 119. Wakeman v. Dalley, 81. Walsh v. Sexton, 86. Weaver v. Barden, 83. Webster v. Turner, 25. Webster v. Upton, 85. Weeks v. Love, 133, 135, 139. Westelo V. Dewitt, 86. Westerfleld v. Radde, 30. Western Transportation Co. d. Scheu, 168. Wetherhead v. Allen, 136. Weymouth v. Dimock, 58. Wheeler v. Millar, 99, 103, 116, 133, 136. Wheeler v. Miller, 136. Whitehall, &c.. R. R. Co. v. Meyers, 99. Whitney Arms Co. v. Barlow, 39, 43, 49, 59, 64, 66, 67, 69. Whittlesey v. Franz, 101. Wiles «. Suydam, 36, 37, 38,60, 61, 131, 133, 141. Williams v. W. U. Tel. Co., 83. Williamson v. Wadsworth, 113. Wilson V. Leslie, 117. Wintringham, Rec'r v. Rosenthal, 101. Woodruff & Beach Iron Works v. Chittenden, 133, 133, 133. Worrall v. Judson, 119. Wright's Case, 131. WyckofE V. Lawson, 46. Zinn V. Ritterman, 45. PART I THE ACT TO AUTHORIZE THE FORMATION OF CORPORATIONS FOR MANUFACTURING, MINING, MECHANICAL, CHEMICAL, AGRICULTURAL, HORTICULTURAL, MEDICAL OR CURA- TIVE, MERCANTILE OR COMMERCIAL PURPOSES. PASSED FEBRUARY 17, 1848. AS AMENDED, MODIFIED AND EXTENDED TO MARCH, 1884. CHAPTEE I. PURPOSES FOR WHICH CORPORATIONS MAY BE FORMED UNDER THE MANUFACTURING ACT. § 1. Scope of act. 2. Amendments to Section I. 3. Extensions of act. — How shown in alphabetical table. 4. Statement as to contents of table. 5. Table showing purposes for which corporations can be formed under the act, and its extensions. § 1. Scope of act.— The Law of 1848, chapter 40, commonly known as " The General Manufacturing Act," differs widely from the Law of 1875, chapter 611, commonly known as "The Business Corporation Act," in the provisions regulating the objects for which corporations can be formed under it. Under the "Business Corporation Act," corpora- tions may be organized for the carrying on of any law- ful business, except such kinds as are expressly named and excluded in the first section of that act. Under the " General Manufacturing Act," however, a corporation can be organized only for an object ex- pressly stated in that act, or some extension thereof. Under this act, therefore, proposed corporators must look for a special provision authorizing corpora- tions to be formed for the exact business which they contemplate carrying on ; although, under either of the general terms, "manufacturing, mining, mechanical or chemical business," many diverse corporations may, of course, be formed, any one of which can, if its certifi- cate of incorporation be properly drawn, carry on any branch or branches of business falling under the gen- 4 PURPOSES FOR WHICH eral head specified in its certificates as that under which it proposes to do business. Thus it was held that a corporation could be prop- erly organized under this act to mine for " gold, silver, and lead," such object being duly set out in its certifi- cate of incorporation, and was not restricted to mining for one of those minerals only.^ The industries of any such corporation, however, must all fall under some one of these general heads. It cannot combine any two or more of these general purposes.* Under these cii"cumstances, it has seemed advisa- ble to prepare the alphabetically arranged list of purposes for which corporations may be organized un- der L. 1848, c. 40, as amended and extended, which will be found at the end of this chapter. § 2. Amendments to Section 1.— Section 1 of the act as originally passed has been frequently amended and modified in this regard, but at present exists, as stated in the amendment of 1882 (L. 1882, c.309), which will be found in the following chapter. We have taken this re-^tatement as repealing all previous inconsistent laws passed as amendments of said section 1,^ and upon that understanding have pre- pared the following table. § 3. Extensions of act.— How shown in alphabetical table.— Other laws have, however, been passed, not as amendments to said section, but, by their terms, as ' People ex rel. Belknap v. Beach, 19 Hun, 359. See, also, Cross s. Pinckneyville Mill Co. 17 111. 54. ' Moore v. Mausert, 49 N. Y. 332; Ely v. Holton, 15 N. Y. 595. CORPOEATIONS MAY BE FORMED. 5 extensions of the act.^ These remain in force, and the corporations whose formation they authorize are in- cluded in the table, except where such laws have been directly repealed. These extensions usually prescribe the same num- ber of corporators as the original act, and provide that every corporation formed thereunder shall be sub- ject to all the provisions, duties, and obligations con- tained in said act of 1848, and shall be entitled to all the benefits and privileges thereby conferred; -many of them also providing that the corporations formed thereunder shall not be confined in their operations to the county in which their certificate shall be filed. Where the right to organize depends upon such an extension, the following table contains a reference to the particular session law, and the words, "not con- fined to county," where such a provision is contained in the extension. There are, however, still other extensions which, while authorizing the formation of additional corpora- tions under the General Act, and extending to them its provisions, yet make certain changes, or lay down additional requirements, too numerous or too long to be briefly noted. In these cases, we have simply noted the fact that special provisions exist, and have pointed out the particular session laws, which should, in all such ca-ses, be carefully consulted. In cases where no reference to any particular ses- sion law is found in the table, the authority to organ- ize is derived from the original act itself, as amended. § 4. Statement as to contents of table.— We have • Wakefield v. Fargo, 90 N. Y. 213. 6 PURPOSES FOR WHICH omitted from our list " agricultural, horticultural, med- ical or curative business," the formation of corporations, to carry on either of which was authorized by L. 1866, c. 838, sec. 2. Though blindly stated, we think the intent of that law was to amend section 1 of the original act, and that by the very broad language of L. 1882, c. 309, this and all other amendments and modifications of that sec- tion, prior to said law of 1882, and inconsistent there- with, are abrogated. If, however, it be taken literally, not as an amend- ment, but as an independent provision, authorizing the formation of corporations for the purposes there- in specified, then such companies would not, as the statute is drawn, come under the provisions of the act of 1848.' By section 1 of said act of 1866, however, the title of the original act of 1848 was changed by in- serting the words " agricultural, horticultural, medical or curative, mercantile or commercial purposes," and that title still exists as thus amended, though now incongruous with the text of the act.' We have, however, inserted, although with hesita- tion, the " business of receiving, obtaining, collecting, and accumulating items and matters of news, and Belling, vending, furnishing, and supplying the same," corporations for which were attempted to be author- ized by L. 1883, c. 240, because of the recent date of that act and the absence of any judicial interpretation thereof. This act, by its terms, purports to amend L. 1857, > Bee Mr. Throop's note, Revised Statutes (7th ed.), vol. II, p. 1731. CORPORATIONS MAT BE FORMED. 7 c, 262, which, in its turn, was an amendment of sec- tion 1 of the original act, and would appear, as such amendment, to be abrogated by L. 1882, c. 309 ; and L. 1879, c. 290. Moreover, a comparison of L. 1883, c. 240, with the statute and section which it pur- ports to amend, will lead to the conclusion that, if literally interpreted, it wholly fails of its purpose, and makes an independent provision, authorizing any three or more persons who may desire to form a company for the purposes therein stated, to make and file a cer- tificate of a specified nature, in a specified place, and with no provisions constituting such persons a corpora- tion, under the act of 1848.^ § 5. TABLE showing purposes for which corporations can be formed under the act, and its extensions. Apartment houses. See Real estate. Basins. See Elevators i Wharves. Books. See Printing. Bottling. See Mineral water. i. Brandies. See Ora/pe. Butter making. Canal boats. See Towvng or propelling. Cheese making. ' Chemical business. Church sheds, business of erecting buildings for. Coal and peat of all kinds, buying, selling, and transport- ing. (L. 1865, c. 307, not confined to county.) Concentrated or condensed milk, making. Cotton. See Oultmatmg. Cultivating sugar cane, cotton, rice, tobacco, indigo, and other products of the earth, preparing and transporting and ' See, however, Matter of Rochester Water Commissioners, 66 N. T. 418. 8 PURPOSES FOR WHICH disposing of the same. (L. 1865, c. 234, not confined to county.) See, also, Grape. Dairy products, making. Docks. See Elevators. Dock-buHding. See Dredging machines. Dredging and filling of land, and dock-building, construct- ing and using machines for. (L. 1875, c. 365.) Depots. See Union railway depots. Elevators, floating and stationary, or warehouses, construct- ing, maintaining, and using for all purposes appertaining to or connected with trade or commerce in the several kinds of grain in the State of New York. (L. 1864:, c. 337, as amended, L. 1868, c. 781.) Elevators, warehouses, docks, wharves, and basins, owning, constructing, maintaining, using, and operating. (L. 1881, c. 650.) Entertainments and amusements. See Skating rinJe. Fertilizers. See Fish. Fish, catching in the salt waters of Sufi^olk county, to be used for, or converted into, fertilizers, (Special provisions, consult L. 1868, c 161.) Floats. See Towing. Grape, propagating, cultivating, and developing the differ- ent varieties of, and manufacturing wines and brandies there- from, and preparing, transporting, and disposing of the same. (L. 1865, c. 234, not confined to county.) Homesteads. See Real estate. Hot water, hot air or steam, supplying of, for motive power, heating, cooking, or other useful applications in the streets and public and private buildings of any city, village, or town in this State.* Ice, collecting, storing, preserving, preparing for sale, trans- porting, and vending. (L. 1855, c. 301, not confined to county.) Indigo. See Cultivating. ' Authorized by General Manufacturing Act, as amended. For spe- cial powers, rights, privileges, and restrictions, consult L. 1880, c. 263; L. 1883, c. 237. COKPORATIONS MAY BE POEMEB. 9 Inland wharves. See Wharves. Lands, filling in and improving. See Real estate ; Dredg- ing. Laundry purposes, erecting buildings for, and carrying on laundry business. Locomotive engines, building, manufacturing, owning, fur- nishing, letting, selling, and maintaining locomotive engines, cars, rolling stock, and railway machinery, or for one or more of these purposes. (There must be nine or more corporators. Special provisions, consult L. 1873, c. 814.) Manufacturing business. Mechanical business. Milk, making concentrated or condensed. Mineral water from any natural spring, bottling and sell- ing. (L. 1863, c. 63.) Mining business.'' News, receiving, obtaining, collecting, and accumulating items and matters of, and selling, vending, furnishing, and sup- plying the same. (L. 1883, c. 240.) ' Newspapers. See Printing. Oils. See Petroleum. Pamphlets. See Printing. Peat. See Coal. Petroleum and other oils, storage, conveyance and trans- portation of. Special provisions. (Consult L. 1875, c. 113.) Printing, publishing, or selling books, pamphlets, or news- papers. Products of the dairy. See Dairy. Products of the earth. See Cultivating. Public halls. See Peal estate. Publishing. See Printing. Kafts. See Towing. ' Mining companies may also conduct the business of water com- panies by complying with provisions of L. 1880, c. 85, as amended by L. 1881, c. 473 (which see), which establish an exception to the general rule forbidding a combination of two or more general purposes in one company. . See Water. ' But see ante, § 4. 10 PURPOSES FOR WHICH Kailway supplies. See Locomotives. Raising vessels or other heavy bodies, constructing and using machines for. (L. 1851, c. 14, not confined to county.) Real estate, purchasing, acquiring, maintaining, and im- proving, for residences, homesteads, apartment houses, and public halls, and for filling in and improving lands. (Special provisions, consult L. 1871,. c. 538; amended, L. 1881, c. 589, and L. 1^83, c. 71.) Residences. See Real estate. Rice. See Cultvoating. Rolling stock. See Locomotives. Salvage. See Towing. Selling. See Printing. Skating rink, purchasing a suitable lot, and erecting there- on a building for, or for fairs, meetings, exhibitions, or other lawful entertainments and amusements. (L. 1864, c. 337 ; as amended, L. 1 868, c. 781.) Slaughtering animals. Steam, supplying. See Hot water. Sugar cane. See Cultivating. Tobacco. See Cultivating. Towing, etc., constructing, owning, and using vessels and machines to be employed for hire in towing vessels, carry- ing freight and passengers, and in aiding and protecting and saving vessels and their cargoes wrecked or in distress. (Spec- ial provisions, consult L. 1864, c. 337.) Towing or propelling canal boats, vessels, rafts, or floats, on the canals and navigable rivers of New York, by animal or steam power. Union railway depots, purchasing, acquiring, building up- on, and improving real estate for, leasing, etc. (Special pro- visions, consult L. 1882, c. 273.) Vessels. See liaising ; Tovnng. Warehouses. See Elevators. Water, accumulating, storing, and conducting, furnishing and supplying, for mining, domestic, manufacturing, munic- ipal, and agricultural purposes (but not for manufacturing, municipal, or domestic purposes in New York city). (Special CORPORATIONS MAY BE FORMED. 11 provisions, consult L. 1880, c. 85 ; as amended, L. 1881, c. 472.) See, also. Hot water / Mineral water ; Mining. Wharves, for the construction and operation of inland wharves and basins, and the purchase, improvement, and sale thereof. (Special provisions as to powers, consult L. 1875, c. 365.) See, also, Elevators. Wines. See Grajpe. Wrecking. See Towing. CHAPTEE II. FORMATION OF CORPORATIONS. § 6. Provisions as to formation. 7. Requisites of certificate of incorporation. 8. When incorporated. — Duplicate certificates. 9. Incorporators. — Promoters. 10. Provisions making certified copy certificate evidence. 11. Amended certificate. § 6. Provisions as to formation.— Section 1. At any time hereafter, any three or more persons who may desire to form a company for the purpose of carrying on any kind of manu- facturing, mining, mechanical or chemical business, or the bus- iness of printing, publishing or selling books, pamphlets or newspapers, or the business of making butter, cheese, concen- trated or condensed milk, or any other products of the dairy, or the business of erecting buildings for church sheds, or laun- dry purposes, and the carrying on of laundry business, or the business of slaughtering animals, or for the purpose of towing or propelling canal boats, vessels, rafts or flpa'ts on the canals and navigable rivers of the State of 'New York by animal or steam power, their operations not to be confined to the county in which their certificate shall be filed, or the supplying of hot water, or hot air, or steam, for motive power, heating, cook- ing, or other useful applications, in the streets and public and private buildings of any city, village or town in this State, may make, sign and acknowledge before some officer compe- tent to take the acknowledgment of deeds, and file in the of fice of the clerk of the county in which the business of the company shall be carried on, and a duplicate thereof in the office of the Secretary of State, a certificate in writing, in which shall be stated the corporate name of the said company, and the objects for which the company shall be formed, the FORMATION OF CORPORATIONS. 13 amount of the capital stock of the said company, the time of its existence (not to exceed fifty years), the number of shares of which the said stock shall consist, the number of trustees ■ and their names, who shall manage the concerns of said com- pany for the first year, and the name of the town and county in which the operations of the said company are to be car- ried on.^ L. 1853, c. 333, § 1. — Any certificate hereafter filed may designate one or more places where the company may carry on their business. L. 1857, c. 29, § 3. — If any company shall be formed under said act for the purpose of carrying on any part of its business in any place out of this State the said certificate shall so state, and shall also state the name of the town and county in which the principal part of the business of said company within this State is to be trans- acted ; and said town and county shall be deemed the town, place and county in which the operations and business of the company are to be carried on, and its principal place of busi- ness within the meaning of the provisions of this act. L. 1881, c. 22. — All certificates of incorporation hereaf- ter incorporated under any of the laws of this State, required by law to be filed in the office of the Secretary of State, or in the office of any county clerk, shall be duly recorded in the office where the same shall be filed, in books specially pro- vided therefor, which books of record shall be properly in- dexed. The same fees shall be charged for the recording of such certificates as are now provided by law for the recording of deeds. And the Secretary of State and such county clerk shall neither file nor record any such certificate in their office unless the fees therefor are first duly paid.^ ' As amended, L. 1882, c. 309. " The Secretary of State is now authorized to charge ten dollars (|10) for filing every certificate, under the general manufacturing act of 1848 ; and fifteen cents per folio of one hundi-ed words, for recording certifi- cates, notices or other papers, required by law to be recorded. Laws of 1882, c. 156. 14 PORMATIOlf OP CORPORATIONS. Section 2. When the certijficate shall have been filed as aforesaid, the persons who shall have signed and acknowledged the same, and their successors, shall be a body politic and corpor- ate, in fact and in name, by the name stated in such certificate ; and by that name have succession, and shall be capable of suing and being sued in any court of law or equity in this State, and they and their successors may have a common seal, and may make and alter the same at pleasure ; and they shall, by their corporate name, be capable in law of purchasing, holding and conveying any real and personal estate whatever which may be necessary to enable the said company to carry on their opera- tions named in such certificate, but shall not mortgage the same or give any lien thereon.' § 7. Requisites of certificate of incorporation. — ^The provisions of this act in regard to the formation of companies under it, are precise and clear. The corporators must be at least three, and can be any greater number. They must make, sign, and ac- knowledge the certificate and its duplicate, but need not verify it by oath. The certificate must contain the following statements : (1.) The corporate name of the company. This should not be identical with, nor closely similar to, that of any previously incorporated company.* (2.) The objects for which it is formed. The objects so stated in the certificate must all fall under some one of the general heads set out in the act or its extensions. No two or more of these can be combined for general purposes, and a certificate at- ' Companies, by amendment, may now mortgage. Aa to when and how, aeo post, §§ 134, 135. ' McLasher v. N. T. Daily Standard, Daily Register, Jan. 8, 1884; Newby v. Oregon Central R. R. Co. Deady's Rep. 609; Holmes, Booth & Haydena v. The Holmes, Booth & Atwood Mfg. Co. 37 Conn. 378 ; The American Grocer v. The Grocer, 35 Hun, 398 ; Railway Age v. Garnett, 17 Weekly Dig. 350. FORMATION OF COEPOKATIONS. 15 tempting such a combination will be unauthorized, and can and should be rejected by the Secretary of State.^ (3.) The amount of the capital stock of said com- pany, and the number of shares of which the said stock shall consist. It will be observed that there is a complete absence of restrictions as to the amount of capital stock, the number of shares, or the par value of each share. It is therefore wholly at the discretion of the corporators to fix the capital at any amount, great or small,* and to divide it into any number of shares ; thus enabling them to issue shares of whatever face value they deem best, so long as all the shares have the same face value. (4.) The time of the company's existence (not to exceed fifty years).^ (5.) The number of trustees and their names, who shall manage the aifairs of the company for the first year. These trustees must be not less than three nor more than thirteen. A majority of them must consist of persons who are both citizens and residents of New York,* and this fact should appear on the face of the certificate to insure its acceptance and recording. (6.) The name of the town and county in which the operations of the company are to be carried on. ' People ex rel. Belknap v. Beach, 19 Huu, 259. See, also, preceding chapter, and L. 1867, c. 960, § 7. " There is an exception in the case of suit companies, which, though organized under the general act, are restricted to a capital of fifty thous- and dollars. 1 R. 8. c. IX, tit. 10, art. 4, § 145. ' For manner in which corporate existence mny subsequently be ex- tended, see post, § 140. • See post, § 13. 16 FORMATIOK OF CORPORATIONS. One or more places can now be designated where the company may carry on their business.^ Companies organized to carry on a part of their business out of the State must state that fact in their certificate, and specify also their intended place of bus- iness out of the State, as well as their principal place of business within this State, specifying this latter place by the name of the town and county, which are thereupon deemed the town and county in which the operations of the company are to be carried on.* The precise, exact location of such place of busi- ness without the State is not required to be stated. The statute manifestly contemplates only certainty in this regard to a common intent.' §8. When incorporated. — Dnplicate certificates.— It will be uoticed that two certificates must be filed and recorded ; one in the office of the county clerk, and a duplicate in the office of the Secretary of State, and the organization into a corporation de jure'\% not effect- ed until both these certificates are filed and recorded.* Where, however, the certificate is filed and recorded with the county clerk, a failure to file and record the duplicate certificate does not vitiate the incorporation so as to render the members partners inter se} Where such an imperfect filing and recording i» made, immediately followed by user, a corporation de facto arises, and the members and officers thereof are subject to all the requirements, and under all the priv- • L. 1853, c. 333, § 1 ; anU, § 6. ' L. 1857, c. 29, § 3 ; ante, § 6. ' People ex rel. Belknap o. Beach, 19 Hun, 359. * Childs B. Smith, 38 How. Pr. 328. ' Eaisbeck v. Oesterricher, 4 Abb. N. C. 444 ; N. T, Common Pleas, S. T. FORMATION OF COEPOEATIOKS. 17 ileges and restriction given by the act in the case of corporations dejiire} The production of a copy of the certificate recorded with the county clerk, and certified by him, being made evidence of the incorporation by the statute,^ is suffi- cient proof of corporate existence, and sufficient answer to all allegations of non-incorporation, except in a direct proceeding by the State to annul the franchise.* As against the State in such a case, however, the omission to file and record the duplicate certificate would doubtless be fatal.* § 9. Incorporators.— Promoters. — Questions have at times arisen as to the liability of one who has sub- scribed to the stock of a de facto company prior to and in contemplation of its subsequent incorporation, under this act, and the distinction has been taken that he is not liable for calls if he has simply made such subscription prior to the incorporation, and if at the time of actual imperfect incorporation or subse- quent thereto he has done no act, or taken no steps, which can be construed as constituting a ratification or estoppel.® Thus where a prior subscriber was one of ' Meriden Tool Co. v. Morgan, 1 Abb. N. C. 135, note. ' Bee post, § 10. ' Raisbeck v. Oesterricher (supra), and cases there cited. * The case of Baton v. Aspinwall (3 Abb. Pr. 417, affl'd 19 N. T. 121), would lend color to the idea that a certified copy of the certificate, if filed with the Secretary of State, might be deemed " a duplicate '' un- der this statute, but under the very clear wording of the statute, a strict and literal compliance with its requirements in this regard is in all cases advisable. ' Dorris o. Sweeny, 64 Barb. 636 ; s. c. 60 N. T. 463. See, also Poughkeepsie, &c., Plankroad Co. v. G-riffln, 34 N. T. 150 ; Bufl'alo & Jamestown B. R. v. Gifford, 87 IST. Y. 394. 3 18 POEMATION OF CORPORATIONS. the incorporators, and as such signed and acknowledged the certificate of incorporation, he was held to be estopped from denying that the company was legally incorporated, and was held liable, in an action by its receiver, for the value of the shares subscribed for by him.^ And the same rule would apply where such sub- Bcriber had taken part in acts of user on the part of a de facto corporation.^ Where a company attempting to. organize under the general law, has filed papers having a color of compliance with the statute, but so defective as to be worthless against the people, it may yet, as against subsequent subscribers to its :stock, be held a corporation de facto upon slight proof of user,® and a subscription to a corporation de facto is binding on the subscriber.'* The liability of promoters of such a corporation depends not upon any particular provisions of the act, but upon general rules governing the liability of all promoters, and hence does not come within the scope of this work. It may be said in general, however, that as between them and general subscribers to the stock, scrupulous fairness and openness are required, and that they can- not, by concealment from such subscribers, make any ' Dorris B. French, 4 Hun, 292; Lake Ontario R. R. Co. ■». Munson, 16 N. T. 451 ; Rensselaer, &c., Plankroad Co. v. Barton, lb. 457, note. See, however, Dewitt n- Hastings, 69 N. Y. 518. » Eaton 0. Aspinwall, 19 N. T. 119. • BufiFalo, &c., R. R. Co. c. Cary, 26 N. T. 75. • Cayuga Lake R. R. Co. o. Kyle, 64 N. T. 185. FORMATION OF COEPORATIONS. 19 profit for themselves ; but will be held in all transac- tions as trustees for the subscribers' benefit.^ A corporation can be held on an agreement made in its corporate name by its promoters prior to its in- corporation with one who supposes it to be at that time a regularly organized corporation, if subsequent to such incorporation it avails itself of and acts under such an agreement.^ § 10. ProTisions making certified copy certificate evi- dence. — Section 9. The copy of any certificate of incorpora- tion, filed in pursuance of this act, certified by the county clerk or his deputy, to be a true copy, and of the whole of such cer- tificate, shall be received in all courts and places, as presump- tive legal evidence of the facts therein stated.' § 11. Amended certificate.— L. 1870, c. 135.— The di- rectors of any corporation organized under any general act for the formation of companies, in whose original certificate of in- corporation any informality may exist, by reason of an omis- sion of any matter required to be therein stated, are hereby authorized to make and file * an amended certificate or certifi- cates of incorporation, to conform to the general act under which said corporation may be organized ; and upon the mak- ing and filing * of such amended certificate, the said corpora- tion shall, for all purposes, be deemed and taken to be a corpo- ration from the time of filing such original certificate. Nothing in this act contained shall in any manner afioct any suit or proceeding, at the time of filing such amended certificate, pending against said corporation, or impair any rights already accrued.* ' Getty V. Devlin, 54 N. Y. 403; 70 N. Y. 504; Brewster v. Hatch, 10 Abb. N. C. 400. ' Bonner v. Am. Spiral Spring Co. 81 N. Y. 468. ' N. Y. Car Oil Co. v. Richmond, 6 Bosw. 219. ■• Such certificate should now be recorded. L. 1881, c. 23. Ante, § 6. • In re N. Y., L. & W. E'y Co. 25 Hun, 556. CHAPTER m. TRUSTEES. § 13. Provisions as to number, qualifications, election, etc. 13. Who may be a trustee. 14. Annual election of trustees. 15. Provisions authorizing executor, pledgor, etc. , to vote. 16. Trustees to manage company. 17. Trustees' meetings. 18. Provisions allowing election after proper date. — Trustees hold' over. 19. Trustees may act until successors are chosen. 20. Provisions as to officers. 21. Trustees to select officers. 22. Duties and powers of officers. 23. Officers' unauthorized acts, how ratified. 24. Provisions as to by-laws. 25. General features of by-laws. 26. Duties of trustees under act. 27. How to increase or reduce number of trustees. § 12. FroTisions as to number, qnaliflcations, election, etc. — Section 3. The stock, property and concerns of such company shall be managed by not less than three, nor more than thirteen trustees, who shall respectively be stockholders in such company, and a majority of whom shall be citizens and residents of this State, who shall, except the first year, be an- nually elected by the stockholders, at such time and place as shall be directed by the by-laws of the company ; and public notice of the time and place of holding such election shall be published, riot less than ten days previous thereto, in the newspaper printed nearest to the place where the operations of the said company shall be carried on ; and the election shall be made by such of the stockholders as shall attend for that purpose, either in person or by proxy. All elections shall be by ballot, and each stockholder shall be entitled to as many votes as he owns shares of stock in the said company, and the TRUSTEES. 21 persons receiving the greatest number of votes shall be trus- tees ; and when any vacancy shall happen among the trustees, by death, resignation or otherwise, it shall be filled for the remainder of the year in such manner as may be provided for by by-laws of the said company.^ § 13. Who maybe a trustee — -Every trustee must be a stockholder in the company,'* and a majority of the trustees must be citizens and residents of the State of New York. Formerly it was also necessary that each trustee should be a citizen of the United States, but this re- quirement was abrogated by the laws of 1883.* Any person therefore who acquires stock of the corporation is eligible for office, but under all circum- stances the majority of the board must consist of per- sons who are both citizens and residents of this State. § U. Annual election of trustees.— The trustees for the first year are named in the certificate of incorporation, and those named will be held responsible as such ; * thereafter and at the time and place specified in the by-laws, there should be an annual election of trustees.^ The notice of the election must be published as is pro- vided by the statute. The stockholders who attend the meeting in person or by proxy,^ whether or not they constitute a major- ity of all the stockholders, may proceed with the elec- ' As amended, L. 1860, c. 269, and L. 1883, c. 333. ' Herries v. Wealey, 18 Hun, 493. ' L. 1883, c. 332. ■* Craw ». Easterly, 4 Lans. 513. > ' Vanderburgh v. Broadway R. E. Co. 39 Hun, 348. ' Phillips V. Wickham, 1 Paige, 590 ; People v. Twaddle, 18 Hun, 437; Eeed v. Bank of Newburgh, 6 Paige, 337. 22 TKUSTEES. tion, and the persons receiving a majority of the votes cast will be the trustees for the ensuing year. If a full board is not elected those receiving a majority of the votes cast are legally elected.^ An election will not be set aside for a mere irregularity.* To set aside an election 'on the ground that the votes were improperly rejected, it should appear that had they been received they would have changed the re- sult of the election.* The election of unqualified persons is voidable but not void.* If persons are held out to the world as trustees, and act as such, their acts within their appar- ent authority are binding on the company.^ The right to vote is determined by the transfer books, and this is conclusive upon the inspectors.^ Administrators may vote without a transfer of stock^ An executor, administrator, guardian or trustee may vote upon stock held by him in such capacity, and stockholders may vote upon pledged stock,^ One who has taken stock from the company as security for a loan made it, when he holds a certificate of stock and ' In the Matter of Union Ins. Co. 22 Wend. 500 ; Vanderburgh ». Broadway R. R. Co. (supra). ' Matter of Hudson R. R. R. Co. 19 Wend. 135 ; Matter of Wheeler, 2 Abb. Pr. N. S. 361. " Matter of Long Island R. R. Co. 19 Wend. 37; & parte Murphy, 7 Cow. 153. * People 0. Albany R. R. Co. 38 How. Pr. 228;Lovett5). German Ref'd Ch. 12 Barb. 67. ' Partridge v. Badger, 25 Barb. 146; Vernon So. ■». Hills, 6 Cow. 26. ' JfeynrteWillcocks, 7Cow. 401; Matter of Empire City Bk. 18 N. Y. 199; Adderly D. Storm, 6 Hill, 624; Vail «. Hamilton, 85 N. T. 453; Strong V. Smith, 15 Hun, 222. ' Matter of North Shore & Ferry Co. 63 Barb. 556. • Post, § 15. TRUSTEES. 23 is a stockliolder of record, may vote on stock so held/ although the company might not have been able to vote upon it. Married women may also vote upon stock held by them.^ / 1 E. S. 604, § Y. — " The inspectors who may be appointed to conduct any election of directors or any other officer of any incorporated company of this State, shall be required, before entering on the duties of their appointment, to take or sub- scribe the following oath or affirmation : " I, A. B., do sol- emnly swear (or affirm, as the case may be) that I will execute the duties of an inspector for the election now to be held, with strict impartiality, and according to the best of my abil- ity." 1 R. S. 603, § 6. ^— " No by-law of the directors and managers of any incorporated company, regulating the elec- tion of directors or officers of such company, shall be valid, unless the same shall have been published for at least two weeks in some newspaper in the county where such election shall be held, at least thirty days before such election; and in all cases where the right of voting upon any share or shares of the stock of any incorporated company of this State, shall be questioned, it shall be the duty of the inspectors of the elections to require the transfer books of said company as evidence of stock held in the said company; and all such shares as may appear standing thereon in the name of any person or persons, shall be voted on by such person or per- sons, directly by themselves, or by proxy subject to the pro- visions of the act of incorporation." 1 E. S. 603, § 5.—" It shall be the duty of the Supreme Court, upon the application of any person or persons or body ' Vail V. Hamilton, 85 N. Y. 453; 20 Hun, 355; Mb parte Barker, 6 Wend. 509 ; EJx parte Desdoity, 1 Wend. 99. " L. 1851, c. 331, § 6. ' Consult L. 1880, c. 254; repealed by L. 1881, c. 116. 24 TRUSTEES. corporate, that may be aggrieved by, or may complain of, any election, or any proceeding, act or matter, in or touching the same (reasonable notice having been given to the adverse party, or to those who are to be affected thereby, of such in- tended application), to proceed forthwith and in a summary way, to hear the aflSdavits, proofs and allegations of the par- ties, or otherwise inquire into the matters or causes of com- plaint, and thereupon to establish the election so complained of, or to order a new election, or make such order and give such relief in the premises, as right and justice may appear to the said Supreme Court to require : Provided, That the said Supreme Court may, if the case shall appear to require it, either order an issue or issues to be made up in such manner and form as the Supreme Court may direct, in order to try the respective rights of the parties who may claim the same, to the ofBce or offices or franchise in question ; or may give leave to exhibit, or direct the attorney-general to exhibit, one or more information or informations in the nature of a quo warranto in the premises." ^ § 15. Provisions authorizing executor, pledgor, etc., to TOte. — Section 17. Every such* executor, administrator, guardian or trustee shall represent the share of stock in his hands at all meetings of the company, and may vote accord- ingly as a stockholder ; and every person who shall pledge his stock as aforesaid, may, nevertheless, represent the same at all such meetings, and may vote accordingly as a stock- holder. § 16. Trustees to manage company — The stock, prop- erty and concerns of every company shall be managed by its board of trustees. This povper is exclusive and the company can only properly act through its 1 The court may, in an application under this provision, go behind the transfer books to determine who are shareholders. Strong «. Smith, 15 Hun, 322. As to who may apply thereunder, see Matter, &c., Syracuse. C. & N. Y. R. R. Co. 91 N. Y. 1. ' Po»t, % 129. TKDSTBES. 25 trustees.^ Stockholders cannot interfere in the man- agement of its ordinary affairs.* The trustees are, however, restricted by the charter and by-laws and must exceed neither. They must endeavor to carry out the purposes for which the company was organ- ized, and must do no act which will defeat such pur- poses. Thus it is held that they cannot dispose of all the assets of the company even with the consent of a majority of the stockholders.® Such a disposition is, however, valid as to stockholders consenting thereto.* Where also the stockholders acquiesce by their silence in such a transfer made in good faith in payment of a judgment against the company, it is valid.' The trustees cannot vary the charter, and a legislative act passed upon their application, which enlarges the powers of the company, is void.* They " are incompe- tent to release an original subscriber to its capital or to make any arrangement with him' by which the com- pany, its creditors, or the State shall lose any of the benefits of his subscription." '' They may, however, bor- row money for legitimate purposes within the powers of the company, and gives notes or other security there- • Dabney e. Stevens, 40 How. Pr. 341 ; East N. T. E. B. Co. v. Light- hall, 6 Robt. 407 ; Bank of U. S. ■». Dandridge, 12 Wheat. 113. ' Phillips V. Wickham, 1 Paige, 590 ; Couro v. Port Henry Iron Co. 12 Barb. 27; McCuUough v. Moss, 5 Den. 567; Railway Co. v. AUerton, 18 Wall. 338. ' Rossie ». Lead M. Co. 5 Hill, 137; Abbott v. Hard Rubber Co. 11 Abb. Pr. 204; Smith v. N. T. ConsoUdated Stage Co. 18 Abb. Pr. 419; Taylor v. Earl, 8 Hun, 1. * Webster v. Turner, 13 Hun, 264. ' Sheldon Hat Blocking Co. v. Eickenmeyer Hat B. C o. 90 N.Y. 607. " Ang. & Ames on Private Corporations, p. 371. ~ ' Burke v. Smith, 16 Wall. 195; Jones v. Terre Haute, etc., R. R. Co. 57 N. Y. 196 ; Howe v. Deuel, 43 Barb. 408. 26 TRUSTEES. for.' They represent all the stockholders,^ and are trust- ees for them and in a certain sense for the creditors.* Within the charter and by-laws they may do any act necessary for the furtherance of the proper interests of the company.* Where there were but two trustees to constitute the board it Was held that, although the act requires every company to have at least three trustees, a transfer of property made by such two in satisfaction of a debt was binding upon the company as well as upon third persons.® §17. Trustees' meetings.— Although no provision of the act requires that the trustees shall meet to conduct the affairs of the company, it is necessaiy that they should do so to properly manage its affairs. To act as trustees they must assemble as such, and obtaining the consent of each individual trustee to any specified act is not obtaining the consent of the board of trus- tees.* Unless the by-laws otherwise specify a majority of the entire number of trustees of the company must be present at a meeting to constitute a quorum.^ It is the law of this State that trustees' meetings must be held within the State creating the cor- poration, therefore the meetings of trustees of the ' Curtis «. Leavitt, 15 N. Y. 9 ; Smith v. Law, 21 N. T. 296 ; Kent v. Quicksilver M. Co. 78 N. T. 159; Mahouey Mfg. Co. v. Anglo-Cal. Bk. 104 U. S. 192 ; Mead v. Keeler, 24 Barb. 20. ' Chase t. Vanderbilt, 62 N. Y. 307. ^ Bliss V. Matteson, 45 N. Y. 22. * Field on Corporations, § 150. * Castle V. Lewis, 78 N. Y. 131 ; 13 Hun, 298. " McCnllough V. Moss, 5 Denio, 575, 577 ; Livingston v. Lynch, 4 Johns. Ch. 596, 597. ' 1 R. S. 600, § 6; see Hoyt v. Thompson, 19 N. Y. 207. TRUSTEES. 27 companies of which we are treating must be held within New York State.^ Tf, however, a part of the business of the company is carried on out of this State and the certificate of incorporation so states, it would seem proper for the meetings to be also held in such places as the companies aYe, by the law itself, author- ized to carry on their operations. § 18. Provisions allowing elections after proper date. — Trustees hold over. — Section 4. In case it shall happen at any time that an election of trustees shall not be made on the day designated by the by-laws of said company, when it ought to have been made, the company for that reason shall not be dissolved, but it shall be lawful on any other day to hold an election for trustees, in such manner as shall be provided for by the said by-laws, and all acts of trustees shall be valid and binding as against such company until their successors shall be elected. § 19. Trustees may act until successors are chosen.— The provisions of the Revised Statutes '^ authorizing the president and directors of an incorporated company to cause an election within sixty days after the prescribed ■ Ormsby v. Vermont Copper Co. 56 N. Y. 623; affl'g 8 J. & S. 406. " 1 R. S. 604, § 8.—" If, at any time hereafter, the election for direc- tors of any bank or other incorporated'company of this State, shall not be duly held on the day designated and appointed by the act incorporating such bank or other incorporated company, it shall be the duty of the pres- ident and directors of such bank or other incorporated company to notify and cause an election for directors to be held within eixty days immedi- ately thereafter; and in all cases, no share or shares shall be voted upon, except by such person or persons who may have appeared on the trans- fer books of said company to have had the right to vote thereon, on the day when, by the act of incorporation of such company, the election ought to have been held : which said right so to vote shall be exercised by the- persons so appearing as aforesaid upon the transfer books of such company, on any day when such election may be held." Vanderburgh ». Broadway R. R. Co. 29 Hun, 348. 28 TRUSTEES. time for holding such annual election, apply to the act now under consideration, and in case no regular election is held at the proper time it is the duty of the trustees to call a meeting and have the elec- tion within the time specified in the statutes, and a stockholder may obtain a peremptory mandamus com- pelling the trustees to hold such election.^ The notice to be given stockholders, for a meeting to be held subsequent to the regular time of holding the an- nual meeting, should be that required by section 3.* All lawful acts of the old board, until their successors are selected, are binding on the company, and they act as trustees de jure under this section.' There is how- ever no obligation to so continue to act resting upon a trustee, and he need not provide for the election of his successors ; he is presumed by the law to retire at the expiration of his term of office, and to hold him as a trustee thereafter positive action on his part must be proven.* § 20. Provision as to officers. — Section 5. There shall be a president of the company who shall he designated from the number of the trustees, and also such subordinate officers as the company by its by-laws may designate, who may be elected or appointed and required to give such security for the faithful performance of the duties of their office as the company by its by-laws may require. §21. Trustees to select officers The trustees must select from their number a president. The question ' People ex rel. v. Cummings, 72 N. T. 433. ' Ante, § 12. Matter of Application of Junius R. Van Techten, 9 Weekly Dig. 158, Gen. Term, 1st District. ' Phila. Coal and Iron Co v. Hotchkiss, 82 N. Y. 471. * See post, as to acceptance of trusteeship and resignation of ofSce, §§ 60, 63. TEtJSTEES. 29 as to what subordinate officers the company shall have rests in the discretion of the trustees, and should be provided for by them in the by-laws of the company ; and it seems such officers need not be trustees.^ § 22. Duties and powers of officers — ^The by-laws should provide in what the duties of the officers of the company consist, and if they do so the officers are bound by and derive power from such by-laws.^ Officers by reason of their titles have no general power whatsoever. An officer who is also a trustee has only such authority as he obtains from the charter and by-laws ; ^ in all other respects he is like any other trustee. A president as such has no authority to bind the company ; he cannot borrow money for it nor can he authorize the treasurer to do so ; nor can he with another officer mortgage, assign and dispose of the prop- erty of the company.* A treasurer has no authority upon the payment of a debt to assign the security therefor without directions from the trustees.® A pres- ident or secretary has no power to make drafts unless authorized by the by-laws, or the trustees, so to do.® And where a secretary is authorized " in the prosecu- ' Bolen V. Crosby, 49 N. Y. 183. ' The act requires the treasurer to exhibit books, and also to render statement annually and upon proper demand. Post, §§ 88, 91. ' Adriance v. Ropme, 52 Barb. 399 ; Dabney v. Stevens, 40 How. Pr. 341. ' Partridge v. Badger, 25 Barb. 146 ; Hoyt «. Thompson, 5 N. T. 320 ; Bisley v. I. B. & W. Rw. Co. 1 Hun, 203 ; Life and F. Ins. Co. v. The Me. Fire. Ins. Co. 7 Wend. 31. 'Jackson v. Campbell, 5 Wend. 571. » N. Y. [ron Mine «. F. Natl. Bk. 18 Alb. L. J. 489 ; McCullough d. Moss, 5 Den. 575; Dabney v. Stevens, 40 How. Pr. 341; Claflin v. Farmers & Cit. Bk. 25 N. Y. 293. 30 TRUSTEES. tion of the business to draw, indorse, and accept notes and bills of exchange," he has no authority to accept a bill for the accommodation of the drawer.^ Where there was a resolution on the books of the company prohibiting the president from purchasing goods required in the business of the company, it was held that the company was not liable for such pur- chases made by him.* Persons dealing with oflBcers or agents of a corpo- ration are bound to know their powers and the extent of their authority ; they are also chargeable with notice of the purpose for which the company is formed, and the company will only be held liable when the officers act within this purpose and within their authority. " It can never be presumed that an agent of a corporation had authority to transact business which the corpora- tion itself was not, by its charter, authorized to engage in."" § 23. Officers' unauthorized acts, how ratified The benefits which stockholders and trustees should derive from the legal limitations upon powers of officers as such, are frequently nullified by the careless inattention of the trustees to the affairs of the company, or their express concurrence in the unauthorized acts of officers. For where a note is signed by an agent who has cus- tomarily signed in the same manner for a long period, the company will be held thereon,* and so where money ' Far. & Me. Bank o. Empire S. Dressing Co. 4 Bosw. 275. ' Westerfleld v. Radde, 55 How. Pr. 369. ' Alexander o. Cauldwell, 83 N. T. 480 ; French v. O'Brien, 52 Hovr. Pr. 394. ' Partridge v. Badger, 25 Barb. 146 ; Mead v. Keeler, 24 Barb. 20. See, also, Kraft v. Freeman, ifcc, Asa'n, 87 N. Y. 628. TRUSTEES. 31 is borrowed by a treasurer, with knowledge of the directors, for the uses of the company.^ And ordinarily where the trustees have a subse- quent knowledge of unauthorized acts of officers and do not promptly disaffirm them, or where the company has kept the proceeds or retained the benefits of the acts, or where the conduct of trustees is such as to create a well founded belief that the officer has the power to perform the act complained of, the company will be held liable.* §24-. ProTisions as to by-laws.— Secttoit 7. The trustees of such company shall have power to make such prudential by-laws as they shall deem proper for the management and dis- position of the stock and business affairs of such company, not inconsistent with the laws of this State ; and prescribing the du- ties of officers, artificers and servants that may be employed ; for the appointment of all officers and for carrying on all kinds of business within the objects and purposes of such company.* § 25. General features of by-laws.— The power to make by-laws is the power to legislate within the charter of the company, and when they are thus properly made they " are equally as binding on all their members and others acquainted with their method of doing business as any other public law of the State," * and they have the same effect as though they had been enacted by the legislature.^ ' Beers v. Phoenix Glass Co. 14 Barb. 358 ; Lee v. Pittsburgh 0. & M. Co. 56 How. Pr. 373. " Dabney «. Stevens, 40 How. Pr. 341 ; Elwell v. Dodge, 33 Barb. 336 ; Field on Corp. §§ 162-167 ; Moss v. Averell, 10 N. T. 449; Corning «. Southland, 8 Hill, 553; Scott v. Middletown E. R. Co. 86 N. T. 300; Ellis V. Howe Machine Co. 9 Daly, 406. ' Post, § 132. * Ang. & Ames on Corp. § 335. ' McDermott v. Board of Police, 5 Abb. Pr. 443 ; Brick Church v. The Mayor, 5 Cow. 538 ; Kent v. Quicksilver M. Co. 78 N. Y. 159. 32 TEUSTEES. Such laws, however, must be in accord with the law of the land, viz.: The constitution of the United States, the constitution and statute law of New York, and the common law as here interpreted.^ They must also be in accord with the charter of the company, and any which are opposed to such charter are void.* Moreover, to be legal they should be reasonable, equal and fair.^ A by-law which excludes one of the trustees from a knowledge of the business affairs of the company is not reasonable and is void.* A by-law which imposes a personal liability upon a stockholder is also void.* A by-law which provides that no stock shall be al- lowed to be transferred on the books of the company if the person in whose name the stock shall stand shall be indebted to the company, unless with the con- sent of the president and treasurer or by a vote of the board of trustees, was held to be ultra vires and void and opposed to the law of the land, as it was not au- thorized by the Revised Statutes or by the General Manufacturing Act ; and also an unreasonable by-law, as it interfered unduly with the transfer of stock." § 26. Daties of trustees under act. — The duties of trus- tees as prescribed by the act may be briefly enumerated as follows : ' Ang. & Ames on Corp. § 333 ; Grant on Corp., 76 ; People ». Med. . Soc'y, 24: Barb. 570. ' Aug. & Ames on Corp. § 345 ; Curtain v. Father Matthew So. 3 Daly, 20. ' People V. Sailor's Snug Harbor, 54 Barb. 532 ; Ang. & Ames on Corp. § 847 ; Dunham v. Village, &c., 5 Cow. 462. * People V. Throop, 12 Wend. 183. » Trustees, &c. v. Flint, 13 Mete. 589. ' DriscoU V. West Bradley & Gary Mfg. Co. 59 N.T. 96; affi'g 8 J. & S. 488. TRUSTEES. 33 1. To organize the board by the election of officers. 2. To adopt by-laws. 3. To publish specified notice of meetings of stock- holders for the election of trustees or other purposes, 4. To call in and demand subscriptions from stock- holders. 5. To record certificate of payment of capital stock. 6. To cause .stock books to be kept and entries to be made therein and the same to be open to inspection. 7. To make, file and publish an annual report. 8. To refrain from signing false reports, certificates or notices. 9. To prevent the indebtedness of the company from exceeding the capital stock. 10. To refrain from paying dividends when the company is insolvent. 11. To refrain from making loans of company funds to a stockholder. 12. To make and execute certificates, when the act empowers them so to do, showing some action taken by stockholders. 13. To refrain from purchasing stock of other com- panies with corporate funds except as statutes author- ize, § 27. How to increase or rednce number of trustees. — ^L. 1860, c. 269, § 2,i — The number of trustees in any corporation organized before or since the eleventh day of April, eighteen hundred and sixty, or which shall hereafter be organized under the said act, may be increased to not more than thirteen, or may be reduced to not less than three, ■ As amended, L. 1867, c. 348, § 3, and L. 1878, c. 316, § 1. It is noticeable that hy this section the power to increase or reduce the num- ber of trustees of a company rests wholly with the existing board of trustees. 3 34 TRUSTEES. as follows : The existing trustees of any such corporation, or a majority of them, shall make and sign a certificate declaring how many trustees the corporation shall have in the future management of its business, and, in case the number of trus- tees be increased, stating the names of the new or additional trustees, and in case the number of trustees be reduced, stat- ing the number to which the trustees shall be reduced ; which certificate shall be acknowledged by the trustees signing the same, or proved by a subscribing witness, and shall be filed in the office of the clerk of the county where the original certifi- cate of incorporation was filed ; and a duplicate or transcript thereof, duly certified under the official seal of such clerk, filed in the office of the secretary of state ; and, in the case of an increase of the number of trustees, from and after the filing of such certificate and duplicate, or transcript, the trus- tees of such corporation shall be deemed increased to the number therein stated, and the persons so named in such cer- tificate shall be trustees until a new election of trustees shall be had, according to the said act, and the by-laws or regula- tions of such corporation. And in the case of the reducing of the number of trus- tees, the number stated in such certificate as the number of trustees which shall manage the business of such corporation, shall be deemed the number of trustees of such corporation to be elected, according to said act, and the by-laws and reg- ulations of such corporation, at the next election and there- after, after the filing of such certificate and duplicate or trans- cript ; and in case a vacancy or vacancies shall occur in the board of tmstees of such corporation, by resignation or other- wise, after the filing of such certificate and duplicate or trans- cript reducing the number of trustees, before the next elec- tion of trustees after such filing, no election shall be had in the meantime to fill such vacancy or vacancies while the number of trustees remaining shall equal or exceed the num- ber to which the trustees are reduced in such certificate. CHAPTER IV. INDIVIDUAL LIABILITY OF TRUSTEES.— ANNUAL REPORT. § 28. Provisions as to annual report, 29. Section 12 a penal statute. 30. Nature of trustees' liability, 31. Contents of the report. 32. Who must sign report. 33. Who to verify report. 34. Time -within which report must be made, filed, and published. 35. General nature of debts for which trustees are liable. 36. A contract liability necessary. 37. An accrued liability also necessary. 38. Who liable under section 13. 39. Different boards may be liable for same debt. 40. Liability once fixed not affected by subsequent defaults. 41. Liability as to reaewal notes, and notes given for preceding in- debtedness. 42. When assignee and executor may sue. 43. As to suits against executor of deceased trustee. 44. Fellow-stockholder may, but co-trustee cannot sue. 45. Suits not maintainable without the State. 46. Plaintiff held to great strictness in pleading and proof. — Examples 47. Requisites of complaint. 48. As to joinder of actions under sections 10, 12, 15, and 23, 49. In what county action should be brought. 50. Compulsory reference cannot be ordered, nor trustee arrested. 51. Summons, how indorsed. § 28. Provisions as to annual report.— Section 12,^ Every such company shall, within twenty days from the first day of January, if a year from the time of the filing of the certificate of incorporation shall then have expired, and if so long a time shall not have expired, then within twenty days from the first day of January in each year af f er the expiration of a year from the time of filing such certificate, make a report, which shall be published in- some newspaper published in the ' As amended, L. 1871, c. 657, § 3; L, 1875, c. 510. 36 lilABILITT OF TRUSTEES. town, city or village, or if there, be no newspaper published in said town, city or village, then in some newspaper published nearest the place where the business of the company is car- ried on, which shall state the amount of capital, and of the proportion actually paid in, and the amount of its existing debts ; which report shall be signed by the president and a majority of the trustees, and shall be verified by the oath of the president or secretary of said company, and filed in the office of the clerk of the county where the business of the com- pany shall be carried on ; and if any of said companies shall fail so to do, all the trustees of the company shall be jointly and severally liable for all the debts of the company then existing, and for all that shall be contracted before such report shall be made ; but whenever, under this section, a judgment shall be recovered against a trustee severally, all the trustees of the company shall contribute a ratable share of the amount paid by such trustee on such judgment, and such trustee shall have a right of action against his co-trus- tees, jointly or severally, to recover from them their propor- tion of the amount so paid on such judgment ; provided that nothing in this act contained shall aflfect any action now pending. § 29. Section 12 a penal statute. — It has been fre- quently decided that this section is a penal statute, and it is construed as such.^ An action brought upon it to enforce the liability imposed is not brought to recover a debt or damages,^ but is based upon a statute for a penalty.' The amount of the penalty in each case is the amount of the corporate debt,* but the creditor, when pursuing a trustee under this section, ' Garrison v. Howe, 17 N. Y. 458; Veeder v. Baker, 83 N. Y. 156; Znox B. Baldwin, 80 K Y. GIO. » McHarg v. Eastman, 7 Robt. 137. ' Merchants' Bank v. Bliss, 35 N. Y.*412; Wiles v. Suydam, 64 N. Y. 173. * Jones V. Barlow, 62 N. Y. 203. LIABILITY OF TRUSTEES. 37 is never obliged to show special pecuniary damage by- reason of the trustees' neglect to file the report.^ The law assumes that the trustees commit a wrong when they fail to file a report showing the condition of the company ; and for this wrong they are compelled to pay the debts of the company which are extinguished by such payment.^ Because the statute gives this new remedy to creditors it is sometimes termed " remedial." * That it is a penal statute, however, is abundantly settled by authority.* The statute is not for the benefit of creditors alone. ^ "The purpose for which the annual reports are required to be published is that the public may be correctly informed of the financial condition and re- sources of these companies in order that they may judge of the credit to which they are entitled." ^ § 30. Nature of trustees' liability. — ^The trustees are liable jointly and severally — they may be sued togeth- er, or one only may be h'cld responsible for all of the debts which are enforceable under this section.'^ All the creditors need not be joined in an action against the trustees, but a single one may pursue the remedy.* The liability of the trustees is original and primary, ' Merchants' Bank v. Bliss (supra). ' Wiles V. Suydam (supra) ; Miller v. White, 50 N. Y. 142. ' Jones V. Barlow, 63 N. Y. 303, 305. * See also upon this point, Bruce v. Piatt, 80 N. Y. 381 ; Bonnell v. Griswold, 80 N. Y. 138; Mitchell «. Hotchkisa, 48 Conn. 9. ' Sanborn v. Leflferts, 58 N. Y. 179. ' Pier V. Hanmore, 86 N. Y. 95, 101. See, also, Enight v. Dederick, 6 Weekly Dig. 150. ' Strong V. Sproul, 4 Daly, 336. ' Wiles V. Suydam, 10 Hun, 578. 38 MABIIilTY OP TRUSTEES. and is not dependent upon or controlled by any pro- ceedings to enforce the debt against tlie company.^ A judgment against the corporation is not necessary to the enforcement of the penalty.'' The trustees are in no sense sureties for the company.* It is wholly by the force of the amendment of 1871 to the section that contribution as between trus- tees can be compelled.* From the strict construc- tion which is placed upon the statute it would seem to follow that in no other case than that specified in the amendment can its provisions be useful, and that a "judgment" must be obtained against a trustee before he can ask contribution. The trustees have no recourse over against the company, no right of subrogation exists in favor of a .trustee who may pay the penalty.^ He is in the sight of the law a wrong-doer, and no such right exists in behalf of such an one ; the right to subroga- tion rests upon equity.® The creditor has a cotempo- raneous and concurrent remedy against the defaulting trustees and the company.'' It is not necessary for a corporation, organized since the amendment of 1875, to report until the January next succeeding the expiration of one year from the date of the filing of the certificate of incor- ' Deming v. Paleston, 55 N. Y. 655; affi'g 3 J. & S. 309. ' McHarg v. Eastman, 7 Robt. 137; Rorke v. Thomas, 56 N. Y. 559. " Jones V. Barlow, 62 N. Y. 202; Miller v. White, 50 N. Y. 137. ' Miller d. Fenton, 11 Paige, 18; Andrews v. Murray, 33 Barb. 354; Wiles V. Saydam, 64 N. Y. 173. ' Miller v. White, 50 N. Y. 137. See, however, Jones v. Barlow (supra) ; opinion, Davis, P. J., Tyng ». Clarke, 9 Hun. 269. » Mathews v. Aiken, 1 N. Y. 595. ' Jones «. Barlow {supra). LIABILITY OP TRUSTEES. 39 poration.^ The section was not further affected by the amendment, the effect of its restatement being to hold those provisions unchanged in force from the date of the original enactment.^ By the repeal of the original clause relative to the time of filing the annual reports, the right of action, for any penalty which had been incurred before the repeal, was taken away, unless such action had already been commenced.* That a company has not commenced active busi- ness is no excuse for not filing the first report.* A corporation organized since 1875 must report annually.® § 31. Contents of the report. — The report called for by this section must be the report of the company and must state : 1. The amount of capital of the company. 2. The proportion actually paid in. 3. The amount of its existing debts. These facts need not be stated " with technical or grammatical precision or accuracy, but they must sub- stantially appear." If the court can read these all in the report in any manner, it will do so, and where a report is made, and filed pursuant to the law, and there is no evidence indicating bad faith on the part of the trustees, the report will be liberally construed, the benefit of any doubt will be given the trustees, and it "wiU be brought within the statute if possible.® ■ Nay 0. Levy, 13 Weekly Dig. 428. ' Moore v. Mansert, 49 N. T. 333 ; Bonnell v. Griswold, 80 N. Y. 128. ' Victory Webb Printing Co. ». Beecher, 26 Hun, 48 ; Knox «. Bald- win, 80 N. Y. 610. * Jones V. Barlow, 63 N. Y. 203 ; Kirkland v. Kille, 16 Weekly Dig. 227. ' Vernon v. Palmer, 14 Weekly Dig. 324 ; 45 Super. Ct. 231. « Whitney Arms Co. v. Barlow, 63 N. Y. 63 ; reversing 6 J. & S. 554. ■40 LIABILITY OF TRUSTEES. It is essential, however, that in every report it shall be possible to study out the three requisites above specified, and if there is any one of them which cannot be discovered from the report it is wholly de- fective. In a recent case ^ the report read : "Amount of capital stock of which all but five shareB were issued for the purchase of property necessary for the business of the association, and such five shares have been paid in full, $150,000." It was held in regard to this report that it was incurably defective, as it was impossible to discover from it what proportion of the capital was paid in. The number of shares of the capital stock was not spec- ified, and the value of the five shares was not disclosed. Without these facts it could not be ascertained what proportion the five shares bore to the whole capital. It is a material fact which must be shown by the report, how much cash has been paid into the company for its stock. The expression " actually paid in " means, unless qualified by further statements, paid in in cash. So where a report states that a specified amount of the capital has been paid in, it is a state- ment that so much cash has been paid for the stock, and if such is not the fact the report is false. Stock which has been issued for property under the amend- ment of 1853, authorizing the trustees to purchase property necessary to the business of the company, cannot be regarded as issued for capital paid in, and where such stock is so regarded by the trustees, and the report of the company does not state that it was issued for property, the report is false in a material particular.** The report should show the amount of ' Glen's Tails Paper Co. v. White, 18 Hun, 314. ' Pier 8. Hanmore, 86 N. T. 95. LIABILITY OP TRUSTEES. 41 stock issued for cash, and also the amount issued for properties. Any positive statement, however, con- tained in the report which declares the proportion of the capital " actually paid in," whether it be true or false, meets the requirements of this section in this particular; and the trustees cannot be held liable for the penalty imposed for the neglect to file a report where a statement is filed which in form complies with the statute.^ Where the report is false the officers signing it are made liable under another section to be hereafter considered.* A statement that the capital stock "has been paid up in full " is " equivalent to, if it is not literally a statement of the proportion actually paid in." ^ If the report states that the " existing debts " do not exceed a specified sum, that is a substantial compliance with the statute.* It can also be said of the report in this particular, that where there is any statement of the amount of the debts the statute is satisfied and a report is made. A creditor, therefore, when a report containing such a statement is made, cannot pursue the trustees under this section; his remedy is to hold those signing the report on the ground that it is false under section 15. Where the trustees endeavor, therefore, in good faith to state the amount of the debts, they incur no penalty even though by mistake they should name an amount which in fact should be less than the actual debt of the company. They do not in such a case violate this section because the amount of the debts is ' Bonnell ». (Jriswold, 80 N. Y. 138 ; Pier o. Hanmore (^iupra). " Post, §§ 65, 60. ' Bonnell ». Griswold {supra). ' Glen's Falls Papet Co. v. White, 18 Hun, 314. 42 LIABILITY OF TKUSTEES. stated, and they do not violate section 15 and incur the penalty therein imposed unless they willfully swear to a false report.^ § 32. Who must sign report. — The president and a majority of the trustees of the company must always sign the report. By the phrase " a majority of the trustees " is un- doubtedly meant a majority of the number of trustees which the company is authorized to have by its certifi- cate of incorporation — and in case a corporation should decrease its number of trustees without com- plying with the provisions of the act in reference thereto, it would be necessary for the report still to be made by a majority of the original number specified in the certificate of incorporation. A report could not be made by a majority of the acting trustees, unless they also constituted a majority of all of the trustees of the company.* The statute has nowhere provided for a minority report, and in view of the strict interpretation which is given it and its penal character, it can be safely stated that no proper report can be made under this section unless it is signed by the president and a majority of the trustees of the corporation. Minority trustees have no remedy except to fill the vacancies in the board before default and make a report, or to resign before the liability attaches. If they do neither of these things they become liable equally with those who have it in their power to report and fail to do so.' ' PoBt, % 66. ' Moore v. Rector, etc., St. Thomas, 4 Abb. N. 0. 51. » Miller o. White, 50 N. Y. 137; Chandler v. Hoag, 2 Hun, 613 ; affi'd, 63 N. Y. 634. LIABILITY OF TRUSTEES, 43 Where a company has five trustees, including the president, a report signed by the president as such and by two other trustees, is properly made and the statute is complied with.^ The report is to be the act of the trustees, and the duty of making it is devolved upon them. The secre- tary of a company has no authority to make the report, and cannot be held responsible for not making it, " He might, under the direction of the trustees, pre- pare the paper and verify it by his oath in place of the president, but he could not subscribe to it the names of the trustees or verify it in any way to make it the act of the corporation and a compliance with the statute so as to relieve the trustees from their duty, or the liability resulting from an omission to perform it," * § 33. Who to verify report. — The report must be verified " by the oath of the president or secretaiy of the company ; and it must be so stated and verified that the officer verifying it could be held for perjury if it is untrue.* It is not necessary, however, that there should be an affidavit as to its contents ; if it is verified before a proper officer this is sufficient, and the simple statement "sworn to before me this 13th day of January, 1870," followed by the notary's official signature, shows a compliance with the statute.* If the president or secretary swears to the report upon information and belief, this is sufficient,^ • Glen's Falls Paper Co. ». White, 18 Hun, 214. ' Bolen «. Crosby, 49 N. T. 183; Vincent v. Sands, 11 Abb. Pr. N. S. 366. ' Whitney Arms Co. v. Barlow, 63 N. T. 63. • Bonnell v. Griswold, 80 N. T. 128; reversing 18 Hun, 496. ' Glen's Falls Paper Co. v. White (supra). 44 LIABILITT OF TRUSTEES. § 34. Time within which report must be made, filed, and published.— The report must be made, that is pre- pared, signed and verified, within twenty days from the first day of January in each year.^ The rule for computing statute time in this State is, that the first day shall be excluded, and the last included ; ^ so that a corporation would have the whole of the twenty- first day of January within which to complete the making of the report.* Should the last day, however, fall upon Sunday or a legal holiday, it would still be included, and a re- port made on the twenty-second of January when the twenty-first happened to be Sunday, would be too late, and there would be a default under the statute.* If the report is made within the first 20 days of January, it may he filed and published within a rea- sonable time after the expiration of the 20 days, and this will be a compliance with the direction contained in the section.'' The trustees, however, must use dis- patch, and in the words of the court there must be " prompt performance and diligent action." If no paper is published at the place of business of the corporation, and parts of two cities are equally near thereto, the trustees may publish in a newspaper of either one of the cities, and there is a substantial compliance with the act.* ' Cameron v. Seamen, 69 N. Y. 396. ' Judd «. Fulton, 4 How. Pr. 398; People v. N. Y. C. & H. R. R. Co. 28 Barb. 284. ' Cornell v. Moulton, 3 Den. 13; Huguenot Katl. Bk. v. Studwell, 74 N. Y. 621. * People V. Luther, 1 Wend. 43 ; JBJx parte Dodge, 7 Cow. 147 ; Bissell V. Bissell, 11 Barb. 96. ' Cameron v. Seamen (supra) overrules Gildersleeve s. Dixon, 6 Daly, 76. LIABILITT or TRUSTEES. 45 The report is properly filed when it is handed to the deputy accustomed to receive such documents in the county clerk's office.^ It may be noticed here that a company is not required to report after tl^e appoint- ment of a receiver or after its virtual dissolution.^ § 35. General nature of debts for which trustees are liahle. — The use by the legislature of the word " con- tracted," indicates the nature of the debt for which a trustee may be held liable. This word must be held . to be applicable to the debts existing at the time of default, as well as those incurred thereafter, for it can- not be supposed that the legislature intended to make any distinction in the class of debts for which trustees were liable based upon the circumstance as to whether they were contracted before or after the default—and in- deed the word " debts," when strictly construed, means a sum due and arising upon a contract obligation.* We may say generally, therefore, that no debt which has not originally grown out of a legal and honest contract can be recovered from a trustee under this section. The original claim must have its inception in contract ; if it has not, no liability upon it attaches to the trustee. Beyond this the term debt implies a completed and fixed liability, one " where the quantity is fixed and specific and does not depend upon any subsequent valuation to settle it." There must be a debt " exist- ing" or " contracted" to be within the statute. These two principles, viz. : ' Wyckoflf V. Lawson, N. T. Trans. Aug. 23, 1870, p. 3. ' Post, § 59. * Zinn V. Eittermann, 3 Abb. Pr. N. S. 1. In the Matter of Denny, 8 Hill, 230; Cable v. McGune, 26 Mo. 371; Bolin v. Brown, 33 Mich. 357. 46 lilABIIilTT OF TRUSTEES. rirst. That the debt must be founded upon a legal contract; and Second. That the liability must be completed lie at the foundation of the decisions in this State upon this subject — and in order to enable a creditor to re- cover from a trustee under this section, he should bring his claim within both of them. § 36. A contract liaMIity necessary.— Judgments re- covered against the corporation, as such, are not debts which may be recovered from the trustees under this section. They are not even prima facie evidence, as against the trustee, of the existence of the claim upon which they are founded. This has been settled by the Court of Appeals in the case of Miller v. White.^ It was there held that as to the trustee such a judg- ment has no effect whatsoever. It does not exist as against him. He was not a party, nor is he privy to it, and therefore in no sense is he bound by it. It is not evidence against him. He is entitled to try the question of the original debt, as in other cases. Were the rule otherwise the company would be able to admit away his case or to suffer a recovery which should be binding upon him, and create as against him a liability to which he was not previously subjected.^ It is the original debt for which he is liable, and not the judgment based upon it.* A judgment is not contracted.* ' 50 N. T. 137. See, also, Rorke ». Thomas, 56 N. Y. 559 ; Esmond e. Bullard, 16 Hun, 65. ' Stephens ®. Fox, 83 N. Y. 313. ' McHarg v. Eastman, 7 Robt. 137, and cases under note 1. See, however, Andrews v. Murray, 9 Abb. Pr. 8 ; Lewis v. Armstrong, 8 Abb. N. C. 385. • McConn «. N. Y. C. & H. R. R. R. Co. 50 N. Y. 176. LIABILITY OF TRUSTEES. 47 There has recently been drawn a distinction be- tween a judgment recovered before default, and one recovered thereafter. And it has been held that where the judgment has been recovered before default, it (the judgment) is the then existing debt for which the trustees are liable, and that, as was there said, " the plaintiff's original claim was merged in their judgment against the company, which was the only debt they had against it."^ This argument was, however, considered land repudiated by Peckham, J., in the case of Miller V. White,'* and while that case stands unqualified by the Court of Appeals, there seems no reason wliy it should not be strictly followed. The question, is the debt within the prescribed penalty, is one which must be always open to a trus- tee, and it is under all circumstances competent for him to show, that the obligation of the company en- deavored to be enforced against him did not have its origin in contract. And as to the trustee the original claim is never merged in the judgment;^ though it is so merged, and properly may be, as against the cred- itors.* Although a creditor is not required to obtain a judgment against, or to endeavor in any manner to collect his claims from the company, the fact that he makes such efforts and obtains such judgment, in no way prejudices him in his action against the trustee.® As has been said, however, the costs of the action ' Lewis V. Armstrong (supra). ' 50 N. Y. 137. ' Revere Copper Co., etc. o. Dimock, 90 N. Y. 33, 37; Byers v. Frank- lin Coal Co. 106 Mass. 181. * Bolen v. Crosby, 49 N. Y. 183. ' Deming v. Puleston, 55 N. Y. 655. 48 LIABILITY OF TRUSTEES. against the company he must bear himself.^ The benefit of the statute is to be given to those trusting to the credit of the company, and not to one who may be injured by its negligence, therefore a claim based upon a tort is not within its terms or spirit.'* " The statute in question, no doubt, intended to include all ordinary debts which might be contracted in the prosecution of the legitimate business of the company, but does not, 1 think, embrace such as might be imposed upon the company by fraud or improper practices of the creditor. It evidently meant that the honest creditor who had trusted the company in good faith, in connection with its business transactions, should be entitled to prosecute any of the trustees for the failure of its officers to perform the duty required by the section cited.* " In one case,* where it appeared that five bonds of $1,000 had come into the possession of the holder as a valid gift from the corporation, and there was de- fault in the filing of the report, it was held, in an action against a trustee of the company, that such bonds did not constitute a debt." It was said, "The evidence wholly failed to established such debt, on the contrary showed that the bonds in question were a gratuity to Wetmore, and hence had no inception in the sense re- quired to constitute a debt against the company, so as to justify a recovery in this action." § 37. An accrued liability also necessary.— It was early settled by the Court of Appeals that an execu- ' Eorke v. Thomas, 56 N. T. 559. ' Esmond b. Bullard, 16 Hun, 65. ' Adams v. Mills, 60 N. T. 533. ' Norris v. De Wolf, 12 Hun, 666; affi'd, 76 N. Y. 597. MABIMTT OF TRUSTEES. 49 tory contract entered into loj a corporation did not, from the time it was made, constitute a debt of the com- pany within this statute.^ There must be a debt payable, either presently or in the future. A mere executory and contingent ob- ligation which, if .performed by the other party, might grow into a debt, is not within the statute. Such a contract is not an existing indebtedness, and the " liar bility of the trustees cannot be extended by implica- tion to contracts and contingent and conditional obli- gations not clearly within the terms of the act." * It has also been held that actions for breaches of contracts, and causes incidentally arising or resulting from such breaches to recover damages, are beyond the terms of the penalty.' From these cases it follows that no obligations of suretyship can be termed " existing debts " within this statute, as they are in their nature "contingent and conditional obligations." So also, while the precise point has not been settled by the courts of this State, promissory notes indorsed by the company, which have not matured at the time of default, and accepted bills of exchange drawn by it still outstanding, are not, it would seem, " existing debts" which, under this section, may be recovered from the trustees. Although the obligation of the indorser of a note is defined, and his contract made at the time of the indorsement, yet he is contingently liable, and only becomes absolutely liable when he is charged as indorser. His engagement is ■ Garrison v. Howe, 17 N. T. 458. « Whitney Arms Co. v. Barlow, 68 N. T. 34 ; Oviatt v. Hughes, 41 Barb. 541. ' Victory Webb Printing Co. v. Beecher, 26 Hun, 48. 4 50 LIABELITT OF TBUSTEES. dependent upon tlie default of the maker in the pay- ment of the note upon due demand and reasonable notice of such default to himself He does not become a debtor until his liability is fixed and certain.* It must, however, be noticed, that where there is an outstanding note or bill which matures during the continuance of the default of the trustees, though they may not be held for the contingent liability, as soon as the debt is fixed upon the maturity of the paper, there is no longer a question of their responsibility.^ It is not necessary that the debt should be payable in ipresemti? Where there is a fixed or completed money obliga- tion, there is an existing debt within the statute ; and although the right of action against the trustees in a case where the debt is payable in the future, does not accrue until the maturity of the debt,* yet the debt exists ; and upon its maturity the trustees who neg- lected to conform to the statute, while it was out- standing, may be held under this section. § 38. Who liable under section 12.— It was early established by the Court of Appeals, that three circum- stances must concur in point of time to render a trus- tee liable under section 12 : (1.) The existence of the debt ; (2.) The existence of the default in making the report ; (3.) The trusteeship.** ' Leggett V. The Bank of Sing Sing, 24 N. T. 291. See Byers n. Franklin Coal Co. 106 Mass. 131; Thompson on Liability of Officers, p. 436. « National Bank, &c. o. Fenton, 23 Hun, 309. ' Leggett ». Bank of Sing Sing (supra). * Jones V. Barlow, 63 N. Y. 203 ; Vemon v. Palmer, 14 Weekly Dig. 334; 48 N. Y. Super. 231. * The Shaler & Hall Quarry Co. e. Bliss, 37 N. Y. 297; Garrison «. Howe, 17 N. Y.458; Chandler «. Hoag, 2 Hun, 613. LIABILITY OB' TRUSTEES. 51 Where any one of this trinity is absent no liabil- ity attaches to a trustee. Where, however, these concur, the courts have recognized a distinction between a trustee who was in oflSce at the time the report should have been filed, and to whom the default is primarily chargeable, and a trustee who was not in oflSce at the time of default, but became such afterwards, and while the default continued. In the former case the trustee so defaulting is liable for all debts existing at the time of the default, absolutely, and for all other and future debts con- tracted while he is in office and the default continues. In the latter case, the trustee, coming in after and dur- ing a default, is liable only for the debts which are contracted while he is in office, and while the default continues.* A new board of trustees, coming in dur- ing such a default, can therefore protect themselves from all liability by promptly making, filing, and pub- lishing the statutory report. And it is their duty so to do.* K they omit to do so and continue the default until the next January, and no longer, they are liable for the debts contracted after their election and before the next annual report, and for no other.* If, however, they, remaining in office, omit toTnake the statutory report in the January succeeding their election, for this new and active default they become liable for all debts then existing whenever contracted ; and for all further debts contracted while they are in office and the default continues. ' Bouhgton V. Otis, 21 N. Y. 361. » Chandler v. Hoag, 3 Hun, 613. 52 LIABILITY OF TEUSTEES. § 39. Different boards may be liable for same debt.— It may thus happen that two or more totally different boards of trustees may be liable for the same debt. If the outgoing board has omitted to report, its members are liable for all debts existing at, or con- tracted before, the expiration of their term of office, but for no future ones. If, then, the incoming board omits, in the succeeding January, to file the required report, it, as we have seen, also becomes liable for all debts existing at the time of such active default ; which will manifestly include not only the debts of the past year, but all such as existed at its begin- ning, save so far as they may have meantime been satisfied or affected by the statute of limitations.' In such a case, then the holder of such a debt against the corporation can sue any member of either board. § 40. Liability once fixed not affected by snbseqnent defaults.— If, however, the same board, or any portion thereof, remains in office during a period of years in which successive defaults occur, the defaults sub- sequent to the first do not in any way affect or enlarge the liability of the trustees so continuing, in respect to debts existing at the time of the first default. Where a trustee has once become liable for a debt of the cor- poration, because of failure to make and file and publish the annual report, the* statute of limitations then begins to run as to that debt, and the right of action is barred in three years thereafter, although the default is continued through successive years. ' Vincent v. Sands, IJ. & S. 511. LIABILITY OF TRUSTEES. 63 The continuance of the default does not revive the liability or create a new oue.^ § 41. Liability as to renewal notes, and notes given for preceding indebtedness.— If the company's note be given for an existing indebtedness, or in renewal of another note or notes which have fallen due, this will not so far merge the previous indebtedness as to exonerate a trustee who, by reason of a default, was personally liable on the original claim ; although, as we shall see hereafter, there can be no recovery as against the trustee until there is a present right of action against the company. Until such a note becomes due, the right of action against the trustee on the original indebtedness is suspended merely, not wholly de- stroyed, and on the maturity of the note he can be held liable under this section. If, then, an indebtedness is contracted during a de- fault, or exists at the time of a default, and the time note of the company is subsequently given for it, the trustees who were in office and default at the time such original debt was contracted, or who made default when it was in existence, are liable under section 12, though their liability cannot be enforced until the note becomes due ; while subsequent trustees, if they have duly complied with the statutory re^ quirement as to reports, would be free from all liability thereupon.^ If^ however, such subsequent trustees, remaining in office, by omitting the annual report in January ' Losee v. Ballard, 79 K. Y. 404; Knox v. Baldwin, 80 N. Y. 610; Jones V. Barlow, 63 N. Y. 303. ^ Deming v. Puleston, 55 N. Y. 655 ; s. c. 3 J. & S. 309. 54 LIABIIilTT OF TKUSTBES. commit an active default, they, too, will be liable for the original debt which will be held to be existing at the time of such default, even though the renewal note has not matured at the time of the default; although, as with their predecessors, an action to enforce such liability cannot be begun before the note in question has matured.^ § 42. When assignee and executor may sue.— Not only may the original creditor of the company, who still retains his claims against the corporation unsatisfied, bring action against the trustees under section 12 ; but an assignee of the original claim against the company has all the right against the trustees, under this section, which his assignor had, and can in his own name bring suit thereunder against the trustees or any of them for the amount of the assigned claim.^ K the creditor dies prior to a default, upon the happening of such default his executor or administra- tor has a perfect right of action against the trustees so defaulting;* but it has been denied by the general term of the Supreme Court in the first department, that such an action could be brought by an executor or administrator, where the liability of the trustee arose and was fixed during the lifetime of their testator or intestate. * This case seems questionable, however, since the ' Jagger Iron Co, «. Walker, 76 N". T. 631 ; Jones v. Barlow, 63 N. T. 203. 'Pier 0. George, 86 N. T. 613; Hoag v. Lament, 60 N. T. 96; Code Civil Procedure, § 1910. ' Carleye. Hodges, 19 Hun, 187. * Reynolds v. Mason, 6 Weekly Dig. 531 ; affi'g s. c. 5 Weekly Dig. 338 ; 64 How. Pr. LIABILITY OF TRUSTEES. 55 decisions (supra) establisHng the assignalbility of such a cause of action. § 48. As to suits against executor of deceased trustee. — Whether or not the cause of action willsurvive against the executor of a deceased trustee has not been au- thoritatively settled. In the first department it has been held that it will not so survive, though the chief justice of the court dissented from that view of the law.^ In the third department it has been held that such an action will survive against such an executor. ^ If the failure to file the proper report works an injury to the property rights of the creditor it seems that the action will survive, otherwise not ; and this is a question upon the discussion of which we have not the space to enter. The mere fact that the cause of action is assignable does not seem to deter- mine the question, for it is held that the right to bring such action passes as a mere incident to the debt, and whoever owns the debt may take advantage of all methods of enforcing the same. ® It has been held that an order reviving an action against the representatives of a deceased trustee, in that case sued jointly with others, was not review- able in the Court of Appeals, on the ground that if such cause of action did not survive, the objection was available on the trial, despite of the order which, there- fore did not affect a substantial right. * § 44. Fellow-stockholder may, but co-trustee cannot sue. — While a creditor, who is a stockholder in the ' Bank of California v. Collins, 5 Hun, 309. See, also, Mitchell v. Hotchkiss, 48 Conn. 9. ' Bonnell v. Wheeler, 1 Hun, 333; Pier v. George, 30 Hun, 310. 'Bolen V. Crosby, 49N. T. 183. * Arthur ». Griswold, 60 N. Y. 143. 56 XIABJXITY OF TRUSTEES. company, may sue a trustee in default/ the courts have held that a creditor of the corporation, who was also a trustee thereof at the time the default occurred, cannot sue a co-trustee under this section for their common de- fault, ** and that the assignee of such a creditor-trustee is in no better position than his assignor.^ And the executor of such a trustee would, of course, be equally unable to maintain such an action. It is not essential that such creditor-trustee should be a trustee de jure at the time of the default. He and his assignee are equally deprived of this action if at that time he was a trustee de facto.* And it seems that where the corporation is indebted to a firm, one member of which is a trustee of the corporation, and a default takes place during his trust- eeship, neither the members of the firm jointly, nor the other members to whom the trustee has transferred his interest, can maintain an action against another trustee, under section 12; the court arguing that the creditor-trustee being, equally with the other trustees, charged with the duty of seeing to it that the annual report is made, and so being chargeable with the de- fault, he cannot alone, nor in connection with his asso- ciates, nor can his assignees, pursue a remedy which if enforced would enable him to profit by his own wrong or negligence. * § 46. Suits not maintainable without the State.— This section being a penal statute is controlled by the ordi- ' Sanborn v. Lefferts, 58 N. Y. 179. ' Estes V. Bums, 5 J. & S. 1 ; Oviatt v. Hughes, 41 Barb. 543. ' Knox V. Baldwin, 80 N. Y. 610 ; Bronson o. Dimock, 4 Hun, 614 ; Briggs V. Easterly, 62 Barb. 51. ' Easterly o. Barber, 65 N. Y. 353 ; Knox v. Baldwin, 80 N. Y. 610. 'KnoxB. Baldwin, SON. Y. 610. LIABILITY OF TRUSTEES. 57 nary rules governing such statutes, and the penalty imposed by it cannot be enforced without this State.^ § 46. Plaintiff Iield to great strictness in pleading and proof.— Examples — The courts have always held the plaintiff to great strictness, both in pleading and proof, under this section ; on the ground that the liability thereunder was in the nature of a penalty for miscon- duct in office, the amount of the penalty being the corpo- rate debts, and that every fact necessary to constitute such liability must therefore be pleaded and proved. Thus, the complaint must show that the penalty was incurred when the defendant was in office.^ He is presumed to have left office at the end of his term, and to charge him for anything occurring thereafter it must be alleged that he held over and continued to act, if such prior termination appears by the complaint ; and in any event such holding over and continuance, if at issue, must be affirmatively proved by the plaint- iff.^ Proof of election to the trusteeship is not suf- ficient in itself" to establish that the defendant was a trustee. There must be also proof of acceptance by him,* though this need not have been expressed, but may be implied from the circumstances of the case.® TTie burden of proof is upon the plaintiff to establish that the debt which he holds was contracted by the ' Cuykendall v. Corning, 10 Fed. Rep. 343; Cable v. McCune, 26 Mo. 371; Thompson's Liability of Stockholders, § 84; Flash v. Conn, 109 U. S. 871 ; 3 Supreme Ct. Reporter, 363 ; Bird «. Hayden, 1 Robt. 388; First Xat. Bank v. Peric, 33 Md. 487. ' McHarg v. Eastman, 7 Rob. 137. 'Phila. & Reading, &c. Co. v. Hotchkiss, 83 N. T. 471; Van Amburgh V. Baker, 81 N. T. 46. * Cameron v. Seaman, 69 N. Y. 396. ' Kimmons v. Tappan, 3 Sw. 653. 58 LIABILITY OF TRUSTEES. corporation, and is at the time of the action a valid claim against it.' And proof of the recovery of a judg- ment thereon against the corporation is, in an action against the trustee under this section, neither conclu- sive nor QYen prima facie evidence of the debt.* And in such an action, an allegation in the complaint of re- covery of such a judgment thereon, and execution re- turned unsatisfied, will be stricken out on motion as irrelevant.* The action against the trustee can never be based upon a judgment against the corporation, but must al- ways be on the original claim. And in such an ac- tion the costs of a preceding action against the corpo- ration for the same debt cannot be recovered against the trustee.* § 47. Requisites of complaint.— The plaintiffs com- plaint must therefore contain all the allegations which would be necessary to charge the corporation in a suit against it for the collection of the debt ; and, in addition must contain all the allegations necessary to show that a default was committed or existed when the debt ex- isted or arose;* and, also, that the particular defendant was in office when the penalty was incurred. If the complaint is defective in either one of these three branches it will be demurrable; and while in general the plaintiff need set up only one default to charge a trustee, and is not compelled to anticipate and 'Dabney «. Stevens, 3 Sw. 415. 'Miller ». White, 50 N. T. 137; Esmond b. BuUard, 16 Hun, 65. ' Weymouth e. Dimock, 41 How. Pr. 93. •Rorke o. Thomas, 56 N. T. 559. ' Chambers o. Lewis, 38 N. T. 455. LIABILITY OP TRUSTEES. 59 avoid the defense of tlie statute of limitations, by al- leging that there were no prior defaults, or that de- fendant was not in office when prior defaults occurred, yet if the complaint alleges several defaults subsequent' to the debt, it wQl, as we have seen, be demurrable if the first of the defaults alleged was more than three years before action brought against defendant as trus- tee, if said defendant is also therein alleged to have been in office at the time of such alleged default, or if that fact can be inferred from the complaint.^ It is evident that too great care cannot be exer- cised in preparing the complaint ; and that, in especial, every fact requisite to establish that the statutory requirements as to the annual report have not been complied with 'shoilld be distinctly stated. It has, however, been held, that where the complaint set out a copy of an annual report as published, and averred that it did not comply with the statute, it was suffi- cient, and did not need to point out the specific defects in said report.* If it appears, either by the pleadings or the proof, that the report was duly made, the burden is upon the plaintiff to establish that it was not " filed and pub- lished," and the defendant is not bound in the first instance to introduce any proof that it was so published or filed.* § 48. As to joinder of actions under sections 10, 12, 15 and 23.— An action against all the trustees under ' Cornell v. Eoach, 9 Abb. N. C. 375. ' Glen's Falls Co. v. White, 18 Hun, 314. See, also, Botsford v. Dodge, 65 How. Pr. 145. ' Whitney ArmH Co. v. Barlow, 68 N. T. 34. 60 LIABILITY OF TRUSTEES. section 15 or section 23, is no bar to an action against one of them under section 12;^ but an action under section 12 cannot be joined with one under section 23 ; and if causes of action against trustees under sec- tions 12 and 15 may in any event ever be united in one action, which is by no means certain, it can only be when each of the causes of action affects all the parties to it.* As an action against a stockholder under sections 10 and 24, is upon contract,* and not for a penalty, it follows that a cause of action under section 10, cannot be united with one under section 12 ; * and an action against a defendant as stockholder under section 10, is no bar to an action against him on the same debt as a trustee under section 12.*' § 49. In what county action should be brought.— It has been decided by the Court of Appeals, in Veeder w. Baker, 83 N. Y. 156, that an action against a trustee under section 15 is penal, local, and should be tried in the county where the false report was made and filed, though the debt may have originated elsewhere. The reasoning in the case would apply with equal force to an action under section 12, and it would ap- pear that such action, if brought in the Supreme Court, should be brought in the county where the report should have been filed.* If, however, the action is brought in the Supreme Court, and the county designated in the complaint as ' Nimmons «. Tappan, 3 8w. 652. " Bonnell v. Griswold, 68 N. Y. 394. See, however, Steme v. Her- mann, 11 A.bb. Pr. N. S. 376. » Post, §§ 116, 137. ' Wiles V. Suydam, 64 N. Y. 173. * Douglass V. Ireland, 73 N. Y. 100. • Code of Civil Procedure, § 983. LIABILITY OF TRUSTEES. 61 the place of trial is not the proper county, the action may notwithstanding be tried therein unless the place of trial is changed to the proper county upon the de- mand of the defendant, followed by the consent of the plaintiff or the order of the court.^ And if such order has been granted, it seems that the plaintiff may then move in the county to which the action has been so transferred,^ upon affidavits which the defendant can be prepared to meet, if he desires a further change to the former county, or to any other, on the grounds upon which such change is authorized by the Code.^ § 50. Compulsory reference cannot be ordered, nor trustee arrested.— A compulsory reference of such an action cannot be ordered, although the only issue is as to the indebtedness of the corporation on a long ac- count.* No counterclaim will be allowed as against the trustees' liability.® It was held at special term, that the liability of a trustee tinder this section is not for such a fine or penalty as to subject the said trustee to arrest under the provisions of the Code.^ § 51. Summons, how indorsed.— The action against the trustee under this section being for a penalty, given by statute, if a copy of the complaint is not ■ Code of Civil Procedure, §§ 985, 986. ' Moulton V. Beecher, 1 Abb. N. 0. 193, 235. ' Veeder ». Baker (supra); Code Civil Procedure, § 987. * Hyatt V. Roach, t Abb. N. C. 135. ' Olapp V. Wright, 31 Hun, 340. ° Glen's Falls Paper Co. v. White, 58 How. Pr. 173. Apparently'dis- missed on appeal by Court of Appeals, vide s. p. 81 N. Y. 649. See, however. Wiles v. Suydam, 64 N. Y. 173, 177. 62 LIABILITY OF TRUSTEES. served upon the defendant together with and accom- panying the copy summons, " a general reference to the statute must be indorsed upon the copy of the summons so delivered in the following form, ' accord- ing to the provisions of,' etc., adding such a description of the statute as will identify it with convenient cer- tainty, and also specifying the section," under which plaintiff claims.^ If the copy summons is served alone and without such indorsement, it may be disregarded by the de- fendant, as by such service the court acquires no jurisdiction ; ** and a subsequent service of the com- plaint would not cure this defect, which would . be waived, however, by a general appearance on the part of defendant.* • Code of Civil Procedure, § 1897. ' Bissell V. N. Y. C. & H. R. R. R. Co. 67 Barb. 385 ; The Mayor, &c. «. Eisler, 2 Civ. Proc. R. 125; Vernon «. Palmer, 48 N. Y. Super. 231. CHAPTER V. INDIVIDUAL LIABILITY OF TRUSTEES, Etc.— Contihtjeik § 52. Trustee sued under section 12, has three main defenses. 53. Denial of the debt. 64. Judgment against company not evidence against trustee. 65. Judgment in favor of company conclusive in favor of trustee. 56. Defenses denying corporate indebtedness. 67. Defenses based on time debt arose or existed. 58. Denial of the default. 59. Defense established by proof of dissolution, 60. Denial of trusteeship. 61. Liabilities of trustees holding over. 62. De fac.to trustees. 63. Resignation and its eflfect. 64. Limitation of actions. 65. Provisions as to false reports, statements, etc. 66. Application and construction of section 15. 67. Provisions as to certain dividends. 68. Liability of trustees for paying prohibited dividends. 69. Provisions as to indebtedness exceeding capital. 70. Action, how brought thereunder. 71. Loans to stockholders. 72. Other liabilities of trustees. § 53. Trustee sued nnder section 12, has three main defenses.— Bearing in mind what we have already seen, that the plaintiff must allege and prove that three things concurred in point of time, viz. : (1.) The debt; (2.) The default; and (3.) The trusteeship ; in order to charge the defendant under this section, — it follows that three main defenses, either singly or in combina- tion, are open to the defendant. (1.) He may deny the debt. (2.) He may deny that he was then in default. (3.) He may deny that he was then a trustee. If either one of these proposi- 64 LIABILITY OF TRUSTEES. tions is found in hia favor, he is free from all liability under this statute. § 53. Denial of the debt.— This may consist of: (a.) A denial that the alleged claim against the company is a " debt " within the terms of the statutory penalty imposed upon the trustees. In reference to this proposition, inasmuch as we have already discussed the nature of this penalty, it is sufficient here to say, that it is always open to the trustee to claim the strict construction of this penal statute, and to show that the demand upon which he is sued is not within its terms.* (5.) A denial that there is any obligation upon which the corporation is liable. As regards this latter defense, the trustee occupies exactly the same position that the corporation would occupy were the suit directly against it. He can set up any facts and interpose any plea, which would be available to the corporation if then sued on the debt and no other.* The liability imposed on trustees by section 12, is subject to the same conditions and qualifications, so far as the allegation and proof of the debt are con- cerned, that attach to the original indebtedness, and whatever will defeat or abate an action against the corporation will be a defense to the trustees. They are only liable in any given suit for debts actually due at the time such suit was begun, and for which a present right of action then existed against the cor. poration. It was accordingly held where an indebted- ' See ante, §§ 35, 36, 37. ' Whitney Arms Co. c. Barlow, 63 N. T. 62 ; Jones v. Barlow, 62 N. T. a02. LIABILITY OF TRUSTEES. 65 ness of the company fell due during the time its trustees were in default for not making the statutory- report, and notes were given by the company for such debt, which were renewed, that, .in an action which was commenced under this section prior to the maturity of a portion of the renewed notes, the plaint- iff was only entitled to recover the sum actually due from the corporation at the commencement of the action, and this although the defendant was in office and default at the time the original note against the corporation fell due.^ § 54. Judgment against company not eTidence against trustee. — We have already seen, that in an action against a'trustee a judgment against the corporation on the same debt is neither conclusive ox prima facie evidence of it against him, but the original claim must be set out and proved de novo. Where, however, in such an action, the original claim against the company was contracted at a period which would apparently bring such claim within tTie statute of limitations, a judgment thereon against the corporation could doubtless be set up, not as establishing the validity of the claim, nor as tending to do so, but for the sole purpose of removing the statutory bar.* §. 55. Judgment in favor of company conclusive in favor of trustee.— While such judgment against the corporation is not even prima facie evidence of the debt as against the trustee,* it has been held that a judgment in favor of the corporation upon the merits, ' Jones V. Barlow, 62 N. Y. 203. ' Van Oott V. Van Brunt, 2 Abb. N. C. 383, 394. ' Miller «. White, 50 N. Y. 137. 5 66 LIABILITY OF TRUSTEES. is conclusive in favor of a trustee thereof afterwards sued under this section on the same debt, and that the trustee could give the judgment roll in such prior action, in evidence after the plaintijff had opened, but before any evidence had been introduced by him.^ § 56. Defenses denying corporate indebtedness. — The particular defenses possible under this head, and attacking exclusively the validity of the claim as against the corporation, is no part of this work to consider. They vary in each case, and are to be determined from the circumstances of it, considered under the general rules of law and such special statutory provisions as apply to all corporations.® But while it is true, as we have seen, that a trustee sued under this section can interpose any plea, and avail himself of any defense which would be open to the corporation, if the suit were against it on its original indebtedness, it is none the less true, as a general proposition, that in such an action the trustee cannot avail himself of a defense not personal to him, but going to the foundation of the claim and cause of action against the corporation which would not be available in its favor. Where a valid debt exists against it, to which it has no good defense, legal or equitable, the trustee, if then in office and default, becomes chargeable with its payment.* Thus, in an action brought under section 12 by one corporation against the trustees of another, to re- ' Tyng v. Clarke, 9 Hun, 269, Daniels, J., dissenting. ' See Alexander v. Cauldwell, 83 N. T. 480 ; Adams v. Mills, 60 N. Y. 533, and cases there cited. • Whitney Arms Co. o. Barlow, 63 N. Y. 62. lilABlIilTY OF TRUSTEES. 67 cover the contract price for goods sold and delivered to defendant's corporation, the objection was raised that the plaintiff was not authorized to manufacture or sell the goods or enter into the contract, which was alleged to be wholly ultra vires. But the court held that where a corporation has fully performed a contract on its part to manufacture and deliver certain articles, it is no defense to an action brought to recover the pur- chase price, that the contract was not within nor inci- dental to its charter powers and privileges or the pur- poses for which it was created, and that as in such a state of facts the defendant's corporation could not have interposed the plea of ulPra vires, the defendants them- selves could not when sued on their statutory liability under section 12.^ § 57. Defenses based on time debt arose or existed.— In regard to the validity of the debt as a claim against the corporation, then, the trustee Can only interpose such pleas or defenses as would be open to the cor- poration itself; but a further defense may be open to him based upon the time when such debt was con- tracted or existed. Once more, bearing in mind that a default to charge a trustee must concur in point of time with the exist- ence of the alleged debt, it is evident that the defense is good which establishes that, at the time of the al- leged default, or at the expiration of the defendant's term of office, the debt was not in existence. This lat- ter is to be distinguished from a denial that the debt ever existed, which however could be joined with it. It must 'always be remembered that the relation ' Whitney Arms Co. «. Barlow, 63 N. Y. 03. 68 LIABILITY OP TRUSTEES. in time of the three things necessary to charge a trustee is of the very essence of the action, and that the exist- ence of any one alone is no authority for such action. If, then, the plaintiff alleges and establishes, without denial, that the defendant was a trustee ; that at a given date default was made, and that the corporation is in- debted to plaintiff on a contract, his complaint will be demurrable, or he will be nonsuited on the trial, if his complaint does not show, or his proof does not prima facie establish, that at some one instant of time all these things were in existence together.^ § 58. 2d. Denial of the default.— This defense, it is obvious, is personal to the defendant trustee, and is ad- missible whether the debt against the corporation is admitted or denied. In its simplest form this would of course be sus- tained by proof that a proper statutory report was duly and timely made, filed, and published ; or rather, the bur- den in this, as in all other branches of his case, being on the plaintiff, it would in practice in the great major- ity of instances be good, in the absence of satisfactory affirmative proof on behalf of the plaintiff, that such report had not been duly made, filed, and published. It should be remembered that while proof that either of these three requisites — making, filing or publication ■ — was not duly complied with, will establish plaintiff's case so far as the default is concerned, the plaintiff must establish them affirmatively ; and that the trustee is no more compelled in the first instance, and in ab- sence of affirmative evidence to the c6nti%ry, to estab- • See anU, % 3"8. LIABILITY OF TRUSTEES, 69 lish tliat the report was properly filed or properly- published, than that it was properly made. The presumption is that the law was complied with ; and the burden is on the plaintiff to establish the cout trary, even though this throws upon him the burden of proving a negative. If, then, the plaintiff has confined himself to proof that the report was not duly made, and it appears on the part of the trustee that a proper report was so made, the trustee is not compelled further to establish its filing or publication, but in the absence of any testimony bearing on those points is entitled to a verdict.^ It should also be noticed, that the limitation of twenty days prescribed in this section is held to apply only to the maToing, that is, the preparing, signing and verifying of the report, and if such report is so made within the twenty days, and is filed and published as soon as practicable thereafter, the trustees being held in this regard to prompt performance and diligent ac- tion, it is sufficient.* §69. Defense established by proof of dissolution.— But this defense may also be established by pleading and proving that prior to the time when the annual report should have been made, as alleged in the complaint, the corporation was dissolved. If such dissolution was technical and complete, there being no corporation, ei^ev de facto ov de jv^re, there could of course be no requirement to report. The courts have, however, gone further, and have ' Wliitney Arms Co. v. Barlow, 68 N. Y. 34 ; Chase v. Lord, 77 N. Y. 1. » Cameron v. Seaman, 69 N. Y. 396 ; rev'g s. c. 7 Hun, 601 ; over- ruling Gildersleeve o. Dixon, 6 Daly, 76. 70 LIABILITY OF TRUSTEES. held that a practical dissolution and abandonment of the corporation is sufficient to terminate the necessity of further reports. ^ / The mere fact that the company had ceased to do business, and was engaged simply in paying off its debts, and winding up its affairs, at the time when the report was due, does not exonerate the trustees from reporting in the absence of any legal dissolution,* But after the appointment of a receiver,* or after bankruptcy and assignment of all its property* no report is required from the corporation or its trustees. As to what constitutes such a practical abandon- ment and dissolution as to render further reports un- necessary, the reader is referred to the learned and elaborate opinion of Danforth, J., in Bruce v. Piatt, 80 N. Y. 379, where this question is discussed at much length, and the cases bearing on it are collated. In general it may be said, that where the company's suspension is complete and not temporary ; * where it has not only ceased to do business, but is incapable of transacting any,* and where it is no longer possessed of any property,'^ it will be held to be practically dis- solved, so as to excuse further reports. § 60. 3d. Denial of trusteeship.— Like the denial of the default this defense is personal to the trustee. ' Losee v. Bullard, 79 N.T. 404 ; Bruce «. Piatt, 80 N. Y. 379 ; Garrison «. Howe, 17 N. Y. 458. ' Sanborn v. LeflFerts, 58 N. Y. 179; Bradt v. Benedict, 17 N. Y. 93; Kirkland v. Kille, 16 Weekly Dig. 237; G. T. Supreme Ct. 1st. Dept. 'Huguenot Natl. Bank v. Studwell, 74 N. Y. 621. * Bonnell ®. Griswold, 80 N. Y. 138. ' Brinkerhoff v. Brown, 7 John. Ch. 217. ' Losee v. Bullard (supra). ' Slee V. Bloom, 19 J. B. 456; 20 Id. 669; Penniman v. Briggs, Hopk. 300 ; Bank, &c. v. Ibbotson, 24 Wend. 473. LIABILITY OP TRUSTEES, 71 It should be observed that the liability of a trustee does not depend upon the fact that he was such when the debt was contracted, but upon his being a trustee when the alleged default occurred ; ^ except in the case of a trustee going into office subsequent to and during a default, when, as we have seen, the existence of the default, and his trusteeship at the time the debt was contracted, must both be established to charge him, in the absence of any subsequent active default on his part.^ Under this head it may be said in gene'ral, that all facts necessary to establish the trusteeship, and its ex- istence at the time of the alleged default, must be strict- ly proved by the plaintiff, and that the law will not for the benefit of creditors presume either its original assumption by the defendant, or its continuance be- yond the original term. On the contrary, it is necessa- ry to prove acceptance of the office as well as election as trustee,® and the trustee is presumed to have left office at the expiration of such term, and the burden is on the plaintiff to establish his continuance in it* A default of the company after the expiration of a trustee's term cannot, for want of a subsequent elec- tion to fill his place, be charged upon such trustee, ex- cept by proof of his continuance in office, by his after- wards -assuming to act and acting as such trustee.® ■ Garrisoa v. Howe, 17 N. Y. 458 ; Boughton ». Otis, 31 N. Y. 261 ; Bruce v. Piatt, 80 N. Y. 379. ' See ante, § 38. ' Cameron v. Seaman, 69 N. Y. 396 ; Osborne & Cheeseman Co. ». Oroome, 14 Hun, 164. * Van Amburgh v. Baker, 81 N. Y. 46 ; affi'g Wade v. Baker, 14 Hun, «15 ; P. & R. C. & I. Co. V. Hotchkiss, 82 N. Y. 471. ' Vincent v. Sands, IJ, & S. 511. 72 LIABILITY OF TEUSTEBS. Where, however, a trustee sued under section 12 testi- fied that at a given date his term of office expired, and also testified that after that date he vras present at trustees meetings, referred to himself, as trustee, took part in the company's financial management, and did various acts only proper to be done by a trustee, it was held that his statement that he had ceased to be a trustee was a mere legal conclusion, and that upon this issue there was no question of fact for the jury. ^ § 61. Liabilities of trustees holding over. — The pre- sumption then is, that for defaults occurring or debts accruing after the expiration of his term the trustee is not responsible. If, however, the plaintiff can establish by competent evidence that the plaintiff acted as trustee after such term, then for defaults occurring and debts accruing or contracted during the period in which he so acted, he is liable under the conditions already referred to.* In other words, where no new board is elected, members of the old board by continuing to act prolong their trusteeship, with all its incidental liabilities, so long as they continue to act, ^ and no longer.* § 62. De facto trustees.— So where a totally invalid election of a trustee took place and he accepl^ed, and assumed to act thereunder as trustee, it was held that having voluntarily assumed that character he was estopped from denying it, and was responsible under ' Sanbom v. LeflFerts, 58 N. Y. 179. ' DemingB. Puleston, 3 J. & S. 309; s. c. 55 N.Y.655; Beed ». Keese^ 60 N. Y. 616. ' Easterly v. Barber, 65 N. Y. 353. *Craw V. Easterly, 54 N. Y 680; s. c. 4 Lans. 513. LIABILITY OF TRUSTEES. 7S section 12 for acts and omissions occurring while he so acted;* but that he was not bound to continue to act, and was not responsible for a failure to report occur- ring after he had ceased acting.^ § 63. Resignation and its effects. — A trustee can at any time terminate his trusteeship by resignation ; * and will not thereafter be liable for any defaults, acts, or I omissions occurring after such resignation. The causes of action against him under section 12, if any, existing at the time of his resignation, remain, and on them he is liable, but nothing which may occur subse- qtient to such resignation can create a cause of action under said section against him.* Thus, if there was no default existing when he resigned, a subsequent default will not render him personally liable for any debt, even for one existing or contracted during his trusteeship ; ^ nor, if a default existed at the- time of his resignation, will he be liable for debts subsequently contracted,^ The mere tendering of his resignation with intent that it should be accepted, is sufficient to terminate his trusteeship, and exonerate him from future lia- bility, providing, of course, that he does not subse- quently withdraw it ; and that he ceases thereupon to act. And the burden of proof, that he did so with- ' Easterly v. Barber, 65 N. T. 253. ' Craw V. Easterly, 54 N. T. 680. « Bruce v. Piatt, 80 N. Y. 379. 'Chandler v. Hoag, 2 Hun, 613; affi'd, 63 N. T. 634; Blake s. Wheeler, 18 Huu, 496. ' Squires v. Brown, 33 How. Pr. 35 ; Bruce «. Piatt, 80 N. T. 379. • Shaler & Hall Quarry Co. v. Bliss, 37 N. Y. 397 ; Chandler v. Bo&g (supra). T4 LIABILITr OF TRUSTEES. draw it, or continue to act, would be upon the plaintiff.^ It is not necessary that the resignation should be accepted by the company, acted on by the trustees as a board, or entered on the minutes; ^ neither is it es- sential that any public notice of it should be given.* It is sufficient, that it should be tendered in good faith to one authorized to receive it. And a trustee may resign after the company has been declared to be dissolved by resolution of the board of trustees.* And all the tnistees may resign si multaneously. " § 64. Limitation of actions. — An action against a trustee under section 12, for failing to file an annual report, is one " upon a statute for a penalty, where the action is given to the party aggrieved : " and, there- fore, it must be brought within three years from the time the cause of action accrued ; and, if such action is brought subsequent to that time, the statute of limita- tions can be pleaded as a bar.* It is to be observed, that the statute can only commence to run from the time the cause of action accrues. It does not begin to run from the time of the default in making the report, else upon a continued default of three years or more, no action would lie ' Chandler o. Hoag, 2 Hun, 613; affi'd, 63 N. T. 624. ' Blake e. Wheeler, 18 Hun, 496 ; rev'd on other points, 80 N. Y. 128. ' Bruce n. Piatt, 80 N. Y. 379. * Erwin v. Navigation Co. 22 Hun, 598. ' Smith V. Danzig, 3 N. Y. Civil Pro. Bep. 129. " Merchants Bank o. Bliss, 35 N. Y. 412 ; Code of Civil Procedure, §383, sec. 8; Losee v. BuUard, 79 N. Y. 404; McHarg «. Eastman, 7 Robt. 137; Knox v. Baldwin, 80 N. Y. 610. LIABILITY OP TBTJSTEBS. 75 against continuing trustees for debts contracted after that time.^ Neither does it begin to run from the time the debt of the company arose. It is immaterial when that debt arose, if it exists and might be the subject of an action at the time the default is made.* But the statute begins to run in favor of any trus- tee from the moment he becomes liable under section 12 ; that is, as we have seen, from the first moment when, he being then a trustee, both the debt and the default exist together. If he is in default when the debt is contracted, the statute runs from the contracting of the debt. If, however, there is no default when the debt is con- tracted, the statute runs from his first subsequent default ; and, if he fails during successive years to file the annual report, the right of action is barred by the statute of limitations when three years have elapsed since the first default, and the continuance of the default does not create a new liability or revive an old one.^ And it has been held on demurrer, that it is not necessary, in order to render this rule applicable, that it appear expressly from the pleadings, that the same persons were trustees during the several years, if enough is stated to raise an implication that they were. The creditor cannot select the last default, and by so doing avoid the bar of the statute.* ' Jones «. Barlow, 62 N. Y. 203. - ' Duckworth v. Roach, 81 N. Y. 49. ' Rector, etc., of Trinity Church v. Vanderbilt, 15 Weekly Dig. 499, and cases under note 6, page 74. * Cornell v. Roach, 9 Abb. N. C. 275. 76 lilABILITY OF TRUSTEES. If, however, tlie complaint counts on a default in a given year, it will not be presumed that a default occurred in a prior year. If that is a fact, and is to be relied upon, it should be pleaded and proved on be- half of the trustee. Hence, where a debt having beeu incurred in 1873, and an action having been brought in 1877, on a complaint alleging a default in 1875, the defendant set up on appeal a default in 1874, this was held inadmissible; the fact not being alleged in the pleadings and nowhere appearing in the proceed- ings at the triaL^ So, too, a trustee is liable for a debt existing at the time of a default, although a report was duly made in a previous year after the debt against the corporation had accrued.* § 66. Provisions as to false reports, statements, etc. — Section 15. If any certificate or report made, or public notice given, by the officers of any such company, in pursuance of the provisions of this act, shall be false in any material repre- sentation, all the officers who shall have signed the same, knowing it to be false, shall be jointly and severally liable for all the debts of the company contracted while they are stock- holders or officers thereof.' § 66. Application and construction of section 15.— It will be noticed, that the above section applies not alone to the annual report of the company, but to any certificate or report made, or public notice given, by the officers of any company, under the act. ' Duckworth v. Roach, 81 N. Y. 49. ' Duckworth v. Roach, 8 Daly, 159. ' An oflBcer, director or agent of a company, who knowingly concurs in making or publishing a written report of the afiFairs, or pecuniary con- dition of the company containing any material statement which is false,, is guilty of a misdemeanor. See Penal Code, § 603. LIABILITY OF TRUSTEES. 77 And those officers who sign such report, certificate, or notice, are the only persons rendered liable there- under.^ This term " officers " includes the trustees ; and may include persons who are not trustees. An action under the section is penal in its nature, and must be tried in the county where the report was made and filed.^ To be held liable to the penalty imposed, a person signing the false statement must know that it is false when he signs it. Scienter must be proven.® To state in the annual report, that the stock of a company has all been " paid in full," when a portion of it has been issued for property, is to make a false statement upon a material point, as stock issued for property must in all reports of the company be stated as so issued.* To charge a trustee signing a report stating that all the capital of a company has been *' paid in," when some of the stock has been issued for property, bad faith must be shown, or some circum- stance showing that it was made willfully, or for some fraudulent purpose; and it is not enough to prove that it was ignorantly or inadvertently signed.® A cause of action against officers under this sec- tion, should be prosecuted separately; as only under peculiar circumstances, if at all, can it be joined with a cause of action under section 12.* The penalty imposed here is much less severe than that which trustees who fail to make any report in- ' Bonnell v. Griswold, 68 N. T. 394. ' Veeder «. Baker, 83 N. T. 156. ' Arthur v. Griswold, 55 N. T. 400. • Bonnell ®. Griswold, 80 N. Y. 138. ' Pier V. Hanmore, 86 N. Y. 95. • AnU, § 48. 78 LIABILITY OP TRUSTEES. cur, but the present statute is highly penal and cases cited under section 12 apply to it and explain its general character and the nature of the debts for which the officers are liable. It has been held, that an action under the present section is no bar to an action under section 12.^ A complaint under this section must allege, that the debt was contracted while the defendant was a trustee of the company.^ § 67. Provisions as to certain diridends. — Section 13. If the trustees of any such company shall declare and pay any dividend when the company is insolvent, or any dividend the payment of which would render it insolvent, or which would diminish the amount of its capital stock, they shall be jointly and severally liable for all the debts of the company then ex- isting, and for all that shall be thereafter contracted while they shall respectively continue in office ; provided, that if any of the trustees shall object to the declaring of such divi- dend, or to the payment of the same, and shall, at any time before the time fixed for the payment thereof, file a certificate of their objection in writing with the clerk of the company and with the clerk of the county, they shall be exempt from the said liability. § 68. Liability of trustees for paying prohibited divi- dends.— This section imposes the only penalty which tnistees, who pay a dividend which decreases the capital stock of a company, incur.* They cannot be sued by the corporation under the Revised Statutes.* It is said in regard to this section that : " The object of ' Nimmons v. Tappan, 2 Sw. 653. ' Anderson v. Speers, 8 Abb. N. C. 383. ' Excelsior Petroleum Co. v. Lacey, 63 N. T. 433 ; Excelsior Petro- leum Co. V. Embury, 4 Hun, 648. M R. S. 601, § 2. LIABILITY OF TRUSTEES. TO' the statute is to prevent the dissipation of the fund designed for the security of creditors, and all who- have occasion to deal with these corporations; and, although the statute is highly penal, and a clear case must be established, yet the substance of the act and not the mere form must be the test of liability. The trustees have no right as against creditors to appro- priate to themselves any portion of the assets cbnsti- tuting the capital, and where they do so they will be held liable under this section. The liability, how- ever, cannot be extended beyond the strict terms of the statute, and as a judgment against the company is not necessary in order to enforce the claim against the trustees, and as they are not bound by it, they cannot be made liable for the costs of recovering such judg- ment." ^ An action under this section must be brought within three years from the time when the prohibited dividend is declared.^ § 69. Provisions as to indebtedness exceeding capital. — Section 23. If the indebtedness of any such company shall, at any time exceed the amount of its capital stock, the trustees of such company assenting thereto, shall be personally and individually liable for such excess to the creditors of such company. § 70. Action, how brought thereunder — To recover in an action under this section, plaintiff must aver, that ' Rorke v. Thomas, 56 N. T. 559. ' Merchants Bank ». Bliss, 35 N. Y. 413. Any director who concurs, in a vote or act of his co-directors, or any of them, by which it is intended to make a dividend except from the surplus profits arising from the business of the corporation ; or to divide, or in any manner pay to the stockholders, or any of them, any part of the capital stock of the company, is guilty of a misdemeanor. See Penal Code, § 594. 80 LIABILITY OP TRUSTEES. the excess of indebtedness over the capital stock was equal to or exceeded his claim.^ A recent case has, however, held, that a single creditor cannot maintain an action at law against a trustee under this section to recover the amount of his debt; but, that an action hereunder can only be brought by all creditors jointly, or by one on behalf of all, and that each creditor can recover only such pro- portion of the excess of debts over the capital, as his debt bears to the whole amount of the debts of the company.* § 71. Loans to stockholders. — By section 14,* every company is prohibited from making loans to any of its stockholders,* and any officer who shall make such a loan, " or who shall assent thereto, shall be jointly and severally liable to the extent of such loan and interest for all the debts of the company contracted before the repayment of the sum so loaned." This section also imposes a penalty ; there must be " a loan of money, both in law and in fact," to enable a creditor to hold those making the alleged loan to the punishment pre- scribed ; and a receiver of a corporation cannot enforce the penalty.® § 72. Other liabilities of trnstees. — The foregoing sections comprise all the statutory penalties which are imposed upon trustees of companies under the present act." ' Chambers v. Lewis, 38 N. Y. 455. ^ Anderson v. Speers, 31 Hun, 568. See, also, Homor v. Henning et. al. 103 U. S. 228. > See post, § 78. * Twin Lock Oil Co. v. Marbury, 18 Alb. L. J. 112. ' Billings «. Trask, 30 Hnn, 314. " As to penalty for refusing to exhibit transfer book, see post, § 88 ; as to penalty for refusing to give statement to stockholder, see pott, §91. LIABUilTT OE TKDSTEBS. 81 It may, however, be remarked, that such trustees have the general liabilities of all trustees of corpora-, tions, and are under the ordinary obligations incident to this office. They will therefore, for example, become liable as such to make good any loss which is occasioned by their malfeasance in office, or their gross negligence, or inattention to the affairs of the company ; and may be responsible to creditors, shareholders, or the company, as the case may warrant.-^ Merely being a trustee is not, however, sufficient ^ey se to hold one liable for the frauds of the active managers of a company; there must be personal wrongdoing.^ ' Robinson v. Smith, 3 Paige, 351 ; Brinckerhoflf v. Bostwick, Reo'r, 88 N. T. 53 ; Field on Corporations, sees. 169-171 ; Gray v. N. Y. & Vir-. ginia S. S. Co. 3 Hun, 10. ' Arthur v. (Jriswold, 55 N. Y. 400; Wakeman e. Dalley, 51 N.Y. 27, Note. — The penal code specifies yarious acts and omissions on the part of directors, officers and agents of corporations, for which they are thereby declared criminally liable. These provisions will be found in the appendix. CHAPTER VL STOCK AND STOCK CERTIFICATES. § 73. Provisions as to stock and its transfer. 74. Nature of stock. 75. Certificates, how transferable, 76. Corporate liens on shares. 77. Lost or destroyed certificates, how replaced. 78. Provisions as to issuing capital stock. 79. Capital stock, how issued. 80. Certificate of payment of capital stock to be recorded. 81. Provisions as to increase or diminution of capital stock. 83. Increasing or diminishing capital stock. § 73. ProTisions as to stock and its transfer. — Section 8. The stock of such company shall be deemed personal estate, and shall be transferable in such manner as shall be prescribed by the by-laws of the company ; but no shares shall be transfera- ble until all previous calls thereon shall have been fully paid in, or shall have been declared forfeited for the non-payment of calls thereon : and it shall not be lawful for such company to use any of their funds in the purchase of any stock in any other corporation.^ § 74. Nature of stock.— The word " stock" as used in this section evidently means the scrip. It is the cer- tificates of stock vphich are declared to be personal property, and transferable, and not the corporate fund of the company. " Capital stock" in legal phrase gen- erally means, "the property of the corporation con- tributed by its stockholders, or otherwise obtained by ' Consult Amendments, post, § 139. STOCK AND STOCK CERTIFICATES. 83 it to the extent required by its charter."^ The cer- tificates of stock are quite distinct from the stock it- self, and are merely evidence of the holder's interest in the corporate fund ; and this evidence is all that one who purchases such interest may obtain, as he cannot withdraw the stock itself from the corporate fund.* Certificates of stock are not negotiable and the rules governing commercial paper do not apply thereto.' A vendor however, who has received from the own- er of the stock all the indicia of ownership, may give a good title to a honafide purchaser for value, even though he has no title himself.* This rule, however, rests upon the doctrine of es- toppel.® But one who surrenders such indicia of own- ership does not thereby empower the person who ob- tains them to borrow money on the stock in the name of the owner, and if he does so borrow the real owner will not be estopped from repudiating the transaction, and claiming his stock.* § 75. Certificates, how transferable. — The by-laws should regulate the transfer of certificates, and it is usual for them to provide that in cases of transfer no new certificates shall issue, except on the production and surrender of the old certificates. Where it is so provided, if a company issues new ' Williams & Hatch v. W. U. T. Co. K. Y. Ct. App., Oct. 3, 1883; 8. c. 9 Abb. N. C. 437. ' Burrall ». Bushwick R. R. Co. 73 N. T. 311. = Weaver v. Harden, 49 N. T. 386. • McNeil V. Tenth Nat. Bk. 46 N. T. 331 ; Leitch v. Wells, 48 N. T. 585; Moore v. Met. Nat. Bk. 55 N. Y. 41. ' Weaver v. Bardeu (supra); Ballard v. Burgett, 40 N. Y. 314, and cases under note 4. ' Merchants Bk. v. Livingston, 74 N. Y. 333. 84 STOCK AND STOCK CEKTIFICATES. certificates, without sucli protection and surrender, it may be held liable thereon.^ Making and mailing to the proper person a stock certificate is an issuing thereof.* Section 25 provides that all transfers must be entered in the stock book which is to be kept by the company, and states that without such entry no " trans- fer of stock shall be valid for any purpose whatever, ex- cept to render the person to whom it shall be transfer- red liable for the debts of the company." * This regula- tion is, however, wholly for 'the benefit of the company,, and may be asserted or waived by it at its pleasure.* It may hold the transferrer liable for the debts of the company until such entry is made; unless, indeed, the company has no' transfer book, in which case the com- pany would not be allowed to take advantage of its own negligence ; ^ and the transferee will have no right or power to vote at corporate elections or meetings un- til he obtains a transfer of the certificate on the book* of the company.* The legal title will be regarded by the company to be held by the transferrer, and he stands as a trustee for the purchaser.'' In case the company waives its right to the production and surrender of the old cer- tificate the transferee may lose his stock, by a sale made by his transferrer to a honafde purchaser;* the ■ Brisbane v. D. L. & W. R. R. Co. 25 Hun, 438. ' Jones t). Terre Haute, &c., R. R. Co. 57 N. Y. 196. ' Pout, § 88. ' * McNeil v. Tenth Nat. Bk. 46 N. T. 331. * Isbam D. Buckingham, 49 N. T. 316. * As to rights respecting dividends, seepoit, § 90. ' Johnson v. Underhill, 52 N. T. 210 ; Brisbane v. D. L. & W. R. R. Co. 25 Hun, 438 ; Robinson v. The National Bank of New Beme, 17 Weekly Dig. 259. ' N. T. & N. H. R. R. Co. v. Schuyler, 84 N. Y. 80. STOCK AND STOCK CERTIFICATES. 85 transferee would, however, have his action against the company for damages, as it is the duty of the company to insist upon such surrender.^ The proper course, both for the safety of the vendor and the vendee, is to secure at once the required trans- fer in the corporate books, and this the vendee may compel, as soon as he receives the certificate with the power indorsed in blank ; * the company must decide whether or not the power is genuine, and if it issues a new certificate upon a forged power it will bie held responsible for such action.* Between the parties, however, when one has sur- rendered his certificate and has executed the power authorizing a transfer on the books of the company, he has parted with his entire interest, both legal and equi- table, and the sale is effectual and valid, and the pur- chaser is the sole owner, notwithstanding the broad statement contained in section 25.* The power to transfer on the books of the company is not exhausted until an actual transfer is made, and it enures to the benefit of each honafide holder of the certificate.® If a vendor is held liable for the debts of the company by reason of his remaining a stock- holder of record, he may obtain indemnity from his purchaser.* ' Cushman «. Thayer Mfg. Jewelry Co. 76 IS . Y. 365. ' Driscoll a. West B. & C. Mfg. Co. 59 N. T. 101 ; Smith «. Am. 0. 0. Ac, 7 Lans. 317; Webster v. Upton, 1 Otto, 65. " Pollok V. Nat. Bank, 3 Seld. 274. * Johnson «. Underhill, 53 N. Y. 310 ; Middlebrook v. Merchants Bk. 41 Barb. 481; Bank of Buffalo ». Kortright, 33 Wend. 348; Cutting o. Damerel, 88 N. Y. 410 ; Robinson ». The National Bank of New Bel'ne, 17 Weekly Dig. 359. ' Leavitt v. Fisher, 4 Duer, 1. ' Johnson ». Underhill {supra). 86 STOCK AND STOCK CERTIFICATES. WHere a certificate is delivered by the owner with the power to transfer indorsed in blank as collateral security, as between the parties, the pledgor has part- ed with his entire interest, and the pledgee is the owner.^ A mere written assignment of a certain number of specified shares of stock, without any transfer of the certificates, will give an equitable title to the assignee, which he may enforce ; * and by mere delivery of the certificates, the title to stock will pass as a gift cav^a mortis or inter vivos? A sale of stock in good faith and properly registered relieves the vendor from further liability thereon.* § 76. Corporate liens on shares.— Section 8 * provides, that " no shares shall be transferable until all previous calls thereon shall have been fully paid in, or shall . have been declared forfeited for the non-payment of calls thereon." By virtue of this provision the com- pany secures for itself a lien upon its stock until such calls are paid, and no transfer on the books need be permitted until such calls are paid. This provision of the act, however, excludes any other limitation upon the transfer of the shares, and a by-law which attempts to prevent such transfer until all the debts of a stock- holder to the company are paid is, as we have seen, void.' ' Smith o. American Coal Co. &c. 7 Lans. 317. » GryneB ». None, 49 N. T. 17. ' Westelo V. Dewitt, 36 N. T. 340: Walsh v. Sexton, 55 Barb. 251. * Billings B. Robinson, 28 Hun, 122. Post, § 102. See, as to conflict- ing claims to stock, Buffalo Grape Sugar Co. ». Alburger, 22 Hun, 349. * AnU, § 73. * AnU, § 25. As to forfeiture of shares, see post, § 87. STOCK AND STOCK CERTIFICATES. 87 § 77. lost or destroyed certificates, how replaced.— L. 1873, c. 151. — Whenever any company incorporated under the laws of this State shall have refused to issue a new certifi- cate of stock in place of one theretofore issued by it, but which is alleged to have been lost or destroyed, the owner of such lost or destroyed certificate, or his legal representatives, may apply to the Supreme Court at any special term thereof appointed to be held in the judicial district where such owner resides, for an order requiring such corporation to show cause why it should not be required to issue a new certificate of stock in place of the one so lost or destroyed. Such application shall be by petition, duly verified by the owner, in which shall be stated the name of the corporation, the number and date of the certificate, if known or can be ascertained by the petition- er, the number of shares of stock named therein, and to whom issued, and as particular a state of the circumstances attending such loss or destruction as such petitioner shall be able to give. Upon the presentation of said petition, said court shall make an order requiring said corporation to show cause, at a time and place therein mentioned, why it should not be required to issue a new certificate of stock in place of the one described in said petition. A copy of said petition and of said order, shall be served upon the president or other head of such cor- poration, or on the cashier, secretary, or treasurer thereof, per- sonally, at least ten days before the time designated in said order for showing cause. At the time and place specified in said order, and on proof of due service thereof, the said court shall proceed in a sum- mary manner, and in such mode as it may deem advisable, to inquire into the truth of the facts stated in said petition,- and shall hear such proofs and allegations as may be offered by or in behalf of the petitioner, or by or in behalf of said corpora- tion, or other party relative to the subject-matter of said in- quiry, and if, upon such inquiry, said court shall be satisfied that such petitioner is the lawful owner of the number of shares of the capital stock, or any part thereof described in said petition, and that the certificate therefor has been lost or destroyed, and cannot after due diligence be found, and that 88 STOCK AKD STOCK CERTIFICATES. no suflBcient cause has been shown why a new certificate should not be issued in place thereof, it shall make an order re- quiring said corporation or other party, within such time as shall be therein designated, to issue and deliver to such petitioner a new certificate for the number of shares of the capital stock of said corporation, which shall be specified in said order as owned by said petitioner, and the certificate for which shall have been lost or destroyed, f n making such order the court shall direct that said petitioner deposit such security, or file such a bond in such f onn and with such sureties as to the court shall ap- pear sufficient to indemnify any person other than the petitioner who shall thereafter appear to be the lawful own- er of such certificate stated to be lost or stolen ; and the court may also direct the publication of such notice, either preced- ing or succeeding the making of such final order as it shall deem proper. Any person or persons who shall thereafter claim any rights under said certificate so alleged to have been lost or destroyed, shall have recourse to said indemnity, and the said corporation shall be discharged of and from all liabil- ity to such person or persons by reason of compliance with the order aforesaid ; and obedience to said order may be enforced by said court, by attachments against the officer or officers of such corporation, on proof of his or their refusal to comply with the same. § 78. Provisions as to issuing capital stock. — Section 14. Nothing but money shall be considered as payment of any part of the capital stock, and no loan of money shall be made by any such company to any stockholder therein ; and if any such loan shall be made to a stockholder, the officers who shall make it, or who shall assent thereto, shall be jointly and sev- erally liable to the extent of such loan and interest, for all the debts of the company contracted before the repayment of the sum BO loaned.^ L. 1853, c. 333, § 2. — The trustees of such company may purchase mines, manufactories, and other property necessary ' See ante, § 71. STOCK AND STOCK CBKTrFICATES. 89 for their business, and issue stock to the amount of the value thereof, in payment therefor ; and the stock so issued shall be declared and taken to be full stock, and not liable to any fur- ther calls ; neither shall the holders thereof be liable to any further payments under the provisions of the tenth section of the said act ; but in all statements and reports of the company, to be published, this stock shall not be stated or reported as being issued for cash paid into the company, but shall be re- ported in this respect, according to the fact.^ § 79. Capital stock, how issued. —Above are the only ~ provisions of the act as amended, regulating the issue of capital stock of companies organized thereunder. It will, therefore, be seen that each share of the stock must be issued for money ,^ or by the trustees for properties under the amendment of 1853. It has recently been held by the Court of Appeals, that stock issued in payment of a debt due from the company for work in constructing its furnaces, was is- sued for money under section 14, as this transaction was equivalent in substance to the company's paying its creditor in money, and receiving back from him the same amount of money in payment for the stock so issued.* An agreement between the company and its stock- holders, to issue and take the stock for a less amount than its par value, is void as against creditors, as the capital stock is a trust fund for their benefit.* ' See post, § 134. ' People v. Troy House Co. 44 Barb. 635. See Battershall v. Davifl, 31 Barb. 333; Haviland v. Chace, 39 Barb. 388. ' Veeder v. Judaon, Ct. of Appeals, March 18, 1884. See appendix. See, also, Beach v. Smith, 30 N. Y. 816 ; Green's Brice's Ultra Vires, p. 148. • Knowlton v. Congress & Empire S. Co. 57 N.T. 548. See also Otter V. Brevoort Petroleum Co. 50 Barb. 347 ; Sturgis «. Stetson, 1 Biss. 246 ; Scoville V. Thayer, 105 U. 8. 143. 90 STOCK AND STOCK CERTIFICATES. The capital stock of companies under this act must te paid in, one half within one year and the other half within two years from the incorporation of each com- pany.^ If the capital is not so paid in, section 10 pro- vides that the corporation " shall be dissolved." * It would seem, however, that judgment of ouster by the State would be necessary to effect a dissolution, and that the company is not dissolved ipso facto.* The entire stock of a company may be issued for properties under the amendment of 1853, provided only such properties are necessary for the business of the company. The trustees have the exclusive right to issue the stock, or any part of it, for the purposes authorized by the statute. In issuing it, however, they must act in good faith, and must not fraudulently overvalue the property taken by the company. Stock properly issued by them for such properties is full paid, and possesses some ad- vantages over stock issued for money. Stockholders suffer for the fraud of trustees in making these pur- chases, for the holders of stock originally issued for property, may become liable to creditors in case such fraud is discovered and proven.* While trustees may thus issue stock for property, they cannot surrender property of the company, and take up its stock to the value of the property."* § 80. Certificate of stock to be recorded ^The president and trustees must, within thirty days from the date of ' Exception as to salt companies. See L. 1857, c. 29, § 1. ' Post, 0«. • Baker o. Backus, 32 HI. 79. * See^osf, §§ 124, 125. • Johnson v. Bush, 3 Barb. Oh. 240. STOCK AHD STOCK CERTIFICATES. 91 the payment of the last instalment of the capital stock, execute and rec6rd a certificate stating that the stock has all been paid in.^ This is an imperative duty im- posed upon the trustees. In case the certificate is not recorded, stockholders who hold stock which has been issued for money may suffer serious loss." They can- not be held liable, however, if the failure to properly record the certificate is wholly due to the negligence of the county clerk.' The certificate must be sworn to, as a mere acknowledgment is not sufficient; and, where the certificate was properly recorded, but was acknowl- edged and not sworn to, it was held that this was a fatal defect.^ It is held, that stockholders who own stock which was originally issued for properties at their fair valua- tion, are not liable to creditors in case the certificate required by this section is not recorded.^ But, never- theless, it is advisable to make and record the certifi- cate as the law provides, even in a case where all the stock is issued for properties. § 81. Provisions as to increase or diminution of capital stock. — Section 20. Any corporation or company heretofore formed, either by special act or under the general law, and now existing for any manufacturing, mining, mechanical or chemical purposes, or any company which may be formed under this act, may increase or diminish its capital stock by complying with the provisions of this act, to any amount which may be deemed sufficient and proper for the purposes of the corporation, and may also extend its business to any ' See section 11, ^m*, § 99. ' Bruce v. Driggs, 35 How. Pr. 71. ' Sutherland v. Olcott, 29 Hun, 161. * Brown v. Smith, 13 Hun, 408; affi'd, Ot. of Appeals. • Poit, § 124. 92 STOCK AND STOCK CEKTIFIOATBS. other manufacturing, mining, mechanical or chemical business, subject to the provisions and liabilities of this act. But be- fore any corporation shall be entitled to diminish the amount of its capital stock, if the amount of its debts and liabilities shall exceed the amount of capital to which it is proposed to be reduced, such amount of debts and liabilities shall be satis- fied and reduced so as not to exceed such diminished amount of capital; and any existing company, heretofore formed under the general law, or any special act, may come under and ayail itself of the privileges and provisions of this act, by complying with the following provisions, and thereupon such company, its officers and stockholders, shall be subject to all the restrictions, duties and liabilities of this act. Section 21. Whenever any company shall desire to call a meeting of the stockholders, for the purpose of availing itself of the privileges and provisions of this act, or for increasing or diminishing the amount of its capital stock, or for extend- ing or changing its business, it shall be the duty of the trus- tees to publish a notice signed by at least a majority of them, in a newspaper in the county, if any shall be published therein, at least three successive weeks, and to deposit a writ- ten or printed copy thereof in the post office, addressed to each stockholder at his usual place of residence, at least three weeks previous to the day fixed upon for holding such meet- ing ; specifying the object of the meeting, the time and place, when and where such meeting shall be held, and the amount to which it shall be proposed to increase or diminish the capital, and the business to which the company would be extended or changed, and a vote of at least two-thirds of all the shares of stock shall be necessary to an increase or diminu- tion of the amount of its capital stock, or the extension or change of its business as aforesaid, or to enable a company to avail itself of the provisions of this act.' ^ Section 22. If at any time and place specified in the notice provided for in the preceding section of this act, stock- ' See The Freeman's Natl. Bank, eto.s. Smith, 13 Blatch. 0. Ot. 820. STOCK AND STOCK CERTIFICATES. 93 holders shall appear in person or by proxy, in number repre- senting not less than two-thirds of all the shares of stock of the corporation, they shall organize by choosing one of the trustees chairman of the meeting, and also a suitable person for secretary, and proceed to a vote of those present, in person or by proxy, and if, on canvassing the votes, it. shall appear that a sufficient number of votes has been given in favor of increasing or diminishing the amount of capital, or of extend- ing or changing its business, as aforesaid, or for availing itself of the privileges and provisions of this act, a certificate of the proceedings, showing a compliance with the provisions of this act, the amount of capital actually paid in, the business to which it is extended or changed, the whole amount of debts and liabilities of the company, and the amounts to which the capital stock shall be increased or diminished, shall be made out, signed and verified by the affidavit of the chairman, and be countersigned by the secretary, and such certificate shaU be acknowledged by the chairman, and filed as required by the first section of this act, and when so filed, the capital stock of such corporation shall be increased or diminished, to the amount specified in such certificate, and the business ex- tended or changed, as aforesaid, and the company shall be entitled to the privileges and provisions, and be subject to the liabilities of this act, as the case may be.^ ' By an act passed May 15, 1878 (L. 1878, c. 364, as amended, L. 1883, c. 306), it was provided, as follows : Any corporation or company organized under general or a special law of this State, and now existing, or which may hereafter be organized under such general or special law, may diminish its capital stock, by complying w'ith the provisions of this act, to any amount which may be deemed suflRcient and proper for the purposes of the corporation. But nothing in this act shall be so con- strued as to relieve any holder or owner of stock in such corporation from any personal liability existing prior to such reduction; provided, that nothing in this act contained shall be construed to in any manner interfere with or affect any law now in existence authorizing any corpo- ration heretofore organized to reduce its capital stock. Whenever any company shall desire to call a meeting of the stock- holders for the purpose of diminishing the amount of its capital stock, it 94 STOCK AND STOCK OEKTIFICATBS. § 82. Increasing or diminishing capital stock. — Every company may increase its capital stock to any extent that may be desired, but it cannot decrease it so that the debts of the company will exceed its capital. shall be the duty of the trustees or directors to publish a notice signed by at least a majority of them, in a newspaper in the county in which the business of the company is carried on, or its principal ofiBce ia located, if any shall be published therein, at least three successive weeks, and to deposit a written or printed copy thereof in the post office, ad- dressed to each stockholder, at his usual place of residence, at least three ■weeks previous to the day fixed upon for holding such meeting, specify- ing the object of the meeting, the time and place when and where such meeting shall be held, and the amount to which it shall be proposed to diminish the capital ; and a vote of at least two-thirds of all the shares of stock shall be necessary to a diminution of the amount of its capital •stock. If, at the time and place specified in the notice provided for in the preceding section of this act, the stockholders shall appear in person or by proxy, in numbers representing not less than two-thirds of all the shares of stock of the corporation, they shall organize by choosing one of the trustees chairman of the meeting, and also a suitable person for secretary, and proceed to a vote of those present in person or by proxy, and if in canvassing the votes it shall be found that a sufficient number of votes has been given in favor of diminishing the amount of capital, a certificate of the proceedings, showing a compliance with the provisions of this act, the amount of capital actually paid in, the whole amount of debts ind liabilities of the company, and the amount to which the capital stock shall be diminished, shall be made, signed and verified by the chairman, and such certificate shall be acknowledged by the chair- man and filed in the office of the clerk of the county in which the busi- ness of the company shall be carried on, and a duplicate thereof in the office of the Secretary of State, with the approval of the comptroller indorsed thereon, to the effect that the reduced capital is sufficient for the proper purposes of the company, and is in excess of all debts and liabilities of the company, exclusive of debts secured by trust mortgages, and that the actual market value of the stock of the company prior to the reduc- tion of the capital was less than the par value of the same, and when so filed the capital stock of such corporation shall be reduced to the amount specified in such certificate, and the amount of capital left in the posses- sion of the company, over and above the amount to which the capital STOCK AND STOCK OBRTrPICATES. 95 To effect such a change the statutes above set forth must be closely followed. The notice required to be published and mailed to the stockholders must comply "with the law in all respects, and every detail as to publishing and mailing must be observed. As proof that the requirements of the act have been complied with, it is advisable that there should be presented to the chairman of the meeting an affidavit from the publication office, that the notice of the meeting has been properly published, and also an affi- davit of the person who has mailed the notices to each stockholder, that he has complied with the law in this respect. In mailing the notice to stockholders the addresses should be taken from the stock book which the com- pany is required to keep. No meeting can be held unless two-thirds of all the shares of stock are represented either in person or by proxy, and less than that number, it is believed, could not adjourn the meeting to a later date. The officers and stockholders who are interested in the change of the capital should see to it, that enough shares of stock are represented at the time and place specified for the meeting, so that at all events the meeting may properly organize. For even this it cannot do unless two-thirds of the stock is represented. shall be so reduced, shall be returned to the stockholders pro rata at such times and in such manner as the trustees or directors shall deter- mine. Companies formed since May 15, 1878, are required by the Secretary of State to comply with the provisions of this act. It is therefore advisable for such companies in diminishing their capital stock to follow both the Law of 1848, sections, 30, 21, 33, and the Law of 1878 (supra). A form designed to comply with the provisions of both of said laws will be found in the appendix. 9H STOCK AND STOCK CERTIFICATES. The chairman of the meeting must be a trustee of the company, and he must make, sign, verify and acknowledge the required certificate, and the secretary must countersign it.^ When a proper notice of meeting is published as is provided by the statute, and two-thirds of the stock- holders attend, it must appear by positive proof that the notice loas not mailed to each stockholder in order to invalidate the acts of the meeting.^ When the required certificate has been filed in the office of the county where the company has its princi- pal place of business, and a duplicate thereof has been filed ^ in the office of the Secretary of State, the stock is thereupon increased or decreased as is specified therein, and the new stock may be issued by the trus- tees or the old certificates may be called in. Increased stock to become full paid must be issued for money or property, and an agreement between original stockholders to increase the capital, and issue the stock as full paid stock among themselves upon paying eighty per cent, of the par value thereof, is illegal and a fraud.* Where a company has no power to increase its capital beyond ^ specified limit, stock issued beyond such limit is void and creates no liability on the part of holders thereof, and gives no rights, and acquiescence of stockholders gives no validity to it. A mere in- ' Cuykendall v. Douglass, 19 Hun, 577. 'Id. ' It is now advisable to record the certificate both in the office of the Secretary of State and in that of the proper county clerk. * Knowlton v. Congress & Empire Spring Co. 57 N. Y. 518. STOCK AND STOCK CERTIFICATES. 97 formality in 'the issue of lawful stock may, however, be cured.^ In diminishing their capital stock, as we have seen," companies organized since May 15, 1878, should com ply with L. 1878, c. 264 ; as amended, L. 1882, c. 306. How to increase number of shares of capital stock.— L. 1866, c. 73. — Any company formed under the act entitled, " An act to authorize the formation of corporations for manu- facturing, mining, mechanical or chemical purposes," passed [February seventeenth, eighteen hundred and forty-eight, may increase the number of shares of which its capital stock consists ; provided the capital stock of such company shall not thereby be increased or diminished. Such increase shall be made by a vote of the stockholders in favor thereof, repre- senting two-thirds of the capital stock, at any meeting of the stockholders called in the manner prescribed in the act here- by amended, and by executing and acknowledging an amended certificate specifying the number of shares of which the said capital stock of said company shall thereafter consist, and the par value of each share, and in other respects conforming to the original certificate ; which amended certificate shall be signed by the president and two-thirds of the directors of the company, and shall be filed in the office of the Secretary of State, and in the clerk's oflSce of the county where the original certificate was filed. Each stockholder shall be entitled to a certificate for such a number of shares of said capital stock after the whole num- ber has been increased, as aforesaid, as shall, at their par value^ be equal to the par value of the shares theretofore held by him in such company, on surrendering the certificates for said shares so held by him to be canceled ; provided that such in- crease shall not so divide the shares as to give the fractional part of a share to any stockholder. Scoville «. Thayer, 105 U. S. 143. ' § 81, note to section 33. CHAPTER VII. STOCKHOLDERS. § 83. Provisions as to calls upon stockholders, etc. 84. Subscribers. 85. When subscribers relieved from subscriptions. 86. Unpaid subscriptions. 87. Forfeiture of shares. 88. Provisions as to stock books and entries therein. 89. Stock books. 90. Stockholders' right to dividends. 91. Provisions authorizing stockholders te demand statement. 93. Stockholders' privileges. § 83. ProTisions as to calls upon stockholders, etc.— ^ Seotion 6. It shall be lawful for the trustees to call in and demand from the stockholders respectively, all such sums of money by them "subscribed, at such times and in such pay- ments or installments as the trustees shall deem proper, under the penalty of forfeiting the shares of stock subscribed for, and all previous payments made thereon, if payment shall not be made by the stockholders within sixty days after a person- al demand or notice requiring such payment shall have been published for six successive weeks in the newspaper nearest to the place where the business of the company shall be carried on as aforesaid. § 84. Subscribers. — One who becomes a subscriber to the stock of a corporation to be thereafter organized, under the act we are considering, assumes the liabili- ties and acquires the rights of a stockholder in such a corporation upon its organization.^ He undertakes to ' Kntter v. Kilpatrick, 63 N. Y. 604 ; Spear v. Crawford, 14 Wend. 20; Burre. Willcox, 22 N. T. 551; Lake Ontario, &c., R. R. Co. s. Mason, 16 N. T. 451. STOOKHOLDEES. 99 pay for his shares according to the conditions of the general law and the articles of association/ and his subscription may he enforced against him by the com- pany,* and, although he may have paid nothing on his stock, he is liable as a stockholder to creditors.^ It is noticeable that in the above section, sub- scribers to the stock are designated " stockholders." It is not necessary that one should have a certifi- cate of stock or be registered in the books of the com- pany * to constitute him a stockholder : if he acts as a stockholder, has subscribed to the stock, and is recog- nized as a stockholder by the company, there is no question of his liability as such, although he has never paid in full for his stock.® The placing opposite one's name in the certificate of incorporation the number of shares taken by the signer is a sufficient subscription to the stock of the company, and it takes effect as such upon the filing of the certifi- cate.® A subscription of a fictitious or a firm name is valid, as the individual subscription of the signer.'' Where subscriptions are unconditional, agreements be- tween subscribers limiting the same are of no effect.* A ' Palmer v. Lawrence, 3 Sandf. Ch. 161. " Phoenix Warehouse Co. ». Badger, 67 N. Y. 394 ; Dorris «. French, 4 Hun, 293. Field on Corp. § 89. ' Spear v.- Crawford (supra) ; Wheeler v. Millar, 90 N. T. 353. * Burr V. Wilcox (supra). ' Wheeler r>. Millar (supra). ' Phcenix Warehouse Co. ■». Badger, 67 N. Y. 394; Cole v. Ryan, 52 Barb. 168. ' Union Hotel Co. v. Hersee, 79 N. T. 454. It is a misdemeanor to sign the name of a fictitious person to a subscription for stock, or to sign the name of any person in bad faith. See Penal Code, § 590. ■ Whitehall, &c. R. R. Co. v. Meyers, 16 Abb. Pr. N. S. 34. 100 STOCKHOLDERS. bond and mortgage given to secure a subscription to stock rests upon sufficient consideration.' The above section gives to the trustees the dis- cretionary right of making calls upon the subscribers in such amounts, and at such times as they shall deem proper ; and to this subscribers assent, as they are " bound to take notice of the requirements of the charter, articles and by-laws of the company, and of the obligations thereby imposed upon them." * Trustees are prohibited by statute from receiving or discounting " any note or other evidence of debt in payment of any installment actually called in and re- quired to be paid, or any part thereof, due or to become due on any stock ; " or receiving or discounting ""any note or other evidence of debt with the intent of ■enabling any stockholder to withdraw any part of the money paid in by him on his stock." ^ § 85. When subscribers relieved from subscriptions. — "Where there is any material departure by the managers of a company from the proposed purposes for which it was organized, subscribers will be relieved from their subscriptions.* Where, also, a corporation does not obtain the franchise contemplated by its promoters, but engages in business other than that specified in the subscrip- tion agreement, those not consenting to the change will » Battershall v. Davis, 31 Barb. 323. ' Field on Corporations, p. 98; Dayton v. Borst, 31 N. ¥.426; Bil lings e. Eobinson, 28 Hun, 122 ; as to calls, see also Green's Brice's Ultra Vires, pp. 150-152; Ang. & Ames on Corporations, c. xv. ' 1 R. S. 602, § 2. And any director who concurs in a vote to do any of these things is guilty of a misdemeanor. See Penal Code, § 594. ' Field on Corporations, p. 110. STOOKHOLDBKS. 101 be freed from their subscriptions.^ One, however, who- subscribes to the stock of a company, and thereafter takes part in its management, is estopped as against creditors, or its receiver, from claiming that there waa no legal incorporation.** The contract of subscriptioft is a several contract, and the release of one subscriber does not per se discharge any other.* A subscriber to stock of a corporation formed under the law we are considering may, by an unquali- fied sale made in good faith, transfer his interest and prevent liability for future calls, upon complying with the act* Where a company keeps no transfer book it will not be allowed to take advantage of its own. negligence, and hold one who has sold his stock liable on the ground that he has not transferred his stock according to the provisions of the law.® § 86. Unpaid subscriptions.— The balance unpaid oa a subscription to the stock of a company, is a claim subject to sequestration in proceedings taken on a judgment, recovered against the company.* The right to collect unpaid subscriptions is trans^- ferable to a receiver of the company.'' They can only be enforced against " such persons as may stand in the relation of shareholders to the association." ^ ' Dorris V. Sweeny, 60 N. Y. 463. "Euggles V. Brock, 6 Hun, 164; Dorris v. French, 4 Hun, 293 j Sodus Bay, &c., R. R. Co. v. Hamlin, 34 Hun, 390. = Whittlesey e. Frantz, 74 IT. Y. 456. * Billings V. Robinson, 28 Hun, 133 ; Mann v. Currie, 3 Barb. 394 ;■ Veiller v. Brown, 18 Hun, 571. See, under other laws, Wintringhatn ».. Rosenthal, 35 Hun, 580 ; Cutting v. Bamerel, 88 N. Y. 410. ■' Isham V. Buckingham, 49 N. Y. 316. " Dean «. Biggs, 25 Hun, 122. ' PhcBnix Warehouse Co. ». Badger, 67 N. Y. 394. • Billings V. Robinson, 38 Hun, 132. 102 STOCKHOLDERS. Unpaid subscriptions are " assets of the company bound in equity for the payment of its debts, and a creditor may maintain an action, after exhausting his remedy at law, to reach these assets, and be subro- gated to the right of the company ; and without joining other stockholders or creditors." ^ § 87. Forfeiture of shares, — The right to forfeit shares given to the trustees does not take away their right to sue for subscriptions; it is a cumulative remedy.* After forfeiture is declared, however, the stockholder cannot be proceeded against either by the company,® or by its creditors, to recover unpaid calls upon the stock.* For forfeiture is a full satisfaction of the subscriber's obligation to pay calls.^ After forfeiture the stock is the absolute property of the company, and may be sold by it ; ' the sale must be strictly under the terms of the charter.^ § 88. Provisions as to stock books and entries therein. — Section 25. It shall be the duty of the trustees of every such corporation or company to cause a book to be kept by the treasurer or clerk thereof, containing the names of all persons, alphabetically arranged, who are or shall within six years have been stockholders of such company, and showing ' Finch, J., Wheeler v. Millar, 90 N. Y. 353; citing Briggss. Penni- man, 8 Cow. 896; 3 Story's Eq. Jur. § 1253; Hatch v. Dana, 101 U. S. Cir. Ct. 305 ; Bartlett v. Drew, 57 N. Y. 587. ' Mann v. Currie, 3 Barb. 394; Field on Corporations, § 96; Dutchess Cotton Mfg. Co. V. Davis, 14 Johns. 338 ; Green's Brice's Ultra Vires, p. 153, note c. » Small B. Herkimer Mfg. Co. 3 N. Y. 330. * Mills V. Stewart, 41 N. Y. 384 ; Wheeler v. Millar, 90 N. T. 353. ' Small V. Herkimer, &c. (supra). ' People V. A. & S. R. RJ Co. 7 Abb. Pr. N. S. 391. ' Mitchell V. Vermont Copper Co. 67 N. Y. 380. STOCKHOLDERS. 103 their places of residence, the number of shares of stock held by them respectively, and the time when they respectively became the owners of such shares ; and the amount of stock actually paid in ; which book shall, during the usual business hours of the day, on every day except Sunday and the fourth day of July, be open for the inspection of stockholders and creditors of the company, and their personal representatives, at the office or principal place of business of such company, in the county where its business operations shall be located ; and any and every such stockholder, creditor or representative shall have a right to make extracts from such book ; and no transfer of stock shall be valid for any purpose whatever, except to render the person to whom it shall be transferred liable for the debts of the company, according to the provis- ions of this act, until it shall have been entered therein, as required by this section, by an entry showing to and from whom transferred. Such book shall be presumptive evidence of the facts therein stated, in favor of the plaintiff, in any suit or proceeding against such company, or against any one or more stockholders. Every officer or agent of any such com- pany who shall neglect to make any proper entry in such book, or shall refuse or negleCt to exhibit the same or allow the same to be inspected, and extracts to be taken therefrom, as provided by this section, shall be deemed guilty of a mis- demeanor, and the company shall forfeit and pay to the party injured a penalty of fifty dollars for every such neglect or re- fusal and all the damages resulting therefrom : And every company that shall neglect to keep such book open for inspec- tion, as aforesaid, shaU forfeit to the people the sum of fifty dollars for every day it shall so neglect, to be sued for and recovered, in the name of the' people, by the district attorney of the county in which the business of such corporation shall be located ; and, when so recovered, the amount shall be paid into the treasury of such county for the use thereof. § 89. Stock books.— The above aection making the books presumptive evidence does not constitute them 104 STOCKHOLDERS. the best evidence or the only evidence of the facts specified.^ The company must keep the book referred to, and " it is doubtless vpithin the power of any stockholder to compel the officers of the corporation to keep such a book as the statute requires ; and if it has been casu ally destroyed, its place should be supplied, if those who might avail themselves of the fact that they have ceased to be stockholders desire to protect them- selves. " ' § 90. Stockholders' right to dividends.— As between the corporations and its members, the rule is that those who are registered in the books of the company as stockholders are entitled to all the privileges, and sub- ject to all the liabilities of shareholders of these com- panies. Perhaps the most important of these privileges, and the only one of the general privileges of stockholders, which we will discuss, is the right to share in the profits of the association. Dividends upon stock are payable to the stock- holder of record, and may be properly paid to him without production of the certificate of stock, if the company has no reason to believe he is not the owner thereof. ® And where the administrator of a stockholder of record who had transferred his stock, but had himself remained the registered stockholder, collected divi- dends declared prior to the death of such stockholder, and which were credited to him on the books of the ' Herries v. Wesley, 13 Hun, 493. ' Shellington v. Howland, 67 Barb. 14. • Blatchford v. R. R. Co. 5 Abb. Pr. 376 ; Brisbane v. D. L. & W. B. R. Co. 35 Hun, 438 ; Smith v. American Coal Co. 7 Lans. 317. STOCKHOLBBKS. 105 company, it was held that the books of the company "furnished an authentic record upon which it could lawfully act, " and that the company was not liable to the real owner of the stock for the dividends so paid.^ Where a company pays dividends to a recognized stockholder, one claiming such dividends, or a part thereof, must first establish his position as a stock- holder in proceedings against the company, and he cannot follow the assets of the company until he has first exhausted his remedy against it.** After one has treated his stock as converted by the company he can- not, during the pendency of an action brought by him against it for such conversion, sue for dividends on such stock.^ Before a dividend has been declared it has no ex- istence, and the undivided earnings of a company are inseparable from the shares of stock; after the divi- dend has been declared it may be itself assigned.* The right to a dividend accrues when it is declared without regard to the time when it was earned.* Where a company voted " to pay a dividend of four per cent, this day, and another of like amount, at option of agent, from earnings of last year," it was held that both dividends were declared at the time of the passage of the resolution, and that both belonged to the then stockholders, and that neither passed up- on a sale of the stock to the purchaser. ® ' Brisbane v. D. L. & W. B. B. Co. 25 Hun, 438. ' Peckham v. Van Wagenen, 83 K. Y. 40. ' Hughes ». Vermont Copper M. Co. 73 N. T. 307. ' Manning v. Quicksilver Mining Co. 24 Hun, 360 ; Hyatt v. Allen, 56 N. Y. 553. 'Hyatt V. Allen, 56 N. Y. 553; Goldsmith v. Swift, 35 Hun, 201. ' Hill V. Newiehawanick Co. 8 Him, 459 ; affl'd, 71 N. Y. 593. 106 STOCKHOLDERS. Where a fund is deposited with certain persons for the purpose of paying a declared dividend, stockholders acquire a lien thereon for the amount of the dividend.^ " A transfer of stock of a corporation carries with it to the transferee its proportionate share of the as- sets of the company, including dividends which have not been declared, and all the incidents and advan- tages which appertain to the rights of a shareholder. " * When a dividend is declared it is a debt due the stockholder, and he may upon demand maintain an ac- tion to recover the amount thereof. ' A stockholder however, cannot compel a company to declare a dividend while its debts are unpaid, and the funds on hand are insufficient to pay them.* § 91. Provisions authorizing stockholders to demand statement. — Section 27. Whenever any person or persons owning five per cent, of the capital stock of any company not exceeding one hundred thousand dollars, or any person or per- sons owning three per cent, of the capital stock of any com- pany exceeding one hundred thousand dollars, formed under the provisions of this act, shall present a written request to the treasurer thereof, that they desire a statement of the af- fairs of snch company, it shall be the duty of such treasurer to make a statement of the affairs of said company, under oath, embracing a particular account of all its assets and liabilities, in minute detail, and to deliver such statement to the person who presented the said written request to said treasurer, with- in twenty days after such presentation, and shall also, at the same time, place and keep on file in his office, for six months ' Matter of LeBlanc, 14 Hun, 8. » Boardman o. L. 8. & M. S. R. R. Co. 84 N. T. 157. ' Kane v. Bloodgood, 7 Johns. Ch. 90 ; Carpenter b. N. T. &c. R. Co. 5 Abb. Pr. 277; Jones v. Terre Haute Ry. 57 N. Y. 196. ' Karnes v. Rochester, &c. R. Co. 4 Abb. Pr. N. S. 107; 33 N. Y. 238 ; 35 N. Y. 433. See, as to dividends, Field on Corporations, §§ 103-108. STOCKHOLDERS. 107 thereafter, a copy of such statement, which shall at all times, during business hours, be exhibited to any stockholder of said company demanding an examination thereof ; such treasurer, Jiowever, shall not be required to deliver such statement, in the manner aforesaid, of tener than once in any six months. If such treasurer shall neglect or refuse to comply with any of the provisions of this act, he shall forfeit and pay to the per- son presenting said written request the sum of fifty dollars, and the further sum of ten dollars for every twenty-four hours thereafter until such statement shall be furnished, to be sued for and recovered in any court having cognizance thereof.^ L. 1862, c. 472, § 2. — Should not any such written state- ment, as is required by section one of this act,^ be demanded during the year preceding the annual meeting of the stock- holders of any company, formed under the provisions of this act, for the election of directors or trustees, it shall be the duty of the treasurer of every such company to prepare and exhibit to the stockholders then and there assembled a general statement of the assets and liabihties of such company. § 92. Stockholders' privileges.— The act we are consid- ering confers upon stockholders various privileges other than those referred to in sections 25 and 27, viz. : The right to inspect the corporate books, and the right to demand a statement under certain circumstances. In addition to these : They annually elect the trustees who are to man- age the ordinary affairs of the company, and thus it is that the owners of a majority of the stock control the management of the corporation. They, when properly registered as stockholders, may vote upon their stock, even if it is pledged. ' See L. 1854, c. 201 ; as amended, L. 1863, c. 472, § 1. ' That is, section 27 of The General Manufacturing Act, as amended. 108 STOCKHOLDBES. They are entitled to an especial notice when a stock- holders' meeting is called under the act. ^ A specified number (usually two-thirds) of all the stockholders must consent before the company may: 1. Increase or decrease its capital stock. 2. Extend its business. 3. Increase the number of shares of its stock. 4. Mortgage its property or assets. 5. Consolidate with another company. 6. Extend its corporate existence. 7. Change its place of business. They are also entitled : To sell, and transfer their stock. To receive their proportionate share of the profits. To share proportionally in the assets of the com- pany, after payment of its debts in case of dissolu- tion. ' The provisions of section 21 of the act apply however only to mat- ters mentioned therein. See Freeman's Natl. Bank of Boston v. Smith, 18 Blatch. 0. Ct. 230. CHAPTER VIII. INDIVIDUAL LIABILITY OF STO0KHOLDEE8. •§ 93. General statement of individual liability of stockholders under Act. 94. Provisions as to stockholders' liability to laborers, servants and apprentices. 95. Nature of the liability. 96. Who are " laborers, servants and apprentices." 97. Requisites to enforcing claims against stockholders. 98. Laborers' claims may be assigned. 99. Provisions as to individual liability of stockholders when capital is not paid in, or certificate of payment is not recorded. 100. Stockholders' individual liability under these provisions. — When it exists. 101. For what debts stockholders liable hereunder. 103. Stockholders relieved from future liability by bona fide and prop- erly consummated sale of stock. 103. Liability as between vendor and vendee when transfer is not registered. 104. Defects in organization no defense to certain stockholders. 105. No defense to stockholder that stock was represented to him to be full paid. 106. Stockholders only liable to extent of stock held by them. 107. Stockholders severally liable to such contract creditors as are within section 34. 108. Action at law against single stockholder usually best, but may be defeated by equitable offset. 109. What claims a creditor stockholder may equitably offset. 110. Rule where such creditor stockholder is also debtor of company. 111. Questionable limitation of this privilege of equitable offset. 113. Creditor may bring equitable suit. 113. Rules governing such equitable suit. 114. Court of equity will restrain in such equitable suit separate actions at law against stockholder. 116. Section 10 imposes no liability in favor of corporation, and re- ceivers cannot sue stockholders tfiereunder. 116. Section 10 imposes no penalty. Action under it may be brought in sister States. 110 INDIVIDUAL LIABILITY OF STOCKHOLDERS. I 117, Questionable whether stockholder may sue co-stockholder under section 10. 118. Who may sue. 119. What creditor must show to recover against stockholder. 120. When action to be brought against company under section 24. 131. Judgment to be recovered therein, and execution to be issued. 133. Judgment against company no evidence of debt in action against stockholder. 133. When certain requisites prescribed by section 34 are excused. 134. Stockholders holding stock issued for property freed from liability under section 10. 135. Such stock must, however, have been honestly issued by trustees. 136. Stockholders ceasing to be such, how long liable thereafter. 137. Limitations applying to actions under section 10. 138. As to right of contribution between stockholders. 139. Provisions exempting executors, pledgees, &c., from personal liability. J.30. When exemption applies. 131. Liabilities of stockholders apart from act. § 93. General statement of indiridnal liability of stockholders under act.— The Act we are considering imposes no general, unqualified liability upon stock- holders of corporations organized under it. It, however, (1) makes all stockholders liable sub- stantially as partners, without regard to the amount of the claim or the quantity of stock held, to " laborers, servants, and apprentices" for services performed for the company, and (2) it provides that all stockholders shall be liable until the capital is fully paid in and the required certificate is filed, to the amount of stock held by each, to contract creditors. Both of these liabilities it further qualifies by specifying that a stockholder shall only be liable upon debts which are to be paid within a year from the time they are contracted, and only upon such after judg- ment thereon has been recovered against the company, and execution against it has been returned unsatisfied. INDIVIDUAIi LIABILITY OF STOCKHOLDERS. Ill It will be observed that in each of these two cases the liability can be enforced by a limited class of creditors only. In the first case stockholders can only be held individually upon claims of laborers, servants and apprentices, which arose in service to the company ; and which were to be paid within the year specified above, and where the holders thereof have been diligent to protect their remedy. In the second, they can only be held upon claims of contract creditors which were to be paid within a like year, and where the claimants have secured to themselves the right to enforce the liability by proper proceedings against the company. It is essential to a clear understanding of the pro- visions of the act in relation to stockholders' liabili- ties that the foregoing distinctions and limitations be constantly borne in mind. § 94. Provisions as to stockholders' liability to laborers, servants and apprentices. — Section 18. The stockholders of any company organized under the provisions of this act, shall be Jointly and severally individually liable for all debts that may be due and owing to all their laborers, servants and ap- prentices, for services performed for such corporation. § 95. Nature of the liability.— It is noticeable that this liability exists, even when the terms of the law are complied with; and that it does not arise, as is usually the case with a stockholder's liability under section 10, from any violation of its provisions. All persons who are stockholders at the time the debt arises, are liable therefor,^ and without regard to its amount or the amount of stock which they hold. Johnson v. Underbill, 53 N.T. 303. 112 INDIVIDUAL LIABILITY OP STOCKHOLDERS. The position of stockholders who are liable under this section is substantially that of partners,'and if one stockholder pays judgments recovered against him thereunder, he cannot sue a single stockholder to re- cover his proportionate share of the liability; he must bring an action in equity against all the stockholders.* It seems, however, that a creditor may sue all the stockholders jointly, and discontinue against some, and take judgment against the others;^ but that all the stockholders who are liable are not joined as defend- ants, has been held to be good as a plea in abatement in an action under this section.* It has also been held that a creditor stockholder cannot sue another stock- holder to enforce this personal liability against him.* §96. Who are "laborers, servants and apprentices." — ^The meaning of the words " laborers, servants and apprentices," and the character of the service which must have been performed to bring a creditor within this section, have recently been settled by the Court of Appeals. They have held that as the first word " laborers " refers to persons of an inferior rank, the statute cannot be construed to e mbrace a superior, and that, therefore, the words following it are limited and explained by it ; and that the services referred to are " menial" or " manual" services, and that a book-keeper or general manager, is not within the terms of the section.* This decision practically overrules upon this ' Clark s. Myers, 11 Hun, 608. ' Herries v. Piatt, 21 Hun, 133; but see Dean v. Whiton, 16 Hun, 203. ' Prosser v. Matthieson, 20 Hun, 527 ; see, Strong v. Wheaton, 38 Barb. 616. * Richardson v. Abendroth, 43 Barb. 162. ' Wakefield v. Fargo, 90 N. Y. 213 j Williamson c. Wadsworth, 48 Barb. 394. INDIVIDUAL LIABILITY OP STOCKHOLDERS. 113 point a number of cases of the lower courts, in none of which was the test that the service shall be " menial" or " manual" made decisive.^ It has, however, but carried forward an early decision of the Court of Appeals, where it was held that a secretary or other officer was not a servant within this section ; ^ and a later decision holding that a general agent was also excluded from the benefits of this liability* The mere fact that one does some manual labor in- cidental to his position does not constitute him a laborer or servant.* "Where, however, one who held the position of foreman, took such a prominent part in the manual labor, that it was not merely incidental to his other employment, it has recently been held that he could recover under this section.® § 97. Beqaisites of enforcing claims against stock- holders.— The liability imposed by this section resem- bles that placed upon stockholders by section 10, in that both are governed by section 24.* No creditor- laborer, therefore, can proceed against a stockholder, except upon a debt payable within one year, nor un- til he has obtained judgment upon his claim against the company, and execution thereon against the com- pany has been returned unsatisfied; and he is com- ' Vincent «. Bamford, 12 Abb. Pr. N. S. 352; Harris v. Norvell, 1 Abb. N. 0. 137; Hovey v. Ten Broeck, 3 Eobt. 316. '•' Coffin V. Reynolds, 37 N. Y. 640 ; overruling Richardson v. Aben- droth, 43 Barb. 163. See, also, Viele v. Wells, 9 Abb. N. C. 377. ' Hill B. Spencer, 61 N. Y. 374. See, also, Dean v. DeWolf, 16 Hun, 186. * Krauser «. Ruckel, 17 Hun, 463; Wakefield v. Fargo, 90 N. Y. 313, ' Short V. Medbury, 29 Hun, 39. • Post, § 99. 8 114 rSTDlVlDUAIj lilABILITT OF STOCKHOLDBBS. pelled to bring his action against the company within the year prescribed by section 2i} The burden rests upon the plaintiff to bring his claim within section 18,^ and he must allege in his complaint that the debt was to be paid within a year,*"' and that suit was brought within the proper time, and judgment recovered against the company in this State,. and that execution thereon was returned unsatisfied, and that the defendants were stockholders.* A judgment against the company is, however, no evidence as to the claim of the plaintiff in his action against the stock- holder.^ Stockholders are liable for wages of a servant which become due within a year previous to recovery of judgment against the company, and this, even if the engagement is for a longer period.* § 98. Laborers' claims maybe assigned.— The claim of a laborer under this section is assignable, and the assignee may enforce the debt against the individual stock- holder.'' An assignment by a laborer of a draft drawn in payment for services and accepted by the company, carries to the transferee all the rights and remedies incidental to the original claim, and authorizes the holder to recover against stockholders under section 18.* ■ Post, § 99. = Johnson v. Underbill, 52 N. T. 203. ' Hill V. Conkling, 7 Daly, 397. * Dean s. Mace, 19 Hun, 391 ; Dempsey «. Willett, 16 Hun, 264 ; post^ §§ 130-124; Strongs. Wheaton, 38 Barb. 616; Hovey ®. Ten Broeck, 3 Kobt. 316. ' Strong ». Wheaton, 38 Barb. 616 ; post, § 122. " Hovey v. Ten Broeck, 3 Robt. 316 ; and see as to requirements of section 24, §§ 120-123. ' Krauser v. Ruckel, 17 Hun, 463. ' Pilcher v. Brayton, 17 Hun, 429. INDIVIDUAL LIABILITY OF STOCKHOLDERS. 115 § 99. ProTisions as to individual liability of stock- holders when capital is not paid in, or certificate of pay- ment is not recorded. — Section 10. All the stockholders of every company incorporated under this act, shall be severally individually liable to the creditors of the company in which they are stockholders, to an amount equal to the amount of stock held by them respectively, for all debts and contracts made by such company, until the whole amount of capital stock fixed and limited by such company shall have been paid in, and a certificate thereof shall have been made and recorded as prescribed in the following section ; and the capital stock so fixed and Kmited shall aU be paid in, one-half thereof within one year, and the other half thereof within two years from the incorporation of said company, or such corporation shall be dissolved. Section 11. The president and a majority of the trustees, within thirty days after the payment of the last installment of the capital stock, so fixed and limited by the company, shall make a certificate stating the amount of the capital so fixed and paid in ; which certificate shall be signed and sworn to by the president and a majority of the trustees ; and they shall, within the said thirty days, record the same in the office of the county clerk of the county wherein the business of the said company is carried on. Section 24. ISTo stockholder shall be personally liable for the payment of any debt contracted by any company formed under this act, which is not to be paid within one year from 'the time the debt is contracted, nor unless a suit for the collection of such debt shall be brought against such company within one year after the debt shall become due ; and no suit shall be brought against any stockholder who shall cease to be a stockholder in any such company, for any debt so contracted, unless the same shall be commenced within two years from the time he shall have ceased to be a stockholder in such com- pany, nor until an execution against the company shall have been returned unsatisfied in whole or in part. 116 INDIVIDUAIi LIABILITY OF STOCKHOLDERS. § 100. Stockholders' individual liability under these provisions.— When it exists — It will be seen on exami- nation of these foregoing sections, that the individual liability of stockholders exists until (1.) The capital stock is paid in/ and until (2.) A proper certificate of such payment is duly made and recorded. This statu- tory liability arises whenever the whole capital stock has not been paid in. The stockholder sued may have paid in full, but that does not relieve him, if others are in default. He is still liable to an amount equal to his stock, so long as the wbole capital has not been fully paid in.^ But, in a suit to enforce this liability, the plaintiff to recover must affirmatively show that the whole of the capital stock has not been so paid. It is presumed to have been fully paid in, and this presumption continues until the contrary is made to appear.^ The omission of the certificate is as fatal as the omission to pay in the capital stock. As to this certifi- cate, the provisions of the statute must be strictly complied with. It must not only be signed by the president and a majority of the trustees, but must be verified by their oath. An acknowledgment merely is not a compliance with the statute, and a certificate acknowledged, but not sworn to, will afford no protec- tion to a stockholder sued under section 10.* If, however, a proper certificate is duly filed for ' The certificate of payment is not conclusive on this point. A false assertion of compliance does not make compliance with the first condi- tion. The fact must exist, and then it must be certified. Veeder v. Judson, Ct. of Appeals, March 18, 1884. See Appendix. ' Wheeler v. Millar, 90 M. T. 353, 359. ' Bruce «. Driggs, 25 How. Pr. 71; Chase v. Lord, 77 N. Y. 1. • Brown v. Smith, 13 Hun, 408; affi'd, on this opinion, 80 N. T. 650. INDIVIDUAL LIABILITY OF STOCKHOLDERS. 117 recording, but through oversight in the county clerk's office is not recorded, this omission of the clerk to do his full duty will not prejudice the stockholders.^ Nor is it probable that the courts would hold it essential that this certificate should be recorded within the thirty days designated in section 11. As to sub- sequently contracted debts, at least, they would doubt- less hold that such certificate takes effect as soon as and whenever properly delivered for recording.^ § 101. For what debts stockholders liable hereunder. — ^The nature of the debts against the corporation for which a stockholder is individually liable to action under this section, is defined and limited by the act. They must be contract debts, contracted to be paid within one year.^ And such debts must have been contracted or made while he was a stockholder.* He is not liable for a debt created prior to his becoming a stockholder.^ Thus, in one case where the defendant had given the company his promissory note, payable in futuro, for a specified number of shares, and had taken a re- ceipt from an officer of the company, expressing that such note when paid was to be in full of such shares, it was held, that he did not become a stockholder until the note matured, and was paid, and a stock cer- ■ Sutherland v. Olcott, 39 Hun, 161 ; Dodge ». Potter, 18 Barb. 194-; Dikeman®. Pudchafer, 1 Abb. N. S. 33; Craig ». Dimock, 47 111. 309,-; Fairbanks v. Davis, 50 Verm. 351; Neele ». BerryhiU, 4 How. Pr. 16; Veeder o. Judson {supra). " Wilson V. Leslie, 30 Ohio, 161. This is now settled by Veeder v^ Judson, Ct. of Appeals, March 18, 1884. See Appendix. = Cuykendall v. Corning, 88 N. Y. 139. ' Moss V. Oakley, 3 Hill, 368. ' Phillips V. Therasson, 11 Hun-, 141. 118 INDIVIDUAL LIABIIilTY OF STOCKHOLDERS. tificate issued; and that consequently he was not liable to a creditor on a company debt, contracted subsequent to the giving of the note, but prior to its maturity and payment.^ Where, however, the company had entered into a contract for a year's advertising for a fixed sum pay- able quarterly, it was held, in an action under section 10, that, although the defendant was not a stockholder at the time the contract was made, he was liable for the installments falling due thereunder, after he be- came and while he continued to be one.** The court arguing that as, by the terms of the statute, the stock- holders were liable for " debts made," as well as for " contracts made," and as under this contract a debt arose at the end of each quarter,^ the action was to that extent maintainable. But, where a corporation entered into an agreement to indemnify its agent for certain payments to be made by him, it was held in the United States Circuit Court, that this liability would attach to those who were stockholders when the agreement was made, and not to those who become such subsequently, and were such when the contemplated payments were made by such agent.* § 102. Stockholders relieyed from future liability by bona fide and properly consummated sale of stock.— So, too, a bona fide and properly consummated transfer ' Tracy v. Yates, 18 Barb. 152. " McMaster, v. Davidson, 29 Hun, 542. See also Mclntyre v. Strong, 63 How. Pr.43; 48 Super. Ct. 127; Lewis v. Ryder, 13 Abb. Pr. 1. » Oviatt V. Hughes, 41 Barb. 542 ; Garrison v. Howe, 17 N. T. 465. * Cox B. Gould, 4 Blatchf. Cir. Ct. 341. IiroiVIDUAIi LIABILITY OF STOOEHOLDBES. 119 of stock relieves a stockholder from all liability on ■debts and contracts thereafter made by the company.^ As by section 25^ a completed transfer must be entered in the transfer book of the company to protect the vendor, it follows that a sale of stock, valid be- tween the parties, will not exonerate the vendor until the transfer is duly entered on such transfer book,^ and it is no answer to a creditor objecting that an alleged transfer was not so registered, to say that the company Jiad no such book at the time.* The vendor of stock in reality assigned, but not transferred in legal form, is in effect but the nominal holder. Both vendor and vendee are primarily liable to creditors of the company in accordance with the provisions of the act ; ^ and in a suit under section 10, the vendor will not be heard to allege that he had parted with the stock, and was no longer a stockholder when the debt was made or contracted^ if his name then ap- peared as such upon the books. In determining wheth- er he is a stockholder, in such an action, the court will not look beyond the legal title,* but will hold him as absolutely concluded by the entry in the transfer book. § 103. Liability as between vendor and vendee when transfer is not registered.— As between the vendor and vendee in such a case, however, each is liable to the ' Ante, § 75 ; Freeland v. McCullough, 1 Denio, 414, 436 ; Veiler v. Brown, 18 Hun, 571. ' Ante, § 88. » Shellington v. Howland, 53 N. T. 37L * Shellington v. Howland, 67 Barb. 141. ' Johnson ». Underbill, 53 N. Y. 303. ' Richardson e. Abendroth, 43 Barb. 163^; Adderley ». Storm, 6 Hill, 624; Worrall v. Judson, 5 Barb. 310. See, also, Wakefield »- Fargo, 90 N. Y. 313, 120 INDITLDUAL LIABLLITT OP STOCKHOLDERS. other in accordance with general legal rules. There is an implied obligation on the part of the vendee of stock, that the vendor shall have no further liabilities from it ; and if, having the power to effect a legal transfer to himself on the books, the vendee omits to do so, he is liable for any consequent loss to the vendor^ If, therefore, the vendor, under such circumstances, is compelled as stockholder of record to pay under section 10, creditors' claims arising since the sale of the stock, whether he pays such claims under the compulsion of a suit or before suit is brought, to a creditor whose claim is clear,^ he can recover from his vendee the amount so paid.^ A defendant may, of course, show in exoneration of himself that his name was placed on the books without his authority.* But if his name appears upon the stock book of the company this is prima facie evidence of his being a stockholder, and the burden is thrown upon him to prove that he was never a stockholder.* I 104-. Defect in organization no defense to certain stockholders.— A defect in the proceedings to organize a company is no defense to a stockholder sued under section 10, who has participated in its acts of user as a corporation de facto and appeared as a shareholder upon its books when the debt for which he is sued was contracted.'* ' StoTer B. Flack, 30 N. Y. 64. = JohDSon V. TJnderhill, 52 N. T. 203. ' Matter of the Reciprocity Bank, 22 N. Y. 17. * Section 25, ante, § 88; Hoagland ». Bell, 36 Barb. 57. ' Eaton V. Aspinwall, 19 N. Y. 119; Bnflalo and Allegany R. R. Co. v. Carey, 26 N. Y. 75 : AspinwaU v. Sacchi, 57 N. Y. 331 ; affl'g 8. C. 1 Lans. 381 . INDlVlDUAIi LIABILITY OF STOCKHOLDBES. 121 So, too, a party to the certificate of incorporation cannot, in such a suit, question said certificate for irregularity, and set up that the company was not in- corporated,^ § 105. No defense to stockholder that stock was rep- resented to him to be full paid.— A stockholder sued by a creditor or creditors under the provisions of sections 10 and 24 cannot set up as a defense, false and fraudu- lent representations to himself by his vendor, or an oflScer of the corporation, that the stock was full paid capital .stock, on which there was no liability of stock- holders. Tn such an action such representations are of no avail to him ; although they would doubtless found an action against those making them for any damages sustained by him in consequence thereof. " When a person has, through fraudulent representations of the seller of the stock or of the company, become a stock- holder in a corporation where a personal liability to creditors may by statute arise, he can, in the appro- priate action, after tendering the stock to the person or company who fraudulently induced him to buy it, and demanding back what he gave for it, be reimbursed for any loss or damage he has sustained, and be relieved thereafter from any further liability as a stockholder ; but while he continues to be a stockholder his liability under the statute to creditors continues." * ■ Perkins v. Hatch, 4 Hun, 137 ; affl'd, 64 N. Y. 634 ; Hyatt v. Esmond, 37 Barb. 666. " Briggs V. Comwell, 9 Daly, 436. Opinion by Daly, 0. J., citing- Oakes ». Turquand, E. L. R. 2 H. of L. 335 ; Pugh & Shearman's Case, E. L. R. 13 Eq. 573; Henderson v. Royal British Bank, 7 El. & Bl. 356; Powis V. Harding, 1 Com. B. N. S. 533 ; The Empire City Bank, 6 Abb. Pr. 403; Reciprocity Bank, 23 K Y. 17 ; Wright's Case, E. L. R. 13 Eq. 122 iiinDivrDUAii liability of stockholders. § 106. stockholders only liable to extent of stock held hy them. — Stockholders are individually liable to cred- itors only to an amount equal to the par value of the stock held by them respectively.^ A stockholder is absolutely discharged from all further liability, un- der sections 10 and 24, by payment of an amount equal to his stock under legal compulsion to any cred- itor or creditors for whose debts he is liable under those sections, and would doubtless be equally dis- charged by a voluntary payment of that amount to such creditor or creditors.^ And such payment to an amount less than his stock would be an ab- solute defense ^ro tanto ; leaving him liable thereafter only to an amount equal to the difference between the sum of such payments and the par value of his stock. Where the plaintiff's claim against the company in such an action equals or exceeds the amount of stock held by the defendant, no greater judgment can be given than for an amount equal to the amount of stock so held by defendant, with interest thereon from the time when the suit was brought against him indi- vidually, to enforce his statutory liability ; * but judg- ment may be given for the entire sum due from the •company, with interest thereon from the time it be- came due, when such principal and interest together do not exceed the amount of defendant's stock.* 551 ; Kuggles v. Brock, 6 Hun, 164 ; Ellis o. Schmock, 5 Bing. 521 ; Clarke v. Dickson, 1 El., Bl. & El. 148 ; Spear s. Crawforfl, 14 Wend. 24, 35. 'Pfohl B. Simpson, 74 N. Y. 143; Woodruff & Beach Iron Works e. Chittenden, 4 Bos. 406 ; Chambers ». Lewis, 28 N. Y. 454. " Mathez v. Neidig, 73 N. Y. 100 ; Tallmadge v. Fishkill Iron Co. 4 Barb. 383; Stover v. Flack, 30 N. Y. 64. . ' Handy ». Draper, 89 N. Y. 334; Shellington v. Howland, 53 N. Y. 372 ; Burr v. Wilcox, 33 N. Y. 557. • Wheeler ®. Millar, 90 N. Y. 358. liroiVIDUAIi LIABILITY OP STOCKHOLDERS. 123 Though a creditor, before suing a stockholder, must obtain judgment against the company, he cannot recover in his action against the stockholder the costs of his prior action against the company.^ § 107. Stockholders severally liable to such contract creditors as are within section 24.— The liability of stockholders under section 10, is a several individual liability of each stockholder directly to such of the creditors as have complied with the requisite con- ditions precedent, set out in section 24,^ and whose claims are contract debt, contracted to be paid within one year. * The right of a creditor under section 10 is a several and distinct right, and not a joint right in the creditors generally. He can therefore sue alone to enforce this liability, although there may be other cred- itors similarly situated.* And he may make defendant any stockholder who was such when the company debt on which he sues was made or contracted, and the trustees of the company are not necessary parties defendant.^ This action so brought by a single creditor, suing alone for his own claim, is one at law.^ § 108. Action at law against a single stockholder usually best, but may be defeated by legal or equitable set-off. — Its simplicity and convenience render such 'Bailey «. Bancker, 3 Hill, 188; Miller v. White, 50 N. T. 137. ' Farnsworth v. Wood, 91 N. T. 308. ' Cuykendall v. Corning, 88 N. T. 139. ' Weeks v. Love, 50 ST. T. 568. ' Harris v. Norvell, 1 Abb. N. C. 137 ; Strong v. Wheaton, 38 Barb. 616. ' Mathez v. Neidig, 73 N. Y. 100 ; Flash v. Conn, 109 U. S. 371 ; s. o. Supreme Ct. Reporter, vol. 3, p. 263 ; Weeks v. Love, 33 N. T. Superior, 397; Bank, &c. ■». Ibbotson, 5 HiU, 641 ; s. c. 24 Wend. 473. 124 INDIVIDUAL LIABILITr OP STOCKHOLDERS. action at law by far the most common method of enforcing the individual liability of stockholders^ and it is in general the most speedy and effective remedy of the creditor. It is however subject to be wholly defeated by proof, under the appropriate pleadings, that the particular defendant sued is a cred- itor of the company to an amount equal to the amount ot his stock.^ This is not a direct provision of the statute, but an equitable construction put upon it hj the courts, upon the assumption that it was not the design of the framers of it, that a stockholder who was a creditor of the company to the full amount of his stock should be individually liable to another creditor ; as he stands upon the same ground, and is entitled to claim under the act equally with the creditor who is not a stockholder. ^ The statute liability created or declared by section 10, constitutes a fund which belongs to the contract creditors of the company, to secure the payment of their debts; but it belongs to all such creditors, as well those who are stockholders as those who are not. This defense so interposed by a creditor-stockholder, does not constitute an absolute bar to all claims, like a recovery by, and payment to, another creditor for the whole amount of personal liability of a stockholder,* nor is it strictly- an offset at law ; but it is a defense to this form of action, in the nature of an equitable off- set, based upon the equitable rights of the defendant to 'Garrigon v. Howe, 17 N. T. 458; Mathez v. Neidig, 70 N. T. 100; Agate e. Sa'hds, 73 N. Y. 620. " Briggs V. Comwell, 9 Daly, 436 ; Brigga o. Penniman, 8 Cow. 392 ; Matter of Empire City Bank, 18 N. T. 199, 237 ; Bank, &c. ». Ibbotson, 24 Wend. 473. 'Ante, § 106. INDIVIDUAL LIABILITY OF STOOKHOLDBES. 125 the fund sought to be taken from his possession, with- out the necessary facts appearing, or being capable in that action of appearing, to enable the court to deter- mine the extent of those rights.^ IS^or is it necessary to enable a defendant to inter- pose this defense that he should bring himself and his <;laim within the provisions of section 24, requiring a suit on the debt to be brought against the company within one year. By section 10, the stockholders are declared liable generally; it is the remedy or right of action to enforce this liability, which is limited and pre- scribed by section 24,* and the creditor-stockholder by this defense does not seek to enforce a personal liability in any such sense as is contemplated by that section.® § 109. What claims a-creditor-stockholder may jequita,- hly oifset. — So long as the claim of the stockholder is a valid one, of the nature specified in sections 10 and 24, and constituting a hona fide indebtedness from the company, it is of no importance how, or for what it arose. Payment of company notes, or payment of its laborers^ or payment and discharge of judgments against it, have all been admitted under this defease. Where the stock- holder introduced evidence of a loan by him to the company, to an amount equal to his stock, it was held a good defense, and the fact that security was taken by him for the loan was held immaterial; and it seems that, in the absence of any evidence on the point, it would be inferred that money so loaned was prop- erly applied by and for the company.* ' Mathez ». Neidig, 73 N. T. 100, opinion per Church, C. J. pp. 104, 105. ° Weeks «. Lore, 33 N. Y. Superior, 397, per Barbour, C. J. " Mathez ». Neidig, 72 N. Y. 100, 107. * Agate «. Sands, 73 N. Y. 620 ; affl'g s. o. 8 Daly, 66. 126 DfTOIVIDUAL LIABILITY OF STOCKHOLDERS. But where the fair inference from the evidence was that a stockholder who, in his answer, claimed to be a creditor of the company, was really its debtor, it was held that an action at law by a single creditor was properly brought and maintained against him.^ § 110. Rule where creditor-stockholder is also a debtor of company.— So, too, where a stockholder sued in such an action set up by way of equitable offset an alleged debt due him from the company, and it appeared on the trial that the amount of this claim was less than the amount due the company on his subscription to its capital stock, it was held that he was not entitled to any offset ; that he was bound first to pay his own debt to the company, and only in case there was a balance due him after such payment could he set off that bal- ance ; that it was immaterial that the claim had not been actually applied on his subscription, as the plaint- iff had a right to insist that equitably it should be so applied when defendant stood upon an equitable right.^ § 111. Questionable limitation of this priTilege of equitable offset — There are certain dicta in a very re- cent case in the Court of Common Pleas, to the effect that, to establish such defense, the stockholder must show that he has benefited the company to the extent of the amount claimed as a set off.; and that bonds and notes of the company acquired after its insolvency from third parties, the purchase of which is not shown to have put anything into the company's treasury, cannot ' Hermance o. Hilmers, 8 Weekly Dig. 322. ' Wheeler n. Millar, 90 N. T. 353. INDIVIDUAIi LIABILITY OF STOCKHOLDEKS. 127 be so set ofF.^ This view was not essential to the decision of the case, the particular bonds and notes therein set up not being satisfactorily established to be valid obligations of the company ; and it is not per- ceived why any such distinction should prevail as to obligations of the company contracted to be paid within one year. The reasoning establishing this de- fense does not go in any way on any benefit done to the company, or on any improvement effected in its treasury on the part of the stockholder defendant. Its position is simply that he too is a creditor of the company, and has some right to the fund which is established by the provisions raising an individual liability ; that in an action at law by a single creditor against him personally to reach a portion of that fund, his own rights to that portion, as well as to the rest of the fund, cannot be determined ; and that it would be highly inequitable to compel him as a stockholder to pay over to a creditor a fund to which, as a fellow creditor, he may have an equal right, and which, more- over, is already in his possession. The case in the Supreme Court of the United States ^ relied on in the Common Pleas, is in reality opposed to the' doctrine therein laid down. That was a suit brought by the assignee of a bankrupt corpora- tion for an unpaid subscription, where it was held that a stockholder could not set off against that trust fund devoted to the payment of all creditors, a debt due him by the company; for that would be appropriating all the trust fund which his subscription constituted to ' Briggs B. Cornwell, 9 Daly, 436. = Sawyer v. Hoag, 17 Wallace, 610. See, also, Scoville v. Thayer, 105 U. S. 143.' 128 INDIVIDUAL lilABILIXT OF STOCKHOLDERS. the exclusive payment of his ovrn claim. The effect of such a suit by an assignee of the corporation is to es- tablish a fund in which all creditors shall equitably share; but the effect of an action at law by a single creditor, under section 10, is that that one creditor is paid in full, regardless of the claims of others, and it is for that reason that to this strictly legal and in no sense equitable action, the equitable defense in question can be interposed. It is no absolute bar to, and dis- charge of, the defendant's liability as a stockholder, but it prevents any unjust discrimination against his rights as a creditor, which in an action at law cannot be de- termined. § 112. Creditor may bring equitable suit.— But a judgment-creditor of the corporation is not confined to this action at law to avail himself of the liability created and limited by sections 10, 11 and 24. He has his election to bring such an action against a stockholder, subject to the risk of being met and defeated therein by the equitable defense above set out. Such action is in general his safest, speediest and most convenient remedy, and is the one almost universally resorted to ; but he is not limited to that. He has also his election to bring a suit in equity against all stockholders liable to him, and in behalf of all creditors in the same situa- tion as his, for the establishment of the fund, for the adjustment of all liabilities to contribute thereto, and of all claims thereon.^ ' Pfohl V. Simpson, 74 N. T. 137; Bank o. Ibbotson, 34 Wend. 73; Mathez ». Neidig, 72 N. Y. 100; Briggs s. Penniman, 8 Cow. 392; Griffith e. Mangam, 73 N. Y. 611. See, also. Code Civil Procedure, §§ 1784, 1790, 1791, 1796 ; L. 1883, c. 378; Yeeder s.Mudgett, 27 Hun, INDIYlDUAIi LIABILITY OP STOOKHOLDEES. 129 § 113. Rules gOTerning such equitable suit. — In such a suit the court may provide for taking an account and enforcing the liability of all liable stockholders, for the benefit of all creditors entitled to share in the fund to be collected from such stockholders.^ But it is essen- tial that such suit shall be brought against all the stockholders in like category, and no others,^ and be promoted for the benefit of all creditors having a like interest. The court can only divide among all the creditors having legal claims against one or more stock- holders, the avails of the liabilities of those stock- holders; it cannot take from one creditor his right against a certain stockholder, and give it in whole or in part to a creditor having no legal right against that stockholder; nor can it compel such stockholder to contribute to the payment of such latter creditor's claim.® § 114. Court of equity will restrain in such equitable suit separate actions at law against shareholder.— As this equitable suit is for a general accounting — the establishment of a common fund and adjustment of all the rights thereto — a court of equity can, on a proper application therein, restrain separate and individual ac- tions at law in the same or other courts brought to reach that common fund, and thus bring all the litiga- tion into one suit;* and it is only under such circum- 519; Veeder v. Judson, 91 N. Y. 374; Vecder v. Mudgett, 38 Hun, 440 (mem.) ; Kodbum v. U. I. & E. Ry. Co. 38 Hun, 369. ' Weeks v. Love, 50 N. Y. 508. ' Judson V. Rossie Galena Co. 9 Paige, 598. = Pfohl V. Simpson, 74 N. Y. 137. * Code Civ. Proo. § 448 ; Pfohl ». Simpson {supra) ; Erie R. R. Co. v. Ramsay, 45 N. Y. 687; Farnswortli v. Wood, 91 N. Y. 308. 9 130 INDIVrDUAX LIABILITY OF STOCKHOLDERS. stances that any creditor can be enjoined from bringing his separate action at law.^ If then the creditor cannot find a responsible stock- holder, who is not at the same time a creditor to the amount of his stock, and consequently able to wholly defeat an action at law, it is still open to him to pro- ceed by a suit in equity for an accounting, and thus to avail himself of the individual liability imposed by statute.^ § 115. Section 10 Imposes no liability in favor of cor- poration, and receirers cannot sue stockholders thereunder. — As this liability does not exist in favor of the cor- poration itself, or for the benefit of all its creditors — but only in favor of such creditors as are within the prescribed conditions ; and is given to be enforced by these in their own right and for their own benefit — it follows that a receiver of the corporation cannot sue a stockholder or stockholders under these sections.* § 116. Section 10 imposes no penalty.— Action under it may be brought in sister States.— The action brought under these sections to enforce the individual liability of a stockholder, is not one for a penalty or forfeiture, but upon contract.* But, as we have seen, an action against a trustee for omitting the annual report is penal.^ It follows, therefore, that a cause of action ■ Farnsworth v. Wood, 91 N. T. 308, 314. See, also, Code of Ciy. Proc. § 1806 ; Mason «. N. Y. Silk Mfg. Co. 27 Hun, 307. Compare Smith V. Banzig, 3 Civ. Proc. Rep. 127. ' Garrison v. Howe, 17 N. Y. 458. ' Farngworth v. Wood (supra) ; Billings «. Trask, 30 Hun, 314. * Flash V. Conn, 109 U. S. 371 ; s. c. Supreme Ct. Reporter, vol. 3, p. 363 ; Coming v. McCuUough, 1 N. Y. 47. ' Ante, §§ 45, 49, 50, 51, 64. IKDtVIDUAL LIABILITY OF STOCKHOLDERS. 131 under section 10 cannot properly be united witli one under section 12, and a complaint attempting so to do will be demurrable.^ And an action against a defend- ant as trustee under section 12, is no bar to an action to recover against him as a stockholder on the same debt under section 10, and vice versa? It follows also from the nature of the liability that, unlike the liability of trustees,^ its enforcement is not limited to this State. The better opinion being that an action to en- force it may be properly brought, and will be enter- tained, in the courts of sister States.* § 117. Questionable whether stockholder may sue co- stockholder under section 10.— It was broadly held by the Superior Court of the city of New York, in the case of Deming v. Puleston, ® that one stockholder in a corporation created under this act cannot at law en- force the liability of another stockholder of the same corporation under any of the provisions of the act. In a prior case in the same tribunal, to which the atten- tion of the court apparently was not directed in Dem- ing V. Puleston, it was held, in a well considered opin- ion, that the mere fact that one stockholder was suing a,nother to recover, in whole or in part, a debt due ' Wiles V. Suydam, 64 N. T. 173; Mappier ®. Mortimer, 11 Abb. Pr. N. S. 455. Contra, Sterne ». Herman, lb. 376. ' Douglass V. Ireland, 73 N. Y. 100. ° A'nte, § 45. * Pugh «. Hurtt, 53 How. Pr. 33: Cuykendall ». Mills, 10 Fed. Rep. 343; Flash ®. Conn, 16 Fla. 438 ; 109 U. S. 371. But.see, co-nira, Halsey V. McLean, 13 Allen, 438; Ericksen v. Nesmith, 4 Allen, 333; Mitchell n. Hotchkiss, 48 Ct. 9 ; Steam Engine Co. «. Hubbard, 101 U. S. 188. 'Demiug v. Puleston, 33 N. Y. Superior, 331 ; citing Bailey ». Banck- er, 3 Hill, 188 ; Andrews ®. Murray, 33 Barb. 354 ; Richardson «. Aben- droth, 43 Barb. 163. See, also, Waite ». Furguson, 14 Abb. Pr. 379. 132 INDIVIDUAL LIABILITY OF STOCKHOLDERS. from the company, was not per se, either at law or in equity, a bar to the action ; that if the plaintiff held stock less in amount than the defendant, such defend- ant would not on any principle be entitled to any greater relief than an abatement from the liability de- clared by statute, of a sum equal to the amount of the stock held by plaintiff; and that even this deduction could not be made, if the plaintiff had theretofore under legal compulsion paid creditors' claims to the full amount of his liability. ^ It will be observed, that the cases relied on in Dem- ing V. Puleston turned upon statute provisions impos- ing a general and unlimited liability upon stock- holders jointly and severally, and their reasoning is to a great degree inapplicable to sections 10 and 24 of this act.^ No reason is obvious why a stockholder who was not one when he became a creditor of the company^ and who consequently was never liable for that debt,, should not have a perfect cause of action under these sections against a stockholder existing when the debt was made or contracted ; and in many other supposable conditions the case is certainly not clear against the plaintiff-stockholder. Upon this point the law cannot be considered as settled. § 118. Who may sne.— With this single exception however, it is in the power of every creditor of the corporation, whose claim is a contract debt contracted to be paid within one year, to maintain his action at ' Woodruff & Beacb Irou Works v. Chittenden, 4 Bosw. 406. " See, however, WUes s. Suydam, 64 N. Y. 173, 176 ; Corning t. Mc- CuUough, 1 N. Y. 47 ; Waite o. Furguson, 14 Abb. Pr. 379. INDIVIDUAL LIABILITY OF STOOKHOLDBES. 133 law against a stocTsholder under section 10, by com- plying with tlie statutory prerequisites of section 24 ; and this right of action passes to his executors or assignees.; and the assignment of the judgment against the company carries with it the right to maintain such action against liable stockholders.^ These statutory requisites must however be strictly ■complied with. § 119. What creditor must show to recover against stockholder. — To disclose a right of action in favor of any given creditor against any given stockholder, it must be alleged and proved — (1), that the capital was not paid in, or that a proper certificate thereof was not recorded ; ^ (2), that the debt for which the stockholder is sought to be charged was a contract debt; (3), con- tracted to be paid within one year;^ (4), that the de- fendant was a stockholder when the debt was made or contracted ; * (5), that suit was brought against the cor- poration thereon within one year from the time the debt became due; (6), that judgment was thereupon recovered thereon against the company in a court of this State of general jurisdiction ; and (7), that an exe- cution was thereupon issued against said company, and ' Woodruff & Beach Iron Works ®. Chittenden, 4 Bosw. 406. ^ Ante, §§ 99, 100. Where the original capital has been fully paid in and subsequently the capital has been increased under sections 30, 31, 33 {ante, § 81), holders of such original stock are not liable to creditors by reason of a failure to pay in the increased capital ; and to disclose a -cause of action against a stockholder in such a case, the creditor must show that the stock held by such stockholder is a part of the increased capital. Veeder v. Judson, Court of Appeals, Mch. 18, 1884. See Ap- pendix. Mnie, §§ 99, 101. *Ante, §101. 134 INDIVIDUAIi LIABILITY OF STOCKHOLDERS. returned unsatisfied in whole or in part; or (8), that the recovery of such judgment was rendered impos- sible by act of the defendant or of the law.^ § 120. When action to he hronght against company un- der section 24.— The first four of these essential ele- ments have already been discussed. As to the fifth it is important to observe, that the time within which action must be brought against the company in order to secure to the creditor his i-emedy against stockholders, begins to run from the instant the original debt becomes due.* The liability of a stockholder in such cases cannot be renewed oi- extended by any renewal or extension of that indebtedness which the creditor may make with the company. Thus, in a recent case, a debt was due from the company in March, 1867, and in August, 1868,, a part was paid in cash, and the company's five months'^ note given for the remainder. This note was unpaid, action on it against the company begun in July, 1869, judgment obtained, and execution returned unsatisfied ; but in the suit immediately brought thereon against a stockholder under section 10, the court held that the acceptance of the note did not merge or extinguish the original indebtedness, but only operated to extend the time of payment ; and as the plaintiff had not brought his action against the company within one year from March 7, 1867, the defendant was not liable.* ' Cuykendall v. ComiDg, 88 JST. T. 129 ; Handy ». Draper, 89 N. T. 334. " Jagger Iron Co. v. Walker, 76 N. Y. 531 ; aflB'g s. c. 43 N. Y. Superi- or, 275; overruling Fisher ». Marvin, 47 Barb. 161. = Parrot I). Colby, 6 Hun, 55; affi'd, 71 N. Y. 597, on this opinion ; Parrot «. Sawyer, 87 N. Y. 632. INDIVIDUAL LIABILITY OF 8T0CKH0LDEES. 135 § 121. Judgment to he recovered therein, and execution to he issued.— But the bringing of such a suit against the company within the limited time is not suflScient. A judgmeni; must be recovered in the action brought against the company, and an execution thereupon is- sued out of a court of this State, of general jurisdic- tion ; and such execution must be returned unsatis- fied in whole or in part, before the creditor can main- tain an action against a stockholder on his individual liability ; and this is as essential to an action against a continuing stockholder as to an action against one who has ceased to be such.^ A proceeding affecting only specific property of the corporation, and execution against that property only, is not a compliance with the condition ; ^ and it has been held that no more can be recovered in an action against the stockholder than was claimed and recovered in the preliminary action against the company, and that a suit for a part of the debt against the company, will not justify the recovery of the whole debt from the stockholder.^ § 122. Judgment against company no evidence of debt in action against stockholder. — 4-fter much fluctuation of opinion in the courts, it is now settled that, to es- tablish the debt in an action against a stockholder un- der section 10, proof that judgment was recovered against the company thereon is not sufficient ; it is in- ' Handy v. Draper, 89 N. T. 334 ; rev'g s. c. 33 Hun, 356 ; Rocky Mountain Natl. Bank v. Bliss, 89 N. T. 338; Dean v. Mace, 19 Hun, 391; Viele V. Wells, 9 Abb. N. C. 377 ; Lindsley v. Simmons, 3 Abb. Pr. (N. S.) 69; Merrit v. Reid, 13 Weekly Dig. 453; Agate v. Edgar, G. T. N. Y, Common Pleas (not reported). ' Rocky Mountain Natl. Bink ». Bliss (supra) ; Agate v. Edgar (supra). ^ Shellington v. Howland, 67 Barb. 14. 136 lUDIVXDUAIi LIABILITY OF STOCKHOLDERS. cumbent on plaintiff in such action to verify by com- petent satisfactory evidence the claim against the com- pany, the same as if no action had been previously brought against it, and the judgment against the com- pany is not even prima facie evidence of the debt in the action against the stockholder. It is of no virtue or effect against him, and is only evidence as proving the performance on the part of the creditor of the con- dition precedent.^ But v?hen introduced in evidence, as they must be,- for the sole purpose of proving such performance, the validity of the judgment and execu- tion against the company cannot be disputed by the stockholder for mere irregularities therein.'' § 123. When certain requisites prescribed by section 24 are excused.— But though, as vpe have seen, the com- mencement of an action against the company for the debt, the recovery of judgment therein, the issue of exe- cution thereon from a New York court of competent jurisdiction, and the return of that execution wholly or partially unsatisfied, are essential statutory conditions precedent to an action to enforce the individual liabili- ty of a stockholder, yet the performance of these con- ditions will be excused when they have been rendered 'Kincaid o. Dwinelle, 59 N. T. 548, 551 ; Millers. White, 50 N. Y. 137; Bailey «. Bancker, 3 Hill, 188; Wheeler ». Miller, 24 Hun, 541; Handy o. Draper, 33 Hun, 256 ; McMahon v. Macy, 51 N. Y. 155 ; Bel- mont V. Coleman, 21 N. Y. 96, 102; McHarg r. Eastman, 4 Bobt. 636; McHarg e. Eastman, 7 Robt. 137; Wetherhead i>. Allen, 3 Keys, 563; Strong ». Wheaton, 38 Barb. 616 ; Morse i>. McCuUough, 5 Hill, 131 ; See, contra, Belmont v. Coleman, 21 N. Y. 100, 101; Collins ®. Suau, 7 Kobt. 623 ; Lewis v. Ryder, 13 Abb. Pr. 1; Hoagland v. Bell, 36 Barb. 57 ; Slee v. Bloom, 20 Johns. 669, 684 ; Moss v. Oakley, 3 Hill, 265 ; Moss V. McCullough, 7 Barb. 279, 296 ; Doctor v. Guggenheim [City Court of New York], N. Y. Daily Register, Feb. 20, 1884. ' Wheeler v. Miller, 34 Hun, 541. INDIVIDUAL LIABILITY OF STOCKHOLDERS. 137 impossible of performance by act of the stockholder- defendant or of the law ; as where the action against the company, duly and timely begun by the creditor, was stayed by an injunction in bankruptcy proceed- ings obtained by the defendant ; ^ or where the corpo- ration was dissolved by judgment of a court of compe- tent jurisdiction before the year, limited by section 24 to the creditor to bring his preliminary action against the company, had expired.^ But the facts excusing such performance should be alleged in the complaint.^ But this excuse is only admissible where these conditions precedent are ' absolutely impossible to be performed- The creditor will not be heard to allege that the com- pany was insolvent, or that action against it would be fruitless. The courts have no power to dispense with the full performance of the statutory conditions, except upon the grounds already stated.* So, where a corpo- ration was thrown into involuntary bankruptcy by its creditors, it was held that one of these creditors must bring an action against the company within one year from the time the debt became due, recover judgment thereon, issue execution and have it returned unsatis- fied, if he would bind the stockholders; that a com- plaint not alleging a compliance with the statute in those regards, was demurrable.^ ' Shellington v. Howland, 53 N. T. 371. ' Kincaid i). Dwinelle, 59 N. Y. 548, 551 ; Sturges v. Vanderbilt, 73 N. Y. 384 ; McCulIoch v. Norwood, 58 N. Y. 562. = Cuykendall v. Coming, 88 N. Y. 139 ; Lindsley v. Simmons, 2 Abb. Pr. (N. S.) 69. * Birmingham Natl. Bank v. Mosser, 14 Hun^ 605. ' Birmingham Natl. Bank v. Keck, 55 How. Pr. 222 ; Allen v. Ward, 36 N. Y. Superior, 290. See, also, Pleischauer «. Dittenhoefer, 18 Weekly Dig. 18 ; Knauer v. Globe Mutual Life Ins. Co. 46 N. Y. Superior, 370. But see Plash v. Conn. 109 U. 8. 371. 138 INDIVIDUAL MABILIXy OP STOCKHOLDERS. § 124. Stockholders holding stock issued for property Creed from liaMity under section 10.— It is to be ob- served, however, as a peculiar feature of this act, that it authorizes the creation of a class of stockholders who will be free from all liabilities under section 10, and to whom none of the foregoing rules apply. By the amendatory act of 1853,^ the trustees may purchase mines, manufactories, and other property necessary for their business, and issue stock to the amount of the value thereof in payment therefor. Under these provisions the whole capital stock, or any portion thereof, can be paid for in property; and when so paid for, the holder thereof, by the express terms of the act, is liable henceforth neither to the company itself for calls, nor to the creditors of the company for their claims against it.** If, then, any part of the stock has been so issued, there being no fraud in the valuation of the property, the holders of that stock cannot be rendered liable to creditors by a failure to pay in the remainder of the capital, nor by an omission to record the certificate of such payment.^ And the holder of such stock so issued for property, if sued under section 10, may, in his answer, couple with his admission that he is a stock- holder, an averment that his stock was so issued, and was full paid and not liable to further calls or pay- ments ; and such an admission does not aid the plaint- iff. If on the trial there is no other evidence of de- ' L. 1853, c. 33, § 2. , See anU, § 78. ' Schenck v. Andrews, 46 N. Y. 589. ' Brown v. Smith, 13 Hun, 408 ; aifi'd, on this opinion, in 80 N. T. 650 ; overruling Brown v. Torrey, 10 J. & S. 1 ; Thurber v. Thompson, 21 Hun, 472. INDrV"ID0AL LIABILITY OF STOCKHOLDEKS. ISD' fendant's ownership of stock than such admission, a motion to dismiss the complaint should be granted.'^ § 125. Such stock must, howeyer, haye heen honestly issued hy trustees.— But to afford this protection to the holder, it is essential that the stock should have been honestly issued by the trustees. It will be presumed to have been honestly issued, and the burden will be on the creditor to prove the contrary.* Where the stock of a company is issued in form for property, it is- to be regarded as full-paid stock, unless there is shown to have been in said issue a fraudulent overvaluation,. and an intent to evade the statute.* To charge the holder of stock so issued individually for the debts of the company, it is not enough to prove that the property was purchased and paid for at an overvaluation through a mistake or error of judgment on the part of the trustees ; but it must be shown that the purchase at the price agreed upon was in bad faith and to evade the statute. To do this, it is sufficient to- prove two facts : (1) That the stock issued exceeded in amount the value of the property in exchange for which it was issued, and (2) That the trustees de- liberately, and with a knowledge of the real value of the property, overvalued it, and paid in stock for it an amount which they knew was in excess of its actual value.* If the creditor succeeds in establishing these two positions, the holder of such stock is thereby ' Lewis V. Ryder, 13 Abb. Pr. 1. ' Chase «. Lord, 77 N. T. 1. = Draper v. Beadle, 16 Weekly Dig. 475. * Lake Superior Iron Co. v. Drexel, 90 N. T. 87 ; Douglass i>. Ireland, 78 N. T. 100; Schenck «. Andrews, 57 N. T. 133; Brockway«. Ireland, 61 How. Pr. 369. 140 INDIVIDUAL liIABILITT OF STOCKHOLDERS. placed in exactly the same position as if he were a holder of partially unpaid cash stock ; the protection of the Act of 1853 is withdrawn fi'om him, and he is liable under the same conditions as the ordinary stock- holder, to the same extent, and no further or other- wise.^ § 126. Stockholders ceasing to be such, how long liable thereafter. —It will be seen on reference to section 24, that the act discriminates between continuing stock- holders and those who have ceased to be such ; by providing, as an especial statute of limitations for the benefit of the latter, that " no suit shall be brought against any stockholder who shall cease to be a stock- holder in any such company, * * * unless the same shall be commenced within two years from the time he shall have ceased to be a stockholder in such com- pany." " But in construing this provision the courts have held that a company which has been enjoined from the exercise of its corporate franchise, and deprived of its property, and thus for all practical purposes has ceased to exist, is not thereby actually dissolved ; that it cannot be dissolved save by the judgment of a court of competent jurisdiction ; and that until then cred- itors may proceed by suit against it, unless stayed by injunction, and its stockholders do not cease to be suck* A receiver pendente lite is not the proper defendant on " Boynton ®. Andrews, 63 N. Y. 93 ; Boynton 8. Hatch, 47 N. Y. 335. = L. 1848, c. 40, § 34; ante, § 9a. ' Kincaid «. Dwinelle, 59 N. Y. 548 ; New England Iron Co. «. Cil- ■bert El. R. R. Co. 91 N. Y. 153. Compare, ante, § 59. But see Eddy «. Co-operative Dress Ass'n, 3 Civ. Proc. R. 443. INDIVIDUAL LIABILITY OF STOCKHOLDEES. 141 .a cause of action against the corporation arising prior to his appointment.^ § 127. Limitations applying to actions under section 10. — Apart from this especial provision, the ordinary- limitation of six years applies to these actions ; ^ and as- the creditor cannot maintain such an action against an individual stockholder until he has obtained a judg- ment against the company upon his claim> and until an execution has been issued thereon and returned un- satisfied,* it follows that this six years' statute of limita- tions does not begin to run in favor of the stockholder until after the return of that execution against the company.* § 128. As to right of contribution between stockholders. — A stockholder who has been compelled, under sec- tions 10 and 24, to pay the debt of his corporation,, may maintain a suit in equity for contribution against the remaining stockholders who were originally liable with him for the same.^ The right of contribution only applies where one of the parties liable has paid a claim for which all are liable.'' ' Fleischauer v. Dittenhoefer, 18 Weekly Dig. 18 ; Knauer v. Globe Mutual Life Ins. Co. 46 N. T. Superior, 370. •' Corning v. McCuUough, 1 N. Y. 47 ; Code of Civ. Proc. § 383 ; Wiles V. Suydam, 64 N. Y. 173; Mappier v. Mortimer, 11 Abb. Pr. N. S. 455. ' Ante, § 121. * Handy v. Draper, 89 K Y. 334 ; Merritt v. Raid, 13 Weekly Dig. 453. ' Aspinwall v. Saccbi, 57 N. Y. 331 ; s. c. reported below under title Aspinwall v. Torrance, 1 Lans. 381. • Bailey v. Bancker, 3 Hill, 188. 142 IKDIVrOTJAL LIABILITY OP STOCKHOLDERS. Whether such a stockholder could maintain an action at law against a fellow stockholder to recover an aliquot proportion ot' the corporation debt is un- ■certain. Where the action against the stockholder had been maintained under the provisions of section 18 of the act/ it was held that his only remedy against his fellow stockholders was a suit in equity against all ; * but that case cannot be considered as settling the law where the stockholder's claim to contribution arises from judgments recovered against him under the sec- tions * now under consideration. § 139. Provisions exempting executors, pledgees, etc., from personal Uability.— Section 16.-^No person holding stock in any such company, as executor, administrator, guard- ian or trustee, and no person holding such stock as collateral security, shall be personally subject to any liability as stock- liolder of such company ; but the person pledging such stock shall be considered as holding the same, and shall be liable as a stockholder accordingly, and the estates and funds in the hands of such executor, administrator, guardian or trustee, shall be liable in like manner, and to the same extent as the testator or intestate, or the ward or person interested in such trust fund would have been, if he had been living and com- petent to act, and held the same stock in his own name. § 130. When exemption applies.— By the foregoing very clear provisions persons holding stock in these ■corporations as collateral security, and persons holding such stock in either of the fiduciary capacities above specified, are free from any personal liabilities under this act. ' Ante, § 94. " Clark «. Myers, 11 Hun, 608. • Ante, § 99. INDIVIDUAL LIABILITY OP STOCKHOLDERS. 143 Where, however, by agreement between S. and F. $1,000 of stock were bought by S. to be held in his name for the joint account, it was held that S. was not a trustee for $500 thereof under these provisions of the statute ; but was liable to the full extent of the stock ; and that having paid $1,000 to a creditor, whose claim, under sections 10 and 24 of the act was clear, he could recover $500 from the joint owner F., although he did not wait to be sued before paying the creditor.^ § 131. Liabilities of stockholders apart from act.— The provisions of sections 10, 18 and 24, cover and in- ■clude all the individual liabilities of stockholders, and rights of the company's creditors against them, given or imposed by the act. We have seen, however, that on the general princiT pies of law, a creditor of a corporation, who has exhaust- ed his remedy at law against it, can bring suit against a stockholder who has not paid in his subscription, to reach and apply to the satisfaction of such creditor's ■claim the amount so unpaid upon the defendant's stock.* So, too, the assets of a corporation — whether in- corporated under the act or not — are a trust fund for the payment of its debts, and its creditors have a lien thereon, and a right to priority of payment therefrom over its stockholders, and may follow it into the hands of such stockholders. When, therefore, the property of a company has been divided amongst its stock- holders, a judgment-creditor, after return of execution against the company unsatisfied,* may maintain alone ' Stover V. Flack, 30 N. T. 64. ' Ante, § 86. See Thompson's Liability of Stockholders, ^ 1. » Sturges V. Vanderbilt, 73 N.' Y. 384. 144 INDIVIDUAL LIABILITY OF STOOKHOLDBBS. an action in the nature of a creditor's bill against a single stockholder, to reach whatever was so re- ceived by him.^ And in such an action, unlike the statutory action under section 10,'^ the judgment against the company is at least prima facie evidence against the stockholder, that the claim against the company is a valid one.* ' Bartlett ». Drew, 57 N. Y. 587 ; 4 Lans. 444 ; 60 Barb. 648 ; Graham «. Hoy, 38 N. Y. Superior, 506. ' Ante, § 132. " Hastings B. Drew, 76 N. Y. 9; Stephens ». Pox, 83 N. Y. 318 ^ Doctor V. Gruggenheim [City Court of New York], N. Y. Daily Regis- ter, Feb. 20, 1884. CHAPTER IX. POWERS AND PRIVILEGES OP CORPORATIONS FORMED UNDER ACT. § 133. Provisions as to general powers. 133. Other general powers. 134. Company may mortgage. 185. Mortgage, when and how made. 136. Privileges of purchasers at mortgage sale of franchise and prop- erty of corporations. 137. Two or more companies may consolidate. 138. Company may change corporate name. f 139. May hold stock of certain other corporations. 140. May extend duration of corporate existeace. 141. May change its place of business. 143. May carry on business out of State. 143. Other special privileges. § 133. ProTisions as to general powers. — Section 26.* — Every corporatign created under this act shall possess the general powers and privileges, and be subject to the liabilities and restrictions contained in title third of chapter eighteen of the first part of the Revised Statutes.^ And the provisions of ' As amended^ L. 1861, c. 170, § 1. ' The provisions of title third of chapter eighteen, of the first part of the Revised Statutes, referred to in the above section, are as follows : Sbction 1. Every corporation, as such, has power : 1. To have succession, by its corporate name, for the period limited in its charter; and when no period is limited, perpetually. 3. To sue and be sued, to complain and detiend, in any court of law or equity. 3. To make and use a common seal, and alter the same at pleasure. 4. To hold, purchase and convey such real and personal estate, as the purposes of the corporation shall require, not exceeding the amount limited in its charter. 5. To appoint such subordinate officers and agents as the business of the corporation shall require, and to allow them a suitable compensa- tion. 10 146 POWEES ANB PRIVILEGES UNDER ACT. section six, article first, title two, chapter thirteen of the first part of the Revised Statutes shall apply to every such corpora- tion. [Consult, ^os^, § 144. J 6. To make by-laws not inconsistent with any existing law, for the management of its property, the regulation of its affairs, and for the transfer of its stock. § 2. The powers enumerated in the preceding section shall vest in every corporation that shall hereafter be created, although they may not be specified iu its charter, or in the act under which it shall be incorporated. § 3. In addition to the powers enumerated in the first section of this title, and to those expressly given in its charter, or in the act under which it is or shall be incorporated, no corporation shall possess or exercise any corporate powers, except such as shall be necessary to the exercise of the powers so enumerated and given. § 4. No corporation created, or to be created, and not expressly in- corporated for banking purposes, shall, by any implication or construc- tion, be deemed to possess the power of discounting bills, notes, or other evidences of debt, of receiving deposits, of buying gold and silver, bul- lion or foreign coins, of buying and selling bills of exchange, or of issu- ing bills, notes, or other evidences of debt, upon loan, or for circulatioa as money. § 5. Where the whole capital of a corporation shall not have been paid in, and the capital paid shall be insuflScient to satisfy the claims of its creditors, each stockholder shall be bound to pay on each share held by him, the sum necessary to complete the amount of such share, as fixed by the charter of the company, or such proportion of that sum as shall be required to satisfy the debts of the company. § 6. When the corporate powers of any corporation are directed by its charter to be exercised by any particular body or number of persons, a majority of such body or persons, if it be not otherwise provided in the charter, shall be a sufiicient number to form a board for the trans- action of business; and every decision of the majority of the persons duly assembled as a board, shall be valid as a corporate act. § 7. If any corporation hereafter created by the Legislature shall not organize and commence the transaction of its business within one year from the date of its incorporation, its corporate powers shall cease. § 8. The charter of every corporation that shall hereafter be granted by the Legislature, shall be subject to alteration, suspension, and repeal, in the discretion of the Legislature. § 9. Upon the dissolution of any corporation, created or to be created, and unless other persons shall be appointed by the Legislature, or by POWERS AND PRIVILEGES UNDER ACT, ' 147 §133. Other general powers.— Section 2^ provides that corporators who form a company under this act, "shall by their corporate name be capable in law of purchasing, holding and conveying any real and personal estate whatever which may be nec- essary to enable the said company to carry on their operations named " in the certificate of incor- poration. This is the only limitation placed by the law upon the amount of real or personal estate which a corpora- tion under this act may hold.^ Real estate may be acquired and held out of this State.^ The operations of every company must be confined to the business which by its certificate of incorporation it is authorized to carry on,* unless such business has been extended under other provisions of the act. The some court of competent authority, the directors or managers of the affairs of such corporation at the time of its dissolution, by whatever name they may be known in law, shall be the trustees of the creditors and stockholders of the corporation dissolved, and shall have full power to settle the affairs of the corporation, collect and pay the outstanding debts, and divide among the stockholders the moneys and other prop- erty that shall remain, after the payment of debts and necessary expenses.' § 10. The persons so constituted trustees shall have authority to sue for and recover the debts and property of the dissolved corporation, by the name of the trustees of such corporation, describing it by its corpo- rate name, and shall be jointly and severally responsible to the creditors and stockholders of such corporation to the extent of its property and effects that shall come into their hands. Note. — Real estate held by a corporation upon its dissolution does not revert to the grantors, but passes to the trustees under these provisions.. Heath v. Barmore, 50 N. Y. 303. 'Ante, §6. ' Greenpoint Sugar Co. v. Whitin, 69 N. Y. 338. 'Post, §143. * Colles V. Trow City Directory, 11 Hun, 897. 348 POWERS AND PRIVILEGES UKDER ACT. business carried on may of course be prosecuted in all its details.^ §134. Company may mortgage.— L. 1864, c. 517, §2.'— Any corporation f onned under the said act passed Feb. 17, 1848, or the acts amending or extending the said act, may secure the payment of any debt heretofore contracted, or which may be contracted by it in the business for which it was incorporated, by mortgaging all or any part of the real or personal estate of such corporation ; and every mortgage so made shall be as valid, to all intents and purposes, as if executed by an individ- ual owning such real or personal estate ; Provided, that the written assent of the stockholders owning at least two-thirds of the capital stock of such corporation shall first be filed in the office of the clerk of the county where the mortgaged property is situated. L. 1869, c. 706, § 1. — In all cases where a corporation shall have heretofore made or shall hereafter make a mortgage of any of its real estate situated beyond the limits of this State, and the recording officer of the county in which such real estate is situated shall have refused or shall refuse to tile or record the assent as now required by law, it is hereby declared to be and to have been a sufficient filing of the assent of the stock- holders if such assent shall have been or sliall hereafter be filed in the office of the clerk of the county where the com- pany has its principal place of business within this State. L. 1875, c. 88, § 1. — In all cases where a corporation haa heretofore executed a mortgage upon any of its real estate, and the written consent of persons owning two-thirds or more of the capital stock of such corporation shall have been given to the mortgaging of such real estate, at or before the time of the giving of such mortgage, but from accident or mistake the said consent has not been filed in the office of the clerk of the ' De Groff v. American Linen Thread Co. 31 N. Y. IgB. » As amended, Laws 1871, c. 481, § 2. POWERS AND PRIVILEGES UNDER ACT. 149 county in which such real estate is situated, as required by law, it shall be lawful for the clerk of such county to receive and file in his ofiSce the written consent so given, abcompanied by the affidavit of any officer or stockholder of such corpora- tion showing that such consent was in fact made and signed, at the time the same purports to have been made and signed, and that the signatures thereto are genuine; and in such case, on filing such consent and affidavit, the said mortgage shall have the like validity and efi'ect from and as of the time of the filing of such consent and affidavit as if the same had been given at that time and had been accompanied or pre- ceded by the filing of such consent ; provided that nothing herein contained shall affect any action or legal proceeding now pending, or impair any intermediate right acquired by lien or otherwise in or to the property of the corporation af- fected by such mortgage. L. 18Y8, c. 163, § 1. — Any company formed under the act entitled " An act to authorize the formation of corporations for manufacturing, mining, mechanical or chemical purposes," passed February seventeen, eighteen hundred and forty-eight, or of the acts amending or extending said act, may secure the payment of any debt heretofore contracted or which may be contracted by it, in the business for which it was incorporated, by mortgaging aU or any part of the goods and chattels of such corporation, and also the franchises, privileges, rights and liberties thereof, provided that the written assent of a majority of the stockholders, owning at least two-thirds of the capital stock of such corporation, shall first be filed in the of- fice of the clerk of the county where the corporation has its principal place of business, and also in the office of the clerk of the county where such goods and chattels are situated. § 135. Mortgage, when and how made.— Every com- pany may now moi'tgage to secure debts, its real and personal estate and its franchises, by complying w^ith the foregoing provisions. The restriction contained in section 2, was wholly 150 POWERS AKD PRIVILEGES UNDER ACT. for the benefit of stockholders, and has been removed by the amendments.^ It Las been held that a company under these pro- visions can only mortgage to secure debts, and that it is not proper for it to give a mortgage to raise money to carry on the business of the company.^ The United States Supreme Court has however held that a mortgage given by a company organized under this act to cover future advances is valid, and within the terms of the remedial amendment of 1864.^ A single mortgage may be given to secure any number of creditors, and no particular form of mort- gage is required, any transfer which is in substance a mortgage being construed as such.* No valid mortgage can be given unless the written assent of stockholders owning two-thirds of the shares of stock of the company is first obtained and filed in the county clerks' office for the county where the mort- gaged premises are situated."* This consent will be liberally construed and parol evidence may be given to explain it ; and if owners of two thirds of all the stock outstanding sign the consent this is sufficient.® The company cannot consent upon stock owned by it, or upon stock directly under its control ; one, how- ever, who has taken stock from the company in pledge, ' Greenpoint Sugar Co. v. Whitin, 69 N. Y. 338. ' Carpenter v. Black Hawk Mining Co. 65 N. Y. 43 ; Denike v. N. Y. & R. L. &c. Co. 80 N. Y. 599. ' Jones V. Guaranty & Indemnity Co. 101 U. 8. (9 Otto), 622. See, also, Central Gold Mining Co. s. Piatt, 8 Daly, 270. 'Greenpoint Sugar Co. v. Whitin {supra). ' Vail V. Hamilton, 20 Hun, 355. POWERS AND PEIVTLEGES UNDER ACT, 151 and who lias a certificate therefor, may assent upon it to a proposed mortgage.^ It is probable that section 17, which authorizes a pledgor to vote upon stock at all meetings of the com- pany, would not empower him to consent upon such stock to a mortgage to be given by the company.* The consent should be filed before, or at the time the mortgage is recorded.* A company cannot authorize an agent to give a mortgage in his own name, and agree to indemnify him thereupon, without the requisite consent of stockhold- ers, as this would be a mere evasion of the law.* It would seem, however, that a lien upon corporate prop- erty might arise by operation of law.^ A stockholder who is also a creditor, and has knowledge of a mortgage executed by his company, cannot take advantage of the defective filing of the necessary consent.^ After judgment of foreclosure has been regularly obtained upon a mortgage by a compa- ny, it will be presumed, in the absence of all proof, that the necessary assent was obtained and filed.'' The receiver of a company may bring an action to set aside an invalid mortgage made by it.^ ' Vail V. Hamilton, 85 N. Y. 453. = Vair». Hamilton, 30 Hun, 355. •'' Greenpoint Sugar Co. ■». Whitin {mpra). •Cox D. Gould, 4 Blatch. 841. = Dubois V. Hall, 43 Barb. 36; Coman ». Lakey, 80 N. Y. 345. 6 Rochester Savings Bank v. Averell, 36 Hun, 43 ; Conkling v. Secor Sewing Machine Co. 55 How. Pr. 369. 'Denike v. N. Y. & R. L. &c. Co. 80 N. Y. 599. ' Vail V. Hamilton (aupra). 152 POWERS AKD PRIVILEGES UNBBR ACT. § 136. Privileges of purchasers at mortgage sale of franchise and property of corporations. — L. 1873, c. 469,^ § 1. — Whenever the franchises, privileges, easements, rights and liberties of any corporation created by any act of the legislature of this State, or formed and incorporated under or by virtue of any general act thereof, and empowered by said act to mortgage its property or franchises, and the property, estate and effects of any such corporation have been hereto- fore or may be hereafter sold by virtue of any mortgage exe- cuted by such corporation ; and whenever the purchaser or purchasers thereof shall have acquired title to the same in the manner prescribed by law, such purchaser or purchasers may associate with him or them any number of persons ; and upon making and filing articles of association as prescribed by this act, such purchaser or purchasers and liis or their associates and their successors and assigns, being residents of this State, shall thereupon become and be a hody politic and corporate, and may take and receive a conveyance of, and shall thereup- on succeed to, possess and exercise and enjoy all the rights, powers, franchises, privileges, easements, liberties, property, estate and effects of which the title shall have been acquired and conveyed as aforesaid . § 2. In case the said corporation whose franchises, privi- leges, easements, rights, powers, liberties, property, estate and effects shall have been so sold as aforesaid, shall have been in- corporated under or by virtue of the provisions of any general statute or statutes of this State for the formation of corpora- tions, the certificate so to be made and filed shall be in the form of and shall state and set forth the particulars which in and by such statute or statutes were required to be stated and set forth in the original certificate of incorporation or articles of association of the said corporation. § 3. In case the corporation whose franchises, privileges, easemepts, rights, powers, hberties, property, estate and effects 'As amended, L. 1880, c. 113. POWERS AND PKIVILEGE8 UNDER ACT. 15S flhall have been so sold as aforesaid, shall have been created by any special act of incorporation, then and in that case said certificates so to be made and filed shall state and set forth the following particulars, namely : — 1 . The name of the body politic and corporate so to be formed as aforesaid. 2. The amount of the capital stock thereof, which shall not exceed the amount of the capital stock of the said former or pre-existing corporation authorized by law at the time of such sale as aforesaid, and the number of shares of which the said stock shall consist. 3. The title and time of the passage of the said original act creating the said former corporation, and any other act or acts relating thereto. 4t. The number of the directors who shall manage the con- cerns of the said body politic and corporate, and the names of the first boajd of directors thereof, and who shall hold their office for one year and until others are chosen in their places. § 4. The said certificate shall be executed in duplicate and acknowledged before some ofiieer competent to take ac- knowledgment of deeds. One of the said duplicates shall b& filed in the office, of the secretary of State, and the other thereof shall be filed in the office of the clerk of the county in which the said corporation first mentioned in this act had its principal place of business : — And thereupon the said body politic and corporate so formed as aforesaid shall exist for the time, and may and shall possess, exercise and enjoy all the powers, privileges, rights, liberties, easements and franchises possessed by the said former corporation ; and in the same man- ner and to the same extent, and with the same force and effect as the same could have been exercised by the said former corpo- ration had not such sale as aforesaid been made : And when- ever, by the decree of the court having jurisdiction of the foreclosure proceedings, it has been adjudged, determined and found by the court what powers, privileges, rights, liberties, easements and franchises were possessed and enjoyed by the former corporation at the time of entering such decree. 154 POWERS AND PRIVILEGES UNDER ACT. and were therein ordered to be sold, the same shall be pos- sessed and enjoyed by the new corporation to which they shall have been conveyed under and by virtue of the decree of foreclosure and sale, as provided for in the act hereby amended. But no omission in such decree to set forth or de- fine any of the rights, privileges or franchises of such former corporation shall in any way impair the rights of such purcha- sers and of such new corporation to possess and enjoy all that was possessed by the former corporation at the time of such sale. § 5. A copy of any articles of association filed in pursu- ance of this act, and certified by the secretary of State and county clerk with whom the same shall have been filed, or their deputies, to be a true copy of such articles and of the whole thereof, shall be received in all courts and places as legal evidence of the incorporation of the said body politic or -corporate so to be formed as aforesaid. § 137. Two or more companies may consolidate. — L. 1867, c. 960." — § 1. Any two or more corporations, organ- ized under the act entitled " An act to authorize the forma- tion of corporations for manufacturing, mining, mechanical or •chemical purposes," passed February seventeenth, eighteen hundred and forty-eight, or any of the acts amending or ex- tending the same, whenever the objects for which such com- panies had been respectively organized were the same or of a .similar nature, are hereby authorized to consolidate such com- panies into a single corporation in manner following : The trustees of any two or more of such corporations may enter into and make an agreement, under their respective corporate seals, for the consolidation of the said corporations, prescrib- ing the terms and conditions thereof, the mode of carrying the same into effect, the name of the new corporation, the number of trustees thereof (not less than three nor more than thirteen), the names of the trustees who shall managfe the con- ' As amended, L. 1877, c. 374. POWERS AND PRIVTLEGES UNDER ACT. 155 cems of the new company for the first year and until others shall he elected in their places, the name of the town or towns, county or counties in which the operations of the new com- pany are to be carried on ; and if such companies proposed to be consolidated, or either of them, shall have been organized for the purpose of carrying on any part of their or its business in any place out of this State, and the said new com- pany shall propose to carry on any part of its business out of this State, the said agreement shall so state, and it shall also state the name of the town or city and county in which the principal part of the business of said new company within this State is to be transacted ; the amount of capital and num- ber of shares of the stock into which the same is to be divided (which capital shall not be larger in amount than the aggre- gate amount of capital of the several companies thus to be consoKdated, and shall not be increased except in accordance with the provisions of the said first mentioned act, passed February seventeenth, eighteen hundred and forty-eight) ; the manner of converting the shares of capital stock in each of said corporations into the shares of such new corporation, with such other particulars as they may deem necessary, not incon- sistent with the provisions of the said act entitled " An act to authorize the formation of corporations for manufacturing, mining, mechanical or chemical purposes," passed February seventeenth, eighteen hundred and forty-eight, and the acts amending or extending the same. § 2. Such agreement of the directors shall not be deemed to be the agreement of the said corporations so proposing to con- solidate until after it has been submitted to the stockholders of each of said corporations respectively, separately, at a meet- ing thereof to be called upon a notice of at least thirty days, specifying the time and place of such meeting and the object thereof, to be addressed to each of such stockholders, when their place of residence is known to the secretary, and de- posited in the post office, and published for at least three suc- cessive weeks in the State paper, and in one of the newspapers published in each of the counties in which either of the said 156 POWERS AND PRIVILEGES UNDER ACT. corporations shall have its place of business, and has been sanctioned and approved by such stockholders, by the vote of at least two-thirds in amount of the stockholders present at such meetings respectively, voting by ballot in regard to such agreement, either in person or by proxy, each share of suck capital stock being entitled to one vote ; and when such agree- ment of the directors has been sanctioned and approved by each of the meetings of the respective stockholders separately, after being submitted to such meetings in the manner above mentioned, then such agreement of the directors shall be deemed to be the agreement of the said several corporations ^ and a sworn copy of the proceedings of such meetings, made by tlie secretaries thereof respectively, and attached to the said agreement, shall be evidence of the holding and of the action of such meetings in the premises. If any stockholder shall, at said meeting of stockholders or within twenty days thereafter, object to the said consolidation and demand pay- ment for his stock, such stockholder or said new company may, if said consolidation take effect at any time thereafter, apply to the Supreme Court, at any special term thereof, held in any county in which the said new corporation may have its place of business, for the appointment of three persons to ap- praise the value of said stock, and shall designate the time and place of meeting of such appraisers, and give such directions in regard to the proceedings on said appraisement as shall be deemed proper, and shall also direct the manner in which pay- ment for such stock shall be made to such stockholder. The court may fill any vacancy in the board of appraisers occurring by refusal or neglect to serve or otherwise. The appraisers shall meet at the time and place designated, and they or any two of them, after being duly sworn honestly and faithfully to discharge their duties, shall estimate and certify the value of such stock at the time of such dissent as aforesaid, and deliver one copy of their appraisal to the said company, and another to the said stockholder, if demanded ; the charges and ex- penses of the appraisers shall he paid by the new company. When the corporation shall have paid the amount of tlie ap- praisal, as directed by the court, such stockholder shall cease POWERS- AND PEITILEGES UNDER AOT. 157 to have any interest in the said stock, and in the corporate property of the said corporation, and the said stock may be held or disposed of by the said corporation. § 3. Upon the making, sanctioning and approving of the said agreement, in the preceding sections mentioned, in the manner therein required, and the filing of the duplicates or counter- parts thereof, and of the verified written assent of stockholders mentioned in the preceding section, in the office of the clerk of the county where the operations of said new corporation are to be carried on, and in the office of the secretary of State, then and immediately thereafter the said corporations agreed to be consolidated shall be merged in the new corporation provided for in the said agreement, to be known by the cor- 3)orate name therein mentioned, and the details of such agree- ment shall be carried into effect as provided therein, only such new corporation shall not have any larger powers than are granted by the said act mentioned in the first section hereof, and the acts amending and extending the same, nor be exempt from the performance of any duty which the said several cor- porations may be liable to perform. § 4. Such new company shall possess the general powers and be subject to the general liabilities and restrictions expressed in the third title of the eighteenth chapter of the first part of the Revised Statutes, and to aJl the liabilities and restrictions to which either of the companies from which it has been formed was subject. It shall also have the general powers and privileges, and be subject to the general liabilities, restrictions, duties and provisions expressed and contained in the said act entitled " An act to authorize the formation of corporations for manufacturing, mining, mechanical or chemical purposes," passed February seventeenth, eighteen hundred and forty- eight, and the acts amending or extending the same, so far as the same may be applicable to a corporation organized for the purposes expressed in the said agreement for consolidation, and for which said new company shall have been organized. § 5. Upon the consolidation of said corporations and the organization of said new company, as hereinbefore prescribed, 158 POWERS AND PKIVILBGBS UKDBR ACT. all and singular tlie rights, franchises and interests of the said several corporations so consolidated in and to everj species of property, real, personal and mixed, and things in action there- unto belonging, shall be deemed to be transferred to and vested in such new corporation, without any other deed or transfer ; and such new corporations shall hold and enjoy the same, and all rights of property, franchises and interests, in the same manner and to the same extent as if the said several corporations so consolidated should have continued to retain the title and transact the business of such corporations, and the title and real estate acquired by either of the said corpora- tions shall not be deemed to revert or be impaired by means of such act of consolidation or anything relating thereto. § 6. The rights of creditors of any corporations that shall be so consolidated shall not in any manner be impaired by any act of consolidation, nor shall any liability or obligation for the payment of any money now due or hereafter to become due to any person or persons, or any claim or demand, in any manner or for any cause, existing against any such corporation or against any stockholder thereof, be in any manner released or impaired, but such new corporation is declared to succeed to such obligations and liabilities, and to beheld liable to pay and discharge all such debts and liabilities of each of the corpora- tions that shall be so consolidated, in the same manner as if such new corporation had itself incurred the liability or obliga- tion to pay such debt or damages : and the stockholders of the respective corporations so entering into such consolidation shall continue subject to all the liabilities, claims and demands existing against them as such at or before such consolidation ; and no suit, action or other proceeding then pending before axLj court or tribunal in which any corporation that may be so consolidated is a party, or in which any such stockholder is a party, shall be deemed to have abated or discontinued bj reason of any such consolidation, but the same may be prose- cuted to final judgment in the same manner as if the said cor- porations had not entered into the said agreement of consolida- tion, or the said new corporation may be substituted as a party in the place of any corporation so consolidated as aforesaid POWERS AND PRIVILEGES UNDER ACT. 159 with any other corporation or corporations and forming such new corporation, by order of the court in which such action, suit or proceeding may be pending. § 7. ITo companies consolidated under this act shall be per- mitted to prosecute or carry on more than one kind of busi- ness authorized by the said act passed February seventeenth, eighteen hundred and forty-eight. § 138. Company may change corporate name.— L. ISYO, c. 322.* — § 1. Any incorporation, incorporated company, society or association organized under, the laws of this State, except- ing banks, banking associations, trust companies, life, health, accident, marine and fire insurance companies, may apply, at any special term of the Supreme Court sitting in the county ' in which shall be situated its chief business office, for an order to authorize it to assume another corporate name. § 2. Such application shall be by petition, which shall set forth the grounds of the application, and shall be verified by the chief officer of the corporation. Notice of such applica- tion shall be published for six weeks in the State paper and in a newspaper of every county in which such corporation shall have a business office, or, if it have no business office, of the county in which its principal corporate property is situated, such newspaper to be one of those designated to publish the session laws ; and it must appear to the satisfaction of the court that such notice has been so published, and that the ap- plication is made in pursuance of a resolution of the directors, trustees or other managers of the corporation applying. § 3. If the court to which such application is made shall be satisfied, by such petition, so verified, or by other evidence, that there is no reasonable objection to such corporation changing its name, it may make an order authorizing it to as- sume the proposed new corporate name. A copy of said order shall be filed in the office of the secretary of State and with As amended, L. 1874, c. 76, and L. 1876, c. 280. KiO POWERS AND PRIVILEGES UNDER ACT. the county clerk of every county in which said corporation has a, business office, or, if it have no business office, of the county in which its principal corporate property is situated, and be published at least once in each week for four weeks in some newspaper in every county where such corporation has a busi- ness office, or if it have no business office, in the county in which its principal corporate property is situated, such news- paper to be designated by the court. § 4. When the requirements of this act shall have been com- plied with, the corporation applying for a change of name may, from and after the day specified in the order of the court, be inown by and use the new corporate name designated in the •order of the court. § 5. No suit or legal proceeding, commenced by or in behalf of, or against any corporation, shall abate by reason of a change of its corporate name, made as herein authorized. Such change of the corporate name of the said corporation or com- pany shall in no way affect the rights or liabilities of said corporation or company. All obligations of said company or corporation may be enforced against said corporation or company in the changed name, and all actions and proceedings -commenced and pending against said corporation or company at the time said corporate name is changed shall be continued in the name in which said action or proceedings were com- menced, or the court may, on the application of either party, allow the action or proceeding to be continued in the corporate jiame to which said corporation or company has been changed. § 139. May hold stock of certain other corporations.'— ' § 1. It shall be lawful for any corporation organized under the laws of this State, and transacting business in it and other States, or foreigu countries, except savings banks, to acquire, hold and convey in such States or foreign countries, with the consent thereof, such real estate as shall be requisite for such corporation, in the convenient transaction of its business, and to invest its funds in the stocks, bonds, or securities of other corporations owning lands situated in this State or such States, provided that loans shall not be made on any stocks upon which divi- POWERS ANB PRIVILEGES UKDER ACT. 161 L. 1866, c. 838.^ — § 3. It shall be lawful for any company, here- tofore or hereafter organized under the provisions of this act, or the act hereby amended, to hold stock in the capital of any corporation engaged in the business of mining, manufactur- ing, or transporting such materials as are required in the pros- ecution of the business of such company, so long as they shall furnish or transport such materials for the use of such com- pany, and for two years thereafter, and no longer ; and also to hold stock in the capital of any corporation which shall use or manufacture materials, mined or produced by such company ; and the- trustees of such company shall have the same power with respect to the purchase of such stock and issuing stock therefor as are now given by the law with respect to the pur- chase of mines, manufactories, and other property necessary to the business of manufacturing, mining and other companies. But the capital stock of such company shall not be increased without the consent of the owners of two-thirds of the stock, to be obtained as provided by sections twenty-one and twenty- two of the act hereby amended. § 4. When any such manufacturing company shall be a stockholder in any other corporation, its president or other officers shall be eligible to the office of trustee of such corpora- tion, the same as if they were individually stockholders therein. §. 140. May extend duration of corporate existence. — L. 1857, c. 29, § 2.* — Whenever any company, formed under said act, shall have fixed the duration of its corporate existence for a less period than it was privileged to do by the first section of said act, it may, by a vote of the stockholders repre- senting a majority of the stock, and upon executing and ac- dends shall not have been declared c6ntinuously for three years, im- mediately before such loans are made ; and provided further, that such stocks shall be continuously of a market value twenty per cent, greater than the amount loaned or continued thereon. § 3. All acts and parts of acts inconsistent with the provisions of this act are hereby repealed. (Laws of 1883, chap. 361, passed May 10.) ' As amended, L. 1876, c. 358. = As amended, L. 1867, c. 13, § 1. ll' 162 POWERS XSD PRIVILEGES UNDER ACT. knowledging a new or amended certificate under its corporate seal, signed by the president and two-thirds of its directors or trustees, and filing the same in the county where its business shall be carried on, and in the oflice of the secretary of State, extend the term of its corporate existence from time to time, to a period not longer in the aggregate than it could have originally fixed the same, and shall thereupon possess all the powers and privileges, and be subject to all the liabilities mentioned in said act, during such extension of its existence. L. 186T, c. 937, § 1. — Any company or corporation here- tofore formed under any general law of this State, at any time within three years of the expiration of its term of exist- ence, iriay extend the term of existence of such company or corporation beyond the time mentioned in the original articles of association or certificate of incorporation, by the consent of the stockholders owning two-thirds in amount of the capital stock of such company, or corporation, in and by a certificate to be signed by such stockholders, and acknowledged or proved, 60 as to enable them to be recorded, which certificate shall be filed in the ofBce of the secretary of State, and in the oflSce of the clerk of the county in which its original certificate or articles of association, if any, are filed or recorded ; and the said secretary of State and the clerk of such county shall, upon such filing, record the same in the books kept in their respective offices for the record of articles of association, and make a memorandum of such record in the margin of the original articles of association, in such book, and thereupon the time of existence of such company shall be extended, as designated in such certificate, for a term not exceeding the term for which said company or corporation was organized in the first instance.^ § 141. May change its place of business.— L. 1864, c. 517. — Any company formed under L. 1848, c. 40, may change ' It is to be noticed that under this provieion the stockholders are re- quired to make the certificate. POWERS AND PRIVILEGES UNDER ACT. 163 its place or places of business by a vote of the stockholders rep- resenting two-thirds of the stock, at ^nj meeting of the stock- holders regularly called, and executing and acknowledging an amended certificate specifying the names of the towns or cities from and to which the business location of the company is to be changed, and in other respects conforming to the original certificate ; which amended certificate shall be signed by the president and two-thirds of the directors of the company, and shall be filed in the office of the secretary of State, and in the office of the clerk of the county where the business operations of the company are to be carried on, and published weekly, in two papers in the towns or cities from and to which the busi- ness operations have been removed, and are to be carried on, for the term of three months. But the property of said com- pany shall be liable to taxation in any cotmty where such pro- perty may be, or in which its business may be done, to the ex- tent of its property in any such county.* § 142. May carry on business out of State.— -Although a corporation organized in New York cannot migrate from the State and carry on business exclusively else- where, it may, both by the terms of this act * and by the law of comity which exists between the States, carry on its operations without this State.® When it does so, however, it is subject to the laws of the sov- ereignty where it is engaged in business.* This is a rule of great importance to corporations, for the policy of some of the States has been to exclude foreign corporations from their borders, and to impose ' Post, § 144. A company may, by complying -with L. 1861, c. 170, designate a principal place of business other than that in which its operations are can-ied on. " Ante, § 6 ; L. 1857, c. 39, § 3. ' Bank of Augusta v. Earle, 13 Peters, 519; Merrick v. Brainard, 34 N. T. 308. * Runyan v. Lessee of Coster et al. 14 Peters, 133. 164 POWERS ANB PRIVILEGES UNDER ACT. severe restrictions upon their ability to carry on busi- ness within them, and such legislation is within the power of the States. Thus it has been held proper for a State to enact that no foreign corporation can acquire title as against the State to any of the real estate in its domains.^ The intention, however, to exclude a foreign com- pany from a State, so as to prevent it from acquiring or holding real estate, must be expressed in some positive manner.^ As was said in a recent case in the U. S. Supreme Court: " If the policy of the State or Territory does not permit the business of the foreign company within its limits, or allow the corporation to acquire or hold real property, it must be expressed in some affirmative way ; it cannot be inferred from the fact that its legislation has made no provision for the formation of similar cor- porations, or allows corporations to be formed only by general laws." * In a State where there is no such policy deducible " from the general course of legislation, or from the settled adjudications of its highest court"* there is no reason why a New York company should not carry on its business, make contracts, and acquire and hold real estate required for the purposes of its business.** In such a State, however, it will be subject to the ' Runyan v. Lessee of Coster et al. 14 Peters, 123. ''Stevens v. Pratt, 101 111. 306; Farmers Loan & Trust Co. of N. Y. V. McKinney, 6 McLean, 7. » Cowell V. Springs Co. 100 U. 8. 55. * Christian Union v. Tount, 101 U. S. 353. ' Bank of Augusta v. Earl {supra) ; Christian Union o. Yount {supra) ; Newburgh Petroleum Co. v. Weare, 27 Ohio St. 343 ; Smith o. Alvord, 63 Barb. 415 ; Angell & Ames on Corp. §§ 104-109. POWERS AND PRIVILEGES UNDER ACT. 165 local law, or will be held to have consented thereto^ and will be amenable to suit by such service of process as the laws of the State where it transacts business pro- vide.^ By statute, companies organized under New York laws are empowered to acquire and hold real estate in other States or foreign countries.* § 143i Other special privileges.— Every company may increase or diminish its capital stocky or increase the number of shares of its capital, as we have seen.* It may also extend its business to any other manu- facturing, mining, mechanical Or chemical business, by complying with the terms of the law.* Any individual^ company, association or private corporation may build (except in cities or villages) a railroad for the use of his or its business, by comply- ing with L. 1882, c. 140. Car companies may lay down and maintain rail- road tracks for special purposes in counties other than New York and Kings, by complying with L. 1880, c. 267. Steam heating companies may manufacture, furnish and sell hot water, hot air or steam, and lay pipes for conducting the same in the streets of any city, village or town of this State, by complying with L. 1879, c. 317. By a literal reading of this last-mentioned act, 1 Merchants Mfg. Co. v. Grand Trunk R'way Co. 63 5ow. 459 ; Plymp- ton V. Bigelow, N. T. Ct. of Appeals, Daily Eeg. Dec. 4, 1883. 2L. 18Y3, c. 146; as amended, L. 1875, c. 119; as amended, L. 1883, c. 361. 'Ante, §81. *Ante, § 81 ; People ex rel. v. Beach, 19 Hun, 359. 166 POWERS AKD PEIVIIiBGES UNDER ACT. whatever construction the courts may put upon it, the powers therelDy conferred are not confined to corpora- tions organized for the supplying of hot water, air or steam, or to manufactui'ing corporations, but may be exercised by " any corporation or association formed or organized " either under the General Manufactur- ing Act, or the Business Corporation Act. A corporation which has sold any of its realty, may purchase other lands adjacent to its own, notwith- standing any restriction in its charter, by complying with L. 1882, c. 290. Note. — Chapter 235 of the Laws of 1880 authorizes the exchange of preferred stock for common stock, share for share, or upon such other valuation as may be agreed upon, whenever two-thirds of the directors of a company declare it for the interest of the company to make such exchange, and the holder of any preferred stock requests, in writing it» exchange for common stock. The better opinion is that companies formed under a general act which gives no specific right to issue preferred stock cannot properly issue such stock. Dos Parses on Stockbrokers, &c., p. 593; Green's Brice's Ultra Vires, 2d ed., 164, and cases; Field on Corporations, § 121, and cases ; Boone on Corporations, § 115, and cases. ' See, contra, Ameri- can Law Review, Vol. 18, p. 43, citing, among other cases, Kent ®. Quicksilver Mining Co. 78 N. T. 159. Upon a reference to this case it will be seen that the corporation, whose acts were there considered, was organized under a special act with provisions quite different from those of the general manufacturing act. CHAPTER X. TAXATION AND DISSOLUTION. I. Taxation. § 144. Corporations, where taxable. 145. Tax Law, 1880, as amended. 1461 Construction of act. 147. General method of corporate taxation. II. Dissolution. § 148. Provisions as to alteration or repeal of charter. 149. Where charter is annulled the corporation is extinct. 150. Corporation extinct upon expiration of its term of existence. 151. Stockholders cestuis que truet, and not partners after expiration of charter. 153. Dissolution of companies, how effected. § 144. Corporatious, where taxable.— L. 1861, c. 170, § 2. — No company organized under the provisions of said act to authorize the formation of corporations for manufacturing, mining, mechanical or chemical purposes, shall be deemed or taken to have a principal office or place for transacting its fi- nancial concerns other than that at which the operations of said company are carried on, unless within the month of May in each year the president and treasurer, or a majority of the trustees, shall make duplicate certificates, stating the amount of the then capital of said company, and the portion of such capital not invested in real estate, and stating that such com- pany then has a principal office for transacting its financial concerns in a county other than that in which the operations of said company are carried on, stating the town or city and county in which such financial office is located, and that the 168 TAXATION AND DISSOI.UTJON. president and treasurer, and a majority of the trustees of said company are then actually residents of tlie town or city in which such financial oflice is then located, which duplicate certificates shall be signed and sworn to by the persons mak- ing the same, and filed, the one in the clerk's' office of the county where the operations of said company are carried on, and the other in the clerk's office of the county in which such financial office shall be. And in case in any year such du- plicate certificates shall be made and filed as aforesaid, then during the year succeeding the first day of June next after the filing of such certificates, the personal estate of such com- pany shall be assessed only in the town or ward named in said certificates, as that in which such financial office is located. By section 1, of the The General Act, it is provided, that the corporators must specify in the certificate of incorporation, the town and county in which ,the opera- tions of each company shall be carried on ; and by L. 1857, c. 29, § 3,^ it is provided, that where the business is to be carried on in part out of this State, tTae certifi- cate shall so state, and shall also specify the place in this State where its business is to be transacted, and this shall be taken, under the act, to be the place where it carries on its operations, and has its principal place of business. Although by L. 1853, c. 333,^ corporators may designate one or more places where the business is to be carried on, this provision does not take the place of the requirement to state the name of the town and county in which the operations are to be carried on. The place where the operations are carried on is the principal place of business of the company, and there the company is to be taxed upon its personalty,^ ' Ante, §§ 6, 7. ' Oswego Starch Factory v. Dolloway, 21 N. T. 449 ; Western Trans- TAXATION AND DISSOLUTION. 1H9 unless some otlier place is designated under the law of 1861, atove given. Before that act a corporation could not establish a principal office apart from the place where its operations were to be carried on. " The general statute author- izing the formation of corporations of the character of the plaintiff in this action, did not contemplate the creation of companies having no specified location in some town or city. The statement which was required to be contained in the certificate, and which was ac- tually inserted in the certificate under which this cor- poration was organized, was intended to serve the same purpose as the declaration usually contained in special acts of incorporation, in which it was stated that the business was to be carried on in a particular town or city. The location established by the certifi- cate could not be changed at the pleasure of the direc- tors or trustees any more than the corporate name, the period of existence, or the object for which the com- pany was formed, or the amount of its stock. * * * It is not intended to state that every corporate act must necessarily be transacted in the particular locality. On the contrary, such business as the exigency of its affairs requires to be transacted in other parts of the State, or out of the State, may be so transacted ; but under this general power it could not change its resi- dence by establishing its principal office in another place. "1 Where a company has changed its place of busi- portation Co. v. Scheu, 19 N. Y. 408 ; Union Steamboat Co. ■». City of BuflFalo, 83 N. T. 351 ; Gutta Percha & Rubber Mfg. Co. v. McMahon & Tanner, G-enl. Term Supm. Ct. 1st Dept. Daily Register, Apl. 1, 1884. ' Oswego Starch Factory v. DoUoway, 31 K. Y. 449. 170 TAXATION ANB DISSOLUTION. ness, it is provided that "its property" shall be lia- ble to taxation in any county where such property may be, or in which its business may be done, to the extent of its property in any such county.^ The real estate of all incorporated companies liable to taxation shall be assessed in the town or ward in which the same shall lie, in the same manner as the real estate of individuals. All the personal estate of every incorporated com- pany liable to taxation on its capital, shall be assessed in the town or ward where the principal office or place for transacting the financial concerns of the company shall be ; or if such company have no principal office or place for transacting its financial concerns, then in the town or ward where the operations of such com- pany shall be carried on.* § 145. Tax law, 1880, as amended.— So far as the cor- poration tax law of 1880 affects corporations under this act, as amended, it is as follows : 1. Hereafter it shall be the duty of the president or treasurer of every association, corporation or joint-stock com- pany liable to be taxed on its corporate franchise or business, as provided in section three of this act, to make report in ■writing to the comptroller, annually, on or before the fifteenth day of November, stating specifically the amount of capital paid in, the date, amount and rate per centum of each and ev- ery dividend declared by their respective corporations, joint- stock companies or associations during the year ending with the first day of said month. In all cases where any such corporation, joint-stock company or association shall fail to make or declare any dividend upon either its common or pre- 'L. 1864, c. 517. Ante, § 141. '1 R. 8. title % c. 13, art. 1, § 0; People ex rel. v. McLean, 80 N. Y. 254. TAXATION AND DISSOLUTION. 171 f erred stock during the year ending as aforesaid, or in case the dividend or dividends made or declared upon either its common or preferred stock during the year ending as aforesaid shall amount to less than six per centum upon the par value of the said common or preferred stock, the treasurer and secretary thereof, after being duly sworn or affirmed to do and perform the same with fidelity according to the best of their knowl- edge and belief, shall, between the first and fifteenth days of November, in each year, in which no dividend has been made or declared as aforesaid, or in which the dividend or dividends made or declared upon either its common or preferred stock amounted to less than six per centum upon the par value of said common or preferred stock, estimate and appraise the cap- ital stock of such company upon which no dividend has been made or declared, or upon the par value of which the dividend or dividends made or declared amounted to less than six per centum, at its actual value in cash, not less, however, than the average price which said stock sold for during said year ; and when the same shaU have been so truly estimated and ap- praised, they shall forthwith forward to the comptroller a cer- tificate thereof, accompanied by a copy of their said oath or affirmation, by them signed, and attested by the magistrate or other person qualified to administer the same ; provided, that if the comptroller is not satisfied with the valuation so made and returned, he is hereby authorized and empowered to make a valuation thereof and to settle an account upon the valuation so made by him for the taxes, penalties and intei'est due the State thereon ; and any association, corporation or joint-stock company dissatisfied with the account so settled, may within ten days appeal therefrom to a board consisting of the secretary of State, attorney general and' State treasurer, which board, on such appeal, shall affirm or correct the ac- count so settled by the comptroller, and the decision of said board shall be final ; but such appeal shall not stay proceed- ings unless the full amount of the taxes, penalties and interest as due on said account, as settled by the comptroller, be de- posited with the State treasurer. 172 TAXATION AND DISSOLUTION. 2. If the said officers of any such corporation, joint-stock company or association shall neglect or refuse to furnish the comptroller, on or before the fifteenth day of November, of each and every year, with the report ^ aforesaid, or the certifi- cate of appraisement and oath or affirmation, as the case may be, as required by the first section of this act, or to pay the tax imposed on such corporation, company or association -with- in fifteen days after the first of January, as provided in the fourth section of this act, it shall be the duty of the comp- troller of the State to add ten per centum to the tax of said corporation, company or association, for each and every year for which such report or certificate of appraisement and oath or affirmation were not so furnished, or for which such tax shall not havei been paid, which percentage shall be assessed and collected ^ith the said tax in the usual manner of assessing and collecti^ng such taxes ; provided, that if said officers of any such corporation, joint-stock . company or association shall in- tentionally fail to comply with the provisions of the first or fourth section of this act for one year, the comptroller shall report the fact to the governor, who, if he shall be made satis- fied that such failure was intentional, shall thereupon direct the attorney-general to take proceedings, in the name of the people of this State, to declare the charter or privileges of said corporation, joint-stock company or association forfeited, and at an end ; and for such intentional failure duly found, the charter and privileges of every such corporation, company or association shall cease, end, and be determined. 3. Every corporation joint-stock company or association whatever, now or hereafter incorporated or organized under any law of this State, or now or hereafter incorporated or or- ganized by or under the laws of any other State or country and doing business in this State, except savings banks, and in- stitutions for savings, life insurance companies, banks and foreign insurance companies, and manufacturing corporations carrying on manufacture within this State, which exception ' Cerbat Mining Co. v. State, 29 Hun, 81. TAXATION ANB BISSOLUTION. 173 sballnot be taken to include gas companies or trust compa- nies, shall be subject to and pay a tax, as a tax upon its corpo- rate franchise or business, into the treasury of the State annu- ally, to be computed as follows : If the dividend or dividends made or declared by such corporation, joint-stock company or association, during any year ending with the first day of No- vember, amount to six or more than six per centum upon the par value of its capital stock, then the tax to be at the rate of one-quarter mill upon the capital stock for each one per cen- tum of dividends so made or declared ; or if no dividend be made or declared, or if the dividend or dividends made or de- clared do not amount to six per centum upon the par value of said capital stock, then the tax to be at the rate of one and one half mills upon each dollar of a valuation of the said cap- ital stock made in accordance with the provisions of the first section of this act; and in case any such corporation, joint- stock company or association shall have more than one kind of capital stock as, for instance, common and preferred stock, and upon one of said stocks a dividend or dividends amount- ing to six or more than six per centum upon the par value thereof has been made or declared, and upon the other no div- idend has been made or declared, or the dividend or dividends made or declared thereon amount to less than six per cen- tum upon the par value thereof, then the tax shall be at the rate of one quarter mill for each one per centum of dividend made or declared upon the capital stock, upon the par value of which the dividend or dividends made or declared amount to six or more than six per centum, and in addition thereto, tax shall be charged at the rate of one and one half mills upon each dollar of a valuation, made also in accordance with the provisions of this act, of the capital stock upon which no divi- dend was made or declared, or upon the par value of which the dividend or dividends made or declared did not amount to six per centum. 4. It shall be the duty of the treasurer or other oflBcer having charge of any corporation, joint-stock company 6r as- sociation upon which a tax is imposed by either of the preced- 174 TAXATION AND DISSOLUTION. ing sections of this act, to transmit the amount of said tax to the treasury of the State within fifteen days after the first day of January in each and every year.^ ***** 8. The corporations, joint-stock companies and associa- tions mentioned in this act as taxable shall hereafter be ex- empt from assessment and taxation for State purposes, except upon their real estate, and as herein provided ; but they shall in all other respects be liable to assessment and taxation as heretofore. 9. The taxes imposed by this act, and the revenue derived therefrom, shall be applicable to the payment of the ordinary and current expenses of the State, and if any corporation, joint-stock company, person, partnership or association shall neglect or refuse to pay any tax by this act required to be paid, the same may be sued for in the name of the people of the State, and recovered in any court of competent jurisdic- tion, in an action to be brought by the attorney-general at the instance of the comptroller. ***** 11. Whenever the comptroller is dissatisfied with the report of any association, corporation or joint-stock company, liable to tax under any of the provisions of this act, whose capital is only partially employed within this State, he is authorized and empowered to fix and determine the amount of capital stock which in his judgment shall be the basis for tax under the provisions of this act, and to settle an account for the tax- es, penalties and interest due the State thereon, and any associ- ation, corporation or joint-stock company dissatisfied with the account so settled, may within ten days after notice thereof appeal therefrom to a board consisting of the secretary of State, attorney-general and State treasurer, which board on such appeal shall aflSrm or correct the account so settled by ' Corporations organized for transportation, telegraph, telephone or express purposes, pay an additional tax. See §§ 6, 7, Tax Law of 1880, as amended. TAXATION AND DISSOLUTION. 175 the comptroller, and the decision of said board shall be final, but such appeal shall not stay proceedings unless the full amount of the taxes, peilalties and interest as due on said ac- count as settled by the comptroller be deposited with the State treasurer. 12. Whenever any association, corporation or joint-stock company liable to make reports to the comptroller under any of the, provisions of this act, shaU neglect or refuse to make such report or reports within the time prescribed in this act, the comptroller is authorized to examine, or cause to be examined the books and records of any such association, corporation or joint-stock association and fix and determine tlie amount of tax due in pursuance of the provisions of this act, and in case of the non-payment of the amount of tax so ascertained to be due, together with the expenses of such examination for a period of thirty days after notice to any association, corpora- tion or joint-stock company so in default, the same may be sued for, in the name of the people of the State, and recovered in the same manner provided in section nine of this act. 13. The comptroller is authorized to issue subpoenas, re- quiring the attendance before him of any officer, agent, clerk or employee of any association, corporation or joint-stock company liable to be taxed on its corporate franchise or busi- ness capital or dividends under any of the provisions of this act, and to administer oaths to, and examine them or any one or more of them on oath in relation to any matter which may in any way be material in determining the amount of tlie tax to be paid by any such association, corporation or joint-stock company ; it shall be the duty of the person or persons thus subpoenaed to attend as thereby required and give testimony on the subject aforesaid, and in case of failure to so attend or testify, the person so failing shall be guilty of a contempt, and any special term of the Supreme Court may adjudge and de- termine the punishment therefor in the same manner and to the same extent as provided in the Code of Civil Procedure 176 TAXATION AND DISSOLUTION. for the punishment of contempt of court other than criminal contempt.* § 146. Coustraction of act.— The tax imposed by the above law is a tax upon " franchise." It is not a property tax — " It is levied on corpora- tions alone, and one of the penalties provided for its non-payment is the forfeiture of their charter. The amount of the tax is dependent upon their business prosperity, as evidenced by their capacity to declare dividends, instead of upon the value of the corporate property, and it is made payable by the corporations affected directly to the State authorities. The income of these corporations is referred to only as a means of arriving at the measure of their liability." ^ There is no force in the objection to the law " that various corporations subjected to its provisions are there- by subjected to unequal or double taxation." The ob- ject under the law to which the tax is to be applied is so stated as to be a compliance with art. 3, § 20 of the State constitution.* The Court of Appeals has recently held * that a division among stockholders of a surplus fund, earned and accumulated prior to January, 1880, was not a dividend within the meaning of this law, and that even if it were " a dividend within the letter of the act, to construe it as such would be contrary to its spirit and intent." 'Laws 1880, c. 543; as amended, L. 1881, c. 361, and L. 1883, c. 151. Information and blanks for the return under this act may be obtained from the comptroller of the State of New York, at Albany. ■ The People, &c. v. The Home Insurance Co. 93 N. T. 338. 'Id. See, also, Gordon ®. Cornes, 47 N. T. 611; People «. N. Y. Floating and D. D. Co. 11 Abb. N. C. 40. * The People, respts. v. The Albany Ins. Co., appt., 17 Weekly Dig. 133. TAXATION AND DISSOLUTION. 177 The court in this case further say : " Should a corporation earning 6 per cent, or more, withhold all dividends or pay less than 6 per cent., and accumulate its earnings or employ them as capital to improve its property, it vc'ould not thereby escape taxation, but would be taxable according to the actual value of its capital stock, and that value would be in- creased by the amount of surplus thus accumulated, and it would be taxable at the rate of one and one- half mills upon each dollar of the valuation of such stock, which will be found by computation to be sub- stantially the same amount for which it would have been taxable had the profits been divided. Should a corporation, to evade taxes under said acts, divide 6 per cent, or more, but less than its actual earnings in any one year after the passage of said acts, and thus create a surplus, a division thereof subsequently might be treated as a dividend under said acts." Corporations taxable under these laws are still sub- ject to the payment of local taxes ^ under general stat- utes,^ an(J to the payment of all taxes upon their real estate,* but they have no taxation for State purposes, except that imposed hereunder. The Legislature in excepting manufacturing com- panies carrying on manufacture in this State from these taxes, did not intend to refer to manufacturing corpora- tions organized under the General Manufacturing Act alone; those organized under the Business Act, and all corporations whose chief business is the manufacture ' The People ex rel. &c. ».■ Davenport et al. Trustees, 91 N. Y. 574; 25 Hun, 630. ' Post, § 147. ' L. 1881, c. 361, § 8; anU, § 145. 13 178 TAXATION AND DISSOLUTION. and sale of artificial products, are within the terms of the exception.^ A corporation organized " for the purpose of con- structing, using and providing one or more dry docks or wet docks, or other conveniences and structures for building, raising, repairing and coppering vessels and steamers of every description," is not a manufacturing company within this exception.'' § 147. General method of corporate taxation. — Apart from the Law of 1880, the " general scheme of the stat- ute for the assessment of the property of corporations other than real estate, for the purposes of taxation, is to assess their capital at its actual value, and their sur- plus fund, deducting therefrom the value of their real estate and of shares of other corporations held by them liable to taxation.* It is in this way that the general prescription of the statute (1 R. S. 390, § 6), subject- ing to assessment and taxation " all the'personal estate of every incorporated company," is carried out. The scheme does not look to any valuation of the specific chattels or personal estate of corporations as such. The real estate is to be assessed in the town or ward where it is situated* (§ 6), and after deducting from the value of the capital and surplus, the value of their real estate and shares in other corporations, the sum remaining necessarily represents the entire personal ' Nassau Gas Light Co. v. City of Brooklyn, 89 N. Y. 409. ' People V. N. T. Floating and Dry Dock Co. 92 N. Y. 487, and U Abb. K. C. 40. See, also, as to construction of act, The People, Respdts. V. The Spring Valley Hydraulic Gold Co. 17 Weekly Dig. 40 ; The People ex rel. &c. o. The Board of Assessors et al. 17 Weekly Dig. 136. ' Citing 1 R. 8. 414 ; L. 1853, c. 654 ; L. 1857, c. 456 ; People ». Board of Assessors, 39 N. Y. 81. • See ante, § 144. TAXATION AND DISSOLUTION. 179 estate of the corporation, which ought justly, or which, by the true construction of the statute, can be subjected to taxation. * * * The statute contemplates a single assessment and taxation at a specified place,^ of , the entire personal estate of corporations, by the assess- ment and taxation of their capital and surplus, as rep- resenting it without regard to the actual situs of the property." ^ The owner or holder of stock in any incorporated compa- ^ ny liable to taxation on its capital, shall not be taxed as an in- dividual for such stock.^ DISSOLUTION. § 148. Provisions as to alteration or repeal of charter. — SBOTtoiir 19. The Legislature may at any time alter, amend, or repeal this act, or may annul or repeal any incorporation formed or created under this act ; but such amendment or re- peal shall not, nor shall the dissolution of any such company, take away or impair any remedy given against any such cor- poration, its stockholders or officers, for any liability which shall have been previously incurred. § 149. Where charter is annulled the corporation is extinct.— By the foregoing provisions the Legislature retains in its own hands the power to dissolve, and by legislative action put an end to, any corporation incor- porated under this act. Where the charter of a corporation is annulled by act of the Legislature, the corporation is extinct.* ' Compare with § 144, ante. See, also, Saxton's Tax Laws of N. Y. chap, ni ; Throop's 7th ed. R. S. p. 986 ; L. 1857, c. 456 ; Oswego Starch Factory ®. Dolloway, 21 N. T. 449. ' Andrews, J., in People ex rel. &c. v. McLean, 80 N. T. 254. = R. S. 7th ed., p. 982, § 7. * Sturges V. Vanderbilt, 73 N. T. 384 ; Merrill v. Suffolk Bank, 31 Me. 57 ; Mumma ■». Potomac Co. 8 Pet. 286. 180 TAXATION AND DISSOLUTION. § 150. Corporation extinct upon expiration of its term of existence. — So, too, upon the expiration of the term of existence of a corporation as limited in its certificate of incorporation, it becomes extinct ; no formal decree of dissolution is necessary, and a judgment thereafter rendered against it in an action then pending, is void. This does not conflict with the cases already cited,^ to the effect that until a corporation is declared dis- solved by the judgment of a court of competent juris- diction, creditors may proceed against it by its corpo- rate name, and that it remains in esse until so declared dissolved. Those vrill be found to relate to a dissolu- tion in consequence of insolvency, or non-user, or mis- user of the corporate franchises, or some other cause of forfeiture ; but dissolution by the expiration of its char- ter is one declared by the act of the Legislature itself. The limited time of existence has expired, and no ju- dicial determination of that fact is requisite. The cor- poration is de facto dead.* § 151. Stockholders cestuis que trust, and not partners after expiration of charter.— After the charter of a manufacturing corporation had thus expired by statu- toiy limitation, its general agent, appointed during the existence of the corporation, continued to carry on the business and to contract debts, and for one of these debts he gave a promissory note in the name of the cor- poration. This note was unpaid, and an action brought thereon against the stockholders of the defunct cor- poration, seeking to charge them as makers of the note, ^ Ante, § 126. ^ Sturges ». Vanderbilt, 73 N. T. 384, 390 ; People v. Walker, 17 N. T. 503 ; Greeley v. Smith, 8 Story's C. C. R. 638. TAXATION AND DISSOLUTION. 181 on the ground that, their charter having expired, they were partners. It appeared in this action that the de- fendants, six months after the expiration of the char- ter, received dividends as from the earnings of the cor- poration ; but that they were then and thereafter igno- rant of the fact that the corporation had ceased to exist. It also appeared, that the credit was given to the sup- posed corporation, and not to the defendants as indi- viduals or partners ; and the court held, that, as upon the expiration of the charter, the title to the corporate property vested in the trustees then in oflSce, in trust for the creditors and stockholders,^ therefore the de- fendants, being merely cestuis que Prust, were not, on the facta appearing, chargeable as partners.* §162. Dissolution of companies, how effected. — A for- feiture of the franchises of a corporation, unless there be specific provisions by statute, caa only be enforced by the sovereign power to which the corporation owes its life, in some proceeding instituted on behalf of the sovereignty.* The special statute provisions under and by virtue of which the corporations now under consideration, amongst others, can be dissolved, either by voluntary or involuntary dissolution, are collected and set out at great length in the Code of Civil Procedure.* ' IB. S. 600, §1. " The Central City Savings Bank v. Walker, 66 N. Y. 434. See, also, Taller «. Rowe, 57 N. Y. 23. • Denike «. N. Y. & K. Lime, &c. Co. 80 N. Y. 599 ; Byrne n. N. Y. Brick & Cement Co. 16 Weekly Dig. 139 ; Moran e. Lydecker, 11 Abb. N. C. 298;27Hun, 582. * See, as to Voluntary Dissolution, Code of Civ. Proc. §g 2419 to 2431, inclusive. See Bliss' Edition, Vol. II, pp. 543-552, and cases there 182 TAXATION AND DISSOLUTION. These must be carefully studied and closely fol- lowed in every case where a dissolution is desired ; as the courts demand a strict compliance with their re- quirements.^ Their general nature, applying as they do, with specified exceptions, to all New York corporations, and the fact that they constitute a portion of the present Code, join to render any more particular state- ment or examination of them foreign to the scope of this work.* cited. See, as to Intoluntaiit Dissoltjtion, Code of Civ. Proo. §§ 1784 to 1813, inclusive. See Bliss' Edition, Vol. II, pp. 185-306, and cases there cited; also Veeder v. Mudgett, 27 Hun, 519; Veeder ». Judson, 91 N. Y. 374;L. 1883, c. 378. ' Bliven v. Peru Steel and Iron Co. 60 How. Pr. 680; Matter of Pyro- lusite Manganese Co. 29 Hun, 249 ; Denike v. N. T. & R. Lime, &c. Co, 80 N. T. 599; People v. Hektograph Co. 10 Abb. N. C. 457; Matter Wo- ven Tape Skirt Co. 85 N. Y. 506 ; affi'g 8 Hun, 508 ; Prentiss v. Nichols, 16 Weekly Dig. 73; Frothingham v. Barney, 6 Hun, 366. ' Though chapter 448 of the Laws of 1876, permitting a dissolution of these corporations in certain cases of disagreement of their trustees* was repealed by the repealing act of 1880, it will be noticed that its pro- visions are substantially embodied in § 2420 of the Code of Civil Proce- dure, which is applicable to corporations in general, and is not confined to those under this act. PART II. THE ACT TO PROVIDE FOR THE ORGANIZATION AND REGULATION OF CERTAIN BUSINESS CORPORATIONS. PASSED JUNE 21, 1875. AS AMENDED AND MODIFIED TO MARCH, 1884. CHAPTER XI. PROVISIONS OF THE ACT, L. 1875, C. 611. § 153. What corporations may organize hereunder. 154. General powers of companies. 155. Application for license. 156. Secretary of State to issue license to commissioners. 157. Commissioners to open subscription books. — Subscribers, when to meet. 158. What the by-laws must provide. 159. Commissioners' report. — Certificate of incorporation. 16Q. License deemed revoked, when. 161. Table of companies to be published annually in session laws. 162. Directors. — Officers. — Number of directors, how changed. 163. Capital stock. — Subscriptions, how payable. 164. Stock certificates and their transfer. 165. Corporation may issue bonds. 166. Stock or bonds, for what issued. 167. Capital stock, how increased or reduced. 168. Corporate account books to be kept. 169. Stock book to be kept; its contents, &c. 170. Annual report to be filed.— Penalty upon neglect. 171. Certain dividends prohibited. 172. Loans to stockholders prohibited. 173. False certificate or report. — ^Liability therefor. 174. Liability when indebtedness exceeds capital stock. 175. Executors, &c., not personally liable as stockholders. 176. Executors, &c., may vote at elections. 177. Qualifications of stockholders' liability. 178. Annual election of directors. — Voting thereat. 179. On failure to elect, directors hold over. 180. Oath of inspectors of election. 181. Extending duration of corporate existence. 182. Corporations, where taxable. 183. Change of 'principal place of business. 184. What companies may reorganize hereunder. 185. Corporations under act, of two classes. 186. Full liability companies. 187. Limited liability companies. 186 BUSINESS CORPO RATIONS. § 188. Word " limited" to be used. — Penalty for its omission. 189. Individual liability of stockholders in " limited " companies. 190. Effect of dissolution. § 153. What corporations may organize hereunder. — Section 1. Corporations may be organized under the provis- ions of this act for the carrying on of any lawful business ex- cept banking, insurance, the construction and operation of railroads, or aiding in the construction thereof, and the busi- ness of savings banks, trust companies or corporations intend- ed to derive profit from the loan or use of money, or safe deposit companies, including the renting of safes in burglar and fireproof vaults. § 154. General powers of companies. — Section 2. When so organized, every such corporation shaU possess the following general powers : 1. To have succession by its corporate name for the period limited in its certificate of incorporation. 2. To sue and be sued ; to complain and defend in any court. 3. To make and use a common seal and alter the same at pleasure. 4. To appoint such subordinate oflBcers and agents as the business of the corporation shall require, and its by-laws shall provide for. 5. To make by-laws for the management of its property, the regulation of its affairs, for the transfer of its stock and defining the duties of its oflicers, and from time to time to amend the same. 6. To purchase, hold, and possess so much real and per- sonal estate as shall be necessary for the transaction of its business, and sell and convey the same when not required for the uses of the corporation ; provided, however, that all real estate acquired in satisfaction of any liability or indebtedness, unless the same be necessary and suitable for the uses and business of the corporation, shall be sold within three years after becoming the property of such corporation, but such PROVISIONS or THE ACT. 187 time may be extended to a period not exceeding five years in all, by an order of the Supreme Court made in the district in wliicli the principal business office of such corporation is lo- cated, on the verified petition of such corporation stating the reasons for such extension. § 156. Application for license.— Section 3. Whenever five or more persons, a majority of whom shall be citizens and resi- dents of this State, shall propose to form a corporation under the provisions of this act, they shall make a certificate to that effect, which certificate shall be signed by each of such persons and duly acknowledged by them before some officer authorized to take acknowledgments under the laws of this State. Such certificate shall set forth : 1. The name of the proposed corporation. 2. The object for which it is to be formed, including the nature and locality of its business. 3. The amount and description of the capital stock. 4. The number of shares of which such capital stock shall consist. 6. The location of the principal business office. 6. The duration of the corporation, which, however, shall not exceed fifty years. § 156. Secretary of State to issue license to commis- sioners. — Section 4. Such certificate shall be filed in the office of the secretary of State ; and the secretary of State shall there- upon issue a license to the persons making such certificate, empowering them as commissioners to open books for sub- scriptions to the capital stock of such corporation at such times and places as they may determine ; but no license shall be issued in the case of a proposed corporation having the same name as an existing corporation in this State, or a name so nearly resembling that of an existing corporation as to be cal- culated to deceive. § 157. Commissioners to open subscription books.— Subscribers, when to meet.— Section 5. Said commissioners 188 BUSINESS CORPORATIONS. shall proceed to open books for subscriptions to the capital stock of such corporation, and no such subscription shall be received unless at the time of making it the person so sub- scribing shall pay to said commissioners ten per cent, of the par value of the stock subscribed for in cash. When one^ half of the capital stock has been subscribed, said commis- sioners shall call a meeting of the subscribers for the pur- pose of adopting by-laws for such corporation and electing directors thereof. Notice of such meeting shall be given to every subscriber by depositing in the post-office, properly addressed to his last known place of residence, and postage prepaid, at least five days before the time fixed, a written or printed notice, stating the time, place and object of such meeting. § 158. What the by-laws must provide.— Section 6. The by-laws of every corporation created under the provisions of this act, shaU be deemed and taken to be its law, and shall provide : 1. The number of directors of the corporation. 2. The term of office of such directors, which shall not ex- ceed one year. 3. The manner of filling vacancies among directors and officers. 4. The time and place of the annual meeting. 5. The manner of calling and holding special meetings of the stockholders. 6. The number of stockholders who shall attend, either in person or by proxy, at every meeting, in order to constitute a quorum. 7. The officers of the corporation, the manner of their election by and among the directors, and their powers and duties. But such officers shall always include a president, a secretary, and a treasurer. 8. The manner of electing or appointing inspectors of election. 9. The manner of amending the by-laws. PEOVISIONvS OJF THE ACT. 189 The Legislature in 1878 passed the following act : ^ § 1. It shall be lawful for any corporation formed under chapter six hundred and eleven, laws of eighteen hundred and seventy-five, by either Patrons of Husbandry, or Sovereigns of Industry, or jointly by both, to fix in their by-laws or consti- tution the following provisions, namely : First. The amount of each share, which shall not be less than five dollars. Second. The number of shares that shall be held by each director, which shall not be less than one full share. Third. The basis of voting at all meetings of associations, or directors thereof, giving at least one vote to each member having paid for one full share. § 159. Commissioners' report.— Certificate of incorpo- ration. — Section 7. Within ten days after the said subscribers' meeting, said commissioners shall file, in the office of the sec- retary of State, a verified record of the proceedings thereof, containing a copy of the subscription Hst, a copy of the by- laws adopted, and the names of the directors chosen. There- upon the secretary of State shall issue to said directors a cer- tificate, setting forth that said corporation is fully oi^ganized in accordance with this act. Such certificate shall include a copy of the original certificate provided for in section three of this act, the date and place of the subscribers' meeting, the names of the directors elected, and a statement that all the provisions of this act have been duly observed in the organiza- tion of such corporation. A copy of such certificate shall, within ten days after the issuing thereof by the secretary of State, be filed in the office of the clerk of the county in which the principal business office of such corporation is situated. Such certificate shall be recorded at length in a book to be kept in the office of sthe ecretary of State to be known as the record of incorporations, and, also, in a similar book in the office of the county clerk aforesaid. Such certificate, or a copy thereof duly certified by the secretary of State or his deputy. ■ L. 1878, c. 334. 190 BUSINESS CORPOBATIONS. shall be presumptive evidence of the incorporation of the cor- poration named therein, in all courts and proceedings in this State. The secretary of State shall receive for the iiling and issuing of all the necessary documents in and about the organi- zation of a corporation under this act, the sum of ten dollars ; and for each certified copy of certificate of incorporation, the sum of three dollars, which sum shall be paid into the treas- ury of the State ; and county clerks shall receive the fees now allowed by law. Upon every amendment of the by-laws of any such corporation, a copy of the amended by-law shall be filed in the ofiSce of the secretary of State and of such county clerk, and shall not take effect until so filed ; and a copy there- of, certified by the secretary of State or his deputy, shall be re- ceived as presumptive evidence of such amended by-law in all courts and proceedings. § 160. License deemed revoked, when.— Section 8. Un- less such corporation shall be fully organized as provided in the last preceding section, within one year after the issuing of the license to commissioners to open books, such license shall be deemed to be revoked, and all proceedings thereunder shall be void. § 161. Table of companies to be published annually in session laws. — Section 9. The secretary of State shall pub- lish, as an appendix to the session laws of each year, a state- ment of aU the corporations organized under this act during the preceding year, containing in each case the name of the corporation, its principal business, the location of its principal business oflSce, the amount of capital stock, the date of the filing of the preliminary certificate and of the granting of the final certificate of incorporation by the secretary of State ; and any change of location or capital of any such corporation made during the preceding year. § 162. Directors.— Officers.— Number of directors, how changed. — Section 10.' The business of every corporation cre- ated hereunder shall be managed by a board of directors (the ' As amended, L. 1881, c. 432. PEOVISIOKS OF THE ACT. 191 members of which at their election and throughout their term of office shall be stockholders in such corporation to at least the extent of five shares, and shall hold their offices until their suc- cessors are chosen) and by such officers to be elected by and from among said directors, as the by-laws shaU. prescribe. The number of directors shall not be less than five nor more than thirteen, and the existing number thereof may be changed to not less than five nor more than thirteen, by a vote of a ma- jority in interest of the owners of the stock issued by said corpo- ration, present in person, or by attorney duly authorized, at a meeting of the stockholders of such corporation called pursu- ant to such a notice, specifying the purpose of such meeting and given to each stockholder, as is prescribed in section five of this act ; and a statement of the change of the number of directors so made, signed and verified by the president or a vice-president of the corporation, and by the secretary of the meeting at which the change was made, shall be filed in the office of the secretary of State, and a copy thereof in the office of the clerk of the county in which the principal business office of the company is situated, within ten days after such meet- ing. A majority of the whole number of directors shall be necessary to constitute a quorum. The secretary shall record all the votes of the corporation and the minutes of its trans- actions in a book to be kept for that purpose. The treasurer shall give bonds in such sums and with such sureties as are required by the by-laws for the faithful discharge of his du- ties. § 163. Capital stock.— Subscriptions, how payable. — Section 11.* The capital stock of every corporation formed under this act shall be divided into shares of not less than ten dollars nor more than one hundred dollars each ; and shall in no case exceed five million dollars. All subscriptions therefor shall be made payable to the corporation in such installments and at such time or times as shall be fixed by the by-laws or by the directors acting under the by-laws, and if default be made 'As amended, L. 1881, c. 395, and L, 1883, c. 103. 192 BUSINESS CORPORATIONS. in any payment an action may be maintained in the name of the corporation to recover any installment which shall remain due and unpaid for the period of thirty days after the time so fixed for the payment thereof ; and no stockholder shall be entitled to vote at any election or at any meeting of the stock- holders on whose share or shares any installments or arrearages may have been due and unpaid for the period of thirty days immediately preceding such election or meeting. The corpo- ration may by by-laws prescribe other penalties for a failure to pay the installments that from time to time become due, not exceeding forfeiture of the stock and the amount paid thereon, but no such forfeiture shall be declared against any stockholder before demand shall have been made for the amount due there- on, either in person or by a written or printed notice duly mailed to such stockholder at his last known place of resi- dence, at least thirty days prior to the time when such forfeit- ure is to take effect ; and provided, further, that upon such forfeiture the shares of stock held by such delinquent stock- holder or subscriber shall be sold at public auction at the oflBce of said corporation after ten days' notice thereof shall be con- spicuously posted up in said office, and the proceeds of such sale, over and above the amount due on said shares, and after deducting the expenses of such sale, if any, shall be paid to the delinquent stockholder or subscriber. § 164. Stock certificates and their transfer.— SEonoiT 12. The directors of such corporation shall prepare certificates of stock, and shall deliver them, signed by the president and treasurer, and sealed with the seal of the corporation, to each person entitled to receive the same, according to the number of shares held, which certificates of stock shall be transferable at the pleasure of the holder, in person or by attorney duly authorized, subject, however, to all payments due or to become due thereon ; and the assignee to whom the same has been so transferred, shall be a member of said corporation, and have and enjoy all the immunities, privileges and franchises, and be subject to all the liabilities, conditions and penalties incident thereto, in the same manner as the original holder would have PROVISIONS OF THE ACT. 193 been ; but no certificate shall be transferred so long as the holder thereof is indebted to such corporation, unless the board of directors shall consent thereto, § 165. Corporation may issue bonds. — SEcrioMf 13. It shall be lawful for all such corporations to borrow money for the legitimate purposes of such corporation, and for such purpose to issue bonds with or without coupons attached there- to, and bearing interest not exceeding seven per cent, per an- num ; but the amount of such bonds outstanding at any one time shall not exceed one-half of the value of the corporate property of such corporation. Any issue of bonds beyond the amount herein specified shall render every director voting for the same personally liable to any bondholder for any damage caused by such overissue to such bondholder. § 166. Stock or bonds, for what issued. — Section 14. No corporation organized under this act shall issue either stock or bonds except for money, labor done, or property- actually re- ceived for the use and legitimate purposes of such corporation at its fair value, and all fictitious increase of stock or indebted- ness ia any form shall be void. § 167. Capital stock, how increased or reduced. — Sec- tion 15. The capital stock of any corporation organized under this act may be increased to an amount not to exceed in the aggregate two million dollars or reduced by a vote of a ma- jority of the stockholders in number and representing a ma- jority of the stock of such corporation, at any meeting thereof convened for that purpose, pursuant to notice thereof speci- fying the object of such meeting, and served pursuant to the provisions of section five. A statement of such increase or reduction shall be filed in the office of the secretary of State, and of the clerk of the county in which the principal business office of such corporation is situated, within ten days after such action. But before any corporation shall be entitled to diminish the amount of its capital stock, if the amount of its debts and liabilities shall exceed the amount of capital to which 13 194 BUSINESS CORPORATIONS. it is proposed to be reduced, such amount of debts and liabili- ties shall be first satisfied and reduced so as not to exceed such diminished amount of capital. § 168. Corporate account books to be kept.— Section 16. It shall be the duty of the directors of every such corporation to cause to be kept at its principal office or place of business, correct books of account of all its business and transactions, and every stockholder in such corporation shall have the right, at all reasonable times, by himself or his attorney, to examine the records and books of account of such corpora- tion. § 169. Stock book to be kept* its contents, &c. — Sec- tion 17. It shall be the duty of the directors of every such corporation to cause a book to be kept by the treasurer or clerk thereof, containing the names of all persons, alphabeti- cally arranged, who are or shall within six years have been stockholders of such corporation, and showing their places of residence, the number of shares of stock held by them, re- spectively, and the time when they, respectively, became the owners of such shares, and the amount actually paid thereon ; which book shall, during the usual business hours of the day, on every day, except Sundays and legal holidays, be open for the inspection of stockholders and creditors of the corporation, and their personal representatives, at the principal business office of such corporation ; and any and every such stock- holder, creditor or representative shall have a right to make extracts from such book ; and no transfer of stock shall be valid for any purpose whatever, except to render the person to whom it shall be transferred liable for the debts of the corporation, according to the provisions of this act, until it shaU have been entered therein as required by this section, by an entry showing from and to whom transferred. Such book shall be presumptive evidence of the facts therein stated, in favor of the plaintiff, in any suit or proceeding against such corporation, or against any one or more stockholders. Every officer or agent of any such corporation, who shall PROVISIONS OF THE ACT. 195 neglect to make any proper entry in such book, or shall refuse or neglect to exhibit the same, or allow the same to be in- spected, and extracts to be taken therefrom, as provided by this section, shaU be deemed guilty of a misdemeanor ; and the corporation shall forfeit and pay to the party injured a penalty of fifty dollars for every such neglect or refusal and all the damages resulting therefrom. And every corporation that shall neglect to keep such book open for inspection as aforesaid, shall forfeit to the People the sum of fifty dollars for every day it shall so neglect, to b.e sued for and recovered in the name of the People of the State, by the district attorney of the county in which the principal business ofiice of sueli corporation is located, and the amount so recovered shall be paid to the proper authorities for the support of the poor of such county. f 170. Annual report to be filed. — Penalty upon neglect. — Section 18. Every such corporation shall annually, within twenty days after the first day of January, make a report, which shall state the amount of capital and the proportion ac- tually paid in, the amount and, in general terms, the nature of its existing assets and debts, and the names of its then stock- holders, and the dividends, if any, declared since the last re- port, which report shall be signed by the president and a majority of the directors, and shall be verified by oath of the president or secretary of such corporation, and filed in the office of the secretary of State, and if any such corporation shall fail so to do, all the directors thereof shall be jointly and severally liable for aU the debts of the corporation then ex- isting, and for all that shall be contracted before such report shall be made. Provided, that if any director shall file with the secretary of State, at any time within thirty days after such first of January, a certificate, verified by the oath of such director, stating that he has endeavored to have such report made and signed as aforesaid, but that the officers or a majority of the directors have refused or neglected to make and file such report ; and shall append to such certificate a re- port containing the items aforesaid, so far as they are within 196 BUSINESS CORPORATIONS. Lis knowledge or are obtainable from sources of information open to him, which report shall be verified by him as being true to the best of his knowledge, information and belief, in that case such director shall not be liable on account of such failure to make and file such report upon making proof of such facts in any action which may be commenced against him, upon a trial thereof. Whenever, under this section, a judgment shall be recovered against a director, severally, aU the directors of the corporation shall contribute a rata- ble share of the amount paid by snch director on such judgment, and such director shall have a right of action against his co-directors, jointly or severally, to recover from them the proportion of the amount so paid on such judg- ment. § 171. Certain dividends prohibited. — Sexttion 19. If the directors of any such corporation shall declare and pay any dividend when the corporation is insolvent, or any divi- dend the payment of which would render it insolvent, or which would diminish the amount of its capital stock, the directors voting in favor of declaring such dividend shaU be jointly and severally liable for all the debts of the corporation then exist- ing, and for all that shall be thereafter contracted while they shall respectively continue in ofiSce. § 173. Loans to stockholders prohibited. — Section 20. No loan of money shall be made by any such corporation to any stockholder therein, and if any such loan shall be made to a stockholder, the oflicers who shall make it, or who shall assent thereto, shall be jointly and severally liable to the extent of such loan and interest for all the debts of the corporation contracted before the repayment of the sum so loaned. § 173. False certificate or report. — Liability therefor. — Section 21. If any certificate or report made, or public notice given, by the officers of any such corporation, shall be false in any material representation, all the officers who shall have PROVISIONS OF THE ACT. 197 signed the same shall be jointly and severally liable for all the debts of the corporation contracted while they are officers thereof. § 174. Liability when indebtedness exceeds capital stock. — Section 22. If the indebtedness of any such corpora- tion shall at any time exceed the amount of its capital stock, the directors of such corporation creating such indebtedness shall be personally and individually liable for such excess to the creditors of such corporation. §175. Executors, &c., not personally liable as stock- holders. — Section 23. No person holding stock in any such corporation, as executor, administrator, guardian or trustee, and no person holding such stock as collateral security, shall be personally subject to any liability as stockholder of such corporation ; but the person pledging such stock shall be con- sidered as holding the same, and shall be liable as a stock- holder accordingly ; and the estates and funds in the hands of such executor, administrator, guardian or trustee shall be liable in like manner, and to the same extent, as the testator or intes- tate, or the ward or person interested in such trust fund would have been, if he had been living and competent to act, and held the same stock in his own name. § 176. Execntors, &c., may vote at elections.— Section 24. Every such executor, administrator, guardian or trustee shall represent the share or shares of stock in his hands at all meetings of the corporation, and may vote accordingly as a stockholder, and every person who shall pledge his stock as aforesaid, may, nevertheless, represent the same at all such meetings, and may vote accordingly as a stockholder. § 177. QnaMcation of stockholders' liability. — Section 25. No stockholder shall be personally liable for the payment of any debt contracted by any corporation formed under this act, which is not to be paid within two years from the time the debt is contracted, nor unless an action for the collection 198 BUSINESS CORPOKATIONS. of such debt shall be brought against such corporation within two years after the debt shall become due ; and no action shall be brought against any stockholder who shall cease to be a stockholder in any such corporation for any debt so contracted, unless the same shall be commenced within two years from the time he shall have ceased to be a stockholder in such cor- poration. § 178. Annual election of directors. — Toting thereat.— Section 26. The annual election of directors shall be held at such time and place as shall be designated by the by-laws of the corporation, and public notice of such time and place shall be published, not less than ten days previous thereto, in a newspaper published in a city or town in which the principal business office of the corporation is situated, if a newspaper be published therein, and otherwise in the newspaper published nearest to said office ; and the election shall be made by such of the stockholders as shall attend for that purpose, either in person or by proxy. No person shall be permitted to vote upon the proxy of a stockholder in any such corporation after the lapse of eleven months from the date thereof, unless the etockholder shall have specified therein that it is to continue ip force for some longer and limited time. All elections shall be by ballot, and each stockholder shall be entitled to as many votes as shall equal the number of his shares multiplied by the number of directors to be elected, and he may distribute his votes among those to be voted for as he sees fit ; and the per- sons receiving the greatest number of votes shall be directors, and when any vacancy shall occur among the directors, by death, resignation, or otherwise, it shall be filled for the re- mainder of the year in such manner as may be provided for by the by-laws of the said corporation. § 179. On failure to elect, directors hold over.— Section 27. In case it shall happen at any time that an election of di- rectors shall not be made on the day designated by tlie by-laws of said corporation, when it ought to have been made, the cor- poration, for that reason, shall not be dissolved, but it shall be PROVISIONS OP THE ACT. 199 lawful, on any other day within three months thereafter, to hold an election for directors, upon service of notice upon the stockholders thereof respectively in the manner provided in section five of this act ; and all acts of directors shall be valid and binding as a,gainst such corporation until their successors shall be elected. § 180. Oathof inspectors of election. — Section 28. Every person acting as an inspector of election in any such corpora- tion shall, before entering upon the duties of his office, take and subscribe an oath or affirmation before some officer au- thorized to administer the same, that he will discharge the duties of his office with fidelity, and that he will not receive any vote but such as he believes to be legal, nor reject any which he believes to be legal ; and if any such inspector shall violate this oath or affirmation, he shall be subject to all the penalties imposed by law upon inspectors of. general State elections in this State violating their duty, and shall be pro- ceeded against in Kke manner and with like effect. § 181. Extending duration of corporate existence. — SEcnoiir 29. Whenever any corporation organized imder this act has fixed the duration of its corporate existence for a less period than fifty years, it may, at any time, extend the term of its existence beyond the time mentioned in the original certificate of incorporation by the consent of the stockholders owning two-thirds in amount of the capital stock of such corporation, in and by a certificate to be signed by such stock- holders, in person or by attorney duly authorized, and ac- knowledged or proved, so as to enable it to be recorded, which certificate shall be filed in the office of the secretary of State ; and of the clerk of the county in which the principal business office of such corporation is situated, and the said secretary of State and the county clerk, respectively, upon such filing, shall record the same in the record of corporations kept in his office, and make a memorandum of such record in the margin of the original certificate in such record book; 200 BUSINESS CORPORATIONS. and thereupon the time of existence of such corporation shall be extended, as designated in such certificate, for a term which, with the term originally fixed, will not exceed fifty years. § 183. Corporations, where taxable. — Section 30. Every corporation organized under this act shall be taxed on all of its property, except its real estate, in the town, city or village where its principal business ofiBce is situated ; and on its real estate, iu the town, city or village where such real estate is situated, shall be taxed therein. § 183. Change of principal place of bnsiness. — Section 31. Such corporation may change its principal place of busi- ness, by the consent of the stockholders owning two-thirds in amount of the capital stock of such corporation, in and by a certificate to be signed by such stockholders in person or by attorney duly authorized and acknowledged or proved, which certificate shall be filed in the office of the secretary of State and of the clerk of the county in which the principal business office of such corporation is situated ; and the secretary of State and county clerk respectively shall, upon such filing, record the same in the record of corporations kept in his office, and make a memorandum of such record in the margin of the record of the original certificate recorded in such office, and thereupon the principal business office of such corpora- tion shall be deemed to be changed as stated in said cer- tificate. § 184. What companies may reorganize hereunder. — Section 32.^ Any existing corporation heretofore organized under the general laws of this State, except such corporations as are particularly excepted by the first section of this act from organizing thereunder, may come under and avail itself of the privileges and provisions of this act by complying with the ' As amended, L. 1880, c. 187, § 1. PROVISIONS OF THE ACT. 201 following provisions : The directors of such corporation shall publish a notice, signed by at least a majority of them, in a newspaper published in the county in which the principal business office thereof is situated, for at least three succes- sive weeks, and to deposit a written or printed copy there- of in the post-office, postage prepaid, addressed to each stock- holder at his last known place of residence, at least three weeks previous to the day fixed upon for holding such meet- ing, specifying the object of the meeting, and the time and place when and where such meeting shall be held. At the time and place specified in the notice, the stockholders shall organize by choosing one of the directors chairman of the meeting, and, also, a suitable person for secretary, and proceed to a vote of those present, in person or by proxy ; and if votes representing a majority of all the stock of the company shall be given in favor of availing itself of the provisions of this act, the said officers shall make a certificate of the proceed- ings, showing a compliance therewith, duly acknowledged, and stating : 1. The name of the corporation. 2. The object for which it is formed, including the nature and locality of its business. 3. The amount and description of the capital stock. 4. The number of shares of which such capital stock con- sists. 6. The location of the principal business office. 6. The duration of the corporation, which, however, shall not exceed fifty years. 7. The names of the directors for the ensuing year ; which certificate, with a copy of the by-laws of such corporation, shall be filed in the office of the secretary of State and of the clerk of the county in which the principal business office of such corporation is situated. From the time of such filing such corporation shall be deemed to be a corporation organ- ized under this act, and if originally organized or incorpo- rated under any general law of this State, shall have and exercise all such rights and franchises as it has theretofore had and exercised, under the laws pursuant to which it was 202 BUSINESS CORPORATIONS. originally incorporated. But such change or proceedings shall not in any way affect, change, or diminish the existing liabili- ties of the corporation so availing itself of the provisions of this act. L. 1880, c. 18Y, § 2.' — The provisions of this act shall ap- ply to and include any corporation which might, under the terms of this act, come under and avail itself of the said act hereby amended, and which shall have heretofore taken proceedings and filed papers as required by said last-mentioned act, for the purpose of coming under the same and availing itself of the provisions thereof ; and when any corporation, such as is de- scribed in the first section of this act, has heretofore, and during the term of its original corporate existence, taken the proceedings and filed the papers specified therein, as required by said act (chapter six hundred and eleven of the Laws of eighteen hundred and seventy-five), for the purpose of com- ing under the same_ and extending its corporate existence thereunder, such proceedings shall be held valid and effectual for such purposes ; and, in such case, the same rights, fran- chises and liabilities shall belong and attach to any such cor- poration as if such proceedings had been taken after the pas- sage of this act. § 185. Corporations under act, of two classes. — Section 33. The corporations formed under this act shall be of two classes, to be known, respectively, as : 1. FuU liability companies. 2. Limited liability companies. § 186. "Full liability companies."— Section 34. In "full liability companies" all the stockholders shall be severally individually liable to the creditors of the company "in which they are stockholders, for aU debts and liabilities of such company, and may be joined as defendants in any action against the company. No execution shall issue against any As amended, L. 1881, c. 551. PROVISIONS OF THE ACT. . 203 stoctholder individually, until execution has been issued against the company and been returned unsatisfied ; and whenever a judgment shall be recovered against a stock- holder individually, all the stockholders shall contribute a proportionate share of the amount paid by such stockholder on such judgment, proportionate to the number of shares of stock owned by each of such stockholders, and such stock- holders shall have a right of action against the other stock- holders in such corporation, jointly or severally, to recover from them, and each of them, the proper portion due by them, and each of them, of the amount so paid on such judg- ment, § 187. "Limited liability companies."— Section 35. In " limited liability companies," the name of the company shall in every case have as its last word the word " limited," and iBvery such corporation shaU paint or alEx, and shall keep painted or affixed, its name on the outside of every office or place in which the business of the company is carried on, in a conspicuous position, in letters easily legible, and shall have its fuU name stated in legible characters in all notices, adver- tisements, and other official publications of such company, and in all its bills of exchange, promissory notes, checks, orders for money, bills of lading, invoices, receipts, letters, and other writings used in the transaction of the , business of the corpo- ration. §188. Word "limited" to be used.— Penalty for its omission from corporate name. — Section 36. Every omission of the word " limited " in the use of the name of such com- pany shall render each and every officer or director in such company personally liable for any indebtedness, damage or liability incurred during such omission. If any limited lia- bility .company under this act does not paint or affix, and keep painted or affixed its name, in the manner above set forth, it shall be liable to a penalty of not exceeding twenty- five dollars for such omission, for every day during which such name is not so kept, painted, or affixed ; and every 204 . BUSINESS CORPORATIONS. director or officer of sueli compauj' who shall authorize or permit such omission shall be liable to a like penalty ; and if any director or officer of such company, or any person on its behalf, shall use or authorize the use of any seal purport- ing to be a seal of the company on which its name is not so engraved as aforesaid, or shall use or authorize the issue of any notice, advertisement, or other official publication of such company, or shall sign or authorize to be signed on behalf of such company any bill of exchange, promissory note, indorsement, check, order for money or goods, invoice, bill, receipt, letter of credit or other writing of the company wherein its name is not mentioned as aforesaid, he shall be liable to a penalty of one hundred dollars. The penalties in this section provided shall be sued for in the name of the People of the State of New York by the district attorney of the coimty in which the principal office of such corporation is located, and the amounts recovered shall be paid over to" the proper authorities for the support of the poor of such county. § 189. Individual liability of stockholders in "limited" companies. ^Section 37. In limited liability companies, all the stockholders shall be severally individually liable to the creditors of the company in which they are stockholders, to an amount equal to the amount of stock held by them, re- spectively, for all debts and contracts made by such company, until the whole amount of capital stock fixed and limited by such company has been paid in, and a certificate thereof has been made and recorded as hereinafter prescribed. The term stockholder, as used herein, shall apply not only to such per- sons as appear by the books of the corporation or association to be such, but also to every equitable owner of stock, al- though the same may appear on such books in the name of another person ; and also to every person who shall have ad- vanced the installments or purchase-money of any stock in the name of any person under twenty-one years of age, and while such person remains a minor to the extent of such ad- vance ; and also to every guardian or other trustee who shall PEOVISIONS OF THE ACT, 205 yoluntarily invest any trust funds in such stock ; and no trust funds in the hands of such guardian or trustee shall be in any way liable under the provisions of this' act by reason of any such investment, nor shall the person for whose benefit any such investment may be made be responsible in respect to such stock until thirty days after the time when such per- sons respectively become competent and able to control and dispose of the same ; but the guardian or other trustee making such investment as aforesaid shall continue respon- sible as a stockholder until such responsibility devolves upon the person beneficially interested therein ; and in respect to stock held by a guardian or other trustee under a transfer of the same by a third person, or under positive directions by a third person for such investment, the person making such transfer or giving such directions, and his executors and administrators shall, for the purposes of this act, be deemed a stockholder ; and the estate of such person, if he be deceased, shall be responsible for the debts and liabilities chargeable on such stock, according to the provisions of this act. No execution shall issue against any stockholder individually, until execution has been issued against the corporation and returned unsatisfied; and whenever a judgment shall be re- covered against a stockholder individually, all the stockholders shall- contribute a proportionate share of the amount paid by such stockholder on such judgment proportioned to the number of shares of stock owned by each of such stock- holders, and such stockholder shall have a right of action against the other stockholders in such corporation, jointly or severally, to recover from them, and each of them, the pro- portion due by them and each of them of the amount so paid on such judgment. The capital stock of every such limited liability company shall be paid in, one-half thereof within one year, and the other half thereof within two years from the incorporation of said company, or such corporation shall be dissolved. The directors of every such company, within thirty days after the payment of the last installment of the capital stock, shall make a certificate stating the amount of the capital so paid in, which certificate shall be signed and 206 BUSINESS CORPORATIONS. sworn to by the president and a majority of the directors ; and they shall, within the said thirty days, record the same in the office of the secretary of State, and of the comity in which the principal business office of such corporation is sit- uated. § 190. Effect of dissolution.— Section 38. The dissolu- tion, for any cause whatever, of any corporation created as aforesaid, shall not take away or impair any remedy given against such corporation, its stockholders or officers, for any liabilities incurred previous to its dissolution. CHAPTER XII. CORPORATIONS UNDER THE BUSINESS ACT.— DISTINCTIONS BETWEEN SAID ACT AND THE MANUFACTURING ACT. § 191. Introductory. 192. What corporations may form under the Business Act. 193. Formation of corporations. 194. Directors. 195. OflBcers. — By-laws. 196. Capital stock. 197. Increase or diminution of capital stock. 198. Powers and priyileges. 199. Directors' liability. — Annual report. 200. Stockholders. 201. Full liability companies. — Stockholders' liability therein. 202. Limited liability companies. 203. Stockholders' liability in " limited " companies. 204. Taxation and dissolution. 205. Certain provisions not in act. § 191. Introductory.— It is most important in con- sidering tlie Law of 1875, c. 611, to bear constantly in mind the fact that its provisions apply only to corpo- rations organized under it ; and that between it and the Law of 1848, c. 40, there is no conflict. Each law exists independently and with fall effect. A corporation organized under the Manufacturing Act has only to comply with its requirements, and it need not be concerned about the terms of the Business Act, an<^ vi-ce versa. There are, however, various general statutory pro- visions which apply to all New York corporations, or- ganized under general laws, and which therefore gov- 208 BUSINESS COEPOKATIONS. ern companies formed under this law ; these having been given in full in Part I, are here merely referred to in the notes. As many of the provisions of this Business Act are derived from the Act of 1848, decisions under the lat- ter will often be found applicable to the former, and should be consulted as we have indicated in the notes. § 192. What corporations may form under the Business Act.— One of the most striking features of this act is its comprehensive character. Every corporation for purely business purposes, which any corporators may desire to organize, can be formed thereunder, and all existing business companies formed under a general act, may re-organize^ under its provisions. Some special corporations are by name excluded from its privileges, but apart from these, any corporation " carrying on a lawful business " is within its terms.^ As we have already seen the Manufacturing Act has no such general scope.® § 193. Formation of corporations.— The method of forming a corporation under this act differs materially from the simple mode prescribed by the Act of 1848. There, a specified certificate is made, signed and ac- knowledged, and when filed and recorded as the law requires, the corporation is formed.* Here many steps are to be taken : 1st. A certificate somewhat similar to the certificate '47!«e, §184. Mrate, §153. ' Ante, § 1. * Ante, §§ 6, 7, 8. CORPORATIONS UNDER THE BUSINESS ACT. 209 of incorporation, already considered/ must be pre- pared, signed and acknowledged by the corporators, who must be at least five,* and a majority of whom must be citizens and residents of this State.^ The contents of this certificate are to be as sec- tion 3 * specifies. It is noticeable, that both the local- ity of the business of the company and its principal business office are to be stated."* When properly exe- cuted, this certificate is to be filed in the office of the secretary of State only. The company is riot however then organized. No trustees or directors are named in this certificate. It is merely an application for incorporation under the act. 2d. In reply to this application, if the law has been followed, and if the name selected for the compa- ny does not conflict with the name of any existing com- pany,® the secretary of State issues a license empowering those making the certificate, as commissioners, to open books for subscriptions to the capital stock of the pro- posed company. 3d. Thereupon, the commissioners named open books for subscriptions. No subscription can be received un- less ten per cent, thereof is paid in cash.'^ When one half of all the stock is subscribed the commissioners call a > Ante, § 7. " Three persons may form a company under the Manufacturing Act. Ante, § 6. ' Ante, § 155. The Manufacturing Act does not require a majority of the corporators to be residents or citizens of New York. * Ante, ^155. ' Compare with §§ 6, 7. ' Ante, § 156. The Session Laws of each year contains a list of the companies formed under this act, but not of those under the Act of 1848. ■'Ante,%15'r. 14 210 BUSINESS COEPORATIONS. meeting of the subscribers to adopt by-laws and elect directors of the company. The notice of this meeting is to be given as the law provides.^ 4th. The meeting of subscribers is then held. By- laws must be adopted thereat, providing for each one of the matters set forth in section 6,*^ and for such other matters as the subscribers desire. Directors must also be then elected.^ 5th. Within ten days after this meeting the com- missioners must file in the office of the secretary of State a verified record of the- proceedings thereof containing : 1. A copy of the subscription list. 2. A copy of the by-laws adopted. 3. The names of the directors chosen.* 6th. Thereupon the secretary of State issues to the directors a certificate setting forth that the corporation is fully organized in accordance with the act, and con- taining : 1. The original certificate required by section 3. 2. The date and place of the subscribers' meeting. 3. The names of the directors elected. 4. A statement that all the provisions of the act have been duly observed in the organization of the cor- poration. This certificate must, within ten days after it is issued, be filed in the office of the clerk of the county where the principal business office of the cor- poration is located. It must be recorded in the secretary of State's office and also in the county clerk's office. ' Ante, %15T. ' Ante, ^15S. ' Ante, § 157. ♦ AnU, § 169. CORPORA.TIONS UNDER THE BUSINESS ACT. 211 A certified copy made by the secretary of State/ is made presuVaptive evidence of the incorporation of the company,^ 7th. All steps necessary to complete the organiza- tion of the company must be taken within one year af- ter the issuing of the license to the commissioners. If they are not so taken, the license will be deemed re- voked, and all proceedings taken thereunder will be void.® § 194. Directors. — The business of these corpora- tions is to be managed* by a board of directors (termed trustees, in the Act of 1848), consisting of not less than five' nor more than thirteen. Each director must be a stockholder of the company to the extent of five shares of the stock.® No provision is made requiring a majority of the directors to be residents or citizens of New York State.^ The first board of directors is elected as we have seen at the subscribers' meeting held prior to the full incor- poration of the company.** Subsequent boards are elected at the annual meet- ings. Notice of this annual election is to be given as is provided by section 26.' ' The county clerk gives this certificate in the case of a company or- ganized under the Act of 1848. 'Ante, ^159. Mrefe, §160. ' As to general powers of directors, see, ante, § 16. ' " Not less than three." Manufacturing Act, ante, § 12. ° The Manufacturing Act requires trustees to be stockholders without specifying the amount of stock to be held. Ante, § 13. ' See provisions of Manufacturing Act. Ante, §§13, 13. ' Ante, § 157. As to how the trustees of company, under Law of 1848, are appointed for the first year, see, ante, §§ 6, 7, 14. »^nfo, §178. 212 BUSINESS COEPOKATIONS. " All elections shall be by ballot, and each stock- holder shall be entitled to as many votes ^s shall equal the number of his shares multiplied by the number of directors to be elected, and lie may distribute his votes among those to be voted for as he sees fit, and the per- sons receiving the greatest number of votes shall be directors, &c." ^ This method of voting, it will be observed, is very unlike that prescribed by the Manufacturing Act." Here, one stockholder may, instead of voting for each director upon his whole number of shares, vote only for one director, and give to him all the votes to which he is entitled ; and thus minority stockholders may succeed in electing one or more directors even when a majority of the board is against them. Executors, administrators and guardians may vote upon stock so held by them, and stockholders may vote on pledged stock.* Inspectors must take oath.^ K there is a failure to elect directors at the proper time, those in office hold over until their successors are chosen, and an election may be had any time within three months thereafter." The existing number of the directors may be changed (not, however, to less than five or more than thirteen) by a vote of a majority of the stockholders at a meeting called as is prescribed in section 5,® of the act. To effect the change the certificate specified in section 10 must be filed as required thereby.'' • ^71*6, § 178. « Ante, § 13. •4re«e, §176. See §15. * Ante, § 180. . As to general statutes, ■wliich apply to annual elections, see, ante, § 14. ' Ante, § 179. Compare with §§ 18, 19. ' Ante, § 157. ' AnU, § 163. COEPOEATIONS UNDER THE BUSINESS ACT. 213 It may he noted that this method of changing the existing *Qumber of directors or trustees diflfers from that set forth by the act of 1848.^ Directors may resign simultaneously and terminate their connection with the company, when they ascer- tain that the company is insolvent and its condition is daily growing worse ; a receiver will thereupon be appointed to protect the assets of the company.^ Di- rectors must cause corporate account books to be kept, which shall be open for inspection, as well as the stock book,^ § 195. Oflficers.— By-Laws.— The officers must consist of a President, a Secretary and a Treasurer, all of whom must be elected by and from among the directors.* The secretary must keep a minute book of all votes and transactions of the company. The by-laws should prescribe the manner of their election,^ and the security to be given by the treasurer. Under the Manufactur- ing Act as we have seen, the President alone must be a trustee.* This act prescribes the matters which must be reg- ulated by the by-laws of the company,^ and no corpo- ration can be organized under it until its by-laws have been adopted. It is moreover provided, that when any change is made in a by-law, until a copy of the amended by-law 1 Compare with, ante, § 27. s Smith V. Danzig, 64 How. Pr. 320. 'Ante, §§ 168, 169. Compare with §§ 88, 89. *Ante, §162. " Ante, § 162. See, also, § 20, as to powers of oflBcers, &c., &c. Con- sult, ante, §§20, 21, 32, 23. 'Ante, ^21. 'Ante, ^158. 214 BUSINESS COEPOEATIONS. is filed in the office of the secretary of State and the clerk of the county where the principal business office of the company is located, it shall not take effect as a by-law.^ By-laws under the Manufacturing Act should al- ways be adopted, but the company may be formed and carry on business without them, and no method of adopting them or of making public their contents is specified.* In the case of the present law, however, they must be adopted, and when adopted placed on file. § 196. Capital stock — The capital of a company or- ganized hereunder must never exceed $5,000,000. The par value of each share of stock must not be less than $10, nor more than $100.' The stock certificates are to be signed by the presi- dent and treasurer, and are transferable substantially as are those of Manufacturing Companies,* except that " no certificate shall be transferred so long as the hold- er thereof is indebted to such corporation, unless the board of directors shall consent thereto." " Stock can only be issued for money, labor done, or property actually received for the use and legitimate purposes of the company, and at its fair valuation,* Mnie, §159. ' Consult, ante, §§ 24, 35. ' Ante, § 163. The Manufacturing Act contains no provisions regu- lating the amount of capital, or the value or number of the shares of stock. See, ante, § 7. ' Ante, § 164. See, as to lost certificates, ante, § 77. Compare with, anU, §§ 73, 74, 75. " Ante, § 164. Compare with §§ 78, 76. 'Ante, § 166. See, ante, §§ 78, 79. CORPORATIONS UNDER THE BUSINESS ACT. 215 This provision differs from the corresponding sec- tions under the Law of 1848; in that, here, stock may be issued for labor done,^ as well as for money or prop- erty.^ The capital stock of limited liability companies must be paid in within the same time as that of manu- facturing companies, and the same certificate of its full payment is to be filed.* § 197. Increase or diminution of capital stock.— Al- though the law allows by amendment the formation of a corporation with a capital of $5,000,000, section 15 only authorizes an increase of capital to the extent of $2,000,000.* The capital cannot be decreased so that the debts of the company will exceed its capital stock.^ Instead of requiring a vote of two-thirds of the stockholders * to effect a change in the capital of the company, it is here provided that " a vote of a "majority of the stockholders in number, and representing a majority of the stock of such corporation, " shall ac- complish this result.^ The meeting is to be called as is provided by sec- tion 5,® of the act. As to the proceedings at the meet- ing, and the manner of effecting the increase or de- crease of the stock, the law seems most vague. ' Van Cofct ®. Van Brunt, 82 N. Y. 535. ^ See, cmte, §§ 78, 79. 'Ante, § 189. ^Compare with § 80. * AnU, § 167. ' AnU, § 167. ' This is the requirement in this regard of the Manufacturing Act. See, anU, §§ 81, 83. '4wi6, §167. » Ante, § 157. Compare with § 81. 216 BUSINESS OOEPOKATIONS. It is simply provided that "a statement of such increase or reduction shall be filed in the office of the secretary of State, and of the clerk of the county in which the principal business office of such corporation is situated," within ten days after such action.^ No requirement exists that this " statement " shall be verified or acknowledged. It is not provided who shall make it. Indeed all the formalities which are prescribed to effect a change in the capital stock of a manufacturing company are absent.^ The chairman of the meeting would seem to be the most appropriate person to make this statement, and the secretary should countersign it, and in order to insure its acceptance by the secretary of State and county clerk it should be verified and acknowledged. § 198. Powers and Privileges.— This act gives to corporations formed thereunder the general powers specified in section 2.* It also authorizes them : To issue bonds to the value of one half the corpo- rate property.^ To extend the duration of the corporate existence.* To change the place of business of the company." ' Ante, § 167. = Compare .with §§ 81, 82, anU. See note to § 81, as to L. 1878, c. 264; as amended, L. 1883, c. 306. ' Ante, § 154. The restrictiun placed upon the power of these compa- nies to retain certain real estate is noticeable. As to general statutory powers applicable to these companies, consult, ante, §§ 138, 140-148; and as to powers of companies under the Manufacturing Act, see, ante, Chap. IX. As to power of steam-heating companies to lay pipes, &c., see L. 1879, c. 317; and ante, §§ 5, 143. ' Ante, § 165. » AnU, \ 183. COKPORATIONS UNDER THE BUSINESS ACT. 217 The two changes lasfc referred to can only be made upon the vote of two-thirds of all the stockholders in interest. It may be observed that the certificates in each case are required to be made by these stockholders either in person or by attorney, and they must be acknowledged by them. Under the provisions of the Manufacturing Act stockholders are nowhere required to execute certificates.^ § 199. Directors' Liability — Annual Report ^The directors must, within twenty days from the first day of January, make an annual report stating : 1. The amount of capital of the corporation. 2. The proportion actually paid in. 3. The amount and in general terms the nature of its existing assets and debts. 4. The names of its then stockholders. 5. The dividends, if any, declared since the last report. This report must be signed by the president and a majority of the directors. It must also be verified by the president or secretary. It must be filed within the said twenty days in the office of the secretary of State, No provision is made either for the filing in the office of the county clerk of the county where the company has its principal office, or for a publication of the report.* ' Although they must consent to the execution of a corporate mort- gage (§ 1 35), and must make certificate to extend corporate existence, under L. 1867, c. 937 {ante, § 140). Compare as to manner of effecting, thereunder, changes here referred to, ante, §§ 140, 141. ° Ante, § 170. Compare with § 28. It will be noticed that many mat- 218 BUSINESS CORPORATIONS. The penalty imposed upon the directors for failing to report as the statute requires, is identical with that provided in the case of a failure to report annually under the General Manufacturing Act.^ There is, ho\¥ever, here provided, a means of escape from the penalty for a minority trustee vrho is unable to secure the filing of the proper report. He is allov?ed a specified time within which he may file a statement specifying why the regular report is not filed, and giving under oath the facts required to be stated therein, as well as he is able to do. Upon doing this he escapes from the penalty imposed.^ Contribution between directors in default is also here allowed.* Directors under this act are liable, as are trustees under the Manufacturing Act, for signing false reports,* etc., for making loans to a stockholder,' for paying dividends when the company is insolvent,* and for allowing the indebtedness to exceed the capital of a company.'' § 200. Stockholders. — Subscribers must pay ten per cent, of their subscriptions in cash,* and no subscrip- tere must here be stated in the report, which the Manufacturing Act does not require, and that various differences exist between the provis- ions of the two acts in reference thereto. Iq the main, however, chapters rv and V will be found applicable hereto, and should be consulted. ' Ante, § 170. Compare with, ante, § 38. " Ante, § 170. See, also, § 33. ' AnU, § 170. See, also, § 38. ' Ante, § 173. See, also, §§ 65, 66. ' Ante, § 173. See, also, § 71. ' Ante, § 171. See, also, |§ 67, 68. ' Ante, § 174. See opinion, Van Voret, J., Robinson v. Attrell and others. Supreme Ct., Special Term, Nov. 8, 1883. See, also, §§ 69, 70. « Ante, § 168. COBPOEATIONS UNDER THE BUSIITESS ACT. 219 tion is effectual until this amount is paid.^ Subscrip- tions are payable as* by-laws or directors under the by-laws provide. The company may sue for unpaid installments after thirty days, and the stockholder is prohibited from voting as such if an installment remains unpaid for thirty days previous to the election or meeting. Other penalties may be imposed and stock may be forfeited.^ Stock books are to be kept, and provision is made quite at length' as to who are stockholders under cer- tain circumstances.* Account books must also be kept by the directors, which are to be open to the inspection of stockholders,* § 201. Full liability companies— Stockholders' liaMlity therein. — The act * provides for the organization of 1, Full Liability Companies ; and, 2, Limited Liability Companies.® In the first of these the stockholders are " severally individually liable for all debts and liabilities of the company." " This liability, notwithstanding the use of the word "full," is limited by section 25,'' which provides, in substance, that no stockholder in any corporation organized under the act shall be personally liable upon any contracted debt; 1. Unless it is payable within two years from the time it is contracted, and. ' Excelsior Grain Binding Co. v. Stayner, 61 How. Pr. 456; b. c, 35 Hun, 91 ; Beach v. Smith, 30 N. T. 116. " Ante, § 163. Compare with §§ 83, 84, 85, 86, 87. » Ante, § 169. See §§ 88, 89. * Ante, § 168. As to stockholders' rights to dividends, see § 90. = Ante, § 185. « Ante, § 186. ' Ante, § 177. 220 BUSINESS COEPOEATIONS. 2. Unless an action is brought against the corpora- tion to recover the same within two years after the debt becomes due. 3. After a lapse of two years from the time one ceased to be a stockholder, no action upon a debt due from the company can be brought against him. Upon any debt, however, which is not affected by section 25, stockholders of these companies may be joined as defendants with the company. No execution against a stockholder can, however, issue until one has issued against the corporation and been returned un- satisfied.^ The act contains no requirement as to when the capital of full liability companies shall be paid in, or as to the necessity of filing a certificate as to its full payment. § 202. Limited liability companies. — For the priv- ileges whicli a corporation derives from the fact that it is a " Limited Liability Company " under this act, strict provisions are made to require the constant use of the word "limited," in order that tbe public at large may be informed of the character of the com- pany. Indeed, two sections^ of the act are given up to specifying the times and places where this word shall be " painted," " aflBxed," or " stated," and the severe penalties which shall follow upon an omission to " paint " or " affix," or use the word as the law provides. Every corporation which is not under the act a full liability company comes under these provisions. ' Ante, § 186. " Ante, §§ 187, 188. COEPORATIONS UNBEE THE BUSINESS ACT. 221 and must invariably use this word "Limited" as a part of its corporate name. § 203. Stockholders' liability in "limited" companies. — Stockholders in these companies are severally in- dividually liable, to an amount equal to the amount of stock held by them, for all debts and contracts made by the company until the whole amount of capital stock fixed and limited by such company has been paid in, and a certificate thereof has been made and recorded as is provided.^ This is the same liability imposed upon stock- holders of companies under the Manufacturing Act.^ Under the Law of 1848, however, a debt must be pay- able within one year after it is contracted, and suit against the company must be brought thereon within one year after it becomes due, otherwise the liability of a stockholder cannot be enforced against him.* Under this limited liability act, if the debt is payable in two years after it is contracted, and suit is brought against the company within two years after the debt is due, the stockholder may be held therefor.* Another difference between the acts may be seen in the fact that under the Manufacturing Act a judgment must be recovered against the company in the first instance, and the claim cannot be enforced against an individual stockholder until an execution against the company ' Ante, § 189. ' Ante, §§ 93-99. » Ante, §§ 99-101. * Ante, § 189. Where a lease for five years was executed by the com- pany, it was held that a stockholder was individually liable for the rent, payable within two years from the time of executing the lease and de- livering the premises, but for none besides. Mclntyre v. Strong, 63 How. Pr. 48. 222 BUSINESS CORPORATIONS. shall have been returned unsatisfied in whole or in part/ while under this act the only provision govern- ing this matter is, " no execution shall issue against any stockholder individually liable until execution has been issued against the corporation and returned unsatisfied."* This provision does not make the return of the unsatisfied execution a prerequisite to bringing an action to enforce the stockholders' liability. The provisions of the two acts relative to the manner and time of paying in the capital and filing a certificate of its full payment are much alike,* and the same exemption from personal liability exists under each in reference to executors, guardians, trustees, and pledgees.* There appears to be but one instance in which the liability of a stockholder of a limited liability company is less than that of a stockholder of a corporation organized under the Act of 1848, viz. : stockholders of companies under the latter act are always liable to " laborers, servants and apprentices " for services ren- dered the company.' No provision similar to this is found in the Business Act." § 204. Taxation and dissolntion Section 30 '' pro- vides, that companies hereunder shall be taxed upon their personal estate in "the town, city or village » Ante, §§ 99-131. " AnU, § 189. ' Ante, § 189. Compare with § 99. * Ante, § 175. Compare with §§ 129, 130. ' Ante, § 94. ' Ab to nature of stockholders' liability, method of enforcing, and gen- eral law applicable thereto, consult Chapter VIII. ' AnU, § 183. OOKPOEATIOKS UNDER THE BUSINESS ACT. 223 where its principal business office is situated ; " apart from this distinction,^ what has been heretofore said upon the subject of taxation of corporations organized under the Manufacturing Act, applies to all these companies.^ There are no special provisions in either act speci- fying the manner of dissolution of corporations formed under them. They are, therefore, subject to the general law of the State in this respect.* § 205. Certain proTisions not in Act. — It is notice- able that the Business Act contains no provisions : 1. In regard to carrying on business out of the State. 2. Restricting or allowing corporate mortgages.* 3. Requiring directors in reports of the company to state that stock issued for property has been so issued. 4. Restricting the right of a company to hold stock in any other company. 5. Permitting an extension of or change in the business of a company. • 6. Authorizing an increase in the number of shares of stock. 7. Authorizing stockholders to demand a state- ment, or requiring an annual statement. 8. Allowing consolidation with another company. ' Compare with § 144, ante. ' Ante, §§ 144-147. = See § 190, and, ante, §§ 148-152. * The reatrictiocs in the Manufacturing Act are for the protection of stockholders, and without legislative restriction a corporation may mort- gage its property, though not its franchise. Carpenter 8. Black Hawk Mining Co. 65 N. Y. 43. APPENDIX 16 APPENDIX A The following decision, having been so recently rendered, could not be fully incorporated in the text. We therefore print the opinion in full, as it has not yet been elsewhere re- ported, and by it various questions under the Manufacturing Act, not heretofore passed upon by the Court of Appeals, are definitely settled. The facts will sufficiently appear from the opinion. COURT OF APPEALS. Heemak Veedee, JSespt. , agst. John L. Jddson, Applt. And 14 other cases. Decided, March 18, 1884. Finch, J. If the certificate filed in 18Y3, asserting that the whole capital stock of three hundred thousand dollars had been paid in, is conclusive in favor of the stockholders as against the creditors, the foundation upon which this re- covery rests is taken away. One case furnishes a seeming au- thority for the doctrine until its occasion and limitations are 228 APPENDIX A. understood. (Steadman v. Eveleth, 6 Metcalf, 114.) Tkat decision originated in an existing stockholders' liability so wide and destructive as to induce a conclusion that the cer- tificate was required largely for their protection. The failure to pay in the whole capital stock threw upon the individual stockholder a liability, not measured by his shares, but extend- ing to the whole corporate debt. In that respect the statute of Massachusetts was afterwards changed by the substitution of a limited liability like our own ; and the question of the effect of the certificate arising again, it was held that it was not conclusive, and the creditors might show non-payment in fact of the fuU capital, and found upon that the stockholder's liability to the par value of his shares. (Barre Nat. Bank v. Hingham Mfg. Co. 12T Mass. 563.) Nor is the conclusive- ness of the certificate in any manner intimated or sustained by the case of Bonnell v. Griswold (80 N. Y. 128). The ques- tion there concerned not the liability of stockholders derived from the fact of non-payment, but that of the trustees for making a false certificate of the alleged fact ; and it does not follow because a remedy is given against the ofBcers for mak- ing no report imder one section and for making a false report under another, that the liability of the stockholders for non- payment of the full capital is thereby taken away. On the contrary, the cases quite plainly indicate that it remains^ (Schenck v. Andrews, 46 N. Y. 589 ; Boynton v. Hatch, 47 N. Y. 225 ; Boynton v. Andrews, 63 N. Y. 93 ; Brown v. Smith, 13 Hun, 411 ; 80 N. Y. 650 ; Wheeler v. Millar, 90 N. Y. 358.) Under § 10 ^ of the act of 1848, two things are req- uisite to end the stockholder's liability. The whole amount of capital stock must be paid in and the certificate of that fact required by § 11 ^ must be made and recorded. A false asser- tion of compliance does not make compliance with the first condition. The fact must exist and then it must be certified. While the statute makes some papers presumptive evidence of specific facts, it does not give in terms even that force to the certificate in question. The penal provision (Pier v. Han- ' Ante, §§ 99, 100. VEEDER V. JUDSON. 229 more, 86 N. Y. 95) pimishing officers for a false report of capi- tal paid in,^ is entirely consistent with a contract liability of the stockholder until that condition is in truth fulfilled. Our next inquiry relates to the alleged increase of the capital stock. Originally, and by the articles of incorporation which were duly filed in 1868, the capital stock of the Iron Company was fixed at two hundred thousand dollars. In March of the next year the trustees passed a resolution to increase the capital stock by adding thereto one hundred thousand dollars, the same to be divided pro rata among the existing stockholders, ■whose notes payable in one, two, three, four, five and six months, in equal amounts, were to be taken therefor, and the new stock issue upon their payment. In the succeeding April there was a meeting of stockholders, at which the resolution of the trustees was approved and ratified, after a recital ad- mitting its legal insufiiciency as it stood. But no notice of such meeting of stockholders was given as required by § 21,* c. 40, of the act of 1848, nor was any certificate of the pro- ceedings of such meeting made or filed as required by § 22* of the same act. The attempted increase was therefore illegal, I)ut the respondent insists that nevertheless, as against the creditors of the company, the defendant stockholders, by ac- cepting their proportion of the increased stock, by voting for its increase, by taking dividends upon it, and holding it out to those dealing with the company as an actual component of its capital, are estopped from denying the legal validity of the in- crease and must be held responsible as if it were valid. The authorities for this doctrine are numerous and strong. (Eaton V. Aspinwall, 19 N. T. 119 ; Chubb v. Upton, 5 Otto, 666 ; Aspinwall v. Sacchi, 57 N. Y. 331 ;, B. & A. K. Co. v. Cary, 26 N. Y. 175 ; Kent v. Quicksilver M. Co. 78 IST. Y. 159 ; Sheldon H. B. Co. v. Eiehemeyer Co. 90 N. Y. 613.) The an- swer made to them is that an act absolutely and wholly void, because, under the law, 'incapable of being performed, cannot be made valid by estoppel. This is true where, under the law, there is an entire lack of power to do the act which is ' Ante, §§ 65, 66. ' Ante, §§ 81, 82. 230 APPENDIX A. brought in question. The distinction is well illustrated in Scoville V. Thayer (105 U. S. 143). Under the law of Kansas no company like that then before the court could increase its capital to more than double the amount originally authorized. The capital was sought to be increased in excess of that amount. As against creditors it was claimed to be a valid in- crease by the operation of an estoppel, but the court ruled otherwise, and justly ; for the very foundation of an estoppel — the misleading of creditors to their injury — was wanting. The latter knew and were bound to know that no power ex- isted to so increase the capital, and, therefore, that it was not increased ; and, hence, they were not and could not be misled. But where, as in the present case, the abstract power did exist, and there was a way in which the increase could lawfully be made, and the creditors could, without fault, believe that the increase had been lawfully effected, and the necessary steps had been taken, there the doctrine of estoppel may apply and the increased stock be deemed valid as against the creditors who have acted upon the faith of such increase. The referee has found that each and every one of the present defendants have done some act which brings them within the range of the estoppel alleged, or hold shares of the stock which in the hands of the assignors stood charged and burdened with a liability for the company's debts. We must therefore treat the increase as lawful, and precisely as if the needed pre- liminary steps in truth had been taken.' It is not denied that the increased stock of one hundred thousand dollars was never fuUy paid in. That brings us to consider the effect of that omission, and puts before us conflicting theories of the meaning and construction of the statute. On the part of the appellant it is argued that the stock- holders' liability under section ten of the act of 1848 is in terms confined to the original capital stock as fixed and lim- ited by the articles of incorporation, that this construction is inevitable in the light of the last clause of the same section ' See, ante, § 82. VEEDEE V. JUDSON. 231 which requires the stock to be paid in, one-half within one year and one-half within two years " from the incorporation of such company," upon penalty of corporate dissolution ; that the stockholders' liability is in derogation of the common law, and the statute imposing it must be strictly construed ; that section twenty which permits an increase of capital " subject to the provisions and liabilities of" the act, imposes those provisions and liabilities only upon the company and corpo- ration in its organized form and not at all upon the individual stockholders, save in the case of existing companies previously formed, in which case the significant language is used " there- upon such company, its oflBcers and stockholders shall be sub- ject to all the restrictions, duties and liabilities of this act ; " and that even if the stockholders on an increase of capital are made subject to the liabilities imposed, the only one existing by reason of non-payment of capital is for non-payment of capital originally fixed and limited, and nothing more. So far as this construction depends upon the use of the words " com- pany " and " corporation," as distinguished from the individ- ual holders of shares, the learned counsel for the respondent calls our attention to an analogous case. (Wakefield v. Fargo, 90 N. Y. 214.) No adequate reason can be given why the construction adopted in that case should not prevail in this. It is easy to see that a determination which left the non-pay- ment of increased stock free from a consequent liability of stockholders would furnish an easy mode of evading the stat- ute. The original capital would be fixed at a small amount and all paid in, and then an increase be made without respon- sibility to any extent required. But this construction does not solve the whole difificulty and fails to take into account its most serious aspect. That is expressed in the inquiry whether the statute intended to revive a terminated liability, and con- tains language which necessarily effects that result. The question of construction must meet a case like this. A corpo- ration is organized with a capital of two hundred thousand dollars, all paid in and the proper certificate in due time made and recorded. That ends the stockholders' liability. A pur- (shaser buys some of the stock after ascertaining that no liabil- 232 APPENDIX A. ity clouds it. Thereafter the stockholders lawfully increase the stock to three hundred thousand dollars against the vote and protest of such new stockholder. The increased stock not being paid in full, and he holding none of it, is he at once liable for the debts of the company to the par value of the very unbur- dened and unclouded stock which he bought because it was such ? Does the statute thus revive a Kability which the statute itself declares ended ? And does justice to the creditor require it ? He has aU the security as to the original stock which the stat- ute ever contemplated, without such added liability. If there had been no increase he would have had for his reliance the full paid original capital in the treasury of the corporation. But he has that still, after the increase. It is there just the same and gives him its security exactly as before. Manifestly the unpaid increase ought not in justice to either party to affect the full paid original, and the rights and liabilities of its holders. If the statute means that the increased stock by itself, and its holders by themselves, shall be subject to precise- ly the same liabilities as was the original stock by itself and its holders by themselves, all the language of the act is satis- fied, no injustice is done to creditors, and a dead liability is not revived. In that event the holders of the increased stock become liable to creditors up to the par value of such increased stock. The fund that is in default is made good ; the fund that is not in default is left unharmed. The creditor gets all which the statute contemplates as his due ; the security of the original stock fully paid into the treasury ; the liability of the holders of the increased stock in the room of its non-payment. Did the statute mean in such a case that creditors might take from stockholders three hundred thousand doUars instead of one hundred thousand dollars, when two hundred thousand had been paid in, and that portion of the stock freed by the same law from liability? The learned counsel for the re- spondent expresses our thought in his brief, though perhaps not consciously. He says the provisions of section twenty " subject the increase of capital itself to the provisions and lia- bilities of the act." That is the correct statement. The section deals only with the increased capital as an entity by itself and VEBDEK V. JUDSON, 233 with its holders. It has no reference to, and no effect upon, the original capital and its holders. It intended to treat the in- creased capital and its holders precisely as it had already treated the original capital and its holders, but nothing else. It says no word of a revival of the ended liability. It gives no hint of any such purpose, which would be unjust to the original stock- holders, and would give creditors a right beyond anything to which they were ever entitled. Why should we construe the section harshly when the whole force of every word in it may be exhausted by confining it to its real subject, and to the stockholders who are such in respect to that subject. The moment we confine ourselves, as we should, to a literal interpretation of section twenty, we find it saying only that it is the increase which is subjected to the liabilities of the act, and as a consequence only the holders of that increase to the par value of that stock who are made liable for debts. The innocent holder of full paid stock, once discharged by law be- cause his duty was done, goes free as he should. "We ought not to hold him in respect to stock which is sinless because there is stock which is guilty. The learned counsel for the respondent intimates that § 25, of the act of 1848, which requires the keeping of a stock book, and § 2, of the act, of 1869, which permits in the stockholder's action the nam- ing of those as defendants who appear on the stock ledger, recognize no distinction between the original and the in- creased stock. That is true, but nothing in the scope or pur- pose of either section required that an existing and recognized distinction should be again drawn. The learned counsel also turns our attention to expressions in the adjudged cases which mix and treat as one the two sorts of stock. But none of these eases had this question up, or any 'question which in- volved the difference between the two. (Johnson v. Under- bill, 52 JSr. Y. 207 ; Shellington v. Rowland, 63 N. Y. 376 ; Schenck v. Andrews, 46 JST. Y. 593 ; Cuykendall v. Douglass, 19 Hun, 577.) Possibly the question might have been raised in the last case, but it was not. There is, therefore, no au- thority in the way of the conclusion we have reached. Ordi- narily, no difficulty will arise in separating the two classes of 234 APPENDIX A. stock, and assigning to their holders their proper rights and liabilities. If stockholders should so mix and mingle the two as to make such separation absolutely impossible, they might perhaps be left to the consequences of their own act or that of their officers and agents. In the present case there is no such difficulty.^ The debts of the corporation proved reach almost $134,000, and the defendants have been required to pay that sum in pro rata assessments measured by their entire holding of both classes of the stock. As only the holders of the increased stock are liable at all, and they only to the par value of such hold- ing, the creditors have recovered too much. They can only receive in the aggregate the par of the increased stock ; that is, one hundred thousand dollars with interest from the com- mencement of the action, that sum to be awarded ^ro rata to the creditors and assessed against the holders of increased stock in proper proportions. The case must go back for such adjustment, unless we can hold that the original stock was not paid in full, or the proper certificate not made and recorded. Those questions remain to be considered. So far as the stock was issued for property bought of Whitney & French no ques- tion is here raised, but as to Jones it is said the turn made of the debt due to him from the company for work in construct- ing its furnaces was not a payment of money upon the capital stock within the meaning of § 14 of the act of 1848. If the company had paid the money to Jones in discharge of the debt due him, and then Jones had handed back the same money as a payment upon his stock, no question could have arisen. Precise- ly that was the substance of the transaction, although the form of passing the money was omitted. We think the payment was sufficient.' But the only certificate ever made of payment of capital stock was that of 1873, which called the capital stock $300,000, and asserted that it was all paid in. That certificate covered both classes of stock and asserted fuU payment of both. As to the original stock it was true, and was a suf- ' See, anU, %% 81, 82, 99, 100. ' See, anU, %% 78, 79. VBBDER V. JUDSON. 235 ficient compliance with the statute, unless tliere he force in the two objections that it was not recorded, and was not made within thirty days after the payment of the last in- stallment. We agree with the learned referee that the thirty days clause in section eleven is directory merely, and that upon the fact found by him that the omission to record was wholly the fault of the clerk who was directed to make the record, the defendants are not to be prejudiced by the omis- sion. Their duty was done.^ We have carefully examined the questions raised respect- ing the claim of Mudgett and Tillinghast as representatives of the debts due the Kossie Iron Works and Eastwood; those relating to the amount collected of Lord ; and those affect- ing the estate of McVean, and are satisfied with the referee's conclusions. All the judgments entered against the defendants must be reversed and a new trial granted, costs to abide the event. Since there was here but one action and one record we allow but one bill of costs, and that subject to the event of the ac- tion. , " Earl, J., concurs. Eapallo and Miller, JJ., concur in re- sult on the ground that none of the defendants are liable for the old stock held by them, but further hold that none of the defendants are liable for the default to pay in the in- creased stock. ■ Ruger, Ch. J., and Andrews, J., dissent, hold- ing that defendants were liable both for the old and new stock. Danforth, J., takes no part." • Ante, §§ 99, 100. APPENDIX B. Peovisions of the Penal Code Applicable to Coepoea- TI0N8 FOBMED UnDEK THE LaW8 TeKATED OF m THIS Volume. THE PENAL CODE.'— CHAPTEE XI. § 590. A person who signs the name of a fictitious person to any subscription for, or agreement to take, stock in any corporation, existing or proposed, and a person who signs, to any subscription or agreement, the name of any person, know- ing that such person does not intend in good faith to comply with the terms thereof, or under any understanding or agree- ment that the terms of such subscription or agreement are not to be complied with or enforced, is guilty of a misde- meanor. § 591. An oflncer, agent, or other person in the service of any joint-stock company or corporation formed or existing un- der the laws of this State, or of the United States or any State or Territory thereof, or of any foreign government or country, who willfully and knowingly with intent to defraud ; either 1. Sells, pledges, or issues, or causes to be sold, pledged, or issued, or signs or executes, or causes to be signed or exe- cuted, with intent to sell, pledge, or issue, or to cause to be sold, pledged, or issued, any certificate or instrument purport- ing to be a certificate or evidence of the ownersliip of any share or shares of such company or corporation, or any bond ' L. 1881, c. 676. This act took eflfect May Ist, 1882, and applies only to offenses committed or acts done since that date. PENAL CODE. 237 or evidence of debt, or writing purporting to be a bond or evidence of debt of sncb company or corporation, without being first thereto duly authorized by such company or corpo- ration, or contrary to the charter or laws under which such cor- poration or company exists, or in excess of the power of such company or corporation, or of the limit imposed by law or otherwise upon its power to create or issue stock or evidences of debt ; or 2. Re-issues, sells, pledges, or disposes of, or causes to be re-issued, sold, pledged, or disposed of, any surrendered or cancelled certificate, or other evidence of the transfer or own- ership of any such share or shares ; Is punishable by imprisonment for not less than three years nor more than seven years, or by a fine not exceeding three thousand dollars, or by both. § 692. An ofiicer, agent, or clerk of a corporation, or of persons proposing to organize a corporation, or to increase the capital stock of a corporation, who knowingly exhibits a false, forged, or altered book, paper, voucher, security or other instrument of evidence to any public oflScer or board authorized by law to examine the organization of such corpo- ration, or to investigate its affairs, or to allow an increase of its capital, with intent to deceive such ofiicer or board in re- epect thereto, is punishable by imprisonment in a State prison not exceeding ten years and not less than three years. § 593. A person who, without authority, subscribes the name of another to, or inserts the name of another in, any prospectus, circular, or other advertisement or announcement of any corporation or joint-stock association existing, or in- tended to be formed, with intent to permit the same to be published, and thereby to lead persons to believe that the per- son whose name is so subscribed is an officer, agent, member, or promoter of such corporation or association, is guilty of a misdemeanor. § 694:. A director of a stock corporation who concurs in any vote or act of the directors of such corporation, or any of them, by which it is intended. 238 APPENDIX B. 1. To make a dividend, except from surplus profits aris- ing from the business of the corporation, and in the cases and manner allowed by law ; or 2. To divide, withdraw, or in any manner pay to the stock- holders, or any of them, any part of the capital stock of the corporation ; or to reduce such capital stock without the con- sent of the legislature ; or 3. To discount or receive any note or other evidence of debt in payment of an installment of capital stock actually called in and required to be paid, or with intent to provide the means of making such payment ; or 4. To receive or discount any note or other evidence of debt with intent to enable any stockholder to withdraw any part of the money paid in by him on his stock ; or 5. To apply any portion of the funds of such corporation, except surplus profits, directly or indirectly to the purchase of shares of its own stock ; or 6. To receive any such shares in payment or satisfaction of a debt due to such corporation ; or 7. To receive in exchange for the sha,res, notes, bonds, or . other evidences of debt of such corporation, shares of the capital stock, or notes, bonds, or other evidences of debt issued by any other stock corporation, Is guilty of a misdemeanor. § 602. A director, officer, or agent of any corporation or joint-stock association who knowingly receives or possesses himself of any property of such corporation or association, otherwise than in payment of a just demand, and with intent to defraud, omits to make, or to cause or direct to be made, a fall and true entry thereof in the books or accounts of such corporation or association ; and a director, officer, or agent, or member of any corporation or joint-stock association, who, with intent to defraud, destroys, alters, mutilates, or falsifies any of the books, papers, writings, or securities belonging to such corporation or association, or makes, or concurs in mak- ing, any false entry in any book of accounts or other record or PENAI; CODE. 239 document kept by sucli corporation or association, is punish- able by imprisonment in a State prison not exceeding ten years, and not less than three years, or by imprisonment in a county jail not exceeding one year, or by a fine not exceeding five hundred dollars, or by both such fine and imprison- ment. § 603. A director, ofiicer, or agent of any corporation or joint-stock association who knowingly concurs in making or publishing any written report, exhibit, or statement of its affairs or pecuniary condition containing any material state- ment which is false, other than such as are elsewhere by this code specially made punishable, is guilty of a misdemeanor. § 609. A director of a corporation or joint-stock associa- tion must be deemed to have such a knowledge of the affairs of the corporation or association as to enable him to determine whether any act, proceeding, or omission of its directors is a violation of this chapter. § 610. A director of a corporation or joint-stock associa- tion who is present at a, meeting of the directors at which any act, proceeding, or omission of such directors, in violation of this chapter, occurs, must be deemed to have concurred therein, unless he at the time causes, or in writing requires, his dissent therefrom to be entered in the minutes of the di- rectors. § 611. A director of a corporation or joint-stock associa- tion,' although not present at a meeting of the directors at which any act, proceeding, or omission of such directors, in violation of this chapter, occurs, must be deemed to have concurred therein if the facts constituting such violation ap- pear on the record or minutes of the proceedings of the board of directors, and he remains a director of the same company for six months thereafter without causing or in writing re- quiring his dissent from such illegality to be entered in the minutes of the directors. 240 APPENDIX B. § 612. A director, trustee, or other oflScer of a joint-stock association or corporation upon whom a notice of application for an injunction affecting the property or business of such joint-stock association or corporation is served, who omits to disclose to the other directors, officers, or managers thereof the fact of such service, and the time and place of such appli- cation, is guilty of a misdemeanor. *********** § 614. The term " director," as used in this chapter, em- braces any of the persons having by law the direction or man- agement of the affairs of a corporation, by whatever name such persons are described in its charter or are known in law.* ' § 15 of the Penal Code provides, that: " A person convicted of a crime declared to be a misdemeanor, for which no other punishment is specially prescribed by this Code, or by any other statutory provision in force at the time of the conviction and sentence, is punishable by im- prisonment in a penitentiary, or county jail, for not more than one year, or by a fine of not more than five hundred dollars, or by both." APPENDIX C FORMS UNDER THE MANUFACTURING ACT. Certificate of Incorporation.' Certificate op Incoepoeation of the [insert corporate name]. State of New Yoek, ) County of . ) ^^- * We [insert names of subscribers, to be not less thorn three"], desiring to form a company pursuant to the provisions of an act, passed by the Legislature of the State of New York, February 17, 1848, and entitled : " An act to authorize the formation of corporations for manufacturing, mining, mechan- ical, or chemical purposes," and of the several acts extending and amending the same, do hereby certify : That the corporate name of the said company is [insert name of company]. That the objects for which said company is formed are [insert objects for which company is formed]. That the amount of the capital stock of the said company is [insert amount of capital stock]. That the term of the existence of said company is to be [insert numb&r of years, not to exceed fifi/y]. That the number of shares of which the said capital stock consists is [insert number and par value of shares]. ' Ante, §§ 6, 7. 16 242 APPENDIX C. That the number of the trustees who shall manage the con- cerns of said company is [insert number, not less than three nor more than thirteen']. That the names of the trustees for the first year are [in- sert names and residences']. That a majority of said trustees are citizens and residents of the State of New York. That the names of the town and county [or, towns and counties] in which the operations of the said company are to be carried on are [insert names of town and county or towns and counties]} In wttness wheeeof, we have hereunto set our hands this day of , 18 . [Signatures of subscribers.] State of New York County of . \ " On this day of , 18 , before me personally appeared [insert names of subscribers], to me known to be the individuals described in and who executed the foregoing cer- tificate, and they severally, before me, signed the said certifi- cate and acknowledged that they executed the same.' [Signature and title of officer.] ' Where a company is formed for the purpose of carrying on its busi- ness in part out of this State, this last provision should be omitted from the certificate and the following inserted in its place : That said company is formed for the purpose of carrying on some part of its business out of the State of New York, namely, at [insert name of place], and that the names of the town and county in which the prin- cipal part of the business of said company is to be transacted in this State are [insert names']. ^ The duplicate certificate to be recorded in the office of the secretary of State must of course have attacheU to it the ordinary certificate from the county clerk's ofiice, showing the authority of the officer taking the acknowledgments so to act. FORMS UNDER THE MANUFAOTURIKG ACT. 243 II. Certificate of Payment of Capital Stock.^ Ceetificate of Payment of Capital Stock of the [insert corporate name']. State of New Toek, County of r ■ ■ We, A. B., C. D., E. F. and Gr. H., trustees, and a majority thereof, of the [insert corporate name], and the said A. B., being president of said company, do hereby certify : That the amount of the capital stock of the [insert corpo- rate name] is [insert amount], dollars, and that the whole thereof has been paid in. [If the capital stock or am,y part thereof has heen issued in pa/yment for property, that fact should he staled in the certificate, which should show the amount paid im, in cash and that paid in in property.] "Witness our hands, this day of , 18 . President. Trustees. G. H., ) State of ISsm Toek, ) . Counl/y of . \ " A. B., C. D., E. F. and Gr. H., being each duly sworn, jointly and severally, depose and say that the said A. B. is president of the [insert corporate name], and the said A. B., C. D., E. F. and G. H. are trustees of said company and a majority thereof, and that the foregoing certificate of pay- ment of capital stock made and subscribed by them is true. A. B., President. C. D., ) E. F., [• Trustees. G. H., ) Sworn to before me this day of , 18 . [Signature of officer.] ■ Ante. §§ 99, 100. 244 APPENDIX 0. III. Annual Report.' AmsruAL Eepoet of the [insert corporate name']. State of New Toek, , ' ^ ss. ■I County of . [ ' "We, A. B., C. D., E. F. and G. H., trustees of the [insert corporate name\, and a majority thereof, and the said A. B. being president of said company, do hereby certify and report : That the capital stock of said company is [insert whole amount of authorized capital]. That of the said capital stock [here state separately the amount which has heen paid in in cash, th^ amount issued for property, and the amount remaining unissued, e. g., dollars thereof has been paid in in cash, dollars thereof has been issued in payment for property necessary for the company's business, and dollars thereof remains un- issued].' That the existing debts of said company amount to [insert amount] dollars [or if preferred, do not exceed — insert a/mount — dollars]. Witness our hands, this day of January, 18 . A. B., President. C. D., ) E. F., \ Trustees. G.H., ) State of New York, ) . County of . \ " A. B.,' being duly sworn, says that he is the president of said [insert corporate name], and that the foregoing annual ' Ante, § 28. " If all of the stock has been paid in in cash, or if all of it has been issued for property, the report should, of course, be drawn to correspond ■with the facts. » The secretary may verify the report in the place of the president. FORMS UNDER THE MANUFACTURING ACT. 245 report is true to the best of his knowledge, information and belief. A. B. Sworn to before me, this ) day of January, 18 . j [Signatwre of officer.} IV. Gall for Annual Sleeting of Stockholders. The annual^meeting of the stockholders of the com- pany for the election of trustees for the ensuing year, and of inspectors of election to serve at the next annual meeting, and for the consideration of such other business as may prop- erly come before the meeting, will be held at the office of the company at on the day of , 1884, at. o'clock in the noon. Transfer books will be closed from the day of to the » day of A. B., Secretary. Dated, New York, ,18 . V. Proxy to Vote. Know all men by these presents, that I, A. B., of , do hereby constitute and appoint C. D., of , to be my lawful attorney, substitute and proxy for me, and in my name to vote on all the stock standing in my name in the books of the company, at the annual election of trustees for the said company, to be held on the day of , and at any adjourned meeting thereof, as fully as I might or could do were I personally present at such election. 246 APPENDIX C, In witness whereof I have hereunto set nay hand and seal, this day of , 18 . [Signed] A. B. (l. s.) In presence of, VI. Certificate Increasing or Diminishing Capital Stock.' Ceetifkiate Iitceeasing [or, Diminishotg] the Capital Stock OF THE CoMPAirr. State of New Toek, County of ss. I, , do hereby certify : That I am one of the trustees of the company, a corporation duly organized under an act passed by the Legis- lature of the State of New ¥ork, Feb. 17, 1848, and entitled : " An act to authorize the formation of corporations for manu- facturing, mining, mechanical, or chemical purposes," as now amended and extended. That the capital stock of the said company was fixed by its certificate of incorporation at dollars, and was divided into shares of the par value of dollars each. That the said company desiring to increase \or, diminish] its capital stock, the trustees thereof did publish a notice, signed by more than a majority of them, in the [ytisert name of newspaper'], a newspaper published in the county of [insert name of county], in which said county the principal business office of said company is situated, for three successive weeks prior to the date of the meeting called thereby, beginning on the day of , 18 , which said notice was in the words following : ' Ante, §§ 81, 83. f'OEMS UNDER THE MANUFACTDEIKG ACT. 247 TTew Toek, ,18 . A special meeting of the stockholders of the com- pany will be held *at the office of said company, at No. Street, in the city of , at 12 o'clock .M. of that day, to determine whether the capital stock of said com- pany shall be increased [or, diminished] to the amount of dollars, to consist of shares of the par valne of dollars per share. [Sig7iatures of trustees.] That the said trustees did also, at least three weeks pre- vious to the day fixed upon for holding said meeting, to wit, on the day of j 18 , deposit in the post-office of the city of a printed [or, written] copy of said notice, inclosed in a post-paid envelope, addressed to each shareholder at his usual place of residence. I do further certify : That at the time and place specified in the notice pub- lished and mailed as aforesaid, that is to say, on the day of , 18 , at the office of the company, at No. Street, in the city of , at 12 o'clock noon, there appeared in person and by proxy stockholders repre- senting more than two-thirds of all the shares of stock of the said company, and that upon motion, duly seconded, the meeting organized, by choosing myself, the said , as chairman, and as secretary thereof. That the call for the meeting having been read, and proof of the proper publishing and mailing thereof having been presented, the following resolution was adopted : Eesolved : That the company does increase [or, diminish] its capital stock from the present amount thereof, viz., the sum of dollars, consisting of shares of the par value of dollars per share, to the amount of dollars, to consist of shares of the par value of dollars per share ; and that the officers of this meeting are hereby instructed to take the necessary legal steps to per- fect such increase [or, diminution] of capital. That the vote of those present in person and by proxy 248 APPENDIX C upon said resolution being duly canvassed, it appeared that shares of the capital stock of said company, being more than two-thirds of aU the stock thereof, voted in favor of said resolution. And I do further certify : That the entire capital of said company has been paid in ; dollars thereof having been issued for properties re- quired by it in its business, and dollars thereof ia cash ; and that the amount of the existing debts and liabilities of the company does not exceed the sum of dollars, and, as nearly as can be stated, is dollars;* and that the amount to which the capital stock of said company is increased [or, diminished] is dollars. In witness wheeeof, I have hereunto set my hand, and the secretary of said meeting has countersigned this certifi- cate, this day of , 18 . , Chairman. Countersigned by , Secretary. State of New Yoek, ) . County of . j " {Insert name'}, chairman, being duly sworn, deposes and says, that he has read the foregoing certificate subscribed by him, and knows its contents, and that the same is in all respects true. , Chairman. Sworn to bef of , 18 . ) [l. s.] [Signature and title of notary.] 5. Certiflcate Extending the Term of the Corporate Existence. Whereas, the original certificate of incorporation of the \insert corporate name, with the addition of the word " Lim- ited," if the company belongs to that class], a corporation duly created and formed under and in pursuance of an act of the Legislature of the State of New York, entitled " An act to provide for the organization and regulation of certain business corporations," passed June 21, 1875, fixed the duration of said company for the term of years, commencing on the day of , 18 . iTow, therefore, we \ynseri individual names], being stock- holders in the said \insert corporate name as above], owning at least two-thirds in amount of the capital stock of said com- pany, to wit : \msert number] shares, do hereby consent that 272 APPENDIX D. the corporate existence of said company be, and the same here- by is, extended for the term of \here insert the additional term, which, together with the original term of existence, must not exceed fifty years'] years from the expiration of the period originally fixed for the duration of its corporate existence, as mentioned in its original certificate of incorporation. In witness wheeeof, we have hereunto subscribed our names, this day of , 18 . [Signatures of stockholders.] State of New Yokk, 1 County of . j ^^* ■ On this day of ? 18 , before me personally appeared [insert fiames of stockholders signing said certificate], to me known to be the individuals described in, and who signed the foregoing certificate, and severally acknowledged to me that they signed the same for the purposes therein men- tioned. In wttness wheeeof, I have hereunto affixed my hand and seal of office, in the city of , on the day and year above set forth. [l. S.J [Signature and title of notary.] 6. Certiflcate Changing Principal Business Office. Whereas, the original certificate of incorporation of the [in- sert corporate name, with the addition of the word " Limited," if the company "belongs to that class], a corporation duly created and formed under and in pursuance of an act of the Legislar ture of the State of New York, entitled " An act to provide for the organization and regulation of certain business corpo- rations," passed June 21, 1875, fixed the principal business of- fice of said corporation at the city of , in the State of New York : FORMS UNDEE THE BUSINESS ACT. 273 Now, therefore, we, [insert indmidual names] being stock- holders in the said \dnsert corporate name as ahove'], owning at least two-thirds in amount of the capital stock of such corpo- ration, to wit : [insert number'] shares, do hereby consent that the principal business office of said company be, and the same hereby is, changed from the said city of , to the city «f , in the State of New York. In witness whereof, we have hereunto subscribed our names this day of , 18 . [SignaPu/res of stocJuholders.] [Acknowledgment as in last preceding form.] 7. Certificate Increasing or Diminishing Capital Stock. State of IS'ew Yoek, County of I ss. I, , do hereby certify : That I am one of the directors of the Company (Limited), a corporation duly organized under an act passed by the Legislature of the State of New York, June 21, 1875, and entitled : " An act to provide for the organization and regula- tion of certain business corporations," as now amended and ex- tended. That the capital stock of the said company was fixed by its certificate of incorporation at dollars, and was divided into shares of the par value of dollars each. That the said company desiring to increase [or, diminish] its ca,pital stock, the directors thereof did cause to be served upon each stockholder, by depositing in the post-office proper- ly addressed to his last known place of residence, with the postage thereon prepaid, at least five days before the time fixed 18 274 APPENDIX D. therein for the meeting thereby called,^ that is to say, on the day of , 18 , a written [or, printed] notice, signed by at least a majority of said directors, in the words fol- lowing : New Yoek, , 18 . A special meeting of the stockholders of the Company (Limited) will be held at the office of said company, at No. , street, in the city of , at 12 o'clock M. of that day, to determine whether the capital stock of said company shall be increased [or, di- minished] to the amount of dollars, to consist of shares of the par value of dollars per share. [Signatures of directors.] That at the time and place specified in the notice so served as aforesaid, that is to say, on the day of j 18 , at the office of the Company (Limited), at No. , street, in the city of , at 12 o'clock noon, there were present a majority in number of the stockholders of the said company, representing a majority ^ of the stock of said company, and that the meeting organized by choosing myself, the said , as chairman, and as secretary thereof. That the call for the meeting having been read, and proof of the proper mailing thereof having been presented, the fol- lowing resolution was adopted : ' In case a company organized since May 15, 1878, diminishes it» capital stock it must comply with L. 1878, c. 364, as amended {ante, § 81). A certificate, therefore, drawn for such a company, so acting, must con- tain statements showing that the notice of the stockholders' meeting was puplished and mailed as is therein prescribed. (See Form VI, Ap- pendix C.) ' L. 1^78, c. 264, as amended, requires that companies organized since its enactment (May 15, 1878) to diminish their capital stock, must have a vote of two-thirds of all the shares of stock of the company. (See Form VI, Appendix C.) FORMS UNDER THE BUSINESS ACT. 275 Mesol/oed, That tlie Company (Limited) does increase [or, diminish] its capital stock from the present amount thereof, viz. : the sum of dollars, consisting of shares of the par value of dollars per share, to the amount of dollars, to consist of shares of the par value of dollars per share ; and that the oflBcers of this meeting are here- by iastructed to take the necessary legal steps to perfect such increase [or, diminution] of capital. That the vote of those present upon said resolution being didy canvassed, it appeared that stockholders, being more than a majority of the whole number of stockholders of said company, representing shares of stock therein, being more than a majority ^ of the entire number of shares of stock of said company, voted in favor of said resolution. In witness wheeeof, I have hereunto set my hand, and the secretary of said meeting has countersigned this certificate this day of , 18 . , Chairman. Countersigned by , Searetary. [The certificate should he verified and acknowledged as shown in Form VI, Appendiso C] ' See note 1, p. 374. Also see L. 1878, c. 364, as amended, for other matters to be stated in certificate when company is proceeding there- imder. These are shown in Form VI, Appendix C. ADDENDA. Formation of Corporations.— By the Laws of 1884, ch. 267, section one of the General Manufacturing Act {ante, § 6;, has been amended so as to allow the formation thereunder, of advertising companies and also the formation of companies for the purpose of purchasing, taking, holding and possessing real estate (not exceeding in value $1,000,000), and buildings, and selling leasing and improv- ing the same. Water Supply Companies. — By the Laws of 1884, ch. 386, the same act has been extended so as to allow the formation there- under, of companies for the purpose of boring, sinking, digging for, accumulating, conducting by underground pipes, conduits and reser- voirs, and furnishing, water to be used for power and fire purposes. This act contains special provisions in regard to such companies, which should be consulted. Consolidation of Manufacturing Companies.— By comply- ing with the Laws of 1884, ch. 367, any two or more corporations heretofore or hereafter organized under any general or special law of this State, for the purpose of any kind of manufacturing business, of the same or similar nature, may consolidate such companies into a single corporation. (Compare with ante, § 137.) Annual Report of Business Companies.— By the Laws of 1884, ch. 208, section eighteen of the Business Corporation Act (ante, § 170), has been amended so as to allow companies organized under said act, and doing business without the United States, to make their annual -report, as of the first day of January, within twenty days after the 1st day of April of each year. The amend- ment also provides how such companies may establish the fact that their business is so carried on out of the United States, and within what time a minority report of such a company may be made. Business Companies may Increase Number of Shares of Stock.— By complying with Laws of 1884, ch. 397, companies or- ganized under the Business Corporation Act may increase the num- ber of the shares of their capital stock. A vote of two-thirds of the stockholders is required and a prescribed certificate must be exe- cuted, acknowledged and filed. (Consult, ante, p. 97, also § 205.) Gas Manufacturing Companies hiaTe Special Powers.— Laws of 1883, ch. 497, provide that companies organized under the General Manufacturing Act, for the purpose of manufacturing gas for fuel or other purposes, shall have all the rights, powers and priv- ileges conferred upon gas-light companies formed under Laws of 1848, ch. 37. INDEX. INDEX TO PART I. GENEEAL MANUFACTURING ACT. ACT. %6Q Statutes. ACTIONS, as to joinder of, under sections 10, 12, 15, and 23 of the Gen- eral Manufacturing Act, §§ 48, 66. what, against trustees can he joined, § 48. against trustee, not maintainable out of New York, when, § 45. against stockholder, may be maintained out of New York, § 116. against one as stoclfholder, no bar to action against him as trus- tee on same debt, and viee verm, § 48. against trustee for false report, no bar to action against him for omitting report, § 66. prior, against company, essential to action against stockholder, when, §§ 97, 99, 121, 123. such prior, not essential to action against trustee, §§ 30, 36, 46. . See Individual lAdbility of Btockholders ; Individual Lia- bility of Trustees. ADMINISTRATOR holding stock, not personally liable, § 129. but may vote.thereon without transfer, §§ 14, 15. AMENDED CERTIFICATE of incorporation, when and how made, § 11. ANNUAL ELECTION, provisions as to, § 12. not set aside for mere irregularity, § 14. when set aside because votes improperly rejected, § 14. effect of. election of unqualified persons, § 14. acts of persons improperly chosen at, when binding, § 14. right to vote, how determined, § 14. administrators may vote without transfer, § 14. executor, administrator, guardian or trustee, or pledgor, may vote, §§ 14, 15. pledgee of stock owned by company may vote thereon, when, 1 14. married women may vote, § 14. inspectors of, to take oath, § 14. 'notice of, how given, § 13. by-laws regulating, to be published, how, § 14. 280 INDEX TO PART I. ANNUAL ELECTION— conimwi. summary application to supreme court may be made by part'e& aggrieved, when, § 14. provisions allowing election after proper date, § 18. such subsequent election should be called, within what time, p. 27, note 2. ANNUAL REPORT, provisions as to, § 28. when, how and by whom to be made, filed and published, §§ 28, 32, 33, 34. corporations organized since 1875 must make, when, § 30. no excuse for not making, that company has not commenced business, § 30. what must state, §§ 28, 80. will be liberally construed, when, § 31. stock issued for property should be so stated in, §§ 81, 78. eflfect of not so stating in, § 31. debts, amount of, how stated in, § 31. effect of innocent mistake as to amount of debts in, § 31. who must sign, § 32. what signing sufficient, § 32. trustees, and not officers, liable for omission of, § 32. who must verify, § 33. what verification sufficient, § 33. must be made, within what time, § 34. must be filed and published, within what time, §§ 84, 58. when properly filed, § 34. when necessity of making, terminates, §§ 34, 59. penalty for omitting, §§ 28, 29, 30, 35, 86, 37, 88, 39, 40, 41, 42, 48, 44, 48, 49, 50, 51. form of, p. 245. See Individual Liability of Trustees. APPRENTICES, stockholders' liability to, §§ 94-98. ARREST, trustee not liable to, semble, when, § 50. ASSIGNEE of claim against company may sue stockholders, §§ 98, 118. may sue trustees, § 42. BOARDS OF TRUSTEES, dififerent, may be liable for same debts, when, § 39. See Trustees ; Individual Lidbilitif of Trustees. BOOKS. See Corporate Boohs. BUSINESS, what kinds may be carried on, § 1. difierent kinds not to be combined, § 1. agricultural, horticultural, medical or curative, not to be car- ried on, § 4. GBITERAL MANUFACTURING ACT. 281 BVSINE&S— continued. manufacturing, mining, mechanical or chemical, what in- cluded under, § 1. may be carried on in one or more places, §§ 6, 7. when carried on out of State, certificate to show what, §§ 6, 7. designation of place of, out of State, § 7. principal place of, in this State, deemed place where operations of company are carried on, when, § 7. to what extent may be carried on out of State, § 143. when carried on out of State, to what laws subject, § 142. may be extended, how, §§ 81, 83. place of, how changed, § 141. See Purposes. BY-LAWS, provisions as to,. § 34. must provide for annual elections, §§ 13, 13. regulating annual election, to be published, §§ 13, 14. for filling vacancies in board of trustees, § 13. to provide for appointment or election of subordinate officeia, §§ 30, 31. should specify duties of officers, § 33. should regulate transfer of stock, § 73. must be within charter, reasonable, equal and fair, § 25. void, instances of, § 35. effect of, if lawful, § 25. ' form of, p. 349. CALL for annual meeting of stockholders, § 13. form of, p. 345. CALLS, provisions as to, § 83. to be paid before stock can be transferred, § 73, forfeiture for non-payment of, §§ 88, 87. See Subscribers. CAPITAL STOCK, amount of, allowed, § 7. exception as to salt companies, p. 15, note 3. provisions as to issuing, § 78. to be issued for money or necessary property, §§ 78, 79. issued to pay debt, deemed issued for money, when, § 79. is a trust fund for creditors, § 79. not to be issued for less than par, § 79. to be paid in within what time, § 79. judgment of ouster necessary to effect dissolution for non-pay- ment of, § 79. may be wholly issued for properties, § 79. if issued honestly for properties at a fair valuation, is full paid, §79. 282 INDEX TO PART I. CAPITAL STOCK— continued. property of company cannot be given to take up, § 79. IHCEBABE or DIMINTJTION op CAPITAl STOCK tTNDER ACT. in diminishing, companies formed since May 15, 1878, should comply with what law, § 83. provisions as to increase or diminution of, § 81. may not be diminished so that debts exceed capital, §g 81, 82. may be increased to any amount, § 82. meeting to increase or diminish, how called, §§ 81, 82. chairman of meeting must be a trustee, §§ 81, 82. two-thirds of all, must be represented to adjourn or organize such meeting, § 82. vote of two-thirds of, necessary to change capital, 5 81. certificate of increase or diminution of, how to be made, signed, verified and acknowledged, §§ 81, 82. such certificate, what to state, and where filed and recorded, §§ 81, 83. presumption that meeting for increase or diminution of, was properly called, when, § 83. change of, when effected, § 82. increased, how may become full paid, § 82. issued beyond lawful limit, void, § 83. informality in issue of lawful, curable, § 82. number of shares of, maybe increased, § 82. DiMlHTJTION OF CAPITAL STOCK UNDBK LAW OF 1878. provisions of law of 1878 as to diminution of, p. 93, note 1, to what corporations applicable, p. 93, note 1, and § 82. See Stock J Shares; Individual lAoibility of StocTcholdert. CAB COMPANIES, special powers of, § 143. CERTIFICATE OF INCORPORATION, who may make, §§ 6, 7. what must state, §§ 6, 7. when business is to be carried on out of State, §§ 6, 7. to be executed, how, §§ 6, 7. where filed and recorded, §§ 6, 8. fees for filing and recording, § 6. effect of due filing and recording of, § 6. requisites of, § 7. duplicate to be filed and recorded, where, §§ 6, 8. failure to file and record duplicate, effect of, § 8. copy of, certified by county clerk, evidence when, §§ 8, 10. amended, how, § 11. form of, p. 241. GENERAL MANDFACXUEING ACT. 283 CERTIFICATE OF INCREASE or diminution of capital stock, §§ 81, 82. fonn of, p. 346. CERTIFICATE OP PAYMENT of capital stock; provisions as to, § 99. who must make, §§ 80, 99, 100. must be verified, §§ 80, 99, 100. should be recorded, within thirty days after full payment of capital, §§ 80, 99. provisions as to time of recording, directory, not mandatory, §100. should be recorded even if all stock is issued for property, § 80. effect of county clerk's neglect to record, §§ 80, 100. form of, p. 343. See Individual ImbiUty of Stockholders. CERTIFICATE, showing principal business office, for purposes of taxa- tion, what to contain and how made, § 144. CERTIFICATE OF STOCK. See Stock Certificates. CESTUI QUE TRUST, liable as stockholder, when, § 139. COLLATERAL SECURITY, one.holding stock as, not personally lia- ble, §§ 139, 130. CONSOLIDATE, two or more companies may, how and when, § 137. CONTINGENT OBLIGATIONS, trustees not liable on, when, § 37. CONTRIBUTION, amongst trustees, §§ 38, 30. amongst stockholders, §g 95, 138. CORPORATE BOOK, containing names of stockholders, &c., to be kept, §88. stockholders and creditors may inspect, and make extracts from, § 88. neglecting to make entries in, or refusing inspection of, a mis- demeanor, § 88. to be evidence, §§ 88, 89. if transfer of stock not entered in, effect, §§ 88, 103, 103. penalty imposed on company not keeping, § 88. stockholder may compel company to keep, § 89. CORPORATE EXISTENCE, not to exceed fifty years, § 6. may be extended, when and how, § 140. CORPORATE POTHERS. See Powers of Companies. CORPORATORS, number necessary to form corporation, §§ 6, 7. liabilities of, in de facto corporation, § 8. relation of, to general subscribers, § 8. See Subscribers. COSTS of prior action against company not recoverable against trustee, §§ 46, 68. nor against stockholder, § 106. COUNTY, in what, action against trustee should be brought, § 49. 284 INDEX TO PART I. CREDITORS OF COMPANY, trastee's liability to. See Individual Liability of Trustees. stockholder's liability to. See Individual lAabUity of Stock- holders. DEBTS, company, how stated in annual report, §§ 28, 31. what recoverable against trustee for failure to file annual re- port, §§ 35, 36, 37, 41, 46, 52, 53, 56. what recoverable against officers for false report, §§ 65, 66. what recoverable against trustees who declare and pay pro- hibited dividends, §§ 67, 68. what recoverable against trustees who permit indebtedness to exceed capital, §§ 69, 70. what recoverable against officers who make loans to stock- holders, §§ 77, 78. what recoverable under act against stockholders by laborers, servants and apprentices, §§ 94, 97, 98. what recoverable under act against stockholders by creditors of company, §g 93, 99, 101. what recoverable, and when, from stockholders apart from act, §131. See Individual Liability of Trustees; Individual lAa- Mlity of StocTcholders. DEFAULT in filing annual report. See Annuod Report; Individual lAahUity of Trustees. DIMINISHING CAPITAL STOCK. See Capital, Stock. DISSOLUTION may be enforced by legislative action, § 149. how effected, § 152. de facto, what sufficient to excuse further annual report, § 59. de facto does not prevent suit by creditor, § 136. not worked by failure to elect trustees, § 18. does not terminate stockhold , 'a relationship to company, § 126. who to take and manage property of company upon, p. 145, note 2, g 9. for non-payment of capital stock within specified time, §§ 79, 99. does not destroy any existing liability of officers or stock- holders, § 149. DIVIDENDS, what prohibited; penalty, §§ 67, 88. who entitled to, § 90. may be paid without production of certificate, § 90. undivided earnings do not pass as, § 90. when declared, may be assigned; nature of, § 90. when right to, accrues, § 90. when stockholders may not compel company to pay, § 90. GENERAL MANUFACTUEIKG ACT. 285 ELECTION of trustees, how conducted, §§ 13, 14. proof of, does not alone establish trusteeship, § 60. See Annual Election. EQTJITT, suits in, against liable stockholders, § 113. See Individual lAability of Btockholders. ESTATES of deceased persons liable, when, §§ 139, 130. held by executors, administrators, etc., liable, when, § 139. EVIDENCE, judgment against company, not against trustee, when, §§ 36, 46, 54. judgment in favor of company conclusive in favor of trustee, when, § 55. judgment against company not against stockholder, when, § 133. judgment against company prima facie against stockholder, when, § 131. of incorporation, what is, §§ 8, 9, 10. books of corporation as, § 88. EXECUTION against company, return of, essential prerequisite to ac- tion against stockholder, §§ 99, 131. nature of such preliminary, § 131. when excused, § 133. not essential to action against trustee, §§ 30, 36. allegation regarding, in complaint against trustee, may be stricken out, § 46. EXECUTOR, of creditor, may sue stockholder, when, §§ 98, 108. may sue trustee, when, § 43. of trustee, as to suits against, § 48. of stockholder, not personally liable, §§ 139, 130. may vote on testator's stock, § 14. EXECUTORY CONTRACTS, trustees not liable on, when, § 37. See Individual LiaVility of Trustees. EXISTENCE OF COMPANT. See Corporate Existence. FALSE CERTIFICATE AND REPORT, provisions as to, § 65. See Individual Liability of Ti-ustees. FORFEITURE OF STOCK for non-payment of calls, § 83. See Subscribers. FORMATION OF COMPANIES, what number may form company, § 6. provisions as to, § 6. to carry on business out of State, § 6. when completed, §§ 6, 8. corporation de jure, when, and when not, § 8. company to organize and commence business within one year from incorporation, p. 145, note 2, § 7. See Certificate of Incorporation. 286 INDEX TO PART I. FORMS. Certificate of incorporation, p. 241. Certificate of payment of capital stock, p. 343. Annual report, p. 344. Call for annual meeting of stockholders, p. 345. Proxy to vote, p. 245. Certificate of increase or diminution of capital stock, p. 346. By-laws, p. 249. See Appendix 0. GUARDIANS, not personally liable as stockholders, when, §§ 139, 180. may vote on stock, §^ H, 15. INCREASINGr or reducing number of tnistees, § 37. number of shares of capital stock, p. 97. or reducing capital stock, §§ 81, 82. See Capital Stock. INDIVIDUAL LIABILITY OF OFFICERS. See Officeris. INDIVIDUAL LIABILITY OF STOCKHOLDERS, general statement of, § 93. two classes of, under act, § 93. 1. To LABOREBS, SERVAKTS AND APPKENTICES. provisions of act, § 94. stockholders liable substantially as partners, §§ 93, 95. who are meant by laborers, servants and apprentices, g 96. laborer, etc., who is also stockholder, cannot sue fellow-stock- holder, §95. stockholder, who has paid claim to laborer, can enforce con- tribution, how, § 95. what claims recoverable by laborer, etc., § 97. what statutory requisites to such recovery, § 97. judgment against company no evidence against stockholder,. §97. assignee may sue, § 98. 2. To CBBDITORS OF THE COMPANY. this liability a qualified one, §g 93, 101. several and individual, of each stockholder to each creditor, § 107. terminated by payment of capital and recording proper certifi- cate, § 100. but certificate not conclusive, p. 116, note 1. no defense that defendant paid up his stock, if any part of cap- ital stock unpaid, § 100. full payment presumed, § 100. aENEEAIi MANUFACTURING ACT. 287 INDIVIDUAL LIABILITY OF STOCKHOLDERS— co»«i«.Me