Childs v. Smith

38 How. Pr. 328

• Court: New York Supreme Court
• Decided: July 15, 1869
• Status: Published

Opinion

By the court,

Potter J.

If the learned referee has correctly found the facts in this case, I have found myself entirely unable to sustain his conclusion of law, that the defendant is indebted to the plaintiff in the sum of $2,000, with interest from the 1st day of July, 1867. He finds that an oral agreement between the parties, that this sum of $2,000 was to become due from the defendant to the plaintiff, when the brick and peat company, (which the said parties then in April, 1867, proposed to form,) should be organized, and in the same paragraph, he also finds, that when the said company was organized, the plaintiff was to take one fourth of the stock, over and above the working capital, and over and above the amount that was to be received in part payment of the farm, and to pay the defendant therefor, the sum of $5,000. By this finding, these two sums of money to wit $2,000 from defendant to plaintiff, and $5,000 from plaintiff to defendant, became due at the same identical period of time. It is the simplest logic that proves, that if at a given period the plaintiff became liable to pay to the defendant the sum of $5,000, that the latter could not at that monent be legally indebted to the former, but the reverse. There is nothing in the' fourteenth finding of fact, that the plaintiff’s portion of stock and the money to be paid therefor, was assumed to be paid by William B. Laithe, that releases the plaintiff from his liability to the defendant. No fact is anywhere found that the defendant agreed to any release of the plaintiff or change of liability of the plaintiff to him; the only legal inference is, that the defendant consented, that Laithe should own and pay plaintiff for such stock, and what is more inexplicable still to my mind, is, that these two cross liabilities of the parties can be created by the same oral agreement, relate to the same transaction, and equally depend upon the consummation of an enterprise for their existence as liabilities, from the one to the other and upon the same moment of time, to wit, upon the organization of an incorporation to be called, u The Saratoga Brick and Peat Company,” and yet the one patty be held liable, and the other not.

If this company was organized, as is found by the learned referee, in his fifteenth finding of fact, but which I think, is a question of law, then the defendant was not on that day indebted to the plaintiff.

It is equally clear, that by the theory of the case, if the incorporation had not been, and was not formed before the commencement of this action, then, the period of the defendants indebtedness had not arrived according to the finding of facts by the referee. As I think, the organization of this company or the forming of an incorporation, is a question of law, it may be well to examine that question. The things performed by the parties, in order to constitute an organization, are matters of fact; whether the performance of those things constitute’ an organization, is a question of law. These are not changed in character by their classification, as facts, or law, in the findings. The referee, I think, correctly interprets the meaning and intent of the parties in their agreement, that by the organizing, or forming this company, they intended to create a corporation; and this, he holds, was the contingency upon which, the $2,000 became due. As the formation of this body cor porate, was not directly a legislative act, it could only become a corporation by a compliance with the provisions of the general act, which authorizes their organization. (Chap., 40, Laws of 1848). Under this act, three or more, persons may make, sign and acknowledge, before a proper officer, and file in the office of the clerk of the county in which the business of the company shall be carried on, and a duplicate thereof with the secretary of state, a certificate in writing, in which shall be stated, the corporate name of the company, and the objects for which the company shall be formed &c. It is found by the referee as a fact, that no certificate was filed in the office of the clerk, of Saratoga county, and no duplicate was ever filed in the office of the secretary of state. How then, did they become a corporation, and when ? How did they become such a corporation as by their agreement they intended ? The second section of this statute forbids all inferences or conclusions, to be drawn from other acts of the parties as to this, by declaring how, and when, they can become a corporation, viz. “ When the certificate shall have been filed as aforesaid, the persons who 'shall have signed and acknowledged such certificate, and their successors, shall be a body politic and corporate, &c„” There is no statute, and I have been unable to find any common law, that authorizes, or allows, of any other time, when a corporation has been or can be formed under this general law, than that of the time of filing the certificate and its duplicate as aforesaid. When a statue, which grants power, or authority, expresly fixes, limits or declares, the time when such authority shall be exercised, or begins, all other time is excluded.

The statute nowhere makes a meeting of the individuals who intend to constitute themselves the corporators, or any resolutions by-laws, choice of officers, or other formalities prior to the filing of such certificates, the creation of or the evidence of the existence of a corporation. They are not mentioned as having anything to do with its creation, nor do I know of any adjudication of any court to that effect. However, necessary or convenient, all these proceedings may be, to secure due organized action of its members, whether made before or after the incorporation itself, it confers no corporate power; no legal right to act. ' The preparation of books and by-laws, and the writing out of their proceedings- therein before preparing their articles, is very good evidence of intent of parties in future to create a corporation, but is not made legal evidence of corporate power. They have still no legal existence, and no bill could be filed to dissolve them. The referee finds, that this action of the parties, was the formation of a corporation defacto, as to third parties, and it was so formed as between the parties to this action. This finding was unnecessary and immaterial so far as relates to third persons; no such persons are concerned in the case, and such a finding, as between the parties, whom the law presumes, knew it was not true, was error. These parties are presumed to know the law, each party as well as the other knew, that no legal corporation had been formed. Each had a claim against the other, contingent, and to become due upon the formation of this corporation, which means a legal corporation. Each is presumed to know what requisites the law demanded, to create a corporation; each' could make his demand against the other mature and due only, by a creation, in conformity with the provisions of the statute.

The only agreement or promise of the plaintiff to pay this $2,000, by the proofs, was conditional; the plaintiff could only recover by showing that condition to have been performed. The plaintiff, on his part, neither proceeded to secure such compliance with the law, nor made a demand of the defendant to make such compliance; and, of course, was met with no refusal by the defendant to act in the matter. His demand was not, therefore, due when he commenced his action; the period had not arrived when, by his agreement, it was to become due; he has not even put the defendant in default by showing a demand, and a refusal on his part to perfect the organization by which it was to become due. It was as much the duty of the plaintiff, as of the defendant to see that the organization and act of incorporation was perfected; indeed he was most in.fault. When the articles for an incorporation had been prepared by the defendant, an4 signed and acknowledged by the intended corporators on the day of their execution, they were delivered by the defendant to the plaintiff; this appears from the plaintiff’s own evidence. Instead of filing them with the clerk of the county and making and filing a duplicate with the secretary of state, as the statute required; he kept it, and sent it to Wm. Laithe, at Albany, who did not receive it till the 20th July, and who then held it until after this action was commenced, which was on the 27th of November, and he then sent it to plaintiff’s attorney. This Wm. Laithe is the party to the articles whom the referee finds was to take the plaintiff’s stock, as a part of the arrangement. It may, or may not, be significant of design on the part of Wm. Laithe, who the referee finds was a party to the agreement, and who was to take and pay the plaintiff $5,000 for his stock when the corporation was formed, that he should delay its formation. His retaining the articles for so long a time without filing them, and after-wards sending them to the plaintiff’s attorney, is certainly not chargeable to the defendant as a fault. It is very clear from the whole case, that the whole negotiation of the parties, and their understandings and agreements of liability to each other, was to depend upon the organization, incorporation, and success of a stock company for the manufacture of brick and preparation of peat, and that the failure and abandonment by the parties of that enterprise, carries with it the basis upon which the agreements to pay were made. If this is so, it is unjust that one of the parties should bear all the burdens of'the failure. It is true, the defendant entered into possession of the farm; it is also true that he paid the plaintiff $1,000 of its consideration, and $300 of interest on the mortgages. The plaintiff entered into the possession of a part of the consideration money. The defendant’s possession of the peat and clay land was as trustee for the future corporation. The defendant’s possession of the remainder of the farm was subject to mortgages which all the parties knew endangered their future success, for they covered the <j¡>eat lands also. Each of the parties, therefore, were bound to see the mortgages provided against.

The case cited by the plaintiff, to prove that corporations, or persons acting and holding themselves out to be such, are estopped from denying their legal incorporation to third persons and to parties who have been induced to give credit to their representations, are not controverted. The proposition is sound, but has no application to tins case. There was no holding out here, but among parties themselves, all equally well informed as to their legal rights; nobody was misled or deceived. What, then, was the intent of the parties by their agreement? Whose obligations were to become payable and mature upon the organization of the corporation? Was it to be real, and a legal corporation, or a mere bogus and sham organization ? The subsequent action of the parties, as found by the referee, shows that the acts performed were not of what the law required to create a corporation. The articles were dra-wn up under the provisions of the act of 1848, in relation to the formation of corporations for manufacturing, mechanical and chemical purposes, for organizing a brick and peat company. It is clear then, that the parties contracted with reference to a real corporation; such as the statute authorizes ; and to no other. I think the learned referee is also, mistaken as to there being a defacto corporation created. In no one of the cases cited, has there been the omission to file certificates of some kind, and of user on the part of the corporators under it. In such cases, where there has been user, defects in organization does not relieve them from liability as to third persons, and to others who have given credit. They are then a corporation defacto; but as between themselves, all equally responsible for vitality, upon the performance of the act, which alone creates their existence, and without even an act of user, I think, they became a corporation defacto, neither in fact nor law. It appears to me, it is not only without precedent, but is little less than absurd, to characterize such acts, sufficient to create a corporation, even defacto. All these acts transpired three days before the signing of the articles;, these acts were understood by all the parties, to be in contemplation of a future organization of a corporation, and not to be acts that constituted it a corporation.

I have thus far treated the case, as adopting the correctness of the real findings of fact by the referee, and upon the assumption, that all the rulings on the trial, are without objection. If we are right in the views of the law above discussed, then the various rulings of the referee, in admitting in evidence the paper signed by them as evidence of the incorporation in question, was error. Its admission was objected to on that ground, and overruled and exception was duly taken. The ninth section of the statute, under which they proposed to organize, provides what shall be evidence of an incorporation under that act, to wit; section 9. “The copy of any certificate of incorporation, filed in .pursuance of this act, certified by the county clerk of his deputy, to be a true copy, and the whole of such certificate, shall be received in all courts and places as presumptive legal evidence of the fact therein stated.” Ho statute or common law rule can be found to sustain for that purpose, a paper so inchoate and imperfect as that allowed in this case. By a well established common law rule, the best evidence which the nature of the case permits, must be offered. If the best evidence offered fails to prove the existence of a corporation, it should not be received and acted upon, and the referee erred again after the plaintiff rested, in relying upon such proof to establish a corporation, and in refusing upon request to strike out such evidence.

The referee having acted upon this evidence in his findings, as he clearly shows, I think the judgment should be reversed for that reason. Upon the case, as it appears to me, the burden of proof being on the plaintiff, that he failed to make out his case. There is evidence however, if it had been legal, upon which the referee might have found as he did.

In such cases, though the reviewing court would have arrived at a different conclusion, we could not reverse upon that ground. The referee saw the parties and witnesses, and could judge of their manner of testifying, which always carries with it, its proper influence, and the court will always hesitate to disturb findings of fact, where the referee is known to possess, as in this, case, high legal pro-, fessional skill and undoubted integrity. I think, however,, the errors both in the findings of fact upon illegal evidence,, and the conclusions of law based thereon, in this case, demand a reversal of the judgment.