Slee v. Bloom

5 Johns. Ch. 366, 1821 N.Y. LEXIS 141, 1821 N.Y. Misc. LEXIS 47

• Court: New York Court of Chancery
• Decided: July 19, 1821
• Status: Published

Opinion

The Chancellor.

This is a suit against the individual stockholders of the “ Dutchess Cotton Manufactory,” a company incorporated in December, 1814, by filing a certificate in pursuance of the act of the22d of March, 1811, entitled, “ An act relative to incorporations for manufacturing purposes.” Every association incorporated under this act, was declared to be, for “ the term of twenty years next after filing their certificate, a body politic and corporate.” The bill seeks to charge the defendants personally, for a judgment debt of the incorporated company, on the ground that the corporation is dissolved, and that the members are individually responsible for the corporate debts, to the extent of their shares of stock. The 7th section of the statute declares, that for all debts which shall be due and owing by the company at the time of its dissolution, the persons then composing such company shall be individually responsible, to the extent of their respective shares of stock in the said company, and no further.”

1. The first and leading question in the case is, whether the corporation is dissolved, so as to enable the plaintiff to call upon the individual members. It will not be disputed that without such a provision in the statute, the individuals would not be responsible in their private property, either before or after the dissolution of the company, for corporate debts. The facts from which an actual dissolution is inferred, are, that the stockholders have not elected trustees since April, 1817, and that the trustees have not met, as a body, since the 31st of December, 1817, and that all the corporate property,real and personal, was sold on an execution issued in the name, and at the instance of the plaintiff, on the 1st of February, 1818, and that the members have since abandoned all attention to the institution. '

A corporation is not cli^soWed by omitting to elect trustees, under its charter, if an integral part re nriins : The trustees continue in office, until others are elected in their stead.

The bill was filed on the 24th of April, 1819, and it appears to me that I am not authorized, from any of the facts in the case, to consider the corporation as dissolved, at the commencement of this suit.

The omission to elect netr trustees, in 1818, and 1819, did not, of itself, work a dissolution, according to the opinion of the Supreme Court, in the case of the People v. Runkle ; (9 Johns. Rep. 147.) and by the authority of the cases there referred to, a corporate election after the year, would be good, upon general principles of law, ifan integral part of the corporation remained ; and the officers already in, would continue to be good officers after the year, and until others were elected. In this case, we have the express authority of the statute under which the corporation was created, “that in case it should at any time happen that an election of trustees be not made on the day when, by the by-laws of said company, it ought to be done, the said company, for that cause, shall not.be dissolved, but it shall and may be lawful on any other day to hold an election for trustees, in such manner as shall be directed by. the by-laws of such company.”

The members of the corporation, who are the integral part of it, are in esse, and I see no difficulty in a future meeting of the last elected trustees, and in a new election of trustees to .he ordered and prescribed. In Regina v. Ballivos (1 P. Wms. 207.) vacancies of the capital burgesses were to be filled up-in fifteen days, and they had neglected to fillup vacancies for 22 years, until all were extinct to one man. In so extravagant a case, Lord Chief Justice Parker did not think it reasonable he should have the power of electing all the rest; but’Pome/, J., observed, that a corporation might, upon their charter day, choose a bailiff, though there was none then in being, nor had been for 20 years before. Would these Judges have hesitated, in a case like this, when there was no precise charter day mentioned in the law, to allow a new election of trustees by the the stockholders, though two years had intervened, and when the old trustees could lawfully hold over ? It seems to be too plain a proposition to be disputed.

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A corporation aggregate may be dissolved within the period prescribed by its charter, in certain modes, and upon certain events, none of which have occurred in this case, It may be dissolved, if it becomes incapable of continuing its corporate succession, or executing its corporate functions ; as by the death of all its members, or the destruction of an integral part of it, or it may be dissolved by sur-’ render of its franchises into the hands of the government, or by forfeiture of its charier through abuse or neglect of its franchises. The last is the alleged ground of forfeiture, in this case; but I apprehend, that the forfeiture in such case must be judicially ascertained and declared, and that the power, which may have been abused or abandoned, cannot be taken away but by regular process. The judgment in such cases is, that the partiesbe ousted, or that the liberty be seized into the hands of the government. (Rex v. Stevenson, Yelv. 190.) This subject under* went great and learned discussion in the case of the King v. Amery, in the K. B. (2 Term Rep. 515.) and it was decided by that court, as the result of the investigation, that a. corporation may be dissolved, and its franchises lost, by" non-user or neglect; but it was assumed, as an undeniable proposition, that the default was to be judicially determined in a suit instituted for the purpose. If the parties, observed Ashhurst, J. in delivering the opinion of the Court, being called upon in a Court of justice, to state theif right to the franchise, neglect or refuse to do it, or if the corporation surcease their time, they shall lose their franchise, and the judgment shall be, that the franchise be seized. One great point in that case was, whether a corporation could be dissolved at all; and the opinion of the * 7 1 ten judges in the house of Lords, in 1689, was relied on to J ° * show that it could not be dissolved. But Lord Holt was of .. .. , . opinion that a corporation could be dissolved for a breach of trust; and that seemed to be the opinion of the K. B. in Sir James Smith’s case, cited, also, as the case of the King v. the Mayor of London, (4 Mod. 33. Shower, 274.) and it is no doubt the settled doctrine at this day. But that a corporation is to be adjudged dissolved for nonuser or mis-user of its franchises, until it has been called upon to answer for the breach of trust-, is no where assumed. The contrary doctrine is universally taught, and it is founded on very obvious principles of justice. In the case of Rex v. Passmore, (3 Term Rep. 199.) it was held that when the integral part of a corporation is gone, and the corporation had no power of restoring it, of of doing any corporate act, it was so far dissolved that the Crown might, act and grant a new charter. It was only for the crown to interfere, without á forfeiture judicially declared, and that too in in a case where the corporation was reduced to such a state as to be incapable of acting or of contibuing itself; the crown might then grant a new charter, said Mr. JusticeBwBer, without “ weighing very nicely whether the corporation could he said to be actually dissolved or only in danger of being so.” Lord Kenyon spoke in that case, with great caution, and with the admission of due limitations. He agreed to the validity of the new charter, but said, that as to particular purposes, which do not relate to the powers of government, but to personal privileges, the corporation is not dissolved until the crown interposes. A scire facias was proper when there was a legal existing body capable of acting, but who have been guilty of abuse of power, because when a delinquency was imputed, they ought not to be condemned unheard.

A corporation may be dissolved fora breach of trust; but not until it has been called upon to answer. The proper remedy against a corporation for non-user or mis-user of its franchises, is by scirefarias, prosecuted at the instance and in behalf of the government

Assuming the charges in the bill in this case to be true, Lord Kenyon points out the proper remedy : It is by the judicial process of scire facias ; and I believe there is no instance of calling in question the righls of a corporation, as a body, for the purpose of declaring its franchises forfeited and lost, but at the instance and on behalf of the government. In the case of The Commonwealth v. Union Insurance Company, (5 Tyng, 230.) there was an application for leave to file an information, in the nature of a quo warranto, against the corporation, at the relation of an individual, on the charge that the corporation had been guilty of malfeasance, in not requiring from the members, payment of fifty per cent, on their subscription stock, within the time limited by the statute of incorporation, and which charge implied a gross mis-user of the powers of the corporation, and one that would incur a forfeiture of the charter.

Chief Justice Parsons, in delivering the opinion of the Court, observed, that the corporation might forfeit its franchises by nonfeasance or malfeasance; but the information for the purpose, must be presented under the authority of the State, which must be a party to the suit, and a party to the judgment, for the seizure of the franchises. This is the more indispensable, as the State may waive the breach of any implied or express condition contained in the charter. The remedy for the non-user or mis-user of the privileges of the charter, so as to work a forfeiture, is at law, and not in this Court; and so it was undertood in the examination of the case of the Attorney General v. The Utica Insurance Company, (2 Johns. Ch. Rep. 389.)

I conclude, therefore, that the corporation is still subsisting, in judgment of law, and that this Court is not authorized, from any thing that appears in the case, to consider the corporation dissolved. It follows, then, that the bill against individual members for a corporate debt, cannot be sustained.

2. Nor do I think that the plaintiff’s claim could be supported,. to the extent of the shares of stock owned by the individual members, even if the corporation were now dissolved, by the lapse of time. I do not allude to the fraudulent suggestions that have been made against the validity: of the debt, for I am willing to suppose that these suggestions have been met and repelled ; but I refer to certain resolutions of the board of trustees, of which the plaintiff was a member, passed when he was present, and which ought, in equity, to bar him, at least as a creditor, from, carrying his claims against the individual members beyond the provisions of those resolutions. Those resolutions were a compact . between the representative and the constituent, between the trustees and the stockholders,, and the plaintiff, as a party thereto, is bound, in good faith, to observe them.

The first resolution referred to, was passed on the 18th oí August, 1817. The plaintiff, at that time, was a judgment creditor of the corporation, and his judgment was the result of a suit he had, in January preceding, commenced against the company. The resolution directed, that the treasurer should provide a book for the transfer of stock, and that any person might transfer upon the book of the company, the sum called for, and the arrears, first been paid in full, with the costs of suit, if any ; “ and that there should be no further demands made by prosecution against any subscriber upon his subscription, nor any proceedings be had against any subscriber other than by way of forfeiture of his said stock, in case of his non-payment of any further" calls.” The plaintiff was present, as a trustee, and concurred in this resolution; and at this time, the amount of the previous calls upon the stockholders, amounted to 5Q dollars on a share. Here was an express stipulation, that the only remedy against any stockholder for non-payment of future calls, should be by forfeiture of his stock, and not by prosecution. The statute under which the company was incorporated, and which may be considered as their charter, gave to the trustees power “ to make such by-laws, rules, and regulations, as they should deem proper, respecting the management and disposition of the stock, property, and estate of the company; and also to call and demand from the stockholders, respectively, all such sums of money by them subscribed, at such time, and in such proportions, as they should deem proper, under pain of forfeiting the shares of the said stockholders, and all previous payments made by them,” fyc. The stipulation in and by the resolution was, that the corporation would not prosecute, but proceed by way of forfeiture; but it may be said, that ' creditors were not within the words or meaning of the resolution, and that it would not impair their right to hold individuals responsible, upon the dissolution of the company, under the 7th section of the statute. This may be true, as to creditors in general; but I think a Court of Equity would never assist a creditor to carry his claim upon individuals, beyond the extent of that resolution, when that creditor was, at the time, present, as a trustee, and a party to the resolution.

It was a declaration to the stockholders that they could, and might rid themselves of all further responsibility, by the forfeiture of their shares. There was no exception or restriction as to existing debts ; and it is very clear that none was intended or implied at the time. The stockholders had a right to repose upon the faith of that promise, and to make their arrangements accordingly. Many of them would probably dismiss all further concern about the institution. The plaintiff no doubt deemed his judgment debt sufficiently secure under the operation of that resolution.; and he, in his capacity of trustee, announced to the company how far he was willing to limit his existing demand, in his character of creditor. He cannot, therefore, injustice, nor" in good faith, enforce his debt, in the face of that resolution, against the individual members, to the whole extent of their stock. He cannot be permitted in this case to discriminate between his rights as a creditor, and his acts as a trustee. There would be a mistaken casuistry in the distinction ; and one which a Court of equity could not recognize: It would have the colour and effect of imposition and fraud.

The next resolution of the board of the trustees, still further limiting the demand of the corporation upon the stockholders, was passed the 3d of November, 1817. It was resolved, “that the stockholders of the company have the privilege of forfeiting their stock to the company, by paying .30 per cent, on the subscription list, together with. the costs of suit, (if any) on or before the 1st of December following: and it was further resolved that the secretary of the company give notice in the papers of the village.”

There is no pretence, that this resolution was passed with fraudulent views, or that the stockholders took undue means toprocure .it. It was an expression of the judgment and will of the trustees, declared in good faith, and upon a view and consideration of the existing circumstances of the company ; and the stockholders who availed themselves of this resolution, were completely discharged; they weie no longer “ persons composing the company, and owners!of” shares of stock, within the provision of the statute declaring such persons individually responsible, at the dissolution of the company. It w'ould be impossible to consider the individuals who forfeited their shares upon the terms of this resolution, as any longer members of the company or owners of shares. The trustees have power, by the statute, to annex the penalty of forfeiture of shares, to the non-payment of the calls ; and after forfeiture of a share, the former owner loses it, and is no longer a member, and cannot be responsible as a member. Every member whose shares were forfeited .under that resolution, is wholly discharged from any responsibility for the plaintiff’s debt; and this consequence must follow, unless it could be shown, that the resolution was the result of a fraudulent combination between the trustees and the stockholders, to defraud the plaintiff. There is no colour in this case for this conclusion ; and it would, therefore, appear to me, that among the twenty-two defendants in this case, there are thirteen who have a good defence under this resolution, and there are two who have a good defence under the resolution of the 18th of August, 1817, and one more who has paid up his shares in full; there are not more than six of the defendants who have nbt paid 30 per cent, on their shares.

The plaintiff was a trustee, and present when this resolution of the 3d of November was passed; but he protested against it, as it Would not pay the debts of the factory. I apprehend, however, that the benefit of this protest, as it respected his claim against the stockholders, was waived by his subsequent conduct. The resolution was directed to be published in the Poughkeepsie papers, where the plaintiff resided, and it was published for three weeks, in November, 1817, and no notice of his dissent was mentioned in the advertisement containing a certified copy of the resolution. The stockholders had a right to presume that the resolution was with the assent of the plaintiff, and the plaintiff suffered that presumption to be drawn, without taking any public step to prevent it.

Again ) by the resolution of the board, of the 1st of December, 1817, at which the plaintiff was present, and concurring, it was resolved, that the attorney of the company apply the funds he had in hand, belonging to the Company, to the credit of a note drawn by Booth, Bloom, Crosby and Cocks, at the Manhattan Bank. The resolution was passed on the day that the moneys, under the operation of the resolution of the 3d of November, were to have been paid in; and it was passed with a view to these very funds, which amounted to about 2,200 dollars. The note to which they were to be appliéd, with the knowledge and assent of the plaintiff, was one given for and on account of a debt due from the plaintiff; and he observed to one of the witnesses, that a payment on that note was as good to him as a payment by the members on their stock. This was an instance where the plaintiff availed himself, as a trustee, of the application, for his particular benefit, of moneys paid in by the stockholders, on the faith of the resolution of the 3d of November, and with a view and expectation of being discharged from all further payments by the forfeiture of their shares. This was a strong ratification, on his part, of the resolution, from which lie had originally dissented. He availed himself of the fruits of it; and when these fruits were the result of a confidence reposed in its validity, how could he now be permitted, by the aid of this Court, to disregard that confidence and sanction, and look beyond the resolution for further payment ? Good faith would seem to require, that he should, at the time, either have acquiesced in the resolution, or should have made his dissent as public as the resolution, and have abstained from all particular and pointed participation in its results. Again; on the 26th of December, 1817, he was present, as a trustee, and concurred in a resolution, “that the attorney of the Company be directed to commence suits against all the persons who were subscribers to the stock of the Company, who did not comply with the resolution of the Alh of November, 1817.” This resolution is expressly stated in the minutes of the board to have been passed unanimously; it would appear that the plaintiff was absolutely and expressly committed by this resolution, and that he is now to be deemed bound, as a party, by these acts of recognition, to the resolution of the 3d of November. He would, therefore, even upon the assumption of his right to look to the individuals of the Company for his corporate debt, be bound to confine his claim to those who had not complied with either of the resolutions of the 18th of August, or 3d of November, 1817 j and as to those, he could not, under the resolution of the 18th of August, look further than to the payment of 50 per cent, or the arrearages of the prior calls, and to the forfeiture of their shares for the residue. The plaintiff presents no very favourable claim to the equitable interposition of this Court, even to any extent. He commenced the manufacturing establishment in question on his own account, and with his own funds, and, afterwards, solicited and procured the formation of the Company to assist him, and then sold his private interest in the establishment to the Company for 30,900 dollars, on the 1st of May, 1815. He then had a balance liquidated and admitted in his favour, in November, 1816, to 23,493 dollars, and in January, 1817, prosecuted the Company, and in May, 1817, obtained judgment against them; and, on the 1st of February, 1818, sold on execution, the whole real and personal estate of the Company, for 460 dollars. The property which he sold, and caused to be purchased in for this almost nominal sum, he had, three years before, sold to the Company for the large consideration which has been mentioned; and the extent to which he now pushes his claim, is for the balance of 18,958 dollars left unsatisfied, after he had swept away all the stock of the Company, and virtually annihilated its credit and capital.

I shall, accordingly, declare, that the plaintiff is not entitled to sue the members of the Compant', in their individual capacity, for a corporate debt, inasmuch as the corporation is not, in judgment of law, dissolved ; nor can it be dissolved for any non-user or mis-user of its franchises, without due process of law; and I shall further declare, that by the resolutions of the 18th of August, and of 3d of November, 1817, (to one of which the plaintiff was a party at the time, and to the other he has given his subsequent assent and ratification,) the plaintiff would not be entitled to any claim against those defendants who have paid in 30 dollars, upon each of their shares, nor to any claim beyond 50 per cent. or the arrearages of former calls, and the forfeiture of their shares, as to those defendants who ‘have not paid in 30 per cent, even if the corporation was now dissolved.

The bill must be dismissed with costs, as to those defendants who have appeared and answered; and without costs, as to those defendants who have no.t appeared and answered.

Decree accordingly.