Case Name: HELD v. CROSTHWAITE et al.
Court: United States Court of Appeals for the Second Circuit
Jurisdiction: United States
Decision Date: 1919-07-07
Citations: 260 F. 613
Docket Number: No. 195
Parties: HELD v. CROSTHWAITE et al.
Judges: Before WARD, ROGERS, and HOUGH, Circuit Judges.
Reporter: Federal Reporter
Volume: 260
Pages: 613–632

Head Matter:
HELD v. CROSTHWAITE et al.
(Circuit Court of Appeals, Second Circuit.
July 7, 1919.)
No. 195.
CORPORATIONS <&wkey;336-LlARIMTY OF OFFICERS ON CONTRACTS AFTER REPEAT. OF CHARTER FOR NOT PAYING TAXES.
Under Act N. J. June 3, 1905, § 2 (P. L. p. 500), providing that, where a corporation shall fail for two years to pay slate taxes, its- charter shall be repealed by proclamation by the Governor, and that “all powers conferred by law upon such corporations shall thereafter be deemed inoperative and void.” and section 7 of said act, authorizing the Governor, upon settlement with such a corporation, by a second proclamation to reinstate its charter, whereupon the secretary of state shall issue his certificate “entitling such corporation to continue its said business and its said franchises,” where, after the issuance of a repealing proclamation, but without knowledge of the fact, the officers of a corporation continued its business in good faith, and persons dealt with them with the understanding that they were acting- for the corporation, which was after-wards reinstated, such officers cannot be held personally liable on contracts so made.
Rogers, Circuit Judge, dissenting.
In Error to the District Court of the United States for the Southern District of New York.
Action at law by Gustave Held, trading as Gustave Held & Co. against Burwell M. Crosthwaite, John I(. Crosthwaite, and William H. Brearly, trading under the name of the Crosthwaite & Cannon Company. Judgment for defendants, and plaintiff brings error.
Modified and affirmed.
A. E. Pincoffs, of New York City, and J. Edward Ashmead, of Newark, N. J., for plaintiff in error.
William Otis Badger, Jr., of New York City, for defendant in error Burwell M. Crosthwaite.
! Joseph T. Weed, of New York City, for defendant in error Brearly.
Before WARD, ROGERS, and HOUGH, Circuit Judges.

Opinion:
WARD, Circuit Judge.
This is an action to recover damages in the sum of $52,000 against the defendants, alleged to be trading together as copartners under the name of the Crosthwaite & Cannon Company, insurance brokers, for negligence in obtaining for the plaintiff from Morgan, Lyons & Co., insurance brokers of London, agents of underwriters of Lloyds, a marine policy upon 3,000 bags of coffee, of the value of $96,000, New York to Havre, which did not cover, as they had undertaken it should, losses resulting from hostilities and warlike operations. The vessel carrying the shipment of coffee was torpedoed and sunk en route on the high seas, and the plaintiff's coffee became a total loss.
The defendant John E. Crosthwaite was not served, and it was stipulated between the parties that the answer of the defendant Burwell M. Crosthwaite should stand as the answer of the defendant William H. Brearly.
The contract was made by the plaintiff with the Crosthwaite & Cannon Company, a corporation of the state of New Jersey, on or about June 25, 1917.
The first count of the complaint alleges that on January 26, 1915, because of its failure to pay for two successive years taxes due the state of New Jersey for 1912, the Governor of the state issued a proclamation declaring that the charter of the corporation was void, and all powers conferred upon it by law inoperative and void, in accordance with the act of June 3, 1905 (P. E. p. 508), amended by the act of March 11, 1914 (P. E. p. 27), which provides:
"1. If any corporation created under any act of this state shall for two successive years neglect or refuse to pay the state any tax which has been or shall be assessed against it under any law of this state and made payable into the state treasury, the charter of such corporation shall be declared void as in section two of this act provided, unless the Governor shall, for good cause shown to him, give further time for the payment of such tax, in which case a certificate thereof shall be filed by the Governor in the office of the comptroller, stating the reasons therefor.
"2. On or before the first Monday in January in each year the comptroller shall report to the Governor a list of all corporations which for two years next preceding such report have failed, neglected or refused to pay the taxes assessed against them under any law of this state as above, and the Governor shall forthwith issue his proclamation, declaring under this act of the Legislature that the charters of these corporations.are repealed, and all powers conferred by law upon such corporations shall thereafter be deemed inoperative and void.
"3. The proclamation of the Governor shall be filed in the office of the secretary of state."
The complaint further alleges:
"(9) That thereafter, and until March 5, 1918, the said defendants continued to carry on the business of the Crosthwaite & Cannon Company, then nonexistent, consenting and allowing themselves to be made directors, and to be held out to the public as such, and the business of said company to be carried on under their authority and management as such directors."
The second count charges the defendants with liability because holding themselves out as agents of the Crosthwaite & Cannon Company:
"(22) That the said defendants thereafter, and until March 5, 1918, continued to carry on the business of the Crosthwaite & Cannon Company, then nonexistent, and consented and allowed themselves to bo held out to the public as agents of said company, and the business of said company to be carried on under their authority and management as such agents."
The third count charges them with liability for representing that the Crosthwaite & Cannon Company, then nonexistent, was the duly authorized agent of Morgan, Lyons & Co., with power to deliver to plaintiff a binding receipt against marine and war 'risks to cover the said shipment of coffee, whereas the company had no such power.
The fourth count charges the defendants with liability for representing themselves as agents of the Crosthwaite & Cannon Company and for representing that company as agent for Morgan, Lyons & Co.
After several denials, the defendants set up three separate defenses as follows:
First That on March 5, 1918, the Governor of New Jei-scy revoked his proclamation of January 26, 1915, by a second proclamation reinstating the Crosthwaite & Cannon Company; that the plaintiff contracted with the corporation, having knowledge or means of knowledge of the statutes of New Jersey and of the Governor's proclamation of January 26, 1915.
Second. That the Crosthwaite & Cannon Company was both a de jure and a de facto corporation.
Third. That the Crosthwaite & Cannon Company had full authority as agent to issue the binding receipt for Morgan, Lyons & Co., which is in full force and effect.
The plaintiff demurred to the three defenses "on the ground that they and each of them are insufficient in law upon the face thereof."
Judge Augustus N. Hand thought that the complaint, was itself de-murrable, but instead of dismissing it he overruled the demurrer, without giving the plaintiff leave to withdraw it, and entered judgment for the defendants.
No charge of fraud is made against the defendants, and the real question is one of law, as to the defense that on March 5, 1918, the Governor, pursuant to the powers conferred upon him by the statutes of New Jersey, by a second proclamation revoked and annulled his first proclamation of January 26, 1915, and reinstated the corporation as of that date. The statute (Chapter 259, Laws 1905) is not set out or pleaded by title, but section 7 is as follows:
"If the charter of any corporation organized under any law of this stale shall hereafter become or shall have heretofore become inoperative or void by proclamation of the Governor or by operation of law, for nonpayment of taxes, the Governor, by and with the advice of the Attorney General, may, upon payment by said corporation to the secretary of state of such sum in lieu of taxes and penalties as to them may seem reasonable, but in no case to be less than the fees required as upon the filing of the original certificate of incorporation, permit such corporation to be reinstated and entitled to all its franchises and privileges, and upon such payment as aforesaid the secretary of state shall issue his certificate entitling such corporation to continue its said business and it said franchises. ' "
If the defendants rightly state the effect of the second proclamation, it is a defense to the whole complaint, because all four counts proceed upon the theory that the defendants as matter of law acted as individuals ; the Crosthwait'e & Cannon Company being nonexistent.
There is difficulty in reconciling the language of sections 1 and 2 of the act of June 3, 1905, providing for the Governor's proclamation declaring the repeal of charters for nonpayment of taxes for two years, with the language of section 7, providing for a subsequent proclamation reinstating the charter. The' question has not been passed upon by the courts "of New Jersey.
We think it clear that the charter may be and by the statute is repealed by the Governor's proclamation without the necessity of any application to the courts. It seems to us equally clear that the Legislature cannot have intended by section 7 that upon payment of taxes by the corporation the Governor should create a new corporation. The Legislature alone can grant corporate franchises, and no intention should be imputed to it to delegate the power to the Governor. Indeed, such a delegation would be invalid. "Delegatus non potest delegare." Therefore the second proclamation of reinstatement must be held -to relate to the first proclamation of repeal, and the corporation must be regarded as Laving continuously existed so far as the state is concerned. This is in accordance with the certificate which the secretary of state is required to issue, entitling the corporation "to .continue its said business and its said franchises."
It is noteworthy that the statute in question is not a part of the general act of 1896 entitled "An act concerning corporations," but is a supplement to the act of 1884 entitled "An act to provide for the imposition of state taxes upon certain corporations and for the collection thereof." The plain object of the act was the collection of revenue for the state. It was held in American Surety Co. v. Great White Spirit Co., 58 N. J. Eq. 526, 43 Atl. 579, that the act was entirely consistent with the provisions of.the General Corporation Act of 1896 (P. L. pp. 295, 296), section 53 of which provides:
"All corporations, whether they expire by their own limitation or be annulled by the Legislature or otherwise dissolved, shall be continued bodies corporate for the purpose of prosecuting and defending suits by or against them," and of 'enabling them to settle and close their affairs, to dispose of and convey their property and to divide' their capital, but not for the purpose of continuing the business for which they were established."
We took the same view in Re Munger Tire Co., 159 Fed. 901, 87 C. C. A. 81. There is great force in saying that vested rights obtained by individuals in the period between the two proclamations should not be disturbed; but were any rights vested? Persons dealing with in dividuals as agents or directors of a corporation between a proclamation repealing and a proclamation reinstating the charter must be taken to know that by the law of the state the corporation could be reinstated and continued as to all its franchises as if the charter haff never been repealed and its powers declared void. It must be confessed that the language used as to the repealing proclamation is very strong, but unless the provision for the reinstating proclamation is a nullity it must be held to relate to the repealing proclamation and completely validate the corporation and the acts of persons dealing as its directors and agents from that date.
If the defendants had acted fraudulently, or if they had acted innocently, the corporation itself being a fraudulent concern, they might be held liable (Wonderly v. Booth, 36 N. J. Law, 250); but it is not pretended that either party was actually aware of the Governor's proclamation repealing the charter. The plaintiff acted upon the supposition that he was dealing with the defendants, not individually, but as representing the Crosthwaite & Cannon Company, and the defendants acted upon the same understanding. Indeed, the complaint itself states facts in articles 9 and 22, hereinbefore quoted, which show that during the interval between the two proclamations the corporation was at least a de facto corporation.
It seems to us that the statutes construed as above and applied to the facts in this case leave the plaintiff with a remedy against the corporation only, and that this is a just and fair result. It cannot be considered a hardship that the parties should be held to their common understanding.
But we -think the plaintiff should have leave to withdraw his demurrer, if he wishes to do so, and, modified in this respect, the judgment is affirmed.