Case Name: The Buffalo and Allegany Railroad Company v. Cary, Administrator, &c.
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1862-12
Citations: 26 N.Y. 75
Docket Number: 
Parties: The Buffalo and Allegany Railroad Company v. Cary, Administrator, &c.
Judges: 
Reporter: New York Reports
Volume: 26
Pages: 67–74

Head Matter:
The Buffalo and Allegany Railroad Company v. Cary, Administrator, &c.
Where a railroad corporation, attempting to organize under the general law, has filed papers having color of compliance with the statute, but so defective as to be incapable of supporting the incorporation a.s against The People, it may yet, as against a subscriber to its capital, be held a corporation de facto, upon proof of the feeblest nser^,
An incorporation thus established upon no other proof of user, prior to subscription, than the election of officers by the persons calling themselves directors: this, against the representative of a subscriber in June who died in September, and such other acts of user as were proved, were not fixed more definitely as to time than that they were after the election of officers, which preceded the subscription one week
Appeal from the Superior Court of Buffalo. Action upon the subscription of the intestate to the capital stock of the plaintiff. The plaintiff undertook to become incorporated under the general railroad act of 1850. In May, 1853, its articles of association were filed, and the intestate, June 8th thereafter, became a subscriber for one thousand dollars of the capital stock, and paid ten per cent at the time of subscribing, and died in September, 1853. The directors, after his death, made seven calls upon the stock of one hundred dollars each, and for this seven hundred dollars, claimed to be due, this action was brought. The affidavit indorsed upon and filed with the articles of association was conceded to be defective ; it containing no statement of an intention in good faith to construct or operate the road mentioned in the articles. In 1858 a law was passed by the legislature of this.State authorizing the plaintiff to sell its property and effects to another railroad company; and, by the second section of the act, the plaintiff was declared to be a valid corporation, duly organized under the act to authorize the formation of railroad corporations and to regulate the same, passed April 2d, 1850, and the several acts amending the same, notwithstanding any error, in formality, insufficiency, act or omission, on the part of such company or any of its stockholders in the proceedings to become incorporated, and the said corporation and all the proceedings of its stockholders and officers were thereby legalized and confirmed. By another section, it was provided that nothing contained in this act should affect any suit before then commenced in any court. Upon the trial, the plaintiff offered in evidence certified copies of the articles of association filed with the county clerk and comptroller, and they were objected to, on the ground of the defect in the affidavit. The plaintiff then read in evidence the act of 1858, and thereupon the court overruled the objection, and the articles of association were read in evidence, and the defendant excepted. The plaintiff then gave evidence of the election of directors and officers, June 1, 1858, and the purchase of the route of the proposed road after such election, and that contracts were made for its construction, and that the contractors entered upon the work and that money was paid on various subscriptions to the capital stock and expended on the road, and liabilities incurred in the construction. Evidence was given of the various calls for payment upon the stock, counted upon in the complaint. At the close of the evidence the defendant moved for a nonsuit, on the ground that the plaintiff had failed to prove its corporate existence at any time prior to the passage of the act of 1858, if at all; and that the defendant was not liable on the subscription of the intestate. The motion was denied, and the defendant excepted. Judgment was given for the plaintiff for the full amount claimed, which was affirmed at general term, and the defendant appealed to this court.
The case was submitted to the court upon printed briefs and points by
Ashur P. Nichols, for the appellant.
No one appearing for the respondent.

Opinion:
Denio, Ch. J., Davies, Wright, Gould and Smith, Js., were for affirming the judgment.
Their reasons were not put in writing. Those of the court below were delivered by Masten, J., as follows:
The defendant contends that the plaintiff's organization is defective, because the'affidavit' annexed to the articles of association does not contain the allegation required by the statute, " that it is intended in good faith to construct or to maintain and operate the road mentioned in the articles of association," and that it is not therefore a corporation. The articles of association are in due form, and the affidavit annexed to them, while it does not come up to- the requirement of the statute in the particular specified, is colorable. The articles and affidavit were filed and recorded in the office of the secretary of state; the capital stock was subscribed and partly paid in; the route of the road was surveyed, and located; the right of way obtained; a contract for the construction of the whole road •entered into and liabilities incurred which have not been satisfied. This was sufficient to constitute the plaintiff a corporation' de facto, so that neither it nor its stockholders can object that it is not strictly a corporation de jure.
I am of the opinion that, under this and similar general acts for the formation of corporations, if the papers filed, by which the corporation is sought to be created, are colorable, but so defective that, in a proceeding on the part of the State against it, it would for that reason be dissolved, yet by acts of user under such an organization it becomes a corporation de facto, and no advantage can be taken of such defect in its constitution, collaterally, by any person.
Any other rule, it seems to me, must be fraught with serious consequences and great public mischief. Most of the persons who subscribe in good faith for the stock, do not examine to see whether all the requirements of the statute in the organization of the corporation have been complied with; and if they did examine would not probably discover a defect like the one now pointed out. The stock is sold in market from hand to hand without any such examination. The corporation may carry on its business for years, and its stock have entirely changed hands, when its property may be de stroyed by a trespasser, and in an action against him in the name of the corporation his only defence, "you are not legally a corporation by reason of a defect in your constitution," would (upon the doctrine contended for by the defendant) be successful. The doctrine of estoppel could not be applied in that case, as it has been in some cases, to counteract an erroneous decision upon the question now before me.
I am aware that there are decisions in the Supreme Court, beginning with The First Baptist Society v. Rapalee (16 Wend., 605), upon the point now presented to us, in conflict with the opinion I have here expressed. Their error is, in not recognizing the distinction between what is sufficient to constitute a corporation de facto and what is necessary to constitute one de jure, and how and by whom a corporation de facto may be shown not to be a corporation de jure. The State alone can takel advantage of a defect in the constitution of a corporation like] the one in this case. In its action it will be governed by public policy and considerations. And it has declared that it will not take advantage of the defect in the plaintiff's constitution. I think the Court of Appeals has settled the principle as I have stated it. (Eaton v. Aspinwall, 19 N. Y., 119.)