Case Name: Courtlandt Kelsey vs. The Northern Light Oil Company
Court: New York Supreme Court
Jurisdiction: New York
Decision Date: 1869-06-07
Citations: 54 Barb. 111
Docket Number: 
Parties: Courtlandt Kelsey vs. The Northern Light Oil Company.
Judges: 
Reporter: Barbour's Supreme Court Reports
Volume: 54
Pages: 111–134

Head Matter:
Courtlandt Kelsey vs. The Northern Light Oil Company.
In an action against a corporation, by a stockholder, to have his contract of subscription rescinded and the amount he had paid refunded to him, on the ground that the company did not acquire or own certain pieces of property which it was represented it would acquire, the judge charged the jury that if, upon the prospectus, “ the plaintiff had the right to believe that it was reasonably certain that the company would acquire such property, and that the company was organized with a view to ownership of those pieces of . property, then, if they did not obtain it, he would be "entitled to recover.” Held that the charge was erroneous.
A corporation being about to be formed, for the purpose of dealing in and developing oil, in oil lands, certain named property was expected to consti tute its invested capital. After.it should become organized it was to purchase the several pieces of oil property mentioned in the prospectus. It succeeded in obtaining all, except one piece, as to which there was some defect of title. Seld, that in the absence of any misrepresentation or fraud, a stockholder could not, on the ground of the failure of the company to acquire all the land mentioned in the prospectus, maintain an action against it to recover back the amount paid by him upon his subscription. Mullís, J., dissented.
Such an action cannot be sustained unless the objects and purposes of the company have so entirely failed that the corporation may be said to be vir■tually dissolved. Per Pbokhah, J.
Where there is, at most, a failure only as to about three fourths of one tenth of the property intended to be owned by the company, and the money to buy that is in the company’s treasury, this is not a sufficient ground for dissolving the corporation, Per Pbokham, J.
1ITTE plaintiff alleges in substance, in his complaint, that . he became a subscriber to the capital stock of the Northern Light Oil Company 'of Hew York, upon the strength of certain representations alleged to have been made by the company that they owned certain property, and also upon the strength of a further representation, alleged to have been made by the company, that all subscribers, not finding the property as represented, could withdraw from the company. He then alleges that the company did not own certain pieces of property which were thus represented to be owned by them; that the stock of the company had become much depreciated in value, and that he had tendered back his stock and demanded the amount of his subscription to be repaid to him by the company, which they had refused to do. •
The defendants, in their answer, denied the making of any of the alleged representations, and in the main denied all the material allegations of the complaint; admitting, however, that they never did own tw.o certain pieces of property which the complaint had alleged the company .had represented it owned, and stating, by way of explana- • tian, that they failed to acquire this property in consequence of a defect in the title.
On the trial, the plaintiff proved that one Lockwood solicited him to subscribe for or take 100 shares of the stock, and at the time exhibited to him what purported to be a prospectus, and also an advertisement respecting the company, cut from the. columns of some newspaper, and that he thereupon signed a paper agreeing to take 100 shares of the stock. It appeared that Lockwood acted as an agent or broker under the direction of one Avis, of the firm of Avis, Plumer & Co., of Hew York. The plaintiff attempted to prove that Avis was authorized by the company to exhibit the prospectus and procure subscriptions, but the evidence upon this point went no further than to tend to show that certain of the trustees had given such authority to Avis. Ho evidence whatever was offered that the company, by any corporate action, ever authorized any one to exhibit any prospectus, make any representation, or procure any subscriptions to the stock. The plaintiff’s evidence, however, was received against the defendants’ objection, as evidence of authority conferred upon Avis-by the company.
The plaintiff also proved that Sylvanus J. Macy, one of the trustees and the treasurer of the company, received the money paid by the plaintiff for his stock, and sent him the certificate; and it was claimed that Macy so received the money on behalf of the company, and that the company thus took to itself the benefit of the-contract or subscription made by the plaintiff' and thereby became bound by the representations upon which it was made, as much as if they had originally authorized them to be made.
The defendants introduced contradictory evidence as to any representations having been at any time directly authorized by the company. They further proved that, prior to the time of the formation of the company, all of its capital stock was, by an agreement among the projectors, disposed of, and that, immediately upon the formation of the company, a resolution was passed, recognizing this prior agreement, and directing that all the capital stock, with the exception of a thousand shares, should be issued to Mr. Macy, as a special trustee for those who had thus agreed to take the stock, and that the thousand shares excepted as above mentioned, were at the same time taken by the gentlemen becoming the trustees, and paid for, and the certificates issued to them, so that, at the time of the plaintiff’s subscription, the company did not own or have the control of a single share of its stock.
The defendants further offered evidence, showing that Mr. Avis was one of the projectors, and by the agreement before mentioned was to take 5000 shares of the stock, and that the stock which the plaintiff received was not issued to him by the company, but was transferred to him by Mr. Macy as a portion of the 5000 shares which he had agreed to take, and that that was all done by Mr. Macy, without any direction from the company, who had nothing to do with the stock but by the authority and direction of Mr. Avis.
It appeared, upon examination of the "prospectus, that it did no.t purport to be issued by the company, or by its authority, but by the projectors of the company, of whom the only ones named in it were George A. Boyce, and Avis, Plumer & Co.
The principal points of contest at the trial were, as to whether the alleged representations were of an existing state of facts, or of what was in contemplation merely, and as to whether the defendants or Avis, Plumer & Co. were the real principals of Lockwood, who procured from the plaintiff his subscription. The learned judge left the first question to the jury. As to the second, he held, upon the evidence, that the company were the real principals, and so instructed the jury, in effect.
Exceptions were taken to some of the rulings of the. learned judge upon the admission and exclusion of evidence, the denial of the defendants’ motion to dismiss the complaint, and to portions of his charge to the jury.
The ease came before the general term, upon the defendants’ appeal both from the judgment and the order of the special term denying a motion for a new trial. ,,

Opinion:
Peckham, J.
In my opinion the judgment should be reversed. Apart from any other question, there was one proposition submitted to the jury, by the learned judge, which I think cannot be maintained, and upon which the verdict may well have been based. He charged that " If upon this paper (the prospectus) the plaintiff had the right to believe that it was reasonably certain that the company would acquire this property, and that the company was organized with a view to ownership of these pieces of property, then, if they did not obtain it, he would be entitled to recover." Upon this charge the jury must necessarily have found for the plaintiff.
It will be marked, here, that no misrepresentation or fraud is the basis of this verdict; none is within this charge. Here was a corporation about to be formed, with a capital of one million. Certain named property was expected to constitute its invested capital. Its business was to deal in and develop oil in oil lands. After its organization, it was to purchase the several pieces of oil property mentioned in the prospectus. It succeeds in obtaining all, except one piece, called the " Hammond well," or the piece upon which said well was sunk. As to this piece there was some defect of title, and the consideration money therefor, $75,000, was paid to or left in the treasury of the company.
The good faith of the company, or of its agent, is not questioned.
Thus, if this action can be maintained, every other subscriber to the stock, or every stockholder, may sue the company. This plaintiff has no other or greater rights than any other stockholder. It follows that if a company fail to obtain all the property it expected and intended, or its stockholders expected and intended to obtain, when the stock was subscribed for, no matter for what cause, the whole scheme is dead, and the company ended.
There is no such doctrine as this, and there never was. The cases cited by counsel have no application to subscribers to a company about to be organized and incorporated. Ho such case can be found, I think. The cases cited, Hutcheon v. Johnson, (33 Barb. 392;) Bennett v. Judson, (21 N. Y. Rep. 238;) Rosevelt v. Fulton, (2 Cowen, 129;) Smith v. Countryman, (30 N. Y. Rep. 655;) and 27 Id. 558, I have examined, and they do not aid the plaintiff.
The plaintiff can scarcely be said to have been disappointed as to this " Hammond well." He had never seen or examined any of this property prior to his subscription. When examined thereafter, the Hammond well had ceased to flow. There is no pretense that it had not flowed before, and it was a characteristic of these wells that they would stop when they chose. Its stopping should have surprised no one. But having stopped and become comparatively worthless, as the plaintiff seems to insist, there would seem to be very small excuse for him to repudiate his subscription on the ground that the company was about $75,000 better offj in that respect, than it would have been had it obtained this now worthless Hammond well.
It is very difficult to discover the principle upon which this action can be claimed to lie. It seems to me it cannot be sustained, unless the objects and purposes of the company have so entirely failed that the company may be said to be virtually dissolved. That cannot be pretended, here. At most there is a failure only as to about three fourths of one tenth of the property intended to be owned by the company, and the money to buy that was in the company's treasury. Only the title was defective, and it could not be purchased. I do not deem this any ground for dissolving the company. Very few companies in this country could be upheld if any such ground would dissolve them.
But even if this should be held to be proper ground for dissolving the company, it by no means follows that one of the subscribers to its stock could maintain an action • against it for the money subscription. Assuming the property now to be of comparatively small value, upon what principle of equity should this plaintiff sue and get his money back, while his co-subscribers should be compelled to take the reduced property for their shares ?
The judgment should be reversed, and a new trial granted; costs to abide the event.
J. F. Barnard, J., concurred.