Case Name: JACOBS v. MONATON REALTY INVESTING CORPORATION
Court: New York Supreme Court, Appellate Term
Jurisdiction: New York
Decision Date: 1913-05-26
Citations: 141 N.Y.S. 1033
Docket Number: 
Parties: JACOBS v. MONATON REALTY INVESTING CORPORATION.
Judges: 
Reporter: West's New York Supplement
Volume: 141
Pages: 1033–1039

Head Matter:
(80 Misc. Rep. 649.)
JACOBS v. MONATON REALTY INVESTING CORPORATION.
(Supreme Court, Appellate Term, First Department.
May 26, 1913.)
Banks and Banking (§ 8 )—What Constitutes—“Moetgage Loan ob Investment Cobpobation.”
Stock Corporation Law (Consol. Laws 1909, c. 59) § 6, gives stock corporations only the right to borrow money and contract debts when necessary for the transaction of their business or for the exercise of their corporate rights. General Corporation Law (Consol. Laws 1909, c. 23) § 10, provides that certificates of incorporation can only contain provisions which do not exempt the directors from the performance of any obligation imposed by law, and that no corporation shall exercise any corporate power not given by law. Section 22, as amended by Laws 1911, c. 771, provides that no corporation, unless formed under the Banking Law, shall possess the power of carrying on the business of receiving deposits. The Banking Law (Consol. Laws 1909, c. 2) defines the term “mortgage loan or investment corporation” to mean any corporation organized for the purpose of receiving any money from its members or others. An alleged certificate provided, in consideration of the payment of $107, annually or in monthly payments at the holder’s option during the period of 10 years, the corporation agreed to pay to the recorded owner of the certificate at the expiration of such period $1,500, “and in addition thereto such proportion of the profits as the directors of the company may consider just and equitable,” and further recited that the payments on the certificate were accepted for investment in business and not deposit. Held, that the amount paid was intended as a deposit, so that the corporation engaged in the business of illegal banking.
[Ed. Note.—For other cases, see Banks and Banking, Dec. Dig. § 8. ]-
Page, J., dissenting.
Appeal from City Court of New York, Special Term.
Action by Arthur Edward Jacobs against the Monaton Realty Inwesting Corporation. From an order granting a motion for judgment «on the pleadings, and from the judgment, defendant appeals. Af- . firmed.
Argued April term, 1913, before GUY, GERARD, and PAGE, JJ.
William P. Maloney, of New York City, for appellant.
Gustav Lange, Jr., of New York City, for respondent.
For other cases see same topic & § numbeb in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes

Opinion:
GERARD, J.
The complaint sets forth three similar causes of ac--tion; each being for money had and received, and based upon the payment by the plaintiff to the defendant of certain sums of money, the .first two on cumulative profit-sharing certificates, arid the third on a -so-called gold certificate, all issued by the defendant. The defendant -interposed a demurrer, to the effect that the facts alleged in each. • cause of action did not constitute a cause of action.
The only question raised is the question of law as to whether it was -.ultra vires for the defendant corporation to receive the moneys in -question. If the defendant had no power to make these contracts, the «contracts are void, and the plaintiff is entitled to recover back from •the defendant the moneys paid under such agreement.
The defendant is incorporated under the Business Corporations Law (Consol. Laws 1909, c. 4), and is alleged in the complaint not to "be incorporated under the Banking Law (Consol. Laws 1909, c. 2), • of the state of New York. Stock Corporation Law (Consol. Laws 1909, c. 59), § 6, expressly limits the powers of stock corporations, .and gives them only the right to borrow money and contract debts when necessary for the transaction of their business, or for the. exercise of their corporate rights, privileges, or franchises, or for any • other lawful purpose of the incorporation.
General Corporation Law (Consol. Laws 1909, c. 23) § 10, provides that no corporation shall possess or exercise any corporate powers not . given by law or not necessary to the exercise of the powers so given, . and provides that the certificate of .incorporation can only contain provisions which do not exempt the directors and stockholders from the performance of any obligation or duty imposed by law; that is to say, the certificate of incorporatiori cannot give the corporation any .-greater powers than those to which it is entitled by law. Section 22 -of the General Corporation Law, as amended by Laws 1911, c. 771, -provides that:
"No corporation, domestic or foreign, other than a corporation formed under or subject to the banking laws of this state or of the United States, except as permitted by such laws, shall by any implication or construction be deemed to possess the power of carrying on the business of discounting bills, notes or other evidences of debt, of receiving deposits, of buying and selling bills of exchange, or of issuing bills, notes or other evidences of debt for circulation as money," etc.
The Banking L,aw, in defining mortgage loan or investment corporations, provides:
"The term 'mortgage loan or investment corporation,' when used in this chapter means- any corporation other than an insurance corporation formed under the laws of this state or of any other state, and doing business in this state for the purpose of selling, or offering for sale, or negotiating bonds or notes secured by deed of trust or mortgages on real property, or choses in action owned, issued, negotiated or guaranteed by it, or for the purpose of receiving any money or property, either from its own members or from other persons, and entering into any contract, engagement or undertaking with them for the withdrawal of such money or property at any time with any increase thereof, or for the payment to them or to any person of any sum of money at any time, either fixed or uncertain; and when applied to any foreign corporation doing business in this state shall include," etc.
In the case at bar the contract between the parties is evidenced by the alleged certificate, which constitutes their agreement. This provides that, in consideration of the payment of $107.36 annually, or, at his option, the sum of $9.20 each month, in advance, during the period of 10 years from date, the defendant promises to pay to plaintiff or the recorded owner of the certificate, at the expiration of the said period, upon presentation and surrender of the certificate, the sum of •$1,500, "and in addition thereto such portion of the profits as the directors of the company may consider just and equitable." The certificate also contained a clause to the effect that it was subject to the 'privileges and provisions" indorsed on the back. It was there stated that:
"The payments on within certificate being accepted by the company for investment in business, not for deposit, the owner has the following privileges," etc.
These are briefly the right to apply the certificate, at any time, with accrued interest, on the purchase of any real estate which the company may choose to sell to the holder of the certificate, a right to transfer the certificate, a right to get a paid-up certificate payable at the original maturity date, or payable in cash on 60 days' notice, according to a schedule annexed, and, in the event of the owner's death, the company agreed to pay to his representatives the total amount of the premiums paid, with 4 per cent, interest to the date of death, or the holder's legal representatives might continue the certificate to maturity by making the payments as above stated; also providing that, if any installment remains unpaid for six months, the certificate shall be nonforfeitable for five years from the date of default. A right was reserved to the company to terminate the certificate after the tenth or any later anniversary of its date, by paying up its amount with accrued interest, "together with such portion of the profits as may be apportioned thereto by the directors of the company." The certificate contains the further clause:
"In addition to the face value of this certificate at its maturity, it shall be entitled to, and the owner shall receive, such portion of the profits of the company as shall be apportioned thereto by the directors thereof."
In construing this certificate, it appears, in the first place, that there is no provision by which the holder is entitled to receive any of the profits of the business. There is a statement that he may receive such portion of the profits as the directors of the company may give; but there is no obligation whatever on the part of the directors of the company to give anything, and therefore these clauses, which occur three or four times in the certificate, amount to absolutely nothing. Secondly, the company claims that this is not a deposit, because there is language in the certificate to the effect that the payments are accepted by the company for investment in business, not for deposit; but if the contract between the parties shows a mere deposit, no self-serving statement made by the company can change the relations between the plaintiff and the company.
There is no question whatever in my mind but that this company is violating the provisions of the Banking Law and is transacting business as a mortgage loan or investment corporation, as that form of company is defined in the Banking Law. In the case of Chapman v. Lynch, 156 N. Y. 551, 51 N. E. 275, the American Dairy Salt Company, Limited, issued to plaintiff a pass book in which was entered: "Frank D. Chapman, in Special Account with the American Dairy Salt Company, Limited." Under the credit column was entered: "February 11, 1882. Cash, $10,880.90."
And semiannually thereafter interest was credited at the rate of 6 per cent. It was there held that the corporation, in accepting the funds of the plaintiff in special account upon deposit, exceeded its corporate power and engaged in a business in which it was not authorized; that its contract was ultra vires, and therefore plaintiff's right of action for the moneys delivered to the corporation accrued at once.
These provisions of the Banking Law were enacted to restrain illegitimate and improper banking. I am convinced that the complaint shows that the defendant here is engaged in the business-of illegitimate and improper banking, and that the order and judgment appealed from should be affirmed.
Order and judgment affirmed, with $10 costs and disbursements, with leave to defendant to plead over within five days after service of a copy of the order entered herewith, with notice of entry thereof, upon payment of costs in this court and in the court below, with leave to defendant to appeal to the Appellate Division, First Department.
GUY, J., concurs.