Case Name: The Eastern Plank Road Company against Vaughan
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1856
Citations: 14 N.Y. 546
Docket Number: 
Parties: The Eastern Plank Road Company against Vaughan.
Judges: 
Reporter: New York Reports
Volume: 14
Pages: 546–556

Head Matter:
The Eastern Plank Road Company against Vaughan.
It is not a valid objection to the incorporation of a plank road company under the general law (Laws of 1847, ch. 210), that the road proposed to be constructed is less than five miles in length. Sections thirty-four and thirty-five of the act relate solely to the right of the companies to erect gates and collect tolls on their roads, and are not restrictions on the incorporation of companies under the act.
Nor are the articles of association void because they contain a provision authorizing the directors of the company to increase its capital stock without the consent of a majority in amount of the stockholders, as required by section forty of the act.
All acts of the directors, pursuant to such a provision, would he void; hut where the articles were in other respects in accordance with the law, the existence of such a clause does not prevent the association from becoming a corporation.
Section two of the act does not require that each subscriber should pay five . per cent upon his subscription for stock before the articles are filed; hut only that a sum equal to five per cent on the gross amount of the subscriptions should be paid. 1
A duly certified copy of the articles of association and affidavit required by the act to authorize them to he filed is prima facie evidence of the incorporation of the company. Other evidence that the payment of five per cent was made in good faith and in cash, prior to the filing of the articles, is not required, unless something to the contrary is proved.
Where a person signed an instrument stating that, for value received, 1 6 promised to pay two individuals named a specified sum, for the purpose of building a plank road between two points named, and authorized .them to transfer such subscription to a corporation thereafter to be formed for that purpose; and a corporation was afterwards organized to construct the road and the subscription transferred to it; in an action by the corporation to recover the amount, Held, That the defendant was liable.
Although the defendant did not subscribe the articles of association, and was not strictly a subscriber for stock, he was liable upon his promise.
The words, for value received, expressed in the instrument, are sufficient prima facie evidence of a consideration to uphold it.
And a transfer of the instrument hy the two individuals named in if to the corporation, gives the latter a right to maintain the action without proof of consideration for such transfer, other than that arising from the object of the instrument, and the equitable right of the corporation to the benefit of the defendant’s promise.
Action to recover an alleged subscription of $100 towards the construction of a plank road. The cause was tried in, February, 1853, before Mr. Justice C. L. Allen, without a jury. The counsel for the plaintiff offered in evidence a copy of articles of association, and affidavit annexed, duly certified by the secretary of state to be copies of the originals on file in his office, whereby the plaintiff was organized to construct a plank road “from the village of Whitehall to the brick meeting-house near the town of Hampton, Washington county, being a distance of about four miles,” with a capital stock of $10,000, divided into shares of $100 each. The articles provided that the capital stock might be increased in such manner and at such times as the directors might from time to time determine. The articles were dated in September, 1850; and the affidavit annexed was by three of the directors, by which each deposed “ that the capital stock required by the first section of an act entitled an act to provide for the incorporation of companies to construct plank and turnpike roads, passed May 7, 1847, has been subscribed, and that five per cent on the amount has been actually paid in.” The affidavit was sworn to in November, 1850. The number of shares of stock subscribed to these articles was forty-eight. The counsel for the defendant objected to the reception of the articles in evidence, on the grounds, among others, that they were incompetent and immaterial to prove the incorporation of the plaintiff; that the proposed road was only four miles in length, when, by law, a company could not be organized under the act to construct a road less than five miles in length; that the articles were void, and the proposed corporation illegal, because the directors were authorized by the articles to increase the capital stock, which, by law, could only be done by the stockholders; that there was no evidence that the five per cent required by the second section of the act to be paid before the filing of the articles, was paid in cash before they were filed; and that it was not proved that at least $500 for each mile of the proposed road were subscribed in good faith before the articles were filed. The court overruled each of said objections, and the articles and affidavit were read in evidence; the defendant’s counsel excepting. The counsel for the plaintiff read in evidence a'n instrument in the following terms:
“ We, the subscribers, for valué received, promise to pay John E. Boyd and Isaac Wood one hundred dollars for each share by us subscribed and set opposite our respective names, for the purpose of building a plank road from the Whitehall and Granville turnpike to the road running north and south past the Methodist church, and that said Boyd and Wood shall have the right, and we hereby authorize them to transfer our subscriptions to a company hereafter to be formed for the purpose of building said road.
“ January 7, 1850.”
To this instrument the defendant signed his name, “T. T. Vaughan, one share, $100and it was signed by a number of other persons. The counsel for the defendant objected and excepted to the ruling allowing this instrument to be read in evidence. The counsel for the plaintiff proved that Boyd and Wood, after its organization, transferred the defendant’s subscription to the plaintiff. It was objected, by the defendant’s counsel, that there was no consideration for this transfer. The objection was overruled, and there was an exception. The secretary and treasurer of the plaintiff testified that five per cent on the amount of the stock of the plaintiff was actually paid in before the articles were filed,, although each of the subscribers had not then paid five per cent on the amount subscribed by him. It appeared that the plaintiff, soon after the filing of the articles, constructed the proposed road, and that the defendant had been required to and declined to pay the amount subscribed by him. At the close of the plaintiff’s evidence, the counsel for the defendant moved that the plaintiff be nonsuited on various grounds. The questions raised and considered in this court are stated in the opinion of the court. The motion was denied and the defendant’s counsel excepted. Additional evidence was given by each party. The justice found the following facts:
That on or about the 30th day of November, 1850, the above named plaintiff was organized and incorporated by the name and style of the Eastern Plank Eoad Company, under the act entitled “An act to provide for the incorporation of companies to construct plank roads and turnpike roads,” passed May 7, 1847, and the several acts amending the same, and the acts in relation to plank roads subsequently passed; that,, before the said incorporation, and on the 7th day of January, 3 850, it was proposed, by divers persons, to construct a plank road from the Whitehall and Granville turnpike to the road running north and south past the Methodist church, and thereupon the defendant, with other persons, in consideration of value received by each of them, and a membership of the company to be formed, undertook and promised in writing to pay John II. Boyd and Isaac Wood $100 for each share by them subscribed and set opposite their respective names, for the purpose of building a plank road from the Whitehall and Granville turnpike to the road running north and south past the Methodist church, and the said defendant, in and by said writing, authorized said Boyd and Wood to transfer his said subscription to a company thereafter to be formed for the purpose of building said road ; that the defendant subscribed his name and set opposite thereof, “ one share, $100 that afterwards, and on or about the 30th day of November, 1S50, the requisite number of persons having complied with the provisions of the act, were formed into a corporation, and the said John H. Boyd and Isaac Wood afterwards, on the same day, assigned and transferred said subscription, in writing, and all their right to receive the money thereon, to the plaintiff, who from that time became, and still is, the owner of and hold the same; that the plaintiff afterwards procured the lands and highways mentioned in the complaint, and the right to use and take and use the same to construct said road, and have constructed the same; that there was a regular election of directors of said company, and that the directors of said company required payment of the sums subscribed in the capital stock of said road company, in the manner stated in said complaint, and gave notice to the defendant of the payments required, and demanded of him payment thereof, after all installments became due and payable, and that he wholly neglected and refused to make payment of said installments or any part thereof; that no notice of the time or place of making such payments was published in a newspaper or sent to defendant by mail.
The justice ruled and decided that the plaintiff was entitled to recover the $100 and interest thereon from the time payment was required. Judgment was accordingly entered, which, on appeal, was affirmed at a general term of the court in the fourth district. (20 Barb., 155.) The defendant appealed to this court. The cause was submitted on printed points by
J. Gibson, for the appellant.
Potter and Tanner, for the respondent.

Opinion:
Selden. J.
Several objections are made to the proceedings by which the plaintiffs claim to have become incorporated. The first is, that it appears from the articles of association that the contemplated road was to be only four miles in length, and that as the plank road act virtually prohibits the construction of any road less than five miles long, an incorporation to build a shorter road cannot be valid.
. This objection is founded upon a misinterpretation of § 34 and 35 of the act. Those sections relate solely to the right of the company to erect toll gates and levy tolls upon the traveling public, but do not operate to prevent plank road companies from organizing to build or actually building roads of any length whatever. If they erect gates, then as between them and the persons called upon to pay tolls, they must show a compliance with these sections, or they may be proceeded against in behalf of the public for a violation of their charters; but their corporate rights are not otherwise affected.
A second objection is, that the articles of association contain a provision not authorized by the act, viz., that the capital stock may be increased by the directors alone, without consulting the stockholders. The want of authority for this provision cannot affect the validity of the incorporation. The articles must contain the statements affirmatively required by the 1st section of the act, because those statements constitute conditions precedent to the right of the company to become incorporated. If unauthorized provisions are added, all acts done pursuant to such provisions will be void; but until the company is .proceeded against for an abuse of its franchises, its rights as a corporation will not be affected by such unauthorized provisions.
It is further objected that it was not shown upon the trial that stock to the amount, of $500 per mile had been in good faith subscribed, or that five per cent upon the amount subscribed had been actually and in good faith paid, prior to the incorporation; and hence that the plaintiffs were never duly incorporated.
The plaintiffs produced a copy, duly certified, of their articles of association, and of the affidavit of the directors' indorsed thereon. It is not claimed but that these documents contain all that is in terms required to be inserted in them by the provisions of the 1st and 2d sections of the act; and § 3 expressly provides that a copy of the articles and affidavit duly authenticated, shall be " presumptive evidence of the incorporation " of the company.
It may be said that this section only makes these papers evidence when filed in pursuance of the act; and that as § 2 prohibits their being filed until five per cent on the amount subscribed has been actually and in good faith paid, it was incumbent on the plaintiffs to prove such payment before the certified copy could be made evidence at all.
If such proof was necessary, which I doubt, it was actually given. The criticism of the defendant's counsel upon the testimony of the secretary of the company is founded upon an erroneous construction of the act, which does not require that each subscriber should pay five percent upon his subscription, but only that five per cent " on the amount of the stock subscribed " should be actually paid. The object of this provision plainly was to prevent the formation of corporations and cumbering the records of the state, without some evidence that the contemplated enterprise is to be really prosecuted; and it was evidently supposed that the payment of five per cent upon the gross amount of the subscriptions, would afford a reasonable assurance to that effect.
The good faith of the subscriptions is not made a condition precedent to the filing of the articles of association, and hence it could not have been necessary for the plaintiff to offer, in the outset, any evidence on that subject; ar.d as to the good faith of the payments, all that could be shown in the first instance by the plaintiffs, was the actual payment; its good faith must be presumed until something was shown to impeach it. A proper foundation was laid, therefore, for the. introduction of the certified copy of the articles and affidavit, and when introduced, by the express provisions of the act, the incorporation of the company was established, until overthrown by some opposing evidence.
The next question is, as to the validity of the defendant's subscription. It seems to have been supposed by the supreme court, that if the subscription is obligatory upon the defendant at all, it is to be regarded as made to the capital stock of the company, under, and subject to the provisions of the articles of association. It is however impossible, I think, to consider the defendant as a subscriber to the articles of association, or as a member of the company. These articles purport to embrace the terms and conditions of an agreement between those who have become parties to them. No >ne can be bound by this agreement, except those who have in some way assented to its terms. An individual might make himself a party to the articles of association, either by subscribing them, or, to some extent, by accepting stock issued pursuant to their provisions. The defendant has done neither. The defendant's name has never been placed among the subscribers to the articles, either by himself or by any other person for him. There is no proof that he ever saw or had any knowledge of their contents. No stock has ever been issued to him. It is difficult to see, therefore, how he • can be considered as having made himself a party to the articles, or bound himself by their conditions. The paper actually subscribed by the-defendant does not show an intent on his part to become bound by any conditions which the subscribers to the stock of the company might thereafter adopt. To give it that effect, its terms, to say the least, should be clear and unequivocal; especially, as ^ 44 of the plank road act makes every stockholder personally liable for the debts of the company, to an amount equal to the amount of stock subscribed or held by him.
A promise to pay one hundred dollars, " for the purpose of building" a certain plank road, is not necessarily an engagement to take stock in the road, subject to conditions thereafter to be agreed upon by the stockholders, and an authority "to transfer" such promise to a company to be afterwards formed, is very different from a power of attorney to enter into a contract to become a member of the company.' There is nothing in the subscription, signed by the defendant, which can with propriety be construed to confer such a power. It follows that, if the defendant is liable at all, his obligation does not arise from, and is in no way subject to the conditions of the articles of association. The only remaining questions to be considered, therefore, are, whether the promise of the defendant is binding, as an independent engagement, to pay a certain sum upon a sufficient consideration, and whether it has been so transferred to the plaintiffs, as to invest them with a right to Vue upon it.
Were it not for the words " for value received " contained in the paper subscribed by the defendant', there would, I think, be great difficulty in holding that there was any consideration for the defendant's promise. 1 see nothing in the language of the subscription which can be fairly construed to amount to a request that the payees, Boyd and Wood, shall do any act or perform any service in respect to the formation of a company for the purpose of building the road; and the judge has not found, nor do I think the evidence shows, that other persons have assumed liabilities or incurred expense upon the faith of the defendant's subscription under such circumstances as would estop him from setting up a want of consideration- But the promise contained in the subscription purports to be made " for value received," and it has frequently been held that those words used in any written contract for the payment of money, are sufficient prima facie to establish a consideration. The burden rested, therefore, upon the defendant to show that no consideration had been received, and this bp failed to do. The judge before whom the cause was tried has found that " the defendant, with other persons, in con sideration of value received by each of them," undertook and promised, &c. This is conclusive upon the question of consideration. It is equivalent to a direct finding that the testimony given to rebut the prima facie evidence afforded by the words "for value received " wras insufficient for that purpose, and this court has no authority to correct this finding if erroneous. That the promise, therefore, is to be regarded as obligatory, so far as a consideration is concerned, is clear, and the only inquiry is whether the plaintiffs have acquired a right to sue upon it.
The only objection made to the transfer of the promise to the plaintiffs which is of any weight, is that which relates to a consideration. A parol transfer would have been sufficient, and the bare possession of the paper by the plaintiffs, taken in connection with its contents, would probably have afforded prima facie evidence of a valid transfer. But if not, the entry upon the plaintiffs' books, signed by the payees named in the subscription, furnishes all the additional evidence which could be required, and a consideration, if any was necessary, would probably be inferred from these facts. But was proof of a consideration necessary ?
It is declared upon the face of the subscription that it is made for the purpose of building a certain plank road; and the payees are expressly authorized to transfer the subscription to'a company thereafter to be formed for the purpose of building said road. What interest, then, had the payees, Boyd and Wood, in the subscription ? Certainly none, except that of mere naked trustees. The whole beneficial interest was in the plaintiffs, without any assignment. It may be doubted whether even a formal transfer was necessary to enable them to sue upon it. Where a written contract is made with one party, but is declared upon its face to be made for the benefit of a third party, such third party may bring a suit in his own name upon it. This may perhaps, with propriety, be regarded as such a case. But if not, I think where a contract.in writing, made nominally with one party but avowedly for the benefit of another, provides upon its face for being transferred to the party for whose sole benefit it was made, and who alone has any beneficial interest in it, no consideration for the formal transfer, other than the equitable right' of the transferee and the moral obligation to make it, need be shown.
The defendant is therefore liable, not as a subscriber to the capital stock of the company, but upon bis independent promise, made upon a sufficient consideration. There can be no doubt of the corporate power of the company to receive, and enforce such a promise, it being made for the express purpose of enabling the company to accomplish the object of its incorporation.
The judgment of the supreme court must he affirmed.
Judgment affirmed,