Case Name: The Morris Canal and Banking Company versus Seixas Nathan
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1829-08
Citations: 2 Hall 239
Docket Number: 
Parties: The Morris Canal and Banking Company versus Seixas Nathan.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 2
Pages: 239–248

Head Matter:
The Morris Canal and Banking Company versus Seixas Nathan.
The defendant signed a subscription for a certain number of shares in the stock of the Morris Canal and Banking Company; which subscription was upon condition, that 3000 shares of the stock, then held by the Company itself, should be subscribed for within 90 days from its date ; and this fact was to be certified by at least two of the Directors, and by the Cashier of said Company. The President, Cashier and two of the Directors signed the requisite certificate, and the defendant paid the first instalment on his stock. Refusing to pay the subsequent instalments, an action was brought against him upon his subscription; and at the trial he offered to show that the 3000 shares of stock, mentioned in the agreement, had never been subscribed, as stated in the certificate, and that the persons, who signed it, did sofraudulcntly,knowing it to be untrue.
This evidence was rejected by the presiding judge, aud the court granted a new trial, upon the ground that the testimony thus offered was admissible, the certificate itself, if false and fraudulent, being a mere nullity.
Assumpsit to recover of the defendant an amount due from him, upon a certain subscription for stock in the Morris Canal and Banking Company.
The declaration contained two counts, upon an agreement in writing, of the following tenor, viz :
“ The undersigned, with a view to fill up in part the shares of “s,tock in the-Morris Canal and Banking Company, which has not “ been effectually subscribed for, and thereby enable the directors “ to proceed in the completion of the canal, do hereby mutually “ agree, and severally bind ourselves to the Morris Canal and “ Banking Company, that we will severally take and complete “ the payments on, and we do hereby accordingly severally sub- “ scribe the number of shares towards the capital stock of the said “ Company, affixed to our respective names, in addition to the “ shares of the said stock, which any of us may now hold, subject “ nevertheless to the following conditions, to wit:
“ First. At least 3000 shares of the stock now held by the com- “ pany, shall be bom fide subscribed, within 90 days from this date which fact shall be certified by at least two of the directors and cashier of the said company.
“ Second. Payments of our several subscriptions hereto shall not be required at shorter periods than the following, that is to “say: ten per cent, in three days after the said 3000 shares shall “ have been subscribed and certified; ten per cent at the expiration of each successive quarter during the year 1837; fifteen “ per cent, on the first day of April, 1838; the like sum on the first “day of July, 1838; and the remaining twenty per cent, on the “ first day of October, 1838.
“ Third. Any subscriber anticipating any of the said payments, “ shall be entitled to a discount on such anticipations, at the rate “ of six per centum per annum. September 31, 1836. Shares “ $100 each.”
The cause was tried before the Chief Justice. At the trial, the plaintiffs produced an exemplified copy of their charter, by which it appeared, that they were duly incorporated by the Legislature of the state of New Jersey on the 31st of December, 1834. They also produced the written agreement on which their action was brought, and proved, that it was signed by the defendant, among others, and that he was a subscriber for thirty shares of the stock of the company. The plaintiffs then produced and read in evidence, (after duly proving the same,) a certificate in the following words, viz.:
“ We certify that 3000 shares of the stock of the Morris Canal “ and Banking Company, which was held by the said company “ on the 31st day of September last, have since that time been “ bona fide subscribed. That pursuant to the terms of the new “ subscription, ten per cent, on the said shares became due in three “ days. The subscribers are required to make payment thereof “ to the cashier, at the office of the Canal Company, at No. 3 0 Wall-street, on or before Saturday next, the 18th instant. Dated “ the 14th day of November, 1836.”
(Signed) Cadwalader D. Golden, President
Robert Gilchrist, Cashier.
Henry M‘Farlane, ) Directors. Lambert Suydam,
It was then shown, that the defendant, having paid the first instalment under the said agreement, had received a certificate thereon, but had refused to pay any of the subsequent instalments, and that the company had continued to labor towards the completion of the canal at all times after the agreement was executed.
The plaintiffs having resled their cause upon this evidence, the defendant moved for a non-suit: first,.because no sufficient evidence had been produced to show that the 3000 shares of stock, mentioned in the agreement, had been subscribed for, or that the plaintiffs had agreed to carry on the works of the canal. Secondly, because the agreement was not authorized by the charter.
[The second section of theact, incorporating the plaintiffs, provided that the commissioners for receiving subscriptions to their stock, should open books for that purpose in the State of New Jersey, at such places as they migh t“ designate by public advertisements, to “ be previously inserted for at least three weeks in a public news- “ paper, printed in Morristown, Newark, and the city of New-York, “ respectively; and should continue the same open, until the said “ capital stock shall be subscribed for, or at their discretion close “ the same, after they should have remained open two days, and “ again open the same at some other time or times, place or places, “ giving public notice thereof, as aforesaid: and that the sum of ten “per ct. upon each share so subscribed for, should be‘paid by each “ subscriber at the time of the subscription,” to be paid over to the directors, who were authorized “ to call upon the said subscribers “ for the payment of further instalments, in such sum or sums, at “ such time or times, and under such forfeiture or forfeitures,- as they might deem expedient, until the whole amount of the said “ shares so subscribed, should have been fully paid.” By the seventh section of the act it was further provided, that if at any time thereafter, the President and Directors should deem it expedient td increase their capital stock, for the canal, it should be lawful for them to do so, and to obtain subscriptions for the same ; and all stockholders of such additional shares, and their assigns, were thenceforward incorporated into the Company, provided that a preference of subscription was given to actual stockholders, in proportion to the shares they respectively held.]
Thirdly. The only consequence of the non-payment of the instalments by the defendant, was the forfeiture of the shares of stock subscribed for by. him, but he was not personally liable for the payment of such instalments.
The motion for a non-suit was over ruled by the Chief Justice; and an exception having been taken to his opinion, the defendant then offered to .show, I. that the 3000 shares of stock, mentioned in the agreement, had never been subscribed for at all; II. that the said shares had never been subscribed for as stated in said certificate, and that the persons, who subscribed the certificate, did so, knowing it to be untrue.
The presiding Judge rejected this evidence, as inadmissible, and charged the jury, that they ought, under the facts of the case, to find a verdict for the plaintiffs. The jury accordingly returned a verdict for $927.20 in their favor.
The counsel for the defendant having excepted to the decision of the Judge upon the points of evidence, and also to his charge, now moved for a new trial, and Mr. R. Sedgwick, in support of the motion, contended,
I. That the plaintiffs ought to have proved the consideration of the contract, declared on, as laid in the declaration that; being part of the contract. No consideration whatever was proved, except such as might be inferred from the contract itself, and this objection, although applicable to form, is fatal to the right of recovery in the present action.
II. The fair construction of the contract proved, is, that the subscribers were to become stockholders by the agreement itself, and by the payment of their subscriptions, and not by means of any shares of stock then in being, and if so, then the , , ,, . , was contrary to the charter.
The charter points out the mode of subscribing,-—and this, being an original subscription, not according to the directions of the statute, is void. . The defendant was to subscribe for stock, not purchase it, and the price was fixed by law. The sum specified in the agreement is identically the same with that mentioned in the charter, and this coincidence proves, that this was a subscription and not a purchase.
III. The declaration is founded upon an original subscription, and it must be supported by proof. The subscription was not for an increase of stock, but for the original stock, and the plaintiffs must provetheir case as laid in th ir declaration.
IV. If the stock in question was previously in existence, then the contract was void, for the Company had no authority to sell stock. They have no powers except such as are granted by their charter, and the incidental powers, which naturally flow from those, which are delegated. They were not authorized to act as brokers of their own stock, either in buying or selling, and their power to make this agreement, cannot be shown from the charter.
V. The evidence offered to show, that the 3000 shares were never subscribed for, according to the conditions of the agreement, ought to have been admitted; so ought that, which was offered to impeach the fairness of the certificate, signed by the President and two of the Directors. If that was fraudulent, then there was no evidence to show, that the condition precedent had been complied with. The subscription itself was a conditional one, and the defendant was not bound, unless the plaintiffs could show, that the 3000 shares of stock held by the Company, had been subscribed for in good faith, within 90 days from the date of the agreement The fact of such subscription was to be proved by the certificate, and if that was false and fraudulent, then there was no proof whatever, to show, that the 3000 shares had been taken up. For this reason, if for no other, there should be a new trial.
Mr. D. B. Ogden and Mr. Slosson, contra, for the plaintiffs.
I. At the time the agreement under consideration was made, the Morris Canal Company was in existence, and its operations were begun. They had commenced a canal, and there was an implied obligation to complete it. The very preamble to the agreement shows, the reasons for the new subscription, and the propriety of it. The stock of the Company had all been taken up originally, but a part of it was not effectually subscribed for; and to enable the company to complete what they had in good faith begun, the new subscription was opened. Its sole object was, to take up the shares “ not effectually subscribed for” by an additional subscription. The Company had accidentally become possessed of some of the shares of their own stock; they were personal property, and might be disposed of for the benefit of all the stockholders. The defendant knowing all the facts of the case, subscribed for a certain number of these shares, and is bound to comply with his contract. He cannot question the correctness of a proceeding to which he was a party, unless he can impute fraud to the plaintiffs. There was a good consideration for his promise, arising out of his rights as a subscriber and stockholder, and he cannot now dispute the validity pf his own contract.
II. The defendant cannot he permitted to say that the three thousand shares were not subscribed for, because he has himself paid the first instalment on his own subscription. Rut if he could, the plaintiffs have still complied with the condition imposed upon them. The three thousand shares were to be subscribed for, it is true, but what was the proof to be, which was to show that fact ? The certificate was the proof, and it was to be conclusive. The parties to the contract.agreed that they would abide by that proof, and they are concluded by it. [Dorr v. The Pacif. Ins. Co. 7 Wheat. R. 581. 20 John. R. 334.]
Mr. Ogden Hoffman, in reply.
I. By their charter, the Company could not accept any'subscriptions, except according to its provisions. If this is to be considered as a new subscription, it is void, because the requisitions of the charter have not been complied with. An ineffectual subscription is no subscription, at all, and that cannot be considered as an effectual subscription which is contrary to the charter. The declaration counts upon a new subscription. No other can be proved under it; and if a new subscription be proved, it can have no binding force upon the defendant, because it is not authorized by the charter.
II. This agreement was a conditional one, and the plaintiffs, before they can recover, must first show, that the stipulated number of shares has actually been taken up by subscription. In the second place, they must produce the certificate. The defendant is not bound to pay his money upon the production of the certificate alone, but the plaintiffs must show that the three thousand shares have been taken up. There are two conditions precedent to his liability, and both must be complied with. The plaintiffs to show that the stock was subscribed for, produce a certificate which the defendant says is false and fraudulent. He offered to prove it, and his testimony was rejected. This was tantamount to a decision, that the defendant was liable upon the production of the certificate, even if it were forged. A fraudulent certificate has no more validity than a forged one; it proves nothing, and the defendant had a right to impeach it. It does not follow, because the defendant has, under a misapprehension, paid ten per cent, that therefore he is bound to pay ninety per cent, more, upon a void contract. The plaintiffs must prove that the three thousand shares were taken up by an effectual subscription; and they must show this by proof, somewhat better than that furnished by a false and fraudulent certificate.
The Chief Justice, in delivering the opinion of the Court, observed, that the regularity of the proceedings on the part of the Directors, could not be questioned by the’defendant, nor could he now assert that the requisite number of shares was not subscribed for before he was called upon for the payment of his subscription. By his own act of subscribing, he admitted the correctness and regularity of all the proceedings in relation to the subscription ; and he could not dispute the authority, on the part of the Company, to make the contract, having himself entered into an agreement with them, whereby their powers were admitted. [All Saints’ Church v. Lovett, 1 Hall’s R. p. 191.]
By the terms of the agreement, the three thousand shares of stock held by the Company, were to be taken up by subscription within ninety days from its date; which fact was to be certified in a particular manner. The plaintiffs produced a certificate, signed in the manner required, and it -was, prima facie, sufficient evidence of the fact. But the defendant offered to show that the three thousand shares had never been subscribed for at all. This evidence was clearly inadmissible, because he had already admitted the fact by his own acts, in subscribing and paying his first instalment.
He then offered to prove a fraud on the part of the Directors in this; that they knew, at the time the certificate was granted, that it asserted a fact which did not exist. On the trial, I did not understand the offer as it is now presented, and it may be expedient to grant a new trial, in order to let in the proof of fraud, if any such can be produced. If, in point of fact, the three thousand shares were never subscribed for; if the certificate was false and fraudulent, and the defendant was ignorant of these fact's, he would be absolved from his contract; and for this reason, a new trial should be granted.

Opinion:
Oakley J.
The plaintiffs are an incorporated Company in the State of New-Jersey. On the 21st of September, 1826, the defendant signed a subscription for stock in the said Company, which subscription was upon condition, as expressed on its face, that three thousand shares of the stock, then held by the Company,' should be bona fide subscribed for, within ninety days from its date; which fact should be certified, by at least two Directors, and the Cashier of the Company.
On the 14th clay of November, 1826, the President and Cashier, with two Directors of the Company, signed a certificate, setting forth, that three thousand shares of stock, held by the Company, at the date of the subscription, had been bona fide subscribed for. The defendant paid the first instalment on the stock, which, according to the terms of the subscription, fell due in three days after the giving of the certificate, but refusing to pay the instalments, subsequently falling due, this action was brought.
On the trial, the defendant offered to prove that the three thousand shares of stock, mentioned in the subscription had never been subscribed for, as stated in the certificate, and that the persons who subscribed the said certificate, did so, knowing it to be untrue. This evidence was rejected by the Judge, and the jury, under his direction, found a verdict for the plaintiffs.
It is contended by the defendant, that the certificate in question, is not conclusive evidence of the fact of the bona fide subscription of the three thousand shares of stock, according to the true construction of the agreement signed by him. It appears to me, that the position assumed by him is the true one. The provision, that the fact of the subscription of three thousand shares should be certified by two Directors of the Company, was, I apprehend, inserted in the agreement for the benefit of the subscribers, that they might have some definite information of the fulfilment of the condition, on which they were to become liable. The subscribers might refuse to pay until the certificate was given; but I think it would be a violent construction of the instrument, to hold that they were bound to pay, in that event, though the certificate might be shown to be false.
If, however, this general position should be doubted, and the certificate is to be considered as conclusive evidence of the fact stated in it, yet I think it cannot be questioned, that the defendant should have been suffered to show that it was falsely and fraudulently made. A fraudulent certificate was a mere nullity. If the defendant is to be considered as stipulating that the act of the plaintiffs, or their agents, should be conclusive on him, he had certainly a right to require that it should be done in good faith. The plaintiffs cannot be permitted to acquire any rights by their own fraudulent conduct.
it was contended on the argument, that the defendant, having paid the first instalment due, and accepted his certificate of stock from the Company, is now too late to object, that the condition of his subscription was not performed. I do not think so. If he made the first payment, relying that the entire subscription had been completed, according to the terms of the agreement, I see no good reason why he may not now inquire into the truth of that fact; and especially why he may not aver and prove, if he has the power to do so, that the plaintiffs had been guilty of a fraud.
New trial granted.
[J. A. Johnson, Atty. for the plffs. D. D. Field, Atty. for the deft.]