Court Opinion

ID: 5437954
Source: CourtListenerOpinion
Date Created: 2022-01-08 17:57:15.610368+00
Date Added: 2024-06-11T08:31:54.531545
License: Public Domain

By the Court, Crockett, J.:
Waiving the question whether this proceeding was properly instituted against the defendant by its corporate name, or should have been brought against the individuals assuming to exercise corporate powers, we proceed to inquire whether, on the facts established at the trial, the defendant was duly incorporated and is entitled to exercise corporate powers.
Its authority to act as a corporation is assailed on the ground, first, that the affidavit annexed to the certificate of incorporation omits to state that ten per cent of the amount subscribed had been paid in cash “ingood faith;” second, that the ten per cent was not, in fact, paid in cash, but in checks which were never presented or paid, and which were subsequently returned to the drawers; third, that the company did not, within one year after filing its certificate of incorporation, commence to transact business as a corporation.
We shall notice these points in their order. Section two of the Act of May 20th, 1861 (Stats. 1861, p. 607), provides that there shall be annexed to the articles of incorporation an affidavit “ setting forth in substance that said amount of stock has been subscribed, and that ten per cent in cash thereon has been actually and in good faith paid in as aforesaid.”
In this case the affidavit conforms strictly to the requirements of the statute, in stating that the ten per cent “in cash has been actually paid in,” but omits the words “in good faith.”
In the body of the certificate, however, it is stated that *313more than ten per cent of the amount subscribed “ has been actually, in good faith, paid thereon,” in cash; and the certificate, together with the affidavit, are in all respects regular, except, as already stated, the latter omits the words “in good faith.” But we think this was a substantial compliance with the statute, which is all that was necessary.
A literal compliance is never required in such cases. (Mokelumne Hill C. & M. Co. v. Woodbury, 14 Cal. 424; Ex Parte Spring Valley Water Co., 17 id. 136; Spring Valley Water Co. v. San Francisco, 22 id. 440; Thompson v. The People, 23 Wend. 537.)
On the second point the case shows that the ten per cent was paid by bank checks drawn by the subscribers to the stock, on banks located in the City of Stockton, and were payable in presentí, and that before accepting the checks the Treasurer of the company inquired at the several banks whether they would be paid on presentation, and was assured "by the bank officers that they would be; and on the faith of this assurance he accepted the checks as cash, and receipted for the amount represented by them as so much cash. It further appears that the checks would have been paid on presentation at any time whilst they remained in the hands of the Treasurer; but as the company had no immediate use for the money, the Treasurer deemed it unnecessary to demand payment for the time being, and shortly thereafter the drawers of the several checks paid to him in cash the amount represented by the checks, whereupon the latter were returned to the respective drawers.
It is clear from the testimony that these transactions were made in perfect good faith, and with no intention to evade the law, unless it may be in the cases of Bours and Bostwiclc, to be hereafter noticed. Assuming that the checks were delivered and accepted in good faith as cash, with the *314understanding that they might and would be immediately presented for payment, and assuming further, as we are authorized to do from the proofs, that they were drawn against a sufficient fund, and would have been paid on presentation, and were, in fact, afterwards paid by the drawers, the question arises, whether this was a payment in cask, within the true intent of the first section of the Act of May 20th, 1861, providing for the incorporation of railroad companies.
In People v. Chambers, 42 Cal. 201, the whole amount to be paid was eleven thousand dollars, of which ten thousand dollars was paid by a check drawn by a person who had no funds in bank to his credit, and the check was never presented for payment, but many months afterwards was surrendered to the drawer On a settlement of accounts between him and the railroad, company. We held that this was not a payment “in cash ” within the purview of the statute. But we expressly reserved our opinion on the question whether “ a payment of. the ten per cent, in good faith, by checks payable in presentí, and drawn against a sufficient sum on deposit to meet them, would be a compliance with this requirement of the statute, and particularly if the checks were presented and paid within a reasonable time.”
We are now called upon to decide this question, and have no doubt that under the facts disclosed by this record the N payment was sufficient. It was a substantial compliance with the statute, and practically was as much a payment “in cash ” as though it had been paid in coin. The money was placed completely within the power and under the control of the Treasurer, who could at any moment have converted the checks into cash by presenting them for payment. And the good faith of the transaction is established, not only by the direct testimony, but by the fact that the cash was in fact paid shortly after the checks were delivered, and as soon as the money was needed.
*315The statute should receive a reasonable construction, and whilst its provisions ought not to be allowed to be evaded, as was attempted to be done in People v. Chambers, nevertheless a substantial compliance with them will fulfill the intention of the Legislature.
But it is claimed for the plaintiffs that the checks given by Bours and Bostwick, two of the subscribers to the stock, were not intended to be presented or paid; and that therefore their delivery to the Treasurer was not in good faith. There is evidence tending to show that when these checks were about to be delivered, one Jackson stated to Bours and Bostwick that the checks would not be presented for payment, and Bours testifies that he would not have made and delivered his check, except for this understanding with Jackson, whom he styles the President of the railroad company. But, as the checks were delivered before the filing of the certificate of incorporation, it is not very apparent how Jackson could have been the President of a corporation not then organized. But however this may be, the Treasurer testifies that he was not a party to and had no knowledge of such an understanding, and would not have receipted for the checks as cash, except under the belief that he was to be at liberty to present them immediately for payment. It does not appear that Jackson had any authority to make such an agreement with Bours and Bostwick, and as the checks on their face were payable in presentí, and the Treasurer accepted and receipted for them as cash, without any understanding on his part that they were not to be presented for payment, it is clear that the transaction was not tainted with bad faith so far as the corporation was concerned.
The only remaining point is whether the company commenced to transact the corporate business within one year after the filing of the certificate of incorporation. The proof leaves no room for doubt on this point. Within about six months the company purchased railroad iron of the value of *316twenty-two thousand dollars, and within twelve months had expended over thirty thousand dollars in the prosecution of its enterprise. Up to the commencement of this action it had expended seven hundred thousand dollars towards the construction and equipment of its road. So far as appears from this record, the corporation was duly organized, and is entitled to exercise corporate powers.
Judgment reversed, and cause remanded for a new trial.
Mr. Justice Rhodes, concurring specially:
I concur in the judgment.