Court Opinion

ID: 5549708
Source: CourtListenerOpinion
Date Created: 2022-01-10 21:31:25.053185+00
Date Added: 2024-06-11T08:35:02.095775
License: Public Domain

The Chancellor.
The first objection made by the defendants to the complainants’ right to a decree of "foreclosure, in this case, is that the bond and mortgage are void, because the Globe Fire Insurance Company, to whom they were given, was not a legally constituted corporation; inasmuch as it did not organize and commence its business within one year from "the date of its incorporation. The seventh section of the title of the revised statutes relative to the general powers, privileges and liabilities of corporations, (1. R. /S'. 600,) declares that if any corporation created by the legislature shall not organize and commence the transaction of its business within one >cvfrom the dale of its incorporation, its corporate" powers shall cease. The date of the incorporation, under this provision of the revised statutes, refers to the time when the act creating the corporation takes effect as a law; which, in this case, was on the twentieth day after the act of incorporation was -op proved by the governor. (1 M. /S'. 157,- § 12.) And if the year for the commencement of the business of this corporation is to be limited by the date of its original incorporation, and without any extension," its powers ceased on the 22d of May, 1838; o's its stock was not all subscribed for and taken until ten months after that time. I think, however, the lair construction of the act of the 14th of April, 1838, amending the original act of ■incorporation, is that it extended the time for the organization and for the commencement of business; although the act does not in terms extend the time for the commencement of the business of the company. That act took effect as" a law pn the 4th of May, 1838, only eighteen" days before the expiration of the year from the time of the original incorporation of the company. It continued the directors named in the original act of incorporation in office one year from the time when their offices were to expire by such original act. It autnorized the subscription books for stock to be again opened, from time to *238time, upon one week’s notice on each occasion. It is wholly improbable, therefore, that the legislature expected or intended that the company should complete its organization, and commence its business, within the short space of eighteen days. And the fair construction of the amendatory act is that the company was to have one year from the time when ,that act took effect as a law, to complete the organization of the company and. commence its business.
If the last $160,000 of the stock of the company which was subscribed for by the Grahams and others, was subscribed for in good faith,' with an intention on the part of the directors of the company that the subscribers should keep it and pay for it, unless it should be taken olf their hands and paid for or fairly secured by' others, the company was duly organized, within the time allowed by law for that purpose. And upon the evidence in this case, the vice chancellor came to a correct conclusion that the subscription for this $160,000 of the stock of the company was legal. The corporation, therefore, was in existence and competent to take this-bond and mortgage when it was delivered to the company in payment or security for the seventy shares of the stock of the company. And the bond and mortgage were valid securities, in the hands of the corporation, for the whole-amount of $7000, for which they were given to and accepted by the company; and as such, they formed a part of its capital stock.
Although the securities given for the $160,000, subscribed by the Grahams and' others, were a part of the capital of the company,. and. could not be withdrawn so as to reduce the capital, without authority of the legislature, or by a proceeding under the article of the revised statutes relative to the' voluntary, dissolution of incorporations, the directors of the company had full power to allow other good and sufficient securities to be taken ás a substitute for that part of the capital stock" of the company.
The objection-that the assignment to the complainants was without' a previous resolution of the board of directors, authorizing it, would probably be well taken if that fact had been *239properly brought before the court. But the proof, by the subscribing witness to the assignment, before the commissioner, that the seal was affixed to such assignment by authority of the corporation, appeal's to be prima facie evidence that the assignment had been authorized by the board of directors. For in no other way could the corporation authorize an assignment of its property, or effects, to an amount exceeding one thousand dollars, out of the usual course of its business. As the secretary was examined as a witness in the cause, it was incumbent upon the defendants, if they wished to rebut this prima facie evidence of authority to make the assignment, to inquire into the fact; and not to surprise the other party with an objection of this kind after the proofs in the cause had been closed. The vice chancellor is under a mistake in supposing that the assignment was executed by the secretary, as well as the president of the company. Upon its face, the assignment states that the corporation has caused its seal to be affixed, and the assignment to be signed, by the president of the company; and the execution of the instrument to be attested by the secretary. The latter, therefore, is not the officer of the company who executed the assignment, by affixing the seal to the same; nor does he, as the vice chancellor supposed in his opinion, swear before the commissioner that he affixed the seal to the assignment. He is merely an attesting witness to the deed, who proves its execution before the proper officer; to authorize it to be recorded, and to be given in evidence without further proof, under the provisions of the revised statutes on that subject. The fact that the corporate seal was properly affixed to an instrument which required an express authorization for that purpose, and where the mere circumstance that the person affixing it was intrusted with the custody of its seal was not even prima facie evidence of his right to affix it to the particular instrument in question, was a fact which it was necessary to establish before the officer who took the proof of the execution of such instrument, to authorize it to be recorded. For, without such proof, the mere evidence that the seal was affixed by an officer of the corporation intrusted with the custody of its seal, would not be *240sufficient 10 establish "the due execution of this particular instrament. What the secretary of the company, who witnessed the, execution of the instrument, testified to on the subject* before the commissioner, appears-to have been proper evidence. And if the assignment was duly authenticated for tire purpose, of authorizing it-to be recorded, 1 think it could properly be received in evidence without further proof; subject however to the right of the adverse, party to show that-it was not executed by the corporation, because no resolution of the directors liad authorized the person intrusted with the corporate seal to affix it to such an assignment. The law is otherwise where a deed, is executed by attorney. For the acknowledgment or proof qf the execution of the deed by the attorney is all that is necessary to be established, by the recording acts, to entitle it to be recorded. The power of attorney .under whicli the attorney acts is a separate and distinct instrument, which must not only be under the seal of his-principal, but must itself be duly proved by the subscribing witness thereto, or acknowledged by the person executing the same, to entitle it to be recorded.
The remaining question to be considered is whether the corporation had the legal power to take a surrender of a part of its capital stock; not for the purpose of issuing new scrip therefor to other persons upon being paid or secured the amount of the same from them, but as an extinguishment of a part of the capital of the company, and to give up the property or effects of the company in exchange for the same. Upon a careful examination of the provisions of the revised statutes upon that subject, I think the vice chancellor arrived at the correct, conclusion that the corporation had no such power.- The .assignment of the bond and mortgage, upon the surrender of the fifty shares of stock held by. the complainants, as well as the .endorsement of the $2000 in consideration of the surrender of the other twenty shares of stock, for the security of the par value of which stock this bond and mortgage was also held by the company, was unauthorized, And being in direct violation of the statutory provision on that subject, the complainants acquired no legal or equitable right, to the bond and mortgage by the *241assignment. The bond and mortgage therefore belong to the corporation as a part of the 'securities in rvhich its capital stock is invested; and may be enforced against the mortgaged premises for the whole $7,000 for which they were originally given, with interestthereon from the time to which interest had been paid previous- to the assignment. And the corporation having no power to purchase its capital stock, or to take a surrender thereof for such a purpose, the complainants, as the owners of the fifty shares of the stock illegally surrendered,, must seek their remedy, if they have any, through the medium of such stock, and by having the concerns of the company closed by the appointment of a receiver. The revised statutes declare that it shall not be lawful for the directors of any moneyed corporation to divide, withdraw, or in any manner pay to the stockholders, or any of them, any part of the capital stock of the corporation, without the consent of the legislature. (1 R. S. 589, § 1, sub. 2.) The endorsement of the $2000 on this bond and mortgage, upon the surrender of the twenty share» of stock owned by Bush, and the assignment of the residue of the debt to the complainants upon the surrender of the fifty shares of stock held by them, were both in direct violation of this plain and explicit prohibition of the statute. The complainants not only had notice of this violation of the statute by the officers of the corporation, but 'were themselves participators in the illegal act. And it would be inconsistent with every principle of justice for this court to aid them in the enforcement, not of a right acquired by a violation of -the law, but of a claim of right which the legislature clearly intended they never should acquire in this way.
If there are any creditors, or any stockholders, who have not participated in this violation of the laws of the state which were binding on the corporation, they may apply for the appointment of a receiver, to collect in the débls of the corporation and distribute its effects among the stockholders according to their several rights and interests. (2 R. S. 464, 39.) - And if there are none such to apply, the receiver may be appointed upon the-application of the attorney general. So that this bond and* *242mortgage need not be lost to those who are equitably entitled to the moneys due thereon ; even if the directors of the company should fail to collect the amount. But as no legal or equitable title to the bond and mortgage was acquired by the complainants, through this illegal transaction, which a court of justice will enforce upon their application, the decree of the vice chancellor was right. It must therefore be affirmed, with costs.