Court Opinion

ID: 3620539
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:02:26.562556+00
Date Added: 2024-06-11T13:48:17.423740
License: Public Domain

This is an action to enforce the personal liability of a stockholder of the Columbian Insurance Company, which was organized under the general insurance *Page 26 
law, chapter 308, of the Laws of 1849, section 19 of which, is as follows: "The trustees and corporators of any company organized under this act, and those entitled to a participation of the profits, shall be jointly and severally liable, until the whole amount of the capital raised by the company shall have been paid in, and a certificate thereof recorded, as hereinbefore provided."
The insurance company was organized in 1857, and continued in business until 1866, when it failed, and passed into the hands of receivers, who subsequently wound up its affairs, its assets paying but a small portion of its liabilities. The capital stock named in its charter was $500,000, which was from time to time increased to $3,500,000, nearly all of which was paid in. Rufus L. Lord, the testator, was a stockholder of the company during the whole time of its existence, and the plaintiff was a creditor of the company under a policy issued to him by the company, and it was to enforce payment of the amount thus due him that this action was commenced.
The act of 1849 was carelessly and loosely framed, and it is difficult to understand the force and meaning of some of its provisions. Some of the language in it is used without legal or grammatical accuracy, and the arguments of learned counsel show that something may at least be plausibly said against any construction we may give it at this time.
We must examine all parts of the act, and considering the objects to be attained, and the general policy of the law, arrive as well as we can at the intent of the Legislature.
Section one provides that any number of persons, not less than thirteen, may form an incorporated company under the act. Section three provides that such persons shall file in the office of the secretary of State, a declaration expressing their intention to form such company, which shall comprise a copy of the charter proposed, and that they shall also publish a notice of such intention. Section four authorizes such persons after filing the declaration and charter, and publishing the notice "to open books for subscription to the *Page 27 
capital stock of the company so intended to be organized, and to keep the same open until the full amount specified in the charter is subscribed." The amount to be subscribed is the full amount of capital stock, and the books are required to be kept open until the amount is subscribed. Section five provides that no stock company shall be organized in the county of New York or Kings with a smaller capital than $150,000; nor in any other county, with a smaller capital than $50,000.
Section seven provides that it shall not be lawful for any company organized under the act to transact business, unless possessed of capital or securities as hereinbefore mentioned. This section does not require that the whole amount of the capital stock specified in the charter shall be subscribed or paid in before the company can commence business, but simply that it shall possess the amount of paid up capital mentioned in section five. That is the only prior section which mentions the amount of capital requisite for the formation of companies under the act. It is not the general policy of this State to require all the capital named in the charters of incorporated companies to be subscribed or paid in before business can be commenced. On the contrary it will be seen by an examination of the general laws for the formation of corporations that in nearly all of them, business is authorized to be commenced before the entire capital has been paid in.
Section eleven provides that the charter filed, as before required, shall be examined by the attorney-general, and if found to be according to law, that he shall certify the same to the comptroller, and that the comptroller shall then cause an examination to be made either by himself or by three disinterested persons specially appointed by him for that purpose, who shall certify under oath that an amount equal at least to the amount specified in the fifth section, has been paid in, and is possessed by it, and copies of such certificate are required to be filed in the office of the secretary of State, whose duty it then is to furnish the corporation with a certified copy of the charter and certificates, which upon being *Page 28 
filed in the office of the clerk of the county, in which the corporation is to be located, shall be its authority to commence business, and issue policies.
It is plain that the examiners thus to be appointed by the comptroller, are not required to certify that the whole of the capital named in the charter has been paid in. If they were, it would have been so stated. The section would then have required them to certify "that the whole amount of the capital specified in the charter has been paid in," instead of requiring them, in language, the different import of which could not have escaped attention, to certify "that an amount, equal at least to the amount specified in the fifth section" has been paid in. No matter what the amount of capital specified in the charter is, whenever at least one hundred and fifty thousand dollars has been paid in, the comptroller can be called upon to make the examination, and if the examiners find that at least that sum has been paid in, and is possessed by the company, the certificate must be given, and the company can then commence business. I do not perceive how this construction can work any mischief. No one dealing with the company need be deceived as to the amount of its paid up capital. The credit and financial strength of a company depends, not upon the nominal amount of its capital, but upon the amount of the paid up capital possessed by it. The requirements of law, and of public policy are satisfied if such a company possesses the amount of capital which the law-makers have deemed safe for the commencement of business. And this was the construction put upon this section, by the insurance company, and by the comptroller. After one hundred and fifty thousand dollars of its capital had been paid in, it applied to the comptroller, and he appointed the three examiners, and they examined the assets of the company and made a certificate that "the sum of one hundred and fifty thousand dollars in money, being part of the capital of said company, has been paid in, and is now possessed" by the company, and that certificate was filed, and is the only one which was ever filed. *Page 29 
Notwithstanding the filing of this certificate, such a company can continue to take subscriptions and collect them until the whole amount of the capital stock mentioned in its charter has been subscribed and paid in, and no further certificate is required to be filed, except for a purpose I will hereafter mention.
Section thirteen requires the officers of such a company, annually to prepare and deposit in the office of the comptroller, and in the office of the clerk of the county in which the company is located, and in every other county in which the company shall have an agency, and to publish in at least one newspaper published in such county, a statement showing its business during the past year, and its financial condition; and also showing the securities representing the capital stock, and their condition, and a list of the stockholders, together with the amount of their respective shares: and then it is provided that if upon examination of such statement, it shall appear to the comptroller that "the losses and expenses of any stock company during the year have exceeded the premiums, and in consequence thereof the capital of such company has become deficient, or from any other cause has become impaired to the extent of twenty-five per cent, it shall be the duty of the said comptroller to direct the officers of any such company within sixty days to proceed to wind up its business, unless within that time the stockholders thereof shall pay in the amount of such deficiency." But for the next clause, the meaning of this section would be quite clear. It is only when the capital has become impaired to the extent of twenty-five per cent by the excess of losses and expenses over premiums received, or from some other cause, that the comptroller can require the impairment to be made up. What is here meant is the cash capital, not the nominal capital. The nominal capital could not become impaired. That would remain the same. The statement would show the amount of the cash capital, and its impairment, if any, and that could be required to be made up. The comptroller is not authorized to make his requisition *Page 30 
simply because the amount of capital paid in is less than the amount specified in the charter.
But the next clause is somewhat uncertain, and reads thus: "Any company receiving such requisition from the comptroller, shall forthwith call upon its stockholders for such amounts, as will make its capital equal to the amount fixed by the charter." It cannot be inferred from this clause that the Legislature intended that the entire capital specified in the charter must be paid in before a company can commence business. As shown above, when so much as $150,000 of its capital has been paid in, and the requisite certificates have been filed, a company can commence business, and then so long as its cash capital has not become impaired to the extent named, it may continue business, and the comptroller cannot interfere with it. But reading the last clause literally, when its capital has become thus impaired, and the comptroller makes his requisition to repair it, then the stockholders of the company must make up the capital to the amount specified in the charter. But this literal reading should not be adopted. It leads to a construction not in harmony with other provisions in the act. I think this clause in its operation must be confined to a case where the entire capital had been paid in, and had become impaired. It was clearly the intention to require only that the impairment of the cash capital should be made up. The law having required that a safe amount of cash capital should be paid in, and kept whole, did not concern itself, and had no reason to concern itself about the nominal capital.
We are now prepared to take up section nineteen upon the construction of which the rights of these parties depend. It is contended on the part of the defendants that the liability there imposed was for debts contracted in some way before the complete organization of the company, and before it could transact any corporate business. Such a provision would be quite extraordinary. It is not to be found in any special charter, so far as I can discover, nor in any of the general laws for the organization of corporations. If this *Page 31 
be the true construction, I doubt not that it is the first time that the Legislature has attempted to create a joint and several liability for expenses incurred by a proposed company, before its organization. Such expenses are generally small, and are usually incurred by or upon the credit of the promoters. The persons engaged in the joint enterprise are jointly liable, and this common law liability affords all the protection to creditors that could be desired. The word "trustees" as used here, means directors, and the word "corporators" means members of the corporation. These two words commonly have such meaning when used in relation to corporations. The word "trustees" is used in the sense of directors in other parts of this act, and while the word "corporators" may have a different meaning in some of the sections, that circumstance can have but little weight, as language is used in the act with little care or precision. Persons "entitled to a participation of the profits," are made liable, and who are they? There can be no profits until the company is formed, and this language was doubtless intended to impose a liability upon persons not nominally stockholders, and yet in some way entitled as the real parties in interest to the dividends upon stock. We may suppose that the intention was to reach a class of persons who might hold stock in the name of others for the purpose of escaping the personal liability. Hence this clause could have but little meaning or purpose, unless it was to operate upon the persons named after the corporation was formed, and had commenced business. It could only then commence to create liabilities, and creditors would then for the first time need the benefit of such a provision. And this construction is in harmony with the policy of this State, in the constitution of which it is provided that "dues from corporations shall be secured by such individual liability of the corporators, and others means as may be prescribed by law." (Art. 8, § 2.) And the same kind of personal liability, though usually not so extensive, is found in all the general laws for the formation of corporations, passed since 1846. It will be seen that the word "corporators" *Page 32 
is used in the same sense in the constitution, as in this section.
The last clause of section 13 reads as follows: "Any transfer of the stock of any stock (company) organized under this act, shall not release the party making the transfer, from his liability for losses which may have accrued previous to the transfer." And this shows also that the personal liability imposed by the act, is one arising after organization.
It is said in the section that this personal liability shall continue "until the whole amount of the capital raised by the company shall have been paid in, and a certificate thereof recorded as hereinbefore provided." What is meant by the word "raised?" It is not entirely clear, but I think the whole amount "to be raised" was meant. In common language, a corporation may be said to have raised the whole amount of its capital, when it has procured subscriptions for the whole thereof, and when such subscriptions have been paid, then the whole amount has been raised and paid in. What certificate is meant by the last clause of the section? Clearly the certificate mentioned in the eleventh section. No other certificate is before mentioned. Upon this the defendants base an argument, that the personal liability was not to continue after organization, as that certificate was to be made and filed before organization. But I cannot yield to the force of this argument. A company may have its entire nominal capital subscribed and paid in, and then the certificate will show that fact, and there will be no personal liability after organization. If the directors and stockholders wish to escape continued personal liability, they must take that course, and procure and file such a certificate. But as I have shown above, the company can be organized and commence business before the entire amount of capital has been paid in, and if that course is taken, then the personal liability attaches and continues. But it is said that there is no provision for a further certificate, and that if this construction be given, the personal liability could never end. But suppose this be so, the parties *Page 33 
interested have placed themselves in this dilemma. They chose to organize and commence business before the whole amount of their capital was paid in, and they must take the consequences which the statute imposes. But there can be a further certificate. The comptroller can be required to make a further examination, and give a further certificate which may be made and filed as required in section eleven, and then the personal liability will end.
This liability is not in the nature of a penalty for not filing the certificate. The statute simply takes away from the corporators the protection which the incorporation would otherwise give them, and makes them liable as partners except that the liability is several as well as joint. (Corning v.McCullough, 1 Comst., 47; Harger v. McCullough, 2 Denio, 119; Story v. Furman, 25 N.Y., 214.)
This action was not therefore well defended, and the judgment must be affirmed.
CHURCH, Ch. J., RAPALLO and ANDREWS, JJ., concur with DANFORTH, J.; FOLGER and MILLER, JJ., concur with EARL, J.
Judgment reversed.