Court Opinion

ID: 3588153
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:37:32.690533+00
Date Added: 2024-06-11T13:56:06.984883
License: Public Domain

It is very clear that the judgment of the Court of Appeals inBoynton v. Hatch (47 N.Y., 225) is not decisive of the case at bar, for nothing was there decided save that, in a controversy like the present, it was error to exclude evidence of the value of the property put in as a part of the capital stock of the corporation. In that case the referee had held that the value of the property was immaterial, and refused to pass upon the question, and for that error alone judgment was ordered for the plaintiff. In disposing of that case, three judges appeared to be of the opinion that, in an action by a creditor of a manufacturing corporation against a stockholder of stock originally issued, the creditor may impeach the transaction for fraud, and if he can show that the stock was fraudulently issued, and in evasion of the law, he may recover against the original stockholder as if no payment had been made or certificate filed. Three other of the judges held, that, where all or a portion of the capital stock is paid in, in property, the certificate required to be filed by section 2 of the act of 1853 must state the value of the property; that an agreement of the company to pay more than the value of the property does not protect the stockholder from liability under the tenth section of the act of 1848, and it may be claimed that it was also held not necessary in such case to allege or prove fraud. But I do not think the opinion of Judge GROVER necessarily goes to that extent, for he says that no such question was raised below, and that fraud was sufficiently alleged, and that the proof tended strongly to show that the property was not worth more than forty per cent of the price paid for it. As before said, all the judges agreed to order judgment for the plaintiff, for the reason that the referee rejected all evidence of the value of the property and declined to pass upon the question. Whichever view may be taken of the proposition upon which the learned judges apparently disagreed, the *Page 146 
decision reached was undoubtedly correct, for upon the question of fraud evidence of actual value would be always competent, and, in some cases, quite controlling; and if the validity of the organization of such corporations, where property is put in as capital, is to be tested by the opinions of witnesses as to its value, of course the evidence is absolutely indispensable.
After an attentive examination of the question, I concur in the views of Judge ALLEN expressed in his opinion in Boynton v.Hatch (47 N.Y., 228). Any other rule would, I think, lead to extensive mischief and uncertainty, and, in fact, practically paralyze the amendment of the act of 1848 adopted by the legislature of 1853; which was intended to facilitate the proper organization of manufacturing corporations rather than to set the entire system afloat upon a sea of uncertainty. If, in fact, it had appeared that the entire $100,000 of the capital of the corporation had been paid in, in cash, and the certificate filed, no personal liability of a stockholder could for a moment have been claimed. And if, in the next hour thereafter, the trustees of the company, in corporate meeting duly convened, had agreed to purchase the property, the value of which is in dispute, for $100,000, and paid the entire capital for it, a stockholder could not be made personally liable, under the statute, because the trustees had committed an error of judgment as to value, and not even for fraud, unless the stockholder was a party to it. The liability sought to be enforced in the present case is one imposed by statute, and does not otherwise exist. If the conditions of the statute have been observed, there remains no personal liability by mere force of the statute itself. In a case where the stockholders of a manufacturing corporation, organized under the act of 1848 as amended in 1853, were numerous, and a part had paid for their stock in cash and another portion had put in property, at a valuation agreed upon between them and the trustees, it would be a very harsh rule that would subject the stockholders paying in cash to personal liability for the debts of the company, if it could be maintained that the trustees *Page 147 
had formed an erroneous judgment as to the value of the property received as a part of the capital; and yet we are asked by the plaintiff to approve such a result. I entirely agree, that if the promoters of a corporation of this character shall, with a view to defraud, fill up the capital stock by putting in property at grossly exorbitant values, they are not to be exempted from the personal liability imposed by the statute. In such case, they ought to respond in damages to the extent of the wrong they design to accomplish. But if, in the furtherance of an honest purpose, they fall into error of judgment in placing a pecuniary value upon property supposed to be needful for the success of the enterprise, I think a different rule should prevail. And I think it need only be suggested, in support of this position, that, upon the question of the value of property, and more especially that adapted to mining, mechanical and manufacturing purposes, a very wide difference of opinion may honestly exist among the most intelligent of men familiar with such operations. There is no exact mathematical value which can be applied to mines or minerals in the bowels of the earth, or to mechanical contrivances or manufacturing establishments, when their development is sought for by associated wealth. It is matter of the commonest observation, that the most intelligent and conscientious of men, upon such questions, entertain widely different opinions; and it would be a fatal blow aimed at every such enterprise, if those who honestly risk their capital in such adventures shall be held as guarantors to all creditors for its eventual success.
I find nothing in the statute which requires that the certificate to be filed under section 11 of the act, shall state the "value" at which any property has been put in as a part of the capital and received as such, as is suggested by Judge GROVER, in his opinion in Boynton v. Hatch (supra). If such a statement is to have no effect as his opinion seems to indicate, it is of little account whether it be inserted or not. If it is no more than prima facie evidence of value, it cannot be regarded as of substance, for in one view, as I *Page 148 
think properly, it may be assailed for fraud and in another it is valuless, if a credible witness can be found, who, entertains, for any reason, a different opinion of the actual value of the property. These views lead to the reversal of the judgment of the court below, but before we can render that decision other things must be considered.
It is apparent, from an inspection of the record, that the case was very loosely tried, on the part of the defendant, at least. The recovery of a judgment by the plaintiff against the corporation was admitted by the defendant in his answer, and the course of the trial plainly indicates that it was conceded, that the recovery was had for a debt justly due from the corporation to the plaintiff. The case of Miller v. White (50 N.Y., 137), cannot, therefore, help the defendant on this appeal.
At the close of the evidence on the part of the plaintiff, the defendant moved to dismiss the complaint of the plaintiff, without assigning any specific reason for the motion and it was denied and the defendant excepted. The court thereupon submitted two questions for the consideration of the jury; one, whether the mortgages transferred by Hatch were necessary for the company in carrying on its business, and the other, whether the property transferred was of the fair value of the stock issued in payment therefor. If these issues were found by the jury in favor of the defendant, he was entitled to the verdict, and if not, the plaintiff was entitled to recover the amount of his demand, with interest. To this the defendant excepted and the jury returned a verdict for the plaintiff. I am inclined to the opinion that, upon the pleadings and evidence, the plaintiff was not entitled to recover, and the complaint should have been dismissed. No actual fraud in the organization of the Empire Moulding and Planing Mill Company was alleged, or proved or pretended. The case was put to the jury, and the plaintiffs recovered solely upon the naked proposition that, in the opinion of one or more witnesses, the property put in as the capital of the concern was not of the value agreed by the company to be paid for it; and even if *Page 149 
that was the fact, and the error of the trustees was an error of judgment only, I have already said that I do not think the personal liability of the stockholder is fixed by the statute. If this be correct the plaintiff's action failed in its whole scope and meaning, and a general objection was sufficient.
It is also said that the exception to the charge of the judge to the jury is too general to raise any question, but I have a different opinion. But two questions were submitted to the jury, and, I think, the instructions were erroneous as to both. It is quite too much to say as is said in this case, in substance, by the learned counsel for the plaintiff, that a general exception to a charge is an exception to every word in it, and, therefore, bad, if there be one word of truth in the whole charge which, in the very baldest cases, may ordinarily be taken for granted. Exceptions to a charge, whether general or special, relate only to questions submitted to a jury, and to nothing else. Questions not submitted cannot be made the subject of an exception. It would be quite absurd to say that the exceptions in this case were aimed at the observation of the judge that "there is no dispute as to the indebtedness of the company to the plaintiff;" and if it shall be said that the exception might have pointed at the observation of the learned judge to the jury that "the Court of Appeals having in this case, or another case, decided between this company and another party that the statute, in relation to the issuing of stock in payment for property, provides for the issuing of stock to the amount of the value of the property, and not simply the amount agreed upon between the parties." I should say that this observation was founded upon a misconception of what the Court of Appeals had decided, and calculated to mislead the jury in a very material degree. We have no means of information as to what the Court of Appeals has decided in this or any other case relating to the same company, except the reported decision on a demurrer to the answer in this case (46 N Y, 589) and that of Boynton v. Hatch (47 N.Y., 225), and I am quite sure that no such *Page 150 
proposition was in these cases decided as was stated by the learned judge to the jury in the case at bar.
As to the necessity for the mortgages assigned by Hatch to the company to enable it to carry on its business, the evidence was not conflicting. They might or might not be necessary and convenient, depending to a large extent upon future events. They were not claimed to be of less pecuniary value than they represented; and it was not for the jury to say that they were not a legal equivalent under the statute for so much of the capital stock of the company as was issued on their account.
As to the other question submitted, if verbal criticism could be indulged, it might be said that the proposition was put in a singularly inaccurate form: "was the property transferred of the fair value of the stock issued in payment therefor?" When we consider that the entire capital stock of the company was issued in payment for the property transferred, it is difficult to distinguish between the value of property and the stock issued; for, as the company had no other assets or capital, the stock would be worth just as much as the value of the property, and no more and no less. If there was any question at all to be considered upon the issues in this case, it was the actual value of the property put in as a part of the capital of the company, and not the amount of stock given in payment for it; and no such issue has been passed upon by the jury. For error in the charge, therefore, there should be a new trial. If this were otherwise, I should be in favor of a new trial for the error in rejecting evidence offered by the defendant in relation to the value of the property in respect to the services of Hatch in putting up the machinery purchased, if not even the supposed value of the good-will of the business which Hatch, to some extent at least, had inaugurated. (Starkie v. Kelly, 50 N.Y., 677; Stickney
v. Allen, 10 Gray, 352.) And I am not able to see why the plaintiff should have been permitted to show that after the failure of the company its property had been sold out at a very low figure. It could only have been offered upon the question of the value of the property put in as a part of the capital of the *Page 151 
corporation; and upon that could have no legitimate bearing, and probably tended to mislead the jury.
For the numerous errors indicated there should be a new trial, with costs to abide the event.
All concur.
Judgment reversed.