Sebastian Bradt v. . Ephraim Benedict

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 95 By section thirty-eight of the act in relation to proceedings against corporations in equity (2 R.S., 463) it is provided that, "Whenever any incorporated company shall have remained insolvent for one whole year, or for one year shall have neglected or refused to pay and discharge its notes or other evidences of debt, or for one year shall have suspended the ordinary and lawful business of such corporation, it shall be deemed to have surrendered the rights, privileges and franchises granted by any act of incorporation or acquired under the laws of this state, and shall be adjudged to be dissolved." The Supreme Court appears to have decided this case mainly upon the ground that this statute was a substitute for and was intended to qualify those rules of the common law under which it has been held that a virtual surrender of the franchises of a corporation may be inferred from its condition and the manner in which it has conducted its affairs. A careful comparison, however, of the provisions of the statute with the previous decisions, will, I think, pretty clearly show, that the statute is to be regarded, not as a substitute for the common law rule referred to, but as cumulative merely. *Page 96 The first branch of the statute provides that, if a corporation "shall have remained insolvent for one whole year, or for one year shall have neglected or refused to pay or discharge its notes or other evidences of debt," c., it shall be deemed to have surrendered, c. It had never been held, previous to the statute, that the mere insolvency of a corporation, or its refusal to pay its debts, for any length of time, however long, would amount to a surrender. There was no rule of the common law, therefore, for which this clause of the statute can with any propriety be considered as a substitute; neither does it qualify or limit any preexisting rule. It is plainly cumulative, as it adds a rule by which circumstances are made equivalent to a surrender, which before had no such effect. The limitation which it contains is not upon any common law rule, but upon that which the statute itself introduces. In regard to the second branch of the section in question, it is equally clear that it is to be construed as a mere addition to the common law. A series of decisions in this state had established the doctrine that if a corporation suffers acts to be done which destroy the end and object for which it was instituted, it is equivalent to a surrender of its rights. (Slee v. Bloom, 19 John., 456; Briggs v. Penniman, 8Cow., 387; Bank of Poughkeepsie v. Ibbotson, 24 Wend., 473.) The statute goes much farther, and provides that a mere suspension of the ordinary business of the corporation shall operate as a surrender. It is impossible to consider this provision as intended to limit the rule established by the decisions to which I have referred. Those decisions lay down a general rule, which embraces a variety of cases; while the statute is specific in providing only for a single case which does not fall at all within that general rule. The provision in question, therefore, must be considered as cumulative, and not as controlling or limiting the law as it previously existed. It does not follow, however, that the judgment of the *Page 97 Supreme Court was erroneous. That depends upon the question whether the facts bring the case within the judicial rule to which I have adverted. In the case of Slee v. Bloom (supra), all the property of the corporation, both real and personal, had been sold at sheriff's sale. It was under this state of facts that the court laid down the rule that where a corporation permits things to be done which are subversive of the objects for which it was created, it is deemed to have surrendered its charter. But that rule is qualified by another. In Brinckerhoff v. Brown (7 John. Ch. R., 217), the chancellor says: "It does not follow that a corporation is dissolved by the sale of its visible and tangible property for the payment of debts, and by the temporary suspension of its business, so long as it has the moral and legal capacity to increase its subscriptions, call in more capital and resume its business." This qualification of the rule is recognised in the case ofBriggs v. Penniman (supra); but the court there held, that, as in that case each stockholder had paid up his subscription in full, the corporation had no power to call in more capital; and it not being probable that new subscriptions could be obtained to the stock of an insolvent company, the corporation had no "moral or legal capacity," within the rule in Brinckerhoff v. Brown "to resume its business." It appears from these cases, that in order to justify the inference that a corporation has surrendered its franchises, it is not sufficient that it has become utterly insolvent, or even that every vestige of its property has been sold by a sheriff; but it must also have lost all power to continue or "to resume its business." Can this be asserted of the present corporation, at the time when the defendant sold his stock? It is true it was insolvent; but it was still possessed of its real estate and machinery, amounting to over forty thousand dollars. The value of the stock and materials on hand does not appear; but it is not shown that the amount on hand on the 1st of October, 1851, had been disposed of. *Page 98 The corporation had then all the appliances necessary to the further prosecution of its business. Whether this would have been done at a profit or loss, is not the question. The resolution of the 13th of November, 1851, is relied upon to show that the company had determined not to proceed with its business. But this clearly is not enough to bring the case within the rule. The resolution was not obligatory. It might have been rescinded at any time by a majority of the stockholders. It cannot be said therefore, that the corporation had not "the moral or legal capacity to resume its business" and as nothing short of this, is equivalent to a surrender, except when the case comes within the provisions of the statute, the corporation was not dissolved until the sale of its effects under the judgment in favor of the Schenectady Bank. This conclusion renders it unnecessary to consider the other points raised upon the argument. The judgment should be affirmed.