Waters v. Quimby

Whelpley, J. The plaintiffs had a ver.dict in this case at the Essex Circuit, for $3350.85, and this is a motion in arrest of judgment. The action was against the defendants, as officers of the Perry Patent Arm Company, for — 301 — making and publishing an untrue certificate to comply with the provisions of the act entitled, “An act to authorize the establishment and to prescribe the duties of companies for manufacturing and other purposes,” untrue in stating that the capital stock of $288,000, fixed upon as the amount with which to commence business, was paid into the treasury of the company in cash. The declaration states that defendants, on the 15th July, 1853, formed a company under the act, filed a certificate in the Essex county clerk’s office, declaring their name and objects, fixing the capital at $300,000, and the amount wherewith to commence business at $288,000, &e.; that the company, while the defendants were stockholders and officers of the company, on the 17th day of February, 1854, became indebted to the plaintiffs upon two bills of exchange, drawn upon and accepted by the company ; that the plaintiffs, the bills having been protested for non-payment., sued the company upon them, and, on the 27th. day of September, 1855, obtained a judgment for $3009.16 damages, besides costs; that Quimby, as president, Harfshorne, as secretary and treasurer, and the other defendants, as directors, being a majority thereof, on the 9th January, 1855, and within thirty days after payment of the last installment of $288,000, capital fixed to commence business with, made, signed, swore to, recorded, and published, in a newspaper, &e., a certificate that the $288,000 fixed upon to commence business with, had been paid into the treasury in cash, the last payment having been made on the 29th December, 1854, and did in all things comply with the said act in making and giving publicity to the said certificate. The plaintiffs then aver that the payment was not made in cash, and that the certificate and public notice given were false and untrue in the material representations thereof. Upon this state of facts appearing by the record, are the plaintiffs entitled to judgment on their verdict?- — 302 — If the action can be maintained, it must be either under the twenty-first or thirtieth section of the act, or both. Nix. Dig. 458, 460. The certificate in question was made to comply with the provisions of the nineteenth section of'the act. That provides that such a certificate as was made, as to form, shall be made within thirty days after payment of the last installment of the capital stock fixed and limited by the company. The next section provides, for a like certificate in case of an increase of capital stock. The twenty-first section provides, that if any of the said officers shall neglect or refuse to perform the duties required of them in the two preceding, sections, or the certificate made, by them shall be untrue, they shall be jointly and severally liable for all debts of the company contracted after the expiration of the said thirty days, and before the said certificate shall be recorded. It was urged that the judgment must be arrested, because the certificate is not required to be made until thirty days after the payment of the last installment of the capital stock, and' that, if the last installment was not in fact paid, the certificate .was unnecessary, and therefore not in pursuance of the provisions of the act; that if it was paid, the certificate could not possibly be false. It is perfectly obvious that- the legislature contemplated two modes of payment, one in cash, and the other in something considered by the officers as equivalent to cash, although in fact not cash; that they thought the officers might treat the capital as actually paid in when there was nothing in the treasury but checks and promissory notes and deeds for property without substantial value, In order to- reach this difficulty, and prevent such a decision, they in effect provided' that the officers might commence business as. a corporation whenever the capital was paid in, leaving tp them to decide, at their peril, when that time had- arrived, and requiring them to make the Certificate within- thirty days thereafter, that is, within, •thirty — 303 — days after their decision that the capital fixed to commence business with was paid in cash. The legislature has said to those desiring to avail themselves of this act, associate yourselves under this act, fix the amount of capital upon which yom intend to commence business, commence your business whenever this capital is paid in cash—we leave you to decide when tiiis is done; but, in order to secure a truthful decision, we require you, within thirty days, to swear to the truth of what you have decided, record it, and publish it to the world; and if your affidavit is false, you shall incur a personal liability. Surely if does not lie in the mouths of these officers to say that the affidavit which they have solemnly and deliberately made cannot by possibility be false because it was false. The argument is this : we are not required to swear the capital was paid in cash until thirty days after it is paid in cash ; it never was paid in cash, our affidavit was false, therefore it is a nullity. If our affidavit had been true, it would have been strictly in pursuance of the provisions of the aet, but as it is false, it is not an affidavit under the act. Such a construction is hypercritical. Qui heeret in litera, hceret in cortice. The defendants should not be permitted to allege that'their solemn act, avowedly done to comply with the express provisions of an act of the legislature, was not made in pursuance of its provisions, and that no legal liability can grow out of it, because that which the act requires to bo true was in fact false. By the act of recording and publishing the certificate, the defendants, on the issue as to its truth or falsehood, are precluded from alleging that the time for doing it had not arrived, inasmuch as, if true, it would have been a strict compliance with the terms of the section. By the express terms of the twenty-first section, the officers are made liable on two contingencies. First. Upon failure to make, record and1 publish the certi- ■ ficate within thirty days, sworn to as prescribed. — 304 — . Second. If filed, sworn to, and recorded, as required, they are also liable if the certificate be untrue. ■ In either event, the liability is for all the debts of (he company contracted between the expiration of the time and the recording of the certificate required by the act. The record shows that the debt sought to be charged upon defendants was contracted on the 17th February, 1854, and that the last installment was paid on the 29th December thereafter. The debt was not contracted after the expiration of the thirty days, consequently the defendants are not liable for it under the twenty-first section. It was argued that the court ought to declare the nineteenth section inoperative, because as it stood, taken in connection with the twenty-first section, it had no object. This argument will be noticed hereafter in discussing another branch of the case. If the defendants are liable, it must be under the thirtieth section of the act, which is, that if any certificate made, or any public notice given by the officers of any company, in .pursuance of the provisions of this act, shall be false in any material representation, all the officers who shall have signed the same shall be jointly and severally liable for all the debts •of the company contracted while they were stockholders or officers thereof. Upon this section two questions arise. First. Was the certificate in question made and published ■in pursuance of the operative provisions of the act? Second. Is a certificate under the nineteenth section of the .act within the purview of>the thirtieth section, or are such .certificates required under a particular penalty specially provided, to the exclusion of the penalties of the thirtieth section? The first question lies at the bottom of the whole case, for ,the certificate,'stated in the record to have beeu false, was « made under that section ; and if that section is inoperative for want of an object, this action will not lie. Tliis brings us to the considera!ion of the question, — 305 — what certificate does the nineteenth section require? Are its provisions satisfied by the filing of a certificate correct in form, duly sworn to and recorded, although false in fact.? What is its object? It requires a certificate stating the amount of the capital fixed and paid in, in cash. Suppose the section had stopped here, could it bo said that a certificate which did not truly state that amount did state it? If the words had been “a certificate truly stating the amount of the capital so fixed and paid in,” the legislative intent would not have been more clearly expressed. The design of the legislature to require a true statement, is only more clearly apparent by requiring the statement to be sworn to. A false statement is no compliance with the terms of the act. It would seem clear, if the words contained in the twenty-first section had not been used, requiring the certificate to be true, that the liability of the officers under that section would commence after the expiration of thirty days, and continue until such a certificate, that is, a tiue certificate, had been recorded. The mode in which the words “or the certificate made by them shall be untrue,” are thrown into the section, create an incongruity more apparent than real; a close examination of the section brings it to light, and a closer clears it up. A paraphrase of the sentence seems to relieve the whole difficulty. If any of the officers shall altogether neglect or refuse to perform the duties required of them in the two preceding sections, by failing to make, swear to and record any certificate, or if the certificate made by them shall not be true; they shall be jointly and severally liable for all the debts of the company contracted after the expiration of the thirty days, and before such (true) certificate shall be recorded. If the nineteenth section requires a true certificate, the unnecessary repetition of that con — 306 — dition in the twenty-first section ought not to change tiie construction. One of the points made by counsel was, that the act, under consideration was substituted for that of February 25th, 1846, (Rev. Stat. 142) upon the same subject, many of the provisions of which are identical with those of this act; that the former act contained a section, immediately preceding the section corresponding to the nineteenth of this act, making stockholders of every compuny formed under it liable for all the debts contracted by it, until the eapilal, from time to time fixed and limited, was paid in, and a certificate made and recorded in the clerk’s office, and published as prescribed in the next following section, which corresponds to the section of this act requiring the certificate. It was insisted that the sole object of the provision was to terminate the responsibility of the stockholders created by the preceding section; that the twentieth section of the act of 1846, and nineteenth of this, should have the same construction; that the individual liability clause having been omitted in his act the object of the certificate no longer exists, and, therefore, the section requiring it is a dead letter, left by mistake in revising the act. Assuming the principle to be correct, that when an act is repealed, and its place supplied by another containing many of the same provisions and sections, but materially altered in its main features, the sections to be found in the new act in different connections, are to have the same construction as when read in their old connections, which seems not to be sound, the argument has more ingenuity than force. It commences with a false promise. It was not the sole object of the nineteenth section of the act of 1846 to terminate the liability of the stockholders., nor of the twenty-second, to compel the making of the statement to effect that purpose; such release was undoubtedly one of the objects, but rather incidental than main. — 307 — When the stockholders are once released they do not again become liable; and yet the penalities of the twenty-second section apply to a certificate of increase of capital required to be made by the twenty-first section. The first certificate set them free, the last could have no such object. The act of 1846 wisely made the stockholders responsible till the capital fixed' upon was paid in. It did not give the immunity of stockholders of a corporation until they had paid in the capital subscribed ; until that time they wore to be liable as partners. It designed to prevent the contraction of debts by the corporation, as such, until a capital was paid into the treasury. Whether a corporation, under the law of 1849, can contract debts in its corporate capacity exempting the associates from the liability of partners befone payment of its capital, may well be doubted: such a construction of the act is at war with its whole scope, and renders all its careful provisions requiring the certificate a nullity. The argument of defendants is, they may so commence business, therefore the certificate need never be filed ; the answer is, they cauuot so commence, else why require a certificate of the amount fixed upon with which to commence business? Nix. Dig. 456. Why require a certificate that it is paid in? why forbid the note or obligation of a stockholder, whether secured by pledge or otherwise, being considered as payment of any part of the capital stock? The argument rests upon a petitio prineipii, and is dearly unsound. The imposition of the penalties for neglect of the certificate prove that, until that had been made, sworn to, recorded, and published, the legislature did not design to protect the stockholders from liability. If the sound construction of the act of 1816 required the payment of the capital before the association could commence business, as such, then the nineteenth section of that act was merely declaratory. — 308 — The fact that the argument of defendants’ counsel proves too much, demonstrates its unsoundness. Say they, the section of the act of 1846, imposing individual liability upon the stockholders, was designedly omitted with intent to change the whole construction of the act, the object of the certificate being to release the stockholders; that it is no longer required, and if false it creates no liability ; and even if the certificate now has any object, it need not be filed at all, because the company may commence business, as such, before its capital is paid in according to the certificate of organization ; and if so, the officers may escape all obligation and liability for a disregard of one provision of the act by disregarding another. The' Serbonian bog, into which the argument leads the arguer, ought to satisfy him that he has lost his way. Such a construction of the act cannot be sound. o The obvious design of the certificate in question was to insure the public against the formation of bubble companies, wiLh high-sounding names,-under the patronage of prominent men, with empty treasuries, and to inform the public when a corporation under the act could with safety be trusted, and to do this by the publication of an authenticated statement of the payment of the cash capital into the treasury. This was the main object of the provision, as it stood in the act of 1846, and stands in that of 1849. The omission to declare the stockholders liable by express provision does not render inoperative the nineteenth section of the act of 1849. But it may be said, why compel the making of the certificate within thirty days after the payment of the last installment? The answer is obvious—to compel the payment to be made in cash. The public will not give credit to the company until the capital is paid in cash, and no publication can be made, unless false, until so paid. It is true that if the fixed capital be not all paid in, the company may, by the literal terms of the act, do business — 309 — forever without making a certificate, and recording it; but if the public give them credit without requiring the evidence provided by law of the existence of a cash capital, it is at their own risk. It might be a very proper requirement, that no business be done until the certificate is made as required. But the existence of this defect by no means renders the other provisions inoperative. Making the officers liable for imposing upon the public an untrue statement of the resources of the company, is a valuable safeguard to those dealing with them. If the statement be true, it is of great consequence in forming a judgment as to the trustworthiness of such a corporation. If the officers, through negligence or by corruption, furnish false information on a point so vital, it is no hardship to make them liable for all debts that may be contracted on the faith of such a statement, or that have been contracted while they were officers or stockholders. The immunity of the stockholders of a corporation is a special privilege not enjoyed by ordinary partners, and the officers having direction of its affairs have no cause of complaint if the law declares that a forfeit for the breach of the provisions of the contract between the corporation and the public, when that breach is caused by their own act. The nineteenth section of the act of 1849 effects a valuable purpose, and ought not to be nullified or amputated as dead matter, except on the clearest grounds. Such do not exist in this case. This case shows its value. The remaining question to be decided is, perhaps, one of more difficulty. Do the provisions of the thirtieth section apply to a certificate made in pursuance of the nineteenth section? Why should they not? The language is broad enough to reach it. If any certificate made, or any public notice given by the officers of any company, in pursuance of the provisions of this act, shall be false in any material representation, all the officers who shall have signed the same — 310 — shall be jointly and severally liable for all the debts of the company contracted while they Were stockholders or officers thereof. The object of the certificate is highly meritorious—to secure truth in the statements put forth by the company. The literal' construction is in entire accordance with the whole policy of the act, either to give the creditors recourse to a cash capital paid in, or to the directors who carry on the operations of the company, or to the stockholders. Why should the clear scope of the section be restrained ? Is there any conflict between it and the twenty-first section ? If so, which must yield ? These are questions to be answered in reaching the solution of this case. There is no necessary conflict. The penalty, by the twenty-first section, is liability for all debts contracted after the expiration of the thirty days until the recording of the certificate. This secures the making of a true certificate at the earliest moment; when that is recorded, having been made and published as the act requires, the ' officers are exempt from after-accruing liabilities. To attain this double object, the penalty must be such as to cease on compliance with the section. The penalty acts as a spur to compliance. The penalty of the thirtieth section obvious policy required to be severe, yet just, that is, absolute unconditional liability for all past debts of the company. The privileges conferred by the act are conditional immunity from debts of the association. The thirtieth section justly forfeits this immunity for the deceit of the officers. The two sections, construed together, provide a penalty for want of truth in the certificate made in pursuance of the nineteenth ; of liability for all the past debts of the company, absolutely, and for the future debts liability up to the time of compliance with the provisions of the section. This construction is in accordance with the familiar principle that statutes are to be so construed that — 311 — one clause shall not frustrate and destroy another, but that they shall explain and support one another. Hard. 344; Smith on Stat. Con. 375. Sound exposition requires effect to be given to every significant clause, sentence, or word in a statute. James v. Dubois, 1 Harr. 285; Den v. Schenck, 3 Halst. 34; Lott v. Wyckoff, 1 Barb. Sup. Ct. Rep. 565. When the words of a statute are susceptible of two meanings, the one favorable, and the other hostile to its principal design, the former should prevail and control the construction. Where the words are clear, and the difficulty is made by critical exposition, that exposition should not be adopted in clear contravention of the scope and policy of the act. New statutes would stand if tried by the strictest standards of logic, grammar, or rhetoric. There is no conflict between the twenty-first section and the thirtieth. The certificate under the nineteenth section is within the thirtieth section. The motion must be denied. The plaintiffs are entitled to judgment on their verdict. Crees, C. J., concurred.