Smith v. Law

Smith v. Law. Corporate Meetings. ' Where the by-laws of a corporation prescribe that, ¿f less than a quorum be present at a regular meeting, a less number may adjourn to a future day, if, at such adjourned meeting, there be a quorum present, they are competent to exercise the ordinary corporate powers, though the absentees have no other notice than what they are chargeable with from the by-laws. Appeal from the general term of the Supreme Court, where judgment was entered in favor of the plaintiff upon the report of a referee. This was a suit to enforce the personal liability of the defendant, as a stockholder óf the Moravia Plank-road Company, under the act of 1847, for a debt of the corporation. The indebtedness of the company arose under a resolution of the board of directors, to issue the bonds of the corporation to such persons as should be willing to loan to the company the par value thereof, not exceeding in the whole the sum of $4500. The plaintiff loaned them the sum of $900, and received a bond therefor, dated the 21st November 1849, and the money was duly expended in building the road. The by-laws of the corporation provided that whenever, at a regular meeting of the board, there should be less than a quorum in attendance, and three or more directors were present, those present should have power to adjourn to such'time and place as they might deem proper, not passing over the next regular meeting. The resolution to issue the bonds in question was passed at such an adjourned meeting, at which five directors, constituting a quorum, were present. There was no evidence that the other directors had notice of such adjourned meeting, except so far as they were chargeable with notice, under the by-laws. "Tt did not appear whether all the directors present, or only a majority, voted for the issuing of the bonds. The referee found that the sum of $497 was due upon the bond, and directed judgment against the defendant for $400, the par value of his stock; and the judgment having been .affirmed at general term, the defendant took this appeal. Porter, for the appellant. Giles, for the respondent. This is the only point on which a majority of the judges concurred; the question of the validity of the bond was not passed on. [MAJORITY — Bacon, J.] Bacon, J. Several objections were taken to the right to recover, in this case, only two of which are of sufficient importance to merit discussion, and they can, in my judgment, be disposed of without difficulty. In the first place, it is said, that the bond was not valid, because its. issue was not authorized at a regular meeting of the board of directors. If the directors had power, by vote, to authorize the issuing of the bond in this case, I am not aware of anything in the act permitting their organization, in their articles.of association, or in the general statutes of the state, that requires this action to be at what is designated as a regular meeting, nor indicating even what shall be held to be a regular meeting; no such provision of law, or of any statute, has been pointed out: It is stated by the counsel for the defendant, in his points, that the meeting at which the vote was taken,, authorizing the issue of the bonds, was irregular, because' the regular meeting was on Friday, and this meeting purports to have been held on Monday. It is probable, that there is some provision in the by-laws of this plank-road ■company, designating Friday as the regular day of meeting, but these by-laws are not set forth in the case. An ■extract, however, is given from them, to the effect, that whenever, at a regular meeting of the board, there shall less than a quorum attend, and three or more directors are present, those present shall have power to adj°urn such time and place as they *may deem proper, not passing over the next regular meeting. It is shown, in this case, that a meeting did take place on Friday, the 31st of August, at which three directors were present, and that, on motion, they adjourned •over to Monday, the 3d of September, following, which is precisely within the terms of the by-laws. At this meeting, on the 3d of September, five directors, being a quorum, were present, and then the resolution was proposed and adopted, which authorized the issuing of the bonds ■of the company. This is a reasonable by-law, and I can see no fair objection to the proceeding, so far as relates to the formal action of the board. If it was a legal meeting, as I think, beyond question, it was, they had the right to pass any resolution, and take any action which did not violate the law of their organization, or exceed the powders with which, .as a corporate body, they were invested. The next question is, whether, conceding the meeting to have been regular, the directors had power, under the resolution they adopted, to borrow the money and issue the bonds upon which the indebtedness of the company ■accrued to the plaintiff. The referee has .found, and such, unquestionably, is the evidence, that the plank-road company, at or about the date of the bond, borrowed ■and received of the plaintiff the sum of $900 in cash, and thereupon issued the bond to him; and that this money was borrowed, and was actually used by the company for the purpose of paying for work, labor and materials, "employed by them in the construction of their road. This ■being undisputed, it results, upon principles which, if heretofore doubted, are now well settled in this court, that the company could properly give, as evidence of their indebtedness, the security in the form adopted in this case. This was very clearly held in the case of Barry v. Merchants’ Exchange Company (1 Sandf. Ch. 280). The capital of the company, in that case, was one million of dollars, and after the destruction of their original edifice, they rebuilt it, at double that sum, defraying the expense, over and above the capital, by loans procured upon their corporate bonds. These were held valid, upon the clearly announced doctrine, that a corporation, in order to attain "its legitimate objects, may deal precisely as an individual may, who seeks to accomplish the same ends. “ If chartered for the purpose of building a bridge, it may contract a debt for labor, the materials, or the land upon which the bridge is abutted. If more advantageous, it may borrow money to purchase such land or materials, or to. pay for such labor, and, as the evidence of the indebtedness, it may execute to the creditors a note, a bond or mortgage, Avhether the debt be for the money borroAved, or for the Avork, materials or land.” This case is cited approvingly in Curtis v. Leavitt (15 N. Y. 9, 62), and one of the conclusions, among the many others announced in that case, is, that Avhenever a corporation can lawfully contract a debt for borroAved money, or otherAvise, in the course of its business, it can give a time engagement to pay the debt, and such engagement may be in any form Avhich does not come within the prohibition of some particular statute. This principle is entirely decisive of this case. It has not been claimed, nor Avill it be pretended, that the form of the security adopted in the case before us, is obnoxious to any such objection, either as being inhibited by the act authorizing the formation of plank-road companies (by virtue of Avhich this Moravia Plank-road Company was organized) or that it comes Avithin the prohibition of any other general statute. Within the above-cited case, the money was borrowed of this plaintiff, for the lawful purposes of the plank-load company, and to enable them to perfect and accomplish the very work for .which they came into existence; and the evidence shows that it was faithfully applied to that purpose. No rule of law or morals would have enabled the company to repudiate that debt, and defeat the collection of the bond, if they had remained solvent; and being a just debt, lawfully created, the liability of the defendant, in this suit, as a stockholder, necessarily' attaches to him. It is suggested by the counsel of the plaintiff, that the suit can be maintained, and the plaintiff would be entitled to recover, entirely irrespective of the bond—and even conceding the want of power in the company to execute any such evidence *of debt—upon the mere proof of the loan of the money, and its application to the legitimate purposes of the company. This may, perhaps, be conceded, although the complaint is framed upon a different theory, proceeding upon and affirming the validity of the •entire transaction of the making of the loan, and the execution and delivery of the bond, not only as the evidence, but as the ground-work of the indebtedness. But it is not necessary to invoke the aid of any such principle, as, within the doctrine and the authority already cited and referred to, the suit in its present form is sustainable, and the report of the referee is right, bojth upon the facts and the law. The judgment must be affirmed.- .Judgment affirmed.