John N. Dorris, Receiver, etc., Appellant, v. James Sweeney, Respondent

John N. Dorris, Receiver, etc., Appellant, v. James Sweeney, Respondent. (Submitted April 7, 1875; decided April 20, 1875.) Defendant signed a subscription paper by which he agreed to unite with the other subscribers in the formation of a joint stock or incorporate company, for the purpose of purchasing a patent “for preserving fruit or other products out of season;" erecting a building and “stocking the same with fruits to be preserved." He agreed to pay the amount of his subscription to the treasurer of such company. Some of the subscribers organized a company under the general manufacturing act (chap. 40, Laws of 1848), the objects of which, as stated in the certificate of organization, were “the manufacture of preserved fruits and the canning of fruits and other products, and the preserving and keeping of fruits and other articles from decay, etc.” In an action to recover the amount of defendant’s subscription, held, that the legal and effectual formation of a corporation or joint stock company was a condition precedent to plaintiff’s obligation; that defendant, therefore, had a right to contest the validity of the organization; and that even if the company was legally organized, defendant was not liable, as its business included branches in which he had never contracted to engage. As to whether the purposes specified in said certificate are included under the head of “ chemical purposes,” specified in said act, and so whether the corporation was lawfully organized, qirni’e. Appeal from judgment of the General Term of the Supreme Court in the fourth judicial department, affirming a judgment in favor of defendant, entered upon a decision of the court at Circuit, upon trial without a jury. ' This action was brought by plaintiff as receiver of the “ Buffalo Fruit Preserving Company,” to recover an alleged subscription to the stock of the company. Defendant, in 1865, signed a written instrument, of which the following is a copy: “ Buffalo Feuit House Association. “We, the undersigned, hereby agree to unite in the formation of a joint stock, or incorporate company, for the purpose of purchasing the exclusive right to make, use and vend Hyce’s patent for preserving fruits, or other products out of season, in Erie county, Hew York, and of erecting a building after the plan of said patent, with a capacity of about twenty thousand (20,000) bushels, and of stocking the same ivith fruits to be preserved, said building to be built so as to be ready for use by the first day of February, 1866; and for such purpose we mutually agree to pay to the treasurer appointed by said company, the amount set opposite our names, in the following manner: fifty per cent on demand, twenty-five per cent on completion of the building, and twenty-five per cent whenever called in by said company. “ The capital stock of said company shall be $100,000, divided into 1,000 shares of $100 each, with the privilege of increasing the same to $200,000'. “ As soon as $60,000 of the stock shall be subscribed, said company may organize under the laws of this State, and do such other acts as are necessary for an early prosecution of the business for which such company is formed.” Opposite defendant’s name was entered fifty shares, $5,000. The patent mentioned in said instrument was issued for an invention consisting of a building erected upon a defined plan, wherein fruits, and other articles, were to be deposited and preserved by maintaining a uniform condition of the air. On the 1st day of November, 1865, certain of the subscribers to said instrument, to the number of" ten, formed a corporation, under and by virtue of the act entitled, “An act to authorize the formation of corporations for manufacturing, mining, mechanical, or chemical purposes.-’ (Chap. 40, Laws of 1848.) The objects for which it was formed, as declared in its certificate of organization, were “ The manufacture of preserved fruits, and the canning of fruits and other products, and the preserving and keeping of fruits and other articles from decay, and the transaction of such other business as is connected with and incidental to the same.” The court found that as matter of law, “ that the corporation formed as aforesaid, and of which the plaintiff is receiver, is not such a corporation as is described in, and contemplated by the said instrument, executed by said defendant; nor could any corporation be then formed under the provisions of the aforesaid acts of the legislature for the purposes expressed in that instrument, of keeping and preserving-fruits from decay,” and directed judgment dismissing the complaint. Judgment was entered accordingly. G. A. Scroggs for the appellant. The corporation of which plaintiff is receiver was a valid corporation de jure and de facto as between the stockholders and all third persons until the State should intervene and question in due form its lawful existence. (B. and R. R. Co. v. Cary, 26 N. Y., 75; B. R. and U. R. Co. v. Clark, 25 id., 208 ; Eaton v. Aspinwall, 19 id., 118; Methodist Ch. v. Pickett, id., 482 ; People v. Trustees of Geneva College, 5 Wend., 211; McFarlan v. Triton Ins. Co., 4 Den., 392; People v. Utica Ins. Co., 15 J. R., 358 ; Thompson v. N. Y. R. Co., 3 Sandf. Ch., 625 ; Trustees of Vernon v. Hills, 6 Cow., 23; People v. Bk. of Nia. Co., id., 196; People v. W. and W. Bk., id., 217; A. & A. on Corp., §§ 94, 636, 734, 735,737, 756, 777.) Defendant’s signature to the agreement made him a stockholder and bound him to take and pay for stock. (Laws of 1848, chap. 40, p. 54, §§ 2, 3; People ex rel. v. Nelson, 46 N. Y., 477, 480; A. & A. on Corp. [9th ed.], § 557; Rosevelt v. Brown, 11 N. Y., 148; Stanton v. Wilson, 2 Hill, 153; B. and N. Y. City R. R. Co. v. Dudley, 14 N. Y., 336; H. and D. Plank R. Co. v. Rice, 7 Barb., 157; Lake 0., etc., R. R. Co. v. Mason, 16 N. Y., 451; R. and W. Plank R. Co. v. Barton, id., 457, note; B. and P. R. R. Co. v. Hatch, 20 id., 157, 161; Trustees of F. Academy v. Allen. 14 Mass., 172; A. & A. on Corp. [9th ed.], § 523; Andrews v. Pontue, 24 Wend., 285.) Defendant could not revoke his subscription. (Lake 0., etc., R. R. Co. v. Mason, 16 N. Y., 451; A. & A. on Corp. [9th ed.], §§ 520, 523; Tuckerman v. Brown, 33 N. Y.; Recr. Eighth Ave. Bk. v. Gridley, 24 Barb.; 20 id., 160; Tallmadge v. F. Iron Co., 4 id., 382, 387-388; Palmer, Receiver, v. Lawrence, 3 Sandf., 174; Mann v. Pentz, 2 Sandf. Ch., 257; 2 R. S. [5th ed.], 662, § 43; Briggs v. Penniman, 8 Cow., 378, 395; Bedf. R. R. Co. v. Bawser, 48 Penn. St., 29 ; Ex parte Bennett, 18 Beav., 339.) The corporation was such an one as is described in and contemplated by the instrument executed by defendant. (2 Pars. on Cont. 11, 15; 2 R. S. [5th ed.), chap. 660, § 31; id., 658, § 19; S. and S. Plank R. Co. v. Thatcher, 11 N. Y., 102-111; Utica Ins. Co. v. Tilman, 1 Wend., 555; People v. S. and R. R. R. Co., 15 id., 113-127; Palmer v. Lawrence, 3 Sandf., 161; Bk. of Toledo v. Int. Bk., 21 N. Y., 542; Eaton v. Aspinwall, 19 id., 119; 43 Barb., 232 ; 26 Wend., 152 ; 3 Denio, 117; People v. Mitchell, 45 Barb., 208-213; People v. Zeyst, 23 N. Y., 140.) It was error to hold that no corporation could be formed for the purposes expressed in the instrument signed by defendant. (Curtis on Patents, §§ 5, 6, 7, p. 5, note, p. 3; 2 R. S. [5th ed.], 658, § 19.) There was no such change in the terms of the certificate of incorporation from the terms of the agreement as would release defendant from his subscription. (S. and S. Plank R. Co. v. Thatcher, 11 N. Y., 102, 109 ; Irvin v. Tpke. Co., 2 Penn., 466; Gray v. Monon. Nav. Co., 2 W. & S., 156 ; A. & A. on Corp., 525, § 541; North. R. Co. v. Miller, 10 Barb., 260; White v. Syr. and U. R. Co., 14 id., 559.) E. C. Sprague for the respondent. A corporation could not be formed under the laws of this State for the purposes mentioned in the instrument signed by defendant. (3 Stat. at Large [Edm. ed.], 733-744; 6 id., 58, 258, 455, 467, 725, 833, 871; People v. Nelson, 46 N. Y., 477, 480.) The instrument signed by defendant did not create any personal liability as against him in favor of the corporation organized. (P. and S. P. Plank R. Co. v. Griffin, 24 N. Y., 150; Burt v. Farrar, id., 518; T. and B. R. R. R. Co. v. Tebbitts, 18 Barb., 297, 310.) [MAJORITY — Rapallo, J.] Rapallo, J. We think that the first ground taken in the opinion of the learned judge before whom this action was tried at Special Term is sufficient to sustain his judgment, without regard to the second position . assumed by him, or to the point upon which the case was determined at General Term. It may be that a corporation defacto was established, and that if the defendant had contracted with it after its formation he would have precluded himself from setting up the invalidity of its organization as a defence to an action upon his contract. This, however, would rest upon the ground that by contracting with it he had recognized its existence as a corporation. No such ground could be assumed where the contract was made before the formation of the corporation, and was conditioned upon its formation. A legal and effectual formation of a corporation or joint stock company for the purpose specified in the contract was a condition precedent to his obligation to put in his capital. He would not be bound under such a contract to invest his capital in the stock of a corporation not legally formed, or which had not obtained the franchise of carrying on the business contemplated by the contract, and in which he had agreed to become interested. A question is raised whether the business of preserving fruits from decay, by the use of the patented invention, might not be included under the head of “ chemical purposes ” contained in the general manufacturing law. In our view of this case it is not necessary to pass upon that question; nor upon the • further question, whether if a valid corporation or joint stock company had been formed for the purposes specified in the contract the obligation into which the defendant had entered with his associates, to take stock in such corporation or company, might not, upon its formation, have been transferred to, or vested in it, so as to confer upon it a right of action upon the contract ? The insuperable difficulty in the way of sustaining this action is, that the only business in which the defendant agreed to embark was that of preserving fruits by the method described in Hyce’s patent. He did not agree to invest capital in any other business. The corporation actually formed included, in addition to that of thus preserving fruits, those of manufacturing preserved fruits; and of canning fruits. He had never agreed to engage in those branches of business, and yet if he were compelled to pay in his money and take stock in the corporation actually formed, the capital might have been employed in manufacturing preserves and canning fruits, even to the exclusion of the patented process, which was the ^ole subject of the contract he had made. This was a very material departure from the original contract, and a variation of its terms to which he never assented ; the corporation having been formed without his approbation, or even his knowledge, and he never having ratified, in any manner, these additions to the contemplated business. Ho joint stock company was ever formed, and the corporation attempted to be formed having been different in its purposes from that in which he agreed to take stock the condition of his contract was not performed, and he cannot be held liable. .The judgment should be affirmed, with costs. All concur. Judgment affirmed.