
    In the Matter of the Application of the Rochester, Hornellsville and Lackawanna R. R. Co., to Acquire Title to Certain Real Estate, Resp’t, v. Charles H. Hartshorn et al., App’lts.
    
      (Supreme Court, General Term, Fifth Department,
    
    
      Filed, October 19, 1888.)
    
    1. Railroads—Negotiations for subscription to stoók of railroad-corporation BEFORE ORGANIZATION ARE VOID.
    Preliminary negotiations for subscription to the capital stock of a railroad corporation, before the same is organized, are void and not binding, upon the subscriber, nor the company after its organization.
    2. Same—Subscriptions not in conformity with general railroad act, § 4, ARE VOID.
    
      Held, that a subscription to the capital stock of a railroad corporation, which was not in conformity with the provisions of section 4 of the general railroad act was void.
    
      3. Evidence — Upon proceedings to acquire lands for railroad purposes—Incompetency of.
    
      Held, that upon proceedings instituted by a railroad corporation to acquire lands, such a subscription was improperly received in evidence to determine the value of the lands sought, against those succeeding to the title of the party with whom the negotiations had been.
    Appeal by the land owners from the appraisal and report of commissioners appointed to ascertain and determine the compensation which should be paid to the owners for the real estate involved in the proceedings; and also from an order of the Monroe county special term, denying the land owners’ motion to set aside the report of the commissioners.
    
      Daniel E. Benton, for appl’ts; Frank S. Smith & M. Rumsey Miller, for resp’t.
   Barker, P. J.,

The important question presented on this appeal arises on an exception taken by the land owners to an item of evidence received on the hearing relative to damages. The owner of the fee of the lands is Charles H. Hartshorn who is the son of the late Charles Hartshorn, who died intestate and the owner of the premises in question, before the commencement of these proceedings.

The quanity of land described in the petition is fifteen and one-quarter acres, and the award of damages, the sum of $3,100.

The evidence covered by the exception is an instrument in writing of which the following is a copy: “How, thererfore, in consideration of such subscription, it is agreed on the part of the said company that the said Hartshorn shall be allowed at the rate of $200, per acre, for the right of way on the lands so taken from him, for the purposes of said railroad, which shall be of the width of sixty-six feet and taken along the line of the N. Y. L. E. & Western Railroad; if such Rochester, Hornellsville & Lackawanna Railroad Company shall be located on what is known as the eastern route and distant from said Erie road, then said Hartshorn shall be relieved from said subscription, with the understanding that he shall make such new subscription, as in his judgment shall be right and proper, and not less than $2,000, or twenty shares of said stock. Dated May 26, 1886. (Signed), John McDougal, President; J. W. Hear, Secretary.” This paper was executed by the deceased Charles Hartshorn, and before the petitioner was organized as a corporation under the general railroad act, but the promoters of the scheme to construct and operate a railroad between the places mentioned, in the articles of association had negotiations' with the said deceased and others, residents of the city of Hornellsville, with a view of securing their co-operation and pecuniary assistance in carrying out the enterprise, which resulted in a written proposition being made and signed, by the deceased and others, citizens of the city of Hornellsville, to the effect, that they would, within thirty days after the completion of the proposed railroad, pay to the company so to be organized, the sum of $50,000, in money, and procure the right of way for the entire length of the road without charge to the company, with this qualification of their offer; if the right of way should cost to exceed $10,000, then the said excess to the amount of $15,000, should be deducted from the said sum of $50,000 which was to be paid in money. The other terms and conditions embraced in the proposition, it is unnecessary to mention in considering this exception.

This offer or proposition was accepted in writing by one of the promoters of the scheme, in behalf of himself and his associates. Thereupon the deceased signed another instrument in writing, agreeing to subscribe for $5,000 of the capital stock of the proposed company payable upon the performance of certain conditions inserted in the same instrument.

It was, at that time, contemplated by the promoters of the scheme, that John McDougal and J. W. Near, who signed the said paper, so received in evidence, would, when the company was organized, be chosen president and secretary of the same, and they were afterwards, in fact, elected to those positions respectively. After the organization was completed, the road was located on the line known and mentioned in the said papers, as along the line of the N. Y., L. E. and Western Railroad Company, and on and over the lands of the said Charles Hartshorn.

On the hearing before the commissioners, the owners examined the witnesses as to the value of the lands taken, which, in the opinion of such witnesses, was largely above the sum of $200 per acre. The petitioner made no offer on the hearing, that the damages might be assessed at $200 an acre, but gave evidence of the same character as that introduced by the owners, the witnesses placing the value of the lands taken, to be less than $100 per acre. The several instruments were executed about the same time, and under such circumstances, that they constituted but one instrument, and were so considered by the commissioners at the-time they were received in evidence.

The precise question presented by the exception is, whether these papers were competent evidence on the subject of the damages, for that was the only question the commissioners, were authorized by the order of their appointment^ to consider and determine.

In offering the instrument in writing, the counsel for the petitioner insisted, that it was a valid offer on the part of the then owner, Charles Hartshorn, to sell the land for the sum of $200 per acre, and was binding upon the present owner, his son and only heir-at-law (page 204). As we read the record, the commissioners received the papers in evidence, as competent proof of the question of damages, and that the same constituted a valid contract on the part of the deceased to sell and convey the right of way at the price named therein, and so far as it related to the property in question was binding upon the present owners (page 234).

The rulings of the commissioners, as set forth in the record, do not sustain the position which the counsel for the petitioner now makes, that these instruments were received in evidence formally, and whether they were valid evidence for any purpose was to be afterwards passed upon, and were not, in fact, considered by the commissioners as evidence in the case. As no corporation had been created when these instruments were executed, they were null and void as to Charles Hartshorn.

It takes two parties to make a contract. There must be a promisor and a promisee. After the company was organized, there was never any recognition by it, in any form or manner .whatever, of the validity or even of the existence of these instruments; nor did Mr. Hartshorn, the subscriber for the capital stock, ever pay. any part of his subscription or recognize his obligation to pay the same. The situation is precisely the same as it was on the day these papers were excluded and delivered. The petitioner, by instituting these proceedings, repudiates the proposition now made that these instruments constituted a valid and

binding agreement on the part of the land owner to convey the premises for the price mentioned therein; for it is averred in the petition that the company has not been able to acquire title to the lands, for the reason that it has been unable to agree with the owner of the same as to the amount of compensation to be paid therefor, and that the owners demand a sum largely in excess of their value. All the authorities bearing upon this subject, hold that preliminary negotiations for subscription to the capital stock of a railroad corporation, before the same is organized, are void, and not binding upon the- subscriber nor the company after its organization. B. and J. R. Co. v. Gifford, 87 N. Y., 294; B. and J. R. Co. v. Clark, 22 Hun, 359 ; T. and B. R. Co. v. Tibbits, 18 Barb., 297.

The subscription was not absolute, but was conditional, and not in conformity with the provisions of the general railroad act, and for that reason independent of the one already mentioned, was invalid. The subscription was not obligatory upon the subscribers, and the same was not payable until the railroad was completed and put in operation, and this provision was hostile to the provisions of the fourth provision of the section of the general railroad act .and rendered the same nugatory and void. T. and B. R. Co. v. Tibbits, 18 Barb., 297 ; P. and S. P. P. R. Co. v. Griffin, 24 N. Y., 150 ; B. and O. T. Co. v. North, 1 Hill, 518.

The condition imposed by the subscribers, and sanctioned by the promoters of the scheme, gave this class of subscribers an advantage over those who may have made subscriptions to the capital stock in compliance with the provisions of the general railroad act, for such subscribers were required to pay upon the call of the board of directors.

The subscription papers contained another condition, that upon paying up the stock, the subscribers might, at their election, exchange the same for an equal amount of the first mortgage bonds of the company, thus making their subscription, in effect, a loan of money to the company, secured by a mortgage upon its property, and the subscribers escaping loss in case the stock should prove valueless and the securities available.

As these instruments, put in the form of contracts, were not such in law, nor binding upon any of the persons or parties named therein, they were incompetent as evidence for any purpose, and the exception was well taken. For this reason, we think, the award and the report should be set aside and another hearing directed. In proceedings of this character the strict rules of evidence, applicable to the trial of issues of fact, in actions, does not, in all respects, apply as to the effect of receiving incompetent evidence. There is good reason for supposing the commissioners were influenced in affixing the amount of damages by this evidence, the receipt of it was strenuously resisted by the land owners, and the reason why the evidence was incompetent stated and discussed before the commissioners, before they made the ruling that the evidence was incompetent. After these instruments were received in evidence they were referred to by the commissioners as contracts bearing on the question of damages, and binding on the present owner as the successor in interest, to one of the parties executing the agreement. The amount of the award very nearly corresponds with the sum mentioned in the preliminary papers as the price which the land owner should receive, and is a circumstance indicating that the commissioners may have acted on the supposition that they constituted a valid contract binding on the owner and his heirs-at-law. We cannot say that injustice has not been done to the owners by the receipt of this incompetent evidence, and are of the opinion that they are entitled to a rehearing.

We do not deem it necessary tononsider the other exceptions taken upon the receipt of evidence, or to the ex-elusions of offers of evidence, for it is not likely that those questions will again arise in the same form.

The appraisal and report of the commissioners are set aside and a new hearing awarded, before new commissioners, with the costs of this appeal to be paid by the petitioner, and the order of the Monroe county special term is reversed, without costs to either party.

All concur.  