
    OGDENSBURGH &c. RAILROAD COMPANY v. WOOLEY.
    September, 1864.
    Where a subscriber to the stock of a railroad company gave notes for ten per cent, of his subscription and for several installments which been called for, and the company disposed of the notes before maturity to a purchaser for value and without notice, who sued on the notes and, after litigation, collected them out of the subscriber’s property,— Held, that the subscription was valid under the general railroad act (L. 1850, c. 140, § 4), which declares that no subscription to the stock shall be taken without a payment of ten per cent, of the amount, in money.
    Under this statute, if both the subscription and the actual cash payment of ten per cent, have been made, the contract is binding, although the acts were not simultaneous.
    
    The validity of the subscription does not depend on whether the payment of the ten per cent, was made willingly or by legal compulsion.
    The Ogdensburgh, Clayton & Rome Railroad Company sued William W. Wooley, in the supreme court, to recover sundry installments alleged to be due upon defendant’s subscription to the company’s capital stock.
    On the trial, it appeared that at the time the defendant made his subscription to the stock of the plaintiff he had nothing in money, but that he had given his promissory note for one hundred dollars (the amount of the subscription being one thousand dollars), as and for the ten per cent, required. That subsequently by an agreement with the plaintiff the defendant’s subscription was reduced to seven hundred dollars, and the defendant’s name was entered in the plaintiffs’ books as a subscriber for that amount.
    That the defendant afterwards gave two negotiable notes for a sum including the original ten per cent., and the several calls which had been made upon him as a stockholder, and the note for one hundred dollars was surrendered to him. Before their maturity the said two notes were negotiated, and subsequently suit was brought on them, in which the defendant appeared, and put in an answer, but becoming satisfied that the notes had been transferred without notice and for value, he allowed a .judgment to be taken against him by default. Further calls had been made upon the defendant, and he had neglected to pay, and the plaintiff then brought this action. The defense was that the defendant had never paid the ten per cent, in money on making the subscription, as required by the general railroad act, and that therefore the subscription was not valid.
    The provision of the act on this point is: “ At the time of subscribing, every subscriber shall pay to the directors ten per cent, on the amount subscribed by him in money; and no subscription shall be received or taken without such payment.” L. 1850, c. 140, § 4.
    The referee to whom the case was referred, gave judgment in favor of the plaintiff, on the ground that the defendant was not discharged from his subscription by the omission to pay ten per cent, in cash at the time of subscribing, but that the giving of the notes which included the ten per cent, and the subsequent calls and the payment thereof, operated as a waiver of any right he might have had to repudiate his subscription, and was a ratification thereof.
    The judgment for plaintiff was reversed by the court at general term, and a new trial ordered, on the ground that although payment voluntarily made at a time subsequent to the subscription might ratify or perfect th.e act of subscription, yet the compulsory payment of a note given for the ten per cent, to a holder of the note, the maker being unable to resist its payment in the hands of a bona fide holder for value, did ,not in any way make valid the subscription, which was void without the payment o$ the ten per cent.
    From that decision the plaintiff appealed to this court.
    
      John II. Reynolds, for plaintiff, appellant.
    
      R. A. Brown, for defendant, respondent.
    
      
       See Beach v. Smith, 30 N. Y. 116; and compare Crocker v. Crane, 21 Wend. 211; see, also, People v. Albany & Susquehanna R. R. Co., 1 Lans. 308, 345 ; 55 Barb. 344; S. C. 7 Abb. Pr. N. S. 265, 806 ; reversed in part in 5 Lans. 25.
    
   By the Ooukt.

Wright, J.

The defendant became a subscriber to the plaintiff’s capital stock; but at the time of subscribing did not pay ten per cent, in money. Subsequently, by agreement, the original "subscription was reduced from one thousand dollars to seven hundred dollars, and on two occasions he gave to the company two negotiable notes, in which»were embraced and included the original ten per cent, and the several calls which had_been made, and which were due and payable upon the stock down to August 1, 1854. These notes the defendant afterward paid. Before their maturity they were discounted for the railroad company by the Bank of Lowville, and subsequently suits were brought by the bank upon them, judgments taken therein by default, and the judgments satisfied and paid by the defendant. Thus there was an actual payment of the original ten per cent., and three several subsequent calls or installments of ten per cent. each. After forty per cent, had been paid on the subscription, the defendant, in an action to recover further installments, alleges as a defense that such subscription is invalid, and he is not bound by it because of his omission to pay ten per cent, in cash contemporaneously with the act of subscribing.

If the statute not only requires a subscription on the books of the company, but that such subscription should be attended by a cash payment of ten per cent, to make a valid contract and one binding on the parties, the defense must succeed. On the contrary, if a contemporaneous cash payment was not necessary to the validity of the subscription, or was not a condition precedent to the defendant’s liability attaching; or if the subsequent payment of the ten per cent., voluntarily or involuntarily, so that the company actually got the money, invested the defendant with all the rights of a stockholder in the plaintiff’s corporation, and he could have compelled a delivery of the stock to him when the action was brought, there is no defense. If he ever became a stockholder he could not repudiate his obligation to pay for the stock for which he had subscribed, and if, as was doubtless the case, the object of the statute requiring a subscriber to pay ten per cent, in cash on the amount subscribed, was to secure money to the plaintiff on subscription to its stock, it was fully accomplished in the present case. The money, it is true, was not paid simultaneously with the subscription, but it was afterward realized by, and went into the treasury of the company, and I am unable to see why the subscription would not at least be valid and binding from the time the money was realized, which was before the commencement of the suit. It could only be otherwise upon the ground that to make a valid and obligatory contract for stock between the company and the subscriber, the statute imperatively requires two things to be done, viz: a subscription and payment by the subscriber of ten per cent, of the amount subscribed by him in cash at the time of subscribing, and that unless the subscription and payment are simultaneous, though the ten per cent, may be subsequently paid and the money realized by the company, no liability attaches to the subscriber. This position I consider untenable, and it has been so regarded in at least two cases in this court. In'the case of Black River & Utica R. R. Co. v. Clark, 25 N. T. 208, the defendant made no cash payment at the time of the subscribing. He subsequently paid forty per cent, on the amount of his subscription, and then, as .in this cáse, sought to defend an action to recover further installments on the ground of the invalidity of the contract, because of the omission to pay the ten per cent, in money at the time of subscribing; but the court held that after the actual payment of forty per cent, on the subscription) the statute requirement on this point must be deemed fully complied with, and the defendant was bound by the contract. In Beach v. Smith, p. 58 of this vol., the defendant paid no money at the time of subscribing. He had been acting for the company some three months before he subscribed, in July, 1853, and continued in its employ afterward. On February 25, 1854, he settled with the company, charging himself with the ten per cent., and also with another installment of ten per cent, called for and payable February 1,1854, and the company paid him the balance of his account. The court said: “ It is sufficient that ten per cent., or the first amount to be paid, has been subsequently paid, to render the subscription valid and binding upon the defendant. On February 25, 1854, he in fact not only paid this ten per cent, but the first installment called for of ten per cent., payable on the first day of that month. He had, therefore, on that day, paid twenty per cent, on the amount of his subscription, and he cannot now be permitted to allege that it was not valid because he did not, at the time of subscribing, pay the ten per cent, in cash.” The only distinction between these cases and the present is, that in the first case cited, the subsequent cash payments were made t directly to the company by the defendant; in the second no money was paid, but the defendant settled with the company, voluntarily charging himself, in such settlement, with the two installments as so much money paid on his subscription, the company paying him the balance of his claim against it. In the present case the defendant did not directly pay the money, but with the intent to effectuate his subscription, gave negotiable notes for three installments, and also for the original ten per cent.; and these notes he afterward paid. When he gave the notes he had not reached the point of attempting to repudiate his subscribtion. By giving them he authorized the plaintiff to negotiate them and apply the proceeds in payments upon his subscription, and this was done, and is the same -in legal effect as if he had paid the money himself. It can make no difference whether the defendant afterward paid the notes thus given, willingly or not, so long as they were in fact paid. If there was an actual payment of the ten per cent., though the defendant may have afterward made an ineffectual effort to get rid of the payment of the notes which supplied the plaintiff with the means of actually getting the money, the subscription would not be void. Certainly the validity or invalidity of a subscription to stock under the general railroad act, cannot depend on the fact whether the statute has been complied with in the payment of the ten per cent, willing or unwillingly by the subscriber. A subscription cannot be valid when the money has been subsequently voluntarily paid, and invalid when there has been an actual payment — it may be against his will at the time the money is received. In the cases cited it was distinctly held that a subscription was not invalid, though there was an omission to make the cash payment simultaneously with subscribing.

It was said that the intent of the railroad act was that no subscription should be valid until ten per cent, in cash was paid thereon, and not that it should be invalid if the actual subscription and payment of the money were not simultaneous acts; that writing the name in the subscription book should be deemed but part of the transaction, and provisional or conditional until the ten per cent, is paid; but after payment, and certainly after payment of forty per cent, on the subscription, as in Clarke’s case, and twenty per cent, thereon, as in the case of Smith, the statute requirement on this point must be deemed fully complied with. In both the cases, the contract was held to be binding on the parties, though at the time of subscribing, no money was paid; in the one case, the party making 'a subsequent payment on his subscription of four hundred dollars, which was more than the ten per cent.; and in the other, the party never paying any money, but some eight months after subscribing, adjusting and discharging his demand against the company by crediting the latter with the original ten per cent., and a further installment for the same amount, and receiving the balance due to him after deducting the two sums. The cases, in effect, decide that there must be both a subscription and payment of money to make a binding contract, but that these acts need not be simultaneous, the statute being satisfied, and the contract of subscription complete, by a subsequent actual payment, or receipt of the money. And why not? Every substantial object of the statute requiring a money payment of one-tenth of the subscription is answered by the corporation actually getting the money. If the purpose of the requirement be to secure money to the corporation on a subscription to its stock, such purpose is fully accomplished by the payment before or after the subscriber writes his name in the subscription book of the company. Can there be any doubt, but that after a subscription and actual payment in cash of the required sum, the subscriber becomes vested with all the rights of a stockholder in the cor'poration? Is he a stockholder, when' the payment of the money attends the act of subscribing, and not one, or having any rights as such, when the company omits to exact, and he to pay, the ten per cent, at the moment of subscription, but the corporation subsequently by his act in fact realizes the money ? Clearly not. When there has been a subscription unattended by the cash payment, the cases referred to hold that the contract is still imperfect and incomplete. It has no binding by the mere act of subscribing.

The statute, it is said, requires the payment of ten per cent, in money on the amount subscribed, and until that is paid there is no legal or obligatory contract. The subscriber may refuse to make the cash payment and perfect the agreement for stock authorized by the statute. . But if the statute be complied with, hoth in the subscription and actual cash payment of ten per cent., so that the corporation gets the money, though it may not have been paid or received at the time of subscribing, the contract is a valid and obligatory one. The subscriber becomes a stockholder, with the obligation upon him to make full payment for his stock, and with the right, upon such payment, to compel a delivery of it to him by the corporation. When the corporation in this case got the original ten per cent., and the subsequent calls of thirty per cent., the defendant was clothed with all the rights of a stockholder in the corporation. He could not repudiate his obligations as such nor deny his liability to make full payment for the stock for which he had subscribed. After subscribing and voluntarily giving to the corporation the means of raising money to pay not only the original ten cent., but further installments of thirty per cent., and the money had been actually received by the company to the extent of forty per cent, of his subscription, it is absurd to pretend that he did not become a stockholder or that his subscription was not binding upon him, because of the original defect in omitting to make the payment of ten per cent, at the time of writing his name in the subscription book. Assume that the statute requires a subscription and payment of this ten per cent, in money to concur to make a valid contract for the stock of a railroad corporation and one that will bind the parties. If the directors do not exact the money and the subscriber omits to pay at the time of subscribing, it is the doctrine of former cases in this court that the contract remains incomplete and of no binding force. If, however, the money be subsequently paid, the statute is complied with; its object is accomplished by the corporation realizing in money one-tenth of the amount subscribed; all is done that is required to be done to make a valid subscription. And if the contract be not valid and binding before, it must be after the money has been paid or realized by the corporation. In Smith’s case nothing was paid at the time of subscribing, but eight months afterward he did what was equivalent to a payment of the ten per cent. He paid it by setting off against the amount, his claim for services rendered for the company.

His subscription was,held valid and binding upon him; and he was not allowed to allege the original defect in it, viz: omitting to make the cash payment at the time of subscribing, as a defense to further calls. In this case, the defendant subscribed, but he did not at the time pay the ten per cent, in cash. He gave to the company two negotiable promissory notes for installments and also for the original ten per cent. These notes were negotiated to, and discounted for the company by, the Bank of Lowville, and in that way the corporation not only realized in cash the first ten per cent., but also three subsequent installments of ten per cent. each. The notes were afterward paid by the defendant, it may be unwillingly, after he had been advised that he could avoid the subscription on the ground of its original defectiveness. This, however, does not affect the question of a compliance with the statute by the payment of ten per cent, of the amount of his subscription. The company actually got the money, and the defendant intended this result. The notes which he gave were in a negotiable form, and, giving them in that form, he authorized and meant that the plaintiff should negotiate them and apply the proceeds in payments upon his subscription. This having been done, the legal effect of the transaction was the same as though he had paid the money himself. At all events, there was a subscription, and, by the subsequent voluntary action of the defendant, there was a payment to, and receipt by, the corporation, not only of the original ten per cent., but three further installments of thirty per cent. After this, it is quite too late to allege that the subscription is not valid and binding upon him. Conceding it to have been invalid before the ten per cent, in cash was paid to or realized by the corporation, it was a valid subscription from the time the money was realized. If the original subscription was not binding upon the defendant because of the omission to pay ten per cent, in cash at the time it was made, his subsequent acts cured the invalidity. He became bound by it, and cannot now be permitted to allege the original defect in the subscription as a defense to further calls. I think, therefore, on- the ground assumed by the referee, if on no other, his judgment was right".

It is, perhaps, unnecessary to discuss the point whether the contract of subscription was not valid and binding, even without payment of the ten per cent, in money. [Upon this point the learned judge expressed the opinion that the statute provision might be regarded as intended for the benefit of the company, and therefore capable of being waived by them, at the request of a subscriber; but as a majority of the court did not concur in this view, the remarks are omitted.]

The order of the general term granting a new trial should be reversed, and the judgment of the special term aflirmed.

A majority of the judges concurred in reversing the judgment, upon the ground above stated.

T. A. Johnson', J., delivered a dissenting opinion, to the effect that the doctrine of the cases above referred to, ought not to be extended, and that no money having been paid at any time by the defendant to the plaintiff, the subscription remained as it was at the beginning, a mere dead form; the giving of the note did not vitalize it, nor did the payment of the note to another as holder after action brought upon it; and hence there had been no such payment upon the subscription as the statute required to make it valid, and no action could be maintained upon it.

Order of general term reversed, and judgment of special term affirmed, with costs.  