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Stockholders, consent by to extension of corporate existence.
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Suits, by trustees on dissolution
Taxes for incorporation to be paid before certificate filed, etc....
Term for which corporate existence may be extended.
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AN ACT to amend the stock corporation law. (Chapter 38 of general laws)
APPROVED by the Governor May 18, 1892. Passed, three-fifths being present.
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
The stock corporation law is amended to read as follows, to take effect immediately:
CHAPTER XXXVI OF THE GENERAL LAWS.
THE STOCK CORPORATION LAW.
ARTICLE 1. General powers; reorganization (§§ 1–7).
2. Directors and officers; their election, duties and liabilties (§§ 20-32). 3. Stock; stockholders, their rights and liabilities (§§ 40–55).
GENERAL POWERS; REORGANIZATION.
SECTION 1. Short title, and application of chapter.
2. Power to borrow money and mortgage property.
3. Reorganization upon sale of corporate property and franchises.
4. Contents of plan or agreement.
5. Sale of property; possession of receiver and suits against him.
7. Combinations prohibited.
SECTION 1. Short title and application of chapter. This chapter shall be known as the stock corporation law, but article one shall not apply to monied corporations.
Former section 1 amended.
§2. Power to borrow money and mortgage property. In addition to the powers conferred by the general corporation law, every stock corporation shall have power to borrow money or contract debts, when necessary for the transaction of its business, or for the exercise of its corporate rights, privileges or franchises, or for any other lawful purpose of its incorporation; and may isssue and dispose of its obligations for any amount so borrowed, and may mortgage its property and franchises to secure the payment of such obligations or of any debt Contracted for the purposes herein specified; and the amount of the obli gations issued and outstanding at any one time secured by such mortgages, excepting mortgages given as a consideration for the purchase of real estate, and mortgages authorized by contracts made prior to May first, 1891, shall not exceed the amount of its paid up capital
stock, or an amount equal to two-thirds of the value of its corporate property at the time of issuing the obligations secured by such mortgages, in case such two-thirds value shall be more than the amount of such paid up capital stock. No such mortgages, except purchasemoney mortgages shall be issued without the consent, of the stockholders owning at least two-thirds of the stock of the corporation, which consent shall be in writing and shall be filed and recorded in the office of the clerk or register of the county where it has its principal place of business, or shall be given by vote at a special meeting of the stockholders called for that purpose; and a certificate of the vote at such meeting, signed and sworn to by the chairman and secretary of such meeting, shall be filed and recorded as aforesaid. When authorized by such consent, the directors, under such regulations as they may adopt, may confer on the holder of any debt or obligation secured by such mortgage the right to convert the principal thereof, after two and not more than twelve years from the date of the mortgage, into stock of the corporation; and if the capital stock shall not be sufficient to meet the conversion when made, the stockholders shall, in the manner herein provided, authorize an increase of capital stock sufficient for that purpose.
Former section 2 amended.
See chap. 213 of 1822, section 2; chap. 517 of 1864, section 2; chap. 481 of 1871, section 13; chap. 611 of 1875, section 1; chap. 163 of 1878, and section 1, chap. 394 of 1888, all now repealed.
For proceedings to sell, mortgage or lease real estate, see title 2, chap. 95 of 1890.
The right to assent to mortgaging the property of a corporation is collective, to be exercised in common with other shareholders and in the mode prescribed by the statute or by the articles of association. Campbell v. American Zylonite Co.,, 122 N. Y., 455.
It is at least doubtful whether any but stockholders can complain that the assent was not given and filed in pursuance of this section. Paulding v. Chrome Steel Co., 94 N. Y., 334; Greenpoint S. Co. v. Whitin, 69 id., 328.
The assent, required by this section, is exacted for the benefit and protection of stockholders against improvident and corrupt acts of the officers of the corporation. Paulding v. Chrome Steel Co., ante.
The legislature, in such enactment, did not regard the mortgaging of corporative property as improper per se. Id.
The owners of corporate stock, by force of their ownership, may put a mortgage upon the corporate property when the statute permits. People v. North R. S. R. Co., 121 N. Y., 582.
A corporation, without some statute allowing it, can neither sell nor mortgage its franchises. Carpenter v. Black Hawk Gold Mining Co., 65 N. Y., 43; Susq. Can. Co. v. Bonham, 9 Watts & S., 27; Arthur v. Com. and R. R. Bk., 9 Smedes & M., 394; New Orleans, etc., R. R. Co., 27 Miss., 517; Stewart v. Jones, 40 Mo., 140. A corporation, organized under this act, may, upon filing the requisite assent of two-thirds of its stockholders, mortgage its real estate to secure the payment of its debts, but not to raise money to carry on its operations. Id.; Rochester Sav. Bk. v. Averill, 26 Hun, 643.
A mortgage is not invalid because it purports to mortgage the franchises of the company and its personal property, as well as its real estate. Carpenter v. Black Hawk Gold Mining Co., ante. So far as it purports to convey the franchises of the company, it is simply inoperative. Id. Power to mortgage its personal property was conferred by chap. 481 of 1871, and its franchises by chap. 163 of 1878.
The statute prescribes no form for such mortgage, and there is no rule of law which requires a mortgage upon real estate to be in any particular form. Id. In this case, the instrument was in the form of a deed in trust, with power of sale in case of default in payment of the indebtedness secured. Id.
There is nothing in the statute which limits the effect of the mortgage to the present real estate of the company, and nothing in the nature of a mortgage security which can thus limit its effect. Id.; Seymour v. C. & N. F. R. R. Co., 25 Barb., 254; Fisk v. Patter, 2 Abb. Ap. Dec., 138.
A separate mortgage need not be executed by the corportion to each creditor to secure his debt. Carpenter v. Black Hawk G. M. Co., ante. A single mortgage to one or more persons, though not creditors, in trust for the security of all the creditors, will accomplish the purpose of the statute. Id.; De Ruyter v. St. Peter's Church, 3 N. Y., 238; King v. Merch. Ex. Co. v. 5 id., 547; Bucklin v. Bucklin, 1 Abb. Ap. Dec., 242; Rochester Sav. Bk. v. Averell, 96 N. Y., 467; aff'g 26 Hun, 643.
A loan of money to pay the debts of a corporation, where the money is so applied, is a debt contracted in the business for which the corporation was organized within the meaning of the statute, and may be secured by mortgage. Rochester Sav. Bk. v. Averell, ante; aff 'g 26 Hun, 643.
The written assent of stockholders owning two-thirds of the capital stock to the mortgaging of the corporate property, is an indispensable condition of the creation of a valid mortgage. Id.; aff g 26 Hun, 643; Vail v. Hamilton, 85 N. Y., 453.
But a mortgage, executed without such assent, is validated by a subsequent assent, where there are no intervening rights. Id. Such assent make it, as of the time it is given, a valid mortgage. Id.; Martin v. N. F. P. Mfg. Co., 122 N. Y.,
The filing of the assent in the office of the clerk of the county, where the mortgaged property is situated, is not an indispensable condition to the validity of the mortgage. Rochester Sav. Bk. v. Averell, ante; aff 'g 26 Hun, 643. Without such filing, the mortgage is valid as against a subsequent mortgagee or purchaser, with notice. Id.
Whether any person, who is not a stockholder, can interpose the objection of want of a sufficient assent, is questionable. Greenpoint S. Co. v. Whitin, 69 N. Y., 328; aff'g 7 Hun, 44.
A mortgage, though recorded prior to the filing of an assent, is valid from the time of such filing. Id.; aff 'g 7 Hun, 44.
For the purposes of such assent, the amount actually issued and owned should be regarded as the amount of the capital stock. This power of assent is conferred upon those who represent two-thirds of the actual stock. Id.
The statute does not prescribe any particular form of assent, nor what it shall specify or contain. It only requires an assent in writing. Id.
The proviso was not enacted because the mortgaging of corporate property was regarded as improper per se. Id.
The question, whether any assent is necessary under the act of 1864, where a mortgage was given for the purchase- money of the mortgaged premises, or for a debt in the nature of purchase-money, was not passed upon in any case decided under such act; but the present act, in express terms, makes such assent unnecessary in case of purchase-money mortgages.
A defect in an assent, in order to invalidate a mortgage given under it, in the absence of fraud, or of any objection on the part of the stockholders, must be of so substantial and radical a character that an intention to consent can not be inferred from the instrument. Greenpoint Sugar Co. v. Whitiu, ante. The assent in this case, though very deficient, was held to be sufficient.
The power to alien and mortgage lands in the course of its business, inhered, by the common law, in a corporation capable of acquiring and holding them, as in natural persons, as an incident of ownership. Rochester Sav. Bk. v. Averell, ante; aff'g 26 Hun, 643; Curtis v. Leavitt, 15 N. Y., 9; Barry v. Mer. Ex. Co., 1 Sandf. Ch., 280.
The legislature, in creating corporations, may, as it sees fit, grant or withhold such powers. Id. The act of 1848 created, in this respect, a disability not existing at common law, and the prohibition therein was absolute and unqualified. The act of 1864 did not in terms repeal the prohibition in the original act, but was a new provision containing permission to mortgage for the special purposes, and under the proviso, therein mentioned.
The present act embodies such permission and provision, with certain qualifications. See Welch v. G. & T. N. Bank., 122 N. Y., 177; Lord v. Yonkers F. G. Co., 99 id., 547.
The object of the legislature in requiring such assent, was the protection of stockholders against improvident, collusive or unwise acts of the trustees in encumbering the corporate property. Id.; Greenpoint S. Co. v. Whitin, ante; and not the protection of creditors or subsequent encumbrancers. Id. The filing of the assent is unnecessary for the latter purpose. Id. The record of the mortgage is constructive notice of the lien. Id. See Lord v. Yonkers F. G. Co., 99 N. Y., 547; Welch v. I. & F. N. Bk., 122 N. Y., 177.
After judgment of foreclosure has been obtained upon a mortgage executed by a corporation, it is to be presumed in the absence of proof, that the required assent was procured and filed. Denike v. N. Y. & R. L., etc., Co., ante. Such judgment, unless impeached, is conclusive against the corporation and its stockholders as to the validity of the mortgage. Id. The burden of impeaching it is upon the stockholders. Id. They must establish that the mortgage was not given to secure a debt of the company, nor that the money obtained was used to pay debts. Id.
With the prescribed assent of the stockholders, corporations are as competent as natural persons to secure the payment of their legitimate debts by mortgage upon their real or personal property. Lord v. Yonkers F. G. Co., ante.
There is nothing in the statute which requires that the debt to be secured should have been contracted at any particular time. Id. If it is contracted simultaneously with the giving of the security, and is a legitimate debt incurred in the business of the company, it comes within the letter of the authority conferred by the statute. Id. It is immaterial whether the money is applied by the borrower to the payment of some antecedent debt, or to some other purposes for which it is legitimately entitled to borrow money. Id. A mortgage given to secure future advances raises a different question.
A consent to mortgage the real and personal estate, does not authorize a mortgage of the corporate franchises. Id.
Where a trust mortgage is given by a corporation to secure the payment of its negotiable bonds to be thereafter issued, the debts authorized to be secured need not be in existence at the time of the execution of the mortgage and bonds; it is sufficient if the bonds are negotiated only for the purpose of securing or paying debts contracted before the negotiation. Id.
Such corporation can give mortgages to secure debts contracted only in carrying on the operations named in its certificate of incorporation. Astor v. Westchester G. L. Co., 33 Hun, 333.
A corporation, formed under this act, has power to give a mortgage for future advances. Martin v. Niagara F. P. Mfg. Co., 44 Hun, 130; Jones v. G. & I. Co., 101 U. S., 622; Union Nat. Bk. v. Matthews, 8 Otto, 621; s. c., 19 Alb. L. J., 132; Central G. M. Co. v. Platt, 3 Daly, 263.
The franchises, privileges, rights and liberties, which are not included in a consent to mortgage the real and personal estate of the corporation, are the corporate rights and franchises which become vested in the company by virtue of its organi zation as a corporation. Lord v. Yonkers F. G. Co., 101 N. Y., 614. Patent rights, licenses, easements or privileges, acquired by the company since its incorporation, either from individuals or other corporations, are in the nature of property, and included in a consent to mortgage the corporate property. Id.; Bridgeport v. N. Y. & N. H. R. R. Co., 36 Conn., 255 Chicago R. R. Co. v. People, 73 Ill., 541; Morgan y Louisiana, 3 Otto, 223.
A corporation is empowered to mortgage its real estate to secure a debt contracted by it in the business for which it was incorporated. Martin v. N. F. P. Mfg. Co., 122 N. Y., 165; 33 N. Y. St. Rep., 318.
Assent given before execution of mortgage by manufacturing company, where no rights of creditors intervene, is sufficient compliance with statute to make mortgage valid as against company and its stockholders. Id.
A mortgage executed pursuant to a resolution of directors, who are not share holders, is not, for this reason, void. Welch v. I. & T. N. Bk., 122 N. Y., 177:| 33 N. Y. St. Rep., 452.
Where the written assent of all the shareholders is signed the day before the mortgage is executed, it is, as between the assignee of the mortgage and the receiver of the corporation, a sufficient compliance with the statute to file the