Stock Corporation Law (L. 1890, ch. 564), §§ 31, 34, 40.

ness does not relieve its directors from the necessity of filing an annual report. In order to have that effect, the abandonment of the business must be certain and final, and such as to place the corporation beyond the possibility of resuming business. Stevenson v. Cowen, 84 App. Div. 135, 82 N. Y. Supp. 78.

Effect of general assignment. A general assignment for the benefit of creditors does not necessarily relieve the directors from the liability imposed upon them by the above section for a failure to file an annual report of the corporation. To relieve the directors of the liability it must appear that the corporation is insolvent, that it has ceased to exist by dissolution or as matter of fact from a total abandonment of its business and is in such a position that it does not intend to and cannot continue or resume operations under its franchise. Horrocks Desk Co. v. Fangel, 71 App. Div. 313, 75 N. Y. Supp. 967.

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Action for penalty; sufficiency of summons.- An action to enforce a directors' liability for a failure of the corporation to file an annual report is an action for a penalty, and a summons served therein must conform to section 1897 of the Code of Civil Procedure relating to the form of a summons in an action for a penalty. Farmers and Merchants' State Bank v. Stringer, 75 App. Div. 127, 77 N. Y. Supp. 410.

§ 31. Liability of officers for false certificates, reports or public notices. (C. & G. Gen. Laws, p. 866.)

Liability for debts incurred prior to report. This section is not available to creditors whose debts were incurred prior to the making of the certificate or report alleged to be false, and who consequently did not rely upon the credit thereof. Bagley & Sewall v. Lennig, 61 App. Div. 26, 70 N. Y. Supp. 242.

The liability imposed upon officers of a corporation for false statements contained in an annual report in favor of any person becoming a stockholder upon the faith of such report to the extent of the damages sustained by such stockholder, does not render the above section a penal statute to be governed by section 983 of the Code of Civil Procedure, requiring actions to recover penalties imposed by statute to be tried in the county where the cause of action arose. Hutchinson v. Young, 80 App. Div. 246, 80 N. Y. Supp. 259.

§ 34. Liability of officers for debts. (C. & G. Gen. Laws, p. 868.)

Application to foreign corporations. The provisions of the above section are applicable to foreign as well as domestic corporations, although it does not in terms refer to them. Staten Island Midland R. Co. v. Hinchcliffe, 170 N. Y. 473, modifying 66 App. Div. 614, 73 N. Y. Supp. 1148.

§ 40. Issue and transfer of stock. The stock of every stock corporation shall be represented by certificates prepared by the

Stock Corporation Law (L. 1890, ch. 564), § 40.

directors and signed by the president or vice-president and secretary or treasurer and sealed with the seal of the corporation, and shall be transferable in the manner prescribed in this chapter and in the by-laws. No share shall be transferable until all previous calls thereon shall have been fully paid in. Any stock corporation, domestic or foreign, now existing or hereafter organized, except monied corporations, may purchase, acquire, hold and dispose of the stocks, bonds and other evidences of indebtedness of any corporation, domestic or foreign, and issue in exchange there for its stock, bonds or other obligations if authorized so to do by a provision in the certificate of incorporation of such stock corporation, or in any certificate amendatory thereof or supplementary thereto, filed in pursuance of law, or if the corporation whose stock is so purchased, acquired, held or disposed of, is engaged in a business similar to that of such stock corporation, or engaged in the manufacture, use or sale of the property, or in the construction or operation of works necessary or useful in the business of such stock corporation, or in which or in connection with which the manufactured articles, product or property of such stock corporation are or may be used, or is a corporation with which such stock corporation is or may be authorized to consolidate. When any such corporation shall be a stockholder in any other corporation, as herein provided, its president or other officers shall be eligible to the office of director of such corporation, the same as if they were individually stockholders therein and the corporation holding such stock shall possess and exercise in respect thereof, all the rights, powers and privileges of individual owners or holders of such stock. Any such corporation may, in pursuance of a unanimous vote of its stockholders voting at a special meeting called for that purpose by notice in writing signed by a majority of the directors of such corporation stating the time and place and object of the meeting and served upon each stockholder appearing as such upon the books of the corporation, personally or by mail at his lastknown post-office address at least sixty days prior to such meeting, guarantee the bonds of any other domestic corporation engaged in the same general line of business; and any stock corporation owning the entire capital stock of any other domestic stock corporation engaged in the same general line of business may in pursuance of a two-thirds vote of its stockholders voting at a special meeting called for that purpose by notice in writing signed by a majority of the directors of such corporation, stating the time

Stock Corporation Law (L. 1890, ch. 564), §§ 41, 42, 43.

and place and object of the meeting and served upon each stockholder appearing as such upon the books of the corporation personally, or by mail, at his last-known post-office, at least sixty days prior to such meeting, guarantee the bonds of such other corporation. (Amended by L. 1902, ch. 601, in effect April 15, 1902.)

§ 41. Subscriptions to stock.

(C. & G. Gen. Laws, p. 872.) Effect of failure to pay ten per cent.- A subscription which is invalid because of the failure to pay ten per cent of the amount subscribed at the time of making such subscription, will nevertheless constitute the basis of an action upon such subscription, where it has been used at the request of the subscriber as a collateral security for a loan made to the corporation. Knickerbocker Trust Co. v. Hard, 67 App. Div. 463, 73 N. Y. Supp. 979.

§ 42. Consideration for issue of stock and bonds. (C. & G. Gen. Laws, p. 872.)

Overvaluation of property.

A purchaser of stock in a corporation organized under L. 1848, ch. 40, and the amendments thereto, before a certificate that the stock has not been fully paid is made and recorded, and when the stock has not been fully paid for because of overvaluation of property which had been taken in payment therefor, is liable to creditors of the company for an amount equal to the amount of his stock, although he bought the stock without knowing of the overvaluation. White, Corbin Co. v. Jones, 167 N. Y. 158, rev'g 45 App. Div. 241, 61 N. Y. Supp. 21.

Liability of stockholder for issue of stock at less than par.- While the above section prohibits a corporation from issuing stock for less than its par value, it contains no provision imposing upon the person to whom the stock is issued for less than its par value, a liability to the corporation for the difference between the amount actually paid and the par value. Thompson v. Knight, 74 App. Div. 316, 77 N. Y. Supp. 599.

§ 43. Time of payment of subscriptions to stock. (C. & G. Gen. Laws, p. 874.)

Unpaid subscriptions as assets. Unpaid subscriptions to the capital stock of a corporation are debts belonging to the corporation which the corporation itself can collect, and are, therefore, assets of the corporation, which pass to a trustee in bankruptcy. In an action to recover such unpaid subscriptions a complaint was held not demurrable because of a failure to allege that a call had been made as provided in the above section upon the ground that the certificate of incorporation provided that the subscriptions were to be paid before the corporation commenced business, and upon the further ground that upon the corporation becoming insolvent the right to call for unpaid subscriptions passed

Stock Corporation Law (L. 1890, ch. 564). § 46.

to the trustee in bankruptcy. Rathbone v. Ayer, 84 App. Div. 186, 82 N. Y. Supp. 235.

§ 46. Conduct of such meeting; certificate of increase or reduction. If, at the time and place specified in the notice, the stockholders shall appear in person or by proxy in numbers representing at least a majority of all the shares of stock, they shall organize by choosing from their number a chairman and secretary, and take a vote of those present in person or by proxy, and if a sufficient number of votes shall be given in favor of such increase or reduction, or if the same shall have been authorized by the unanimous consent of stockholders expressed in writing signed by them or their duly authorized proxies, a certificate of the proceeding showing a compliance with the provisions of this chapter, the amount of capital theretofore authorized, and the proportion thereof actually issued, and the amount of the increased or reduced capital stock, and in case of the reduction of capital stock the whole amount of the ascertained debts and liabilities of the corporation shall be made, signed, verified and acknowledged by the chairman and secretary of the meeting, and filed in the office of the clerk of the county where its principal place of business shall be located, and a duplicate thereof in the office of the secretary of state. In case of a reduction of the capital stock, except of a railroad corporation or a moneyed corporation, such certificate or consent hereinafter provided for shall have indorsed thereon the approval of the comptroller, to the effect that the reduced capital is sufficient for the proper purposes of the corporation, and is in excess of its ascertained debts and liabilities; and in case of the increase or reduction of the capital stock of a railroad corporation or a moneyed corporation, the certificate or the unanimous consent of stockholders as the case may be, shall have indorsed thereon the approval of the board of railroad commissioners, if a railroad corporation; of the superintendent of banks, if a corporation formed under or subject to the banking law, and of the superintendent of insurance, if an insurance corporation. When the certificate herein provided for, or the unanimous consent of stockholders in writing, signed by them or their duly authorized proxies, approved as aforesaid has been filed, the capital stock of such corporation shall be increased or reduced, as the case may be, to the amount specified in such certificate or consent. The proceedings of the meeting at which such increase or reduction is voted, or, if

Stock Corporation Law (L. 1890, ch. 564). §§ 48, 50.

such increase or reduction shall have been authorized by unanimous consent without a meeting, then a copy of such consent shall be entered upon the minutes of the corporation. If the capital stock is reduced, the amount of capital over and above the amount of the reduced capital shall, if the meeting or consents so determine or provide, be returned to the stockholders pro rata, at such times and in such manner as the directors shall determine, except in the case of the reduction of the capital stock of an insurance corporation, as an alternative to make good an existing impair ment. (Amended by L. 1893, ch. 700; L. 1901, ch. 354; L. 1902, ch. 286; L. 1904, ch. 123, in effect March 23, 1904.)

§ 48. Prohibited transfers to officers or stockholders. (C. & G.'s Gen. Laws, p. 878.)

Unlawful transfers. An assignment of a judgment by a corporation as collateral security for the payment of a debt, made at a time when the corporation was insolvent, is not within the condemnation of the above section, where it appears that such assignment was made in pursuance of a verbal agreement made between the parties at a time when the corporation was solvent. Matter of Rogers Construction Co., 79 App. Div. 419, 79 N. Y. Supp. 444, affirmed, 175 N. Y. 509.

§ 50. Application to court to order issue of new in place of lost certificate of stock. (C. & G. Gen. Laws, p. 881.)

Evidence. Application for the issue of a new in the place of a lost certificate of stock should not be granted without evidence of the facts alleged in the verified petition, especially where the corporation has interposed an answer denying any knowledge or information sufficient to form a belief as to each and every allegation contained in the petition, except the allegation that the certificate claimed to have been lost or destroyed had originally been issued. Where there is no direct evidence that the certificate has been actually lost or destroyed, notice of the application should be given by such publication thereof as will furnish anyone claiming an interest in the stock an opportunity to appear and be heard. Matter of Speir, 69 App. Div. 149, 74 N. Y. Supp. 555.

Lost certificates of stock of national bank. The provisions of the above section may be invoked by a stockholder of a national bank who has lost certificates of stock thereof. Such provisions do not conflict with the Constitution or statutes of the United States. Matter of Hayt, 39 Misc. 356, 79 N. Y. Supp. 845.

Refusal of corporation.- A proceeding will not lie under this and the succeeding section to compel a corporation to issue a new certificate of stock in place of one alleged to have been lost or destroyed, unless there has been a distinct refusal by the corporation to issue such certificate. A mere general inquiry of the corporation as to the require