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(L. 1890, ch. 564, § 21, as amended by L. 1892, ch. 688, § 21; L. 1903, ch. 320, §1; L. 1904, ch. 307, § 1; L. 1905, ch. 750, § 1; L. 1909, ch. 421. In effect May 21, 1909.)

1. A by-law requiring a vote of those holding a larger percentage than a majority of stock is inconsistent with this section. Katz v. H. & H. Mfg. Co., 109 App. Div. 49.

2. A proceeding to decrease the number of directors is not effective until a transcript of proceedings has been filed. Matter of Westchester Trust Co., 186 N. Y. 215.

3. The fact that a corporation has less than the number of directors required by law does not enable it to avoid liability for an act of its officers authorized by its trustees (directors) who were at the time owners of all its capital stock. The resolution authorizing the act if not valid as an act of the board is equiva lent to an assent by the stockholders, and a previous assent is as effective as a subsequent ratification of the official acts. Martin v. Niagara Falls Paper Mfg. Co., 44 Hun, 130.

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§ 27. When acts of directors void. When the directors of any corporation for the first year of its corporate existence shall hold over and continue to be directors after the first year, because of their neglect or refusal to adopt the by-laws required to enable the stockholders to hold the annual election for directors, all their acts and proceedings while so holding over, done for and in the name of the corporation, designed to charge upon it any liability or obligation for the services of any such director, or any officer, or attorney or counsel appointed by them, and every such liability or obligation shall be held to be fraudulent and void.

§ 28. Liability of directors for making unauthorized dividends. ——— The directors of a stock corporation shall not make dividends, except from the surplus profits arising from the business of such corporation, nor divide, withdraw or in any way pay to the stockholders or any of them, any part of the capital of such corporation, or reduce its capital stock, except as authorized by law. In case of any violation of the provisions of this section, the directors under whose administration the same may have happened, except those who may have caused their dissent therefrom to be entered at large upon the minutes of such directors at the time, or were not present when the same happened, shall jointly and severally be liable to such corporation and to the creditors thereof to the full amount of any loss sustained by such corporation or its creditors respectively by reason of such withdrawal, division or reduction. But this section shall not prevent

a division and distribution of the assets of any such corporation remaining after the payment of all its debts and liabilities upon the dissolution of such corporation or the expiration of its charter; nor shall it prevent a corporation from accepting shares of its capital stock in complete or partial settlement of a debt owing to the corporation, which by the board of directors shall be deemed to be bad or doubtful.

(L. 1890, ch. 564, § 3, as amended by L. 1892, ch. 688, § 23; L. 1901, ch. 354, § 1.)

See Penal Law, §§ 664, 667.

1. There is no duty imposed upon the officers of corporations requiring the production of the certificate of stock before the payment of dividends on the same. Brisbane v. D., L. & W. R. R. Co., 94 N. Y. 204.

2. A corporation is authorized, by law, to issue a scrip dividend, to represent its surplus earnings. Williams v. W. U. T. Co., 93 N. Y. 162.

3. A dividend does not accrue until declared. Parks v. Automatic Bk. P. Co., 14 N. Y. St. Rep. 710.

4. A shareholder is not entitled to any of the property of the corporation or profits until a division has been made or a dividend declared. Boardman v. Lake S. & M. S. Ry. Co., 84 N. Y. 157.

5. Directors may be compelled to divide the actual surplus profits among the stockholders from time to time, if the neglect to do so without cause. But if they abuse their power, and divide all the surplus, leaving nothing but the capital to satisfy probable losses from risks assumed by the company, it seems they will be personally liable to the creditors if the company becomes insolvent. Scott v. Eagle Fire Ins. Co., 7 Paige, 199.

6. The excess of property of a corporation above the amount limited by its charter is to be regarded as surplus profits from which a dividend may be declared. Williams v. Western Union Tel. Co., 93 N. Y. 162.

7. Stock dividends not diminishing or interfering with the property of a corporation are not within the purview of the section. Such a dividend does not distribute property, but simply dilutes the shares as they existed before, such a dividend can therefore be declared without violating the letter or spirit of the section. Ib.

8. The declaration of a dividend is within the discretionary powers of the directors or trustees and will not be controlled by the courts. Beveredge v. N. Y. E. R. Co., 112 N. Y. 1, 2 L. R. A. 648, 19 N. E. 489.

9. Loans and discounts will be presumed to be made by the authority of the board of directors, unless it is shown that such funds were misapplied by the officers of a bank, so as to render them, or any of them, liable for fraud or embezzlement. And where an officer is so guilty of fraud by violating the law, if the directors neglect to remove such officer and continue to trust him with the funds of the bank, they will be considered as sanctioning his fraudulent act. The neglect of officers or directors to keep themselves informed of the amounts of loans and discounts made to or upon the security of directors, will not excuse a violation of law on the subject. Where the board authorizes the president or

other officer of a bank to make loans and discounts in his discretion, the corporation is liable for the violation of any law binding on it. A loan or discount made for the benefit of a director of a bank, or of a firm with which he is connected in interest, or is a copartner, it is to such a director within the intent and meaning of the statute limiting the amount of loans and discounts to directors. It is a violation of duty for directors to give any officer unlimited discretion to discount paper, or make loans without the sanction of the board. Bank Com. missioners v. Bank of Buffalo, 6 Paige, 497,

10. Dividends improperly declared may be recovered by creditors only, and cannot be recovered by the receiver for benefit of stockholders. Butterworth v. O'Brien, 39 Barb. 192.

11. When a stockholder brings an action for damages for violations of the provisions of preceding sections of this article, he need not join all the directors who participated, but may proceed against them separately. And in a suit against one of the directors for an act that could not be done by him alone, plaintiff must show that the board participated in it, and must show some loss. The act complained of should be alleged to have been done by them, and not that they caused, procured, authorized or permitted it to be done. But an allega. tion that they did the act will be sustained by evidence that they caused or procured it to be done. Gaffney v. Colville et al., 6 Hill, 567. Receipt of dividend from capital does not stop stockholder from suing under this act, if he had no knowledge of the facts rendering dividend illegal. Directors are not liable merely for receiving notes or other evidences of debt, with illegal intent mentioned in section 1, subdivision 4 (section 179), but only for receiving and discounting them. Same case.

12. The mere fact that a person is a director or stockholder of a corporation does not make him chargeable with actual knowledge of its business transactions or of entries made in its books. Rudd v. Robinson, 126 N. Y. 113, 12 L. R. A. 473, 22 Am. St. Rep. 816, 26 N. E. 1046. But as to presumptive knowl edge by directors see Penal Law, § 667.

§ 29. Liability of directors for loans to stockholders. - No loan of moneys shall be made by any stock corporation, except a moneyed corporation, or by any officer thereof out of its funds to any stockholder therein, nor shall any such corporation or officer discount any note or other evidence of debt, or receive the same in payment of any instalment or any part thereof due or to become due on any stock in such corporation, or receive or discount any note, or other evidence of debt, to enable any stockholder to withdraw any part of the money paid in by him on his stock. In case of the violation of any provision of this section, the officers or directors making such loan, or assenting thereto, or receiving or discounting such notes or other evidences of debt, shall, jointly and severally, be personally liable to the extent of such loan and interest, for all the debts of the corporation contracted before the repayment of the sum loaned, and to the full amount of the

notes or other evidences of debt so received or discounted, with interest from the time such liability accrued.

(L. 1890, ch. 564, § 25, as amended by L. 1892, ch. 688, § 25.)

1. The principal object of this section is to prevent a reduction of the capital, under cover of loans to stockholders. A. C. Nellis Co. v. Nellis, 62 Hun, 63; 41 N. Y. St. Rep. 599. It is intended for the protection of creditors. Id.

2. This section forbids a loan to a stockholder. Id. The fact that there is by this section a special liability of the officers to the creditors does not take away the prohibition. Id.

3. A board of trustees cannot ratify an act which they could not lawfully do in the first instance. Id. Peterson v. Mayor, etc., 17 N. Y. 449; Brady v. Same, 20 id. 312.

4. The provisions of this section apply only to cases where there is a loan in law, or in fact, in violation thereof. Billings v. Trask, 30 Hun, 314. To establish a right of action under the statute on behalf of creditors, it is necessary to show that the transaction out of which it is claimed to have arisen, is both in law and in fact a loan of money. Id. It must be an actual loan of money in such form as to create an indebtedness to be at some time repaid, so that a liability for repayment by the borrower is created. Id.

5. The liability created by this section arises in favor of a certain class of creditors only, and can only be enforced by them, and not, it seems, by a receiver. Id.

6. The officers making or assenting to any loan of its money to any stockholders, are personally liable for all the debts of the company contracted before such loan shall be paid. Boynton v. Hatch, 47 N. Y. 225.

7. A provision by by-law that debts due to bank shall be a preferred claim against stock is invalid. The corporation has no authority to interefere with the disposition which a shareholder may make of his shares, except so far as such authority is conferred by the act itself (under which it is organized), or by some general law. If any such prohibition may be made, at any rate it must be contained in the articles of incorporation, and not by by-law. Bank of Attica v. Manufacturers & Traders' Bank, 20 N. Y. 505. The provision of the by-law was, that no transfer of stock should be made unless all debts due bank by shareholders had been first discharged. To same effect 59 N. Y. 96; Rosenback v. Salt Springs National Bank, 53 Barb. 504.

§ 30. Officers. The directors of a stock corporation may appoint from their number a president, and may appoint a secretary, treasurer, and other officers, agents and employees, who shall respectively have such powers and perform such duties in the management of the property and affairs of the corporation, subject to the control of the directors, as may be prescribed by them or in the by-laws. The directors may require any such officer, agent or employee to give security for the faithful performance of his duties, and may remove

him at pleasure. The policyholders of an insurance corporation shall be eligible to election or appointment as its officers.

(L. 1890, ch. 564, § 27, as amended by L. 1892, ch. 688, § 27.)

1. The board of trustees may appoint an executive committee of its members, and invest it with power to transact the business of the company during the interval between the meetings of its board of trustees. Sheridan E. L. Co. v. Chatham Nat. Bank, 127 N. Y. 517. Such committee may delegate to one of its number power to do merely ministerial acts, such as the indorsing of checks payable to the corporation and receiving the money thereon. Id. See People ex rel. Newman v. Sailors' S. H., 54 Barb. 532.

2. Manufacturing corporation can appoint committee to transact ordinary business. Sheridan E. L. Co. v. C. Nat. Bank, 52 Hun, 575.

3. Such committee can delegate power to indorse company's paper. Id.

4. When no formal resolution is necessary. Id.

5. Company's knowingly appropriating part of proceeds to its use amounts to ratification of agent's act. Id.

6. As to the authority of the president, see Beers v. Phoenix Glass Co., 14 Barb. 638; L. & F. Ins. Co. v. M. F. Ins. Co., 7 Wend. 31; Kraft v. Freeman P. Co., 87 N. Y. 628

7. Officers, assuming the responsibility and charged with the duties of the management of the corporative business, are, it seems, chargeable with the knowl edge as to matters which are open to observation and legitimately subject to their inspection and control. Huntington v. Attrell, 118 N. Y. 365.

8. The addition, to the individual names, of that of their titles of office, or a statement of their respective characters, does not shield the officers from liability upon a contract wherein they have assumed to contract individually, or have, by the terms of their agreement, come under a personal obligation to their several promisees. Taft v. Brewster, 9 Johns. 339; Stone v. Wood, 7 Cow. 453; Guyon v. Lewis, 7 Wend. 26. But they do not become individually liable, where it appears on the face of the instrument that they contracted with reference to corporate business, and they had authortiy to make such contract on behalf of the corporation. Whitford v. Laidler, 94 N. Y. 145; Lincoln v. Crandell, 21 Wend. 101; Chouteau v. Suydam, 21 N. Y. 179; Shaefer v. Henkel, 75 id. 378; Randall v. Van Vechters, 19 Johns. 60; Brockway v. Allen, 17 Wend. 40. 9. Trustee may purchase and enforce claim against company. Inglehart v. T. I. H. Co., 32 Hun, 377; Crooked L. N. Co. v. K. N. Co., 37 id. 9; Butler v. Duprat, 51 Supr. 77.

10. President, when empowered by by-laws, can make necessary negotiable paper, without authority of board of directors. Chem. Nat. Bank v. Colwell, 16 Daly, 28.

11. Secretary and director representing corporation in selling goods on credit and making terms has power to pledge credit of corporation to assit customer. Hess v. W. & J. Sloane, 66 App. Div. 522.

12. Qualifications for voting on stock of corporation. Alarm Tel. Co., 115 App. Div. 821; 101 N. Y. Supp. 109.

Matter of Utica Fire

13. "An officer of a corporation may, by the conduct and action of its directors and managers, be invested with capacity to bind the corporation by acts beyond the powers inherent to his office; his authority may be inferred from the manner

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