Chapter 3


Page 9

We are not called upon, in this case, to decide whether or not a payment of the ten per cent in good faith, by checks payable in presenti, and drawn against a sufficient sum on deposit to meet them, would be a compliance with this requirement of the statute, and particularly if the checks were presented and paid within a reasonable time. That is not this case; and the question here presented is, whether the payment can be made in a check drawn by a person who had not on deposit sufficient funds to meet it, and which was never presented for payment, even though it be conceded that the check would have been paid had it been presented. If payment in this method can be substituted for the cash payment required by the statute, it is obvious that payment in a promissory note, payable on demand, and which would have been paid on presentation, but which was never presented for payment, or in any negotiable securities, which might at any time have been converted into cash, but were not so converted, would have been equally as valid as the method here adopted. Nothing was, in fact, paid by Bolinger, unless his personal liability as drawer of the check can be considered payment; for it was not proved, as appears from the findings, that he had any funds to his credit in bank of which the check could operate as an assignment; and it would have been purely at the option of the bank whether it would have paid the check or not. If it had refused, it could not have been coerced to pay it. It was under no legal obligation to pay it, and the case stands precisely as if Bolinger had made his promissory note to the company upon an understanding between him and the bank that, as a matter of favor and accommodation to him, the bank would pay the note on presentation; the note, however, never having been presented for payment.

It is a wholly immaterial circumstance that Bolinger was in good credit, and that his check might, and probably would, have commanded the cash in the vicinity. The same would doubtless have been true of his own or any promissory note by a responsible maker, or a good mortgage security, or marketable stocks, or any other kind of property which had a current market value. But none of them would have constituted a cash payment in the sense of the statute. The policy which dictated this provision is perfectly apparent. It was intended to prevent the formation of corporations for the construction of railroads unless the corporators should testify their good faith and earnestness in the enterprise by subscribing for stock to the amount of one thousand dollars per mile of the proposed road, and actually paying in cash ten per cent of the amount subscribed before proceeding to incorporate. It was also intended to furnish some guaranty to those dealing with the company that it was not a mere paper corporation, without any substantial basis. But whatever may have been the motive for this enactment, its language is clear and explicit, and the courts have no authority to disregard it. It requires ten per cent of the subscription to be paid in cash; and a check drawn upon a bank by a person who had no funds to his credit, and which was never presented for payment, can in no just sense be deemed cash, however good the credit of the drawer. If the statute had intended to permit the credit of the subscriber to be substituted for cash it would have said so. But it evidently contemplated nothing of the kind. This objection arises on the face of the findings, and in my opinion is fatal to the alleged act of incorporation. The payment of ten per cent in cash was a condition precedent, without the performance of which the subscribers had no power to incorporate. An exact and literal compliance with the statute in this respect may not be indispensable. If from accident, inadvertence, or some other unintentional cause, there should be a failure to pay an insignificant portion of the ten per cent, I presume it would not vitiate the act of incorporation. But there must be a substantial compliance with the statute. In this case the whole amount to be paid was eleven thousand dollars, of which ten thousand nine hundred dollars was paid in Bolinger's check, leaving only one hundred dollars to be paid in cash. This can not be regarded as a substantial compliance with the statute. Counsel insist, however, that the provision in respect to the prior subscription of stock, and the payment of the ten per cent, is directory only, and that the payment is not a condition precedent, the performance of which is essential to the validity of the act of incorporation, and in support of this proposition we are referred to the case of Commonwealth v. Westchester R. R. Co., 3 Grant (Pa.) 200. But that decision was founded on a special statute, in many respects essentially different from ours, and does not sustain the position here contended for. But if it was directly in point, we would not be inclined to follow it. On the other hand, I think it is apparent that without a substantial compliance with this provision the subscribers acquired no jurisdiction to organize themselves into a corporate body, and this view of the law is supported by the following authorities: Eaton v. Aspinwall, 19 N. Y. 119; People v. Troy House Co., 44 Barb. (N. Y.) 634; Haviland v. Chase, 39 Id. 283; Taggard v. Western Maryland R. R. Co., 24 Md. 588; People v. Rensselear Ins. Co., 38 Barb. (N. Y.) 323; Patterson v. Arnold, 45 Pa. St. 415.

If these views be correct, the act of incorporation is invalid, and the defendants are not entitled to exercise corporate powers.

Judgment reversed and cause remanded, with an order to the district court to order judgment for the plaintiff on the findings.

TEMPLE, J., did not sit.
Judgment reversed.

With the law compelling the supervisors of Plumas County to subscribe to the stock of the railroad and the incorporation now deemed invalid the demise of the Oroville and Virginia City Railroad was assured.

This ended any hope for the construction of either the Oroville & Virginia City or the Feather River & Beckwourth Pass railroads. Both became dormant, although their franchises would remain in force until 1905. Arthur Keddie was forced to put his dream in mothballs but he did not forget it. His survey would not be used until the Western Pacific built its line through the mountains. It was followed closely then and later when the Feather River Highway was built at the cost of millions and finished in 1937.

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