Case ID: sc-eq_16/html/0093-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Caria, per Dunkin, Chancellor. J. Johnston, David Johnson. Harper, Ch.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Southern Steam Packet Company vs. John Magrath et al.
    
    1. Whenever the expressly stipulated terms of an agreement, between an association of individuals, is changed in the slightest degree, and a different agreement is carried into effect by a majority of the association, the members of the original association, who have not joined, and who have not acted under the second agreement, are not bound by the terms of the original contract; and the Court of Equity will not decree a specific performance of the agreement, by compelling them to pay the stock originally subscribed by them.
    
      This case toas heard before. Chancellor Dunkin, at Charleston, June Term, 1839, and the following decree was made by him.
    
    In 1 Story Eq. 616,' it is said, “ Cases have occurred in which suits at law have been maintained for the breach of an agreement to furnish a certain sum, or stock, for the partnership purposes. In such a case, the transaction is not so much a partnership transaction, as an agreement to launch the partnership ; and an agreement to pay money, or furnish stock, for such a purpose, is an individual engagement of each partner to the other.” In Venning vs. Leckie, 13 East, 7, Lord Ellenborough entertained no doubt that an action would lie by one, to enforce that covenant against another; and so it was held in Terrill vs. Richards, IN. McC, 20, But the remedial justice administered by the Courts of Equity is more complete, and, in many cases, can alone afford effectual and adequate relief.
    Regarding these proceedings in a view the most favorable to the complainants, this may be treated as a bill by the individual subscribers to the paper, to compel payment of the sums subscribed by those who have failed, to pay, or, as it is termed in the bill, for a specific performance. Now, as is said in the authority first cited, although the remedial justice of a Court of Equity is sometimes interposed, in carrying into specific effect agreements of this character, where the remedy at law would be inadequate; yet it is not hence to be inferred, that a Court of Equity will,, in all cases, interfere to enforce such specific performance of articles. 1 Story, 620,
    The answer of the defendants substantially sets forth that they agreed, as an association of individuals, to subscribe a certain amount for the building and completion of a steam packet, to run from Charleston to any northern port, for which Capt. Pennoyer was to make a contract on his individual responsibility alone; that the subscribers were to take the name of the Sotxthern Steam Packet Company, each share being $500, and it being expressly stipulated, “ that no subscriber was, in any event, to be bound for a larger sum than the amount of his subscription that after the execution of the agreement, the complainants thought proper, without the consent of the defendants, to vary this agreement, and entered into a new association, on different terms, to be conducted on other principles; that they had thereby abandoned the original agreement; and defendants insist that they had no right, now, to ask the extraordinary aid of this Court to decree a specific performance of articles, which had been, by their own acts, virtually dissolved.
    The agreement was signed in the early part, probably, of the year 1837. It appeared from the testimony, that at a special meeting of the directors, on 2d November, 1837, the secretary was directed to apply to the Legislature for an Act of incorporation. On the 20th December, 1837, an Act was passed, by which certain named individuals, (not including either of the defendants,) and others, were declared a body corporate and politic, by the name of the Southern Steam Packet Company, for the purpose of running steam packets between Charleston and New York, or any other port on the Atlantic board, at the election of said Company. By the sixth section of the Act, it is provided, “ That in case, at any time, the said corporation shall become unable to pay its debts, any person who is a stockholder at the time of such insolvency, or, during the year previous thereto, may have been a stockholder, shall be liable to its creditors for a further sum, equal to the amount of his stock in the said company.”
    At a meeting of the stockholders, viz. the president and eighteen others, on the 5th February, 1838, the charter was accepted. The company, thus incorporated, had several subsequent meetings, collected the instalments from all except the defendants, and had the steam packet Neptune built under the direction of Pennoyer, for $120,000. The enterprize proved unsuccessful; and on 17th July, 1838, the boat was sold by the company, for $50,000. This bill was filed on 17th August, 1838. >
    It may be as well first to dispose of the enquiry, whether the defendants are, in any manner, responsible to the Southern Steam Packet Company, incorporated by the Act of 20th December, 1837.
    
      The articles of agreement do not necessarily contemplate an Act of incorporation of any kind. It is expressly provided, that there shall be no privity of contract between the subscribers and the builders of the boat. It is also declared, specifically, that no subscriber shall, in any event, be responsible beyond the amount of the sum subscribed. No evidence was offered that the defendants, or either of them, agreed to the application to the Legislature, or knew that it was to be made. It did not appear that any of the company were consulted ; but the application was directed to be made by the secretary, at a special meeting of the directors. The provisions of the Act of incorporation differ, in several particulars, from the terms of the agreement. In" the clause which extends the responsibility of the corpora-tors beyond the amount of their individual subscription, the most important limitation of the original agreement is violated and annulled. It cannot, I think, with any plausibility, be maintained that, by their original undertaking, per 
      
      se, the defendants were hound to accept this charter, and to become members of a corporation thus constituted. Then what is the evidence of such subsequent assent as rendered them corporators, and fixed their liability 1 They attended no meeting of the company — they signed no byelaws — they received no certificate of stock — they paid no instalment — and the first notice which they, individually, received of recognition, as members of the corporation, was the institution of these proceedings. The Court is not prepared to say what acts would constitute membership of a corporation ; but if the company had made $60,000 during the first year of their operations, instead of losing that amount, it would have been very difficult for the defendants, on the testimony submitted, to have substantiated their claim to a dividend. In the transaction of the ordinary business of a partnership, or association, the acts of the majority may govern; but, as between themselves, the acts of the majority are subordinate to the fundamental principles of their association. Where the act done is not in the ordinary course of business, or is a violation of the articles of agreement, those only are responsible whose participation, nr assent, is established. The defendants cannot, on any principle, be regarded as members of the corporation.
    Then what are the claims of the individual complainants to an enforcement of the original articles 'l Having agreed to form an association for building and running a steam boat, on particular principles, they have, afterwards, without the assent or participation of the defendants, become members of a corporation, established on different principles, to which corporation they have paid their subscription, and with whom they have conducted the enter-prize, which they undertook to prosecute with the defendants. They are in no respect ready to comply with the original agreement, (by which alone the defendants are bound,) nor do they tender a compliance. The effect of a decree would be to subject the defendants to pay for the failure of an enterprize, in the success of which they could have no interest.
    It is admitted that L. N. Shelton did not sign the agreement, and that, as to him, the bill must be dismissed. For the reasons stated, the Court is of opinion that, as to the other defendants, the hill must also be dismissed, and it is so ordered and decreed.
    The complaiants appealed from the decree of the Chancellor, upon the grounds:
    1. That the Act of incorporation, in this case, contained no departure from the terms of the original agreement; and the decree of the Chancellor, it is respectfully submitted, ought to be reversed on that point.
    2. That the decree of the Chancellor was, in other respects, contrary to law and equity, and ought to have been rendered against all the defendants, except L. N. Shelton.
    
      Mr. Yeadon,, for appellants.
    The building of the boat was begun under the original agreement, and before the charter. 16 Mass. 94.
    Corporations necessarily grow out of contracts for navigation, and the right to apply for a charter. Acts of 1837, p. 48.
    The stipulation in the agreement, that the partners should not be liable beyond the amount subscribed, was a nullity; (sed, it is good between them.)
    Under the articles, they would have been liable, without limitation. The charter was a benefit, as it limited the liability.
    
      Magrath, contra.
    
      Hunt, same side:
    The subscription was for the purpose of building the boat, and not •for navigating her ; that was, according to the terms of the contract, the subject of future arrangement. As to the navigation, they were not partners.
    Would any one of the subscribers have been bound, under this agreement, to contribute to navigate the boat 1
    
    The boat was built by Pennoyer, and the corporation •took it at costs. Cited 16 Mass. Rep. 94.
    
      Commissioner's Report.
    
    Mr. Yeadon offers in evidence the original subscription list, of which there is a copy set forth in the bill.
    Mr. Yeadon sworn — says, that Dr. Fisher told witness that he wrote the'name of William S. Thompson on the .list of subscribers, and the name of William S. Thompson appears on the list for two shares, $1,000.
    Also, John Magrath appears on the list for one share, $500.
    Also, John Boyce, Jun’r., one share, $500.
    Also, Joseph P. Weed, do. do. ' $500.
    Also, S. W. Shelton, for L. N. Shelton, do. $500.
    Also, Thomas J. Roger, two shares, $1000.
    Also, Wm. Washington, do. $1000.
    Offers the answer of Wm. S. Thompson, to prove that he authorized Dr. Fisher to sign the list for him.
    Also, the answer of John Magrath, do.
    Mr. Shelton denies that he signed, or authorized S. W. Shelton to sign for him.
    Also, Joseph P. Weed admits that he subscribed.
    Also, Wm. Washington, do do. do.
    Offers the minutes of the company, the original entries beginning 20th February, 1837, at which time the company was organized.
    John W. Caldwell, sworn — Produces the above minutes. At a special meeting of the directors, 2d November, 1837, the secretary was directed to apply to the Legislature for an Act of incorporation.
    At a meeting of the stockholders, viz. the president and eighteen others, on the 5th February, 1838, the charter was accepted.
    Witness was chosen secretary, on the 19th February, 1838, and the meetings of the company were called by-pnblic notice through the newspapers, and the instalments called in in the same way. When witness was elected secretary, the instalments were all paid up by all except the gentlemen whose names are mentioned above, viz: Messrs. Thompson, Magrath, Boyce, Weed, Shelton, Roger, and Washington. The steam packet Neptune was built under the direction of Capt. Pennoyer, as stipulated in the articles of agreement, and became the property of the company. The company was unfortunate, the boat yielded no profit; the company got in debt, and the boat had to be sold, and brought fifty thousand dollars. She cost over one hundred and thirty thousand dollars. The company-never made a dividend. That a loan was obtained from some of the stockholders, to relieve the embarrassment of tile company, many of them lending $200 per share; the amount of the loan was $17,000.
    Cross-examined — Says that Mr. Magrath has not attended any meeting of the stockholders since witness was secretary, nor does he remember seeing any of the other defendants there. Witness says that as far as he knows, the motives of persons who subscribed were various: some did it from friendly feeling to Captain Pennoyer, some because they thought it would be profitable, some, that it would establish the direct intercourse with New York; and witness believes that Captain Pennoyer, by his exer - tions, obtained nearly half the number of subscribers.
    Mr. William M. Martin sworn — Is now the secretary and treasurer of the new company ; all the assets of the ¿ompany are $28,000, for which the boat sold, and $30 38 in bank, and its liabilities are about $60,000. That some of the stockholders have increased their loan to the company to $350 dollars each, which is part of the $60,000. The amount of debt due to other than stockholders, is about 10 or $14,000 — part of the said $60,000. Mr. Caldwell states that the Neptune toas building when the charter was accepted, and the building had begum, long before.
    
    22d May, 1839, Mr. J. W. Caldwell called again — says the Southern Steam Packet Company sold the Neptune to a company of gentlemen, for $50,000, the 17th July, 1838, of which $38,925 34 have been paid. The new association who purchased have no charter ; it is composed of responsible persons; every one of the new were of the old company, but did not include all the old. The new association have lately sold the Neptune for $28,000, using the name of the old company. Since the sale of the 17th July, 1838, the old company delivered possession of the boat, and have had nothing to do with it since: but they never signed a title. The debts of the old company are about $7,000, and when paid out of the assets, will leave a small balance for the stockholders. ■
    Cross-examined — The sale was ordered by a meeting of the stockholders, after repeated calls. Mr. Magrath did not attend that meeting.
    Mr. W. M. Martin called again- — He is the secretary and treasurer of the new association, who purchased the Neptune from the old company; says he confirms the above statement of Mr. Caldwell, except as to the debts of the old company, of which he is not cognizant.
    Sworn and taken before me.
    J. W. GRAY, Commissioner in Equity.
    
   Caria, per Dunkin, Chancellor.

A majority of the Court are of opinion that the decree should be affirmed. They are content to rest the decision on the fact that the original agreement, to which alone the defendants were parties, contained no provision, either express or implied, for procuring a charter of incorporation; and that, by the terms of the Act of December, 1837, the condition of the parties was materially changed.

In the view taken by the Court, it is not very important, whether the charter of incorporation restricted or enlarged the liability of the parties to the agreement. The Chancellor supposed the liability was enlarged. But if the position taken by the appellants be well founded, all the subscribers were originally liable, as partners, to an unlimited extent, the restriction in the agreement being confined to their liability to Capt. Pennoyer, for the cost of constructing the boat. Certainly if a portion of these partners obtain a charter, limiting the general liability of each partner, it is a material variance. Any co-partner might well say, that he became a member of the firm, in consequence of the strength and importance which is derived from the unlimited responsibily of the persons who composed the association. When the fundamental article is changed, it becomes a new agreement, a new contract, which has not been presented to him, and to which his assent is not to be implied.

The original agreement provides that “ the present capital of the company shall consist of two hundred and fifty shares, at five hundred dollars each,” or one hundred and twenty-five thousand dollars. By the Act of incorporation,, the capital is fixed at one hundred thousand dollars, with liberty to increase the same to five hundred thousand dollars ; and the corporation is also authorized to hold property, real and personal, not exceeding five hundred thousand dollars in value.

By the terms of the original agreement, when two hundred shares, or one hundred thousand dollars, had been subscribed, the stockholders were to be called together, and directors elected. More than this amount had already been subscribed, and directors had been chosen.

The Act of incorporation itself, appoints directors of the company thereby established, and provides for the taking up by subscription of the whole, or any part of the capital. The last clause declares that the company shall not be considered a body corporate, until the whole amount of capital authorized shall have been actually subscribed. From this provision, it is manifest that all the subscribers to the original agreement, were not intended by the Act to-be included as existing members of the corporation, or that it contemplated a subscription to the whole amount; and, in the opinion of the Court, there is nothing in the original agreement which obliged the parties to it to subscribe to the stock, or accept the charter. The appeal is therefore dismissed.

B. F. DUNKIN.

We concur.

J. Johnston, David Johnson.

Harper, Ch.

Dissenting. I have no question of the truth of the rule, as laid down by the Chancellor below, that the majority of the members of a partnership are to govern, provided they do not violate the fundamental articles of their agreement. The question is, whether the acceptance of a charter of incorporation by a majority of the stockholders, is such a violation of their agreement. The articles stipulate that the subscribers shall form a joint stock company, to be called the Southern Steam Packet Association. Has this agreement been violated % Why, the terms of it relate quite as aptly to an incorporated as to an unincorporated company.

I suppose that four-fifths of the joint stock companies in the United States are incorporated. The corporation is in the very words of the agreement, a joint stock company called the Southern Steam Packet Association. If incorporation were not contemplated at the same time of signing, which may fairly enough be inferred, certainly there was nothing to restrain it. It is true, the majority have no right to vary the liabilities of their fellows. But it is plain that the stipulation that the subscribers should not be liable beyond the amount annexed to their names, had relation only to Capt. Pennoyer. He was to contract for the building of the boat, on his own credit; and if he incurred expenses beyond the amount subscribed, it would have been his own loss, as against him the stipulation was equally valid in favor of the partners or corporators.

But certainly they could not limit their liabilities as to creditors at large, but must have been liable to the full extent of their property.

The charter, therefore, limiting their liabilities to double the amount of their stock, was not to increase, but to lessen their liabilities — not a prejudice, but a benefit.

It has been suggested that the terms of the agreement were violated, by the charter’s incorporating not only the present members, but those who might hereafter become members. It is said that the defendants might become associated with partners, or fellow corporators, whom they never contemplated. But when the defendants signed the articles, there were other shares to be taken, and they were utterly ignorant whether they would be taken by few or many persons, and who these would be. Those who signed first, were ignorant of the whole of their associates, but took the risk, as to who and how many they should be; and we cannot suppose that some members have privileges in this respect more than others. I cannot but think the objection frivolous.

The defendants cannot be compelled to become corpora-tors, against their will, but they may be compelled to perform an agreement for the payment of money, into which they fairly and deliberately entered, and against the performance of which I do not perceive that they have a shadow of excuse. The right which the defendants’s partners as individuals, had to enforce the agreement, was devolved on the incorporated company by the act of incorporating them. This would not be questioned as to one who had concurred in applying for incorporation; and there is no greater reason to question it with respect to any person who made a valid contract with those individuals.