Case ID: us_95/html/0665-01.html
Source: Caselaw Access Project
Author: {"author": "Mr. Justice Hunt", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Chubb v. Upton.
    1. A party who made a contract with an organization which had attempted irregularly to create itself into a corporation, and which acted as. such, or who subscribed to its Capital stock, cann'ot, in a suit by the corporation, defend himself against a claim growing out of .such contract or subscription by alleging the irregularity of such, organization.
    2. The same rulé applies where the stock of a corporation has been increased, and the question arises upon the liability of a subscriber for the increased stock.
    3. An assignee in bankruptcy of a corporation represents it^and its creditors, and the defence of its irregular organization cannot be set up against him ' by such subscriber.
    4; A party receiving, a certificate for a certain- number of shares of stock, at a . - given sum per share, thereby becomes liable to pay the amount thereof when called upon by the corporation or its assignee.
    5i Upton v: Tiibtfcock, 91 U: S. 45, Sanger v. Upton, id. 56,' and Webster v. Upton, id.’65, cited and approved.
    Ebbob, to the Circuit Court .of the United States for the Western District of Michigan.
    Upton, as assignee-in bankruptcy of the Great Western Insurance Company, a corporation organized under the laws ■ of Illinois, brought this suit against Chubb. The company was originally chartered by the legislature in 1857.
    In 1870, acting under the general laws of that State authorizing insurance companies to increase their capital stock, the directors and stockholders of the company took measures to increase its-capital stock, and’filed their papers for that purpose with the secretary of state, and the auditor of public accounts. By these proceedings the company undertook to increase its stock to #5,0.00,000.
    The company, assuming that its stock had been increased, took subscriptions and issued certificates therefor, and immediately commenced doing business, issuing policies, &c., upon-the basis of such an increase. Dec. 31, 1870, it held out to the public that its subscribed stock- was #1,1.88,000, of. which #222,831 was paid in, and #965,169 subscribéd, for which the subscribers or holders were liable., Chubb became a subscriber to this. increased stock, and a certificate for fifty .shares was Issued tohim on the twenty-fifth day-of November, 1870.
    The company had á branch office at Grand Rapids, where meetings of the stockholders residing there were held. Chubb was president of said,branch, took part in those meetings, and also in a meeting of stockholders and directors held at Chicago in January, 1871. He paid money on his stock, and at one tinie, while holding it,-gave another person a proxy to attendant vote at a stockholder’s meeting at Chicago.
    The company continued to do business, issue policies, &c., until fit was put into bankruptcy, February, 1872. • Upton was duly appointed assignee of the company on the eleventh day of April, 1872; and the court sitting in bankruptcy made an order upon the stockholders to pay^on or before Aug, 15yJ.872, the balance due upon their stock, ' Notice was duly served upon thenu
    Upon the trial of the cause, Chubb objected to the produo tion in evidence of the proceeding's by which the company increased fes stock, upon the ground of their alleged irregularities, arid of. informality in the papers filed in the public offices. -The objections were overruled-, arid Chubb excepted ■ to the ruling of the court.
    ,He also objected to the introduction in evidence of papers filed in the public offices .of Illinois by the company, showing that it was doing business, and that it had stock subscribed to a large amount. This objection was overruled, and an excep-' tion taken.
    ' He further offered to prove:that he was induced to purchase tile stock by false representations- that he would only -be compelled to pay .twenty per cent upon the amount subscribed; and that the holders of the stock in the original company never increased their stock or authorized any one to increase it, and never sold or transferred it to the new company. The court excluded the evidence, and he excepted.
    ' The court substantially charged the jury, that upon the admitted facts, and upon further facts proved by the plaintiff by uncontradicted' and" documentary evidence, the plaintiff was entitled to recover, and that the matters offered in evidence by the defendant constituted no defence to the action. The defendant excepted to~bhe instruction.
    ■ There was a judgment against Chubb, who'thereupon removed ■the case here.
    
      
      Mr. J. W. Champlin for the plaintiff in error.
    
      Mr. M. J. Smiley, contra.
    
   Mr. Justice Hunt

delivered the opinion of the cornet.

The numerous questions raised' upon the trial of this action depend upon a few general principlés which are not difficult. of- application.

It is settled by the decisions of the courts of the’United States and by the decision of many of the State courts that one who contracts with an acting corporation cannot defend himself against a claim on such contract, in a suit by the corporation, by alleging the irregularity of its organization. This was settled more than a. half a century since in the courts of the State’ of New York, and has recently been affirmed in this court. Dutchess Collar Manufacturing Co. v. Davis, 14 Johns. (N. Y.) 237; Sanger v. Upton, 91 U. S. 56; Upton v. Tribilcock, id. 45; Buffalo & Allegheny Railroad Co. v. Cary, 26 N. Y. 75; Bissell v. Michigan Southern Railroad Co., 22 id. 258.

The same principle applies to the case of a subscription to the capital stock in an organization which has attempted irregularly to create itself into a'corporation, and has acted as such. Methodist Episcopal Church v. Pickett, 19 N. Y. 482; Upton v. Hamborn, 3 Biss. 417.

The rule applies r,to increasing ’ the stock of a corporation when the question arises upon paying a subscription for stock forming a part of such' increase. The duty- and the necessity of performing the contract of. subscription are the same as in the case of an original stockholder.

An assignee appointed, under the bankrupt laws of the United Slates represents both the corporation and its creditors, and the defence of irregular organization cannot be urged against', him.

It has been several times adjudged in this- court, that, in an .action by such assignee to recover unpaid subscriptions-.upon, stock in such an organization, the defence of false and fraudulent representations inducing such subscription cannot be set up;, especially when the subscriber’.has not been vigilant in discovering such fraud, and in repudiating his contract. Upton v. Tribilcock, 91 U. S. 45; Webster v. Upton, id. 65; Sanger v. Upton, id. 56; Ogilvie v. Knox Insurance Co., 22 How. 380.

The same authorities hold that one who receives a certificate of stock' for a certain number of shares, at a given sum- per share, thereby becomes liable to pay the amount thereof when called, upon by the corporation or its assignee.. Nor is it necessary to sustain the action • that there should have’ been a subscription for thé whole amount named on the articles. Rensselaer & Washington Plank Road Co. v. Westel, 21 Barb. (N.Y.) 56.

The statute of Illinois of 1869 authorized an increase of the capital -of the Great Western Insurance Company. Papers were filed under the law for that ..purpose,.which were examined by the Attorney-General, and certified to be.in due form; and the' company proceeded to issue its stock upon that theory. •

The defendant ■ became a subscriber for fifty shares of this increased stock, the shares being $100 each. - He paid a portion,-to wit, thirty per cent, of this subscription. He attended meetings of the stockholders -and of the directors, acting himself as such. He gave another person a proxy to attend a meeting of the stockholders at Chicago, and to vote’for him; and he was elected and acted as the president of á braiich of the said company.

It is idle to -deny that this was the case.- of an organization which claimed to have. taken, and apparently supposed that it had taken, the measures required by law to complete its increase of capital.- It acted as such, and' the defendant; by-receiving his certificate of stock, entered into engagements with it as such. . If it be conceded that its increased stock was but de facto, and that it could have been annulled or suppressed by the action of the Attorney-General as acting under an irregular' organization, the defendant derives no. aid .from the admission. The'Cases cited are clear to the point that he cannot make the objection,'-but must perform the engagements he has made.

The last offer-of the defendant was intended, to present;this question, in its most formidable shape. It was to show that the original capital of $100,000 was fully subscribed; that the holders, of this- stock'never increased the capital nor authorized its increasethat this company ceased to do business prior .to' 1868that the $100,000 was not transferred to the company .claiming to have organized- on the increased capital; and that there was no valid transfer of the original stock or charter,

All this does not alter the fact that there was an attempted alteration of the company under the forms, of .law, approved by the Attorney-General, with ah increased capital,-.in the organization and management' of which the. defendant took- part; that he paid his money, received his certificate of stick,- at-, tended meetings, voted, acted as . an officer, and, so far as the record shows, never repudiated his position at any time; even • to the time of the trial. If' successful, he would have shared in its profits. He may. have been, the dupe and victim of the,, action of others.. He may have been an accomplice. At all. events, he was so far an actor in the affair that he cannot escape the consequences of his -position.

Another series of objections is to the admission of various pieces of evidence introduced to. show that the defendant was a stockholder. The original stock-ledger had been destroyed by-fire, and the plaintiff supplied its. 'place by the introduction of ’ sundry other kinds of evidence tending 'to prove -who-were the. stockholders, and that the .defendant was one of- them. 'The importance o-f this evidence was at an end when the certificate of shares was afterwards given in proof, and when it was expressly admitted by the defendant that he held the same; 'that.he made payments thereon, and acted as a holder, pf 'shares in-the company. It is not necessary, therefore, to inquire whether or not the evidence was properly admitted.

At the time this writ of error was taken, .the decisions of. this court in Upton v. Tribilcock, Sanger v. Upton, and Webster v. Upton, to which we have referred, had not been made.. They contain a clear statement of our views upon all' the material questions arising in this record, and we suppose that this writ of error would not have been brought had .they then beep, known to.the party and his counsel. The careful examination then given to the several questions renders unnecessary a detailed review of them.

We think there is nothing in the record before .us that would -justify us in- disturbing the verdict and judgment rendered in the Circuit Court. Judgment affirmed.-