Case ID: ohio-st_20/html/0199-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Warren P. Noble, Administrator, etc., of Henry Cronise, deceased, v. George T. Callender, The Clinton Line Extension Railroad Company, and others.
    A subscriber for shares of stock in a railroad company which is not authorized by law to receive land in payment for its stock, cannot, in an action against the stockholders of the company, by its creditors, set up or avail himself of the benefit of a collateral agreement between himself and the company, to the effect that the amount of his subscription was to be paid in land.
    
      Motion for leave to file petition in error to reverse the judgment of the district court of Seneca county.
    In the year 1853 the Clinton Line Extension Railroad Company was duly organized and became a body corporate/ under the laws of the State of Ohio, for the purpose of building and operating a railroad from the town of Hudson, in Summit county, to the city of Tiffin, in Seneca county, Ohio. A line of road was duly surveyed and properly located, subscriptions made to the capital stock, right of way procured, considerable work done and materials provided; when, in 1857, all further work was suspended, and the project abandoned. In this condition it has since remained.
    At a meeting held at Tiffin, October 31st, 1853, at the instance of the president and other officers of the company, and at which the officers were present participating, W. H. Gibson and other citizens of Tiffin were appointed a committee to solicit from citizens of Tiffin subscriptions to the capital stock of the company, and to report their action to the board of directors of the company at a meeting to be held at the company’s office in Hudson.
    The committee called upon Henry Cronise, then living, since deceased, a citizen of Tiffin, and requested him to subscribe to the capital stock of the company. Cronise refused to subscribe, alleging as a reason, that he had no money and could not pay a subscription in money. He stated that he had eighty acres of land some ten miles west of Tiffin, and would convey it to the company for thirty-two shares of fifty dollars each of the capital stock of the company. Gibson and Wilson, also a member of this committee, believing the land to be worth in money the face of the stock ($1,G00) agreed with Cronise to take the subscription, as he had proposed, for thirty-two shares of stock.
    Whereupon, Gibson, as the agent of the company, made and delivered to Cronise the following agreement:
    “ This is to make known that the subscription this day made by Henry Cronise to the capital stock of the Clinton Line Extension'Railroad Company, being $1,600, in shares of $50 each, is upon the express condition that the said com-' pany shall receive in full payment of said subscription an eighty-acre tract of land owned by said Cronise, in Louden township, in Seneca county, Ohio, which land is the west half of the south-west quarter of section thirty-six (36) in said township. And upon receiving a certificate for said amount of stock said Cronise shall convey said land in fee-simple.
    
      “ W. H. Gibson,
    
      “ Agent of said Railroad Company.
    “October 31, 1853.”
    After the agreement was by Gibson written, signed, and delivered to Cronise, he, at the request of Gibson, subscribed his name to the following paper, partly written and partly printed in a small pass-book:
    
      “ We, the subscribers, promise to pay to the treasurer of the Clinton Line Extension Railroad Company the several sums set against our names, for the number of shares, at fifty dollars per share, at such times and in such instalments as the president and directors may, under their charter and by-laws, prescribe. Provided, always, that no collections shall be made of said stock, except to defray expenses of preliminary surveys and engineering, until two hundred thousand dollars of stock of the capital stock of said company shall have been subscribed in shares of fifty dollars each. Provided said company establish a station at the crossing of the turnpike and where the line of said road, as now surveyed, crosses the turnpike, on the land of Eli Bennett, and no more than ten dollars ($10) on the share shall be required to be paid within any period of three months.
    “ Names. Shares. Amount.
    “ E. R. Bennett, 20 $1,000.
    “ Samuel & John Oussety, 10 500.
    “ James Sanford, 4 200.
    “ Isaac & Jacob Raymond, 3 150.
    “ Jesse Strong, ' 4 200.
    “ Isaac Munday, 3 150.
    
      “Henry Cronise, 32 1,600.
    
      Names. Shares. Amount.
    “ October 31, 1853.
    “ John Pettenger, to he paid in the stock o£ the Mad River and Lake Brie Railroad Co., $275.
    ‘D. W. C. Lugenbeel, 10 500.
    “ Jacob Smith, 6 300.”
    After this transaction, and in November, 1853, Gibson and Wilson, then a director of the company, attended a meeting of the directors of the company at Hudson. This meeting was held to decide whether the road should be located by way of Tiffin or by way of Carey, several miles south of Tiffin, and the amount subscribed at Tiffin was considered in determining this question. At this meeting Gibson made a list of the subscribers on the proposed line to Tiffin, and presented it to the board of directors. In this list was the subscription of Cronise. Gibson explained to the board the character of each subscription upon this list, also the responsibility of each subscriber, also that several subscriptions were payable in land ; that he had given to Cronise the contract of the company signed by himself, as its agent, in which the company had agreed to take from Cronise, in full payment of his subscription, a certain tract of land in Seneca county; that the land was situate ten miles south of Tiffin, and the same distance from the western terminus of the road; that it was worth twenty dollars per acre, and that it was the company’s interest to take the land. None of the directors nor any one else objected to take Cronise’s subscription payable in land. Afterward, and at the same meeting, the board decided in favor of locating the road upon the route by Tiffin. The subsci’iptions were handed to the .board by Gibson, and the name of Cronise was entered upon the stock-ledger and other books of the company as a subscriber for and holder of thirty-two shares of stock. At this meeting Gibson was elected a director, and continued such until the fall of 1854. He also acted as the agent of the company in collecting subscriptions at Tiffin. Wilson also acted as such agent and also as a director of the company.
    About one year after Cronise made his subscription he called at Gibson’s office, in Tiffin, for the purpose of conveying his land to the company and receiving his certificate of stock, when Gibson referred him to Wilson, who was then in charge of the company’s business at Tiffin, as agent and director.
    At the time Cronise made this call, and for some time before and after, the stock of the company was worth seventy-five to eighty cents on the dollar, and was sold at that price. Since the year 1857 the stock is utterly worthless. The railroad is not built, and all purpose to build it is abandoned. The land referred to is worth $40 per acre. When the subscription was made the land was unimproved, and not designed to furnish material for the building or operating the railroad. At the time the subscription was made the committee and Cronise believed they had the right to take the subscription payable in land — that such a contract was legal and binding, else Cronise would not have made the subscription, as he refused to subscribe on any other condition.
    After Cronise’s subscription, with others, had been delivered to the board of directors, and his name had been entered upon the stock-ledger and other books of the company as a subscriber for and holder of the thirty-two shares of stock, the company became indebted to George E. Callender, and for such indebtedness he recovered a judgment against the company, October 13th, 1858, in the court of common pleas of Loraine county.
    On the 24th of January, 1868, Callender commenced an action in the court of common pleas of Seneca county against the Clinton Line Extension Railroad Company, Warren F. Noble, administrator with the will annexed of Henry Cronise, deceased, and nearly four hundred other persons, to compel the defendants, whom he alleged to be the holders of the capital stock of the company, to pay him the amount due on his judgment.
    At the time Callender commenced this action the company had no property subject to execution, and the amount of the valid outstanding unpaid subscriptions to the capital stock of the company was not sufficient to pay the plaintiff’s judgment against the company.
    
      Callender alleged in his petition that the estate of Cronise was indebted to the company upon this subscription to its capital stock in the sum of $1,600, with interest thereon from February 15,1854, and prayed that this indebtedness be subjected to the payment of his judgment.
    Noble, as administrator of Cronise, answered the petition of Callender. The issues joined by the pleadings were, by the order of the court, referred to a master, whose finding in favor of Callender was affirmed by the court, and judgment entered accordingly. And the administrator appealed to the district court, and there the trial, in August, 1870, resulted in a judgment in favor of Callender and against the estate of Cronise for the sum of $3,143.44.
    To reverse this judgment the administrator has filed a motion for leave to file a petition in error in this court.
    
      W. P. & H. Noble and G. E. Seney for the administrator of Cronise:
    The subscription and the stipulation should be treated as a single transaction.
    Under the circumstances the subscription was received by the board of directors we submit that the stipulation was received also with it and as a part of it; and no one was or could possibly have been misled, in any way, by the transaction.
    The plaintiff, Callender, is a mere creditor of the company, and, as a matter of coui’se, had but little knowledge of the business of the compaixy, and would have no inducement to inquire about or become advised of the stipulation; and we are at loss to see any importance in the question, whether he had or had not knowledge of its existence.
    It is legitimate to conclude, fx’om the circumstances of the case, that the whole company and all its stockholders had full knowledge of, and in all things acquiesced in the stipulation and all its terms and provisions.
    The subscription and the stipulation have at all times been tx’eated by the parties to them as a single transaction, and why should a strangei’, having no material interest in the question( not moved by either one of the parties, now invoke the action of the court to say that this transaction, entered into in good faith, under the mutual mistaken belief, on the part of both parties, that it was legitimate and binding in law, though really not so, shall yet be held binding on the one side and not on the other.
    If it be said that the subscription is absolute on its face, and the stipulation is inconsistent with it, and operates as a fraud on the other stockholders, we reply that “ sufficient unto the day is the evil thereof ” — that it will be time enough to trouble the court with this question when the case arises demanding it. So far no single stockholder has complained.
    If it be said that it is likewise a fraud upon the creditors of the company, we reply, that it does not appear that either the plaintiff or any other creditor had any knowledge of either the subscription or the stipulation, until long after the debt was contracted, and that, therefore, they could not have been deceived, misled, or defrauded by the stipulation. In addition to this, the individual liability of stockholders to an additional amount equal to their subscriptions furnished abundant means with which to pay the debts of the company. And see Weedon v. Mad River and Lake Erie Railroad Company, 14 Ohio, 563; Crossman v. Penrose Ferry Bridge Company, 26 Penn. St. 69.
    Shortly before this subscription was made it was legal and proper for railroad companies to. receive subscriptions payable in land. Sec. 14 of the act of February 11, 1848. S. & O. 273, sec. 14, notes. This provision, however, was, probably superseded by the act of 1852, under which this company was organized.
    Section 15 of the railroad corporation act (S. & C. 279). would probably not authorize a subscription to the capital stock, payable in land. If this be correct, and the parties were both mistaken as to the legality of the subscription, and either one, for that reason, sees proper to abandon the agreement, it would be unjust to require the other to perform and execute the agreement on his part.
    We submit that, under the facts of the case, it must be held that the whole contract was abandoned by the mutual consent and agreement of the parties. Their every act and all the circumstances prove this. We say, in the language of Chief Justice Tindall (7 Scott, 395), “ A contract may be abandoned otherwise than by words; the conduct of the parties and their relative situation to each other.” See also Grove v. Donaldson, 15 Penn. St. 128.
    We insist that the agreement between the company and Cronise was made under a mutual mistahe as to the power of thé company to enter into such an engagement. The facts show this. We urge therefore, the rescission of the agreement upon the ground of this mutual mistake. Weedon v. Mad River and Lake Erie Railroad Company, 14 Ohio, 584.
    But upon another ground we ask for a rescission of this agreement. If the company had no power to exchange a part of its capital stock for real estate, the agreement in question was not mutual. If it is not binding on the company, it is not binding on Cronise, and a rescission will be decreed. Kirby v. Harrison, 2 Ohio St. 327.
    
      Frank Baker for Callender:
    The only question in the case is as to the effect of the stipulation given to Cronise by Gibson. If the original subscription of Cronise is to be modified and controlled by that stipulation, then the judgment of the court below was erroneous, for we need not now stop to inquire as to the right of the railroad company or its creditors to enforce the specific performance of a contract to convey land in payment or exchange for stock. This action was not brought for that purpose, but it was brought upon the original subscription to enforce the payment of that subscription in money. The decree is for the payment of that subscription in money. When Callender shall ask and the court shall decree a specific performance of the contract set forth by the administrator of Cronise, it will be time enough to consider the right of Callender to such a decree.
    Callender now insists that the original subscription made by Cronise shall be enforced, and the agreement or stipulation signed by Gibson entirely disregarded.
    1. The court below did not err in disregarding the stipulation, for the reason that the subscription of Cronise and the stipulation of Gibson are not writings made between the same parties; the contract of subscription was between Cronise and the company; the stipulation was between Cronise and Gibson, who was not an agent of the company, but only a member of a committee to solicit subscriptions; and hence the contract and stipulation are not to be construed together; nor is the latter admissible in evidence to control, affect, or modify the former.
    But if Gibson had been the agent of the company, or even an officer, his contract would not be the contract of the company, or admissible in evidence against it, without proof that his act was authorized by the directors of the company and executed by their order. S. & C. 277; White Mountains Railroad Company v. Eastman, 31 N. H. 139; Brownlee v. The Ohio, Ind., and Ill. Railroad Company, 18 Ind. 68, 70.
    Nor is there sufficient evidence that the act was ratified by the company.
    2. But if the stipulation of Gibson was so ratified by the directors as to become binding on the company, unless invalid for other reasons, then I insist that, under the circumstances of the ease, the stipulation must still be disregarded and held to be void as a fraud upon other persons, .and the writing by which Cronise promised to take and pay for thirty-two shares of the capital stock of the company, taken and held to be the contract between the parties for the purposes of this action. Callender’s judgment is for a debt contracted after the subscription of Cronise had been accepted by the company and while his name appeared as a subscriber for the stock upon the books of the company, without any notice of the existence of such a stipulation, which was secret. The other subscriptions yet outstanding, and other property of the company, are insufficient to pay the judgment; and if effect be given to the stipulation, Callender must either lose a part of this debt, contracted upon the faith of this and other subscriptions, to the capital stock of the company, or the stockholders who took stock in the company without notice of the existence of this agreement, and have fully paid up their stock, must, under the laws of this State, pay the $1,600 which Cronise agreed to pay. In either ease a gross fraud and wrong would be worked by giving effect to the stipulation; and hence the court’s have uniformly refused to give effect to any secret agreement whereby subscribers to the capital stock of a corporation have attempted to secure to themselves the privilege of paying for their stock in property, or the privilege of cancelling or rescinding the whole or any part of their stock subscriptions. Henry v. The Vermillion and Ashland Railroad Company, 17 Ohio, 191; Downie v. White, 12 Wis. 176; White Mountains Railroad Company v. Eastman, 34 N. H. 139; Mann v. Cook, 20 Conn. 178; 2 Am. R. R. Cases, 128; 2 Parsons on Contr. (Ed. of 1864), 553.
   By the Court.

The motion must be overruled. Whatever should be the effect of this collateral agreement as between the subscriber and the company, it is quite clear to us that as between him and the creditors of the company, or as between him and his co-stockholders, he cannot be allowed to set it up to their prejudice. The case comes within the principle decided by this court in the case of Henry et al. v. V. & A. Railroad Company, 17 Ohio, 187.

Motion overruled.