Case ID: ohio-st_20/html/0190-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Welch, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Sidney S. Warner v. George F. Callender et al.
    
    
      1. A judgment creditor of an insolvent railroad corporation may join, in the same action, a claim to compel payment of unpaid subscriptions for stock, and a claim to enforce the individual liability of stockholders, for the satisfaction of his judgment.
    3. In proceedings or actions against defunct corporations, service of process upon the members of its last acting board of directors is sufficient, under the statute, to give the court jurisdiction.
    3. In the statutory certificate of parties organizing as a railroad corporation, a description of one terminus of their proposed road as “ in or new" a place named in the certificate, and on the line of a specified road terminating at that place, is sufficiently certain.
    4. The want of a seal to such certificate is one of the defects or omissions which may be remedied or supplied by the court, so as to give eifect to the instrument according to the intention, of the parties, where equity may require it, agreeably to the provisions of the curative act of March 10,1859. (S. & O. 1173.)
    5. Where railroad stock is subscribed for, with a proviso that the “road shall be buüt ” in a specified locality, the permanent location of the road in the place designated is a sufficient compliance with the condition, to make the subscriber liable for calls on his subscription.
    6. By the code of civil procedure, actions to recover the amount of subscriptions for stock are limited to fifteen years, dating from the times fixed in the calls for payment; and where no circumstances interpose to render it inequitable, a creditor’s bill may be maintained to subject the amount due, to the payment of his claim, any time within that period.
    Motion for leave to file a petition in error to reverse the judgment of the district court of Seneca county.
    The case is sufficiently stated in the opinion of the court.
    
      J. IT. Diclcson for the motion:
    1. There was an improper joinder of causes of action. An action for unpaid assessments on subscription for stock cannot be joined in an action on the statutory liability of stockholders. The liabilities do not exist together. The right of action on the statutory liability only exists on failure of assets.
    2. There was a defect of parties defendant.
    The Clinton Line Extension Railroad Company should have been made a party defendant in this action. Umsted v. Buskirk, 17 Ohio St. 116.
    The company, though named in the pleadings, is not in court. No service upon the company was had either in the proceedings to revive the judgments or in the plaintiff’s action below. It was in the power of the plaintiff to bring the company into court. S. & C. 362. It cannot be true that, because the last directors of the company were all individually served, therefore the company has been served. They that were living were served, as other stockholders were, as stockholders on their individxral liability as such, and were only brought into court in their individual capacity, not official.
    3. The statute of 1852 requires the certificate of incorporation “ to be under the hands and seals of the corporators,” and to “ specify the name of the place of the termini of said road.”
    The omission of seals was held to .be a fatal defect in Griffin v. Clinton Line Extension Railroad Company and Warner, in the U. S. circuit court for the northern district of Ohio. See Western Law Monthly for- 1859, p. 31.
    But it is said that by virtue of the proceedings in the Seneca common pleas, under the statute of 1859, S. & O. 1172, the defect as to seals was cured. If Warner was not liable before, we much question the power of the legislature to create such liability retrospectively. The error, so far as the original corporators are concerned, may be cured. Constitutional authority so far is given, but no farther. It extends only to the parties to the mistake or error. Const., art. 2, sec. 28. Warner’s right to this defence was vested at the time of this enactment.
    The name of the place of the termini of the road is not sufficiently specified in the certificate in question. This defect has never been cured.
    Warner is not estopped from making this defence because he was a member of the company. Fort Miller and Fort Edward Railroad Company v. Payne, 17 Barb. 579; Williams v. The Franklin Tp. Academical Association, 26 Ind. 316; Pierce on Am. R. R. Law, 71.
    4. Warner’s subscription was conditional. The road was to be “ built inside of 150 rods north of the centre of Huntington township.” The road never having been built, he never became liable on the subscription. Chamberlain v. Painesville and Hudson Railroad Company, 15 Ohio St. 242; Pierce on Am. R. R. Law, 71: Evansville, Indianapolis and Cleveland Railroad Company v. Sharer, 10 Ind. 245; 10 Ind. 539; 8 Florida, 371; North Missouri Railroad Company v. Wilder, 29 Misso. 321; N. & N. Railroad Company v. Jones et al., 2 Caldwell, 575; Fort Miller and Fort Edward Plank Road Company, 17 Barber, 579.
    The payment of $550 by Warner on a compromise did not waive the condition. Lewis v. Stevenson, 2 Hall, 248.
    5. Warner compromised with Sessions, one of the directors, and paid him $550 and took stock for $500, and was released on the residue of his subscription.
    The claim was a doubtful one against Warner by reason of the form of his subscription. It was therefore for the interest of the company to compromise the same.
    The agreement of Sessions was ratified by issuing the stock to Warner for just $500. As Warner did not pay this $500, on any calls of the company, but simply as a compromise of his whole liability, if any existed, the payment cannot be claimed as a waiver of any of his rights, or of the condition in the subscription.
    6. The plaintiff’s demand is stale. He could have made his money out of the original company, at any time within nearly eight years after judgment, but neglected to do so. nis laches are inexcusable. Executors of Gilmore v. Bank of Cincinnati et al., 8 Ohio, 71; 20 Ill. 266; 2 Maryland Chancery, 231; 3 Bichardson’s Eq. Bep. 465.
    
      
      Fra/nh Baker for Callender:
    1. There was no improper joinder of causes of action. Callender brings his action, upon his judgments, against the stockholders, averring that the company has no assets. If the company has debts due to it, they must be first subjected; and it would be competent for any stockholder, not indebted, to insist that such debts should first be subjected. This is precisely what Callender attempts to do. The parties are all before the court, and if any defendant can complain it is he who is not indebted, not he who is indebted to the company.
    2. As to the alleged defect of parties defendant. The record shows that the company was duly served, both in the action below, and in the proceedings to revive the judgments. The persons who composed the last board of directors were all duly served except one or two who had died. Such service was good. S. & C. 363, 366, 367.
    3. As to the defence that the company was never duly and lawfully incorporated by reason of certain defects in the original certificate of incorporation, we insist—
    (1) That the defects, if any existed, were cured by the order of the common pleas of Seneca county, under the authority of the act of March 10, 1859. S. & C. 1172.
    (2) The company, having attempted and professed to organize under a law providing for the organization of such companies, and having contracted, as a corporation, with Warner and others, he is now estopped from questioning the validity of the charter of the company, or denying its corporate existence, for he was and is a member of the company. Callender v. Painesville and Hudson Railroad Company, 11 Ohio St. 516; Brownlow v. Ohio and Mississippi Railroad Company, 18 Ind. 70, 76; Williams v. Franklin Gas Company, 25 Ind. 310, 315; W. C. Hose Company v. Wheeler, 45 Penn. St. 32, 40; Eaton v. Aspinwall, 19 N. Y. 119, 120 ; Slate et al. v. Bailey et al., 19 Ind. 452, 454; Quinn v. Lumberman's Bank, Watts & Serg. 190, 204.
    4. Warner’s subscription does not make the building of the road a condition precedent to his obligation to pay his subscription. The money of the stock-subscribers was intended as the fund with which to build the road along the specified route. Chamberlain v. Painesville and Hudson Railroad Company, 15 Ohio St. 225; Ashtabula and New Lisbon Railroad Company v. Smith, 15 Ohio St. 332-335.
    The construction of conditions like the present should be such as to facilitate the objects of the enterprise. Pierce on R. R. Law, 75; Miller v. P. & C. Railroad Company, 40 Penn. St. 238.
    5. There was no error in refusing to give effect to the “ arrangement ” between Warner and Sessions, one of the directors.
    Even if the contract had been made or authorized by the board of directors, it would have been invalid for want of power to make such a contract. Directors of a railroad company have not the power to release and discharge a subscriber for stock from.the obligations of his subscription. Bedford Railroad Company v. Bowers, 48 Penn. St. 37; Mann v. Cook, 2 Am. R. R. Cases, 133;. Mann v. Party, 2 Sandf. Ch. 257; Angel & Ames on Corp., sec. 312; Redfield on Railways, 75.
    But it does not appear that the company ever became a ¡party to this “ arrangement” between Warner and Sessions. No authority to make such a contract is shown, and no ratification of it by the directors.
    Indeed, upon its face, the contract does not purport to be the contract of the railroad company, but simply the personal contract of Sessions. The directors only are authorized to make contracts for the company. S. & C. 277.
    6. As to lapse of time and the statute of limitations.
    Every dollar of Warner’s subscription was due and should have 'been paid into the treasury of the company years ago; and the plaintiff, as a creditor of the company, has a right to subject unpaid subscriptions to the payment of his judgments. 5 How. U. S. 304; Redfield on Railways, 75.
    Warner’s subscription was a promise in writing, and the limitation applicable to it is fifteen years, and not six. Gibson v. C. and N. R. T. and B. Co., 18 Ohio St. 396.
   Welch, J.

This was an action by George S. Callender against Sidney S. Warner and others, stockholders, and subscribers for stock, in the Clinton Line Extension Railroad Company, to which action the corporation was also made a party defendant, to enforce the individual liability of the stockholders, and also to compel the payment of a balance due upon their subscriptions, for the satisfaction of two j udgments which Callender holds against the company. The original petition was filed in January, 1868. The case made in the petition is this: The company was incorporated in 1853. The plaintiff’s judgments were obtained in 1858. In 1865, the company being insolvent, all its property and assets, except its choses in action, together with the franchise to be a corporation, were sold in pursuance of the provisions of the act of April 4, 1863 (S. & C. Stat. 131), a new corporation was organized under said act, and the old corporation thus ceased to exist. In 1866 Callender’s judgments were revived. But in the proceeding to revive, as well as in Callender’s action, process against the defunct company was served upon the members of its last acting board of directors, and the company was not otherwise brought into court.

To this petition the plaintiff in error demurred, insisting that it contained a misjoinder of causes of action, and that the corporation was not properly brought into court, either in the proceeding to revive, or in the plaintiff’s action.

The court overruled the demurrer, and after deciding against certain matters of defence, which will be hereafter noticed, rendered judgment against Warner for the balance found due oh his subscription. But the court rendered no judgment as to the individual liability of the stockholders.

The cause was appealed to the district court, where a similar judgment was entered; and Warner now asks leave to file a petition in error to reverse the latter judgment.

It seems to us that these causes were properly joined in the same action. The plaintiff sought to subject two funds to the payment of his judgments. One of these funds, the balance due on the subscriptions, was primarily liable. In the event of its insufficiency, and in that event only, he might resort to the other fund, the fro rata for which the stockholders were individually liable. It is the peculiar pi’Ovince of equity to marshal and apply such funds, and this can best be done where all parties are before the court.

As to the objection regarding the service of process upon the defunct corporation, it is enough to say that the service was in accordance with the statute in such case provided. By the act of March 7th, 1842 (S. & O. 363), “ the directors or managers of the affairs of such corporation, acting last before its dissolution,” are in effect made to take the place of the extinct corporation, for the purpose of winding up its affairs. Service upon them was sufficient.

By the further pleadings in the case it appears that the certificate of incorporation of this railroad company, filed in the office of the secretary of State, and under and by virtue of which it claimed to be incorporated, had no seal. But it also appears, that by a subsequent exfarte proceeding in the court of common pleas, at the instance of the company, an order or decree was obtained curing this defect, under and by virtue of the curative act of March 10, 1859. (2 S. & C. 1172.)

It further appears from the pleadings, that the description of one of the termini of the road, as given in the certificate, is in the words, “ in or near the town of Lima, in Allen county, in the State of Ohio, at a point on the Cleveland and St. Louis Eailroad.” It is claimed that this terminus of the road is not described with sufficient certainty, and, therefore, as well as for want of a seal, that the certificate is invalid, and the company was never legally incorporated.

"We agree with the court below in overruling both these objections. The words in or near” are sufficiently definite for such a purpose. They have substantially, the same significance as the single word “ in.” They authorized the building of no road that did not terminate substantially “ in ” Lima.

The want of a seal to the certificate we think has been effectually cured by the exfarte proceeding for that purposes In the case of Hout v. Hout, decided at the present term,* we held that the permissive power given to the court by the act of March 10, 1859, to give effect to instruments and proceedings, was only to be exercised in cases where it is required by equity and justice. Such we think was the case here. The defect in the certificate involved the merest technicality, and the curative decree of the court merely made it conform “to the true and manifest meaning of the parties.” The plaintiff in error was one of these parties. Eor a series of years, and by a series of acts, he had treated and acknowledged the company as a corporation, and ought now, perhaps, to be estopped from denying it to be such. At all events, it was an eminently proper case for the court to interpose and exercise its curative power. The creditors trusted the company. The stockholders constitute the company, and if Warner escapes by his plea of nul tiel corporation, so can all the other stock-subscribers escape by the same plea. It is but doing equity and justice between the parties, therefore, to give full effect to the defective certificate.

Another defence interposed by Warner was, that his subscription was conditional, and that the condition had not been fulfilled by the company. His subscription was in these words: “ The undersigned agree to take the amount of stock set opposite their names : Provided the road is built inside of 150 rods north of the centre of Huntington township.” The road was permanently located agreeably to this condition, and all the means of the company expended in constructing it there, but the road was never completed. It seems to us, as it did to the court below, that the permanent location of the road in the place designated was a substantial compliance with this condition. What the parties must have meant to provide for was the place of the road, and not its condition of completeness or incompleteness. To hold the contrary would be, virtually, to hold that the parties supposed the road could be built without funds. Strictly speaking, to build a road is to complete it. So, strictly speaking, to locate a road is to complete it, because until it is completed it is not a road.. When a subscription book speaks of locating a road, everybody understands it to mean less than a finished road — a mere line surveyed and established as the loous Where the road is to be built. So, when it speaks of a road to be built, in one place in preference to other places, the parties cannot fairly be held to have intended differently. In either .case it must, from the very nature of the case, be supposed and held that it was the location of the road, and not its structure, that was intended to be specified.

Another defence set up by Warner was, that after he had made his subscription, and calls had been made by the directors for the full amount thereof, he compromised the same by an agreement made with one of the directors, whereby he paid, and received stock for, half the amount thereof, and paid an additional sum of fifty dollars, in consideration that he should be released from the remaining part of the subscription. The evidence, however, fails to show any authority of the director to make the agreement, or that the same was ever confirmed by the company. Nor does the evidence show that there was any real controversy between the parties to be compromised, or other valid consideration for the alleged release. On the contrary, it seems to have been a private matter between Warner and the director, and to have been purposely kept concealed from the company, and intended as a mere matter of favor to Warner.

The remaining defence interposed was the statute of limitations, or the staleness of plaintiff’s equity. Warner alleged (1) that the cause of action did not accrue in six years, and (2) that it did not accrue in ten years next before the commencement of the plaintiff’s action. The court held the plea of six years’ limitation to be no bar to the action, and that the plea of ten years’ limitation was not true — only nine years having intervened between the rendition of plaintiff’s judgments against the company and the commencement of the action.

It is enough for us to say, on the question of limitation, that Warner’s liability on his subscription ran fifteen years from and after the respective periods fixed in the calls made therefor, and that as no judgment was taken against him on his undvoidmal liability as stockholder, no question now arises as to the statutory period of limitation applicable to the latter. The action was brought within the fifteen years, the period limited by statute for an action on the written contract of subscription ; and the record does not show the intervention of any circumstances, or changes effected by the plaintiff’s delay, rendering it inequitable for Callender to maintain his action. It is true, the record shows that up to the time of its reorganization the company was possessed of sufficient property to pay these judgments. Whether that property was under mortgage, or whether it was property which in equity ought to have been applied to the payment of these judgments, or otherwise, does not appear. It was certainly as much the duty of the stockholders, as it was of the judgment creditor, to determine whether the assets of the company should, at any particular time, be applied in payment of its debts, rather than in the construction of its road, and in what order the debts should be secured and paid.

We have carefully examined the voluminous record in the case, but fail to see wherein the court below has erred to the prejudice of the plaintiff in error.

Motion overruled.

Brinkerhoff, C.J., and Scott, White, and Day, JJ., concurred.