#### Salem Mill-Dam Corporation *versus*Joseph Ropes.

Where individuals, having a design to be incorporated for the purpose of creating a water power, cause surveys and estimates to be made of the water power which can be created, and thereupon represent it to be greater than it really is, but without any intention to deceive, persons who subscribe for stock in the corporation upon the faith of such representations and agree to be personal!'* liable for assessments, cannot avoid the contract on the ground of the mistake.

Where an act of incorporation required that the capital stock should consist of 6000 shares, and that the whole number should be subscribed for before an assessment should be laid, and 30 of the 5000 shares were subscribed for by A. on account of B., but without authority, it was held, that the capital stock was not all taken up in such a manner as to authorize the corporation to lay an assessment; the effect of A.’s subscription being not to make him a member of the corporation, but only to subject him to a special action of the case for damages.

If all the shares in such a corporation are taken up by solvent persons, the unexpected insolvency of some of them, whether before or after the corporate powers have been exercised, will not deprive the corporation of the power to lay assessments.

But where only a part of the shares were originally taken up, and some of the subscribers became insolvent, and in laying an assessment to defray preliminary expenses, (which was allowed by the act of incorporation,) the insolvent subscribers were not assessed, and afterwards additional subscribers were obtained, it was *doubted*whether the corporation could consider the insolvent persons as stockholders.

Whether in a case where by an act of incorporation the shares in the capital are made liable to be sold for non-payment of assessments, and the subscribers to the stock sign an agreement making themselves liable personally to a certain amount, a vote of the corporation, that the subscribers shall be liable personally for only a part of such amount, will have the effect to discharge a dissenting subscriber entirely from his personal liability, qucere.

This was an action of assumpsit brought against the defendant, to recover an assessment of ten dollars upon each of his twenty shares in the capital stock of the Salem Mill-Dam Corporation.

At the trial it was proved, that on March 4th, 1826, the plaintiffs were incorporated with the design of creating a water power, by means of dams, for manufacturing purposes.

The capital stock was required to be divided into 5000 shares, not exceeding $ 100 each. The subscribers were authorized to meet for the purposes of “ organizing the corporation and arranging its affairs,” when 1000 shares should be subscribed for.

In April 1826, an agreement was signed by the defendant *191and others, by which “ the subscribers severally agree to take the number of shares which are affixed to their respective names, and to pay all such legal assessments on each of those shares, as shall be made by the future government of the corporation, after the same shall have been organized.”

At a meeting on May 10th, 1825, of persons desirous to as certain the practicability and expediency of establishing cotton and other manufactures in Salem, a committee of five persons was chosen, of whom the defendant was one, to make inquiries on the subject. At a subsequent meeting, held on March 29th, 1826, after the act of incorporation was passed, the com mittee made a report, which was accepted, in which they state that they have employed surveyors and engineers to ascertain the extent and cost of water power, and as the result, they say, “ Taking every thing into view, therefore, the committee believe, that if the longest dams should be agreed upon, seventy-five mill powers would be obtained.”—“ Now for less than the sum of 200,000 dollars we can, without doubt, obtain seventy mill powers ; ” by which the committee intended gristmill powers ; and they estimate the water power to be sufficent to carry 50,000 spindles. Pursuant to a vote of the persons assembled, this report and the act of incorporation were immediately published and circulated by them. The plaintiffs contended that this vote was not the vote of the corporation , and the defendant contended, that in law it was their vote. The expenses incurred by the committee in procuring surveys and calculations to be made were paid out of the funds of the coi poration ; as was also the compensation to the chairman of the committee for his services.

The first meeting of the corporation, for the purpose ot accepting the act of incorporation and arranging their affairs, was held May 17th, 1826, when the committee chosen as above mentioned made a report, in which they say, “ Having in pursuance of the votes passed at the meeting held on March 29th, caused the report which was then submitted, together with the act of incorporation, and extracts from the estimates, to be printed and distributed, they proceeded without delay to obtain subscriptions to an agreement for the purposes above mentioned.”

*192At a subsequent time, all proceedings being suspended, and many doubts having arisen as to the extent of the power to be created by the proposed dams, the corporation employed Danjej qprea(jweu t0 maice a new survey and estimates. Tread-well’s report was laid before the corporation on June 24th, 1828. He estimates the greatest constant day power to be eleven and a half grist-mill powers, and the greatest number of spindles, 7698.

The whole number of shares subscribed for on September 4th, 1826, was 2687, and no further subscriptions were obtained until September 1828. Of the 2687 shares first subscribed, the holders of 200 had become insolvent, and remained insolvent at the time of laying the assessment, to recover which this action is brought. These shares were distinguished from the rest by the name of “ insolvent shares,” in the exhibits of the treasurer at the annual meeting in 1828, and in these exhibits were deducted from the whole number subscribed, and were not considered as shares on which assessments were payable. The Court having in a former action between these parties (see 6 Pick. 23) decided that the holders of shares were liable to pay their proportion of the *preliminary*expenses of the undertaking, an auditor was appointed to determine the amount of those expenses, and the sum which might be due on each share. The counsel for the corporation laid before the auditor the evidence necessary to enable him to report, and fixed the number of shares on which the preliminary expenses were payable, at 2495, omitting to reckon the insolvent shares and 30 shares subscribed for by Samuel Endicott in the names of Moses, Nathan and Timothy Endicott. No vote of the directors was ever taken on the subject. At the opening of the books for the first subscription, Samuel Endicott subscribed ten shares in the name of Timothy Endicott, in the following words :— “ Timothy Endicott, by Samuel Endicott; ” and the same number in like manner in the name of Moses Endicott, and the same number in like manner in the name of Nathan Endicott, all three being then absent at sea. No evidence was offered at the trial respecting me authority of Samuel Endicott to subscribe for these shares, or of a subsequent ratification by Moses, Nathan, or Timothy. *193On the part of the defendant, the depositions of Moses and xr l • , i . *c*JNathan, it competent evidence, were made a part oi the case. In these depositions they respectively deny that they ever authorized Samuel Endicott to subscribe for them, or that they ever ratified his doings.

The corporation, in 1826, sued Samuel Endicott lor me assessments laid on the 30 shares. No action has at any time been commenced against Moses, Nathan, or Timothy, on account of those shares. The 200 “ insolvent shares ” and the 30 shares subscribed for, as above mentioned, by Samuel Endicott, are part of the 5000 shares which the plaintiffs contend have been duly subscribed for.

On September 9th, 1828, the corporation voted, “ that the *personal*liability of the stockholders shall be limited to one third part of their respective shares, reckoning the same at *$*100 each, and that no action shall be brought against any stockholders on account of any assessments, to recover more than the said one third part, but that the corporation do release all their claim and demands against all the stockholders personally for the amount of all assessments exceeding such third part, reserving however their lien on the respective shares and their right to sell the same, according to the act of incorporation, for default of payment of any assessment.”

After this the books were re-opened and further subscriptions obtained, until the number of shares subscribed for, including the 30 shares subscribed by Samuel Endicott in the manner above mentioned, and the insolvent shares, amounted to 5000. The persons who took shares after the passing of the vote last mentioned, subscribed an agreement in the same terms with that subscribed by the defendant and the other original subscribers.

The first meeting after the new subscriptions, was held on October 10th, 1828. It was then voted to limit the personal responsibility of subscribers, in the words of the vote passed on September 9th, 1828. This and subsequent meetings were regular and legal, and the assessment in question duly and regularly laid, if the corporation was empowered to hold any meetings or to lay any assessments for carrying into effect the general purposes of the corporation.

*194At the time of laying this assessment, no contracts had been entered into, no liabilities incurred or money expended by the corporation, in erecting the dams or effecting any of the purp0ses for wh¡ch the corporation was created, unless the disbursements, liabilities and contracts hereafter mentioned are disbursements, liabilities and contracts of the corporation. Disbursements had been made (including the preliminary expenses, amounting to $ S760) to the amount of nearly $ 11,000, and contracts had been made for land, wharves and flats, to an amount not exceeding $10,512; besides which there were other pending contracts for timber and other materials. Those disbursements and contracts were made and liabilities incurred, previous to the decision of this Court in the former action between these same parties. At a full meeting of the directors, January 2d, 1829, it was voted, that the doings of all former boards of directors, so far as they appear upon their records, be ratified and confirmed. The contracts for wharves, flats, &c. were not to take effect, if the dams should not be erected.

The defendant offered to prove, that the greatest power which could possibly be created by means of the dams, would not exceed eleven and a half constant day powers, (grist-mill powers,) which would be sufficient for only 7689 cotton spindles ; and he contended, 1. That the reports above mentioned were printed and circulated by the corporation, and that the same were evidence that the corporation had undertaken to create a power equal to seventy grist-mill powers, and sufficient for 50,000 cotton spindles, and that subscriptions were obtained by representations and promises to that effect; that it is now and always has been impossible for the corporation to create a power of such magnitude, and that the failure of the corporation to perform their part of the contract operates as a releasq of the defendant’s liability under his special agreement to pay assessments on his shares.

2. That the 5000 shares have not been subscribed for, and therefore the corporation cannot legally lay assessments for the general purposes of the corporation.

That the limitation of the personal liability of the stockholders to the payment of one third part of $ 100, varies the *195contract with the defendant, which was for the payment of *u*, , $ 100 on each share.

The evidence offered by the defendant was rejected by the judge who tried the cause, and a verdict was taken for the plaintiffs, subject to the opinion of the whole Court.

*Saltonstall*and Shillaber, for the defendant,

contended that the doings of the committee before and subsequent to the act of incorporation, must be considered as the doings of the corporation ; *Dewey*v. *Chester Glass Co.*16 Mass. R. 94 ; *Scots Char. Soc.*v. *Shaw,*8 Mass. R. 532 ; that the amount of water power which could be created, was a matter susceptible of demonstration ; that the corporation had represented, as an inducement to individuals to take shares and to subscribe the contract imposing a personal liability, that about seventy mill powers might be created at an expense not exceeding $ 200,000 ; — which was a physical impossibility; that the contract was entire, and must be wholly performed, or be rescinded ; that a part performance of the contract, by which about twelve mill powers only would be created at an expense of $ 200,000, would not be at all beneficial to the defendant ; that the corporation were not responsible for the contracts made for the purchase of lands and timber, before all the shares were taken up, and assuming that all the shares have since been subscribed for, the corporation have not by any vote ratified those contracts or authorized the new directors to affirm them; that if there was any ratification, it was after the corporation were aware of their inability to perform their contract with the defendant, and was against his consent, and not binding upon him ; that here was a mutual mistake as to the basis of their contract, and when it is discovered, the parties must be restored to their original rights. As- to the effect of the mistake, they cited 2 Kent’s Com. 367, 373 ; Chit. Contr. 187, 188, 190, 273, 276 ; 2 Com. Contr. 52, 58, 81 ; Sugd. Vend. 188, 200 ; *Farrer*v. *Nightingal,*2 Esp. R. 639 ; *Borrough*v. *Skinner,*5 Burr. 2639; *D’ Utricht*v. *Melchor,*1 Dallas, 428 ; *Hibbert*v. *Shee,*1 Campb. 113; *Halsey*v. *Grant,*13 Ves. 73 ; *Stapylton*v. *Scott,*ibid. 425 ; *Judson*v. *Wass,*11 Johns. R. 527; *M'Ferran*v. *Taylor,*3 Cranch, 270 ; *Stoddart*v. *Smith,*5 Binney, 355 ; *Farnsworth*v. *Garrard,*1 Campb. *19638 ; 1 Poth. Oblig. by Evans, *page*12, *art.*3, § 1 ; Cod. Nap. *art.*1636 ; *Chambers*v. *Griffiths,*1 Esp. R. 147 ; *Giles*v. *Edwards,*7 T. R. 181 ; *Mowatt*v. *Wright,*1 Wendell, 355 ; *Cox*v. *Prentice,*3 Maule & Selw. 344.

The whole number of shares have not been taken up. The 200 insolvent shares are a nullity, and have been treated as such by the corporation. It was the duty of the corporation to sell these shares when the assessments upon them for the preliminary expenses were not duly paid, and to keep them in the hands of solvent persons.

The subscription by Samuel Endicott for the 30 shares was a nullity, being unauthorized. It did not bind those persons for whom he subscribed, neither did it make him individually liable to assessments on these shares, but the remedy against him is an action of the case for damages. *Ballou*v. *Talbot,*16 Mass. R. 461 ; *Long*v. *Colburn,*11 Mass. R. 97.

The limitation of the personal liability to one third part of $100 on a share, if binding on the corporation, is a violation of the contract, for it puts it out of their power to complete their undertaking. The defendant expected and desired that ^ the personal liability of all the shareholders collectively, should extend to the sum of $ 500,000, provided that amount should be requisite. *Swan*v. *Middlesex Turnp. Co.,*10 Mass. R. 384. But the vote is not binding. It may be rescinded. This would be a fraud on the new subscribers ; which would discharge them, and if they are not bound to the amount of $100 upon a share, then the expectation of the original subscribers is disappointed.

*J. Pickering*and *Choate,*for the plaintiffs.

The corporation made no promise as to the extent of the water power to be created, unless by the report of March 1826. That was the act of individuals and not of. the corporation, which was not organized when the report was made ; neither has this report ever been ratified by the corporation.

If this report was the act of the corporation as to some purposes, it was not so in respect to the defendant; but it was his own report. He, in fact, led the plaintiffs into the contract.

This report., if circulated by the plaintiffs, is nevertheless no *197part of the contract. The subscription paper, connected with f, -. . r . the act ot incorporation, iorms the contract.

If the report had been in the subscription paper, it would not , - *,*T show a contract lor any definite quantity of water power. It only contains an estimate made by skilful persons, on the correctness of which the committee rely. The defendant knew that the subject did not admit of certainty, and he took the risk. *Dunlap*v. Waugh, Peake’s R. 123; Phil. Ins. 106 ; *Lawrence*v. *Dale,*3 Johns. Ch. R. 23; *Harris*v. *Kemble,*1 Simons’s Ch. R. 111. If it is part of the contract, the stipulations are mutual and independent, and either party has a remedy against the other in the case of non-performance. The payment of the money is precedent to the erection of the dams.

As to the 200 insolvent shares, it was sufficient that the holders of them were solvent at the time of their subscription. It is objected that they were treated as insolvent, in the assessment laid to defray .the preliminary expenses. They must have been so treated of course, for the whole debt must be paid by the shareholders who were solvent. But no release has been given to the insolvents, and their shares may become valuable.

With respect to the 30 shares, the subscription was full *de facto*and in good faith ; and it must be presumed that Samuel Endicott had authority to subscribe, since otherwise the rights of third persons will be tried collaterally. Further, if S. Endicott failed to bind those for whom he subscribed, he has made himself liable in the same manner as if he had subscribed on his own account. *Hastings*v. *Lovering,*2 Pick. 221 ; Paley on Princ. and Ag. (Eng. ed.) 249 ; *Sumner*v. *Williams,*8 Mass. R. 209; *Randall*v. *Van Vechten,*19 Johns. R. 63 ; *Hampton*v. *Speckenagle,*9 Serg. & Rawle, 223 ; Sugd. Vend. 36 ; *Mott*v. *Hicks,*1 Cowen, 536 ; *Dusenbury*v. *Ellis,*3 Johns. Cas. 70; *Sheffield*v. *Watson,*3 Caines’s R. 69 ; *White*v. *Skinner,*13 Johns. R. 307 ; *Underhill*v. *Gibson,*2 N. Hamp. R. 356.

The reducing of the personal liability of the stockholders, was a matter left to the discretion of the corporation. The original and the new subscribers are placed, by the vote, on an equal footing. All may take advantage of the vote, as a *198release of their personal liability, except for one third part ot $ 100 upon each share. The vote was either legal or illegal; if legal, the defendant cannot object against it; if illegal, the new subscribers were bound to know that it was so, and they are held personally to the same extent as the original subscribers.

Parker C. J.

drew up the opinion of the Court.* There are grounds upon which we are satisfied that' this action cannot be maintained, which were virtually decided in the former case between *these*parties ; not indeed virtually only, for it is most manifest that the present action cannot be sustained on the facts proved, without a direct contradiction of the principles laid down in the former case.

How is this ? It was decided before, that an action would not lie upon the personal contract of the subscribers to the stock, to recover an assessment made before the whole capital was taken up, except so far as it might be necessary to raise money to defray the expenses preliminary to the complete organization of the company, which could not take place until there was a full subscription, and this, because by the act of incorporation it was made essential to the power of assessment for the general objects and purposes of the institution, that there should be a capital represented by 5000 shares of $ 100 each to be acted upon by the assessment.

Upon revising that opinion, we are entirely satisfied it was correct.

How stands the present action ? It is brought to recover the amount of an assessment made to cover the expense of materials purchased or contracted for, to be used in carrying forward and completing the general purposes of the institution, it being agreed that the former assessment was sufficient to defray all the preliminary expenses.

Has then the whole number of shares been subscribed for, so that the capital stock amounts to the sum prescribed by the legislature in the act of incorporation, as the fund to be obtained before the full power of the corporation should be exercised ? It is most certain' there was, at the time of this assessment, and still is, a deficit of thirty shares at least, there being no *199authority in Samuel Endicott to subscribe for Charles M. Endicott, or Nathan Endicott, or Timothy Endicott. With respect to the two first, the evidence is conclusive against any authority in Samuel, and with respect to Timothy, there is no evidence of authority.

It is argued that Samuel Endicott, who thus acted without authority, is himself liable to the amount of these shares ; but "f so, how and to what extent is he liable ? He cannot be made a subscriber or compelled to take shares ; no certificates can be issued in his name ; he can be liable only in a special action on the case, for assuming to act in behalf of his nephews without any authority from them. This cannot be considered as a substitute for or equivalent to a subscription.

Suppose a majority of the shares were thus subscribed for, could the corporation go on ? could the liability to an action for damages, altogether uncertain in their amount, constitute any part of the fund of $ 500,000 established by the act ?

This deficiency of thirty shares in the subscription has the same effect in suspending the power of assessment, as a larger number would have ; the principle is the same.1 In obtaining the additional subscription since the decision in the other case, this deficiency, being known, and its effect clearly deducible from the positions laid down by the Court, should have been supplied.

It is not necessary to consider the legal consequence of the insolvent shares not being provided for by the new subscription. If there had been originally a full subscription, *mmá jiae,*tne unexpected failure of some of the subscribers before or after the corporate powers were exercised, ought not to impede the operations of the company. They would assess all the shares, and take legal measures to compel the payment, and any final deficiency would be supplied by the company, by additional assessments, if necessary. But there being but little more than half the stock subscribed, including the insolvent shares, so that- it became necessary, in order to enjoy the power of assessment, that a further subscription should be obtained, and it being known that 200 shares were wholly inefficient, it certainly admits of question whether these should stand as part *200of the fund or capital stock. These 200 shares were treated by the officers of the company as dead shares before th .) new subscription. At the annual meeting in 1828, they were deby the treasurer, in his exhibit, from the whole numbei *.*subscribed, as shares on which assessments were not payable, as were also the shares subscribed for without authority. How then can they be enumerated as part of the 5000 shares ? It is evident that the subscription was not full, to any legal purpose, when this assessment was made. It would have been quite as well to have set down the whole number of deficient shares to some feigned name, representing no person in actual existence. The facts affecting these delinquent shares were known to those who represented the corporation, at the time of the second subscription, and at the time of the assessment.

As to the more general ground taken by the defendant’s counsel, that the contract has become inoperative by reason of the supposed inability of the corporation to execute the purposes of the act, in the manner and with the benefit expected and intended by those who embarked in the project and undertook to pay for the shares they subscribed for, — as it was not pretended that there was any designed misrepresentation by those who procured the subscription, we think the defence could not be sustained on this ground. If there was a disappointment in regard to the degree of benefit expected from the project, no doubt it was mutual. The defendant appears to have had as much agency in the original plan, as any of the agents of the corporation. If a court of equity, with full chancery powers, might interpose to prevent *the*execution of a ruinous project entered into by a company, when it shall have been ascertained that the proposed advantage cannot be attained, certainly as a court of law we have no such power.

As to the effect of the vote of the corporation to limit the personal liability of subscribers to one third of the prescribed amount of a share, whether for this cause the contract of the subscribers may be avoided, we do not think it necessary in this case to decide. The original subscribers had a right to expect there would be available funds to the amount of $ 500,000 applicable to the purposes of the institution, if necessary to carry it into full effect; without depending upon the value of *201the stock in the market; and yet it is difficult to say thax the diminution of their liability by a vote of the corporation shall operate an entire discharge, particularly as this personal liability is not exacted by the act of incorporation. Believing this action well settled upon the other point, we give no opinion upon this. We are well satisfied that this assessment cannot be sustained upon the principles which upheld the other, because it was not necessary for preliminary expenses ; the objects and purposes of this assessment being to pay for contracts and liabilities which there was no authority to enter into and incur, when they accrued.

*Verdict set aside.*

*

*Putnam*J. did not sit in the case

1

See *Central Turnpike Corp.*v. Valentine, 10 Pick. 142.