Case Name: John B. Weidenger v. Harmon Spruance
Court: Illinois Supreme Court
Jurisdiction: Illinois
Decision Date: 1881-03-18
Citations: 101 Ill. 278
Docket Number: 
Parties: John B. Weidenger v. Harmon Spruance.
Judges: 
Reporter: Illinois Reports
Volume: 101
Pages: 278–307

Head Matter:
John B. Weidenger v. Harmon Spruance.
Filed at Ottawa March 18, 1881.
1. Stockholdebs—changing the conditions as to liability for debts of corporation, by subsequent legislation—under constitution of 1848. Section 2, art. 10, of the constitution of 1848," which provides that “dues from corporations not possessing banking powers or privileges, shall he secured by such individual liability of stockholders of the corporation, or other means, as may be prescribed by law, ” was designed to express the reservation of power in the General Assembly in granting charters, to provide, from time to time, by legislation, as experience should suggest or wisdom dictate, for the securing of dues from corporations, by individual liability of the corporators, or other means.
2. The language of the section does not seem necessarily to require that this should be done in the charters, and be made a condition precedent to the exercise of corporate powers, hut rather to cast upon the legislature the supervising duty of ascertaining what legislation shall be necessary to attain the desired end, and then to provide it; so that every stockholder in a corporation of a character not within the exception named, organized' under that constitution, took his stock subject to this supervisory power of the General Assembly, and to be affected by whatever legislation in that regard the General Assembly might deem necessary.
3. The 16th section of the general Insurance law of 1869 provides, that “the trustees and corporators shall be severally liable for all debts or responsibilities of such company, to the amount by him or her subscribed, until the whole amount of the capital of such company shall have been paid in.” The Commercial Insurance Company was organized under a special charter granted in 1865, which did not prescribe as a condition to the liability of the individual stockholders that the entire capital of the company should he paid in, nor did the charter, as considered for the purposes of the decision, contain any reservation to the General Assembly of power to amend it. Nevertheless, that provision of the act of 1869 was given effect as against the corporators or stockholders of the company for liabilities of the corporation accruing after the act went into effect,—and this, by virtue of the reservation of power to the General Assembly, in' the constitution, to supervise, in that regard, the affairs of preexisting corporations.
4. In giving such effect to the act it was not regarded as an impairment of the obligation of the contract between the prior stockholders and the corporation, or the creditors of the corporation. The act simply required preexist ing corporations to cease to carry on their business unless they should comply with its provisions, and the liability imposed upon the stockholder is by way of penalty, only, for disobedience to this mandate.
5. But the application of the act in respect to the stockholders of the Commercial Insurance Company is sustainable upon another ground. The charter of the company authorized the directory to call in such an installment on stock subscribed as they might deem necessary,—not less than twenty per cent in cash,—and the balance to be secured in a prescribed manner. Even if there was an implied authority, in the absence of any express grant of power to that effect, for the company to commence or prosecute business before the payment so authorized to be required, was made, still such implied authority but amounted to a license, subject to be revoked, except so far as acted upon, at any time, by the. General Assembly.
6. But the real obligation of the contract of each subscriber was, that he should pay for his stock. A mere expectation on his part that the law would not be enforced in requiring all the capital stock to be paid in, was not a vested right. It became the duty of the corporation to have payment made into its treasury of its capital stock, and if the stockholders failed to exercise their controlling authority in requiring that duty to. be, performed, it was competent for the General Assembly to impose a reasonable penalty, such as that prescribed in the act of 1869, for the non-performance of that duty, although the duty may have been declared, and its performance enjoined, by the principles of the-common law or the provisions of a prior statute.
Writ oe Error to the Appellate Court for the First District ;—heard in that court on writ of error to the Superior Court of Cook county; the Hon. Joseph E. Gary, Judge, presiding.
This was an action of debt, brought by Joseph B. Weidenger, for the use of T. B. Elliott, against Harmon Spruance, as a stockholder in the Commercial Insurance Company, upon the individual liability of the defendant for a debt of the company to the amount of his stock, the capital stock of the company never having been paid in. The court overruled demurrers to pleas of the defendant, and gave judgment against the plaintiff for costs. This judgment was affirmed in the Appellate Court.
Messrs. Shufeldt & Westoveb, for the plaintiff in error: '
1. The Commercial Insurance Company was organized under the public act of the General Assembly of Illinois, approved February 10, 1865. The constitution of 1848, then in force, contained this clause: “Dues from corporations not possessing, banking powers or privileges, shall be secured by such individual liabilities of the corporators, or other means, as may he prescribed by law.” (Const, of 1848, art. 10.) The Commercial Insurance Company received its charter, subject to such conditions as might be imposed by law, under that constitutional provision. Massachusetts General Hospital v. State Mutual Life Assurance Co. 4 Gray, 227; Suydam v. Moore, 8 Barb. 358; Story v. Jersey City, etc.. Plank Road Co. 1 Green, (16 N. J. Eq.) 13; Attorney General v. Railroad Co. 35 Wis. 435.
2. The constitution being virtually a reservation of the right to amend the charter of the corporations organized, under it, as to liability of corporators, section 16 of the general law of 1869 became, by the terms of the law, a part of the charter of all such companies. Tomlinson v. Jessup, 15 Wall. 454; Miller v. The State, id. 478; Suydam v. Moore, 8 Barb. 358; McLaren v. Pennington, 1 Paige Ch. 102; Roxbury v. Providence and Boston R. R. Co, 6 Cush. 424; Pennsylvania College Cases, 13 Wall. 190; People v. Manhattan Co. 9 Wend. 351; Schenectady and Saratoga Plank Road Co. v. Thatcher, 11 N. Y. 102.
3. The legislature thus amended the charter of this company, and by the amendment every stockholder or corporator became bound as to his individual liability. In re Reciprocity Bank, 22 N. Y. 9: Sherman v. Smith, 1 Black, 587; In re Oliver Lee’s Bank, 21 N. Y. 9; Stanley v. Stanley, 26 Maine, 191; Baily v. Hollister, 12 N. Y. 112.
4. The capital stock of the company not being paid in, the defendant, a corporator in said company, became liable to the plaintiff, individually, for the amount of the debt of the corporation to the plaintiff, not to exceed an amount equal to defendant's stock. Culver v. Third National Bank, 64 Ill. 529; Butler v. Walker, 80 id. 345.
Messrs. Boutell & Waterman, for the defendant in error:
Article 10 of the constitution of 1848 was not self-acting, in the sense of imposing upon the stockholders of corporations thereafter created, an individual liability. Legislation was needed to make it active or effective. Hill v. City of Chicago, 60 Ill. 86.
The charter of the company became and was a contract. It did not impose upon the stockholders any liability for the dues of the company. It exempted them from liability, and no legislature coüld thereafter, without the consent of this company, change its' chatter so as to impose a personal liability upon its stockholders. Washington Bridge Co. v. State, 18 Conn. 65; Wheeler v. Frontier Bank, 23 Me. 308; Enfield Toll Bridge Co. v. Connecticut River Co. 7 Conn. 44; People v. Platt, 17 Johns. 215 ; Dartmouth College v. Woodward, 4 Wheat. 518; Angell & Ames on Corp. sees. 4, 595.
The charter of the Commercial Insurance Company not containing any reservation to the legislature of a right to change it in any way, and not being subject to any such constitutional provision, the act of 1869 could not operate to impose upon defendant a liability which he was not before under. Wheeler v. Frontier Bank, 23 Maine, 308; Ireland v. Palestine Co. 19 Ohio St. 369.
The statute does not apply to such a case as the present :
First—Because companies theretofore organized are by section 19 especially excepted from the operation of the act. (Sec. 16, chap. 73, Bev. Stat.)
■ Second—Because section 16 applies only to the original corporators and trustees of companies organized under the act. (Secs. 1, 3, 10, 16, 19, chap. 73, Rev. Stat.) Defendant was neither a corporator nor trusted.
Third—Because the Commercial Insurance Company was not organized under the act. The statute makes liable only trustees and corporators of companies organized under the act.
Fourth—Because the provision imposing personal liability is to be strictly construed. Gray v. Coffin et al. 9 Gush. 192.

Opinion:
Mr. Justice Scholfield
delivered the opinion of the Court:
The present case differs from Gulliver v. Roelle, 100 Ill. 141, in this: In that case the right to amend was expressly reserved in the charter; in the present case such right was reserved in an amendment to the charter, which the pleas aver was never accepted by the company, and so it must be taken for the present that no right of amendment was reserved in the charter; and the question therefore is, treating the 16th section of the general law as an amendment of this charter, does it impair the • obligation of a contract ? We are of opinion the answer should be in the negative.
By sec. 2 of art. 10 of the constitution of 1848 it is provided, that "dues from corporations not possessing banking powers or privileges, shall be secured by such individual liability of the corporators, or other means, as may be prescribed by law. " This, it is to be observed, is not the expression of a grant of power, for the General Assembly without this, under its general legislative powers, might, in creating such corporations, provide any mode for securing the payment of debts to be contracted by them, deemed advisable. It is not the expression of a prohibition upon the creation of such corporations unless certain prescribed -provisions shall be inserted in the charters, for the mode of securing the dues is left to be determined by the General Assembly; and it could not, therefore, be said that any exercise of that discretion, whatever it might be, is unconstitutional. We can not suppose that in making an instrument of the importance and dignity of a constitution, a mere idle lecture to the General Assembly would be inserted; and so, to give effect to the language, it would seem we might well conclude it was designed to express the reservation of power in the General Assembly in granting charters, to provide, from time to time, as experience should suggest or wisdom dictate, for the securing of dues from the corporations, "by individual liability of the corporators, or other means." The language employed does not seem to necessarily require that this shall be done in the charter, and be made a condition precedent to the exercise of corporate powers, but rather to cast upon the General Assembly the supervising duty of ascertaining what legislation shall be actually necessary to attain the desired end, and then to provide it. If this be conceded, then every stockholder takes his stock subject to this supervision of the General Assembly, and to be affected by whatever legislation in that regard the General Assembly may deem necessary; and so we have held in Arenz v. Weir, 89 Ill. 25.
But we shall not rest our decision purely on this ground. The 2d section of the charter of the Commercial Insurance Company provides for a capital stock of $200,000, divided into shares of $100 each; and its 3d section authorizes the board of directors to call in such an installment on the stock . subscribed as they may deem necessary,—not less than twenty per cent in cash,—and for the balance of such subscription they may take bonds, secured by mortgages on unincumbered real estate in the State of Illinois, or judgment notes of responsible parties. (Private Laws of 1865, vol. 1, p. 632.)
No authority is expressly given by the charter to commence or prosecute business before the twenty per cent in cash is paid in, and the balance is paid in bonds or judgment notes, secured in the manner provided. But if it may be said that such authority is implied, this implied authority can but amount to a license, subject to be revoked, except so far as acted upon, whenever the General Assembly may so declare. It can not be said the obligation of the contract of the shareholder with the corporation, or with creditors of the corporation, or with the other stockholders, is, that the corporation shall proceed with its business when the capital stock is unpaid. On the contrary, the obligation of the contract of each subscriber is, that he shall pay for his stock, for this is his undertaking; and every creditor has a vested right that this shall be done, for he has become a creditor upon the faith of it. Every stockholder, moreover, has a vested interest in the eontráet of subscription of every other stockholder, for each subscription is a part of a complete whole, and the failure in the payment of one leaves the burdens to be borne by all, proportionally, that much greater. See Chandler v. Brown, 77 Ill. 333.
A mere expectation of property in the future is not a vested right. (Cooley's Const. Limitations, 359; Richardson v. Aiken, 87 Ill. 138.) And, upon like principle, a mere expectation that the law will not be enforced in requiring all the capital stock of a corporation to be paid in, can not be a vested right, nor can there be a vested right to do business upon a credit, without affording adequate security for the payment of the debts to be contracted. See Richardson v. Aiken, supra.
Whether we shall regard the rights of the corporation, treating it as a legal entity separate and distinct from the stockholders, or the rights of the stockholders as individuals, this must be so. The stockholders derive all their rights, as such, through and by virtue of the charter of the corporation, and they have only the right to demand that shall be done which the corporation may, under its charter, legally claim the right to do. The corporation owes the duty of having payment made into its treasury of its capital stock, but it can only be coerced into the performance of that duty by a power acting upon the persons who control and put in action its corporate functions. The mere intangible entity constituting the legal person, disconnected from the natural persons, through whose agency effect is given to its powers, can not be coerced, for the simple reason there is nothing there upon which coercive power can take effect. It is competent for the General Assembly to impose a reasonable penalty for the non-performance of a legal duty, although the düty may have been declared, and its performance enjoined, by the principles of the common law or the provisions of a prior statute. Chicago, Rock Island and Pacific R. R. Co. v. Reedy, 66 Ill. 43; Chicago and St. Louis R. R. Co. v. Warrington, 92 id. 157; Barnett v. Atlantic and Pacific R. R. Co. 68 Mo. 56.
The 16th section of the general Insurance law of 1869 (Eev. Stat. 1874, p. 595,) provides, that "the trustees and corpora-tors shall be severally liable for all debts Or responsibilities of such company, to the amount by him or her subscribed, until the whole amount of the capital of such company shall have been paid in," as thereinbefore provided. The object of this was, unmistakably, to compel such companies, before proceeding further, to have their entire capital paid in. ' By the 10th section of the same act, such companies are not authorized to commence business, in the first instance, until this is done. It is, in effect, therefore, saying to old companies whose capital is not all paid in: "Proceed no further! Stop right here until all your capital stock is paid in; and if you shall disregard this mandate, your trustees and corporators shall be liable for all debts or responsibilities you shall hereafter create. " This is but the imposition of a penalty. Richardson v. Aiken, supra; First National Bank of Maryland v. Price et al. 33 Md. 487; Cameron v. Seaman, 69 N. Y. 396 ; Derrickson v. Smith, 27 N. J. L. 166; Steam Engine Co. v. Hubbard, 101 U. S. 188.
The stockholders elect the directors, and, through them, carry into effect the corporate functions. Presumably, the directors act in obedience to the aggregate wishes of the stockholders, and this, through by-laws and the aid of courts of equity in proper cases, may be made practically so. The board of. directors can not proceed unlawfully in the exercise of the corporate franchise, without being liable to restraint by a court of equity, at the instance of a stockholder. Coleman v. Eastern Counties Ry. Co. 10 Beav. 1; Bliss v. Anderson, 31 Ala. (N. S.) 612.
As is said in Angell & Ames on Corp. (5th ed.) sec. 312, p. 363 : "The directors are the trustees or managing partners, and the stockholders are the cestuis que trust, and have a joint interest in all the property and effects of the corporation ; and no injury that the stockholders may sustain by a fraudulent breach of trust can, upon the general principles of equity, be suffered to pass without a remedy. "
The case does not present the question of the competency of the General Assembly to increase the liability of the stockholder upon his contract of subscription, but the question is, merely, can the General Assembly, as to corporations already in being, forbid them doing business in the future until all their capital stock is paid in, and impose a penalty upon those by whom the corporate powers and functions are controlled and exercised, if they shall disobey this mandate? The liability upon the stockholder is not because he made a contract, which he- has performed, to take and pay for so much stock, but because he, as a member of the corporation, and, therefore, a responsible agent in controlling and causing to be executed the corporate powers and functions, has allowed tó be done, or failed to prevent the doing of, that which the law prohibited. As a punishment for the wrong he is responsible for, he is made liable to those injured thereby to the extent of his interest in the corporation, and of his agency presumed therefrom in causing or permitting the injury. The courts in Massachusetts and Maine have, as we conceive, gone farther than this, and hold that statutes imposing a personal liability on stockholders for the future debts of corporations are free of constitutional objection. Gray v. Coffin et al. 9 Cush. 192; Stanley v. Stanley, 26 Maine, 191; Coffin et al. v. Rich, 45 id. 507.
In Gray v. Coffin, Shaw, Oh. J. said: "This act was general in its nature, extended to members of all corporations, providing to what extent they should be liable to the claims of creditors and all persons dealing with and becoming creditors of any corporation. It was future and prospective in its operation, regulating the rights of debtor and creditor, as they should arise, expressly securing any right acquired by any person against a holder of stock in any corporation, by force of existing laws. It had no tendency to impair, or in any way affect or modify, any power, privilege or immunity pertaining to the franchise of any corporation, and therefore seems to be within the just limits of legislative power. " This view is indorsed by the author in Thompson on Liability of Stockholders, see. 65. See, also, secs. 66, 67, 68.
In Ireland v. Palestine Co. 19 Ohio St. 369, a contrary ruling obtained, and it was there held that such a law impaired the obligations of the contract between the stockholder and the corporation.
It is unnecessary that we should, at this time, express any preference as between these rulings. We refer to them merely as showing the tendency of the judicial mind on a kindred question to that here involved, and to distinguish the present case from the cases in which they obtained.
We repeat, the liability here imposed upon the stockholder is by way of penalty, only. He is not, in the first instance, nor at all events, liable for the future debts of the corporation. And so, it is believed, there is nothing, even in the Ohio ease, in conflict with our ruling here. Our conclusion is, no constitutional right is impaired by imposing this liability.
The decree will be reversed, and the cause remanded for further proceedings not inconsistent with this opinion.
Decree reversed.