Case Name: Gaff et al. v. Flesher
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1877-12
Citations: 33 Ohio St. 107
Docket Number: 
Parties: Gaff et al. v. Flesher.
Judges: Scott, J., dissented.
Reporter: Ohio State Reports, New Service
Volume: 33
Pages: 107–115

Head Matter:
Gaff et al. v. Flesher.
1. Subscribers to tbe capital stock of a corporation can not release themselves from payment, when such subscriptions are necessary for the-payment of corporate debts.
2. If the corporation has been regularly organized, creditors having dealt with it, may enforce payment of subscriptions, although the subscribers may have notified the company that they would not be liable for debts, upon the assumption that the corporate existence was without authority of law.
Error to Superior Court of Cincinnati.
Andrew J. Elesher brought suit in the Superior Court of Cincinnati, January 8, 1874, against the Southwestern Transportation and Wharfboat Co., James W. Gaff, James S. Wise, J. D, Parker, and others. Gaff, Parker, and Wise-had subscribed to the stock of the wharfboat company, against which Elesher had recovered a judgment, and to compel the payment of these subscriptions, in satisfaction of this judgment, Elesher brought this suit. Among the-allegations of the original petition are the following:
The plaintiff says that, in July, 1871, the defendants, James W. Gaff, James S. Wise, J. D. Parker, Elias Elder, and Samuel McCune and others, associated themselves together as a joint stock company, in the name and under the style of the Southwestern Transportation and Wharf-boat Company, for the business of the building, repairing, and maintaining of wharfboats at Cincinnati, Ohio, and at mother points, and, for the purpose of carrying on and pursuing this said business, the said James W. Gaff subscribed and agreed to pay to the said company the sum of $3,000, the said J. E. Parker the sum of $1,000, the said James S. Wise the sum of $1,000, the said Elias Ehler $100, and the .said Samuel McCune $100; that the said Gaff, Wise, and Parker, also co-operated in the organization and business •of the said company, and authorized the building of a wharfboat for said company, to be maintained by them at Cincinnati; that the plaintiff furnished the materials and .advanced money for building said wharfboat; that said defendants, Gaff, Wise, Parker, McCune, and Ehler were cognizant of the building of the said wharfboat for said company, and authorized the same to be built for them; that the said wharfboat was completed and received by the said company, and they gave their negotiable notes in part payment of the same; that the plaintiff received part of said notes for the materials and money furnished by him for the •building of said wharfboat, which notes formed the con■sideration of his said judgments. The plaintiff says that the said defendants, Gaff, Wise, Parker, Ehler, and Mc-Cune, by reason of their said subscriptions, and engaging in the organization and business of said company, and authorizing the building of said wharfboat, have become liable to pay the said several subscriptions, and that the same should be applied to the payment of the plaintiff’s said judgments.
Whereupon, he prays that these said subscriptions may be ordered to be paid to the said plaintiff, in payment of said judgment, and for such other and further relief as he is entitled to receive.
This company was incorporated by certificate dated May '9, 1871. One W. G. McCoy and others, not the defendants, formed the incorporation, McCoy seeming to be the active man, and president of the company after it was organized. About June 1, 1871, Gaff, Parker, and Wise, subscribed to this stock. May 6, 1871, three days before the company was incorporated, and before defendant’s sub scription, McCoy made a contract with Elesher, plaintiff below, defendant here, to build a wharfboat. McCoy told; Elesher that Gaff and others had agreed to take stock. Elesher states that McCoy told him that Gaff would take $5,000, and subsequently, that is, after the contract was made, that the eompany had organized, and that Gaff had takeu $8,000, Wise $1,000, and Parker $1,000 of the stock, lie further states that the contract for building the boat •was in writing, made in West Virginia, where he lived, and “ was signed by McCoy for himself.” He further says, “ It was McCoy’s own contract. He said he could not sign for any body else, because company was not organized.”' McCoy was to pay a portion of the contract from time to ■ time, and give the company’s paper for the balance “ when it organized.” He says, “ I delivered the boat to him (McCoy) in the spring of 1872.” There was then due • about $6,00U. Eor this amount the company subsequently gave their notes, which were dated March 13, 1873, payable to the order of McCoy, and by him indorsed to Elesher.. It was upon these notes that Elesher recovered the judg- - ment against the wharfboat company, to satisfy which he now endeavors to compel payment of defendants’ subscriptions. Defendants never paid any thing on their subscription, but in December, 1871, transferred it to an irresponsible party. The company does not appear to have done any thing in the year 1871, except perhaps to hold two meetings to organize and elect directors. In January, 1872, they began active operations, and January 4th assessed the stock subscriptions fifty per cent. January 9, 1872, Gaff, Wise, and Parker, notified the company that they had received notice of this assessment and of call for payment; that they had disposed of their stock subscriptions the pi’evious December; and that they would nor be responsible for any debts, contracted after that date, by the company.
The minutes of the company show, that July 1, 1872,. “ the question of the amount of money to be paid to W. C.. McCoy for wharfboat was made the special subject of an ad- journed meeting,” to be held July 2d. July 2d it was agreed that McCoy’s accounts should be credited $52,803, up to .May 7, 1872, and a bill of sale to be made to the company of the wharfboat, as of that date. July 5th the board adopted a resolution, that the wharfboat, built by McCoy •in West Virginia, and which arrived at Cincinnati, May 7, 1872, be accepted by the company, which agrees to pay .McCoy’s bills, to the amount of $52,803, which sum is to cover all bills up to May 7th, as per bill of sale. The bill of sale is in the record, dated May 7th, and signed by .McCoy. This transaction of the board was July 5th, •though it dates the sale as of May 7th, and probably because upon May 14th the board had authorized the presi■clent to effect a loan by mortgage on the boat. McCoy was • credited, on the books of the company, the amount of the • sale bill, $52,803. It should be further observed, that Gaff never took any part in the proceedings of the company, •other than to subscribe stock and notify them he was out. It does not appear that he ever attended any meeting, or •otherwise committed himself in the progress of affairs. Wise and Parker attended one meeting in 1871, but do not ; appear to have taken any part.
It then appears, that at the instance of Gaff' aud Parker, as they state, proceedings in quo warranto were instituted in the Supreme Court against McCoy and other’s. The in- • formation states that defendants are acting as a corporation •without warrant, and are using the franchise, etc., to build, repair, and maintain wharfboats at Cincinnati and other points; to buy and own a wharfboat; to use such wharffboat, moored in the Ohio river, at the Cincinnati wharf, in •carrying on the business of receiving, storiug, and delivering general merchandise or freight for reward, etc. The .agreed.statement of facts, accompanying the information, sets forth the certificate of incorporation, which says: “ The business of the company shall be the building, repairing, .and maintaining of wharfboatg at Cincinnati, Ohio, and ■other points.” The statement further sets forth that the •company was organized, stock subscribed, aud that de fendants, in tbe proceeding, “ caused to be built a wharf-'boat — a boat without motive power, and not designed for the purpose of navigation — aud carrying on business as a corporation, in receiving, storing, and delivering freight at Cincinnati.” On the 11th December, 1878, the Supreme •Court ousted the defendants “ from being such corporation.”
Upon the trial, in the special term of the superior court, judgment was rendered against Gaff, Parker, and Wise for -the amount due on their subscriptions, which judgment having been affirmed in the general term, a petition in error was filed in the Supreme Court.
G. K. Skunk, for plaintiff in error. (No brief for plaintiff in error reached the hauds of the Reporter.)
Lincoln, Smith Stephens, for defendant in error:
The principle is well settled, that when -a corporation is ■dissolved, a creditor may levy, by execution, upon any property of the corporation subject to levy, and when the .assets are equitable, such assets may be reached by an equitable proceeding, and the unpaid subscriptions to the •capital stock are such equitable assets. See Mann v. Pentz, 3 Comst. 415;. Wood v. Dummer, 3 Mason, 308; Spear v. Grant, 16 Mass. 9.
And if the assessments had not been made upon the unpaid subscriptions, sufficient to- pay the debts, a court of equity will enforce the payment of such subscriptions by a •decree. Hightown v. Thornton, 8 Ga. 495; Briggs v. Penniman, 8 Cowen, 395.

Opinion:
Wright, J.
The facts to be remembered, to a rightful understanding of the case, are these : This corporation, or alleged corporation, filed a certificate, dated May 9, 1871. 'This, then, was when its being began. Three days before, May 6, 1871, McCoy had made the contract with Elesher for the building of the wharfboat. In J une, 1871, Gaff and the other defendants subscribed ; in July the company was organized ; in December defendants transferred their sub•seription ; January 4, 1872, an assessment was made ; January 9th, Gaff and others notified the company that they had sold out, and would not be responsible for debts contracted ; May 7,1872, the wharfboat was sold by McCoy to-the.company. It seems that at first McCoy gave his own notes, indorsed by him as president of the company, toElesher. This was perhaps in May, 1872. Subsequently,, however, these notes seem to have been replaced by others, dated March, 1873. These latter were the notes of the company, upon which judgment had been obtained against It, which judgment is now sought to be satisfied by subjecting these subscriptions.
As far as the rights of these defendants are concerned, it' Is not material whether we fix the date of the company's-liability to Elesher, in May, 1872, when the boat was sold,, or in March, 1873, the date of the notes in which the judgment was recovei'ed. Both these dates were subsequent to the date of those acts by which defendants claim they are-absolved from liability, namely, their notices to the company in January, 1872.
The question, then, is, having transferred their subscription in December, 1871; having notified the company in January, 1872, that they would not be responsible for-debts, can they still be held to pay their subscription upon a debt arising after these events ?
In the quo warranto, the defendants were ousted from-, being a corporation December 11, 1873, long after Elesher's debt was contracted.
Gaff & Co., in order to divest themselves from liability,, transferred their subscription to one Getty, who seems to-have been a person without means. As a general thing, holders of corporate stock can not rid themselves of cor-, norate liability by transfer to irresponsible parties. A. & A. Corp., § 623.
Be that as it may, the stock in the present case had not been issued, and we take it to be clear that, in case of a: legal corporation, a subscriber can not release himself from liability to pay, except with the consent of the corporation. The subscription is a contract, which can not be dissolved at the option of one party; the consent of both must be-. had. Field on Corp., § 89 (p. 103), § 96 (p. 112); A. & A. Corp., § 517, 537 ; Muskingum Co. v. Ward, 13 Ohio, 120; Graff v. R. R. Co., 31 Penn. St. 489; Upton v. Trobilcock, 91 U. S. 48. In case, therefore, this had been a legal, valid corporation, without any judgment of ouster, the efforts of Messrs. Gaff & Co. to absolve themselves from their contract of subscription would have been simply nugatory. The corporation had not consented to release them, and could not have done so, to the prejudice of any intervening creditor. Webster v. Upton, 91 U. S. 71. This much is plain. But it is said, in a very able and ingenious argument by counsel for plaintiff in error, that this wharfboat company was not a corporation, and the stock subscriptions were therefore nullities. It is said that there is no law for incorporating a wharfboat company, and that where there never could be a corporation de jure, there can be none de facto. The law on the subject provides for " building and repairing steamboats and other watercraft, . . . carrying on business connected with the main objects aforesaid." 66 Ohio L. 125. The certificate of incorporation was for " the building, repairing, and maintaining of wharf-boats at Cincinnati, Ohio, and other points." The argument is, that a wharfboat is not a " watercraft;" therefore there was no law in Ohio authorizing a corporation for the purpose of building wharf boats, the conclusion being, that this corporation was without authority of law, and the subscriptions void.
It seems to be conceded by counsel for plaintiff in error that if there is authority in law for the incorporation, but there is a mere formal defect in the certificate or otherwise, if corporate acts are done, then there is a corporation de facto, and it and its stockholders are estopped to deny the fact. But it is claimed that if the defect is not in matter of form, but is that there is no law to authorize, then, although acts are done, yet there is no corporation defacto even, and no estoppel arises. Counsel puts his statement tersely thus : " It is apprehended, in the very nature of the case, that corporate existence de facto is possible only with the possibility of existence de jure, a question of law as to which there is no estoppel." If we admit this to be a sound proposition in law, let us see if the facts call for its application hei'e ? Then we come to this question : Is there no law in Ohio to authorize the incorporation of companies to build wharf boats ? May not the law authorizing companies to build steamboats and other watercraft cover the case of wharf boats? Plaintiff in error asserts that a wharfboat is not a watercraft. Defendant says it is.
A majority of the court are of opinion that, for the purposes of this case, a wharfboat may be included, in the general term, watercraft. The rule of restricting language, as applied to the exercise of corporate powers, is generally found in those cases where the corporation is seeking to enlarge or extend those powers ; and, as against the public or private rights, we agree that such restriction is well timed. But we have not found the rule so frequently applied in cases where the corporation or corporators were seeking to evade liability by giving a nari'ow construction to words or laws.
Perhaps it might be, that in the first instance a stockholder might have restrained this corporation from building a wharfboat, on the ground that such act was not authorized by the law for building watercraft. But the case is very different where they have built a boat, and refuse to pay for it on the ground of such want of power.
It is very certain that those who signed this certificate, as well as those who subscribed stock under it, held out to the world that they were an incorporation ; that the name of the company was the Southwestern Transportation and Wharfboat Company ; that there ivas to be |100,000 of took, with shares; that they were to build wharfboats, and have offices, etc. At least it comes with bad grace from them now to say that they could not do the thing proposed, after they had actually done it.
It is said that the case of The Raccoon River Navigation Company v. Eagle, 29 Ohio St. 239, is decisive of the ques tion before us. Like this, that was a case to recover a subscription of stock. The company was incorporated for the purpose of "improving to make navigable . . . and navigating Big Raccoon river." The Supreme Court say : "We do not know of any law of the State of Ohio by which Big Raccoon river has been declared navigable." If there was no such navigable stream, there would seem to be no propriety in attempting to improve it by enforced subscriptions. But to make that case analogous to this, suppose the company had found such a navigable stream, or one they supposed to be it, and had gone to work and improved it, and then the laborers had sued for their hire, we apprehend that the defense of no such navigable river would not have been valid, for the Supreme Court are careful to say: " It is suggested that the rejected testimony tended to prove, at least, a corporation de facto, and that the defendant was estopped, by subscribing to its stock, from denying its legal existence. The case is not one wherein the doctrine of estoppel can be applied.
It seems to us, therefore, that this must be held to have been a corporation defacto, up to the time of ouster, previous to which the liability arose, satisfaction of which is now sought. Of course the judgment of ouster did not retroact, so as to affect or destroy a contract prior to its rendition. McCarthy v. Lavashe, 7 Am. Law Rec. 188 (Sup. Ct. Ill.)
Judgment affirmed.
Scott, J., dissented.