Case Name: BARLOW VS. WREN
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1881-03-28
Citations: 1 Walk. 297
Docket Number: No. 214
Parties: BARLOW VS. WREN.
Judges: 
Reporter: Reports of cases decided by the supreme court of pennsylvania which have been omitted from the regular reports
Volume: 1
Pages: 297–304

Head Matter:
BARLOW VS. WREN.
A stockholder in a bank who has paid part of his subscription, voted at elections, and received dividends is estopped in a suit to recover the balance of the subscription, from setting up that the corporation as organized was of a different nature from the one he agreed to subscribe to.
Error to Common Pleas of Schuylkill County. No. 214 January Term, 1881.
The facts of the case appear in the charge of the Court which was delivered on January 28, 1881, by
Pershing, P. J.:
Gentlemen of the Jury: — This is an action brought by the Citizens’ Safe Deposit Bank of Mahanoy City, against Ephraim Barlow,, based upon an alleged subscription which he made to the capital stock of this corporation, of which it is claimed there remains unpaid $500, to which sum interest is to be added from the tim,e the call was made by the board of directors for its payment till this time. The rule is that stock subscriptions, notes given in payment of stock subscription constitute a primary fund for the payment of the debts of the corporation, and [the evidence as relates to this defendant is that he subscribed for ten shares of the capital stock of this company, amounting to $1,000. The original subscription was produced here, and Mr. Barlow himself has testified as to his subscription and the amount. You have, also, the undisputed evidence that he has paid instalments at different times to the amount of $500 upon this stock].
The defendant claims that he is not bound to the balance, first upon the ground that a resolution was adopted that but fifty per cent, should be paid by subscribers to the stock on their subscriptions, and that their certificates of stock should issue; and next upon the ground that he subscribed to what was intended to be a banking corporation, whereas the charter procured was not that of a banking, but that of an insurance company, which subsequently had its name changed by the action of the Court to the “Citizens’ Safe Deposit Bank of Mahanoy City,” as 1 understand that was the name given by the subscribers before the charter was obtained.
We say to you, that so far as the resolution of Mr. Breisch is concerned, namely : that they should only pay fifty per cent, on their stock, its terms carried with it the admission that that was but half the amount of the subscription; and that in a contest be-' tween this corporation and its creditors or those who sue on behalf of its creditors, this resolution would not be a defense to Mr. Barlow or any other stockholder who should set it up as a defense. We take it that director's after subscriptions have been made by parties to the bank, could not, as against the creditors of.the bank, say that when fifty per cent, was paid in no more should be paid; (they might as well have made it five or ten per cent.,) and that this action on the part of the directors was not in the way of - the subsequent action of the directors when they determined that the unpaid balance should be paid in,- as they did in 1875.
So far as the charter is concerned it appears it was a charter for the Enterprise Insurance Campany. When this charter was obtained and they undertook to organize under it, as it appears they did on the 22nd of November, 1871,1 think Mr. Barlow could very properly have refused to go on under it. He might have alleged that this was not the kind of a charter which was in contemplation at the time this company was organized or the time the subscriptions were made in view of the subsequent organization of a banking company. But [it appears that subsequent to this organization on the 22nd of November, 1871, he paid into this corporation at least four instalments of $100 each ; that he drew out at least five dividends ranging from 8 per cent, to 6 and 5 per cent.; that he voted at the election held by this corporation; that at no time when receiving dividends, according to the testimony in the case, did he aver that he was not a member of the corporation; that he opened an account with this bank, had discounts made and dealt with it as a bank, and had knowledge that the directors had. taken action to call in the unpaid instalments].
After giving this matter the best study I could while the case was going on, and referring to the case cited by counsel, [1 think that Mr. Barlow is now precluded by his own acts from setting up the allegation, that this was a fraudulent charter, as to him] at the time this charter was procured. I think he had a right to have said “I will have nothing more to do with it; I will not be bound by it.” But [his voting at elections, receiving its dividends, which he still retains; opening up an account with this bank and receiving discounts, these facts, reviewed in the light of the cases submitted to the Court, lead me to the conclusion that he is nowestopped from making the defence that this was a fraudulent charter].
I have a case before me where the provision was that when 600 shares were subscribed the company should go into active operation. It appears that they were unable to obtain that amount of genuine subscriptions and that after obtaining the subscription of 300 genuine shares they added to it 300 which were fictitious or fraudulent, and organized under that state of facts. “It is perfectly cleai',” the Court say, “that it was a fraud ; that such an organization under such a fraudulent subscription of one-half of the whole capital stock of the institution would be a fraud upon any real subscriber by which he has sustained or might sustain injury. No action can be maintained against him by the corporation for the amount of his subscription, but where such subscriber has accepted the charter and by his own acts put it in operation he cannot avail himself as a defense of the fact that part of the stock was fictitious, that the charter was fraudulent.” The Court say that although he may be ignorant of this fact, yet it was his duty to inform himself and his ignorance would not relieve him. This defendant has accepted the charter acted upon it as one of the seven in the charter, (as appears was the fact in this case,) advertised the election of managers and voted by proxy. I do not think he ought to be heard against the payment of his subscription.”
Justice Duncan says:
“It does not lie in his mouth to object; nor do I think ignorance of the fact of the subscription being partly fictitious should now be heard from him if it were possible to doubt of his knowledge, because he by his own public acts, has put the charter into motion. He has put his name to the fraud, if fraud it be, he has been an actor in the scene of fraudulent deception of wtiich he now seeks to avail himself to the injury of the innocent; and he who assisted in putting the charter into action cannot be permitted to say to those who have innocently advanced their mone}' that the charter under which they acted was obtained by fraud upon the subscribers and on the State. He should have informed himself of the fraud and declined to act. His ignorance of that which it was his duty to know shall not protect him, particularly when in its consequences it is injurious to others. He voluntarily became a member of the corporation, accepted the charter, acted upon it, put the whole matter into motion encouraged the work; in this, so far as respected the claims against him he acted at his peril.” The Supreme Court, reversing the Court below, held that-he was bound for his subscription.
[It appears-that Mr. Barlow subscribed for $1,000 of this stock. The whole capital was to be-a certain amount of money, of which so much was to be paid in as guaranteed stock and it seems to me that the amount he subscribed for. whether it was divided into ten or twenty shares, provided there was no attempt to increase the amount he agreed to pay is not a material question.]
The defendant has asked us to charge you :
1st. “It is the uncontradicted evidence in this case that the defendant subscribed for ten shares of stock of par value of $100 each, to an unincorporated association that then contemplated to become a chartered banking company, with all the rights and privileges of a chartered banking company, and it is not therefore competent for the plaintiff to require the payment of more than $50 on each share if it afterwards adopted a charter that reduced the par value of its shares to $50 each.”
2nd. “The subscription offered by the plaintiff in evidence and the stock account with defendant, kept in the stock ledger in evidence, show that the defendant was credited as being the owner of but ten shares and which were paid in full, and such account does not claim that the defendant paid on twenty shares and the plaintiff cannot recover any thing but fifty per cent, in this suit.”
3rd. “The defendant subscribed for ten shares as aforesaid, in a banking company, as stated in the first point, and never then sub- ' sequently agreed to pay anything into a corporation that was merely an insurance and trust company ; that the corporation plaintiff is merely an insurance and trust company and is prohibited from exercising banking privileges and cannot recover in this suit.”
4th. “That the evidence being uncontradicted that it was agreed by the defendant with the association in which he subscribed for said ten shares of stock; that all he was called upon to pay on said stock was $500, and the defendant having paid $500 as called for the plaintiff cannot recover in this suit.”
5th. “That under all the evidence the verdict of the jury must be for the defendant.”
6th. “That if the jury believe that the payments made by the defendant on his subscription after the alleged incorporation of the company, for stock were made and dividends received on the rep resentation of the plaintiff; that they were a banking corporation with all banking privileges, then and in such case defendant is not estopped from denying his liability to pay for all balance alleged to be upon said subscription, if the said corporation was not a banking company and had not banking privileges.”
These points of the defendant we negative.
The plaintiffs have asked us to charge you :
“That the plaintiffs under the undisputed evidence in the case are entitled to recover the amount of Barlow’s subscription remaining unpaid, namely $500 with interest from time the same became due after the call for its payment by the board of directors, and the verdict of the jury should be for the plaintiff for that amount.”
We affirm this point and instruct you that the plaintiffs have a right to recover. If we áre in error, we can be corrected by the Supreme Court.
January 28, 1881, verdict for plaintiff for $670.00.
Barlow then took out a writ of error complaining of the portions of the charge contained in brackets and the answers to points..
Messrs. Hughes & Farquhar for plaintiff in error, argued:
That a material change in the charter will release a stockholder from liability' on his subscription: Burrows vs. Smith, 10 N. Y. 550; Marietta R. R. Co. vs. Elliot, 10 Ohio St. 57; Woodhouse vs. Commonwealth Ins. Co., 4 P. F. S. 307: Angel & Ames on Corporations Sec. 537; Heister vs. Memphis R. R. Co., 32 Miss. 378. Or by the non-performance of conditions; Norris vs. Sweeney, 60 N. Y. 463; Phila. & West Chester R. R. Co. vs. Hickman, 4 Casey 318; Hanover R. R. Co. vs. Haldeman, 1 Norris 36: 15 Ohio St. 328; 26 Ohio St. 241; 6 Pickering 23; 8 Gray 303 & 596. The doctrine of estoppel does not apply in this case, for plaintiffs had not proved a prima facie case. An estoppel is in the nature of an answer to evidence: Coke Littleton 352, a; 3 Blackstone’s Com. 308. As to requisites of estoppels, see Eldred vs. Hazlett, 9 Casey 307; McKerrahan vs. Crawford, 9 P. F. S. 392.
James Ryon, G. R. & S. H. Kaercher, Esqs., contra, argued:
That the charter does not differ materially from the one pro posed by the articles. A person is presumed to be the owner of stock when his name appears on the books of a company as a stockholder: Turnbull vs. Payson, 5 Otto 418; Hoagland vs. Bell, 36 Barb. 57; Plank Road vs. Rice, 7 Barb. 162; Turnpike Road vs. Van Ness, 2 Cranch C. C. 451; Mudgett vs. Horroll, 33 Cal. 35; Coffin vs. Collins, 17 Me. 440; Merrill vs. Walker, 24 Me. 237; Upton vs. Hansbrough, 10 N. B. Reg. 369; In re Bank, 12 N. Y. 17; Alder vs. Bank, 13 Wis. 61; Ward vs. Man Co., 16 Conn. 563; Chubb vs. Upton, 5 Otto 665.
It is settled by the decisions of the courts of the United States and by the decision of many of the State courts that one who contracts with an acting corporation cannot defend himself against a claim on such contract, in a suit by the corporation, by alleging the irregularity of its organization. This was settled more than half a century since in the courts of the State of New York, and has recently been affirmed in this Court. Duchess Collar Manufacturing Co. vs. Davis, 14 Johns (N. Y.) 237; Sanger vs. Upton, 91 U. S. 56; Upton vs. Tribilcock, Id. 45; Buffalo & Allegheny Railroad Co. vs. Cary, 26 N. Y. 75; Bissell vs. Michigan Southern Railroad Co., 22 Id. 258; Methodist Church vs. Pickett, 19 N. Y. 482; Upton vs. Hamborn, 3 Biss 417.
In an action to recover unpaid subscriptions upon stock in the organization the defence of false and fraudulent representation can not be set up, especially where the subscriber has not been vigilant in discovering such fraud, and repudiating his contract: Upton vs. Tribilcock, 91 U. S. 42; Webster vs. Upton, Id. 95; Sanger vs. Upton, Id. 56; Ogilvie vs. Knox Insurance Co., 22 Howard 380.
Barlow is estopped from setting up the irregularity: Erie and Waterford Plank Road vs. Brown, 1 Casey 156; Clark vs. Monongahela Nav. Co., 10 Watts 363; Edinboro Academy vs. Robinson, 1 Wright 210.
Where a stockholder of a corporation is called upon to respond to a liability as such, and where a party has contracted with a corporation, and is sued upon the contract, neither is permitted to deny the existence or the legal validity of such corporation. To hold, otherwise, would be contrary to the plainest principle of reason and of good faith, and involve a mockery of justice. Parties must take the consequences of the position they assume. They are estopped to deny the reality of the state of things which they have made to appear to exist, and upon which others have been led to rely. Sound ethics require that the apparent, in its effects and consequence, should be as if it were real, and the law properly so regards it. Casey vs. Galli, 4 Otto 680; Eaton, et al. vs. Aspinwall, 19 N. Y. 119; S. C. C. Duer N. Y. 176; Cooper vs. Shaver et al., 41 Barb. N. Y. 151; Camp vs. Burne, 41 Mo. 525; Danville and N. Railroad Co. vs. Wilson, 22 Conn. 435; Ellis vs. Schmock & Thomas, 5 Bing. 621; McFarlan vs. The Triton Ins. Co., 4 Denio, N. Y. 392; Rector & Co. vs. Lovette, 1 Hall N. Y. 191; Topping vs. Beckford, 4 Allen Mass. 121; Dooley vs. Wilcott, Id. 407; Eppes vs. Railroad Company, 35 Ala. 33; Hamtramack vs. Bank of Edwardsville, 2 Mo. 169; Jones vs. Cincinnati Type Foundry, 14 Ind. 88; Worcester Med. Ins. vs. Harding, 11 Cush. Mass. 285; Hughes vs. Bank of Somerset, 5 Litt. Ky. 47; Tar River Nav. Co. vs. Neal, 3 Hawks N. C. 520.

Opinion:
The ruling of the Court below was affirmed on March 28, 1881, by the Supreme Court in the following opinion :
Per Curiam.
We are very clear, that, it does not lie in the mouth of the plaintiff to object to the organization of the Citizens' Safe Deposit Bank, as a defence to the payment of his subscription. The Court very properly instructed the jury, that his ignorance of that which it was bis duty to know, shall not protect him, particularly when in its consequences it is injurious to- others. The assignments of error are not sustained.
Judgment affirmed.