Case Name: The President, Managers, and Company of the CENTRE and KISHACOQUILLAS TURNPIKE ROAD COMPANY, v. M'CONABY
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1827-06-20
Citations: 16 Serg. & Rawle 140
Docket Number: 
Parties: The President, Managers, and Company of the CENTRE and KISHACOQUILLAS TURNPIKE ROAD COMPANY, v. M‘CONABY.
Judges: 
Reporter: Reports of cases adjudged in the Supreme Court of Pennsylvania (Sergeant & Rawle)
Volume: 16
Pages: 140–147

Head Matter:
[Sunbury,
June, 20, 1827.]
The President, Managers, and Company of the CENTRE and KISHACOQUILLAS TURNPIKE ROAD COMPANY, v. M‘CONABY.
IN ERROR.
The charter of a company incorporated for public purposes cannot be declared void, collaterally, m á suit brought by the company to compel performance of contracts made with it. If the charter has been fraudulently obtained, it can be vacated only by this court, either by scire facias to repeal the charter, or to declare it forfeited, or by writ of ijuo ’warranto, at the suit of the state.
Where a charter has been obtained by means of fictitious subscriptions for part of the stock, and a fraud has been committed on a 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 defence, of the fact, that part of the stock was fictitious.
The plaintiffs in error brought this action in the Court of Common Pleas of iküj^iw.county, against James M‘Conaby, the defendant in error, to recover the amount of his subscription for five shares of the stock of the company.
The company was incorporated by virtue of an act of assembly passed 7th March, 1821, which provided, that when six hundred shares had been subscribed, the .commissioners should certify that fact'to the governor, who should thereupon incorporate them by the name of “ The President, &c.” The. company was incorporated on the 9th of November, 1821.
Several bills of exceptions taken by the defendant, to evidence offered by the plaintiffs, and admitted by the court, Were returned with the record; but the course which the cause afterwards took, renders it unnecessary to slate their contents.
The defence relied upon was, that three hundred out of the six hundred shares certified to the governor to have been subscribed, •being fictitious, or subscribed by insolvent persons, the charter was a nullity, and the company could maintain no action.
In the course of the trial, the defendant offered Cornelius M'Donald, to prove that one of the commissioners called upon him to subscribe for stock to this company: That upon asking the meaning of it, he was told, it would not come to any harm; he never would be called upon: That the commissioners wrote his (M‘Donald’s name,) and that he had no property.
This testimony was objected to by the plaintiffs’ counsel, because the witness offered was a stockholder, and his evidence would tend to contradict the certificate of the commissioners. The court admitted the evidence; upon which a bill of exceptions was tendered and sealed.
The defendant then called James Brown to prove what one of the commissioners told him at the time of subscribing, and to explain the manner in which his subscription was made. His evidence being also objected to on behalf of the plaintiffs, the court admitted it, and sealed another bill of exceptions.
The petition of Thomas Nicholson, for the benefit of the insolvent laws, was then offered by the defendant, objected to by the plaintiffs’ counsel, and admitted by the court, to whose opinion exception was again taken.
After some further testimony had been given in support of the defence, the plaintiffs called a witness, who testified, that he was one of the commissioners appointed to procure subscriptions to the stock of this company. That he saw James M'Conaby subscribe his name for the five shares, which are the subject of the present controversy. That he got all the stock subscribed except a few shares, which he particularized, two of which he knew nothing about: That after the law was passed, and the state had granted twenty thousand dollars to be paid after the completion of the road, he (the witness,) having had some experience in making turnpikes, made a calculation of what the expense would be, and was satisfied, that if three hundred shares of good stock could be procured, they, with the state subscription, would be sufficient to complete the road: That the commissioners met in the fall of 1821, and the books were then opened with the real stock: That there were from two hundred and ninety to three hundred shares of good ■ stock subscribed: That the commissioners consulted as to the mode of proceeding, when he (the witness) exhibited his calculation: That it was believed impossible to get three hundred shares more of good stock subscribed, and the commissioners discussed the question, whether to apply to the legislature, or to take three hundred shares of fictitious stock: That the commissioners were unanimously in favour of the latter plan, and thought there was no impropriety in it: That they agreed a certificate should be made out with the good stock, and a blank: That he (the witness) made out a certificate in blank, which he and the other commissioners signed:^ That the comriiissioners did not meet again, but went on to obtain the fictitious stock
On being cross-examined, he said, that he at all times be lieved that three hundred shares of good stock, with the state subscription, would complete the road. He would not say he mentioned this in the presence of James M‘Conaby. He never obtained a subscription from any citizen of this town, under an intimation that the whole stock should not be paid. He had a faint recollection that one person, whose name was in his, (the witness’s) hand-writing, told him to sign. He knew that person could not pay when he wrote his name in the book. About three hundred shares were considered fictitious stock. The witness heard no complaint from any stockholder until after the first election. There was no call of the stockholders, or any information given to them, of the intention to fill up subscriptions with fictitious stock.
The plaintiffs then offered to prove the amount of stock actually paid by the stockholders; that the state subscription had been paid; the amount of debts due by the company, and to whom they were due; that the road was completed, and that the defendant voted by proxy. The evidence thus offered was objected to by the defendant’s«counsel, and the court having sustained the objection, another bill of exceptions was tendered and sealed.
The President then charged the jury as follows:
££ As this cause affects the company vitally, and a large portion of subscribers who have not paid, I had determined to receive all the plaintiffs’ testimony in order to bring their whole case upon the record. After some shy fighting, the company have come fairly out with the facts. They have proved, and now admit there was .about three hundred shares of fictitious stock, and that this stock was taken on consultation and deliberation, and on it the charter was obtained. I am glad they have done so. I think they deserve credit for making this full disclosure and statement. But I must decide,
]. t£ That the charter and the money of the state having been obtained in this way, the charter is vacated, and the company can sustain no suit as an incorporated body.
2, “ That as by law no charter could be obtained until six hundred shares were subscribed, every man who subscribed, did it •under the law, and according to law; and when the charter was obtained on only three hundred shares, each subscriber may have to pay twice as much as would have been necessary if the six hundred shares had been subscribed. This conduct of the commissioners, released the defendant from his subscription. In other words, on the testimony of the plaintiffs, in which it is admitted .the facts are distinctly stated, the plaintiffs cannot recover.
££ At the request of the plaintiffs’ counsel, I add, that no conduct of the defendant could validate this charter, or enable the company to support a suit as an incorporated body. Whether the defendant may be liable to individuals in some way, it would be improper to decide in this case.”
To this opinion the plaintiffs’ counsel excepted.
Potter, for the plaintiffs in error.
1. Cornelius M‘Donald was interested. He was a stockholder, and his evidence tenders to discharge his liability for his own stock, by destroying the charter. He was incompetent to contradict his own act and the certificate of the commissioners, who were public officers.
2. The evidence of James Brown was also admitted improperly. The company are not to be affected by acts to which they were-not a party, and which are done beyond the scope of the law. The commissioner, whose declarations were admitted, might himself have been examined. His declarations were therefore merely secondary evidence, and inadmissible. The acts alone, and not the declarations of the commissioners, can affect the corporation. 11 Serg. & Rawle, 291. 4 Serg. & Rawle, 321. 1 Serg. & Rawle, 526. 8 Serg. & Rawle, 225. 19 Johns. 245.
3. In receiving the petition of Thomas Nicholson,the court below wasfin error. A man of that name was a subscriber, and a man bearing the same name presented the petition; but there was no evidence of their identity. Independently of this, a petition with no further proceeding upon it is not evidence to affect third persons. It is nothing more than the declaration of the petitioner, and it will not be pretended, that the declaration of Nicholson would have-been evidence against the company.
4. 'The plaintiffs had a clear right to give in- evidence the acts of the defendant, to show he waived all objection on account of irregularities in obtaining the charter.
5. It was improper to decide positively that the charter was void, and the most disastrous conveyances would follow the confirmation of such doctrine. It requires a legal proceeding, instituted with a view to that object, to declare a charter void. The question cannot be decided collaterally. 5 Johns. Ch. R. 377. 5 Johns. Ch. R. 370. 4 Mod. 52. 3 Burr. 1872. The plea of nonassumpsit, admits the existence of the company. 14 Johns. 238. Besides, the defendant being named in the charter, and having, voted by proxy, is estopped from denying, that it was legally obtained. 10 Johns. 100. 10 Serg. & Rawle, 273. He referred also to the confirming act of 10th of April, 1826. Pamph. L. 324.
Blythe, contra,
said, that the first three exceptions, were destroyed by the plaintiffs’ admission of the facts attempted to be-proved.
The question is, whether the defendant has assumed the payment of the mdney, for which he is sued. It was no confirmation-of the charter to vote by proxy; and this is the only act given in evidence, which has the slightest appearance of confirmation.
Even if the charter be not void, the defendant has a good defence. He agreed to pay only according to the provisions of the act of incorporation, which has been violated in the most important part. The obligation is, therefore, no longer binding on the defendant. The case of The Hibernia Turnpike Road v. Henderson, 8 Serg. & Rawle, 219, goes the whole length. The defendant’s liability was the only question before the court below; and if the court is right as far as the facts of the case raise a question for its decision, it is enough. Mistake in an abstract position, such as the validity of the charter, is not error.

Opinion:
The opinion of the court was delivered by
Duncan, J.
This was an action brought by the corporation against the defendant to compel payment of the amount of the subscription of the defendant, one of the seven first named persons in their charter, and who accepted the charter, and acted under it by giving notice of the election to be held for president and managers of the company, and who voted by proxy at the said election.
The defence was, that the charter was obtained by means of the subscription of three hundred shares of fictitious stock to make up the number of subscribers required by the law, and that the charter, obtained by this deception on the government, who on the faith of it subscribed twenty thousand dollars, four hundred shares, was a nullity, and that the corporation could sustain no action.
This defence was sustained by the court, and the court likewise decided, that no conduct of the defendant could enable the corporation to support this action, against him for his subscription.
The serious public consequences, and the injury inflicted on the stockholders, who have paid their money for making the road, and on the government, who have paid the large sum of twenty thousand dollars, all which is lost and forfeited, if this decision be a correct exposition of the law, makes this a very important question; for if it be so as to this corporation, other turnpike companies are involved in the same ruin. But, however tremendous the consequences may be, it would be no reason for reversing this judgment, if the law be as it is laid down by the court. But it is a reason for examining the doctrine with great care and deliberation. When the case of The Hibernia Road vvas under consideration, I stood alone in my opinion; but the opinion of the majority became the law of the laud, and affords a rule of construction of all these turnpike laws. The legislature by subsequent laws remedied the evil, growing out. of the decision, without impugning the decision itself, which it was not within legislative power to do. That decision has been misunderstood and the judges who made it, sensible that it was necessary to avoid misconception, declared that they must not be understood as making any insinuation against the validity of the charter; and the opinion was confined to one matter, the liability of the defendant to pay for his stock. because he had not paid five dollars on each share, at the time of subscription, which was supposed to be in direct .opposition to the act of assembly. The court declare they will not say, that the company came fraudulently into existence, though the law was disobeyed, or that the charter would be void, if it had. If this charter was deceptively obtained, obtained by false representations, it could not in a collateral action, .in an action brought by the company to compel the performance of contracts entered into with it, be declared void. But if this charter had been fraudulently obtained, on which I am not called upon to give any opinión, still, until that question had been directly decided, in a proceeding instituted in this court, which alone has jurisdiction, either by scire facias to repeal the charter or declare it forfeited, or by a writ of quo warranto at the suit of the state, in which the state must be a party, and a party to the judgment for the seizure of the franchise, there is no instance of calling in question the right of a corporation, for the purpose of declaring its charter void, but at the instance, and on behalf of the government, and never on the relation of any individual. Commonwealth v. Union Insurance Company, 5 Mass. R. 230. attorney General v. Utica Insurance Company, 2 Johns. Ch. R. 389. 5 Johns. Ch. R. 381. The state may waive the right to exact the forfeiture, or declare the charter void, because obtained by deception; and here the state, it cannot be presumed, ever would do an act so detrimental to herself, in a pecuniary view, so injurious to the interest of the commonwealth in a public view, and so ruinous to the individuals, who, on the faith of the charter, have paid their money. It is sufficient to say, that the state has not interfered, and that until it does, and the charter is vacated by a judicial decision of this court, either on a scire facias or a quo warranto, the charter is a subsisting one, and they have a right to sustain an action. The corporate claim to sue and be sued remains. I speak now of public institutions for public purposes, and not of mere literary or charitable corporations created for private purposes. But whether they could sustain this action against the defendant, is another question, and this would depend on the question, whether a fraud has been committed on the defendant, by which he has sustained, or possibly could sustain a loss, by means of this fictitious subscription. It is a question ad hominem, and not by way of impeaching the charter. It is, in a great degree, a question of fact; for, if this defendant has accepted the charter, acted upon it, was one of the seven in the charter, advertised the election for managers, and voted by proxy, I do not think he ought to be heard against the payment of his subscription. It does not lie in his mouth to object; nor do I think ignorance of the fact of the subscription being partly fictitious, should naw 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 encouraged the state to pay for the four hundred shares, and the individual subscribers to pay their subscriptions; he has suffered the road to be made at great public and private expenditure, he stands in a different situation from others who have not so conducted themselves; he has put his name to the fraud, if fraud it be; he has been an actor in the scene of fraudulent deception, of which 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 money and completed the road, 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.
These principles are by no means opposed to the matter decided in The Hibernia Turnpike Company v. Henderson. The decision itself, has no relation to this case. It did not pretend to touch the charter. On the contrary the majority of the court who decided in favour of the defendant, emphatically declared, that the charter was not affected. The apprehensions as to the consequences of the doctrine of the judge who dissented, were removed fay this disavowal, and the inconvenient results were provided against by a subsequent law. If the doctrine above stated be correct, it is almost needless to decide the main points on the exclusion of the evidence offered by the plaintiffs, of the defendant's notification, in his official character, as one of the first seven named in the charter, of the election of the officers of the corporation. His voting at the election by proxy, the amount of the stock actually paid by the stockholders, the payment of the state subscription, the amount of the debts due by the company to them, and the perfect completion of the whole work, certainly all this is evidence to show, that the fraud now would be in the defendant (in withholding payment) on the government, and on the individual stockholders, and not on him.
The court is not to scrutinize the secret motives of the defendant in this defence, but it was candidly admitted by his counsel in the argument, that it arose from some disappointment in the election of the managers and officers of the institution; as it was likewise candidly admitted, and proved by the plaintiffs themselves, that three hundred subscriptions were fictitious, which, however little worthy of commendation, appears not to have been clandestine, but notorious; not confined to this corporation, but practised generally..
. This case, if it fell within the provisions of the healing act of the 10th of Jipril, 1826, required not its aid, because this defendant stood in that situation, that he could not avoid payment on account of stock having been subscribed fictitiously by persons deemed insolvent. The act, is, however, so far important, as to show, that the state, instead of desiring the repeal of the charter or a divestment of the corporate rights of the corporation, ratify it, notwithstanding the charter of the company may have been obtained, by reason of stock subscribed fictitiously, or by persons deemed insolvent; and if they had a right to call in the charter, by a judicial condemnation, they waive the forfeiture, as the exaction of it would be an immense public evil.
Judgment reversed, and a venire facias de novo awarded.