Case Name: Jewett v. Valley Railway Company
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1878-12
Citations: 34 Ohio St. 601
Docket Number: 
Parties: Jewett v. Valley Railway Company.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 34
Pages: 601–610

Head Matter:
Jewett v. Valley Railway Company.
1. "When ten per cent, of the capital stock of a railroad company has been subscribed, and the corporation has been fully organized under the general acts relating to railroad companies, assessments on subscriptions to the capital stock may he made and enforced, although the whole amount of such stock, mentioned in the certificate of incorporation, may not have been subscribed.
2. If a statute in force at the time a subscription to the capital stock of a railroad company is made, authorizes an extension of the line of the road, the subsequent exercise of such power by the company will not affect the subscription.
3. Where a railroad company changes aterminus of its road from one county into an adjoining county, under the act of 1872 (69 Ohio L. 163), the mere fact that the route to the new terminus, selected by the company, passes through a portion of a third county, will not invalidate existing subscriptions to the capital stock.
4. Where qne having possession of an agreement to take shares in the captal stock of a corporation, after subscribing in good faith for shares of such stock, induces others to subscribe on the faith of his subscription, and subsequently, without the knowledge of the other subscribers, alters the paper by reducing the number of his shares, and delivers the instrument in that condition to the secretary, who is also a director of the company, this will not affect the liability of one thus induced to subscribe, although, at the time of such delivery, the person making the alteration explains the same to the secretary, who makes no objection thereto.
Error, to the Court of Common Pleas of Cuyahoga county. Reserved in the district court.
The action was brought July 6,1874, on the subscription of A. A. Jewett to the capital stock of the Yalley Railway Company, and the questions presented relate to the validity of certain defenses interposed by him.
The Yalley Railway was incorporated under the laws of this state, with a capital stock of three millions of dollars, divided into shares of fifty dollars each; and, subsequently, the capital stock was increased.
By the certificate of incorporation, dated August 17, 1871, the northern terminus was fixed at Cleveland, Cuyahoga county, and the southern terminus at Bowerstown, Harrison county, the road passing through the counties of Cuyahoga, Summit, Stark, Tuscarawas, Carroll, and Harrison.
On April 24, 1872, more -than ten per cent, of the capital stock having been subscribed, a board of directors was elected, of which board N. P. Payne was a member; and, thereupon, the company was fully organized, said Payne being elected its secretary. -,
In January, 1873, a public meeting of persons interested in the road was held at Cleveland, and John Huntington, among others, was appointed to obtain subscriptions to the capital stock. The subscription book placed in his hands contained the following:
“ We, the undersigned, hereby respectively subscribe to and agree to take of the capital stock of the Yalley Railway Company the number of shares, of fifty dollars each, set opposite our respective signatures, five dollars on each share payable at the time of making such subscription, and we each agree to pay the residue of our said respective subscriptions in such installments, and at such times and places, and to such person or persons, as may be required by the directors of said company, provided said railroad be con structed through, and along the Cuyahoga valley from Tinker’s creek to Cleveland, Ohio.”
Huntington and Vm. Gabriel & Son, and other persons, subscribed that agreement, each taking one hundred shares; and, thereafter, about the middle of January, 1873, Jewett, at the request of Huntington, and on faith that the subscription'of Huntington and Gabriel & Son were genuine for the full amount of one hundred shares each, subscribed the same agreement for a like number of shares.
Huntington obtained other subscribers to the stock, and in the spring of 1873, returned the book to N. P. Payne, who was still secretary and a director. The book contained two alterations in the number of shares, which are explained in the testimony of Mr-Huntington as follows :
“ Mr. Gabriel’s son William changed their subscription with my consent, and I changed that opposite my own name. It was done before I handed the book in. In my case I changed it from one hundred to twenty, and he changed it from one hundred to sixty. There were pretty near all the subscriptions down when those changes were made. ... I stated to him (Payne) that as we had obtained several thousand dollars more of subscriptions than had been assigned to us by the meeting to procure, I felt at liberty to reduce the amount of my- subscription and allow Gabriel to reduce his.”
Payne accepted the book without objection, but it does not appear that the alteration was communicated to auy other person.
The subscription of Huntington was placed on the books of the company at twenty shares, and that of Gabriel & Son at sixty shares, and stock was issued to them for such reduced number of shares.
Neither the alteration nor the acceptance of the book in its altered form, was known to any of the other subscribers for stock.
There had been no previous arrangement with Huntington and Gabriel & Son, or either of them, that they were not to be held for the full amount of their subscriptions; nor does it appear that there was any expectation on the part of either of them, at the time they subscribed, that they or either of them would be relieved from any part of their subscriptions.
On February 3,1873, the directors located the line of the road along the valley route from Cleveland, Cuyahoga county, to Canton, Stark county, and that is “ through and along-the Cuyahoga valley from Tinker’s creek to Cleveland, Ohio,” as mentioned in the contract of subscription.
The road is mainly graded from Cleveland to Akron, and a large quantity of work has .been done on the route. More than $800,000, have been expended, and large liabilities are outstanding.
The arrangement for connection with another road at Bowerstown having failed, it became desirable to change the southern terminus of the road from Bowerstown, in Harrison county, to Martinsville, in the adjoining county of Belmont; but the least expensive', and, in fact, only practicable route for the road from Bowerstown to Martins-ville required it to pass from Harrison county into Jefferson county, and through a portion of that county into Belmont county; and that route and change of terminus were adopted by the holders of a majority, in amount, of the stock subscribed, at a meeting regularly held for the purpose, on September.23, 1874, under the act of 1872 (69 OhioL. 163), and the proper certificate was made. That statute, which has been repealed and re-enacted with changes (72 Ohio L. 70), was as follows:
“That whenever any railroad incorporated, under any general law of this state, shall desire to extend either of the termini of the line of their railroad to and into any county of this state, adjoining the one in which either of their termini may be, the president and directors of said railroad company may submit the question of such extension and change of terminus, to a meeting of the stockholders of said company, to be called for that purpose; and if the holders of a majority in amount of said stock, in person or by pr^xy, shall so determine, then the said president and directors be, and they are hereby empowered and authorized, to make out a certificate of the fact, naming the place of the new termini or terminus of said road, which shall be attested as provided in the act of which this is supplementary, in ease of original certificates, and file it in the office of the secretary of state, and .such certificate shall have all the force and effect of an original certificate, and such extension shall, to all intents and purposes, be considered and held to he a part of the original line of said railroad.”
The whole of the capital stock, specified in the certificate of incorporation, has never been subscribed.
Calls were made for the whole amount, subscribed, and the action below was to recover of Jewett the whole amount of his subscription — $5,000, and interest. A verdict was rendered against him for $5,948.40, and judgment was entered thereon. On error, from the court of common pleas to the district court, the ease was reserved for the decision of this court.
The general statute of 1852 (50 Ohio L. 274), relating to private corporations, contains the fallowing, among other provisions :
“ Sec. 9. ... So soon as ten per centum on the capital stock shall be subscribed, they (the corporators) may give notice for the stockholders to meet at such time and place as they may designate, for the purpose of choosing seven directors, who shall continue in office until the time fixed for the annual election, and until their successors are chosen and qualified. ... A majority of said directors shall form a board, and he competent to fill vacancies in their hoard, make by-laws, and transact all business of the corporation. . . . The directors chosen at any election shall, so soon thereafter as may be convenient, choose one of their number to be president, and shall appoint a secretary and treasurer of the corporation.”
“ Sec. 6. An installment of five dollars on each share of stock ($50) shall be payable at the time of making the subscription, and the residue thereof shall be paid in such installments, and at such times and places, and to such persons, as may be required by the directors of such company.”
“ Sec. 14. Such company shall have power to borrow money on the credit of the corporation, not exceeding its authorized stock, at a rate of interest not exceeding seven per cent, per annum, and may execute bonds or promissory notes therefor, in sums of not less than one hundred dollars, and to secure the payment thereof may pledge the property and income of such company.”
By section 4 it is provided: “ Said corporation shall be authorized to construct and maintain a railroad;” and by section 7, the directors have power to sell any stock at public auction where an assessment on the shares remains unpaid for sixty days. See, also, 1 S. & C. 271 et seq.
Marvin, Hart&¡ Squire, for plaintiff in error:
No assessment can be made until all the capital stock is subscribed. 6 Pick. 23 ; 34 Md. 316 ; 35 Iowa, 115 ; 39 Maine, 511; 40 Maine, 172; 9 Mich. 274; 28 Mich. 272; 32 N. II. 36.3 ; Green’s Brice’s Ultra Vires, 105, 109; 31 Ohio St. 23. Change of terminus released subscribers. 72 Ohio L. 70; Const., art. 2, § 28; 8 Mass. 263; 10 Mass. 384; 5 Hill, 383; 9 Ind. 358; 10 Ind. 93; 1 Am. L. Reg. 154; 31 Penn. St. 317; 18 N. J. Eq. 178; 9 Ohio, 136; 6 Ohio St. 119; 10 Ohio St. 57; 19 Wall. 241.
W. J. Boardman, for defendant in error :
When the directors are elected and the corporation organized, assessments on stock may be made, though the whole number of shares mentioned in the certificate have not been subscribed for. 1 S. & O. Stat. 276, et seq.; 51 Miss. 829 ; 15 Ohio St. 225, 328; 9 Mich. 272 ; 18 Ind. 452; 46 Ind. 31 ; 41 Ind. 174; 11 Kansas, 412, 436; 4 Oregon, 261; 11 N. Y. 102 ; 7 Barb. 166 ; 72 Penn. St. 465. Change of terminus authorized. 69 Ohio L. 163; Redfield on Railw. (5th ed.) 309; Pierce on Railwi 94; 13 Allen, 29; 10 Mass. 38; 1 Kern. 114; 14 N. Y. 336; 26 Ohio St. 223; 16 N. J. Eq. 13; 3 Zab. 321; 13 111. 511; 17 111. 429; 19 111. 174; 20 111. 654; 21 111. 93, 291; 1 Hust. 149; 22 Conn. 456 ;• 28 Conn. 289 ; 30 Maine, 547; 36 Miss. 572 ; 27 Yt. 420; 10 Barb. 261; 22 Mo. 291; 15 111. 511; 4 Bissell, 78. The change in the subscription book did not affect Jewett’s liability. Pierce on Railw. 73; Redfield on Railw. 171; Red. Am. R. Cas. 138; 12 Ind. 376; 24 Yt. 465; 12 Wis. 176; 34 N. II. 124; 1 Otto, 45 ; 31 Penn. St. 489; 17 Ohio, 187; 1 Peters, 46.

Opinion:
Okey, J.
Three questions are presented : 1. Can assessments be made and enforced on subscriptions for shares of the capital stock of a railroad corporation before the whole amount of stock, mentioned in the certificate of incorporation, has been subscribed ? In the absence of both legislation and express agreement on the subject, they can not. Salem Mill Dam Corp. v. Ropes, 6 Pick. 23; Hughes v. Antietam, etc., Man. Co., 34 Maryland, 316; Peoria, etc., R. Co. v. Preston, 35 Iowa, 115 ; Thompson's Liability of Stock., § 120 ; Eield on Corp., § 80. In most states, however, provision has been made by statute; and it is well settled that " contracts must be expounded according to the laws in forcé at the time they are made, and the parties are as much bound by a provision contained in a law as if that provision had been inserted in and formed part of the contract." Smith v. Parsons, 1 Ohio, 236-242; Mansfield, etc., R. Co. v. Brown, 26 Ohio St. 223 ; Hoagland v. Cincinnati, etc., R. Co., 18 Ind. 452; 46 Ind. 31. The statutory provisions on this subject differ very widely, as will appear in the cases cited; and, where that is the fact, the decisions made in one state, though proper to be considered, may be a very unsafe guide in another. The office of the court in this case is, indeed, simply to ascertain the intention of the legislature. Boston, etc., R. Co. v. Wellington, 113 Mass. 79; Hunt v. Kansus & M. Bridge Co., 11 Kansas, 412 ; Wellamette Freight Co. v. Stannus, 4 Oregon, 261.
A careful consideration of the enactments set forth in the statement of this case, and other cognate statutory provisions, leaves with us no doubt that when ten per cent, of the capital stock has been subscribed, the company may organize by the election of directors, who may "transact •all business of the corporationand, looking to the duties imposed on the directors, it is clear that the residue of the stock, beyond the ten per cent, to be paid at the time of making subscription, must " be paid in such installments, and at such times and places, and to such persons as may be required by the directors of such company," though the whole amount of the capital stock may not have been subscribed. And this conclusion is strengthened by Chamberlain v. Painesville, etc., R. Co., Ashtabula, etc., R. Co. v. Smith, 15 Ohio St. 225, 328 ; Emmet v. Springfield, etc., R. Co., 31 Ohio St. 23 ; Clarke v. Thomas, ante, 46.
The terms of the subscription on which this suit was brought are in harmony with the statutory provisions, as we have construed them ; and hence the fact that the whole of the capital stock had not been taken afforded no answer to this action.
2. Was the company, in changing the southern terminus of its road from Harrison county into the adjoining county of Belmont, authorized to adopt a route passing through a portion of Jefferson county, which adjoins. Harrison and Belmont? The authority conferred by the act is " to extend either of the termini of the line of their raiffoad to and into any county of this state adjoining the one in which either of their termini may be." (69 Ohio L. 163.) There is no limitation as to the point in the adjoining county where the new terminus may be fixed, nor does the statute, in terms, confine the new route to the two counties. The object in limiting the new terminus to the adjoining county was, doubtless, not to prescribe the route by which the new terminus might be reached, but to prevent such change in the l'oad as would make it, substantially, a new enterprise. Where authority is given to do a specified thing, but the precise mode of performing it is not prescribed, the presumption is that the legislature intended the party might perform it in a reasonable manner. If the deviation into Jefferson county had been made with any other object than to adopt the cheapest and most practicable route, a different question would be presented, but such is not the fact..
While statutes of this character are not viewed with the-liberality we extend to some enactments purely remedial,, the rule applicable to penal enactments should not be applied to them. Applying the just and reasonable construction this act should receive, we find within it authority to-the company to adopt the route in question ; and such change could not affect subsei'iptions made subsequent to-the passage of the statute.
3. Do the alterations made in the subscription book afford any defense ? The general rule ought to be, and is,, that a subscription to the capital stock of a railroad corporation, obtained by fraud, can not be enforced; and the rule prohibiting parol evidence to vary the terms of a writing, has no-application where a subscriber offers such a defense. Eield on Corp., § 90. But " a secret agreement entered into between the directors of such corporation and a subscriber for' shares in its capital stock, that he may within a specified time reduce the number of shares thus subscribed for, the-subscription being held out as bona fide for the full amount,, in order to induce others to become subscribers, is void, as-a fraud upon the other subscribers; and the original subscription may be enforced for its full amount between the corporation and subscriber." White Mts. R. Co. v. Eastman, 34 N. H. 124. Here not only was there no arrangement for a fictitious subscription, but it is fair to say that Huntington and Gabriel & Son each expected, at the time they subscribed, and at the time the other persons subscribed the-same contract, to pay for one hundred shares. The subsequent alterations were unknown to the other subscribers,, who had taken shares in the full belief that the subscription of Huntington and Gabriel were genuine. The fact- that the alterations were explained to Payne, a director, is of no importance; for to give effect to them, even if Payne had expressly assented, would, under the circumstances, be a fraud on the other stockholders; and holding, as we do,. that the alterations were mere nullities, it follows they .afforded no defense to Jewett.
Other matters were presented for our consideration; but this disposes of all questions to which it is necessary specially to refer'.
Judgment affirmed.