Case Name: The Executors of John Haslett vs. Robert Wotherspoon and others
Court: South Carolina Court of Errors
Jurisdiction: South Carolina
Decision Date: 1844-06
Citations: 2 Rich. Eq. 395
Docket Number: 
Parties: The Executors of John Haslett vs. Robert Wotherspoon and others.
Judges: Before Johnson, Ch., at Charleston,
Reporter: South Carolina Equity Reports
Volume: 19
Pages: 395–404

Head Matter:
The Executors of John Haslett vs. Robert Wotherspoon and others.
The defendants subscribed articles of association whereby they agreed to unite in a company for building a Theatre, and to pay for the shares placed opposite their names at the rate of five hundred dollars per share. Trustees were appointed to transact the business of the association, who, having purchased a site, proceeded to erect a Theatre, and contracted debts,over and above thesum subscribed, to a considerable amount. After the Theatre was erected the association was incorporated. Held, that the members of the association were jointly and severally liable, as co-partnersj for ail the debts contracted before the Act of incorporation.
Drafts, for debts due by the association, drawn on the corporation and accepted but not paid, held to be no bar to the claims of the creditors on the association.
An Act of incorporation constituted certain persons a body politic by the name, &c., “ with a present capital of sixty thousand dollará.” The capital, in fact, was only thirty-seven thousand dollars. Held, that creditors of the corporation might compel the corporators to increase the capital to sixty thousand^ dollars in order to satisfy their demands.
Before Johnson, Ch., at Charleston,
June, 1844.
Johnson, Ch. The following articles of association', entered into by and between the defendants, will, themselves, sufficiently show their nature and object, — viz:
“We, the subscribers, agree to unite in a company for building a Theatre, to be called the New Theatre, in Charleston, and to pay for the shares placed opposite our names, at the rate of five hundred dollars per share, and to pay the same to the Treasurer of the Companys in such proportions and instalments as may be called for by the Trustees, Robert Wotherspoon, James Rose, William A. Carson, R. W. Cogdell and Henry Gourdin, or a majority of them, or of the Trustees who may be appointed to fill.any vacancy in their number : Provided, that this engagement shall have no effect till forty shares are taken, and that when forty shares are taken, the said subscription shall be good for three hundred dollars per share, if so much be necessary for the purchase of the site of the Theatre, -and that the residue be payable as may be called for by the Trustees, when seventy shares are taken. Adopted, 10th March, 1835.”
It is signed by the defendants, who took amongst them something over seventy shares, amounting in all to about $37,000, the whole of which has been paid in, and disbursed in the payment of debts.
The trustees named in these articles having purchased a site, whereon to erect a suitable building, on the 17th February, 1837, entered into an agreement with Fogartie & Sutton, brick-masons, to do the brick work, and with Ephraim Curtis & Co. to do the carpenters’ work of the said building ; for which Fogartie & Sutton were to be paid $14,000, and Curtis & Co. $13,500. The work was satisfactorily finished, and accepted by the trustees. Curtis & Co., on 27th February, 1838, gave a draft for $1,500 to Francis Lance, on George W. Logan, who had been appointed treasurer of the company. The draft was duly accepted, but was not paid at maturity for want of funds. On the 10th of March, 1838, Robert Wotherspoon, the chairman of the board of trustees, gave to Fogartie Sutton, on account of the money due them on the building contract, a draft on Logan, the treasurer, for $2,000, payable eight days after date; this was also accepted by Logan, but was not paid for want of funds, and both the drafts were purchased by the complainants’ testator.
The bill is filed as well on behalf of all the other creditors of the company, who may come in and contribute to the expense, and establish their demands, as of the complainants.
And the complainants further state, that on the 27th December, 1837, after the building had been finished, and was ready for use, the Legislature passed an Act constituting the trustees named in the articles of association, and their “ associates,” a body politic, by the style and name of the Charleston New The-atre Company,, for the purpose of conducting a Theatre in Charleston, and that the said trustees were afterwards appointed directors of the said company, and continued in that office until the corporation became insolvent, and its object was abandoned.
The bill further states, that the testator, confiding in the'solvency of the corporation, brought an action at law against if, to recover the amount of these drafts, and that on the 1st February, 1840, judgment was entered-for him for $4,016.95. of which $1,500 was afterwards paid by Logan, the treasurer ;• that an execution sued out on that judgment has been returned nulla bona, the sheriff being unable to- find any property, real or per sonal, whereon it could be levied; and the complainants in fact say,-that the building and lot of land was all the visible property which-the company or corporation possessed ; that that had been transferred by the trustees named in the articles of association to the corporation, and that it had all been sold under fi. fa. against the corporation.
By the first clause of the Act of incorporation, it is enacted: “ That Robert Wotherspoon, W. A. Carson, James Rose, Richard W. Cogdell and Henry Gourdin, and their associates and successors, be, and they-are hereby declared a body politic, for the purpose' of erecting and conducting a Theatre in the city of Charleston, by the name and style of the Charleston New Theatre Company, with a present capital of $60,000, and with the privilege of increasing the same to $100,000.” And the bill prays that the defendants may answer, whether the capital of $60,000 was in truth paid in, — and if not, that the corporators may be compelled to contribute to pay what may be sufficient to pay the debts, or to make up the deficiency, or that the subscribers to the articles of the association, if they are other persons than the corporators, may be decreed to pay the demands of the complainants by an assessment upon themselves..
All the subscribers to the articles of association are made defendants.' Robert Wotherspoon, one of them, is a certificated bankrupt, and pleads that in bar to the relief sought by the bill against him, and that must be allowed. James Rose, and twenty-four others, have answered jointly, and admit the justness of the complainants’ demand, and the liability of the members of the association for all the debts, whether contracted before or after the Act of incorporation, and they state that the theatre and •lot have been mortgaged for a part of the debts, and suggest the propriety of selling them to pay the debts, vas far as the proceeds will extend. The corporation ¡was .also made a party, and their answer is substantially the same as that of James Rose and others.
, Ker Boyce, another of the defendants,' admits in his answer that he subscribed the articles of association for $500. He states that he paid it, and insists- that he is no further answerable. 1st. Because the articles never were intended to have, nor could they have any further obligation than to bind .them to pay the sum subscribed, to the person entitled to receive the same. 2d. Because the Act of incorporation did not extend or increase the liability of the subscribers to the articles, beyond the amount subscribed; and if it could have that effect, he is not bound, because lie never assented to it in any manner, before or after it was passed. 3d. Conceding the possible liability of the associates to Fogartie & Sutton, and Curtis cfc Co., he insists that their acceptance of drafts from the corporation for the amount due, was a discharge of the liability of the associates.
The firm of Street & Boinest were also subscribers to the articles, and they put in their defence on the grounds taken in behalf of Mr. Boyce; and so of Thomas Roger, L. A. Pitray and I. E. Glover. Judgments, pro confesso, have been taken against the other defendants.
It appears from the journal of the corporation, that Mr. Glover was present at a meeting of the stockholders, on the 28th of February, 1838, when a resolution was adopted accepting the Act of incorporation, and it is very clear he was mistaken when he said in his answer that he had never accepted or assented to it. His solicitor, Mr. Northrop, has subsequently filed with the proceedings, a correspondence between them, which very satisfactorily shows that it originated in his forgetfulness. It does not appear that Boyce, or any of the other defendants who rest on the same defence, ever attended any of the meetings of the directors, or stockholders, after the Act of incorporation, and from what I can collect from the evidence, it is, I think, very clear, that the management of their affairs was confided, almost exclusively, to the directors. But it is in proof, that in the winter of 1839-’40, Mr. Boyce entered into a contract with Mr. Abbot, the manager of the theatre, to sell him his stock, on condition that “ the others” (I suppose the other stockholders) would concur — for Abbot desired to purchase all the stock. Mr. Logan, the secretary, also testified, that Street, of the firm of Street & Boinest, “would several times ask him questions in reference to the business of the company,” and “spoke to him as a stockholder.” There is no evidence of any act on the part of Roger or Pitray, in relation to the affairs of the company, after the act of incorporation. But judgments, pro confesso, had been taken against them, and it was not until after the argument had been gone into; that a motion to open them, and let the defendants in to answer,- was made for that purpose, and granted by consent; and if it should become necessary, I think the complainants ought to be let into proof of their acceptance of the charter, if they have any to offer.
The first ground relied on by the resisting defendants, raises the question, whether they are bound by any contract made by the company, beyond the amount which they subscribed to the original articles of association. The assumption that this was intended as a mere charity, is the pnly possible ground of this defence; and it is true that men may voluntarily contribute to the construction of a Theatre for the public use and benefit, as well as a Church or an Hospital. But that such was not the case here, is manifested, as well by the nature of the undertaking, as by the articles themselves.' No instance has fallen under my observation, in which a Theatre has been erected merely as a public convenience ; and although, as was obviously the case here, public convenience might enter largely into the consideration of the undertaking, some personal benefit is contemplated. Here the capital stock is divided into shares of equal value, obviously with a view to regulate the distribution of the profits, if any were made, and to apportion the losses. In a contribution to a mere charity, it would have been' wholly nugatory. It could not, therefore, have been intended as a charity, but an association of the parties to contribute a limited amount of money to a common object, for their common benefit; and whether it be called a partnership, or its character be designated by any other name, it would astonish a merchant to be told, that the individuals were not liable to creditors beyond the amount of the capital sum put by them, severally, into th.e common fund. In other words, that having paid in their portion of the capital, they are not liable at all. The language of the Court in 1 Mylne & Keene, 76, is very strong to the point.
Besides the complainants, numerous other creditors have come in to establish demands against the defendants, some of which were contracted before, and some after the Act of incorporation, and it is insisted that Boyce, and the other defendants associated with him in the defence, are not liable to contribute to the payment of the after-contracted debts ; they put this upon the ground that they never accepted the charter, and that the Act itself was a dissolution of the original association.
I should find no difficulty, if it were necessary, to deduce from the facts, that Boyce, Glover, and Street, of the firm of Street & Boinest, particularly the first two, did, in effect, accept and approve the charter. It is not enough that they were merely passive ; as between creditors and the association, they were bound not only expressly to disavow the charter, but to give publicity to it.
The persons named in the Act of incorporation, viz: Robert Wotherspoon, W. A. Carson, James Rose, Richard W. Cogdell, and Henry Gonrdin, are the same persons who are constituted trustees by the articles of association. And .the objects expressed in the Act “ erecting and conducting a Theatre in Charleston-,” are the same, and it is these persons, “ and their associates,” who by the Act are constituted a body politic. The names subscribed to the articles, amongst which will be found the names of these defendants, show who their associates wereand there was nothing to prevent their participating in the benefits of the corporation, if they had thought proper. They were in fact and in law, members of the corporation. The Act of incorporation might have been obtained without their' knowledge or consent, and they may have refused to accept under itbut how were the persons dealing with the corporation to know who the corpo-rators were, but through the Act, and the articles of association? It need hardly be added- here, that one who holds himself out to the world as a member of a partnership, or corporation, is equally liable with him who conducts the business, although he remain perfectly passive. None of the defendants deny knowledge of the Act of incorporation, and residing here, the reasonable presumption is, that they did know of its existence ; the proof is that it was known to Boyce, Glover and Street, and as between the defendants, their neglect to give notice of their dissent, subjects them equally to all the liabilities incurred. They had been associated for the purpose of building and conducting a Theatre, without any limitation as to time. The charter had the same object in view, and was for the common benefit of all, as without it each would have been severally liable for all the contracts of the company, and it cannot be supposed that one would forego such an advantage, when it could not in the least diminish his profits; If it had been a profitable concern, and these defendants had come in to receive their dividends, and the treasurer had said, “ you are not entitled, because you have not expressed your consent, or attended the corporation meetings,” might they not have answered triumphantly, “ the Act and the articles show that we are members.of the corporation, and it was never yetheard that corporators forfeited their right by neglecting to attend the meetings, unless there was some express enactment either in the Act of incorporation or its by-laws.” As between the parties to this suit this question is unimportant, but it becomes so, when I come to consider the liability of the corporators to contribute to make up the capital contemplated by the Act.
Another ground of defence is, that these debts are merged in the drafts drawn and accepted by Wotherspoon and Logan, and the judgments against the corporation upon them, and that this made them the debts of the corporation. This would be, indeed, “ a new way of paying old debts.” • If this was a debt of the association, the assumption of it by the corporation certainly would not discharge it; and if even the payment of it had actually been made by the corporation, without the consent of the associates, it would have been no bar to an action against them for the. same debt. If it were otherwise, worthless paper is not the sort of currency which constitutes a lawful tender in the payment of an honest debt.
The corporation having, accepted an assignment or transfer of all the visible property of the partnership, they are, as between themselves, primarily liable for all the debts. But it is conceded that the property of the corporation will not be sufficient to pay all the debts,- and the question is, how is the deficiency to be supplied?
At the time the Act of incorporation was passed, the Theatre had been built, and was ready for use, and the Act recites, and necessarily on the authority of the persons applying for it, that its capital was then “ a present capital of $60,000.” And persons dealing with the corporation, and desiring to know what their means were, might well suppose that-the whole of this sum had been paid in, and was in the hands of their treasurer. The fact that only $37,000 is all that was or ever had been subscribed, and all that ever has been paid in, was calculated to surprise, and operated as a fraud on -the creditors, for which the corporation is responsible. The case of Hume vs. Winyah and Wando Canal Company, Carolina Law Journal, page 217, decided by Chancellor Desaussure, whose judgement was affirmed by the Court of Appeals, strikes me as decisive of this question. There, a corporation not professing to have any fixed capital, made by-laws* by which each of the corporators was bound to contribute equally, or rateably, to all expenses incurred, and it was held that the corporators were liable to be assessed for all the-debts incurred. Now this corporation professed to have $60,000 capital, and if, in the case cited, they were personally bound to the extent of all their engagements, here .they are necessarily bound to contribute, to the extent of the capital, on the faith of which they obtained credit. .
It follows from what has been said; that under the articles of association, the associates or persons who subscribed the articles, are liable, jointly and severally, for all the debts incurred before the Act of incorporation. That the corporation having accepted an assignment of all the property of the association, for the purpose of carrying out their object, they are primarily liable for their debts. That the funds of the ■ corporation falling short of paying all the demands, the corporators are bound to contribute rateably to make up the capital of $60,000, to be applied to their payment. That the debts of the corporation proper, are to be first paid out of the property and funds belonging to it, including the amount of capital to be contributed and made up by an assessment on the members, to the amount of $60,000. If this prove insufficient, the debts of the association are to be postponed and be paid rateably by the subscribers to the articles.
The case of Goddard vs. Pratt, 16 Pick. 412, pushes the liability still further. There the members of an iron manufacturing company, which had been in operation for some time, obtained an Act of incorporation'by the name of the Wareham Iron Company, but continued to carry on their business in the name of the old firm. The Court refused, in a suit against the company, to admit evidence to shew a general reputation, that, in using the name of the firm, the name of the corporation was meant; and held, that although the Act of incorporation might operate as a dissolution of the company, yet the members were liable as partners, when dealing with persons having no notice of the dissolution. It proceeds on the principle, that if a retiring partner neglects to give notice, or suffers his name to be used, he will be liable for the debts of the new concern. If, therefore, the corporation assets should turn out insufficient to pay the debts of the corporation, and.they have dealt with persons ignorant of the dissolution of the association, the members will be liable as partners.
It is therefore ordered and decreed, that an account be taken of the debts of the Theatre, whether contracted by the association or the1 corporate body : and of the property and funds applicable to the payment of the same, — and that the master do also inquire' and ascertain in what sum the several members should contribute to satisfy the liabilities of the association, and body corporate, and what must be contributed by the solvent members to make good the deficiencies of such as are out of the jurisdiction, or are unable to pay. The plaintiffs’ costs, to this time, to be paid by the defendants, Boyce, Street, Boinest, Roger, Pi tray and Glover ; and the other parties to pay their own costs. Subsequent costs to be paid as hereafter directed.
The defendants, Ker Boyce and Street and Boinest, appealed, on the following grounds :
1st. Because the articles of agreement never were intended to have, nor could they have, any further obligation, than to bind the parties who were subscribers, to pay the sum subscribed to the person entitled to receive the same.
2d. Because the Act of incorporation cannot affect any except such as accepted of the same. And there is no proof of acceptance on the'part of either of these defendants.
3d. Because, admitting any obligation on the subscribers for more than the amount they agreed to pay, it could only arise from some privity of contract. And this was not, nor could be, proved to exist in this case.
4th. Because the acceptance of the drafts was, even as to the contractors, an extinguishment of their claim on the subscribers : and the transfer of these drafts to a third person, could only give to such third .person a personal action against the parties who were bound by the draft.
5th. Because, in a case were it is sought to charge a party ais a corporator, the fact of his assent must be proved, and it is not for the defendant to prove his dissent.
6th. Because the assent of the párties to contract with the corporation, and to receive payment from the agent, was a waiver of all claim on the original subscribers under the original articles of agreement, except those who had signified their acceptance of the charter of incorporation.
A. G. Magrath, for the appellants.
Ashby, contra.

Opinion:
Curia, per Dukkin, Ch.
This court concur entirely with the Chancellor, that the associates or persons who subscribed the articles of the 10th March, 1835, are liable, jointly and severally, for all the debts incurred for the purpose of the association before the Act of incorporation. In the language of Walburn vs. Ingilby, (referred to in the decree) " whosoever became a subscriber upon the faith of the restricting clause, or of the limited responsibility which that holds out, must have himself to blame, and be the victim of his ignorance of the law of the land."
The court concur, too, on the other points ruled by the decree, except as to the liability of the appellants as corporators under the charter of December, 1837, on which the opinion of the court is reserved.
It is ordered and decreed, that the decretal order of the circuit court be enlarged, and that, in taking an account of the debts of the Theatre, the master distinguish, as far as practicable, between those contracted by the association and those contracted by the corporate body, — and that he also take an account of the sums paid in by the several subscribers to the association, as well as by the several corporators; and also an account of the administration of the funds by the trustees appointed under the articles of association. The question of costs being also reserved until the final hearing.
Johnson, Harper and Johnston, CC. concurred.