Court Opinion

ID: 6579241
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:36:55.746249+00
Date Added: 2024-06-11T15:57:13.035779
License: Public Domain

Carpenter, J.
The plaintiffs were incorporated with a capital of $500,000, with power to call a meeting of the stockholders to choose directors and perfect the organization of the company, whenever the sum of $100,000 should be subscribed to the capital stock. The sum of' $216,700 was subscribed, when the first meeting of the stockholders was held, and directors chosen. Subsequently the city of New Haven having received authority so to do, subscribed the sum of $200,000 more. No other subscriptions were ever made, leaving the sum of $83,300 unsubscilbed for. • The directors thereupon proceeded to call in the capital stock thus subscribed, and to commence the construction of the proposed railway.
The defendant Chapman subscribed for two shares of said stock; and the defendant Barker for three shares. Each of the defendants paid two installments of fen per cent, each, leaving the remaining' eighty per cent, due and unpaid. These actions are brought to recover the balance with interest.
The first ground of defence is that the whole capital of $500,000 has not been subscribed for.
There can be no doubt that the policy of the state, up to comparatively a recent period, has been, in corporations of this character, to require that an adequate cash capital for the undertaking should be furnished, before corporations should bo permitted to exercise their corporate functions. Hence, in most of the charters hitherto granted, there is no authority for the stockholders to meet and choose directors before oE *65the stock is subscribed. But in the charter before us there is a provision which seems to indicate the inauguration of a different policy. That provision is as follows: “The persons-named in the first section hereof, or a majority of them, are hereby authorized to call the first meeting of the stockholders of said corporation, in such way, and at such time and place, as they may appoint, whenever one hundred thousand dollars or more of the capital stock of said corporation shall have been subscribed for, to choose directors and perfect the organization of said corporation.” Private Acts, vol. 5, p. 653, sec. 4.
To what extent the legislature intended to change them antecedent policy, is really the question involved. The defendants contend that they only intended, after a certain amount of the capital stock should have been subscribed, to transfer the superintendence of further subscriptions to the stoek from the corporators to the directors; and that it was the duty of the directors to fill up the stock,, before they could lawfully proceed with the business for which the corporation was created. The plaintiffs, on the other hand, contend that the change contemplated was much more radical,—that they intended not only to authorize a meeting for the choice of directors, but that the corporation should at once possess all its powers and franchises, and might immediately proceed with the construction of its road.
The language of the charter seems to import much more \ than the defendants claim. The phrase, “ to choose directors and perfect the organization of said corporation,” in its grammatical construction, obviously relates to the meeting of the stockholders. If interpreted according to its grammatical construction, therefore, it was for that meeting to perfect the ^ organization, as well as to choose directors. We can hardly suppose that the legislature intended that that meeting should then and there fill up the stock, much less can we suppose that they intended that the meeting should continue in session, or otherwise prolong its existence, for that purpose. We all know that such a course would have been impracticable. If. the language used, therefore, is to be token in its ordinary ' grammatical sense, we think it quite clear that they could not *66have intended, by “ perfecting the organization,” the filling up of the capital stock.
If the legislature intended that the directors, when chosen, should perfect the organization by procuring the balance of tho stock to be subscribed for, they were certainly unfortunate in 'Hie choice of language to express that intention. If the words, “ perfect the organization,” relate to the directors at all, it seems reasonable to interpret them as referring to the duty of the directors to choose a president, and to make and prescribe by-laws; or -to their power to choose a clerk and treasurer and other officers; for these are duties and powers usually performed and exercised by directors; and perhaps we could, without doing violence to the language used, give these words that meaning. While it is only by a forced and unnatural construction, that we can limit and apply them simply to the matter of procuring further subscriptions to the stock.
We see no difficulty however in interpreting them as refex’x’ing to the stockholders’ meeting. If so intex’preted they may mean substantially the same thing as choosing directors, embracing such matters as are incideixtal to, aixd implied from, the power to choose director's, such as appointing a chairnxaxx, clerk, aixd tellers, aixd prescribing rules and regulations for governing their proceedings, aixd the like. Or they may, and more properly perhaps, refer to the appointment of such officers as are ixot by law required to be chosen by the directors, such as the vice-presidents, an executive committee, a clerk or seci-etax-y, a treasurer, agents and other officers. It is true some, and perhaps all of these, may be chosen by the directors. The statute authorizes them to choose a clerk and treasurer, but it is not imperative, as in the case of the presideixt. See Gen. Stat., p. 181, sec. 444. There is certainly some rooxn for the inference that all these officers may be chosen by the stockholders. If so, the words under consideration may properly apply to such proceedings.
(The woi’d “ organize,” as used in railroad and other charters, ordixiarily signifies the choice and qualification of all necessary officers for the transaction of the business of the corporation. This is usually done after all the capital stock has been snfi*67scribed for. I have been unable to find any case in which it ^ necessarily includes in its meaning the procuring of subscriptions to the capital stock ; but I do find cases where manifestly it is not used in any such sense. The corporators of the Boston, Hartford & Erie Railroad Company were authorized to \ organize the company when one-half the stock required should be subscribed. Private Acts, vol. 5, p. 543. See also Act amending the charter of the Fairfield County Railroad Company, vol. 4, p. 887.
Again, if the construction contended for by the defendants is the correct one, what is gained by this unusual and extraordinary provision ? Can it be claimed that the directors, after a partial organization, will be more successful in obtaining subscriptions than the corporators were before ? According to their construction, the corporation cannot exist, no corporate act can be done, the object of its creation cannot be accomplished, the enterprise contemplated cannot be commenced even, until the whole stock is subscribed for. The practical operation of this section, as thus construed, would bo simply to take from one set of men the burden of procuring subscriptions, and impose it upon another. Or, quite likely, it would be taking it from one set of men as corporators, and imposing it upon the same men as directors. In all this we discover nothing gained either to the corporation or the public.
On the other hand, considering the difficulty of procuring, in the first instance, the necessary means for the construction of railroads, combined with the necessity and importance of. their construction, in order that the resources of the various sections of the state may be more fully developed, we can discover a motive which may have induced the legislature to change, to some extent, their policy in this respect, and to authorize the promoters of such enterprises to commence their corporate existence, and the exercise of the powers and franchises conferred upon them, with only a part of the capital stock required subscribed for.
That this must have been the intention of the legislature, will appear more clearly from a comparison of the last clause of the 4th section with other provisions in the charter. “And *68whenever said corporation shall have been so organized, it may proceed to commence the construction of the railroad hereinafter specified.” How organized ? The defendants say, with the capital stock all subscribed for. If so, what necessity for this provision at all ? The 6th section provides as follows: “ Said corporation is hereby authorized and empowered to locate, construct, and finally complete, a single, double, or treble railroad or way” &c. from New Haven to Derby.
Here then is authority full and ample, which renders the last clause of the 4th section nugatory. Now if we are to construe this charter so as to give effect to all its provisions} we must reject this construction. Moreover, the language of this 4th section is peculiar. It is not that the corporation may proceed from its organization to the construction of its railroad, but it is that it may proceed to commence the construction. This is a strong indication that the legislature intended that the work might be commenced with a limited capital, and continued subsequently as the corporation might obtain the necessary means. We say nothing of course as to the expediency of such a policy. That was a question entirely for the legislature. Our duty is to ascertain what they intended, and to give effect to that intention.
A question may arise in respect to some of these charters, more properly perhaps in a court of equity, whether the corporation should be permitted to go forward and expend the money subscribed, when it is manifest that the work cannot be completed, and that the money' expended will be lost. No such question arises in the present case. More than four-fifths' of the stock required was actually subscribed for, and the work has been carried forward nearly, or quite, to completion.
We are satisfied therefore that these proceedings of the corporation were not illegal, and that this branch of the defence cannot be sustained.
The defendants further claim that the Act of 1867, authorizing the city of New Haven to subscribe for two thousand shares of the stock, and the proceedings of the city and the plaintiffs under said Act, operate to discharge the defendants from the obligation of their contracts.
*69The Act authorizing said subscription provides that the 4 mayor of said city, and one of the aldermen to be desig- j nated by the common council, shall each be, by virtue of his | office, and while said city shall continue to be a stockholder, ( a director in the railroad company; and that said city shall | be entitled to one vote only for every four shares of stock by I it owned. In every other respect the stock held by the city \ is held upon the same terms and conditions as that held by > other stockholders.
Before discussing the legal questions involved in this part of the case, it may be well to consider briefly what effect these proceedings have, or have had, upon the rights and interests of the defendants. Are they prejudicial, or otherwise ? It is not found that either of the defendants has thereby sustained any actual pecuniary damage. In looking at the case as stated, we think it will be found that the whole injury consists in the.fact that the defendants are deprived of the privilege of voting for two of the directors. The statute requires that there shall be not less than nine directors; -there may be more at the discretion of the stockholders. The stockholders therefore elect seven out of the nine'directors, and are deprived of the privilege of voting for the other two. On the other hand the city is prohibited from voting on threefourtlis of its stock. In consideration of the privilege of electing two directors,, the city agrees that, in all meetings of the stockholders, it will cast but five hundred votes, instead of two thousand. The whole number of shares subscribed is 4,167. The city subscribed 2,000. The balance, much of it at least, is probably owned in small sums, and by individuals who take little interest in attending the meetings of the stockholders. Thus it will be readily seen that the city, if entitled to one vote on each share of its stock, could exercise a controling influence in all the meetings of the corporation, and would, if so disposed, elect the whole board of directors. To avoid this the provision under consideration was adopted. The practical effect of it is to give to fifteen hundred shares, being more than one-third of the entire stock, two-ninths of the directors absolutely, at the same time depriving it of all *70voting power in the meetings of the stockholders. We cannot say that this is unreasonable. It is manifestly for the advantage of the corporation that its affairs should not be virtually controlled by the city. On the other hand it is just that the city should have a voice in its management. The arrangement seems to us just and reasonable, and, on the whole, beneficial, rather than prejudicial, to the defendants.
The ground of this objection is that the defendants, by their } contracts of subscription, acquired certain rights and privileges, of which they have been divested by the amendments to the charter. The contract entitled each defendant to the number of shares subscribed for by him, and obligated him to pay to the corporation the par value of the stock. It also contained an agreement, by implication at least, that the money thus received should be expended in carrying forward the business for which the corporation was created. The subscription was also upon the terms and conditions contained in the charter. We may therefore say that the contract contained an agreement, that the defendant should have all the rights and privileges conferred upon him, as a stockholder, by the charter as it then was, and until those rights were changed or modified, by his consent, or by lawful authority. One of the | conditions of the charter, and also of the general law of the I state under which it was granted, was that it might be alI tered, amended, or repealed, at the pleasure of the General 1 Assembly. That too was an element in the contract, by which 1 the defendant agreed in advance to any reasonable alteration f-which the legislature might lawfully make.. The power thus \ reserved is in terms absolute; yet it is not an unlimited power, j Like all other legislative powers it is subject to this important 'limitation, viz : it shall not be so exercised as to impair the obligation of a contract, or to destroy vested rights.
The acts of the corporation, in accepting the amendment to the charter, and in permitting the city to subscribe for the stock upon the terms contained in the amendment, deprived the defendants of the privilege of voting for two of the directors.- The defendants say that the destruction of this right *71absolved them from all obligation to pay for their stock. Whether it does or not is the question we are now to consider.
Some amendments, or laws, affecting corporations, are bind- / ing with or without their assent. Others bind the corporation / and every member thereof, if assented to by a njfajority of the ; stockholders. And others are not binding upon non-consent- \j ing members, although assented to by the majority. All gen- ' eral laws, and mere matters of police regulation, are embraced l in the first class. Additional powers, duties and privileges, | which do not change essentially the nature and character of j the corporation, or the purpose for which it was created, and j have for their object the promotion of the enterprize originallv (■: contemplated, fall within the second class. All amendn which work a radical change in the nature and charactei corporation, or the purpose for which it was created within the third class.
It is not easy to establish a general rule by which it may lie seen at a glance to which class any given case belongs. Each case must in a measure depend upon its own circum stances. A careful examination of the case before. us, and the authorities bearing upon the question, has led us to the conclusion that it belongs to the second class, and that the amendment -is binding upon every member of the corporation. *
There is no change in the character of the corporation. It* is a railroad company still, relating to an important public improvement. The object of its creation, the construction" and operation of a railway from New Haven to Derby, remains precisely the same. There is some change in the mode of appointing the board of directors ; but that cliangh is not a radical one, nor isqt, under jhe circumstances, an unreasonable one. So far from working an injury to the defendants, it is, * as we have already seen, a benefit to therm The directors are elected by the stockholders, and every one has a voice in the election. No one has an undue advantage over the others, and the rights of all are carefully guarded. The object of the amendment was not to obstruct, hinder or change, but to facilitate, the enterprise in which all were engaged; and, so far as we can see, it has had the designed effect. _ It is not an *72attempt on the part of the legislature to control the organization, or to place it in the power of one or more of the stockholders to elect all, or a majority, of the directors; but, on the contrary, the design was- to prevent that result. The matter of voting and the mode of electing officers, are usually provided for in the charter. The legislature may, in the first instance certainly, impose such terms and restrictions as may be thought best. The powers reserved will authorize subsequent legislation upon the same subject, so long as the owners of the stock retain the control of the corporation, and are all placed upon equal and fair terms.
¡The rights therefore of which these defendants have been deprived, are rights which they held subject to such reasonable changes and regulations as the legislature might make, with the assent of the corporation ; and they are not thereby | absolved from their obligation to pay for their stock.
The decided cases on this subject will abundantly sustain our position. A few only of the many cases cited will be referred to. And first two or three of the strongest cases relied upon by the defendants.
The Hartford & New Haven R. R. Co. v. Croswell, 5 Hill, 383. That was an action against a subscriber to recover certain installments upon his stock. After the .installments became due, the eharter was altered, by authorizing the company, in addition to the powers originally granted, to purchase certain steamboats to be used in connection with its road, not exceeding in amount the sum of $200,000. It was held that neither the board of- directors, nor a majority of the stockholders, could sanction the alteration so as to bind the defendant without his consent. In that case there was a diversion of the funds from the purpose originally contemplated. Here there is no such diversion. But even the authority of that case is considerably shaken by later cases cited below.
The Troy & Rutland R. R. Co. v. Kerr, 17 Barb., 581. The company was incorporated with a capital of $1,500,000. After the defendant subscribed to the stock, the articles of association were amended under a general law, by which the capital was reduced to $325,000, and the contemplated road *73was materially shortened. The defendant refused payment of calls upon his stock, and, in an action brought to recover them, it was held that the plaintiffs were entitled to recover. There were other questions in the case. The presiding judge, who gave the opinion of the court, doubted upon this point, but seems to have acquiesced in the decision, partly upon the ground that there was evidence tending to show that the defendant assented to the change. But a majority of the court were of fire opinion that there was no such radical change of the plan and business of the corporation, as exonerated the defendant. The presiding judge in the course of his opinion says, “Admitting that an alteration niay discharge the obligation, was not this one incidental to the undertaking, and to which the stockholder must be considered impliedly to assent? and if not, was it so material as to be a ground of defence ? ” That case is in reality an authority against the defendants. The court seems to have gone further than we are required to go in the present case, as the alteration in that case was much more radical than in this.
Sage v. Dillard, 15 B. Monroe, 340. The corporation in that case was established purely for charitable purposes, and depended for its funds mainly upon voluntary contributions. The legislature from time to time authorized an increase in the number of corporators, and finally increased them arbitrarily, by appointing sixteen new corporators by name. The corporation refused to accept the amendment. The court held that the act of the legislature was inoperative. That case différs from this in two important particulars. First, in that case the amendment was rejected by the corporation ; in this it was accepted. Secondly, that was an attempt by the legislature to have a voice in the management of funds contributed for charitable purposes, against the will of the persons to whom their management had been entrusted by the donors, and, presumptively perhaps, against the will of the donors themselves. They had vested in the old corporators the control of these funds. The action of the legislature was a manifest infringement of that right. Nothing of that kind appears in this case.
*74We have no occasion at this time to enter upon the discussion of the difference between an eleemosynary corporation, and a corporation for the prosecution of an enterprise involving public interests. It certainly seems reasonable that the power of tire legislature to legislate in respect to the. latter, should be more extensive than in respect to the former. The case of Pfooks v. The London & South Western Railway Co., 19 Eng. Law & Eq., 7, maintains this proposition: The rule that the majority cannot bind the minority in a joint stock company, as to acts not contemplated by the common contract, has not been applied to corporate companies for a public undertaking, involving public interests- and duties, under the sanction of parliament. Whether we should go so far, if the question was directly before us, we need not now say. We quote the case as showing that we are not going beyond the limits of the law elsewhere.
' In the case of The Buffalo & New York City R. R. Co. v. Dudley, 14 N. Y., 886, it w;as expressly held that, “An alteration by the legislature of the company’s charter, in pursuance of powers reserved, by changing its name, increasing its capital and extending its road, does not discharge the defendant from liability on his subscriptionand this, whether such alteration is beneficial to the defendant or not, the alteration having been duly made, and without any fraud on the part of the company.” See also Schenectady & Saratoga Plank Road Co. v. Thatcher, 11 N. Y., 102.
’ In this opinion the other judges concurred; except Seymour, J., who, having been counsel in a case involving the same question, did not sit.