Court Opinion

ID: 8851962
Source: CourtListenerOpinion
Date Created: 2022-11-26 17:16:52.956786+00
Date Added: 2024-06-11T17:05:31.755237
License: Public Domain

SANBORN, Circuit Judge,
after stating the facts as above, delivered the opinion of the court.
Counsel for plaintiff in error argue that the ruling of the court below was erroneous on. three grounds, viz.: (1) Because the limitation of their power to increase their capital stock imposed upon corporations by article 570, supra, was removed by the provisions of article 573, supra, which allows corporations to amend their articles without restriction; (2) because the defendant is estopped by voting his stock, and by the representations of the officers of the company that the capital had been increased to §1,200,000, from now asserting, against creditors of the corporation, that his stock was not legally issued; and (3) because his ownership of the stock, and liability thereon, were adjudicated by the district court of Webb county, Tex., after the service of the order to show cause upon him in Missouri, and he is bound by that judgment.
Corporations created under statutory authority are thp mere creatures of the statute. Their powers are measured by the statute under which they have their existence. Beyond the limits of the powers there granted, and those fairly incidental thereto, they can neither act nor agree to act. Corporations thus created have no implied power to change the amount of capital prescribed in their charters, and all attempts to do so, not expressly authorized by the statutes under which they exist, are void. Scovill v. Thayer, 105 U. S. 143, 148; Mechanics’ Bank v. New York & N. H. R. Co., 13 N. Y. 599; Railroad Co. v. Schuyler, 34 N. Y. 30; Railway Co. v. Allerton, 18 Wall. 233; Stace and Worth’s Case, 4 Ch. App. 682, note; Omaha Bridge Cases, 10 U. S. App. 98, 174, 2 C. C. A. 174, 51 Fed. 309.
This brings us to the consideration of the question whether or not the limitation of the power to increase their stock imposed upon corporations by article 576 was removed by the provisions of article 573, which allows them to amend their articles generally. We are, however, spared the examination of this question. Its determination rests entirely upon the construction of the statutes of Texas, and since the trial of this case the supreme court of that state has decided it. In Kampmann v. Tarver (Tex. Sup.) 29 S. W. 768,—a case involving the validity of the increase of capital stock made by this very corporation, — the supreme court of Texas held, in an opinion delivered February 7, 1895, that the limitation imposed by article 576 was still in force, that no corporation created under the amended act of 1874 Could lawfully increase its capital stock beyond double its original amount, and that all stock issued in excess of that limit was void. This decision concludes the discussion of this question. The national courts uniformly follow *636the construction, of'the constitution and statutes of a state given by its highest judicial tribunal, in- all cases that involve no question of general or commercial law, and no question of right under the constitution and laws of the nation. Dempsey v. Township of Oswego, 4 U. S. App. 416, 435, 2 C. C. A. 110, 51 Fed. 97; Rugan v. Sabin, 10 U. S. App. 519, 3 C. C. A. 578, 53 Fed. 415, 420; Travelers’ Ins. Co. v. Township of Oswego, 7 C. C. A. 669, 674, 59 Fed. 58; Madden v. Lancaster Co., 12 C. C. A. 566, 65 Fed. 188, 192; Claiborne Co. v. Brooks, 111 U. S. 400, 410, 4 Sup. Ct. 489; Bolles v. Brimfield, 120 U. S. 759, 763, 7 Sup. Ct. 736; Detroit v. Osborne, 135 U. S. 492, 499, 10 Sup. Ct. 1012. Some of the reasons for this rule are stated in Madden v. Lancaster Co., 12 C. C. A. 566, 65 Fed. 193, and it is unnecessary to repeat them here. Our conclusion is that this corporation had no power to increase its capital stock to more than double its original amount, and that all stock issued in excess of that amount, including that issued to the defendant Stevenson, was absolutely void.
Is the defendant estopped by the fact that he once voted his stock, and that the officers of the corporation represented that its capital had been increased to $1,200,000, from asserting, against the creditors of the corporation, that the stock issued to him was void? This question must be answered in the negative. Where a corporation has power to issue stock or to increase its capital stock, and this power is defectively or informally exercised, the acts and acquiescence of the stockholder may estop him from denying the validity of the stock or his liability therefor. Upton v. Tribilcock, 91 U. S. 45; Chubb v. Upton, 95 U. S. 665; Pullman v. Upton, 96 U. S. 328; Handley v. Stutz, 139 U. S. 417, 425, 11 Sup. Ct. 530; Veeder v. Mudgett, 95 N. Y. 295, 310. But where the corporation is absolutely without power to issue the stock, or to increase the capital stock above a certain limit, no act or. consent of the stockholder who receives stock issued without authority can estop him from denying the validity of the stock, or his liability therefor. The holder of such stock is under no obligation to pay for it, because he has received no consideration for such an obligation. The stock issued to him is absolutely void. He is not estopped to deny its validity, as against a creditor of the corporation, for the foundation of. estoppel is deceit, and the creditor cannot be deceived as to the power of a corporation to issue such stock. He is bound to examine and know the law which limits the powers of the corporation with which he deals, and, whether he examines it or not, he is charged by the law with the knowledge of it. Scovill v. Thayer, 105 U. S. 143, 149; American Tube Works v. Boston Mach. Co., 139 Mass. 5, 29 N. E. 63; Reed v. Machine Co., 141 Mass. 454, 5 N. E. 852; Lathrop v. Kneeland, 46 Barb. 432; Merrill v. Gamble, 46 Iowa, 615; Merrill v. Reaver, 50 Iowa, 404; Clark v. Turner, 73 Ga. 1; Lincoln v. Express Co. (La.) 12 South. 937.
For is the defendant estopped to deny his liability to pay for this void stock because, in proceedings against the insolvent corporation in the district court of Webb county, Tex., that court adjudged that it was necessary to collect all the unpaid subscriptions to this *637stock, in order to pay the debts of the eorporation, and directed the receiver to proceed, by suit or otherwise, to accomplish this end, after an order to show cause why such a judgment should not be rendered had been served on the defendant in Missouri. There are two sufficient reasons why no such estoppel arises in this case. One is that no process, summons, or notice was served on the defendant in the state of Texas, and his personal liability could not be established without such service. In Pennoyer v. Neff, 95 U. S. 714, 727, Mr. Justice Field, speaking of a defendant, declared, as the opinion of the supreme court, that “process sent to him out of the state, and process published within it, are equally una railing in proceedings to establish his personal liability.” The other reason is that the district court of Webb county expressly adjudged, in the decree it rendered, that this defendant should not be so estopped. That decree contains the following provision: “Nothing herein shall be construed as stopping any person named herein from denying liability as a stockholder.” The judgment below must be affirmed, with costs, and it is so ordered.