Court Opinion

ID: 4913066
Source: CourtListenerOpinion
Date Created: 2021-09-22 00:04:33.182648+00
Date Added: 2024-06-11T08:13:44.478474
License: Public Domain

DuPONT, J.,
'delivered tbe opinion of the 'Court.
This is a case of 'a chartered Railroad Company suing a recusant stockholder, to recover in an action of assumpsit the amount assessed upon his subscription to the capital stock of the Company. The stockholder pleaded simply “non-assumpsit,” with the privilege of giving in evidence under that plea all substantial matters of defence. The defence attempted to be set up at the trial was, that the Company, by the acceptance of the provisions of the Internal Improvement act of 1855, and by amendments obtained from the Legislature subsequent to the date of the subscription for stock, had materially altered and varied from the object and design contemplated, and set forth in the original charter of incorporation; that he, the defendant, did not assent to this alteration, and that he was consequently discharged from his obligation to pay. A large amount of evidence, documentary and oral, was adduced with the purpose to sustain this point of the defence, and the defendant also offered a witness to prove tbe inducements held out at the time to individuals to subscribe to the capital stock of the Company, but tbe Court refused to permit £im to be questioned to that point.
The exceptions taken below embrace as well tbe rejection of this witness as the instructions to the jury given and refused. The assignment of errors in this Court corresponds with the exceptions. The case here was elaborately argued and ably contested by the counsel ou either side. The discussion took a wide range and resulted in bringing to tbe notice of tbe Court a very large number of adjudicated cases, embracing the entire subject of the rights and duties of corporations. We are admonished by the discursiveness of the opinions delivered in those cases, and the many mere dicta to be found, of the great can*382tion which ought to be observed ill giving an expression of opinion on points which do not legitimately arise out of the case before us.
In this age, when all the great improvements of the country are inaugurated under the influence of and owe their successful consummation to associated capital, it would be dangerous for the Court to anticipate questions Avhicb, whenever they shall legitimately arise, may tax to their fullest powers the most gigantic intellect. The Iuav applicable to railroad charters in particular is just now in its formation or chrysalis state. The)1' are of recent origin, and the rules to be applied to them are yet to be definitely settled. It would be well for the interest of the country and creditable to the judiciary as an institution that, ill the establishment of these rules, the commendable caution of those great Judges, under whose plastic hands the common law AVas brought into being, should be closely imitated. Under these impressions and influenced by these considerations, we desire to enter upon the examination of the laAV which is to govern in this case.
The first question that addresses itself to our consideration grows out of the refusal of the Court to permit a witness who had been offered to testify as to the “inducements and circumstances Avhicb led to the subscriptions to the railroad at the time of the first subscription,” and also as to “the understanding of the subscribers Avhen they subscribed.” We do not think that this exception is Avell taken. It is an elementary principle of the law of evidence that oral testimony shall not be admitted to vary the terms of a written contract, and, upon this principle, it has been ruled that such evidence is inadmissible to vary’* the terms of a subscription to the stock of a railway, unless it tend to show fraud or mistake.— Vide Redfield’s *383Law of Railways, 70, citing 16 B. Monroe, 5; 20 Vermont Reps., 509; 34 Maine Reps., 369.
There was no pretence, even in argument, that there had been any fraudulent misrepresentations made to the defendant to induce him to become a subscriber to the stock of this Company, or that he had made his subscription under a mistake as to the terms of the charter of incorporation. Indeed, the point was not greatly insisted upon.
Of the other exceptions, all of which are grounded upon the instructions to the jury, either granted or refused, we will consider first the fifth instruction given, which is in the following words, viz:
“ That the defendant must show that he made timely objection to the acceptance of the Internal Improvement act, and the presumption is, in the absence of proof to the contrary, that he assented to the action of the stockholders who unanimously accepted the act, and especially is the presumption proper where the Company has contracted debts to large amounts before any objection is made.”
The evidence in the record, of which the instruction is predicated, is a resolution, passed at a meeting of the stockholders, under date of the 10th of February, A. D* 1S55, instructing the Secretary of the Company to notify the Trustees of the Internal Improvement Fund of££ the full acceptance by the Company of the provisions of the act to provide for and encourage a liberal system of Internal Improvements in this State, approved 6th of January, 1855.” There was no evidence to show whether or not the defendant was present at that meeting, nor was it shown or attempted to be shown, that he ever objected to the act of acceptance. The only objection be appears ever to have made was when he was called on by Mr. Flagg, the *384Secretary of tbe Company, to pay tbe assessment on Lie shares of stock. He then objected to pay, but his objee* tion was based, not on any alteration of the charter by the acceptance aforesaid or otherwise, but expressly upon the alleged ground “ that Gen. Shine had persuaded him and promised to talce it off his hands, as he did not want itP
This instruction raises the question, how far an individual shareholder in an incorporated Company is bound by the action of a Board of stockholders duly convened and organized. It is too clear to require any argument or authority to support it, that so long as the action of the Board is within the scope of its legitimate powers and limited to the promotion of the particular enterprise contemplated in the original charter of incorporation, so long do their acts, regularly passed, bind the individual shareholder, and he has no right to claim any immunity, nor can he relieve himself from his duty and obligation as a shareholder even though he should dissent in the most formal manner. It is only when the action of the Board is such as proposes to vary from, add to or radically alter the character of the original enterprise, and thereby impose new duties and obligations, that the question can ever arise. For the purposes of this argument, it will be assumed that the act of the Board of stockholders, in accepting the provisions of the Internal Improvement act, was of the latter character. Much error has crept into the books by the attempt to assimilate corporations to ordinary partnerships, and to apply to the one the rules of law peculiarly applicable to the other. Thus, in Angel & Ames on Corporations, where reference is made to the liabilities of individual members of a partnership, it is said: “ Such precisely is the law with regard to partnership associations which are incorporated, and no point of law is more clearly and firmly settled than that, if a corpo*385ration procute an alteration to be made in its charter by which a new- add different business is superadded to that originally contemplated, such of the stockholders as do not assent to the alteration will be absolved from liability on their subscription to the capital stock.”
This proposition, as enunciated, is not sufficiently qualified. If by the term “ assent ” it is designed to convey the idea that in such case each individual corporator must, in order to have his liability fixed, signify his concurrence by express assent, the proposition is certainly incorrect, as it ignores the fact that, from the very nature and constitution of these respective associations, the individual in the one case speaks through his representative, the majority, in the other he speaks in propria persones. In the same authority it is said: “ Corporations are subject to the emphatically republican principle (supposing the charter to be silent) that the whole are bound by the acts of the majority when those acts are conformable to the articles of the constitution.”
It seems, says hfr. Kyd, “ to be the first suggestion of reason that an act done by a simple majority of a collective body of men, which concerns the common interest, should be binding on the whole, and this is the principle of the rule adopted by the ‘ common law ’ of England with respect to aggregate corporations.” — 1 Kyd on Corporations, 422.
Upon these principles, it would seem that where the Company undertakes to depart from or add to the original object or design, as set forth in the articles of association or charter of incorporation, there is this manifest difference between a simple partnership and an incorporated association : in the former, the assent of the individual member is not to be assumed — It is to be affirmatively established by competent proof; in the latter, his assent will be pre* *386sumed unless be affirmat,iwely_proves his dissent. The ground of difference will be obvious tb'RüjLEenecting mind. ■ In the former case, the association being usually limited to a few members, they are generally competent to act in mass, whereas, the latter being composed of numerous individuals, residing in remote localities, they are constrained, by tbe very necessity of tbe case, to speak through a conventional medium, viz: an organized majority. If this were not so, then would great inconvenience arise whenever it should become necessary for the interest of the association to vary from or add to the objects of the original enterprise. How would it ever be possible to obtain the express assent of each corporator? In many eases, their particular localities would be unknown, and, if originally known, may have been changed from place to place. If this were not so, then, in every case of the decease of a stockholder, tbe corporation could accept no alteration of its charter, however such alteration might promote its interest and the consequent interest of each individual corporator, without reducing the original capital by the amount of stock standing in the name of the deceased; for, it will not he pretended that the executor or administrator would have the authority, in such case, to assent, however clear it is that he would have the right to dissent from tbe attempt to involve the estate in the new enterprise. Again, if this were not so, the rights and interests of the creditors would be at tbe mercy of the corporation; for, upon discovering that the prosecution of the original design of the charter had involved it in debt and that its further pursuit was likely to prove unprofitable and disastrous, in order to absolve its members from liability from any further calls, it would only be necessary to obtain from tbo Legislature an alteration of the charter, accept it b.y a meeting of stockholders composed of a bare quorum under the pro*387visions of the charter, and, as each individual might be sued upon his subscription, he would plead a want of express assent, and, unless it could be affirmatively proved that he was present at the meeting, he would be released and the creditors defrauded of their just rights. But how is the fact of his presence to he proved ? Who is the witness that will prove that he was at the meeting and consented to the alteration ?
The case before ns fully illustrates our views ; for, of all the witnesses interrogated, none could remember whether or not the defendant was present at the meeting which accepted the provisions of the Internal Improvement act, which, it is alleged, made a material alteration in the object contemplated in the original charter. And yet he-may have been present,, consenting to the act of acceptance, and, for the lack of this proof.\ he is to be absolved from Ms liability on bis subscription, and the creditors,, contractors and laborers, who bad given credit in part upon the faith of his subscription, be deprived of their just rights, and this, too, without the slightest pretence that any injury or loss has or was likely to accrue to Mm from the alleged alteration.
It seems to us that the distinction rests upon the most rational grounds, and that the rule to be observed on this subject is, that whenever the corporation accepts from the Legislature a material alteration of their charter, if the same be done by the stockholders in general meeting, duly organized, it is binding upon each individual member, unless be shall expressly dissent therefrom before any debts are contracted or rights enure to third parties in carrying out the new design or enterprise. In tins case, the defendant stands by from February, 1855, sees the work progressing under the provisions of the Internal Improvement act, silently acquiesces in the contraction of a large, *388indebtedness, makes no whisper of disapprobation until be is called on to pay bis assessment by the agent of the Company, when, for the first time, he objects to pay, not, however, on the ground of any alleged alteration of the charter, but for the avowed reason that “ Gen’l Shine had persuaded him and promised to take it (the stock) off his hands, as he did not want it.’,*
To release the defendant -from liability on his subscription upon the ground particularly insisted on at the argument, under the circumstances developed by the record, would be to introduce into our jurisprudence a system of naked technicalities, disorganizing in their application and pregnant with disaster and ruin to all the great enterprises in which our young and growing State has so largely embarked. We here repeat in substance what has heretofore been enunciated by the Court, that while these corporations are to be held in strict accountability and to the careful observance of the limitations of their chartered powers, the cause of justice, the best interests of society and the general weal of tbe commonwealth require that the practice of the utmost good faith should be rigidly enforced between them and their stockholders.
Another prevalent error upon this point is, that of holding that an agreement to take stock in a railroad corporation is to he viewed simply in the light of a contract between individuals, and that it is subject to the same rules that are applicable to private contracts• hut such is not the case and for very manifest and obvious reasons, which commend themselves to the commonest understanding as being based upon considerations of tbe highest import, "When a man enters into a private agreement with another, the individual interests of' each (with which the public have no concern) are alone involved, and na change or alteration of the slightest character may ba *389made without the mutual consent of the parties expressly given. Each stands to the “ bond,” even to the exaction of “the pound of flesh.” Not so, however, in the case of a subscription to the stock of an incorporation, which owes its existence to the creative power of the Legislature and is always designed and intended to subserve, in some measure, the publió good. Ill such case, the stipulations of the contract are contained in the charter alone and are of a general character. The individual subscribes to the contract with the distinct knowledge and understanding that its terms may be varied at any time by a concurrence between the majority of his associates and the Legislature, and that, too, without his assent and in defiance of his dissent. Nay, he subscribes with the distinct knowledge that, with such concurrence, the terms of the charter may be totally altered, so that the corporation may be authorized to embark in new enterprises wholly and essentially different from those originally contemplated, and that his only remedy is to dissent and withdraw from the association.
With these distinguishing features, can it be seriously contended that a mere subscription to the stock of a corporation stands upon the same footing and is to be governed in all respects by the general law of contracts as applicable to private or individual agreements?
The Court has not been neglectful of the adjudicated cases which were cited by the counsel on both sides, but, upon a careful examination of these cases, we have found so much looseness of expression, so much mere dicta and such a conflict of views upon the various questions discussed, that we have chosen rather to base this argument upon a few plain fundamental principles than to attempt to reconcile authorities which are clearly irreconcilable. To guard against misapprehension, we remark in this connex*390ion, that Where, i!Si the body of the subscription-, there is a stipulation for a particular enterprise, as for the building ■of a road to a particular place, or for its location upon a specified route, such a stipulation being outside of tbe terms o'f the charter, is in the nature of a condition precedent, and-, unless -strictly Complied with by the corporation, the party subscribing is absolved from bis obligation ‘to pay. We bold, then, that this instruction was in strict ■conformity with the law, and niptm the state of the evidence, as developed in the record, that it was conclusive of the case.
For the purposes of the foregoing argument, it was ‘tissuened that the original charter of the P. &. G. R. R. Co. had been radically changed and altered by the acceptance by the Company of tbe provisions of the Internal Improvement act. Put if this, upon examination, should turn out to be so in point of fact-, it will be readily perceived that such conclusion would not avail the defendant ; for, from tbo View which we have taken of the question involved in the discussion of the fifth instruction, the onus of proving affirmatively his dissent to the alleged alteration was upon Mail It therefore becomes unnecessary to the decision of the case to enquire as to the effect of the acceptance of the provisions of the act upon tbe charter of the Company, and we pass to the sixth exception embraced in the assignment of errors, which complains of the instructions given by the Court as having been calculated to mislead the jury in tbe formation of their verdict. We have carefully examined the instructions with reference to this exception, and have come to tbe conclusion that tbe defendant has no cause to complain of them in this respect, for they are certainly more favorable to the defence than he was entitled to demand.
It is therefore ordered and adjudged that the judgment *391of the Circuit Court of Leon Circuit, rendered in this causes he affirmed with costs.