Court Opinion

ID: 5458658
Source: CourtListenerOpinion
Date Created: 2022-01-09 19:27:14.724412+00
Date Added: 2024-06-11T08:32:46.900600
License: Public Domain

By the Court, Hand, P. J.
It is well settled that a subscription to the capital stock of any company* from the member-1 *573ship of which a shareholder may derive pecuniary advantage, gives to the subscriber such an interest, as will support a promise to pay for the shares. Such an enterprise is a combination of means for mutual profit, and is in no sense a gift, or promise without consideration. But I think the counsel for the defendant is right in his position, that the defendant is not liable unless an express promise has been shown. The extent of the liability of a subscriber to capital stock, or of a shareholder, depends upon the charter, and his engagements. In The Northern Railroad Company v. Miller, (10 Barb. 260,) I decided at the circuit, in accordance with what I supposed to be the views of my brethren, in granting a new trial in the case of The Northei-n Railroad Company v. Duane ; with which I could not concur. In that case Justice Harris nonsuited the plaintiffs, on the ground that, subsequently to the subscription by the defendant, there had been an amendment of the charter, authorizing the company to construct “ one or more branch lines of railroad to connect with one or more lines of railroad, to be constructed in Canada Bastand he declined to pass upon the question of personal liability. It was mainly upon this point of the alteration of the charter that I dissented in Miller’s case; for that was the only defense set up in the answer of Miller; .although the other point was argued at general term. In that case the directors had power to make calls for the sums subscribed to the capital stock, under a penalty of forfeiture of the stock, and previous payments thereon, for non-payment. And so far as the personal liability of the defendant was put upon an implied promise, I believe the position cannot be sustained by authority, as I think will appear by an examination, not only of the cases decided in this state, and cited by the learned judge who delivered the opinion, but many others. In the Union Turn. Co. v. Jenkins, the promise was to pay So much for every share. (1 Caines, 381; S. C., 1 Caines’ Cas. in Err. 86.) In The Goshen Turn. Co. v. Hurtin, (9 John. 217,) and The Dutchess Co. Manufactory v. Davis, (14 Id. 238,) the contracts were express; and were considered promissory notes within the statute. There were express promises to pay, in the Highland Turn. Co. v. McKean, (11 Id. *57498;) Slee v. Bloom, (19 John. 456;) Small v. Herkimer Manf. Co., (2 Comst 330 ; S. C. 21 Wend. 271; 2 Hill, 127 ;) Morris Can. and Bank. Co. v. Nathan, (2 Hall, 239;) Valk v. Crandall; (1 Sandf. C. R. 179;) Palmer v. Lawrence, (3 Sandf. 161;) Hamilton and Deansville Plk. Rd. Co. v. Rice, (7 Barb. 157;) Stanton v. Wilson, (2 Hill, 153;) and in Cross v. Jackson, (5 Id. 478.) And also, as I understand them, in Spear v. Crawford, (14 Wend. 20;) Harlem Canal Co. v. Seixas, (2 Hall, 504;) Same v. Spear, (Id. 510.) In Briggs v. Penniman, (8 Cowen, 387,) the price of the shares had been fully paid. This point was not made in the Hartford and New Haven Railroad Co. v. Croswell, (5 JAZZ, 383;) and it is very probable that the contract was made and was to be executed in Connecticut.
In Massachusetts, Pennsylvania, Hew-Hampshire and Maine, it seems, an express promise is necessary. (Andover and Me. Turn. Co. v. Gould, 6 Mass. R. 40. New Bedford, &c. Turn. Co. v. Adams, 8 Id. 138. Taunt. &c. Turn. Co. v. Whiting, 10 Id. 327. Frank. Glass Co. v. White, 14 Id. 286. Canal Co. v. Sansome, 1 Binn. 70. Frank. Glass Co. v. Alexander, 2 N. Hamp. R. 380. Kennebec, Spc. R. Co. v. Kendall, 31 Maine, 470. And see South Bay Meadow Dam Co. v. Gray, 30 Maine, 547. Ang. & Ames on Corp. ch. 15. Perkins’ Coll, on Part. § 1105.) In Andover, Spc. Turn. Co. v. Gould, C. J. Parsons said, “ Where no express agreement has been madé by the corporators to pay their assessments, it has not been determined that a corporation can maintain an action to recover them upon an implied assumpsit, arising from their being voluntary members of a corporation.” And he add's, “ Very clearly a corporation has not power, as incident to it at common law, to assess for its own use a sum of money on the corporators, and compel them by action at law, to the payment of it.” In Canal Co. v. Sansome, there was an express promise to pay for the shares ; and the act of incorporation gave to the president and managers power to make calls ; audit prescribed a monthly penalty for non-payment, and declared the shares forfeited, and authorized a sale of them when the penalties equalled the sum *575that had before been paid. The defendant was held liable on the shares for which he had subscribed; but not on those which had been transferred to him; because as to them he had given no express promise ; and the act had made no other provision except that the shares should be subject to the payments. The case of The Troy Turn, and R. R. Co. v. McChesney would seem, perhaps, to dispense with an express promise. (21 Wend. 296.) The statement of facts is obscure; but there was a promise to pay, subject however to the penalty of a forfeiture of the stock; and the court said it might be declared upon as an absolute promise: in other words, the forfeiture might be waived; but the cases relied upon to show that the remedies wore cumulative, were upon express promises. And besides, in that case, the subscriptions were originally for a railroad; and before the defendant subscribed, the plan of a turnpike was substituted, and the subscribers were allowed to withdraw one half of their subscriptions, upon their assuming to pay the residue as calls should be made; and the jury found that he was “ fully informed of all the circumstances of the transaction in reference to the road.”
The English acts of incorporation abound with provisions enabling corporations to bring suits for calls, against those who sign the “ subscribers’ agreement,” &c.; and those who subscribe to the capital stock, and proprietors of the shares. As early as 1794, an act of incorporation contained very specific provisions on this subject. (Huddersfield Canal Co. v. Buckley, 7 T R. 36.) And the necessity of such legislation seems there to have been taken for granted, during all their severe legislation upon the subject for the last thirty or forty years. (See Kent Canal Co. v. Robinson, 5 Taunt. 801. London and Brighton R. Co. v. Wilson, and Same v. Fairclough, 6 Bing. N. C. 135. Ingles v. Great N. R. Co., 16 Eng. L. and Eq. R. 55. London Grand Junction R. Co. v. Freeman, 2 M. & G. 536. Southampton Dock Co. v. Richards, Id. 448. Railway Co. v. Coombe, 3 Exch. R. 565. Birmingham R. Co. v. Locke, 1 Q. B. Rep. 256. Lond. R. Co. v. Graham, Id. 271. Cheltenham R. Co. v. Daniel, 2 Id. 281. Great N. of Eng. R. Co. v. Biddulph, 7 M. & W. 243. Railway Co. v. Mbwatt, 15 Q. B. *576521. Humble v. Langston, 7 M. & W. 517. And see Companies' Consolidation Act, 8 Vict. ch. 16,1845.)
The right of a creditor of a corporation may he a very different matter. The liability of the corporators was extended for his benefit at a very early day. (Salmon v. Hamburgh Co., Ch. Ca. 206 ; S. C., 6 Fin. 311. 2 Vern. 396. And see Briggs v. Penniman, 8 Cowen, 387. Ang. & Ames on Corp. ch. 17, 3d ed. and the cases there cited.) It has been said the capital stock, paid and unpaid, is a fund for the payment of debts. And perhaps the stockholders are bound to see that the whole stock subscribed is applied to the payment of the debts of the corporation. (Id. And see 2 Story's Eq. § 1252; Mann v. Pentz, 3 Comst. 422; Gillet v. Moody, Id. 479 ; Nathan v. Whitlock, 9 Paige, 152.) However-this may be, in many cases the stockholders have been made personally liable for debts, by express statute. This was so in Mann v. Pentz, (2 Sandf. C. R. 276; S. C., 3 Comst. 415;) Mann v. Currie, (2 Barb. 294;) Spear v. Crawford, (supra;) Sagory v. Dubois, (3 Sand. C. R. 466;) Bank of Poughkeepsie v. lbbotson, (24 Wend. 473 ;) and Slee v. Bloom, (supra ;) and in many other cases. (And see 1 R. S. 600, § 5.)
The case of The Hartford and New-Haven Railroad Co. v. Kennedy, (12 Conn. 500,) is relied upon as sustaining the action upon an implied promise, from the relation of stockholder and company. In that .case the statute empowered the director's to require payment at such times, in such proportions, and on such conditions, as they saw fit; and the shares of a delinquent stockholder could be sold, and the avails applied in payment for the stock; and the surplus, if any, was to be paid to the stockholder. The terms of the subscription, too, were pretty broad. But Jewett, 0. J., in giving his opinion in the court of appeals, in Small v. Herkimer Manf. Co., (2 Comst. 343,) after stating -that it was well settled that an action will lie against a delinquent subscriber on an express promise, said, in relation to that case, the “ court went a step further.” And he was undoubtedly correct; and however much we may respect the court that made the decision, and the very able judge who. delivered the opinion *577m that case, we are not authorized to disregard what had before been considered well established law in this state.
Although the act of incorporation be silent on the subject, the corporators, as among themselves, may contract in relation to their liability for the price of stock, provided such agreement be not repugnant to the act of incorporation, and not dishonest, or against public policy. As remarked by Gardiner, J., in Small v. Herkimer Manf. Go., the subscription must be construed as if all the provisions of the statute affecting the liability of the subscriber, or his title to the stock, were incorporated in the agreement.
I think the principle to be deduced from the decisions is, that, If the act of incorporation, or any public statute, declares the subscriber to the stock, or proprietor of the shares, shall pay calls made thereupon; or if he agree to do so, whether in the articles of association, or other legal instrument, he is personally liable; even although the corporation has power to forfeit his stock for non-payment. And when a right of forfeiture is given, the remedies are either cumulative or in the alternative, * according to the terms of the statute or of the agreement. But where there is a right of forfeiture given, either by the act of Incorporation or by the terms of the subscription, but no absolute duty to pay is imposed by statute, and there is no promise to pay, neither the subscriber to the stock, nor the shareholder, is personally liable to the corporation for calls. The rule is generally different as to creditors.
And it seems to me this is so, upon principle, independent of authority. The parties to the constitution of the company agree upon the terms of membership; and they have a perfect right to do so, as among themselves. It has been said that an agreement to take is, ex vi termini, an agreement to pay for. I do not so understand the meaning of the expression, nor see the force of the argument, when used in reference to a subscription for stock. In the case we have supposed, the agreement, in express terms is, that the party subscribes for the stock, and if he does not pay for it, he will forfeit it. There is no antecedent debt or duty, nor recognition or creation of any, at the time. *578Without such debt or duty, or an express promise, a mortgage creates no personal liability. (Culver v. Sisson, 3 Comst. 204.) As between themselves, their obligations are reciprocal; and no one can be compelled to proceed with the undertaking. It follows, that as the plank road law imposes no personal obligation to pay for the stock, unless the defendant has agreed to do so, the plaintiffs cannot recover.
But has not the defendant agreed to pay, in this case ? By the first contract declared upon, the defendant agrees “to subscribe” the amount of $500, on condition, <fcc. And by the second, he and those signing with him, “ subscribed” for the number of shares set opposite their names, upon condition, dec. Taken alone, these, obviously, contain no promise to pay. But the 6th article of association is as follows: “Article 6. For the purposes contemplated by these articles,, the undersigned have severally subscribed for the number of shares of the capital stock of this asssociation, placed opposite their respective signatures hereto; and they severally agree to and with each other to pay to the said Fort Edward and Fort Miller Plank Road Company, their respective subscriptions for said capital stock, whenever, called for by s,aid directors, or their successors in office.” The defendant did not then subscribe to. these articles; both conti?ac.t¿ signed by him being given afterwards; one before, the other after, the articles were filed with the secretary of state. Although the agreement is “to and with each other,” yet it is to pay to the corporation. The act of incorporation generally includes those who sign the preliminary subscription, subscribers’ agreement) parliamentary agreement, &c. And one may become a member of a company in various ways. See Hamilton and Deansville Plank R. Co. v. Rice, 7 Barb. 157; Stanton v. Wilson, 2 Hill, 153; Spear v. Crawford, supra ; Chester Glass Co. v. Dewey, 16 Mass. 94 ; Midland R. Co. v. Gordon, 16 M. & W. 804; Waterford, &c. R. Co. v. Pidcock, 8 Exch. R. 279; Thorp v. Woodhull, 1 Sandf. C. R. 411; Clements v. Todd, 1 Exch. R. 501; Carrick's case, 1 Sim. N. S. 505; W. Cornwall R. Co. v. Moxoatt, 15 Q. B. Rep. 521; Mitchell v. Newhall, 15 M. &. W. 308.) And a *579tight to an allotment of shares may support an express agreement to pay for them, the company being in no default. By the statute under which this company organized, those who subscribed the articles, and all persons who should from time to time become stockholders, became corporators.
It is said the first contract was not delivered. When the defendant signed it was in the possession of one of the directors, and although he did not remember of delivering it to the secretary, there is no evidence that the defendant directed or expected that it should be withheld; and the referee might well have found that the possession of the director was the possession of the company, under the circumstances.
Both subscriptions are expressed to be upon condition that the road shall be extended to Fort Miller bridge', and that the Southern three miles shall be made and constructed at the same time, or previously to the northern three miles. I have no doubt & subscription may be upon a condition precedent. (Morris Canal and Bank. Co. v. Nathan, 2 Hall, 239.) If that is so here, the defendant is not liable, nor could he properly be considered a shareholder, until the condition had been fulfilled. But I doubt whether, under this a'ct, there can be a subscription upon a condition subsequent; as that would beji^^S^Stóhdrawing the capital.
The referee has found that the cmkJ&pm in relatm» wp thé time of construction was not perf^ned^^ñ^^Vmer^íis a conflict of evidence, his report in thm^Jkpect cantóte!)el! disturbed ; although, from the testimony]™ ¿ee^^qmte ejadent that there was a substantial compliance,which is alhdsEat is required in such cases. The evidence is, thatóTEenorthern part was planked first, but the south first “ finished.” The contract does not require that it Should all be built at the same time precisely ; and as the work was substantially carried along together and in good faith, I do not think the fact that the north part óould be Used first; was a breach of the condition. The agreement is not that the work on the north part shall at no time be iii advance. That would be a narrow construction.
But if the north part was first constructed, I think these were *580independent stipulations. The subscription of the defendant was for the purpose of building the road; and it is fair to give it that interpretation. The money was to' be paid when calls should be made; and the day for the payment of the money might happen before the road was to be built: consequently the plaintiffs need not aver performance. (1 Saund. R. 320, and notes.) And this disposes of the objection to the second count; for a condition which goes in defeasance of a covenant should be shown by the defendant. (1 Saund. R. 233 b, n. 1, d. 1 Chitt. PI. 278, 316.) And if this point had been well taken—if the referee could not, under the code, have disregarded it—it would have been better to have granted a nonsuit, rather than to refuse that motion and afterwards give judgment against the plaintiffs, upon that ground.
I am inclined to think by the acceptance by the plaintiffs of the second subscription for a less sum, that may be considered as a substitute for the first; at least as to amount, and especially, if the referee shall so find.
On looking over all the facts in this cause as presented on this motion, it appears to me the report should not be sustained. After articles, in which the subscribers thereto promised to pay for their stock, had been drawn up and signed, the defendant agreed to subscribe upon the books of the company upon certain conditions. Those articles, and the statute, may be considered the charter—the constitution of the company. After-wards, and after the articles had been filed, and the corporation was in existence, and after the road had been located, as required by one of the conditions, and that which was, perhaps, a condition precedent, and the calls had been ordered, the defendant subscribed the second contract, drawn upon the books of the company, and on a leaf next to that containing the articles of association; and by so doing, I think he adopted them. About two months afterwards he attended and acted as secretary, at a meeting of the stockholders and directors, when the proposals of the contractor were received and accepted, by which the road was to be built according to the terms of the defendant’s subscription, and to be completed on the day the *581last call had been made payable. In addition to this, the foreman on the work testified that the defendant aided in constructing the road, and gave directions as to laying the plank at Fort Miller, which was at the southern extremity of the road, and they were laid as the defendant directed.
[Saratoga General Term,
May 1, 1854.
Hand, Cady, C. L. Allen, and James, Justices.]
All these circumstances present a pretty clear case.
The judgment must be reversed, and a new trial granted; the costs to abide the event.