Court Opinion

ID: 6230239
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:20:14.023918+00
Date Added: 2024-06-11T08:57:50.151884
License: Public Domain

Concurring opinion by
Lowrie, J.
When the law of 4th May, 1852, was passed, authorizing subscriptions by Mercer and other counties for shares in the capital stock of this railroad company, the legislature must be presumed to have known the legal character of the company, and to have acted with reference to it, for nothing in the act authorizes any other supposition.
It was a company chartered in 1846, in pursuance of a law that required that it should have a capital of not less than $750,000, and not more than $3,750,000, actually subscribed in shares of $50 each, and five per cent, of the amount subscribed actually paid in, before it should be entitled to its charter. It was therefore in a company appearing to have already individual stockholders who had subscribed stock to an amount not less than $750,000, that the legislature authorized Mercer and other counties to subscribe for shares of stock.
It is charged in this bill of complaint that, at the time the subscription was made by Mercer county, which is now sought to be avoided, the said company had in fact no stock at all subscribed, but that all that had been subscribed in order to obtain the charter had, by a secret agreement among the stockholders, and in fraud of the county, been suppressed, and that no assessments or calls had ever been made upon it.
*406If this charge contains any substantial truth, then of course there was such a change in the essential character of the company ; it became, by that act, so entirely different from what it was required to be by its charter, and what the legislature must have presumed .it to be, that it would not be entitled to the subscriptions which it might obtain under the powers intended to be granted by the law of 1852.
This, therefore, is an essential point of this case, and we proceed to examine it. The charge is not really denied in the answer, and we a.re referred to the records of the company for the facts, and as they furnish us with all that is needed, we shall confine ourselves to them.
When the charter was issued by the governor, there had been subscribed to the stock of the company the sum of $755,500, and' the sum of $37,775 was actually paid in. On the 11th February, 1850, they elected directors, and the board met and organized. For a year and a half afterwards they seem to have been making efforts to have the road located and the work on it commenced, but were unsuccessful. The reason of this appears in the minutes of 14th August, 1851, which show that the directors, who held all the stock but a very few shares, were unwilling to be called upon for their subscriptions, and determined not to let the work unless the contractors would receive payment for it by a transfer of the stock held by them. They then resolved that the stock of the original subscribers should be used in paying the contractors; and to protect the said subscribers from liability for their subscriptions until the same should be paid out and absorbed by the contractors, they further resolved that the original subscribers might transfer their stock to the secretary of the company, and that on doing so they should be released from all further liability for the same, and it should be held by the secretary in trust for the company. Some of the stock seems to have been assigned in pursuance of this resolution, for on the 24th December following it was directed to be reassigned, preparatory to the following very important proceedings.
On that day a total change was effected in the character and .organization of the company. Thirteen new members were admitted, by having twenty shares of the original stock transferred to each of them. Then, all the stock subscribed was transferred to them, and the original subscribers were released from all liability on account of the same. Then the $37,775, said to have been paid in before getting the charter, and which was considered in the hands of C. M. Reed, was settled, by releasing him from the same, and by authorizing the treasurer to receive from the thirteen new members their several equal notes, amounting in the aggregate to that sum (whether they were ever given or paid we know not), and thereupon they were elected directors of the company. In *407other words all the old stockholders cancelled their subscriptions, and withdrew, taking all the funds with them, and allowed thirteen strangers to step in a.nd take up the abandoned charter, divide the now nominal stock among themselves in about equal proportions, and without the payment of a dollar of stock, or subscribing to pay any, call themselves the Pittsburgh and Erie Railroad Company.
This was their condition when they directed their president to take the measures that resulted in obtaining the law of 4th May, 1852, for authorizing the subscriptions by the counties. Is it p wsible to suppose that the legislature intended to authorize the counties to subscribe stock to such a corporation ? Is it possible to suppose that the grand jury which sanctioned such a subscription, and the commissioners who made it, intended to involve the interest of the public in a company so unreal? No, it is not.
It might not be unreasonable to suppose that the county might safely subscribe $150,000 of its credit to a company which, according to law, appeared to have already obtained private subscriptions to more than five times that amount; for it might be presumed that, where so large a private interest was involved with that of the public in the same enterprise, there was a sufficient guaranty for the careful management of the whole. That the legislature should intend to authorize county subscriptions to be made to a company that had no real capital; that they should place the people’s money under the control of thirteen self-constituted directors, having no real interest in the intended object and representing none, and give the county investing $150,000 of capital, the nominal and futile influence of three directors, so that the whole control of the county funds should belong to those who had nothing to lose by bad management, is an idea too absurd to be admitted for a moment.
The subscription by two of the county commissioners of $150,000, is said to have been made in June, 1852; but it had a condition in relation to the interest that caused a delay in accepting it, and it was not accepted until 25th April, 1853, and the bonds were not delivered until September, 1853, when the directors on the part of the county were admitted to seats in the board. And here again appears the truly nominal character of the stock professed to be held by the thirteen directors. It was entirely under the control of the company, that is, nobody owned or had paid anything on it, and 3000 shares of it were transferred to the county. The county subscription was not treated as a real subscription, but as a means of taking up the old abandoned stock, and that was not at all the character of county subscription intended by the law.
That this company had no real capital appears from other subsequent parts of the minutes. On 5th July, 1853, they authorized *408some explorations, and directed the expenses to be paid by private advancements, which should be credited in stock subscribed or to be subscribed by persons making such advancements. On 2d August, 1853, they authorized the persons in whose names the stock stood on the books to transfer it to such persons as they should designate, to hold in trust for the company, and the persons to whom it should thus be assigned were to be entitled to vote upon it. In this connexion it is proper to notice that on the previous 18th January there appear to have been 12,366 shares represented and voting at a stockholders’ meeting, which would be equal to a capital stock of $618,300. It is used as'private stock when votes are wanted, and it belongs to the company when money is wanted.
Now it is absurd to say that the company may really be a stockholder in itself or own its own stock. If nobody else owns it, it is simply stock not taken. If we say that all shares are held by the corporation, or in trust for the corporation, then we say that there is no stock taken, there are no stockholders, no directors, and no company. And, so far as we can discover from the minutes, there was none at the time of the acceptance of the subscription of Mercer county.
On 25th August, 1853, we find the first call.made upon subscribers of stock to pay an instalment, and that is confined to subscribers for the branch road in Crawford and Warren counties, and to $50,000 of stock guarantied in some way by three persons named. In no part of the minutes do we discover that any instalments have ever been called in on the original stock, all of which was transferred to the directors. It was this stock that was used to be issued to contractors for their work, to counties for their subscriptions, and to landowners for the right of way. Of course that which was thus issued was paid up in full, and if the remainder belonged to the- company it was not stock at all, and therefore not subject to calls, and the holders of it were not stockholders, and therefore could not be directors. Even as late as June 13, 1855, this original stock seems to have remained in this condition, except so far as it had been transferred to the counties, contractors, &c., for then it appears that it was still in the hands of trustees for the company, and it was ordered that it should be assigned to and .for the use of the company within thirty days, and “ that all stock heretofore issued shall be considered. as of the said fund.”
Such is the character of this company, as exhibited by its own records, and we are constrained to say that it was not in favour of such a company that the legislature passed the Act of 4th May, 1852, authorizing county subscriptions. They were not in such a condition as entitled them to ask or accept such subscriptions, and *409they cannot enforce the payment of them, or make any use of the bonds of the county which were issued to provide for payment.
But it is argued that, because the county commissioners appointed directors in 1858, and also in 1855, who acted as such without raising any objection to the organization of the company, and because the county made no objection for more than two years after the delivery of the bonds, and because the work is one of great public importance, and the directors have been conducting it faithfully and energetically, and have made many contracts on faith in their right to the bonds, therefore equity will now hear no complaints on the subject.
Let us examine this argument. It is plain enough that, where the property of others has been wrongfully obtained, it is not an equitable answer to the claim for restitution, that the holders of it are doing what they can to make a good use of it. It is just as plain, that where one starts in business, and runs in debt on capital thus acquired, this does not bar the right of action of those from whom it was obtained. When persons become creditors of another on their faith in such illusive appearances of wealth, they acquire no claim against the wealth itself; for their trust is not in it, but in him, for the truth of his claim or title to it.
What is the effect of the delay of the plaintiff, for two years and nearly eight months after the directors were appointed by the county commissioners, before bringing this suit ? In op opinion, it has no effect at all on the right of the plaintiff. Let us bear in mind that the real plaintiffs are the people of Mercer county, and not their commissioners, nor their directors. The people had no legal capacity to enter into a contract of this sort, except in the very form and spirit of the power given by the Act of Assembly; and we have already shown that they have not thus contracted, and that the defendants are in no position to insist on the contract pretended to have been made. Neither the people nor the commissioners of Mercer county ever had any capacity to make such a contract.
Then how can the pretended one be confirmed ? A confirmation is itself equivalent to a contract, and is treated as one. It is an implied contract not to avoid a contract that is voidable: therefore, he who has no capacity to contract, can have no capacity to confirm, else all incapacity to contract would be set aside by a capacity to confirm. Then how is it possible that the negligence of the commissioners, or the fact of their being represented in the direction of the company, can have the effect of confirmation ? To give it this effect, would be merely implying a contract of confirmation, when it is perfectly apparent that the most express one that they could make would be utterly void.
The supposition that the people of Mercer county are to be estopped, for the delay existing here, from asserting their rights, *410really needs no answer, except that they could not possibly know the manner in which their rights had been disregarded, and they had no means of asserting them, until, in the due course of elections, they should get clear of the commissioners who had so indiscreetly managed their concerns. And the argument that, because the county was represented in the board and her directors delayed to raise objections, therefore the contract is confirmed, is an attribution to the directors of a power to contract, which the people themselves could not'give. And this argument is founded on the gratuitous assumption that the directors must have understood the character of the company’s proceedings and the rights of the county in relation to them; which is attributing to the inexperienced directors on the part of the county a better understanding of the affairs of the company, and of the rights growing out of the charter, than any of the thirteen old directors appear to have had, or than anybody else had, before the bringing of this suit. Besides, it was the business of the directors only to see that the affairs of the company were well managed during their time, and not at all to investigate and report upon the question of the right or propriety of the county subscription, for the law had intrusted this duty to others.
The old directors seem to have thought that they might lawfully constitute themselves into a corporation under this charter, by dividing among them the name of shareholders, or the right to become subscribers, for 15,000 shares; and that, without any one of them intending to be a real subscriber for the stock standing in his name, or having paid anything on it, or intending to pay it up, each of them might vote at elections and become directors, and call themselves a railroad company, and to get real subscriptions from others, to be under their management, and to call in all the shares subscribed by others, and no part of that held in their own name; and how can they say that the plaintiffs’ directors ought to have known and taught them better ? If they could do this ignorantly, they cannot wonder that others should witness it silently. If they did it fraudulently, they have no foundation for their expectation of equitable indulgence.
If the right acquired by the defendants, from the acquiescence of the plaintiff’s agents, is to be measured by the knowledge which those agents had of the business they were attending to, then it is little indeed; for it is impossible to discover that they had any intelligent comprehension of the relations of the old directors to the company, or of the rights of the county as a subscriber to its stock. That the commissioners should subscribe and issue negotiable bonds for $150,000 of stock without seeing that there was a real company, with real stockholders to the amount required by law, and real directors, and without seeing that others, at least *411the direetors, had paid up their stock, is a most emphatic proof that no intelligent acquiescence is to he charged to them.
If the legislature had really intended to say that the county funds might be invested in such a corporation as this, then the objection of want of capacity to subscribe would be removed, and we should have to consider the difference between the nominal and the real condition of the company in its relation to the intention of the county officers who participated in the subscription; The law of the charter was to them sufficient evidence that the corporation ought to be possessed of a capital of at least $750,000; and it must be presumed that it was their faith in this state of things that induced them to make their subscription. If this appearance was substantially false, then of course the company can have no equitable claim to insist on the subscription or on the bonds given on it, unless they show that, before the subscription was made, they honestly and fully explained to the grand jury and commissioners the real condition of their affairs; and it is not pretended that they did so.
Looking at the transaction in this aspect, the subscription would be avoided, not for the legal incapacity of the county to make the contract, but for the imposition of the false appearances which led to it. In such a case, the contract would be susceptible of confirmation; but even then only by acts done by those who had power to make the contract, showing an intention to confirm it with all its original defects, and being fully informed of them. We need not repeat what we have already said for the purpose of showing that there has been no such confirmation, especially as it is clear that, under the circumstances of this company, the county had no legal capacity to subscribe.
Several other arguments have been presented by the plaintiff's counsel, but it does not seem necessary to dwell upon more than two of them. One of them is, that the county subscription, being-accompanied by several conditions, and one of them the gauge law of 1851, could be regarded only as a proposal, to be accepted in terms or not at all. The company rejected the gauge law, and did not accept the subscription until they had got that law repealed. This was not an acceptance of the proposal as it was approved by the grand jury, and no bonds ought to have been issued on it. Our views on this point have been sufficiently expressed by the Chief Justice.
The other objection is founded on the allegation that the bonds, already transferred by the company, have been transferred at less than their par value, contrary to tbe express terms of the Act of Assembly, and, we may add, contrary to the true spirit of such transactions. It seems to us that this charge is made out, by the proof that the contract with Johnston & Co. for some $400,000 of the work is made payable in these Mercer county bonds, $50,000 *412in cash, and the rest in the stock of the company, not appearing to have then had any market value. This seems like making use of the good securities of the county as a means of passing off the stock of the company; and there is satisfactory evidence that, by letting the work in this way, it cost 33 per cent, more than it would have done if the contractors were really to have been paid in par funds or Mercer county bonds. By this arrangement, $300,000 worth of work was let at the price of $400,000. In other words, the Mercer county bonds and the cash payments would have paid for two-thirds of this work included in the Johnston contract; but, because of the alloy of the stock, the price has to be increased $100,000; so that they pay but half of it. This mode of evading the law against disposing of the bonds below par cannot possibly be sanctioned; and we are of opinion that it justifies the plaintiff’s demand for the restitution of the bonds that yet remain on hand.
We may view this part of the company’s transactions in another aspect. It is called a sale of stock for work, but it is not, for the company cannot really own shares of itself. In reality it is allowing Johnston k Co. to subscribe for and take $200,000 of stock on paying for it $100,000, and this is making the shares of all the honest and genuine subscribers of the stock entirely deceptive. If the public subscriptions and the true private subscriptions should amount to $800,000, and should be disposed of this way, then the contractors by investing $400,000 in work would get $800,000 of stock, and thus have the entire control of the road, and be entitled to the half of the profits, and would secure all the employments to themselves. All this is totally inadmissible, and it demands a surrender of the county bonds until the county shall be restored to its rights.
In relation to the bonds which the company had passed away before this suit was brought, we have not such parties before us as to justify us in ordering their surrender, and we leave the plaintiff to such further and other remedy as justice allows and as counsel may advise. But the plaintiff is entitled to have restitution of all the bonds which were in the hands of the defendants at the time of the institution of this suit. In all the points here presented I express the views of my Brother Woodward as well as of myself.
Knox, J., dissented, and Black, J., was absent at the argument.