Court Opinion

ID: 9299183
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:05:46.710325+00
Date Added: 2024-06-11T17:13:37.008657
License: Public Domain

GRIER, Circuit Justice.
The argument on behalf of the dissatisfied stockholders is very ingenious and plausible. Its defect lies in the assumption of facts, which do not exist in the case, viz., that the charter of the corporation which constitutes the law of .the partnership, permits any other inequality of liability between the stockholders than that arising from the number of shares held by each one: or that a change of this principle is to be presumed, from the practice of the corporation in the division of its profits.
The charter of incorporation contains the fundamental rules which shall govern the corporation, not only as between it and the public, but also as between the stockholders and corporators themselves. As these have been established by law, on grounds of public policy, they cannot be changed but by the consent of the same power, which created the corporation. Much less can it be presumed from any equivocal acts, in the management of the corporation, or the mode of dividing its profits from time to time, that any change has been made in its constitution. The charter of incorporation being the supreme law of the corporation, no usage of its officers in the transaction of their business can change or annul it
By the charter, the stock of this company was divided into C000 shares. Each one of these shares is a unit indivisible, representing a certain and equal portion of the whole. The charter might be obtained under a subscription of less than 6000 shares, and individuals might hold unequal numbers of shares, but a share still remained the same. Whether paid in part or in whole by the law of the corporation, which is the contract of partnership, it represented fifty dollars. The man who subscribed a share and paid but twenty dollars stood debtor to capital stock thirty dollars. That debt was as much a part of the capital stock, as the money lent to strangers who had given their notes for the same. Bach share of stock being a unit, there could be no inequality among the stockholders as to their liability for the debts of the corporation or their right to a dividend of profits, except in the inequality of the number of these shares held by each individual stockholder. And whether the stockholder stood debtor or creditor to the corporation for his stock subscribed, the directors had no power to change the fixed value of this unit, or to say that A.’s share of stock shall represent $20; B.’s 30; and C.’s 50.
They might well say, “You, A., have refused to pay up all the calls; we will not forfeit your stock as we might in strictness do for such neglect; but as you are unable to pay up, you may stand debtor to the corporation for your $30. Our dividends do not much exceed 6 per cent If we should lend you the money to' pay up at bank interest, (which is compound interest,) you would get your dividend on your whole $50; but if you retain the interest, or 6 per cent on your $30, perhaps you will have the best of the bargain. You can take your choice; pay your money and take dividend on $50, or retain $20 or $30, if you please, in your own hands, and credit us with dividends on that amount as set oflf to interest”
By this arrangement the stockholder who wants to lend money, by general agreement, pays in all his share, and gets about 6 per cent, for his dividend or the use of his money, and the stockholder who has no money to lend to others, retains his $20 or $30, and paying no interest; he of course having his dividend on that amount by way of retainer. If the bank paid 8 or 10 per cent, the stockholder would immediately find it his interest to borrow money of the bank, and pay up his stock, and thus share in the higher dividend. In the case of this bank, the dividends do not appear to have held out much encouragement to do this. The defaulting stockholders have had undoubtedly the best of the bargain by this arrangement, and if they had not, they had no reason to complain of the consequences of their own deliberate choice.
Now, in order fairly to distribute the assets of this partnership as between A., B., and O., you must first ascertain the amount of capital stock. That by the law of corporation is, say $150, divided into three shares between A., B., and O., equal partners. Of this capital C., we suppose, owes nothing; having paid his $50; but B. owes to capital stock $20, and A. $30. Now, if A. and B. actually pay up their debts to the firm, there are $50 to be paid to each. But if they retain the one $20 and the other $30, it is as plain, that they are the first paid by retainer, and that C. has a right to be made equal to B. before he gets anything more, and both to be made equal to A., who has paid himself $30 by retainer, before A. can take anything more from the heap. After that, if there is profit, they all divide it equally, and if loss, they all divide it equally, according to the fundamental law of the cor*861poration, winch gave equal rights and equal liabilities to each holder of one share, and made that share a unit indivisible. It is tine, like all indivisible chattels, it may admit of joint ownership; but such joint owners, however numerous, have but the powers, rights and liabilities of one person. Thus there may be multiples of the unit in the partnership, but there can be no fractions. On treating of the assets for the purpose of division, the calculation must be based on this unit and its multiples; the share or number of shares.
NOTE. This case was taken, by appeal to the supreme court of the United States, where the decree was affirmed by an equally divided court. According to the usage in cases of such affirmance. no opinions were delivered. A similar sort of affirmance is made in the great case of Asp-den’s Estate [Case No. 589]. And a question naturally arises on both these cases, and may hereafter arise in others, “What is the nature and effect in law of a judgment affirmed from necessity in a court of error, on an equal division of the court?” The point was considered by the late Horace Binney Wallace, Esquire, in a review not generally accessible to the profession, of the unreported case of M’Dermond t. Kennedy [Brightly, N. P. 332; 3 Clark, 490], in the supreme court of Pennsylvania. The late Chief Justice Gibson had spoken of that case as furnishing an authority in point, for a particular position: a statement which the editors of the Pennsylvania Law Journal for December, 1846, considered, was not warranted by the facts of the case. The case, it appeared, had come before the supreme court of Pennsylvania on an appeal, involving, in an abstract form, a question relating to the power of municipal corporations to tax in a particular instance. The court below denied 'the right. The case was argued in the supreme court, and there fully considered by the four judges present: but no opinion was delivered, and the judgment below was simply affirmed. There was no report or evidence of any other particulars in the case. The observations of Mr. H. B. Wallace are as follows:
*861Now, taking A. and B. to represent the discontented stockholders in this case. What right have they to complain against the course pursued by the directors in settling this account? They have elected to stand debtors to stock, or in other words to borrow that much of the capital at common interest. If they had chosen, they might have paid in all and received probably a little more than 6 per cent.,, but they preferred six sure, to the chance of getting more. But this is not all. When the bank began to wind up some years ago, these stockholders retained their unpaid capital, thus having 6 per cent, on it, till this time; while the other stockholders receive their thirty dollars without interest now, to make them equal with those who have retained. If principal and interest were brought into hotch-pot up to this time, and a dividend declared, as might well be done in justice and equity, under a correct construction of this charter, the unsatisfied stockholders would perhaps complain louder than they do now.
If there had been a large amount of profits for this final division, and those who by consent were allowed to retain the $20 on each share, and also to retain their interest in lieu of temporary dividends on that amount, should tender a payment of their $20 with interest up to this time, they would undoubtedly have a right to an equal share of the whole. The agreement among themselves to permit this detention or loan of part of the capital, could not affect their right guaranteed by their charter or articles of partnerships, to wit, that each share should be equal, and the only unit on which to base a proper dividend of gains or losses.
So on the contrary, if the whole capital had been sunk, equity would have compelled the delinquent stockholders to pay up their balance, or if there be a partial loss, still the final distribution of the lessened capital, would and ought to be on the same principle of equality, by calculating such debt to stock as part of the capital to be divided, and if not brought in, as actually retained and received by such stockholders.
A part of the stockholders cannot change the fundamental principles of their charter or articles of partnership, either by their default in paying, or election to retain, a portion of the capital. Nor can a chancellor annul the charter or change thé stipulations of the parties, in search of a visionary equity.
Then as to another objection, that if the full paying stockholders had not paid in the money not required of them, the purchase of the United States Bank shares, by which the loss was caused, would not have occurred. It is to be remembered that the purchase was the act of the board, which is the bank. The stockholders, and all the stockholders, are represented by the board, and they neither are, nor can be heard to speak, or seen to act otherwise. How then is A. liable to loss rather than B. or C. ? unless it be on the principle that if I lend a man money which he loses by unwise speculation, he may set up as a plea against its payment, that if I had not lent it to him, he would not have lost it, and that as my own act was the primary cause of loss, therefore I should bear it myself. The plea would be demurrable in law, and is without precedent in a court of chancery.
The case in Louisiana is in point, and we are happy to have our own views supported by so well considered a judgment of a court necessarily familiar with the equitable principles of partnership law. This case, it is true, seems to have been overruled at a subsequent date; but as the learned judge who took chief part on the last decision, was the counsel who argued the first so ably, though unsuccessfully, it may be doubted whether the first case will not be considered, abroad, as the better authority.
Let the decree be that the directors distribute the sum now for distribution among the stockholders, paying to each respectively who may have paid in on the stock subscribed, or held by him more than other stockholders, the amount of such excess. And distribute the assets from time to time and as collected, among the stockholders, paying to each any sum he may have paid on each share of his stock more than any other stockholder on each share of his stock, and so toties quoties until the said stockholders are thus made equal in the amount paid in on their respective shares of stock, and pay from any balance or residue which may remain for distribution an equal dividend or proportion thereof on each share held by each ■ stockholder respectively, so that each stockholder shall receive an equal share or dividend of such residue on each share of stock held by him. Decree accordingly.
“If the case, in fact, was deliberately considered by the judges in consultation, and in consequence of this consideration, the judgment of the court of common pleas was affirmed, it is a matter of inferior moment, and not in the least degree affecting the authority of .the decision by the supreme court, that no written opinion was delivered, or that by misapprehension or otherwise, the case was not assigred after consultation to any particular judge to prepare an opinion upon the subject. The absence of a written ‘opinion’ may render it difficult, or perhaps wholly impossible, to determine what principle the judgment of the supreme court did establish, but the judgment is an authority for some principle, whatever it may be.
“There is some doubt as to a part of the history of this case. We do not know all that was done in the supreme court. But materials enough exist to enable us to determine, beyond doubt, that there was here a judgment of the supreme court on a point of law. We know that a judgment of the common pleas denying the right of the borough to assess a certain tax was brought into the supreme court, by writ of error, in order to try the right. We know that there was an argument by counsel before the court, and a consultation upon the ease by the court. And we know that, during the term, the judgment of the common pleas was affirmed. Four judges, only, sat; and what were their individual opinions, we do not know. There could not have been a majority in favour of the right, or else the judgment of the common pleas would not have been affirmed, Either the judges were unanimous, or a majority of them were against the right; or they were equally divided in opinion, and the judgment of the common pleas was affirmed from necessity. How this was, no evidence exists to show. Take it at the worst that is possible, and what is the nature and effect in law of a judgment affirmed from necessity in a court of error, on an equal division of the court? The history of the late case of Queen v. Millis will afford ail illustration on this subject.
“This case, reported in 10 Clark & F. 534, involved the question whether a contract of marriage per verba de praesenti. but not made in the presence of a minister, in episcopal orders, constituted a full and complete marriage at common law. On an indictment for bigamy, which depended on this question, the eonrt of queen’s bench in Ireland, four judges sitting, were equally divided, but afterwards, ana for the purpose of obtaining the judgment of the house of lords, one judge, who had been in favour of the validity of the marriage, in form withdrew his judgment, and thereupon a judgment of acquittal was entered, and the case was brought by certiorari to the house of lords. In the house of lords. Lords Abinger and Cottenham and the lord chancellor were of opinion that it. was not a perfect marriage, and were for affirming the judgment; Lords Brougham. Denman, and Campbell were of the opposite opinion. The entry on the journals of the lords is, ‘It was ordered and adjudged by the lords, that the judgment given in the said court of queen’s bench be. and the same is hereby affirmed; and that the record be remitted,’ &c. And the fuller entry on the minutes states that Lords Cottenham and Campbell having been appointed to tell the number of votes, it appeared, on report thereof, that the votes were equal, that is, two for reversing, and two for affirming, ‘whereupon, according to the ancient rule in the law, “semper praesumitur pro negante,” it was determined in the negative. Thereupon the judgment of the court below was affirmed, and the record remitted.’
“While this case was pending in the lords, the case of Catherwood v. Caslon. involving the same general question, came on in the English court of exchequer (13 Mees. & W. 261), and after argument, judgment was suspended until the decision of that case. ‘The case of Beg. v. Millis’ [8 Jur. 717]. says the reporter of the case in the exchequer, ‘having been determined, and the invalidity of a marriage at the common law, contracted per verba de praesenti, but not in the presence of a priest in holy orders, having been thereby established, the present case came on again for argument.’ The counsel sustaining the side of the marriage admitted that ‘according to the decision of the house of lords, it must be taken that no valid marriage had been contracted;’ and l’arke, B., in pronouncing the judgment of the court said, ‘The parties in this case entered into a contract of marriage per verba de praesenti, in the presence of witnesses, but not proved to have been made in the presence of a minister in episcopal orders. Since the original argument, it has been decided in the house of lords, in the case of Queen v. Millis, that unless in the presence of such a minister, such a contract does not constitute a valid marriage at common law in this country; and by the authority of that case we are bound.’
“Undoubtedly, the affirmance of the judgment in Queen v. Millis was against what had.been the general impression of the profession after the case of Dalrymple v. Dalrymple [2 Hagg. Const. 54], yet no one in the exchequer suggested that the af-firmance in the house of lords by an equally divided court had not settled the law by conclusive authority. An equal division of a court of error, ón a question of reversing a judgment, is like a tie vote in a legislative assembly on a question of enacting or repealing a law. The binding nature of the decision is the same, as where the action of the body is unanimous. The influence of an opinion, on the minds of professional persons, will depend on the character of the judge who delivers it, and on the number of judges who unite in it: but the authority of a judgment of a supreme tribunal, as establishing a principle and settling the law. is the same whether the court be full and unanimous, or partial and divided. A judgment affirmed by a divided court binds inferior courts, and of course is a precedent in the court in which it was entered. And not only is the judgment of a court, in itself, an authority; but it is the only thing that is an authority. It follows that Chief Justice Gibson was strictly accurate in saying of M’Dermond v. Kennedy [supra] that ‘had the case been reported, it would have furnished an authority in point.’ ”