Court Opinion

ID: 6964115
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:50:45.320402+00
Date Added: 2024-06-11T16:08:32.524119
License: Public Domain

Mr. Justice Magruder delivered the opinion of the Court: An Act to incorporate “The Kendall County Banking Company,” whose name is claimed to have been changed, on June 1, 1872, to The “National Savings Bank,” was passed by the Legislature of this State on March 29,1869. Its 10th section is as follows: “This act shall be void, unless said corporation shall organize and proceed to business within two years after the passage of this Act.” . The 3d section of the act provides as follows: “The capital stock of said corporation shall be $50,000.00, with power to increase the same to $150,000.00, and shall be divided into shares of $100.00 each,” etc. On August 1,1870, one person subscribed for 95 shares, and five persons, each for one share, making a total subscription of $10,000.00, which was paid in, on that day, in money. It is admitted, that no more of the capital stock was subscribed for or paid in, until November 24, 1885. The terms of the charter are as positive, as they are explicit, that the capital stock “shall he” $50,000.00. Until all the capital stock was subscribed, the company had no authority to commence doing business. Having failed to get more than one fifth of the required subscriptions during the two years, it was, of course, unable to “proceed to business” within that period, in accordance with the 10th section of the charter. It follows, that, after March 29, 1871, the act in question became void. That the law is as here stated will appear by a reference to the authorities. Redfield on Railways (Yol. 1, 4th ed. page 65) says: “Where business corporations are created with a definite capital, it is regarded as equivalent to an express condition, that the whole stock shall be subscribed before the company can go into full operation.” (referring to Shutz v. The S. & T. Railw. Co. 9 Mich. 269; The People v. The Troy House Co. 44 Barb. 625, and other cases.) Boone on corporations says: “Where the capital stock and the number of shares are fixed, a corporation cannot commence the business, to carry on which it is created, before the whole stock is subscribed, unless by legislative enactment.” (referring to S. M. & M. R. R. Co. v. Anderson, 51 Miss. 829; Livescy v. Omaha Hotel, 5 Neb. 50; Hughes v. Antietam Man. Co. 34 Md. 316; Troy & Greenfield R. R. Co. v. Newton, 8 Gray, 596; Penobseott R. R. Co. v. White, 41 Me. 512; Oldtown Lincoln R. R. Co. v. Veazie, 39 id. 571; Fox v. A. C. S. & V. Turnpike Co. 46 Ind. 31; Willamette Freighting Co. v. Stannus, 4 Ore. 261, and other cases). In Morawetz on Private Corporations (secs. 137, 408, 781) it is said: “If the capital of a corporation is fixed by its charter at a certain amount, the company has no authority by law to begin the prosecution of its enterprise, until the whole amount of capital has been subscribed. * *. * In the absence of some provision, indicating a contrary intention, the subscription of the entire capital, fixed by the charter, is always a condition precedent to the right of the company to begin the prosecution of its main enterprise. * * * Until the amount of capital, fixed by the charter, has been subscribed, the right of the company to begin to carry on business remains inchoate, ” * * * (referring to Bray v. Farwell, 81 N. Y. 607; Allman v. Havana, etc. R. R. Co. 88 Ill. 521; Peoria, etc. R. R. Co. v. Preston, 35 Iowa, 118; Barry v. Merchants Exchange Co. 1 Sandf. Ch. 280; Hightower v. Thornton, 8 Ca. 499, etc.) The rule, here announced, is justified alike by the claims of honesty and by the demands of public policy. Those, who deal with a corporation, look to its charter, in order to ascertain the extent of the means contributed to it, and in order to judge of its ability to meet its engagements and perform its undertakings. They are deceived and lulled into a false security, when the company is permitted to do business on a less capital than that fixed in the Act of incorporation. Counsel for defendant in error refer to certain cases, which, we think, are either distinguishable from the case at bar, or sustain the views of the text writers above quoted. In Minor v. Mechanics' Bank, 1 Pet. 44, the language of the charter was: “the capital stock * * * may consist of $500,000.00,” etc.; the Court construed “may” in its ordinary sense, and held that it was not clear, that the legislature intended to require the capital to be $500,000.00. In Lessee of Frost v. Frostberg Coal Co. 24 How. 278, and McCartney v. C. & E. R. R. Co. 112 Ill. 611, the capital stock was all subscribed, before operations were begun. In New Haven & Derby R. R. Co. v. Chapman, 38 Conn. 56, where the capital was $500,000.00, and the directors began the construction of the railway, when $416,700.00 had been subscribed, leaving $83,300.00 unsubscribed, the charter expressly permitted the construction of the road to be commenced, whenever $100,000.00 of the capital stock should have been subscribed. In Perkins v. Sanders, 56 Miss. 733, although the resolution, conferring authority to make the contract, sued on, may have been passed before all the stock was subscribed, yet the contract was not executed until thereafter. In Allman v. Havana, Rantoul & Eastern R. R. Co. 88 Ill. 521, this Court said: “The capital stock was fixed, definitely, at $1,000,000.00, to be divided into 10,000 shares, of $100.00 each, and that amount must have been subscribed before the corporation could have a legal existence. It was a condition precedent to the legal existence of the company. There is nothing in the “articles” or in the statute, which authorizes the corporation to commence operations, when a less amount is subscribed. Very many charters might be cited, which declare, where a less amount than the whole capital stock is subscribed, the corporation may proceed in their business; but nothing of that sort is found in this case.” To say, that all the capital stock must be subscribed, before the corporation can have a “legal existence,” is not the same as saying, that such stock must all be subscribed, before the corporation can enter upon the transaction of its regular business. In this respect, the language of the Allman ease, although appropriate, when used in reference to the charter of a company, organized under the general railroad law, such as was there under consideration, may be too broad, when applied to the charter of the defendant in error, the first section of which provides, “that Warren M. Sweetland, John A. Coy and all such persons, as shall become stockholders in the corporation hereby created, and their successors, shall be a body politic,” etc. Although the capital of a corporation is fixed by its charter at a certain sum, the company has a right to perform such acts, as are necessary to perfect its organization, and to prepare it for entering upon its regular business, before the whole capital has been subscribed. (Morawetz on Private Corp. sees. 408 and 409.) But counsel are mistaken in supposing, that the Allman case is entirely overruled by the case of P. & P. U. Ry. Co. v. P. & F. Ry. Co. 105 Ill. 110. On the contrary, it is endorsed and quoted from in Temple v. Lemon, 112 Ill. 51. It stands as authority for the position, that, where the charter of a corporation says its capital stock “shall be” a certain, fixed sum, the corporation cannot enter upon its regular business, until the whole of such sum has been subscribed, unless the intention of the Legislature to permit it to do so, is apparent from the language of the charter itself. No such intention appears in the act, incorporating “The Kendall County Banking Company.” By the terms of that act, all the capital stock was actually required to be paid in, before "business could be commenced. The eighth section is as follows: “Before said corporation shall commence business, the stockholders shall pay the several amounts subscribed in full; and no increase of said capital stock shall be made at any time, unless the amount thereof shall be paid into said corporation at the time of the issue of such stock; and the whole capital stock, including such increase, shall not exceed, in amount, the actual value of the property of said corporation at the time of the issue of such increased stock.” The words, “the several amounts subscribed,” do not mean the several amounts subscribed, which may aggregate less than the capital stock, but the several amounts subscribed, which together make up the full amount of the capital stock. This will be apparent from the phraseology of the sections, which precede the 8th section. It is also apparent from the language of the second clause of the 8th section, beginning: “and no increase of said capital stock shall be made,” etc. The words, “said capital stock” refer back to the words, “the several amounts subscribed.” “Said capital stock” in the second clause, is the same thing as “the several amounts subscribed,” in the first clause. The two expressions are used interchangeably. If the amount of every increase of the capital stock must be paid in, the same reasoning and the same policy would require the original capital stock itself to be jiaid in. The natural construction of the first and second clauses of the 8ib section is this: before the corporation shall commence business, the amounts subscribed to make up the capital stock shall be paid in full, and any increase over the amounts so subscribed shall, also, be paid in full at the time of issuing the stock therefor. If we are correct in this view, then as only $10,000.00 of the $50,000.00 of capital stock, required by the act, was paid-in during the two years after its passage, the company was never legally in a position, where it could “proceed to business” during that period, and consequently the act became void under the 10th section thereof. We cannot refrain from saying, that the new name, selected by the Company—“National Savings Bank,”—is, in our opinion, an unfortunate one. It is generally understood, that savings’ banks are patronized chiefly by the poorer and laboring classes of the community. The use of the word,. “National,” might convey to their minds the impression, that the bank was organized under the Act of Congress in relation to> National Banks. Indeed, it is a serious question, whether, under the terms of the latter act, the name can be legally made use of at all. Section 5243 of the National Banking Act is as follows: “All banks, not organized and transacting business under the national currency laws, or under this Title, and all persons or corporations, doing the business of bankers, brokers or savings institutions, except savings-banks, authorized by Congress to use the word “National,” as a part of their corporate name, are prohibited from using the word “national, ” as a portion of the name or title of such bank, corporation, firm or partnership,” etc. For the reasons, herein stated, the judgment of the Circuit Court is reversed. Judgment reversed.