Court Opinion

ID: 6966047
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:54:05.805054+00
Date Added: 2024-06-11T16:08:37.282087
License: Public Domain

Phillips, J.: The appellee was a corporation organized in Scotland under the Companies’ Act of 1862 of the United Kingdom, in which appellants became shareholders. The capital stock of the company was £600,000, divided into 60,000 shares, of £10 each. The appellant Handel became the owner of 380 shares, the appellant Henry L. Frank became the owner of 140 shares, Louis E. Frank was the owner of 395 shares, and Joseph E. Friend was the owner of 99 shares. On these shares calls had been made and paid, amounting to the sum of £6 per share. On the 11th of October, 1887, a call was made of £1 2s per share by the directors, which not being paid, they, by a resolution of the board passed September 4, 1888, declared the stock forfeited. On the 24th of Harch, 1890, the appellee instituted its actions of assumpsit in the circuit court of Cook county to recover from each of said several appellants the amount owing on their stock by reason of the calls so made, and filed its declarations setting up the foregoing facts, to which the defendants therein filed pleas of general issue and mú tiel corporation, and on trial before the judge, a jury being waived, appellee recovered judgments, whereupon appeals were prosecuted to the Appellate Court for the First District, where the several judgments were affirmed, and these appeals are now prosecuted to this court. The same questions of law are presented in the several cases. By stipulation certain portions of the acts of parliament of Great Britain, comprising what is generally known as the “Companies’ Act of 1862,” with its amendments, were in evidence, from which it appears that seven or more persons, by subscribing their names to a memorandum of association, and otherwise complying with the statute in respect of registration, may form an incorporated company, with or without limited liability. The act contains the usual provisions prescribing the powers and duties of corporations, the manner in which they can be created, their business conducted, and how their affairs may be wound up and put into liquidation in case of insolvency. By a schedule to this act, known as “Table A,” certain regulations for the management, government and control of the business affairs of corporations organized under this law are given, which each corporation was at liberty to adopt or make other and different regulations in lieu thereof. These regulations contained in “Table A” are substantially by-laws regulating the manner in which the corporaté business may be conducted. The appellee did not adopt the regulations in “Table A,” but expressly provided they should not apply, and this they were authorized to do by the act. The appellee introduced the evidence of sundry witnesses, by deposition, who testified, in substance, that the books of the company showed that the appellant Mandel was the owner of 380 shares of the capital stock of the company, of the par value of £10 per share, on which only £6 per share had been paid in, and that a call was made by the directors on the stock of the appellant, on the 11th day of October, 1887, of £1 2s per share, which was not paid, and that in September, 1888, the same was duly forfeited for non-payment of the call, but the corporate books and records themselves were not offered in evidence on the trial. The only indebtedness of the appellant to the company was for the call made upon the shares standing in his name, for non-payment of which they were forfeited more than a year before the commencement of suit, and all previous calls had been paid by appellant. No attempt was made to show the amount realized by the company from forfeiture and re-sale of the stock of appellant, or in what manner it was disposed of, or its value, and the witness Dun, the secretary, refused to answer cross-interrogatories seeking to ascertain what disposition of the forfeited shares had been made by the company, and how much it had realized from such re-sale. Objections were duly interposed by the appellant to certain designated portions of the depositions, and the court was asked to suppress the same, on the ground that paroi statements of the contents of the corporate books and records were offered in evidence, instead of producing the original books themselves. The minute book itself was not offered in evidence on the trial, though shown to be in the possession of appellee. Appellant asked the court to hold propositions of law numbered one to eight, inclusive, which was refused, and there was a finding and judgment for the appellee for the sum of §2570.61, being the full amount of the call, with interest thereon at six per cent per annum, without any credit for the amount received by the company from the forfeiture and re-sale of the shares. Motions for a new trial and in arrest of judgment having been overruled by the court, this appeal is prosecuted from the judgment. This suit was instituted by the company itself, and the rights of creditors are not involved. It is urged by appellant that no action can be maintained by a corporation to recover upon a call made upon its stockholders, where, for the same call, the stock has been, by resolution of the board of directors of the corporation, declared forfeited for non-payment of that call. The appellee being a foreign corporation, the general rule is, that the liability of stockholders in such corporation must be determined by the law of the State which created it. The law of such foreign State cannot operate beyond its own territory, and its right to do' business in this State or create relations between itself and citizens of this State, as members, exists by comity alone. The liability of a stockholder to the corporation for calls made has but slight analogy to a debt, but is a statutory liability, the form and extent of which is dependent upon the particular phraseology of the statute creating the liability. It is not a penalty, but a liability that is contractual, and will ordinarily be enforced by the courts of all the States, unless where a wrong or injury will be done to the citizens of the State in which the calls are sought to be enforced, or the policy of the laws of such State will be contravened or impaired. This rule is so uniformly held that the citation of authorities is unnecessary. The general rule in the States of this country is, that where a corporation has a right, under the statute creating it, to declare a forfeiture of shares for non-payment of calls, it may exercise its option to forfeit the stock or bring its action to collect the amount of the calls, but cannot forfeit the stock and afterward sue at law, as the exercise of the first option would end the relation between the parties and exclude a resort to the other. (Small v. Herkimer Manf. Co. 2 N. Y. 330; B. & N. Y. C. Railroad Co. v. Dudley, 14 id. 336; Rutland Railroad Co. v. Thrall, 35 Vt. 536.) But it never has been held that a right to do both cannot be given. When the act of incorporation gives the right to declare a forfeiture, and at the same time reserves to the company the right to collect all calls made prior to such declaration, it must be held that the positive enactment will control, and any principle adopted as a mere equitable rule must yield to such express provision. This corporation, in its articles of association, expressly provided that “the regulations contained in the table marked ‘A,’ in the first schedule to the Companies’ Act of 1862, shall not apply to the company.” The table marked “A,” in the first schedule to the Companies’ Act, is practically a system for the government of a company organized under that act. Section 14 of the act authorizes incorporators thereunder, by their articles of association, to adopt all or any of the provisions contained in the table marked “A,” in the first schedule. Section 15 of the act is as follows : “In the case of a company limited by shares, if the memorandum of association is not accompanied by articles of association, or in so far as the articles do not exclude or modify the regulations contained in the table marked A,’ in the first schedule hereto, the last mentioned regulations shall, so far as the same are applicable, be deemed to be the regulations of the company, in the same manner and to the same extent as if they had been inserted in articles of association and the articles had been duly registered.” Section 17 of “Table A” provides, if a member fail to pay any call, as made, the directors may serve a notice on him requiring him to pay such call, together with interest and expenses. Section 18 is as to the notice provided for in section 17. Section 19 provides for forfeiture for non-compliance with above notice, whilst section 20 provides that any share so forfeited shall be the property of the company. Section 21 is as follows: “Any member whose shares have been forfeited, shall, notwithstanding, be liable to pay to the company all calls owing upon such shares at the time of forfeiture.” Sections 34, 35, 36 and 37 of the articles as adopted by this corporation are practically and substantially an adoption of sections 17, 18, 19 and 20 of “Table A,” of the first schedule to the act of 1862, whilst in lieu of section 21 the following act of association is adopted as section 39 : “Any member whose shares have been forfeited, shall, notwithstanding, be liable to pay, and shall forthwith pay, to the company all calls, installments, interest and expenses owing upon or in respect of such shares at the time of the forfeiture, together with interest thereon from the time of forfeiture until payment, at the rate of five per cent per annum, and the directors may enforce the payment thereof, if they think fit.” No provisions of the act are pleaded or offered in evidence which authorize a recovery of calls after a declaration of forfeiture, other than section 21 of “Table A,” and a right of recovery in such case being in conflict with the current of legislation here, cannot depend on a by-law merely, but to be enforced must exist in the act authorizing the incorporation of the company. The provisions of section 21 of the act authorize a recovery, after forfeiture, of all calls owing upon such forfeited shares at the time of forfeiture, but it has no provision authorizing a recovery for interest and expenses thereafter accruing. If the by-law adopted as section 39 depends for its existence upon some other provision of the Companies’ Act of 1862, such other provision should have been properly incorporated into the record. There is no provision that authorizes a recovery for calls, installments, interest and expenses, and a judgment for $2570.61 on a call of £1 2s on 380 shares cannot be sustained, even under section 21 of “Table A.” Appellant further insists that appellee, being a foreign corporation, can exercise no rights except such as are conferred on a corporation created by a statute of this State. Beach, in his work on Private Corporations, states the rule in reference to stockholders in foreign corporations as follows: “Where a person becomes a stockholder in a corporation organized under the laws of a foreign State, he must be held to contract with reference to all the laws of the State under which the corporation is organized and which enter into its constitution, and the extent of his individual liability as a shareholder to the creditors of the company must be determined by the laws of that State, not because such laws are in force in the other State, but because he has voluntarily agreed to the terms of the company’s constitution. It is equally clear, both upon principle and authority, that this liability may be enforced by creditors wherever they can obtain jurisdiction of the necessary parties. This does not depend upon any principle of comity, but upon the right to enforce in another jurisdiction a contract validly entered into. The validity, interpretation and effect of the ■ act imposing the liability are determined by the law of the State creating the corporation.” (Sec. 148.) And the author cites many authorities which sustain his statement of the rule. The statute of this State which provides that “foreign corporations doing business in this State shall be subject to all the liabilities, restrictions and duties that may be imposed upon corporations of like character organized under the general laws of this State, and shall have no other or greater powers,” does not prohibit a citizen of this State from becoming a stockholder in a foreign corporation, nor relieve him in any way from a contract liability resulting from his voluntary action in becoming such stockholder. The statute, by the term “doing business,” has reference to the business for which the corporation was organized, and not to the form of its by-laws with reference to its relations to its own members, or a resort to the courts of this State to recover a contract liability. The principle as announced and the rule as stated in Stevens v. Pratt et al. 101 Ill. 206, Granite State Provident Ass. v. Lloyd, 145 id. 620, and Santa Clara Female Academy v. Sullivan, 116 id. 375, are not inconsistent with what is here said, as in each of those cases active business was entered on of the character for which the corporation was organized. Appellee would not be doing business in this State by resorting to the courts here to enforce a contract liability, nor would the purchase of shares of stock by appellant of one holding such shares, and their transfer on the books of the company in a foreign jurisdiction, bring such company within this State doing business, within the meaning of section 26 of the act entitled “Corporations.” The contention of appellant that calls could not be made by this corporation until the entire amount of stock had been subscribed cannot be sustained, as by section 6 of the articles of association authorized by the act of parliament, “the registered holders of shares in the company, for the time being, whatever the number issued or subscribed for, shall be associated and shall form the company, and the business of the company may be commenced as soon as the directors think fit.” Under this provision of the articles, made in accordance with the act, it is not a condition precedent 'to the right to make a call that all the stock must be subscribed for or the shares allotted. (Buckley’s Companies’ Act, (4th ed.) 19; Ornamental Pyrographic Co. v. Brown, 2 H. & C. 63; 32 L. J. Ex. 190.) There is nothing in the articles of association which states the subscribers shall not be associated, for the purposes of the company, till a particular event happens, such as a subscription to or the allotment of a particular number of shares, as was the case in Pierce v. Jersey Water Works, 5 Ex. D. 209, and in North Stafford Steel, Iron and Coal Co. v. Ward, 3 id. 172. It cannot be held a defense to an action for a call here, that the capital is not fully subscribed or allotted. It was not error to refuse to hold as law the propositions submitted by appellant. Previous to the commencement of the trial a motion was made by appellant to suppress and strike out certain portions of the answers of Finley Dun, Thomas Murray, George Milne and John Reed, witnesses for appellee. The motion as to Dun’s deposition was, that in his answer to the fifth and eighth interrogatories he purported to give the contents of the register of members of the company, and the minutes of a meeting of the board of directors and a resolution adopted, and by his answer to the seventh interrogatory he purported to give copies of the books of account and original entries of the plaintiff, and because of his refusal to answer the third cross-interrogatory. The objections to the depositions of Murray and Milne, in their answers to the seventh interrogatory, were the same as made to the answers of Dun to the fifth and eighth interrogatories, and the deposition of Reed was objected to for the reason that in his answer to the eighth interrogatory,he was permitted to give what purports to be the contents of the postage book by him referred to, etc. The motion to suppress depositions was overruled, and an objection to the answers made on trial, which objection was also overruled. By section 15 of chapter 57 of the Revised Statutes of Illinois, “the papers, entries and records of any corporation or incorporated association may be proved by a copy thereof, certified under the hand of the secretary, clerk, cashier or other keeper of the same. If the corporation or incorporated association has a seal, the same shall be affixed to such certificate.” By section 18 of the same chapter it is provided that “any such papers, entries, records and ordinances may be proved by copies, examined and sworn to by credible witnesses.” In addition to the evidence authorized by the statute, the original books would be admissible, and in case of loss or destruction the contents might be proven, and under certain circumstances, where there is an omission to make any record on the subject, paroi evidence may be heard. (Ratcliffe v. Teters, 27 Ohio St. 66; Bank of United States v. Dandridge, 12 Wheat. 64.) The original books, and the evidence provided for by sections 15 and 18 of the statute, are original evidence, and evidence of a secondary nature is not to be resorted to where there is in the possession of a party evidence of a higher and more satisfactory character. Proof of the papers, entries and records of a private corporation in possession of that corporation can not be shown by an opinion or conclusion of a witness. The evidence must be primary, original evidence. Certain parts of the depositions of Dun, Murray and Milne should have been suppressed, where they stated a conclusion as to what is shown by the records. The evidence of Reed was as to mailing notice, and the entries as to his mailing letters, etc., are a mere memorandum to which he could refer to refresh his recollection, and not a record of which copies must be made. It was not error to overrule the motion to suppress his deposition. For the errors indicated, the judgments of the Appellate Court and circuit court of Cook county must be reversed, and the cause remanded to the circuit court of Cook county for new trial. Reversed, and remanded.