Court Opinion

ID: 7893498
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:51:05.033815+00
Date Added: 2024-06-11T16:31:59.438436
License: Public Domain

Robinson J.,
delivered the opinion of the Court.
This suit is brought under the provisions of Article 26, section 52, of the Code, to recover of the appellant, a debt due by The Antietam Manufacturing Company of Washington county, and contracted when he was a stockholder in said company.
.The defence rests mainly upon two grounds — 1st. That the amount of capital stock fixed by the articles of association and recorded certificate not being taken, the company never was incorporated, and therefore had no power to create debts, binding on the subscribers; and 2dly. That the appellant had transferred his stock prior to the institution of this suit.
The 40th section of Article 26, of the Code, prescribes all the requirements necessary to the incorporation of manufacturing companies, and when these are fully complied with, and the certificate recorded, the associates become a corporate body, entitled to and possessed of the franchises of a corporation, as effectually as if the same had been by'a direct grant from the State. Sec. 41, Art. 26. In Hughes vs. The Antietam Manuf. Co., 34 Md., 316, it was decided that these requirements had been complied with, and the corporate existence of the company is therefore no longer an open question. There is a wide difference between the existence of the company as a corporate body, and the liability of parties for their subscription to its capital stock. As a general rule, where the capital stock and number of shares are fixed in the recorded certificate, no valid assessments or calls can be made on subscribers *491until the whole capital stock is taken, unless there be a provision to that effect, either in the recorded certificate, or general law under which the company is incorporated; and in such a case, the subscription may be considered to that extent as conditional. It is a condition, however, which the subscribers may waive, and with their assent the company cannot only organize, but do all other things incident to, and necessary for the prosecution of the particular business for which it was incorporated. This waiver may be either express or implied from the acts and declarations of the subscribers. If knowing the whole capital stock has not been taken, they attend the meetings of the company, cooperate in the votes for the expenditure of money — for the purchase of property-— for the making of contracts, and other acts which could only be properly done upon the assumption that the subscribers intended to proceed with the stock partially taken up, they would be estopped from setting up such a defence. Cabot and West Springfield Bridge Co. vs. Chapin, and others, 6 Cushing, 50.
In the case before us, then, if the appellánt, knowing that the whole capital stock had not been subscribed, participated in the organization of the company, attended its meetings, was one of the directors, and privy to the purchase of the machinery, for the payment of which this suit was brought, he will not be heard now to deny the regularity of the organization, or to set up as a defence a partial subscription of the capital stock.
This brings us to the second ground of defence: whether the transfer of stock by the appellant, exonerates him from personal liability for a debt contracted when he was a stockholder, and before the whole capital stock was paid in ?
The language of the 52d section, it must be admitted, is general in its terms, and does not in words declare whether the individual liability shall attach to such as are stockholders at the time the debt is contracted, or to those holding stock at the time the suit is brought. It is obvious *492however that the protection of the creditor was the paramount object the Legislature had in view, and the section in question, ought to receive such a construction as will best accomplish this object. In conferring the rights and franchises of a corporation upon companies incorporated under Article 26, the Legislature has affixed as a condition precedent to the exercise thereof, that the stockholders shall be individually liable for the debts of the company until the whole capital stock is fully paid in. The original stockholders, by their acceptance of the charter, and subsequent purchasers in becoming members, must be considered as assenting to the terms and conditions thus imposed, and it is upon the faith of these terms and conditions that the public are invited to give credit to the company. Parties therefore dealing with the corporation, rely upon this individual responsibility of shareholders, who are personally known to them, as well as upon the responsibility of the company itself. And at a time when these corporations are multiplied to an almost indefinite extent, embracing every department of trade and business in which the most sanguine can hope for success, parties dealing with the corporation may rely with much more confidence upon the personal liability of stockholders, than upon the property and assets of the company. Accordingly in Norris vs. Wrenschatt, 34 Md., 492, this liability of the stockholder and its corresponding obligation to pay the debts of the company was held to be in the nature of a contract. The Court say: “ It is a debt under the statute, due from the stockholder to the creditor, springing out of and coexistent with the contract between the corporation and the creditor.”
If so, if it be a debt due from the stockholder to the creditor, coexistent with the contract by the company, it Is clear that no act by the stockholder, without the consent of the creditor, can exonorate him from the liability thus incurred. The relation of stockholder creates a perfect legal obligation to pay the debts contracted by the company, until the whole *493capital shall have been paid, and it is upon the faith of this perfect legal obligation, that parties deal with the company. The liability of a stockholder, being therefore in the nature of a contract made between the company, the creditor and himself, we are of opinion that it continues, and is in no manner affected by the mere transfer of his stock. This construction is fully warranted by the language of the statute, and best accomplishes the purpose of the Legislature, namely, the protection and security of creditors. If the construction contended for by the appellant be correct, then the liability imposed by the section in question would necessarily be conditional ; that is, provided the creditor commenced his suit prior to the transfer of the stock. We find nothing in the language of the statute, nor in the purposes for which it was passed, to warrant such a construction. Moreover it denies to creditors the right to look for payment to such stockholders as were alone known to them at the time the debt was contracted, and compels them to seek payment of persons whom they could by no possibility know, and whom if known, they might have refused credit to the corporation.
The construction we have adopted is also just and equitable as between stockholders themselves. If personal liability is to rest anywhere, it surely ought to be with those who were stockholders at the time the debt was contracted; who had the means of knowing the extent and magnitude of the same, and who could have exercised an influence in the management of the affairs of the company, rather than upon those who became shareholders subsequent to the creation of the debt, and who are in no maimer responsible for the same.
The prayers offered by the plaintiffs are erroneous, because they assume the liability of the defendant for his subscription, without regard to whether the whole capital stock of the company was taken, or whether he had waived his right to rely upon a partial subscription as a defence to the action.
The defendant’s prayers were properly rejected. We fully concur in the modification of the fourth prayer. It certainly *494presented the law in as favorable light as. the defendant had any right to expect. If he consented to the withdrawal and alteration of the certificate, it is hardly necessary to say that he will be estopped from relying on such withdrawal or alteration, as a defence to an action brought by a creditor for machinery sold to the company.
(Decided 20th June, 1872.)
We are also of opinion that the Court erred in admitting the corporation' books in evidence. In some instances, it is true, they may be offered in evidence either for or against the corporation, where the acts recorded are of a public nature, and when the entries have been made by a proper officer. But when they relate to the private transactions of the company, they are, as a general rule, inadmissible, except perhaps in actions between the members.
For these reasons the judgment below will be reversed and a new trial awarded.

Judgment reversed and new trial awarded.