Court Opinion

ID: 6232306
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:24:44.817541+00
Date Added: 2024-06-11T08:57:54.759376
License: Public Domain

The opinion of the court was delivered, by
Strong, J.
— The subscription originally made by the defendant to the capital stock of the company was, in legal effect, absolute and unqualified. It has repeatedly been decided that conditions attached to subscriptions to stock, made preparatory to the procurement of a charter, are entirely nugatory, and are to be treated as if they had no existence. The commissioners' appointed to receive them are agents with limited powers, incapable of offering any other terms to a subscriber than those prescribed by the legislature. The Act of Assembly that authorized the *35issue of letters patent to these plaintiffs required that subscriptions to the amount of $150,000 should be made to the capital stock, before corporate authority should be granted. This requirement was in force when the defendant’s subscription was made. He subscribed on the 12th of June 1858, before the letters patent were issued. But on the 20th of January, A. x>. 1859, a supplementary Act of Assembly was passed reducing the sum of subscriptions required to $25,000. After this the company was organized, and the defendant voted in right of his subscription, at the organization, and at the election of directors. Upon this state of facts the court instructed the jury, that unless the defendant know when he voted that the required subscriptions to the capital stock had been reduced by law from $150,000 to $25,000, the change released him from his subscription — that the presumption of the law would be that he knew of the change in the charter; but that whether he did or not, the jury should determine.' In this we think there was error. By voting, the defendant admitted himself still a corporator, and the general principle of the law is, that a corporator must be held cognisant of the terms of his own charter. There was no evidence to rebut this legal presumption, even if it was capable of rebuttal, and this part of the case was therefore put to the jury, upon an issue of fact which there was nothing to raise. The change in the charter could not relieve the defendant. After it was made he had contributed to involve his co-corporators in the venture, encouraged the creation of debts, and it was no longer for him do deny his liability to pay ins own subscription: McConahy v. The Turnpike Company, 16 S. & R. 142.
But the more important questions in this record relate to the charge of the court respecting what was alleged to have been a release of the defendant from his liability as a subscriber, and to the rejection of testimony offered to explain an apparent cancellation of his subscription. Across the paper upon which the subscription was made, the following words were w'ritten: “ Can-celled by order of the Board of Directors.” To do away with the effect of this, .and to show that it was unauthorized, the plaintiffs gave in evidence the minutes of a meeting of the board of directors, held on the 11th of January 1861, three days before the annual election of directors for that year, from which it appears that the board then adopted a series of resolutions of a most extraordinary character. After reciting that two hundred and sixty-six persons named, of whom the defendant is one, had subscribed to the capital stock on the books of the commissioners appointed to procure subscriptions preparatory to the organization of the company ; that the subscriptions were made on condition that the first instalment should not be required before October 1st 1858, nor until at least $75,000 of stock should be *36obtained outside of the county of Bedford, and approved by the board of directors; and after reciting also that the board was satisfied, the understanding on the part of those subscribers was that the subscriptions should not be recoverable until at least $75,000 of stock should he obtained outside of the county of Bedford, and that such subscriptions should be appropriated to the construction of that part of the Bedford Railroad west of Bloody Run, and that the company had not been able to obtain the said stock subscription outside of the county, and that good faith required that the subscribers should be released, they went on to resolve: 1st, That the conditions allowed by the commissioners be ratified and adopted as the act of the company; 2dly, That the company purchases from each of the said subscribers their shares of the stock, and assumes the payment of their subscriptions ; 3dly, That the said stock be and the same is hereby surrendered to the company; 4thly, That the said subscriptions are declared null and void and released; and 5thly, That the secretary of the company be required to cancel them.
We do not stop here to comment upon this most remarkable action, upon the inconsistency of the resolutions, or upon the inability of the directors to surrender the stock which was not their own, or to purchase without consulting the holders. The general purpose is plain. It was to discharge the subscribers named from liability to the company.
Having given these resolutions in evidence, the plaintiffs proposed to follow them by proof of the avowed motive for which they were offered and adopted; that they were presented to the directors at their meeting on the 11th of January 1861 by a person who claimed to be acting for the stockholders, and that he stated their object was to defeat the claim of Collins, Dull & Co., who were creditors. The court refused to 'permit the evidence to be given.
The plaintiffs next offered in evidence the minutes of the company, showing that immediately after the election of the new board of directors in January 1861, they repealed the resolutions which their predecessors had adopted. This evidence was also rejected. We think it should have been admitted. The books of the company were evidence against the defendant. He had admitted himself to be a corporator, and if he had not there was evidence that such was his position. The question was whether his relationship to the company had terminated. It was not for the court to decide that it had, and for that reason to rule that the books of the company were not evidence against him. And not only was the instrument of proof legitimate, but the subject-matter was proper for consideration. It was simply undoing what the former directors had unlawfully done, as we shall presently see, and undoing it before the defendant had acted in any way upon it.
*37So, too, the proof of what took place, when the resolutions were presented and adopted, should have been received. It tended directly to show that the action of the hoard was fraudulent and unauthorized, that its purpose Avas not that which Avas avowed in the preamble to the resolutions. It is no objection to it that a party shall not be heard to set up his OAvn fraud. The question here betAveen these parties is the power of the men who adopted the resolutions to bind the company by them.
The chief error, however, in this record, and the one which was most fatal to the plaintiffs’ case, Avas the instruction given by the court to the jury, that if the company had assets sufficient to [Day their debts, the cancellation of the stock of these two hundred and sixty-six subscribers on the 11th of January 1861, Avas valid a.nd released the defendant. Erom this Ave entirely dissent. The directors of the company then in office were its agents with limited powers, the extent of which the defendant] was bound to know. Their duties were to conduct its affairs to the furtherance of the ends for Avhich the company Avas created. They had no power to destroy it, to give away its funds, or to deprive it of any of its means to accomplish the full purpose for Avhich it was chartered. The creditors Avere not the only persons who had interests and rights at stake. The stockholders who had paid their subscriptions, or bought their stock, and the CommonAvealth, by whom the charter had been granted, were at least equally interested. The railroad was unfinished, and the Gommonwealth had a right to demand that all the resources, rights, and credits of the company should be devoted to its completion. An unfinished road was useless to the remaining stockholders, and it was a wrong to them to render their stock valueless, by extinguishing that Avhich Avas necessary, and which should have been applied to the object for which the legislature gave the company its being. Directors of a railroad company are trustees for all the stockholders, and, in a very just sense, for the Commonwealth. It is an abuse of their trust, wholly unauthorized, and at war with the design of the charter, to single out some of the stock subscribers and release them from their liability. No such authority in them has ever been recognised. It certainly-was not in Lauman v. The Lebanon Valley Railroad Company, 6 Casey 42, nor in any of the cases cited by the defendant in error. It is neither supported by authority or reason.
The instruction given to the jury was therefore entirely erroneous. They should have been directed that the attempted cancellation of the defendant’s subscription was without any effect, and that it did not release him from his liability.
It is unnecessary to notice the assignments of error more in detail. Erom what has been said, it will appear- that, in our opinion, they are all sustained.
The judgment is reversed, and a venire de novo aAvarded.