Court Opinion

ID: 8798491
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:21:38.571772+00
Date Added: 2024-06-11T17:03:46.119146
License: Public Domain

SMITH, Circuit Judge
(dissenting.) I cannot concur in the foregoing opinion. It is true it is alleged in the bill that on February 24, 1913, stockbooks were opened; but this was an issue, and there is no evidence to sustain the allegation. These are but trifles. The total subscriptions to the stock were only about 1J4 Per cent, of the capital provided for in the articles of incorporation. One of- the conditions precedent to the subscriber’s liability which is implied from his contract of subscription is that relating to the amount of capital stock which must be taken before the liability attaches. It is a general and well-settled rule, subject to a few qualifications only, that where the capital stock of a corporation is fixed it is implied in every contract of subscription as a condition precedent to liability thereunder that all the capital stock must be subscribed. This has been expressly held in Nebraska. Livesey v. Hotel Co., 5 Neb. 50; Hale v. Sanborn, 16 Neb. 1, 20 N. W. 97; Hards v. Platte Valley Improvement Co., 35 Neb. 263, 53 N. W. 73. And this is practically the universal rule. 7 Ruling Case Law, p. 231; Thompson on Corporations, par. 529; 10 Cyc. 491. And according to the weight of authority subscriptions of persons who were insolvent at the time when they became subscribers should not be counted. 7 Ruling Case Law, p. 234.
The general rule that < the liability of a subscriber attaches only on performance of the implied condition precedent that all the capital stock be subscribed is subject to the exception thát he is liable for preliminary expenses, notwithstanding the failure to perform that condition ; but he cannot be held .liable for calls made or assessments levied to advance the general objects ánd purposes of the charter until all the stock be taken. Expenses of a preliminary nature necessarily incurred to obtain knowledge on the subject of the undertaking, as by making surveys or for the purpose of forwarding the subscription and extending tire public patronage, etc., rest on a different footing. Those expenses are necessarily contemplated by the subscriber, and an assessment levied to collect funds for these purposes is binding, though part'of the capital stock remains unsubscribed; Covington, Coal Creek & Jacksonville Plank Road Co. v. Moore, 3 Ind. 510; Salem Mill Dam Corp. v. Ropes, 23 Mass. (6 Pick.) 23; Same v. Same, 26 Mass. (9 Pick.) 187, 19 Am. Dec. 363; Central Turnpike Corporation v. Valentine, 27 Mass. (10 Pick.) 142; Littleton Mfg. Co. v. Parker, 14 N. H. 543; Anvil Min. Co. v. Sherman, 74 Wis. 226, 42 N. W. 226, 4 L. R. A. 232; Milwaukee Brick & Cement Co. v. Schoknecht, 108 Wis. 457, 84 N. W. 838; Schloss et al. v. Montgomery Trade Co., *32787 Ala. 411, 6 South. 360, 13 Am. St. Rep. 51, note to 93 Am. St. Rep. 379. And where a subscriber attends meetings and votes his stock for purposes which involve an outlay such that an assessment is necessarily contemplated as these acts are done, with a knowledge that the capital stock has not been subscribed, this amounts to a waiver of the condition that it must be, and the subscriber is liable.
Again, acting as an officer or director of a corporation, attending meetings as such, or participating in proceedings to carry on the business for which the corporation is created, where done before the capital stock is all taken and in knowledge of this fact, impliedly waives any right to insist that the subscription of all such stock is a condition precedent of one’s liability. 7 Ruling Case Raw, p. 235; note to Gettysburg National Bank v. Brown, 93 Am. St. Rep. 382, and cases there cited. Neither that the liabilities in question were for preliminary expenses nor that there was such a waiver as just referred to is alleged in the bill, but it is alleged in general that:
“On and between the said 20th day o£ January, 1903, and the 26th day oí November, 3907, tbe incorporators, and later the stockholders, directors, and officers, of said Omaha, Decatur & Northern Railway Company held meetings, entered into contracts, caused surveys to be made, employed agents and servants, and in general transacted the business for which said corporation was formed, and each of the defendants is now estopped from denying the incorporation and legal existence of said Omaha, Decatur & Northern Railway Company.”
It is very doubtful whether this constitutes a, substantial allegation of estoppel; but, it having not been assailed in any form, I shall assume it does, and this dissent is not from the holding that a part of the defendants are estopped. There is no evidence that any notice was given of the first stockholders’ meeting at all. At that meeting, exclusive of Bement, there were only 25 stockholders present, representing 38 shares, or about, one-third oí 1 per cent. Twenty-seven of the subscribers had no notice, for aught that appears, of any meeting to organize the corporation, never held any office or took part in any iyay in anything that was done by the company. It seems dear to me that they were not estopped.
It fairly appears that possibly some of the expenses allowed were for preliminary expenses, but it does not appear that all of the expenses were of that character. That is, it is conceded by the appellant in his brief that Wakefield, of Wakefield & Peirce, who recovered judgment for $3,000, was chief engineer of the railway company, and it may well be guessed that the claim in whole or in part was for surveying, which would be a proper preliminary expense for which all the defendants would be liable. It more clearly appears that the claim of H. II. Bowes was for attorney’s fees, which would not be a proper preliminary expense. There is nothing to indicate whether the balance of the claims allowed were for preliminary expenses or otherwise.
It is held that the 27 stockholders who never did anything hut sign the subscriptions for stock, with the implied condition precedent that they were not to be liable until $1,000,000 had been subscribed, became liable to substantially the full amount of their subscriptions with*328out any allegation that the claims filed were for preliminary expenses, and with no substantial proof to that effect, is a violation of tire fundamental rules applicable in such matters, and in justice the case ought to be reversed as to them, at least.
Considerable is said in the forgoing opinion upon the failure of these 27 during the intervening years to bring an action to rescind. They had no right to maintain an action to rescind as there was no fraud. That broadly distinguishes this case from the case of Gress v. Knight, 135. Ga. 60, 68 S. E. 834, 31 L. R. A. (N. S.) 900. Nor is it of any avail to say that these men stood by and saw the debts contracted. There is not a syllable of evidence that they ever knew that the company was 'organized, or ever “stood by” while these debts were contracted.
The opinion practically overrules all the cases cited on preliminary expenses, because, if these men who never did anything, and who are not shown to have known anything about what was being done, are liable, not only for preliminary expenses, but for all others, then tire whole doctrine of preliminary expenses is a senseless and useless one.
Fully believing that the judgment should be reversed, at least as to the 27 who' are not shown to have had anything to do with the corporation, I cannot but dissent from the foregoing opinion.