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Opinion of the Court.

defendant might reap no advantage from it, he would be held to all the responsibilities of a bona fide subscriber.

It was said in Graff' v. Pittsburgh and Steubenville Railroad Co. 31 Penn. St. 489, that a subscription to a joint stock company is not only an undertaking to the company, but with all other subscribers, and even if fraudulent as between the parties, is to be enforced for the benefit of others in interest.

In Stanhope's case, 1 Law Reports, 1 Chancery Appeals, 161, the directors of a company made an arrangement with a shareholder that on payment of a certain sum of money his shares should be forfeited for non-payment of a call which had been made. The money was paid, and the shares transferred to the company. Twelve years afterward, the company was wound up, and two years later still an application was made to place the shareholder's name on the list of contributors. The court held that the shareholder's name ought to be placed on the list, as the arrangement was not within the power of the directors and was a fraud on the other shareholders; and see Mangles v. Grand Collier Dock Co. 10 Simons, 519; Preston v. Same, 11 Simons, 327.

“But if the subscription were feigned and fraudulent, the subscriber, actual or pretended, is still bound to comply with all the terms and responsibilities imposed upon him, in the same manner as if he were a bona fide subscriber,” per Story, J., in Minor v. The Bank of Alexandria, 1 Pet. 65.

An agreement giving the privilege of paying up a stock subscription in goods or otherwise, except in money, as contemplated by the charter, will be considered as a fraud upon other stockholders, and payment may be enforced in money. Hervey v. Vermilion and Ashland Railroad Co. 17 Ohio, 157; Downie v. White, 12 Wis. 176.

This court said in Chandler v. Brown, 77 Ill. 335, " Each stockholder has a vested right in the contract of subscription of every other stockholder.”

The subscribed capital stock of a corporation, as also all its other property, is a trust fund for the benefit of the general creditors of the corporation, and its governing officers can not,

Opinion of the Court.

by agreement with a stockholder, release him from his obligation to pay, to the prejudice of its creditors, except by fair and honest dealing for a valuable consideration. Sawyer v. Hoag, 17 Wall. 620; New Albany v. Burke, 11 id. 106. And no more can they do so, we conceive, to the prejudice of stockholders. See, also, Selma and Tennessee Railroad Co.v. Tipton, 5 Ala. 787; Ang. and Ames Corp. secs. 146, 535, 600, 1 Redf. on Railways, 206.

It is insisted by counsel for defendants in error that the authorities cited are distinguishable from the present case, in that they are cases where the subscription itself was unconditional, and it was sought to be avoided by setting up a collateral agreement, either made by parol or by some other disconnected writing; whereas, here, the conditional character of the subscription appears upon the face of the subscription itself—the written contract of Sept. 17, 1869; that a party has a right to make any condition he pleases to a subscription, provided the condition is expressed in the contract; that what he is forbidden to do, is to make an unconditional subscription, accompanied by a secret stipulation, parol or written. There would be more force in this position, did the transaction rest entirely in the contract of Sept. 17, 1869. Then, the only evidence of Cushman & Hardin's connection with the stock would show that they were only conditionally connected with it, and it might plausibly be said that subsequent subscribers for stock could not be deceived or misled thereby. But there is more than that contract. There were certificates of stock issued in the usual form, and it so appeared upon the books of the company.

Here were the evidences of the right in the stock. They were unaccompanied by any sign of a condition. They showed the stock taken to be real, bona fide, absolute stockthe same as all other issues of shares of stock. It is, we think, upon these latter evidences, the certificates of stock, and the books of the company showing their issue, that others would be entitled to rely, and rest upon, as showing the character of the stock taken; and that they should not be held

Opinion of the Court.

bound to go back and take notice of an antecedent individual contract existing between the directors of the company and the takers of the shares. This being so, there would be here the same evil—the liability to be misled and deceived by these unconditional certificates of stock, and their so appearing on the books of the company-as there is in the case where there is but a mere subscription, and the unconditional subscription is accompanied by a separate, collateral agreement qualifying it. The absolute character of the certificates of stock is sought to be qualified by a separate individual contract, in the same manner that, in the other case, an unconditional subscription of stock is attempted to be qualified by a separate collateral agreement. The qualifying agreement would seem to be of as secret a nature in the one case as the other.

We must think that this case is brought within the principle of the authorities referred to, so as to render them applicable and of controlling effect.

It is said that the subscriber to the stock of an organized company is bound to know the state of the records of the company; and that every person who subscribed here, was bound to know what this contract of September 17, 1869, was. The record book of the company was destroyed in the fire, in Chicago, of October 8 and 9, 1871. There is conflicting evidence whether the contract was spread upon the records of the company or not. But assuming that it was, it would be most unreasonable to hold that the subscribers to the stock of this insurance company, scattered abroad as they were, should be held to be bound by any presumed notice of what was being done by the directors of the company, in the city of Chicago, in matters affecting their interests as such stockholders. In Stanhope's case, above cited, it is held that the shareholders in a company are not bound to look into the management, and will not be held to have notice of everything which has been done by the directors, who may be assumed, by the stockholders, to have done their duty.

It is supposed by counsel for defendants in error that it was necessary that the complainants in the court below should have

Opinion of the Court.

made proof that they were influenced, in subscribing for the stock of this corporation, by this pretended subscription of Cushman & Hardin, and it is said they have failed in doing so.

We see no distinct proof of this. But it must be supposed that they and other subscribers were thus influenced by the amount of the subscriptions which had been made to the stock of the company, a part whereof was this large annount taken by Cushman & Hardin.

Holding, as we do, that this option to surrender these shares of stock, and take back the money and securities, was invalid, and to be disregarded as a fraud against the other stockholders, the transaction of the directors of the company in the cancellation of the stock, and repayment of the money and securities, must be held here as of no effect.

It was not an independent, fair dealing in respect to the stock for a valuable consideration, but it was action had under the contract only, and but the allowance and carrying out of the exercise of the option of the contract, and equally invalid with the option itself.

But it is claimed that if the directors of the company had not the power to make and carry into execution the optional part of the contract of September 17, 1869, as to the surrender of the stock, that the stockholders, at the annual meeting in May, 1871, approved and ratified all the transactions between Cushman & Hardin and the board of directors. It would appear, from the evidence, that when the stockholders came together, at that time, the transactions between the directors and Cushman & Hardin were unknown, or generally unknown, to them. That when the facts respecting those transactions were made known to them, there was very great dissatisfaction manifested, an excited discussion ensued, the meeting continuing for two days; the sessions, as described by the testimony, being “pretty stormy”—the excitement being in relation to this Cushman & Hardin affair.

The resolutions which were actually passed at the meeting, and are set out in the record, were passed near the close of the second day, and do not contain any words of approval or ratifi

Opinion of the Court.

cation of these transactions. But it is insisted that there were other resolutions passed, which did ratify them. The evidence upon this point is conflicting. Some witnesses, on the part of the defendants, do testify that such a resolution was passed. While other witnesses, on the part of the complainants, testify they are positive no such resolution did pass. That such a resolution was introduced, but did not pass, but instead thereof, a resolution was passed exonerating the officers of the company from any criminal intent in the management of the business of the company.

We regard the clear preponderance of the evidence to be against the passage of any resolution of ratification, and fixed no satisfactory proof in the record of any ratification, at this meeting, of the contract or transactions in question.

It is then contended, that the committee appointed at that meeting were, by the resolutions of appointment, authorized to, and did, fully settle with Cushman & Hardin, and release them from all liability on account of the transactions in question.

These resolutions are set out in the record. The first one names the persons who are appointed a committee “ to adjust the affairs of this company upon such equitable conditions as, in the opinion of said committee, will best promote the interests of the stockholders of said company."

The second resolution provides, “that if, in the opinion of the committee, the condition of the company be found such as to require it to be wound up, then the committee is authorized to collect the assets and to sell the franchises and property of said company, and to make an equitable distribution of the proceeds, after paying the debts of the company, and re-inswing the risks of the company."

The third and last resolution provides, that if the committee deem it desirable to continue the business of the company, then they instruct the central board of directors to make an assessment on the stock sufficient to repair the capital.

The committee decided to close up the affairs of the company.

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