Lathrop v. Kneeland

E. Darwin Smith, J. The defendants’ counsel moved for a nonsuit, at the circuit, upon several grounds there specified, and the circuit judge granted the motion, and directed a non-suit without putting his decision upon either of the particular grounds mentioned. Upon the ground that the plaintiff had not proved that the Geneva Coal Company was ever a corporation duly organized or incorporated pursuant to the laws of the state of Pennsylvania, I do not think the non-suit can be sustained. The general acts authorizing the formation of corporations for manufacturing purposes had been, I think, substantially complied ivith in the organization of the company. The company had an organized existence; was a corporation de facto; was allowed by the authorities of that state to exercise corporate franchises for several years j and no steps were taken by the state to annul its charter or deprive it of its assumed corporate rights. The act under — 435 — which the Geneva Coal Company became incorporated declared that the stockholders should be jointly and severally liable in their individual capacities, for debts due to miners, quarrymen and other laborers employed by such companies, and for machinery, provisions, merchandise, country produce and materials furnished for said company, respectively. The plaintiffs proved, I think, all the essential facts to entitle them to recover on this ground what they claimed under this act, if they had duly established that the defendant had been or was a stockholder of said coal company. In this, I think, the plaintiffs’ proof entirely failed. The certificate of incorporation of said company, made and approved and filed as required by the statutes of that state, certifies that David P. Fuller, F. I. Smith, Daniel Evans, Samuel Benedict, Smith Sutherland and Philander Bexford desired and had agreed to form a company under the provisions of the general act of assembly of Pennsylvania, for mining of coal and other minerals, &c., and the said parties certify that the corporate name of said company shall be called the Geneva Coal Company; that the capital stock of said company subscribed is $50,000, divided into 2500 shares of $20 each, of which one fourth had actually been paid in, and the names of the subscribers of the stock are as follows, viz. Daniel P. Fuller and Philander Bexford of the burgh of Pittston, Lucerne county, Penn., each twelve hundred and forty-six shares, F. I. Smith, David Evans, Smith Sutherland and Samuel Benedict, each two shares. The capital of $50,000 is thus fully subscribed by six persons,- of whom the defendant is not one. Provision is made, in the 19 th section of the original act, for increasing or diminishing the capital stock of every company organized under said act, but there is no proof that the capital stock of the Geneva Coal Company has ever been increased since its organization. This statute contemplated that all the corporators should subscribe the original articles of association or certificate "of incorporation. Sections 1 and 2 of the general act provide for the filing and — 436 — recording of the original certificate in the office of the secret tary of the commonwealth, after it is subscribed as aforesaid, and section 3 is as follows; “When the certificate shall have been recorded and filed as aforesaid, the persona who shall have signed and acknowledged the same, and their successorsj shall for the term agreed upon, not exceeding twenty years from the filing of such certificate in the office of the secretary aforesaid, be a body politic and corporate in fact and in law, by the name stated in said certificate," &c. The persons thus signing the original certificate constitute the corporation and are the stockholders thereof. No provision is made for taking in new stockholders, except the provision for increasing the stock above mentioned, in section 19. No person can become a stockholder in the corporation, as I can see, except by purchase from one of the original subscribers and by assignment of stock. The defendant is not proved to have acquired any of the original stock by purchase or assign-; ment from either of the original stockholders, and he could not become a stockholder in any other way, unless the capital stock should be legally increased as provided for as above stated in section 19 of the said act. Unless the defendant is a legal stockholder in said company he can not, under said act, be in any way made liable, as I can see, for any of the debts of the said coal company. It is not claimed that he became liable for said debt by any express contract, or upon any other ground than as a stockholder in such company. He clearly was not a stockholder, and the plaintiff was therefore properly nonsuited at the circuit. The motion for a new trial should therefore be denied, Johnson, J. It was for the plaintiffs to establish affirmatively the liability of the intestate. The answer denied each and every allegation of the complaint, so that, in addition to the other necessary evidence, it devolved on the plains tiffs to show that the defendants’ intestate was a stockholder of the corporation which was primarily their debtor. For — 437 — this purpose they introduced the hook of the corporation, in which the subscribers to the stock thereof had severally subscribed for the samei By this, and the other evidence, it was shown that the defendants’ intestate had written his name in this hook and put opposite to it fifty shares. This was preceded by a special memorandum that one half the amount was to be transferred to Charles C¡ Miller. This subscription was shown to have been made on the 27th of January, 1857, and that the intestate and Miller at the same time gave their note for $200, payable at ninety days thereafter, for the first two installments^ The principal place of business of the corporation Was in Luzerne county^ Pennsylvania, and from the testimony it appears that it commenced its business operations there in April, 1865. By the certificate of the organization of the company, which was filed in pursuance of the statute of Pennsylvania under which the company was organized, on the 13th of April, 1865, and which was also produced in evidence, it appears that the capital stock of the company Was $50,000, divided into 2500 shares of $20 each, and that the whole number of shares had then been subscribed and taken, and one fourth of the whole amount actually paid in. There is nothing to show that any of these -shares thus subscribed and taken and partly paid for had ever been forfeited,. or in any way transferred, after they were originally taken. The whole stock having been subscribed for and taken, at the time the articles of incorporation were filed and the company became a legal being, it is manifest that subsequent subscribers, by merely writing their names in the corporation book, and affixing a number of shares to their respective names, could acquire no right to any shares of stock, or become by such an act stockholders of the corporation. There was then no stock left for them to take; and as they could get nothing, the subscription would be wholly nugatoiy. A person who subscribes regularly to the stock of a corporation becomes a stockholder in virtue of his subscription, and espe — 438 — cially sp after he has paid a portion of his subscription. This was expressly held in Spear v. Crawford, (14 Wend, 20.) In that case the subscriber had paid no portion of his subscription, nor had he done any act whatever as a stockholder, and yet the court held that he was a stockholder, and as such liable for the debts of the corporation to the amount of the stock subscribed for by him. When the stock is once all taken, the corporation has no more at its disposal, unless it shall get back a portion thus taken, by forfeiture. . This it is not shown to have done, in the case before us. If it is taken, and none of it forfeited, the only way any person could afterwards acquire any shares, by any 'possibility, would be by transfer from some one holding stock as an original taker or as transferee. The corporation can not increase its capital stock at will, in any manner, or to any extent, unless it is authorized to increase by its charter, and then only in the manner prescribed. It is not shown or pretended that the corporation in question had increased its capital, and it will not be presumed to have done so* It appearing. from the evidence that all the capital stock was taken nearly two years before the subscription by the intestate, and there being no evidence of any forfeiture of any stock so taken, or of any transfer to the intestate of any stock, it is not proved that he was a stockholder. There is no evidence to show that he ever held any stock, or that the right to any ever vested in him. The mere fact that he subscribed and gave his note, is nothing, after the stock had all been taken and the com-, pany had no stock which they could issue. It is contended on behalf of the plaintiffs, that the defendants are estopped by the subscription of their intestate’s name upon the company books from denying that he was a stockholder. But the principle of estoppel does not apply, upon the facts established bj the evidence here. It does not appear that the plaintiffs trusted the company at all on the faith of the intestate having owned stock, or that they knew his name was u]3on the books when they gave the credit. If the presump — 439 — tion is to be indulged that they examined to see who were stockholders, they presumption is equally strong that they ascertainad that befere the date of his subscription the entire amount of stock had been taken, so that he could not obtain stock in that way. I am of the opinion, therefore, that the plaintiffs were properly nonsuited on that ground alone. [Monroe Generar Term, September 3, 1866. A new trial must therefore be denied. Welles, P. J. concurred. New trial denied. Welles, Johnson and A Darwin Smith, Justices.]