Academy of Music v. Flanders Bros.

Hall, Justice. This, like the case of Hendrix vs. The Academy of Music, determined at September term, 1884, of this court,* invokes the right.of this corporation to recover the amount subscribed by each of those who thereby agreed to become shareholders, before the entire amount of the capital stock required by its charter had been subscribed. The pleas filed here were, in substance, the same as those then relied on, and which we held, if proved, were sufficient to defeat the action. In that case, there was no evidence of any express or implied ratification by the stockholder of the action of the corporation in commencing and carrying on [22] business before the capital stock was all taken, or in authorizing an amendment of the charter, which allowed it to mortgage the whole of its effects in order to raise .money to prosecute to completion the enterprise for which it was created. In this case, however, there was some evidence on both these points, and it was insisted that the defendants were thereby estopped from denying their liability to pay for the stock they had promised to take. 1. It was certainly contrary to the provisions of the law for this corporation to act before the amount of its capital stock had been taken, and ten per cent of that amount had been paid in, and without a compliance with this condition, it is clear that it exceeded its powers in thus commencing and prosecuting its business; its action was ultra vires and void, and any promise or undertaking which induced it to pursue such a course was in contravention of the law, and could not be invoked as an' estoppel in a suit to recover the amount of stock subscribed. Scovill vs. Thayer, 105 U. S. R., 143, is directly in point, and settles the principle which must control this case. The well considered and exhaustive opinion of Mr. Justice Wood deals with every aspect of the questions -here made, and establishes, beyond doubt, that the acts which it is insisted were ratified by the defendants were incapable of ratification. 2. The verdict in this case was rendered on what is claimed to be the defendants’ 5th plea, which sets up the alteration of the charter of the company, in a material particular, without the concurrence and against the consent of defendants. It is now insisted that this was not in itself a complete plea; that, taken alone and regarded as entirely distinct from the others, it forms no issue; that a verdict rendered on it is without foundation or meaning; and that it can have no legal effect. If this position could be sustained by the facts, and by the law, it would be decisive of the motion for a new trial, as it would be impossible to uphold the verdict by any reasonable intendment, [23] or proper construction, however favorable, and would make a clear case of necessity for setting it aside. Upon looking into the record, we find, howevei', that the special pleas are so connected that it would be difficult to separate them, so as to treat any of them as independant of those which preceded it. We take it that the numbers on the margin of each of them in pencil were thus placed there for the convenience of the court and counsel in distinguishing the various subjects which they embraced, and that these pencil memoranda really formed no part of the pleas themselves; and thus regarding the matter, we are satisfied that all the j ury intended by the verdict was that the principal fact distinctly set forth in the plea, numbered 5, was proved, and that, under the law given them in charge, this barred the .plaintiff’s recovery. Now, was the amendment of this charter, in a material particular, which enabled the corporation to erect this structure with money raised by mortgaging its entire property, instead of that paid in for stock, unless it had been made by the concurrence and with the consent of the defendants, binding upon them ? In other words, did it release them from the payment of the amount subscribed by them for stock, especially where it is undisputed, that but little over half the capital stock had been previously subscribed for in good faith ? The general rule is that “ a corporation is not bound by an act of the majority of its shareholders, unless the majority were authorized by the charter to do the act on behalf of the corporation.” Morawetz Priv. Corps., at the end of section 50. “A plain illustration of the inability of a majority,” says this author, §53, “ to exceed the powers conferred by the charter, is furnished by those cases in which an attempt was made to accept a new charter, or an amendment to an existing charter, by a vote of the stockholders. Here no question of the authority of the company to act in a corporate capacity could arise, since the legislature had given its consent to the change. The only question presented for solution was, have a majority of the shareholders in a [24] corporation the power, by their vote, to accept an alteration of the common charter, on behalf of the company, without having been authorized to do so by unanimous consent? The answer was, that a majority have no such power, and that an alteration cannot be made without the consent of every individual stockholder. This follows, necessarily, if a contract can be altered only with the consent of all the contracting parties. Everybody knows that if several men enter into a valid contract, it cannot be fundamentally altered but by unanimous consent. Why should a different rule prevail as between corpora-tors ?’’ The reason of the rule is given in other sections of the author, notably in §§51, 52, 54, 55, 414, 13, 315, 354, 355 and citations, especially the New Orleans, etc., Railroad Company vs. Harris, 27 Miss., 517, 537, 539, and the very elaborate and able opinion pronounced by McCay, J., in Central Railroad Company et al. vs. Collins et al., 40 Ga., 615 et seq. It will be observed that a majority of shareholders, acting lawfully and regularly under a corporation in all respects valid, have no such power as that insisted on by the indefatigable, learned and astute counsel for the plaintiff in this case. Still less has a corporation, though legally chartered, but acting in violation of the rules of law prescribing the performance of certain conditions before they can act in a corporate capacity, the power to accept an alteration of its charter by a majority vote of its shareholders, so as to be valid and binding upon the minority, who are at liberty to dissent therefrom. Upon principle and analogy, and according to the reasoning of the authorities cited, this would release the original subscribers to the stock from their obligation to pay for it. The contract as altered, is not that to which they assented when they agreed to take this stock. The result of this trial was the only one that could have been reached. The verdict for the defendants was required by both the law and the evidence, and a finding for the plaintiff would have been so manifestly contrary to both [25] as to compel the court upon proper proceedings to set it aside. We therefore feel gratified that we are able to find law to sustain this verdict, and trust that we shall be pardoned for indulging the hope that this will be an end to all attempts upon the part of this corporation to collect stock from their subscribers, at least until they have fully complied with all the conditions entitling them to make such demand. Judgment affirmed. Footnotes [*] 73 Ga., 437.