Pittsburgh & Connelsville Railroad v. Clarke & Thaw

The opinion of the court was delivered by Lewis, C. J. This is an action to recover the instalments due on a subscription to the stock of the Pittsburgh and Steubenville Railroad Company. The plea of payment admits the original liability of the defendants, but the defence is that eighty shares of the number originally subscribed, were transferred to Edwin M. Stanton, on the 25th May, 1852., It is not necessary, in this case, to decide the general question whether a transfer of stock will relieve an original subscriber from his express engagement to pay the instalments, when required by the directors. Our duty will be performed when we give a construction to the 7th section of the act of 19th February, 1849. That section directs certificates to be delivered to the persons entitled to receive them, “which evidences of stock shall be transferrable at the pleasure of the holder, in a suitable book to be kept by the company for that purpose,” “in the presence of the president or treasurer, subject, however, to all payments due or to become due thereon; and the [151] assignee or party to whom the same shall have been so transferred, shall thereupon be a member of said corporation, and have and enjoy all the immunities, privileges, and franchises, and be subject to all the liabilities, conditions, and penalties incident thereto, in the same manner as the original subscriber would have been: Provided, that no certificate shall be transferred so long as the holder thereof is indebted to said company, unless the board of directors shall consent thereto: And provided, that no such transfer of stock shall have the effect of discharging any liabilities or penalties theretofore incurred by the oivner thereof.” Taking these two provisoes together, they very plainly declare that a stockholder who is “indebted” to the company, shall not transfer his stock without the “ consent” of the “board of directors,” and that such transfer, even with the consent of the board, shall not discharge “ any liabilities or penalties theretofore incurred by the owner thereof.” Is an original subscriber who has bound himself in writing to pay $50 per share, but who has only paid $5 per share on his subscription, “ indebted” to the company within the meaning of the act ? Why should this question receive a negative answer ? His engagement to pay the money is as much a debt as any other engagement for the payment of money. A debt may be contracted for stock in a railroad company as readily as for anything else. It is true that the debt is payable by instalments, when required from time to time, by the directors. But it is none the less a debt on that account. It is debitum in presentí solvendum in futuro. It is a present debt payable at a. future day. It is well settled that the lien given by statute to a corporation upon the shares of stockholders “ indebted” to it, extends to all debts whether payable presently or at a future time, except where the statute limits the lien to debts actually due and payable, and that a stockholder indebted to the corporation, although the debt may not be due, cannot transfer his stock without the consent of the corporation: Rogers v. Huntingdon, 12 S. & R. 77; Grant v. Mechanics’ Bank of Philadelphia, 15 S. & R. 140; Sewall v. Lancaster Bank, 17 S. & R. 285. It is very clear that the defendants, at the time of the alleged transfer of their stock, were “ indebted” to the company to an amount nearly equal to the whole of their subscription. They had therefore no right whatever to transfer their stock without the consent of the board of directors. It is true that as between them and the purchaser, if the latter thought proper to contract for a contingent or uncertain interest, the transfer might be good for some purposes: 8 Pick. 90 ; 9 Pick. 202; 2 Cowen 770. But it passes no title to the stock, and confers no “ privileges, immunities, or franchises” whatever, upon the purchaser. The consent of the board of directors is in itself the originating act in the change of title, and does not merely operate to perfect the conveyance previously begun: Marlborough Manufacturing [152] Company v. Smith, 2 Conn. Rep. 579; Newton v. Bridgeport Turnpike Company, 3 Conn. Rep. 544; Oxford Turnpike Company v. Bunnell, 6 Conn. 552. So long as the stock remains unpaid, the corporation has a right to refuse to receive new members in place of the original adventurers. Until the stock is fully paid up, and the stockholders otherwise free from debt to the company, they have no right whatever to introduce strangers into the company in their places. A right which depends upon the consent of others is no right at all. The transfer to Mr. Stanton was therefore of itself a nullity. An attempt was made to give it vitality by parol evidence from which the consent of the board of directors was to be inferred by the jury. But there is no evidence tending to show that the question was ever presented to the consideration of the board, or that any action was taken by the board in regard to the transfer. In ordinary business transactions between a corporation and strangers, the authority of agents and the existence of contracts may be implied from acquiescence and other circumstances. So, where the assent of the board is required by a by-law only, the execution of the by-law may be modified by the practice of the corporation : Insurance Company v. Smith, 1 Jones 126. But where the act of incorporation grants a power, the mode prescribed by the statute for its exercise must be strictly pursued: 5 Barb. Sup. Court Rep. 649; 2 Cranch 127. The question here is, whether one member of a corporation has been legally substituted for another. The title of the original stockholder was established by written evidence, and could have no legal existence without it: Thames Tunnel v. Sheldon, 6 B. & Cress. 341. The title of the substitute must be shown by evidence of the same character. It is the duty of the directors to keep minutes of their proceedings, and the proper evidence of their assent to a transfer is a- recorded resolution adopted when the board was in session. Where the transfer is made by a director, it ought further to appear that the resolution of assent was carried without his vote. If the resolution was adopted and entered on the minutes, the loss or destruction of the entry might be supplied by parol proof. But in no other case can parol evidence be received to show that an assignee has been admitted as a member of the corporation, in the place of the assignor. There was no legal evidence of the assent of the board of directors to the transfer, and therefore no legal evidence of a valid transfer of the stock. If there had been, we do not see how the defendants can claim to be discharged by it from “ liabilities” previously incurred. Their subscription to the stock of the company, created a liability to be called upon for payment in such instalments as the directors required. Conceding that it was not an obligation for present payment, and supposing, for a moment, that it was not strictly a debt, it was certainly a “ liability,” which is a word of more extensive signification than “ debt.” The Act of Assembly is express [153] in its direction that a transfer, even with the assent of the board, “ shall not have the effect of discharging any liabilities or penalties theretofore incurred by the owner” of the stock. We see no reason for restricting this proviso to “ liabilities,” which had become due and payable before the transfer. It is sufficient to bring a “ liability” within the proviso that it had been “ incurred” by the owner before the transfer. It is not necessary that it should also have become due and payable. The clause which declares that the stock transferred shall be “ subject to all payments dice or to become due thereon,” makes no such discrimination. The object of the legislature was to secure all liabilities, without respect to the time when they would be at maturity; and neither the creation of a lien on the stock transferred, nor the personal liability imposed on the assignee, can have the effect of releasing the original subscriber from his express contract to pay the money. It is a familiar principle that a creditor, by taking any number of securities for a pre-existing debt, does not thereby release the original obligation. To produce that effect, there must be an agreement to accept the new securities in' satisfaction of the prior indebtedness. Nothing of that kind can be inferred from the language of the act. The clause which gives to the assignee the advantages, and subjects him to the disadvantages, of a member of the corporation “in the same manner as the original subscriber would have been,” was intended to fix the extent of the assignee’s liability; and not to limit or release that of the assignor. The words “ would have been” are therefore altogether insufficient, in the connexion in which they stand, to perform the important office of releasing the original subscriber from his contract. Before the transfer he would have been liable to the seizure of his dividends and the forfeiture of his stock, as well as to an action on his contract. By the transfer, this liability was changed so far as regards the lien on his stock, and he remained liable to an action on his contract alone. But the new stockholder is made liable to the lien as well as to the action, “ in the same manner as the original subscriber would have been” if he had made no transfer. This is what we understand this part of the section to mean. If, however, the meaning were doubtful, we are very clear that there is nothing in the language used which should control the clear declaration contained in the last proviso, that' “no such transfer shall have the effect of discharging any liabilities or penalties theretofore incurred by the owner” of the stock. This view of the ease renders it unnecessary to inquire into the motives for making the transfer. Whether made in good faith or not, the original subscriber is not thereby released from his contract. As the evidence stands on the paper-book, the defendants have [154] no defence whatever, except to the extent of their payments made. If the case should wear the same aspect on a second trial, the evidence relative to the other grounds of defence, ought to be rejected, and a peremptory direction given to the jury in favour of the plaintiff. Judgment reversed and venire facias de novo awarded.