Greater Pittsburg Real Estate Co. v. Riley

Opinion by Mr. Chief Justice Mitchell, Plaintiff, a corporation of the second class under the Act of April 29, 1874, P. L. 73, brought this action against defendant to recover the unpaid portion of his subscription to 100 shares of its capital stock. The defense set up in the affidavit was that the corporation was formed under a verbal agreement of the corporators that each should invest #250 in the stock; that although the capital was nominally placed at #25,000 and defendant was recorded as having subscribed for 100 shares yet the real agreement was that he was only to take five shares and all the rest were to be treated as “ treasury stock ” of the company [286] itself; that the understanding was ratified at a meeting of the stockholders held subsequent to the incorporation of the company and that defendant had paid the amount for which he'really subscribed, had sold his shares to one S and was not in any way connected or chargeable as a stockholder, etc. The court below held the affidavit insufficient and gave judgment. We thus have the question squarely presented whether under the circumstances a subscriber can escape from his apparent obligations in regard to the corporation. The statute requires that to procure the incorporation the charter “ must be subscribed by five or more persons, three of whom at least must be citizens,” and must set forth, inter alia, “ the names and residences of the subscribers and the number of shares subscribed by each.” A certificate for a corporation of the second class must further state that “ ten per centum of the capital stock thereof has been paid in cash to the treasurer of the intended corporation, and the name and residence of such treasurer shall be therein given. The same shall be acknowledged by at least three of the subscribers thereto, .... and they shall also make and subscribe an oath or affirmation to be endorsed on the said certificate that the statements contained therein are true.” This certificate is produced to the governor who after examination approves and directs letter patent of incorporation to be issued. These latter requirements only apply to corporations of the second class namely those for profit, and are based on considerations of public policy and the protection of parties dealing with the corporation. They are not merely formal, therefore, but substantial and mandatory. In the present case all these provisions of the statute Avere complied with by the defendant himself among others. He signed the certificate as a subscriber for 100 shares, was named in it as the treasurer of the company, and was one of the three subscribers who made the necessary affidavit that the facts set forth were true including the amount of the capital stock at $25,000, and the payment in cash to the treasurer of ten per cent, $2,500. A clearer case for estoppel Avould be hard to imagine. As against creditors, or any having proper claims on the assets of the corporation, a stockholder or subscriber is not permitted in equity to set up that his subscription .was only nom [287] inal or that he was not to pay for it: Graff v. Pittsburg, etc., R. R. Co., 81 Pa. 489 ; Robinson v. Pittsburg, etc., R. R. Co., 32 Pa. 334; and it is argued here that the suit is not by creditors, nor is there any allegation of a deficiency of assets. But the requirements of the statute are independent of the equities, and mandatory in themselves. They are the conditions precedent on which the governor, in behalf of the commonwealth, confers the franchises applied for, and having been presented and acted upon as truly performed, public policy and good faith to the commonwealth demand that they shall not be open to denial by the parties. In Rowley’s Appeal, 115 Pa. 150, it was held in the court below that a subscriber to the charter, certified as such to the governor, could not be shown by other subscribers to have had no interest in the stock and merely to have allowed the use of his name to make an apparent compliance with the statute. “ This defense if true was a plain fraud on the law. If the facts now alleged by the respondent had been truly set forth in their application the governor would not have granted them a charter. By joining in the application which set forth the complainant and others as corporators according to law, the respondents es-topped themselves from contesting the truth of that fact.” The decision was affirmed by this court, though no opinion was formally expressed on the particular point here involved. But in Sturgeon v. Apollo Oil & Gas Co., 203 Pa. 869, the same principle was applied to the declaration of parties under the statutes regulating limited partnerships, the court saying the fact that in Rowley’s Appeal it was stockholders in a corporation who sought for their own advantage to allege a violation of law made no difference in principle. “ Both stockholders in corporations and shareholders in limited partnerships organize or associate under the law because of the special privileges such organizations give them and the special immunity from unlimited liability. Their organizations must, therefore, be made in good faith in obedience to the law,” citing the passage quoted supra from Rowley’s Appeal. Judgment affirmed.