Windsor Electric Light Co. v. Tandy

TYLER, J. This is an action of. general assumpsit brought by the plaintiff company to recover of the defendant an assessment upon his subscription for shares of the plaintiff’s capital stock. After the defendant had rested the court directed a verdict upon the ground that the action could not' be maintained in the absence of an express promise. It appeared in evidence that the defendant arid eight other persons, on Feb. 21, 1890, associated themselves together •as a corporation, under ch. 153, R. L., as follows : “We, the subscribers, hereby associate ourselves together ■as a corporation under the laws of the state of Vermont, to be known by the name of the Windsor Electric Light Co., for the purpose of furnishing electric light, electric heat and electric power at Windsor, in the county of Windsor, in the state of Vermont, with a capital stock of five thousand dollars, divided into two hundred shares of twenty-five dollars each. Dated at said Windsor, this 21st day of February, A. D. 1890.” The articles of association were duly recorded July 3, 1890, in the office of the secretary of state, whereupon the corporation was organized, by-laws were adopted and officers were elected as provided by the statute. At a meeting held Nov. 29, 1890, it was voted to assess the stock one hundred cents on each dollar subscribed, and the assessment was made payable Dec. 15, 1890. The defendant’s subscription was as follows : [251] “ Frank H. Tandy, ----- 80 shares,” following which were the names and subscriptions of the other eight subscribers. Section 3260, R. L., ch. 152, provides that when a proprietor in any corporation does not pay a tax or assessment laid or assessed by such corporation, agreeably to the bylaws thereof, the treasurer may sell, by public auction, the shares of the delinquent under such regulations as the corporation, by its by-laws, directs. There was no provision In the by-laws that the plaintiff might sell delinquent stock, as is permitted by this section of the statute. The plaintiff claims that the defendant’s subscription to the capital stock raised an implied promise by him to pay all assessments lawfully laid upon his stock, and that the statutory remedy was merely cumulative. The defendant contends that, as there is'no provision for the enforcement of payment of assessments either in chapter 153, in the bylaws, or in the articles of association, the plaintiff’s only remedy is by a forfeiture and sale, as provided in section 3260. When the defendant and others,' by articles, had associated themselves together pursuant to the provisions of the statute, and the articles had been recorded and certified by the secretary of state, and the corporation had been organized, and all the conditions precedent required by the statute had been complied with, those persons became a body politic and corporate under the laws of the state. The plaintiff’s corporate existence was then and thereby established, and the defendant became, by the act of subscription, a stockholder. His subscription is presumed to have been accepted by the plaintiff, and it was binding upon it and upon the defendant, the prospective rights of membership being a sufficient consideration to support the contract. Beach on Pri. Cor., ss. 63 and 513; Hartford & New Haven R. Co. v. Kennedy, 12 Conn. 499. [252] Whether the defendant, by becoming a stockholder, incurred a personal liability to pay his proportion of such assessments as should be laid upon the stock, can best be determined bjr inquiring what the relation was which he assumed towards the corporation by the act of subscription. By agreement the entire capital was to be five thousand dollars, divided into two hundred shares of twenty-five dollars each. The defendant subscribed for and agreed to take eighty shares, and the corporation, by accepting his subscription, became obligated to assign that number of shares to him. It seems clear, then, that the defendant impliedly promised to contribute towards the entire capital as much money as his number of shares represented, and in such instalments and at such times as the corporation should require. In Lake Ontario, etc., R. Co. v. Mason, 16 N. Y. 451, it was held that the defendant’s subscription to the articles was, in effect, a contract to pay for the shares for which he subscribed. Dayton v. Boist, 31 N. Y. 435; Phoenix Warehouse Co. v. Badger, 67 N. Y. 294; Merrimac Mining Co. v. Levy, 54 Penn. St. 227. Morawetz on Pri. Cor., s. 56, says that such a subscription does not constitute a mere executory contract of sale, but that the liability to pay the amount of the shares is an incident of the contract of membership ; that the moment the subscriber assumes the status of a shareholder he becomes entitled to the rights and privileges incident to membership, and is liable to all the obligations of a stockholder, and must contribute the amount of capital subscribed by him. In section 128 the same writer says that the liability is not merely to pay for the shares for which he has subscribed, but to contribute to the capital of the company in proportion to the number of shares he has taken. See notes to same section. In Massachusetts, Maine and New Hampshire a different rule has obtained. In those states it has [253] been held that, unless there is an express promise to pay for the shares, the subscriber incurs no personal liability. In Essex Bridge Co. v. Tuttle, 2 Vt. 393, the plaintiff’s stock had been divided into 200 shares of $20 each, and Tuttle subscribed for ten shares. Hutchinson, J., said that having acquired title to that number of shares the defendant might well be considered as accepting the proposion to take the shares at that price; that the consideration might be considered as executed; that the defendant ought to make payment according to the mutual understanding between himself and the company; that the legal effect of his subscribing was to render himself liable. When that case was decided there was no remedy by statute against delinquent stockholders. The court refers to this fact, and the defendant relies upon it in the present case. He also relies upon Conn. & Pass. R. Co. v. Bailey, 24 Vt. 465. There the main question was whether the defendant, by the terms of his subscription, expressly promised to pay the plaintiff for the stock. The court in deciding that question said that unless there was an express promise for such payment the plaintiff must proceed by a forfeiture of the stock and the payments made thereon, as that was the only remedy prescribed by the charter, and referred to the earlier Massachusetts cases which are here relied upon It was held, however, that there was an express promise, so that the question whether the defendant would have been liable, by virtue of his subscription, to contribute according to the number 01 shares he had subscribed for, was not before the court, and what was said in respect to the remedy in case no express promise was found must be regarded as obiter. In R. & B. R. Co. v. Thrall, 35 Vt. 536, the action was assumpsit for assessments. The defendant, in his subscription for stock, expressly promised to pay assessments as they should be laid by the plaintiff’s directors, upon their compliance with certain conditions. The charter provided [254] that, upon non-payment, the directors might declare a forfeiture of all previous payments. In that case the clause in the charter in respect to forfeiture seems to have been regarded as sufficient to warrant a forfeiture and sale of the stock of shareholders who were delinquent in the payment of assessments as well as a forfeiture of previous payments, if any had been made. (pp. 541, 51). The defendant offered in evidence resolutions that were passed by the directors relative to a forfeiture and sale of all stock upon which assessments remained unpaid, which offer was excluded; but it does not appear from the manner in which the case is reported that the defendant relied upon the provision in the charter relative to a forfeiture as a defence to the action. Judge Aldis said in the opinion : “At an early day in railway enterprises it was claimed, that where provisions for forfeiture were embodied in the charter, the corporation could not sue for subscriptions, but must and could enforce the payment of them only by proceedings in forfeiture. But it has long been held that the right to sue and to declare stock forfeited co-exist, and that the latter proceeding is merely cumulative. Such it was intended to be in this charter.” * * * While the case cannot be regarded as authority upon the point here in controversy, we think that the rule stated in the extract quoted from the opinion is the more just, and ought to be adopted rather than the one that prevails in some of the other states. It was not necessary that the defendant should expressly promise to pay for his shares, or to contribute his proportionate amount of the $5,000 capital. The promise is clearly implied, and the action can be maintained upon it. The remedy by forfeiture is only cumulative. Judgment reversed and cause remanded.