King v. International Building, Loan & Investment Union

Mr. Justice Boggs delivered the opinion of the court: It appears from the statement of facts set out in the brief of the appellant that the only cause of action is that set out in the special count of the declaration. The argument for appellant proceeds upon the same theory, and relies upon the common counts only in connection with the demand set forth in the special count. The case is presented by the appellant upon the theory the only proofs introduced in the Superior Court in making an assessment of damages under the default were such as related to the allegations of the special count. The only question referred to in the brief of counsel in this court is, whether a good cause of action was set up in the special count of the declaration. We may therefore confine our attention to the single question presented by the brief. The appellee union is a corporation organized under the provisions of an act of the General Assembly entitled “An act to enable associations of persons to become a body corporate to raise funds to be loaned among the members of such association,” in force July 1, 1879. The provisions of the act do not authorize corporations formed under it to enter into agreements with those who may become subscribers to its capital stock, that the shares issued to such subscriber shall mature at a fixed period, but require that subscriptions shall be made payable in periodical installments, (not exceeding two dollars on each share,) which periodical payments shall be made by the subscriber until such payments, together with the earnings of the union, shall equal the full face value of the shares. (Hurd’s Stat. 1897, chap. 32, sec. 83.) All contracts and agreements of such corporations to the effect that the payment of periodical installments for a fixed period shall be accepted as payment in full of subscriptions to its stock are inconsistent with the statute under which the corporation has its existence, and antagonistic to the legal purposes and plans of such organization, and not enforceable as contracts merely. (2 Morawetz on Private Corp. secs. 682, 683; 1 Thompson’s Com. on Law of Corp. 1011.) Whether the infirmity in such contracts may be removed by subsequent ratification or long acquiescence of all the other holders of stock need not be here considered, for there is no averment of that character in the declaration, and the sole question before us is, whether the averments of the declaration are sufficient to show a cause of action. It is urged the by-laws adopted by the appellee union authorized the agreement that the stock should be matured in the period of six years by the payment of the sum of seventy-five cents per month on each share during that time. If this were true, the by-laws would be ineffectual to make the agreement valid, for the reason a corporation has no power to enact a by-law inconsistent with the statute under which it was created. The agreement would operate to give the appellant an unjust preference unless entered into with all other stockholders, and if entered into with all stockholders the obligation would be mutually binding upon all holders of stock. If the business of the corporation had not been sufficiently profitable to enable it to carry out the terms of the agreement, a question would be presented whether the agreements should be abandoned as to all or enforced as against all. Corporations of this character are mutual in character. Indeed, the obligations of the shareholders are akin to those of partners in a co-partnership. The plan of issuing stock containing such agreements is entirely foreign to the purposes of the corporation contemplated by the statute under which the one at bar was organized, and we cannot but regard them as of no force and effect, and it seems no injustice will befall any stockholder because of the invalidity of such an agreement. If the amounts paid into the treasury of the union by way of installments and the earnings of the union equal the face value of the shares of stock, the shareholder would be in nowise benefited by an enforcement of the agreement. If, however, the amounts received from installments, together with the earnings, do not equal the face value of the stock, no shareholder could justly demand his fellow-shareholder should make up the deficiency to him without the same obligation should rest upon him to contribute to make good the deficiency as to each other share of stock, in which event he would lose as much as he would gain by an enforcement of the agreement. It is proper, if not necessary, in view of the finding of fact made by the Appellate Court, we should remark the certificate of stock held by the appellant constitutes her the lawful owner of the shares of stock therein mentioned. The union is a creature of the statute, and as such had full authority to receive her subscription to its capital stock. Such subscription, however, must be deemed to have been received by it and made by her in view of the statutory provisions authorizing the stock to be issued. The statute authorized subscriptions to be received payable in periodical installments of dues, but expressly declared that “the payment of such dues shall continue on each share until the same shall have reached maturity value, or is withdrawn or retired.” (Hurd’s Stat. 1897, chap. 32, sec. 83.) This provision entered into appellant’s contract of subscription and became a part of such contract. Indeed, in legal contemplation the provision is incorporated into her certificate as fully as if set forth therein at length in writing. This the appellant knew or must be deemed to have known. It controlled as against the illegal agreement that the stock should be matured at a period fixed arbitrarily, and without regard to the statutory requirement that stock should only mature when it reached par value. That illegal agreement being inoperative, the lawful contract remained in full force, and the appellant became and was the holder and owner of the shares of stock for which she subscribed. Her position now is that of a stockholder in the union, and as such she is entitled to all the rights and privileges which, under the statute and the by-laws of the union made in pursuance of the statute, appertain to a holder of shares in its capital stock, but not to any privilege not also secured by the statute to her fellow-shareholders. It follows she is not entitled to demand re-payment of dues paid by her to the union, except upon withdrawal or retirement of her stock in accordance with the provisions of the statute, and such by-laws as the union may have adopted in conformity with the statute. The judgment of the Appellate Court is affirmed. Judgment affirmed.