Busey v. Hooper

Bowie, J., delivered the opinion of the Court. Two prominent questions are presented by the record in this cause, either of which is decisive, without inquiring into all the minor and collateral issues raised in the briefs, viz: 1st. Had the complainants such adequate and complete remedy at law, as would deprive them of the aid of a Court of Equity? 2d. If the complainants have a right to equitable interposition, have they established their claim to the relief prayed for? The jurisdiction of the Court depends upon the allegations of the bill. They furnish the facts (sometimes termed jurisdictional,) which determine whether the remedy is at law or in equity. They may show a case, for which there is an adequate and complete remedy at law; or such, as is only cognizable in equity; or cases of concurrent jurisdiction, in which the Courts of Equity interpose to restrain or prevent irremediable injuries, in aid of Courts of law. The appellees (the defendants below,) insist that the bill in this cause belongs to the first class of cases: that the complainants have an adequate and complete remedy at law, by an action for damages, and therefore the injunction should be dissolved. The learned Judge who decided this case below has adopted this view, and referred to a number of cases as sustaining his conclusion. It may be said of those cases generally that they ivere actions at law, in which the powers of a Court of Equity were not in question, and the specific remedy alluded to was a mandamus, which though a proceeding at law is sometimes compared to a bill in equity. We will refer to a few of these cases by way of illustration. Gray vs. The Portland Bank, 3 Mass. Rep., 364, was a special action on the case for damages accruing to the plaintiff, from the refusal of the defendants to deliver to him certificates for certain shares of stock. — 26 — Sewall, J. said that in the case of the “King vs. The Bank of England,” (2 Douglas, 524,) it was decided that the Court will not grant a mandamus, because there is a remedy by an action on the case if they refuse; which Lord Mansfield said would lay for a complete satisfaction, equivalent to a specific relief. In the principal case then under consideration, a specific relief or restoration of the stock was not. demanded by the action, and it was not (said the Court,) within the reach of the Court by any authority they could exercise. In the matter of Shipley against the Mechanics’ Bank, 10 Johns., 484, the application was for a mandamus. The Court said “ the applicants have an adequate remedy at law by a special action on the case, to recover the value of the stock, if the bank have unduly refused to transfer it. There is no need of the extraordinary remedy by mandamus in so ordinary a case. It might as well be required in every case where trover would lie. It is not a matter of public concern, as in the case of public records and documents, and there cannot be any necessity, or even desire of possessing the identical shares in question.” In the case of The King vs. The Bank of England, the Court said “ they never grant a mandamus except for public purposes, and to compel the performance of public duties.” There is no parallel between a bill for an injunction and receiver as in the present case, and a petition for a mandamus ; the reasons for rejecting the one do not apply to the other. The case of The Union Button Mole Co., 12 Allen, 273, was an action at law for damages for non-delivery of certain certificates of shares of stock, in which no question could be raised as to the authority of a Court of Equity, to protect by injunction vested rights. The bill in this case is not a bill for specific performance of a contract, or in the nature of an application for a mandamus; but, claiming to be stockholders in a' corporation, the complainants charge certain illegal, irregular, and fraudulent proceedings against — 27 — the defendants in violation of the charter, and pray for an injunction, discovery and appointment of a receiver to protect their rights. The preventive power of a Court of Equity to be exercised by injunction, is recognised in numerous cases, as the appropriate remedy for such injuries. In Campbell & Voss vs. Ellicott, Poulteney & Co., 6 G. & J., 102, certain stockholders of the Union Bank of Maryland filed their bill in equity against other stockholders, charging that the latter, in violation of the charter, had caused a number of shares to be transferred without consideration to unknown persons, and had taken powers of attorney to vote their stock, thereby obtaining an undue and increased vote in the election of directors, and prayed an injunction. It was objected, the remedy was by mandamus or quo warranto. After full argument, the Court (by Buchanan, C. J.) declared the matter of the bill furnished a sufficient ground for the interposition of a Court of Equity. The facts stated (it was said,) are in violation of the charter, and if carried into effect would be a practical fraud upon the appellants, and in derogation of their chartered rights, for the protection of which an injunction was the proper remedy. To the same effect, Angel and Ames on Corporations, p. 396, (note 2); 6 Allen, (Mass. Rep.,) 52; 40 N. H. Rep., 549. Assuming that the bill is not objectionable on the ground that the complainants have an adequate and complete remedy at law, let us inquire whether they have alleged or proved such a title or interest in the stock of the Citizens’ Railway Company, as entitles them to be treated as stockholders, and to invoke the aid of a Court of Equity to protect their rights by injunction, etc. Without recapitulating all the allegations of the bill, it is sufficient for this purpose to state that after setting out a copy of the Act of incorporation of “ The Citizens’ Railway Company,” in which as is alleged, it is provided by the eighth section, “that the parties in said Act named should choose — 28 — from their own number a president, and the remaining incorporators, or a majority of them should act as a board of directors for the management of the affairs of the Company, until the first general meeting of the stockholders,” it is charged that a majority of the parties in said Act named, accepted the same as required, and books of subscription to the capital stock were formally opened as required by section eight of said Act, and contained the following agreement: “We, the undersigned, agree to subscribe for, and hereby do take the number of shares opposite to our respective names, in the Citizens’ Railway Company; the capital stock of the company shall not be more than three hundred thousand dollars, and it shall be divided into shares of twenty dollars each. As soon as two thousand shares have been subscribed, we severally promise to pay five dollars per share for each and every share subscribed by us, at the office of the treasurer, A. P. Burt, No. 30 Second street, when receipts will be given signed by the treasurer and countersigned by the president. The remaining instalments shall be called for as the board of directors may find necessary for building, equipping and running the road. Each shareholder shall be entitled to one vote, either in person or by proxy, for each share of stock held; but every number of shares equal to one-tenth of the whole number subscribed shall be entitled to elect one trustee, and to that end, at the first ballot for trustees, no member shall vote for more than one trustee, and every person receiving the one-tenth of the votes cast shall be a trustee. At the second or other ballots, those receiving the highest number of votes cast shall be trustees to fill the vacancies if any remain after the first ballot; but any shareholder holding more than one-tenth of the shares, may vote at the first ballot for as many trustees as he has tenths of the whole number of shares.” “J. S. Hagjgrty, President. A. P. Burt, Treasurer.” — 29 — The complainants charge they subscribed collectively for 8,015 shares of stock, more than a majority of the whole number of shares, as appears by a copy of the aforesaid agreement, and signatures therewith filed. On reference to this Exhibit, it appears that W. M. Busey subscribed for 8,000 shares on the 17th February, 1871; the subscriptions of Bankard and McCurley, have no date; but Bankard is immediately before, and McCurley’s immediately after Busey’s. They further charge that they have at all times been ready and willing to comply with all their legal undertakings, whenever thereunto legally required. That certain corporators therein named, declined and refused to act as such corporators, and there only remained Hooper, Richardson, Burt and Snowden, to perform the duties of corporators, and as a board of directors under the provisions of section eighth of said Act: that Snowden refused to act with the remaining persons, who being but three in number, did not constitute a majority of the corporators, after the election of a president, and were incompetent by reason thereof, to perform the duties required of them. That notwithstanding the above, the three remaining corporators did, on the 24th of February, 1871, issue a call for the payment of five dollars per share, and at the same time publish a notice for the election of officers on the 28th of March, 1871. The complainants further charge they did not make any payment, because the person named as treasurer had not been legally elected, and because the parties who issued the call had no right to do so. It thus appears from the bill, the complainants were mere subscribers, who refused to comply with the terms of their own subscription, upon grounds which they allege either suspended or invalidated the contract. According to their own showing, the corporation had been previously organized under the provisions of section eighth. Books of subscription had been regularly opened; terms of subscription prescribed and signed on the part of the president — 30 — and treasurer, and these terms subscribed by the complainants, thus recognizing the authority of the officers; yet repudiating these terms and disregarding the condition precedent, they claim the benefit of a contract which they have wholly violated. Where a corporation has gone into operation, and rights have been acquired under its charter, every presumption should be made in favor of its legal existence. Hagerstown Turnpike Co. vs. Creager, 5 H. & J., 125. If the Act of incorporation was accepted, and the company organized provisionally under the charter, no subsequent withdrawal of any of the corporators would effect its vitality. But the answer denies that there was any such reduction in the number of the corporators, and at this stage of the proceedings we assume the answers to be true when uncontradicted by the evidence. The contract of subscription was between the corporation on the one hand, and the subscribers on the, other; it is not competent for one of the contracting parties, under such circumstances, to question the regularity of its organization, or the authority of its officers. Having refused to pay the instalment, (which became due according to the terms of the subscription,) as soon as two thousand shares were subscribed; an event which occurred simultaneously with the subscription of the eight thousand shares by the complainant Busey, and of which no notice was required, being due by the terms of the contract, it remains to inquire what right, if any, was acquired by their subscription. In the language of the authorities, “ the promise of the complainants, the subscribers, to take the shares subscribed by them respectively, when taken in connection with what precedes and with the Act of incorporation, is a promise not only to take the shares, but to pay for them; to take them on the terms and'conditions set forth in the subscription paper.” Angell & Ames on Corp., see. 519; Spear vs. Crawford, 14 Wend., 20. The law is now considered as settled, that the obligation of actual payment is created in all cases by a subscription to a — 31 — capital stock, unless the terms of the subscription are such as plainly to exclude it. Palmer vs. Lawrence, 3 Sandford Rep., 161; Elysville vs. Okisko Co., 5 Md., 152, and cases cited in Angell & Ames on Corp., 492, note 2d. (Decided 10th January, 1872.) •¡None of the cases decide that the mere fact of subscribing to the stock of an incorporated company, constitutes the subscriber a stockholder, but that such subscription puts it in his power to become a stockholder, by compelling the corporation to give him the legal evidence of his being a stockholder, upon his complying with the terms of the subscription. Spear vs. Crawford, 14 Wend., 24. The terms of the subscription in the present case so far from excluding, expressly require the payment of $5 per share, as soon as two thousand shares shall have been subscribed, as preliminary to the qualification of stockholders, who were to elect the permanent president and directors of the company. This payment was a condition precedent, without which there could have been no permanent organization. Upon payment of that instalment of $>5 per share, receipts were to be given signed by the treasurer and countersigned by the president. “ The remaining instalments (says the agreement) shall be called for as the board of directors may find necessary for building, equipping and running the road.” The appellants, (the complainants below,) having failed to comply with the conditions and terms of their subscription to the capital stock of The Citizens’ Railway Company, without any default on the part of the corporation or their officers, have not such rights or interests in the stock as to entitle them to the continuance of the injunction. The order dissolving the injunction is affirmed. Order affirmed.