Heinze v. South Green Bay Land & Dock Co.

BabdbeN, J. This action is against the defendant corporation, and the other defendants as stockholders, to recover of them for services rendered under a contract with the cor — 104 — poration., and for which, it is claimed the defendants are liable under sec. 1773, S. & E. Ann. Stats. This section provides that' “no such corporation shall transact business with any others than its members, until at least one half of its capital shall have been duly subscribed and at least twenty per centum thereof actually paid in; and if any obligation shall be contracted in violation hereof, the corporation offending shall have no right of action thereon; but the stockholders then existing of such corporation shall be personally liable upon the same.” This is the section that was in force when the alleged liability was created, and the defendants’ rights must be tested by it, and not by sec. 1773 of the present statutes, as was erroneously supposed by the trial court. Iiis conclusions in denying relief to plaintiff were based upon the assumption that there never had been any officers of the corporation legally elected; that no corporate action had ever been taken with reference to the alleged contract; and that the defendant stockholders never had knowledge of or acquiesced therein. It seems to be practically conceded that the corporation came into existence by the filing of the articles of organization on February -7, 1895, and also that all of defendants became stockholders except the defendant Hollman. Concerning him we shall have something more to say later on. There is a suggestion in respondents’ brief that Elmore and Vanider Zee did not become stockholders, but as it is conclusively shown that they subscribed for stock, accepted office in the corporation, and assumed to act as directors in the transaction of corporate business, they are not now in a position to deny such relation. The contract in suit was made with the president of the company, Mr. MwrTcs. Its enforcement is now denied, upon the ground that as such officer he had no authority to make it: fiirst, because he was not the president de jwe or dé faeto of the corporation; second, because he had no power to make such a contract. — 105 — The first contention, is based upon the ground that there was no proof that the signers of the articles ever assented to or accepted the subscription to stock, and hence there were no stockholders at the time of the alleged election of the board of directors. It is unnecessary to inquire how much force would be given to this suggestion if the controversy were between the original parties. This is not such a case. Here the rights of an innocent third party are involved. Maries was elected to office at a meeting of certain of the signers who had elected themselves directors. He acted as an officer of the corporation with the knowledge of, and upon direct authority conferred by, the board. He was recognized as such by the corporation, and his title to the office cannot be tried in a collateral proceeding. Barthell v. Hencke, 99 Wis. 660. Such of the defendants as assisted in putting him in that position, and who have since acted with him," as against third. parties are estopped from questioning his title to the office. As regards the second ground, the solution is equally easy. One of the by-laws of the company gave him a general supervision of the entire business of the company, and authority to sign all contracts. In addition, the act in question was directly in line with the general purpose and course of business of the corporation, and necessary in order to fully carry out the corporate purpose. The rules laid down in the following cases are applicable here: Ford v. Hill, 92 Wis. 188; Senour Mfg. Co. v. Clarke, 96 Wis. 469; Northwestern F. Co. v. Lee, 102 Wis. 426; Hiawatha I. Co. v. John Strange P. Co. 106 Wis. 111. There is no question but that all of the defendants, with the possible exception of Hollmcm, knew the work was being done. They aided, assisted, and directed its progress. They were present at different times as it was being carried on. They knew, or must be presumed to have known, that the division of the land into lots and blocks was in — 106 — furtherance of the ostensible purpose of the corporation. The plaintiff came to them with a letter from Mcurhs. The work he entered upon was necessary in order that the prop-ertjr might be developed as contemplated. The circumstances were amply. sufficient to put the defendants upon inquiry as to the source of plaintiff’s authority to do the work. As officers of the company they directed his operations, and it is now too late for them to say that they had no knowledge of the contract, even if that fact should be considered a defense. The fact that they had a secret agreement with Maries that no corporate liability should be incurred until he had provided sufficient funds to pay does, not relieve the defendants from liability, if in fact the work was done for the corporation. A stranger dealing with the corporation without notice of such agreement cannot be affected by it. As officers and directors of the company they were, chargeable with'some degree of diligence in the management of corporate affairs, and they cannot stand idly by, knowing the corporation tvas receiving the benefit of plaintiff’s labor, and escape liability under the statute on the plea that they did not know the terms of his contract. This much has been said to meet the theory upon which this case was tried in the court below. We have ' already determined that the president wras clothed with apparent authority to make this contract. It was a contract with a person not a member of the corporation. The obligation thereby contracted was in violation of the statute, which makes the stockholder's personally liable. Such liability is. not made to depend upon knowledge or acquiescence by the individual stockholders. It rests rather upon their relation to the corporation, which, as we have seen, they are not in a position to deny. What has been said has been based upon the assumption that stock payments have not been made as required by the statute. We are now met for the first time in this case, it — 107 — is .said, by the claim that the evidence shows that seventy per cent, of the capital stock had been paid in at the date of the alleged contract. The complaint alleges that no payments upon stock had ever been made. Upon the trial it was shown that the capital stock was 10,000 shares, for which Marks subscribed 9,996 shares, and the other defendants one each. It appears that the' land upon which the work was done had been owned by the Allouez Improvement Company, who conveyed it to Maries, subject to certain mortgages and liens, on February 14,1895. He paid no money, but gave a mortgage for about'$44,000 for the purchase money, and assumed the prior mortgages and liens. At a meeting of the directors on February 7,1895, a resolution was passed that the company negotiate with Maries for the purchase of this land at a price not exceeding $1,000,000, payable in the stock of the company. On February 27,1895, Marks conveyed this property to the company for a recited consideration- of $700,000. There is no record of any action on the part of the corporation under the resolution of February 7th; no proof of any negotiations between the company and Maries; no word in the records that this conveyance was received as a payment on stock. Rut we are asked to assume that because this conveyance was made, and the consideration was recited to be $700,000, this was a payment of seventy per centum of the stock of the company. No such assumption can be justified, first, because there is no. proper evidence to support it; and, second, because the circumstances show that the land was mortgaged for its full value. It is said that thereds no allegation in the complaint attacking this transfer. It is alleged that nothing was ever paid on the stock. No' attempt was made on the trial to show-payment in any way, except a random remark by Maries that he transferred land to the company and took stock in payment. The records failed to show any such transaction, and we cannot assume that such was the fact in the face of the other proof in the case. — 108 — Mv. Hollmcm was dropped out of the case on the ground that he was never a stockholder. The record shows that he subscribed for one share. In his deposition he admits •that he was a stockholder and. acted as president of the corporation at a date subsequent to plaintiff’s employment. Unexplained, the court would be justified in assuming that his membership dated from his subscription and its acceptance by the corporation. At least, there was sufficient in the case to justify submission of the question to the jury. It may be that he is in a position where he may insist that his subscription was never accepted by the corporation, and that he has been guilty of no act, as against-the plaintiff, that would estop him from taking advantage of that fact. We leave that matter to be considered and determined on a new trial, when all the facts are before the court. By the Oowt.— The judgment of the circuit court is reversed, and the cause is remanded for a new trial.