Ogden Clay Co. v. Harvey

Bartch, J.: The plaintiff brought this action to recover unpaid subscriptions to its capital stock. The jury returned a verdict in its favor for 1729.60 and judgment was rendered accordingly. The defendant appeals from the judgment and from the order denying a new trial, assigning various errors. Counsel for appellant contend that the court erred in admitting in evidence the articles of incorporation, claiming that the document showed on its face that it was invalid; that the signature of the defendant was not thereon, but only on a separate and distinct paper; and that the formalities' of the statute, in relation to corporations, were :not complied with. It appears from the record that the .document contains the names of forty-six subscribers, :among them the name of the defendant; that it contains ■the usual articles, relative to the objects of the company, — 505 — the amount of capital stock, etc.; and that the attesting clause is followed by an agreement, in which the subscribers agree to pay the several sums set opposite their names, and reference is therein made to the objects of the company, and the business thereof. (The defendant admits that he signed this agreement, and subscribed to $1,000 of the capital stock.) Then follows the acknowledgment and affidavit of three of the subscribers in the usual form. It is apparent that there were irregularities and infor-malities in the organization of the company, but the evidence tends to show that the defendant was present at the meeting of the subscribers and assisted in the organization of the corporation; that he made no objection thereto for several months thereafter; and that he paid several installments of his subscription and signed the receipt for his stock. Under the circumstances, as they appear from the record, we are of the opinion that these informalities .were waived by the subsequent acts of the defendant, and that the articles of incorporation were admissible. Exception is taken to the refusal of the court to charge the jury as follows: “The court instructs the jury that they must find for the defendant Harvey if they find at the commencement of this action there was no provision in the articles of incorporation, or in the by-laws of the company, providing the time and manner of paying subscriptions to the capital stock.” This request assumes that there was no way provided to call in the unpaid subscriptions, and that no way could be provided except in the articles of incorporation or by-laws, and further assumes that the time to make such provision was limited to the commencement of this action. Sec. 2268, Comp. Laws of 1888, contains a proviso . as follows: “ Provided further, that this section shall not he so construed as to prohibit the stockholders of any corporation from regulating the mode of making subscriptions — 506 — to its capital stock, and calling in the same by by-laws or express contract.” And section 2276 Id. provides: “The corporation shall collect of the stockholders the amount of stock by them subscribed, in such installments and at such times as shall be settled by the agreement or by-laws.” These provisions make it the duty of corporations to call in the subscriptions to the capital stock in the manner provided by contract or by-laws. The law does not limit the time of making the contract or-by-laws. Nor does it direct how or when they shall be made, but it is evident that the corporation must provide a way, in the manner indicated, before it can call in its subscriptions. In the case at bar the subscribers to the stock, at a meeting held on the 28th day of February, 1890, made provision to call in the unpaid stock, by adopting a resolution as follows: “Resolved, that one per cent, of the paid-up capital stock be levied, and payable at once, and ten per cent, be payable April 1, 1890, and not to exceed twenty-five per cent, be levied monthly thereafter.” It appears that this resolution was passed at the meeting for organization, and regularly entered in the minute book of the company: There may be some doubt, under the evidence, as, to whether the defendant was present at the meeting, while it was being passed, but it is clearly shown that he paid three installments, in answer to calls made in accordance therewith, and thus having acted under and recognized it, after the organization of the corporation, he can not now be heard to assail its validity. The resolution must.be held to have the same force and effect as a by-law, at least, upon all subscribers to stock who assented to it and acted in obedience to its terms. It became one of the constating instruments of the corporation and was binding on its members, although it may not have been adopted with the same formality as a by-law. Wood’s Field on Corp. sec. 38; Green’s Brice’s Ultra Vires, — 507 — 40. Under these circumstances the request, under consideration, failed to state correctly the law applicable to this case, and was therefore properly refused. The defendant also excepted to the admission in evidence of the testimony of the witness Stevens, in regard to the subscriber’s meeting, held February. 28, 1890, and to the minutes thereof, including the resolutions passed relating to the calling in of the unpaid capital stock, and also to the introduction in evidence of the receipt of the defendant, upon the stub of the stock book, for his stock. We do not think these exceptions were well taken. Nor do we think the court erred in rejecting the evidence of the defendant, offered to show that the subscribers to the preliminary agreement never signed the articles of incorporation. There is no issue on this point in the pleadings. The defendant admits, in his answer, that he signed the paper;which became a part of the articles. Nor did the court err in refusing to charge the jury, as requested by the defendant, regarding the resolution, adopted at the meeting of the subscribers, held on February 28, 1890, and regarding the receipt and acceptance of the certificate of stock by the defendant. These requests were erroneous, as applied to the facts and circumstances revealed by the record. Nor do we consider the newly discovered evidence a ‘sufficient ground for granting of a new trial. Counsel for appellant further objects to a certain portion of the charge, relating to the agreement, signed by the subscribers to the capital stock and attached to the articles of incorporation. Upon an examination of the entire charge, and construing it as a whole, it appears to contain no reversible error. The next question for consideration is that of waiver. The defendant claims that his signature was attached only to a preliminary agreement; that it contained no authority or direction to attach it to the articles of incorporation; that he never gave his consent to have it — 508 — so attached; that the capital stock in this agreement was fixed at $50,000, and in the articles of incorporation, without his knowledge, at $100,000. These are matters which would be of avail to him if he had taken advantage of the situation in time, and repudiated the organization of the corporation. The question is, can he do so now, or is he estopped, because of his ratification of the acts of the company after it came into being as a de facto if not a de jure corporation? The statute of this Territory requires certain formalities, which are requisites of a strictly legal corporation; among these is a provision that, “They shall enter into an agreement in writing, signed by each of them',” that is, by each of the in-corporators or subscribers to the capital stock, and then further provides what this agreement shall contain, and how it shall be acknowledged, etc. 2 Comp. Laws of 1888, sec. 2268. If these requirements are not complied with, a stockholder unquestionably has a right to object to the acts of the corporation, and to refuse to have anything to do with it, or to recognize it, but he must make his objection at a seasonable and within a reasonable time. He cannot assist in its organization, participate in its meeting, pay installments of subscriptions to stock, and generally acquiesce in the acts and affairs of the concern for months, while there is a hope of a prosperous business, and then, when such hope begins to fade, and a call for the subscribers to pay in the balance of their unpaid subscriptions to its capital stock to liquidate accumulated debts, is made, insist that he ought not to be bound to pay, because the corporation has no legal existence. Nor can he sleep on his rights and take the chances of a favorable turn of affairs. The formalities, required by our statute, are useful as a protection to stockholders and others, but they may not be turned into instruments of dishonesty or fraud, either against or on behalf of a corporation. — 509 — On this question of waiver there appears to be a substantial conflict in the evidence, but, after the verdict of the jury, it must be assumed that he ratified the acts of, and- participated in carrying out the objects of, the corporation; for the question was properly submitted to them, with the result of a finding against the appellant, and no improper conduct on their part will be presumed. By his acts and assent, he recognized the company as a de facto corporation. He must therefore be held to have waived his legal rights in the premises, and to be estopped from denying its rightful existence. In Sanger v. Upton, 91 U. S. 56, the court said: “Where there are defects in the organization of a corporation which might be fatal on a writ of quo warranto, a stockholder who has participated in its acts as a corporation de facto is estopped to deny its rightful existence.” Cook on Stock and Stockholders, sec. 52; Inter Mountain Pub. Co. v. Jack, 6 Pac. Rep. 20; Athol Music Hall Co. v. Carey, 116 Mass. 471; Ogilvie v. Knox Ins. Co., 22 How. 380. We are of the opinion that the defendant is a stockholder of the plaintiff corporation, and is therefore liable for his unpaid subscription to the capital stock. Where the capital stock of a corporation remains in part unpaid, at the time of its organization, such unpaid stock becomes a trust fund for the payment of its liabilities, and may be called in by the directors, who in law are the trustees of the fund, at such times and in such amounts as may be provided by the by-laws or agreement of the corporation. This fund is to be managed, by the trustees, for the benefit of the stockholders while the corporation remains solvent, and for the benefit of the creditors if it becomes insolvent. When a person becomes a stockholder his liability is complete, and he cannot relieve himself, except by payment. There is, in law, an implied promise, on his part, that he will pay the calls made for unpaid subscriptions, so long — 510 — as he shall own the stock. Cook on Stock and. Stockholders and Corp. Law, sec. 199; Upton v. Tribilcock, 91 U. S. 45; Germantown Pass. Ry. Co. v. Fitler, 124; Wood v. Dunner, 3 Mason, 308; Webster v. Upjohn, 91 U. S. 65; Sawyer v. Hoag, 17 Wall. 610. There appears to be no reversible error in the record. The judgment is affirmed. Sicith, J., concurred.