Custar v. Titusville Gas & Water Co.

1. Where representations made by an agent to obtain subscriptions to stock of a corporation are a part of a scheme of fraud participated in by its officers; or where the representations are such as the agent may reasonably be presumed to have authority to make, they may be given in evidence to show the fraud by which the subscription was procured. 2. Where there is no reasonable presumption of authority and no actual authority, the corporation will not be prejudiced by the acts of the agent. 3. Where the representation of the agent is contrary to the interests and duty of the corporation, e. g., that he will release a subscription that he is taking, it is not a reasonable presumption that he has such authority. 4. A subscriber on such terms would be particeps criminis, and held to all the responsibilities of a bond fide subscriber. 5. A subscription to stock is a contract between the subscriber and the corporation, governed by the same rules of honesty and fairness as apply to ordinary contracts. 6. An act of incorporation provided that delinquent subscribers “ should pay interest for delay at the rate of 5 per cent, per month,” &e. Held, that the 5 per cent, is a penalty.

Error to the Court of Common Pleas of Crawford county: No. 145, to October and November Term 1869. This was an action of assumpsit to February Term 1867, by The Titusville Gas and Water Company, to the use of Stephen Parish, against George Custar, for the recovery of his subscription for 10 shares of the capital stock of the plaintiffs. The company was incorporated February 17th 1865, with a capital of $50,000, in shares of $50 each, with privilege to the directors to increase the same. Sect. 5 provided that if any subscriber should neglect to pay any instalment called for by the company at the time and place appointed and it shall remain unpaid for 30 days he shall in addition to the instalment pay interest for the delay at the rate of 5 per cent, per month, and the company may recover the said instalment and interest or forfeit the amount already paid as the directors may choose. The plaintiffs gave in evidence a subscription paper for stock of the company, signed October 30th 1865 by the defendant (amongst others) for “ Ten shares — $500.” They gave evidence that the first instalment was called January 22d 1866, for 10 per cent., payable immediately; the second payable May 5th for 10 per cent.; four other instalments, of 20 per cent, each, were called, payable respectively June 9th, July 14th, August 27th and September 25th 1866. The defendants offered to prove: by Joseph Barnsdall, “ That lie is a subscriber to the capital stock of the company of plaintiff for ten shares made before the subscription of the defendant; and that when he made his subscription the president of the company agreed with him that he should not be called on to pay said subscription, and thus to show a fraud on bonfi fide subscribers, to be followed by evidence of like agreements with other subscribers.” And by J. H. Broas, “ That he was induced to subscribe to the stock of the company by the declarations of the president and secretary, acting for the company, that the subscriptions made were bond, fide, and he was induced to change his subscription from six shares to twenty-six shares, on receiving from the president of the company a release in writing, from the payment of the twenty shares, and that he was a subscriber before the defendant, for the purpose of showing fictitious subscriptions that would be a fraud on the defendant.” Also “ that the subscriptions of many others of the subscribers were those of irresponsible persons.” These offers were all rejected, and several bills of exception sealed. The defendants gave in evidence the minutes of the company of August 11th 1865, showing that on that day 1000 shares— $50,000 — the authorized capital stock — had been subscribed; also, minutes of October 18th 1865, showing that the subscribers to the above 1000 shares of stock had transferred them to J. N. Angier and others; also, an act approyed Eebniary 17th 1865, repealing so much of the act of incorporation as provides for the payment of interest at 5 per cent, per month for delay in paying instalments. The plaintiffs, in rebuttal, gave in evidence their minutes of October 18th 1866, at which time it was resolved that the capital stock be raised to $75,000; also, resolved that J. N. Angier, &c., be requested to transfer back to the company the stock which “they obtained from the original stockholders.” The request was “acceded to by Messrs. Angier,” &c. It was also resolved that the secretary open a stock book and solicit subscriptions, &c. The defendant requested the court to charge the jury:— “ 1. That if they find that $50,000 of the capital stock of the Titusville Gas and Water Company was subscribed and taken before the date of the subscription of defendant, and that there had been no resolution by the board of directors increasing the same, prior to that date, the company had no stock for which the defendant could subscribe, and the plaintiff cannot recover in this action. “ 3. That the act of the 15th of April 1869, having repealed so much of the act of incorporation of the Titusville Gas and Water Company, approved the 17th day of February 1865, as allowed a penalty of five per cent, per month on subscriptions not paid, the plaintiff cannot recover the same, there being no law now in force authorizing the collection thereof. “ 4. The act of the 17th of February 1865, being a private act of legislation, the penalty imposed by its provisions for the non-payment of subscriptions cannot be enforced unless, the defendant is shown to have had actual notice thereof.” The court (Vincent, J.) charged:— “ The date of October 18th 1866, under which the transfer of stock to the company was made, and stock book as claimed opened, is so clearly a mistake, that we treat it as of the proper date, viz. October 18th 1865, for the very next entry is Nov. 14th 1865, and the next December 11th 1865, at which time the subscription to stock was reported, which includes that of the defendant in this suit. “The subscriptions then reported amounted to $57,600, of which $20,000 had been subscribed before defendant made his subscription. * * * “ The defendant subscribed for ten shares, or $500 worth of the stock of the company. “’The directors of the company called for his subscription at various times until the whole amount was called for — no part of the amount subscribed has been paid.” * * * “ Some time after the last call was made, this suit was brought to recover the said subscription, with the interest allowed by the act of incorporation.” * * * “We think the defendant is liable to the plaintiff for the amount of his subscription, if he had notice of the calls made by the company. “ But the defendant contends that even if the plaintiff is entitled to recover, he can recover only the amount of his subscription.and legal interest, or six per cent, per annum, and not five per cent, per month or' sixty per cent, per annum. The act of incorporation calls this five per cent! per month ‘ interest,’ and says, the delinquent subscriber shall pay it in addition to the instalment called for, if he fails to pay for a period of thirty days after the time fixed for payment, and authorizes the company to sue for and recover ‘said instalment and interest thereon,’ or if any money has been paid, to forfeit that, at its option. “ There is no provision for forfeiting or selling the shares as in most acts of incorporation. It is contended that this five per cent, per month is a penalty imposed upon the delinquent subscriber, and no part of the contract — that being a penalty it can only be collected by force of the statute authorizing it, and that inasmuch as by an act approved April 15th 1869, the legislature has repealed so much of the 5th section of the act of incorporation as allows the plaintiff to ‘ sue for and recover’ this five per cent, per month, the right to recover for that is gone. [“We are not without a doubt as to the amount of interest allowed by the act of incorporation, but we think the interest payable is as much part of the contract as the subscription itself, and that the company’s right to the interest was as much a vested one at the end of thirty days after the call, as the right to the instalment.] “If the right was thus vested, the legislature could not take it away, and for the purposes of this case we charge, that the right was so vested, and the plaintiff is entitled to recover both instalment and interest, subject to your opinion as to the fact of notice having been given as we have before stated. “We answer defendant’s points as follows:— ’“1. We cannot answer this as requested, because the minutes of the company show, that at the time the defendant made his subscription, all the stock taken August 11th 1865, had been revested in the company, and beside that $25,000 of new stock had been created, none of which had been subscribed, nor was it all subscribed when the defendant made his subscription. “3. We answer this in the negative. “4. We answer this in the negative. The act of incorporation was spread out in full upon the books of the company before subscriptions were made.” The verdict was for the plaintiffs for $1298.75. The defendant took a writ of error and assigned for error:— 1, 2 and 3. The rejection of his three offers of evidence. 4, 5 and 6. The answers to the points. 7. The part of the charge in brackets.