Hager v. Cleveland

Incorporation of a Manufacturing Company under Article 26 of the Code — Individual liability of a Stockholder for a debt of the Company — By tohat acts a Stockholder is Estopped from denying his Liability — Effect of a transfer by a Stockholder of his stock in a Manufacturing Company, upon his Liability for a Debt of the Company — Evidence. ■ Where the requirements prescribed by section 40 of Article 26 of the Code, as necessary to the incorporation of a manufacturing company, are complied with, and the certificate is recorded, the persons who signed and acknowledged it, become a body corporate, entitled to, and possessed of the functions of a corporation as effectually as if the same had been by a direct grant from the State. Where a stockholder in a manufacturing company, incorporated under Article 26 of the Code of Public General Laws, knowing that the whole capital stock has not been subscribed, participates in the organization of the company, attends its meetings, is one of the directors, and privy to the contracting of a debt by the company, he will not be heard in an action against him to enforce his individual liability for the debt, to the extent of the stock subscribed for by him, to deny the regularity of the organization of the company, or to sot up as a defence, a partial subscription of the capital stock. The transfer by a stockholder of his stock in a manufacturing company, incorporated under Article 26 of the Code, does not exonerate him from personal liability for a debt contracted by the company when he was a stockholder, and before the whole capital stock was paid in; his liability is in the nature of a contract made between the company, its creditor and himself, and is in no way affected by the transfer of his stock. In an action by a creditor of a manufacturing 'company, incorporated under Article 20 of the Code, against a stockholder to enforce his individual liability for the debt contracted by the company, the books of the corporation relating to its private transactions, are not admissible in evidence.

Appeal from the Circuit Court for Washington County. This was an action brought by the appellees under the provisions of sec. 52 of Article 26 of the Code of Public General Laws, to recover of the appellant a debt due them by the Antietam Manufacturing Company of Washington county, and contracted when he was a stockholder in the company. At the trial below, the plaintiffs gave in evidence the certificate of incorporation of the company, and the record thereof; which certificate was filed some time in May, 1867; and proved that the defendant was one of the parties who acknowledged said certificate to be their act and deed. They then gave in evidence three notes, each for the sum of $3,000, payable to the plaintiffs, executed by the president of the manufacturing company in the year 1868, and also» an account or accounts due by the company to the plaintiffs; and also gave in evidence the minutes of proceedings of the company, showing its admission of indebtedness to the plaintiffs and authority for executing the notes; and further gave in evidence a mortgage or deed of trust by the company to William T. Hamilton and others; and further gave in evidence by the treasurer of said company, that the amount of capital stock subscribed to the Company was $92,600, of which the sum of $67,000 was paid in, and that $66,000 of this sum was so paid in before the 5th day of February, 1869; that the defendant was a director in the company up to the time ho transferred his stock, which was on or about the 10th of February, 1869; that the defendant paid up the whole of his stock, amounting to $5,000, as it was called; that the company had a settlement with the plaintiffs and gave notes for the amount due, and that the present indebtedness of the company to them was about $10,000. The plaintiffs then rested their ease. The defendant then gave in evidence certain minutes and proceedings of the company; and further proved that the capital stock was originally fixed at $50,000, and that he was a subscriber for fifty shares, $5,000; that when he signed the certificate of incorporation the capital stock was fixed at $50,000; that he paid up his stock in full, and that on the 10th day of February, 1869, lie transferred it to his son, Jonathan H. Hager, upon the transfer book of the company before the institution of this action. The plaintiffs then for the purpose of rebutting the testimony of the defendant, proved by a, witness that he copied from a paper furnished him by his brother, the certificate of incorporation of the company, and when it was written and read to his brother* he said there was a mistake in it; the capital was to be $150,000, and not $50,000; and that he, the witness, then corrected the mistake by interlining the words “one hundred and,” and neglected to make the corresponding correction in the number of shares; that the certificate of incorporation offered in evidence, was the identical paper he so copied and interlined; that the interlineation was made before any name had been subscribed to it; thought that no name was subscribed to the paper from which he made the copy, but was not certain. Upon all the evidence the plaintiffs submitted the following prayers: 1. If the jury believe that the paper-writing given in evidence as a subscription of stock to the Antietam Manufacturing Company of Washington county, .was signed by the parties whose names appear thereto, or any five of them, and that they, or said five of them were, at the time, free white persons, and that they, or said five persons acknowledged the same before John Cook, and that said Cook was at the time a justice ,of the peace of the State of Maryland, in and for Washington county, and that the said paper was then recorded in the office of the clerk of the Circuit Court for Washington county; and if they shall further believe from the evidence that the defendant was a stockholder in said company, specified in said paper, to the amount of $5,000, or for fifty shares at $100 each, and that, whilst the defendant was such stockholder, the said Antietam Manufacturing Com-, pany of Washington county became indebted to the plaintiffs in the sum of $10,000 or thereabouts, and that the entire amount of said indebtedness was contracted whilst said defendant remained such stockholder, and said debt still continues due and unpaid; and if the jury shall believe from the evidence that the capital stock of said company was not taken or paid up to the full amount specified in said paper-writing, at the time of bringing the plaintiffs’ suit or since, then the plaintiffs are entitled to recover from the defendant the said sum of $5,000, the amount of his subscription, and the verdict should be for the plaintiffs for that amount, notwithstanding the jury may believe from the evidence that the defendant transferred his stock before or since the bringing of this suit. 2. [Identical with the first, except that it contained the following clause, which came immediately after the word “since” in the twenty-third line of the first prayer:] And shall believe that one-half of said capital stock of $150,000 had not been paid up within one year after the incorporation of said company, or after said paper was left for record as aforesaid. 3. If the jury shall further find, in addition to the facts set forth in the plaintiffs’ first prayer, and which is made a part of this, that the interlineation of the words, “one hundred and,” in said paper-writing, was on said paper at the time it was acknowledged by the defendant and other signers thereto, specified in the acknowledgment taken before John Cook and thereto appended, then the defendant is not discharged from his liability to the plaintiffs in this action by reason of said interlineation. 4. If the jury shall believe, front the evidence, the facts stated in the first and third prayers of the plaintiffs, and made part of this, that the said paper-writing, with the interlineation therein, was delivered to the clerk of said Circuit Court to be recorded, by the president and directors of said company, or that the same was so delivered with their authority, then the defendant is not discharged from, his liability to the plaintiffs in this action. The defendant then offered the following- prayers: 1. That the plaintiffs, to recover in this action, must first show to the jury that they have taken legal proceedings against the said company to enforce payment of their claim, and have prosecuted the same to judgment, and .the plaintiffs having offered no evidence of any such proceeding in this causé, are not entitled to recover. 2. That if the jury find that the capital stock of said company was fixed and limited by the corporation at $50,000, and that the same was all paid in before the institution of this suit, then the plaintiffs are not entitled to recover. 3. That if the jury shall find that the capital stock of said company was fixed and limited by the corporation at $50,000, and shall further find that the same was paid in, one-lialf in one year, and the other half thereof in two years from and after the incorporation of said company, then the plaintiffs are not entitled-to recover; provided, the jury further find that'the whole amount of said capital stock was paid in before the institution of this suit. 4. That if the jury find that the Avhole amount of the capital stock of said corporation was fixed and limited by the original certificate thereof at $50,000, and was so written therein, and that the said certificate so written was, on the 21st of May, 1867, delivered to the clerk of the Circuit Court for Washington county as the Act of incorporation, and that the said clerk so received and endorsed the same for record, and that afterwards, and before the actual recording thereof, the directors of said- company, or certain of them, and without a general meeting of the stockholders of said company called for that purpose, increased the capital stock of said company from $50,000 to $150,000, and interlined such increase of stock in said original certificate, after the same was as aforesaid delivered to the said clerk and endorsed as aforesaid, but before the actual recording of the same, then such alteration of said certificate and increase of said stock is void, and said capital stock remains fixed at $50,000, as first written in said certificate, if so found; and if the jury further find that the said capital stock was paid in, one-half thereof in one year, and the other half thereof in two years, from the 21st of May, 1867, wdien the same was incorporated, and shall in addition find that the w'hole amount of the capital stock, so fixed, was paid in before the institution of this suit, then the plaintiffs are not, entitled to recover. 5. If the jury find that the defendant, before the bringing of this suit, in good faith assigned the stock held by him on the books of said company, in accordance with the by-laws thereof, and that at the time of the bringing of this suit he W'as not a stockholder in said company, then the plaintiffs are not entitled to recover. 6. That the certificate or paper purporting to be the article of incorporation of the Antietam Manufacturing Company of Washington county, given in evidence to the jury, is not a good and sufficient incorporation of said company, and that said company is not legally incorporated, and the plaintiffs are not entitled to recover. 7. That the certificate of incorporation of said company, and the record thereof given in evidence, by the legal construction thereof, fixes and limits the capital stock of said company at fifty thousand dollars, and that if the jury believe the same was fully paid in before the institution of this suit, then the plaintiffs are not entitled to recover. 8. If the jury find that the interlineation “one hundred and,” in the certificate of incorporation given in evidence, w'as made after the signing and acknowledging of the same by the defendant, and without his consent, then the plaintiffs are not entitled to recover with this qualification, without his consent, either before or since said interlineation. 9. That the signing or subscription by the defendant to the original certificate of incorporation given in evidence to the jury, and as thereunto signed or subscribed with the number of shares and amount of stock extended to his name, is not a subscription to the capital stock of said company, and does not constitute the defendant a stockholder therein, but that such signing or subscription is wholly for the purposes of incorporation, and the plaintiffs are not entitled to recover. The Court (Motter and Perry, J.) granted all the prayers of the plaintiffs and rejected all those of the defendant, except the fourth and eighth; but granted the fourth with the following qualification: “ Unless they shall further find that at the time of such withdrawal, if they should find it was withdrawn, and for the purpose aforesaid, the said Hager ivas one of the directors of said corporation, and was acting and consenting to said' withdrawal for the purpose aforesaid.” The defendant excepted to the granting of-the prayers of the plaintiffs and to the rejection of his prayers, as also to the qualification attached to his fourth prayer. Three exceptions were taken to thé admissibility of evidence; two by the plaintiffs and one by the defendant. The defendant excepted to the admission of certain evidence, including certain minutes of proceedings of the company. The verdict and judgment being' for the plaintiffs, the defendant appealed.