Selma, Marion & Memphis Railroad v. Anderson

Chalmers, J.,

delivered the opinion of the court.

This is a suit brought by the railroad corporation against defendant, to recover a subscription to the capital stock of the former by the latter. There was verdict and judgment in the court below for defendant. The errors assigned are the admission of certain testimony and the giving of two charges. The testimony admitted and excepted to was made by defendant in proper person, to the effect that he had been induced to subscribe to the enterprise by the false and fraudulent representations of N. B. Forrest, the president of the corporation, who stated that “ he had sufficient means in hand or in view to construct said railroad,” which representations were publicly made and were well known to “ the directors of the railroad, and were allowed to go uncontradicted by them, and that he, defendant, relied upon the same, *832 having confidence in said Forrest, and no access to the books of the company.” The record discloses no testimony showing that in point of fact these representations, if made, were either false or fraudulent.

In connection with this testimony, the court instructed the jury that “ no mere opinion expressed by the agent, N. B. Forrest, in procuring said subscription, amounts to a fraud upon the rights of defendant, nor do they constitute a sufficient reason to avoid his contract; but if the jury believe from the evidence, that the defendant was induced to make his subscription by reason of the false and fraudulent representation of said Forrest as president and agent of plaintiff, of matters within his knowledge, or which it was his duty to have known as president, as to any existing material fact, or as to any past transaction of a nature calculated to influence defendant in making his subscription, then said contract of subscription is void, and the jury will find for defendant.”

Both branches of this instruction correctly announce the princeples of law enunciated by them; but the first branch only, which announces that no mere expression of opinion on the part of the agent of the corporation would avoid the contract, seems applicable to the facts as disclosed by the record. We will not say that a case might not arise where a statement upon the part of the agent as to the pecuniary condition and prospects of his corporation would not avoid a subscription, but it must be a case where both the falsity and the fraud of such representations are clearly shown, and where it is manifest that the condition of the enterprise constituted a material inducement to the subscription. To hold that every subscription to an inchoate undertaking like this can be avoided, because some enthusiastic or reckless agent has boasted of its resources or prophesied its speedy completion, would be to nullify, perhaps, a majority of such contracts. To escape from a subscription on this ground, several things must concur. It must be shown that the statement was not uttered as an opinion, but as an ascertained and existing fact. It must not only be false in fact, but must be also either known to be so by *833 the party uttering it, or his position must be one that made it his duty to know the truth. The resisting subscriber must show that lie acted upon such statement; that his own position was such as warranted him in so acting, and that the statement was as to a iact material to the question of his subscription. Even with these limitations, it will not avail if the representations are as to matters controlled by the charter, and as to which the subscriber is legally bound to know that the agent has no right to make representations inconsistent therewith. Wight v. Shelby R. R., 16 B. Mon., 4 ; Irvin v. Turnpike Co., 2 Penn., 466 ; Andrews v. Ohio & Miss. R. R. Co., 14 Ill., 169 ; Ellison v. M. & O. R. R. Co., 36 Miss., 572 .

As to matters not controlled by the charter, false and fraudulent representations, which come within the limitations above noted, and by which a party has been entrapped into a subscription to a public enterprise, will avoid the contract just as fraud avoids contracts of every character. Waldo v. Chicago, St. P. & F. du L. R. R., 14 Wis., 625 ; Crump v. United States Mining Co., 7 Grat., 352; Wert v. Crawfordsville & Alamo T. Co., 19 Ind., 242 ; Crossman v. Penrose Perry Bridge Co., 26 Penn. St., 69; 63 Ind., 381 ; 2 Head (Tenn.), 23.

So far as the record discloses, none of the essential facts above specified existed in the case at bar. It is not shown whether the statements alleged to have been made by the’president of the railroad were made as matters of opinion, or as existing facts. It is not shown whether they were really true or false, nor whether they were material to the question of defendant’s subscription ; nor whether his subscription was made because he was, by said statement, induced to make it, and would not have made it but for the belief thereby engendered in his mind that the company “ already had means enough in hand, or in view, to complete the road.”

It was therefore improper to admit the testimony, standing as it did alone, and it was erroneous to give the instruction without further proof to which it could be applied.

The other assignment of error is, as to the action of the court *834 in giving the second charge on behalf of defendant. By said charge, the jury were instructed that “ where an act of incorporation fixes the amount of capital stock of the enterprise, and the number of shares into which it shall be divided, the corporation can make no assessment nor call upon the individual stockholders until all the stock has been subscribed, unless either expressly or by implication, a different intent appears either in the charter or in the subscription.” The jury were further told that if they believed that the act incorporating plaintiff company required the sum of three hundred thousand dollars to be paid in before any call could be made upon the subscribers, and that plaintiff had failed to show that this had been done, they must find for the defendants.

It seems well settled that where the charter of a corporation provides for or authorizes a stipulated amount of capital stock, divided into shares of a specific number, on value, no assessment can be made against the subscribers until the whole amount has been subscribed, unless a contrary intention is manifested in the charter or in the subscription. The reason given is that the subscriber for each share knows that the total expense of the enterprise may require the whole or a part of the stock subscribed ; that, therefore, his share will bear its proportionate part of this expense, and he has, consequently, a right to demand that nothing be exacted from him until he has the number of coshareholders contemplated in the charter. Salem Mill Corp. v. Ropes, 6 Pick., 23 ; Central Turnpike Co. v. Valentine, 10 id., 142; Peoria R. R. Co. v. Preston, 35 Iowa, 116 .

The instruction is, nevertheless, faulty in several respects. It submits to the jury the legal construction of plaintiff’s charter. The legal effect of written instruments is a question for the court and not for the jury. It seems intended to strike at the fourth clause of the charter, which relates to the organization of the company, rather than at the third clause, which specifies the amount of capital stock and its division into shares.

If the charge was intended to raise the question of whether[the *835 company was duly organized, then it is an attack upon the character in which plaintiff sues, and such an attack can only be made by a plea under oath, denying the character assumed. Rev. Code, § 683; Reed v. Benton & M. R. R. & Bank Co., 4 How., 257 .

But if, by the charge, it was intended to assert that plaintiff could make no call upon its stockholders until the whole amount of three hundred thousand dollars, authorized by the third clause of the charter, had been subscribed, then it is erroneous, because it is plainly implied by the eighth clause that this shall not be necessary. This last mentioned clause seems to have been expressly drawn to meet the rule announced by the cases above cited. It provides that each subscriber may be required to pay ten per cent, of his subscription at the time of making the same, and that “ no further payment of stock shall be demanded until in the opinion of the board a sufficient amount of capital stock has been subscribed, with the means and credits of the company, to complete and construct said road, and a resolution expressing that opinion should be entered upon the minutes of the board,” etc. Acts of 1859, pp. 55, 56. Manifestly this provision contemplates an assessment and call upon the subscribers before the whole capital stock had been subscribed, upon the conditions enumerated in the clause, and plaintiff would only be required to show that these conditions had been complied with in order to maintain its suit.

The instruction, therefore, in any point of view, is erroneous.

The case is reversed and remanded, and new trial awarded.