McDermott v. Donegan

Currier, Judge,

delivered the opinion of the court.

Donegan is sought to be charged as garnishee of the St. Louis, Cairo and Johnsonville Packet Company, on the ground of an alleged indebtedness for an unpaid balance claimed to be due on his subscription to the capital stock of that company. He subscribed $2,000 of the stock, and paid $1,000, leaving a balance *89 o£ $1,000 unpaid. The balance, the plaintiff, a creditor o£ the company, seeks to reach by this garnishment proceeding; but Donegan avers, as a reason why he should not be held to pay this balance, that his subscription for the stock was obtained fraudulently, by means of false statements and representations respecting the organization, standing, and condition of the company, at the time the subscription' was made, and respecting also its business and financial situation and prospects. He avers that the company never had any legal organization; that $850,000 in stock was never subscribed and paid in, nor subscribed at all in bona fide subscriptions, as the charter required as a condition precedent to its right to make and collect calls upon such stock as had in fact been subscribed. Issues were joined upon these allegations, and the evidence given upon them at the trial was conflicting. At the solicitation of the defendant (garnishee), the court instructed the jury: first, that in order to a recovery by the plaintiff, the jury must be satisfied from the evidence that $350,000 of the capital stock of the company had been subscribed and paid in. The court also, at the request of the defendant, gave a second instruction, apparently intended to embrace the same legal principle incorporated in the first, but expressed in general and abstract terms. The plaintiff complains that these instructions are erroneous, containing false propositions of law, and that they are otherwise misleading and prejudicial to him.

The plaintiff seeks to recover a debt alleged to be due from the garnishee to the packet company. He proposes to succeed to the rights of that company; and whatever would defeat the company in a suit in its favor to recover the alleged balance will also be fatal to a recovery in this proceeding. (Drake on Attach. § 672.) This proposition is not contested, but it is objected that the court, by its first instruction, given at the request of the garnishee, interposed an obstacle in the way of a recovery, which would not exist if the suit were directly in favor of the packet company, to-wit: that $350,000 must have actually been paid in, as well as subscribed, in order to warrant a verdict for the plaintiff.

This objection is well taken. The instruction would seem to *90 have been given on an inspection o£ the second section of the act incorporating the packet company, without comparing it with the residue of the act. This section provides that before the company shall proceed to the transaction of the business intended to be prosecuted, the sura of §850,000 must first be paid in, as well as subscribed. The business to be done was the construction of wharf-boats, steamers, etc., and the carrying on of a general freight and transportation business, as provided in the next succeeding section of the act. It is, however, provided in the fifth section that the grantees named in the charter shall constitute a board of commissioners “ to open books for subscription to the capital stock of said company, * * * and for such amounts as in their judgment the business of the company may require, but for no less amount of subscription than §350,000.” The section then provides that, ‘ ‘ within twenty days from the closing of the subscription called for by the commissioners, an election for directors shall be held, under the inspection of said commissioners.” The mode of election and the number and term of office of the directors is then defined. Section 4 provides that the corporate powers of the company shall be vested in these directors, and authorizes them to elect a president, etc. These sections clearly show that the company was warranted in' organizing and attaining to a corporate existence on the basis of a bona fide stock subscription of §350,000. The assessment of this stock and the collection of calls upon it were matters properly enough left to be attended to after the formal organization under the supervision of the commissioners, but the directors were not authorized to proceed with the contemplated transportation business until §350,000 had actually been paid in. This was for the protection and security of those who might deal with the company, not for the benefit of the stockholders as such — at least not for their benefit in the sense of a preliminary condition to the right to enforce collections of calls duly made upon the stock subscribed. The court was therefore wrong in directing the jury, in effect, that the paying in of the §350,000 was a condition precedent to the right to coerce payment of calls duly made upon the stock. For that reason the judgment of the court below must be reversed.

*91 Had the words “ paid in,” contained in the instruction, been omitted, it would have announced a correct legal proposition; for the directors were not warranted by the charter in proceeding to make calls and enforcing collections until the full sum of $350,000 in bona fide solvent subscriptions was actually secured. Each stockholder or subscriber had a right to insist that this basis of strength should be established before paying anything. This was for the protection of the stockholders, to secure them against the consequences of initiating the corporation without the strength and subscription resources required by the organic law of its existence. (Redf. on Rail. § 51, par. 3, and the numerous cases there cited.) The second instruction is also indefensible. It is general and abstract, and ought not to have been given. It may have done no harm, but it was not calculated to do any good, and may have misled the jury.

The result is that the judgment of the Circuit Court is reversed and the cause remanded.

The other judges concur.