New Hampshire Central Railroad v. Johnson

Eastman, J.

According to the views which the court have taken of this case, it is not necessary to go fully into all of the exceptions which were raised upon the trial, and we shall allude to several of them but briefly.

It is objected that the declaration sets up an absolute subscription, while the book imports only a conditional one, the condition being “ provided the road goes through East Weare.”

The case finds that the defendant’s name was upon the book before this provision was added, and that the addition was made at his suggestion. He first subscribed for the shares without the proviso, and that appears to have been added without the assent of the plaintiffs. Had the book been in the possession of the plaintiffs, and so continued, before the proviso was added, the addition could not probably have been made without their consent. It is clear that it could not, after they had agreed to take the defendant as a stockholder. But if it was affixed before, the defendant surrendered the book, and while it was legally within his control, it might be said that he never fully agreed to take the shares except upon the condition stated.

Were this a matter material to the case, and did we consider the variance established, the declaration could be amended upon terms, so as to save the plaintiffs’ rights. So far as the declaration is to be regarded, we think the action need not be defeated.

It is said that the defendant was not a shareholder, and on that account was not liable to be assessed. But he subscribed the book, agreeing to take the shares. He stated that the amount upon the book that could be relied upon was §5,600, and his name was of the number that went to *402 make up this sum. His name was entered upon the records of the corporation, and he subsequently stated that he had taken five shares. The treasurer also offered him his certificate for the shares. This evidence was competent to show him a stockholder, so far as to make him liable for assessments upon this ground, and were there no other objections to the assessments, we think the defendant could not relieve himself from liability. Chester Glass Company v. Dewey, 16 Mass. Rep. 94, 100 .

It was also objected that the defendant’s shares were not sold to pay the assessments prior to the bringing of this action, the charter providing that if any subscriber shall neglect to pay his assessments, the directors may order the treasurer to sell his shares at public auction, and that such delinquent subscriber shall be held accountable for the balance, provided the shares shall sell for less than the assessments, with interest and costs of sale.

Upon this question, the authorities are not agreed. The doctrine in New York and some other States appears to be, to hold the provision in the charter to sell the shares as a remedy merely cumulative, and to sustain an action for assessments, without an express promise to pay, and before resort is had to a sale of the shares. Troy Turnpike and Railroad Co. v. McChesney, 21 Wend. 296; Herkimer M. and H. Co. v. Small, 21 Wend. 273 ; 2 Hill 127 ; Mann v. Currie, 2 Barb. Sup. Ct. Rep. 294; Northern Railroad v. Miller, 10 Barb. Sup. Ct. Rep. 260; Mann v. Cook, 20 Conn. Rep. 178 ; Freeman v. Winchester, 10 Smedes & Marshall 577; Stokes v. Lebanon and Sparta Turnpike Co., 6 Humph. 241 ; Selma and Term. Railroad v. Tipton, 5 Ala. Rep. 787 ; Beane v. Cahawba and Marion Railroad Co., 3 Ala. Rep. 660 ; 2 Bibb 577 .

In Massachusetts the doctrine is otherwise, and it has there been held that where there is no express promise to pay the assessments, the remedy, in the first instance, is by a sale of the shares. Worcester Turnpike v. Millard, 5 Mass. Rep. *403 80 ; Andover and Medford Corporation v. Gould, 6 Mass. Rep. 40 ; Chester Glass Co. v. Dewey, 16 Mass. Rep. 94 ; New Bedford and Bridgewater Turnpike v. Adams, 8 Mass. Rep. 188 .

And this is declared to be the rule in Franklin Glass Co. v. Alexander, 2 N. H. Rep. 380 .

Upon an examination of the authorities and upon principle, we think the true rule to be this : that where a party makes an express promise to pay the assessments, he is answerable to the corporation upon such promise for all legal assessments, and may be compelled to its performance by action at law, before resorting to a sale of the shares. It is a personal undertaking beyond the terms of the charter. Where, on the other hand, he only agrees to take a specified number of shares, without promising expressly to pay assessments, then resort must first be had to a sale of the shares to pay the assessments before an action at law can be maintained. His agreement simply to take the shares is an agreement upon the faith of the charter, and by it alone is he to be governed, so far as his shares are to be affected. He takes them upon the conditions and law of the charter. They exist only by virtue of the charter, and are to be governed by the provisions therein contained.

Where the subscription for shares contains a promise to pay the assessments, and the conditions of the subscription have been performed, there is no doubt that an action of assumpsit can be maintained, in the first instance, for all legal assessments. South Bay Meadow Dam Co. v. Gray, 30 Maine Rep. 547 ; Smith v. Natchez Steamboat Co. 1 How. 479 ; Salem Mill Dam Corporation v. Ropes, 6 Pick. 23 ; Central Turnpike Corporation v. Valentine, 10 Pick. 147 ; Townsend v. Goeney, 19 Wend. 424 ; Glover v. Tuck, 24 Wend. 153 ; Dutchess Cotton Manuf. Co. v. Davis, 14 Johns. 238 . And several of the authorities cited to the above points, sustain this also.

As the subscription in this case contains a promise to pay *404 assessments, the objection that the shares have not been sold under the provisions of the charter, cannot prevail.

There are two or three other exceptions which we pass over, as they are not essential to the decision of the case ; and we come to the consideration of the objection that the capital stock was not all subscribed for, and the shares not all taken when these assessments were made. And this question we regard as decisive of the plaintiff’s rights. Its consideration shows that the action cannot be maintained.

The defendant’s position is this : that he cannot be held to pay the assessments upon these shares, because the number of shares fixed by the charter were not subscribed for when the assessments were made, the charter providing for twenty thousand, and there being only three thousand and eighty-two taken.

While there are conditions expressly incorporated into the contract of subscription for stock, or where conditions can be legally inferred from the terms of the contract to take shares, those conditions must be fulfilled before the liability to pay assessments attaches. Thus, if the subscription shall be that the the subscriber shall not be holden, or assessments shall not be made until a certain number of shares shall be subscribed for, this condition being precedent to the liability of the subscriber must be made to appear, before he can be compelled To pay assessments.

When the conditions are unambiguously expressed in the contract of subscription, the question of liability, so far as the subscription itself is to be regarded, is easily solved. But when the subscription is general in its terms, to take the number of shares affixed to the name of the subscriber, the question is not always so readily decided.

In the case of the Littleton Manuf. Co. v. Parker, 14 N. H. Rep. 543 , the act of incorporation provided that the members might divide the capital stock into as many shares as they might think proper. By a written agreement, the subscriber fixed the capital stock at $50,000, divided into *405 five hundred shares of §100 each, but only one hundred and thirty-eight shares were subscribed for; and it was held that no assessment for the general purposes of the corporation could legally be made until all the shares were taken.

In Central Turnpike Corporation v. Valentine, 10 Pick. 142 , the act of incorporation provided that the stock of the corporation should be divided into four hundred shares of §75 each ; and that no person should be held to pay a greater sum than §75, on any share by him subscribed for; and the subscription papers contained a promise of the subscribers to pay the sums which should be assessed on their shares — in an action brought by the corporation against a subscriber for stock to recover an assessment laid for the general purposes of the corporation, it was held, that the plaintiffs must prove that the whole number of shares were taken up before the assessment was láid.

This decision was founded upon that of Salem Mill Dam Corporation v. Ropes, 6 Pick. 23 , where the broad principle was laid down that no legal assessment could be made for the general objects of the act of incorporation until all the shares should be subscribed for. In a subsequent case between the same parties the same principle was reaffirmed.. Salem Mill Dam Corporation v. Ropes, 9 Pick. 187 ; and so also is the doctrine of the case of Cabot and West Springfield Bridge v. Chapin & a., 6 Cush. 50 .

Such, likewise, appears to be the English rule. Pitchford & a. v. Davis, 5 Meeson & Welsby 2; Wontner v. Shairp, 4 Man. Granger & Scott 404; Norwich and Lowestoft Company v. Theobold, 1 Moody & Malkin 151; Fox v. Clifton, 6 Bing. 776.

Upon the doctrine of the cases cited, this defendant would no.t be liable for assessments made for the general purposes of the corporation, such as these were. The charter fixed the number of shares at twenty thousand, and provided ¡that the assessments should not exceed §100 on each share. Only three thousand and eighty-two of the shares had been *406 taken when the assessments sued for were made, and thus the case falls very clearly within the rule. This subscription paper, like that in the case of the Central Turnpike Corporation v. Valentine, contained a promise of the defendant to pay the assessments upon the shares, but that promise goes no further than to make the subscribers personally liable to pay such assessments as shall be legally made. The effect of this form of subscription is, as we have seen, to create a personal duty in the first instance upon those who subscribe, beyond the statute liability of a sale of the shares to meet the assessments. Upon such a subscription they are liable to an action at law before a sale of their shares. But this promise tó pay assessments cannot be construed to mean illegal assessments, but only such as shall be duly and legally made, according to the provisions of the charter. And no authority is given by this charter for the directors to make any assessments, except equal ones from time to time “ on all the shares in said corporation.” Pamphlet Laws, June, 1848, p. 628, § 5. These assessments, then, being made upon only three thousand and eighty-two shares out of the twenty thousand, were, of course, made upon only a fraction of the number as provided by the charter, and so were not legally made. They were not equal assessments on all the shares of the corporation.

The provision of the seventh section of the charter, that unless one half of the capital stock shall be subscribed for and the corporation organized before the first day of January, 1855, and the sum of $100,000 expended towards the construction of the road before January 1,1856, the act shall be null and void, from which it has been suggested that an inference may perhaps be drawn that assessments might be made when one half the shares should be subscribed for, does not affect this defendant, because not one fourth of the shares were taken when these assessments were made. And we think that this provision of the seventh section cannot by implication override the general provision for assess *407 ments, as stated in the fifth section ; and that no legal assessment could be made upon a partial filling up of the shares, except by agreement to that effect. In Cabot and West Springfield Bridge v. Chapin & a., 6 Cush. 53 , it was said by the court that where the purpose of the subscribers to a stock is that of proceeding to the execution of the business of the company, upon a partial filling up of the capital, and it is deemed expedient to levy assessments before the entire stock is taken up, there should be inserted a provision to that effect in the articles of subscription. In the absence of such a provision, it is necessary, before an individual subscriber can be charged upon his subscription, that the whole capital stock, or number of shares which constitute it, should have been taken up, or the party must have waived his rights to insist upon that condition by his own acts.

Subscribers may, by their acts, be estopped from saying that a corporation has not been legally established or assessments duly made. The authorities upon this point are many, and founded in good reason. Dutchess Cotton Man. Co. v. Davis, 14 Johns. 232 ; Little v. O’Brien, 9 Mass. Rep. 423 ; Haggerstown Turnpike v. Creeger, 5 Har. & Johns. 122; Union Turnpike Co. v. Jenkins, 1 Caines 381 ; Brouer v. Appleby, 1 Sand. Sup. Ct. Rep. 168; Chester Glass Co. v. Dewey, 16 Mass. Rep. 94 ; Clark v. Navigation Co. 10 Watts 364 ; Elizabeth City Academy v. Lindsley, 6 Ired. 476 ; Centre Turnpike Co. v. McConaby, 16 Serg. & Rawle, 140 ; Sheffield and Manchester Railway Co. v. Woodcock, 7 Meeson & Welsby, 578; Chittenham Railway Co. v. Daniel, 2 Adol. & Ellis N. S. 281.

In the case from the 6th Cushing, before cited, it is said that if a subscriber knowing that the requisite subscriptions had not been made to fill up the capital, had attended meetings of the corporation, and had cooperated in the votes for expending money, and for making contracts, and in other acts which could only be properly done upon the assumption *408 that the subscribers intended to proceed with the stock partially taken up, such subscriber might be estopped from setting up this defence.

Ought this defendant by his acts to be estopped from saying that the shares required by the charter have not been subscribed for, and that those assessments were not legally made ? Do his acts show a waiver of his legal rights under the charter 1 "We think not. The whole course of his conduct, unless we except, perhaps, his attendance at the meeting in October, 1848, tends to show a disinclination to have the assessments made or to pay them. And at the meeting referred to, in October, it appears that he was rather a spectator than otherwise, of what was transpiring. He took no part in what was done. He at one time offered, by way of compromise, to give up an order for stock and to pay the balance in money, but this proposition was not acceded to, and being a mere offer, could have no binding effect. He stated, also, that he had taken five shares, but this was no more than what the subscription paper showed that he had agreed to do, and had no reference to the assessments. Taking all the evidence together, we think that it has no competency to show that the defendant ever waived any of his legal rights in regard to these assessments, or ever knowingly intended to admit any liabilities that did not exist against him by the legal operation of the charter; and that he is not estopped by what he has done from setting up this defence.

With these views of the law the verdict must be set aside, and according to the provisions of the case there must be, Judgment for the defendant.