Hammond v. Straus

53 Md. 1, 1880 Md. LEXIS 1

• Court: Court of Appeals of Maryland
• Decided: January 28, 1880
• Status: Published

Opinion

Alvey, J.,

delivered the opinion of the Court.

This is an action brought by a creditor of a corporation against an alleged stockholder therein to recover in respect of the personal liability of the latter. The declaration alleges that the Union Banking Company of Baltimore was incorporated by an Act of the Legislature of this State, passed at the January session, 1874, cli. 118, whereby it was provided that the stockholders therein should be liable to the amount of their respective shares of stock, for all debts and liabilities of the corporation, incurred upon note, bill or otherwise; that the defendant became a stockholder in said corporation, and that the corporation became indebted to the jffaintiff, while the defendant was such stockholder. „

The defendant pleaded, never indebted, and that he did not promise, as alleged.

In the trial below, after the evidence was all in on both sides, the Court instructed tire jury, that there was no evidence before them, legally sufficient, to show the existence of the corporation under the Act of 1874, ch. 118; and further, that there was no legally sufficient evidence that the defendant had ever participated in the organization of such corporation under the Act of 1874, so as to preclude him from averring that'the Act of incorporation had never been accepted by the corporation therein named; and therefore the plaintiff, under the pleadings in the cause, was not entitled to recover. Such being the opinion of the Court helow, all the prayers offered on the part of the plaintiff were rejected.

To entitle the plaintiff to recover in this action it was essential that three things should be made to appear: 1, That a corporation, such as that alleged, should have been created; 2, That the defendant was a stockholder therein; and 3, That the plaintiff was a creditor of the corporation, and that he became such while the defendant was stockholder.

In order fully to understand the defence taken in this case, and the leading question presented, upon which all others depend, it is necessary to refer to a corporation, and the defendant’s connection therewith, existing at the date of the passage of the Act of 1874, ch. 118, incorporating the Union Banking Company of Baltimore. It appears that certain parties, on the 8th of March, 1873, became incorporated under the general incorporation law of the State, of 1868, ch. 471, with the corporate name of the “ Union Banking Company of Baltimore City.” This corporation had for its objects, as shown by its articles and certificate of incorporation, the powers and privileges, Ikt. of a savings institution, 2nd, of buying, selling, &c., land, &c., and 3rd, of a homestead or building association, as provided by the statute. The principal office was to be located in the city of Baltimore, and the capital stock of the corporation was limited to $150,000, to he divided into fifteen thousand shares, of the par value of ten dollars each. This corporation was regularly organized, and went into operation, and was conducting its business at the time of the passage of the Act of 1874, ch. 118. Of the capital stock of this corporation the defendant became owner of two hundred and fifty shares on the 29th of December, 1873. In January thereafter he became a director of the corporation, and was placed upon a committee to examine a charter about to be submitted to the Legislature, for new and extended franchises, and which charter, after examination, he recommended as proper and desirable to be obtained. That charter was presented to the Legislature, and was passed, and is the Act of 1814, ch. 118, except certain amendments which were attached by the Legislature before its final passage.

The leading question in this case now is, whether this new Act of incorporation, thus obtained, was éver actually accepted by the corporators, and made to supersede and take the place of the former articles of incorporation; for if so, it would appear, the greatest difficulty in the way of the plaintiff’s right to recover would be removed.

The Act of 1814, ch. 118, by its first section,- declared the parties therein named, including the defendant, and their successors in office to be, and they were thereby, constituted and made a body corporate and politic, under the name and style of the Union Banking Company of Baltimore. By the third section, the same parties were constituted directors of the company for the first year, and until their successors should be appointed; and by the fourth section, the capital stock of the corporation was declared to be $150,000, to be divided into shares of ten dollars each, with the privilege of increasing the capital stock from time to time until it reaches $500,000. The fifth section of the Act conferred large banking powers, including the power to borrow money, receive money on deposit, and pay interest thereon, and to loan money, &c., and also the powers of a trust company. The fourteenth section provided that the continuance of the corporation should be on the condition that the stockholders and directors of the company should be liable to the amount of their respective shares of stock in the corporation for all its debts and liabilities upon note, bill or otherwise.

As we have seen, the Act by its terms, constituted and declared the corporators therein named a body corporate ; and upon their acceptance of the Act, if it was accepted, the corporation was brought into existence without anything more, by force of the statute itself. There was no condition precedent prescribed to the mere existence of the corporation, after the acceptance of the charter; and in such case it has been often decided, not only that the corporation is in esse, hut that it may incur liabilities to third parties with whom it may deal, notwithstanding the omission or failure on the part of the corporators to observe and fulfil the requirements of the charter in order to perfect the organization. Frost vs. Frostburg Coal Co., 24 How., 278; Franklin Fire Ins. Co. vs. Hart, 81 Md., 59; New Central Coal Co. vs. George’s Creek Coal and Iron Co., 37 Md., 537, 555 ; Narragansett Bank vs. Atlantic Silk Co., 3 Metc., 282. If a legislative charter of incorporation requires certain acts to he done before the corporation can come into existence, those acts must appear to have been done before a corporation can he considered in esse; hut this rule has no application to corporations expressly declared such by the Act of incorporation, upon the mere acceptance by the corporators, .ás in the case under consideration. Fire Department vs. Kip, 10 Went., 266 ; Ang. & Am. on Corp., sec. 83.

Acceptance of the Act of incorporation by the corpora-tors being essential to the existence of the corporation under the charter, in the absence of formal written evidence, the fact of acceptance was a question for the jury, under the direction of the Court as to what would amount to such acceptance. Frost vs. Frostburg Coal Co., 24 How., 279; Farmers & Mech. Bank vs. Jenks, 1 Metc., 592, 594; Bank U. S. vs. Dandridge, 12 Wheat., 64, 70-71. To prove the fact of acceptance, it was only necessary to show, in connection with the Act of incorporation itself, that thé parties incorporated had actually used and exercised the powers and privileges conferred by the Act; and if such iiser and exercise of privileges could only be referred to the Act of incorporation, su.ch user would fully justify the presumption that the Act of incorporation had been accepted, and that the corporation was in the exercise of its functions, and consequently liable for all the acts and contracts done and entered into within the scope of its authority. Narragansett Bank vs. Atlantic Silk Co., 3 Metc., 282; Farmers & Mech. Bank vs. Jenks, 7 Metc., 592. In view of these well established legal principles, this Court is of opinion, upon careful review of all the evidence in the record, that the facts and circumstances in proof required that the question of the acceptance of the Act of incorporation by the corporators therein named, should have been submitted to tbe jury. Tbe fact that the Act of incorporation had been prepared and submitted to the Legislature by the parties therein named; that the Act contains the grant of large and valuable franchises; that the same parties named in the Act were afterwards found conducting a regular banking business, under a name substantially- that authorized by the legislative Act of incorporation, with all the external indicia of a regularly organized bank of discount and deposit, such as that Act authorized, and when tbe exercise of such powers would have been illegal and wholly unauthorized under the law, if not derived from the Act of 1874, cb. 118, constituted evidence certainly tending to prove that the Act of incorporation had been accepted, and that the parties were in the actual use of the powers and privileges thereby granted. And though the defendant on his part offered evidence of a direct character to prove that the Act of incorporation had never been accepted; that there had been no organization under it, and that all the hanking business transacted was done under the powers derived from the organization under the general incorporation law; still the question of acceptance was one for the jury. For the most that could he said of this state of case was that there was a conflict of evidence; and tbe principle is, where there is conflicting evidence as to a question of fact, whatever may he the opinion of the Court as to the value or preponderance of the evidence, the jury must he allowed to consider it and to make their deductions from it.

But it is insisted with great confidence on the part of the defendant, that inasmuch as the Act of 1814, ch. 118, provided that certain evidence should he furnished of the organization of the corporate body under the Act, as conditions or pre-requisites to the enjoyment of the benefits and privileges granted by the Act, and that evidence has not been furnished, therefore no corporation under the Act was ever brought into existence. Whether such position he tenable depends upon the terms of the statute. The fourth section provided that “when twenty-five per cent, of the minimum capital stock shall have been paid in, &c., and so certified by a majority of said corporation to the Treasurer and Comptroller of the State, and a certificate of their organization transmitted to the clerk of the Court of Appeals, to he by. him recorded among the records of his office, and not before, shall they he entitled to all the benefits and privileges herein conveyed or intended to he conveyed.” As will he observed, there is nothing in this language that imports a condition precedent to the existence of the corporation. The Acts required to he done could only have been done by the corporators after the Act of incorporation had been accepted, the requisite amount of the capital stock subscribed, and the organization under the Act completed. Not until then could the certificates have been furnished as required by the Act; and as we have seen, upon the acceptance of the Act the parties named became incorporated by force of the Act itself. The certificates were required as the evidence of what had been done, and the statute simply prohibited the exercise of the rights and privileges granted, that is to say, the active operations of the corporation, until the certificates were furnished.

The neglect or omission to observe the requirements of the law in this respect might have afforded the State a right to proceed against the corporation to deprive it of its franchises, but such neglect or omission can never be set up either by the corporation itself or its stockholders as a defence to an action to enforce their liabilities. It has been held in numerous cases that in actions against the corporation, or a stockholder thereof as such, it is not incumbent upon the plaintiff to prove that the corpora-tors have complied with all the requirements of the Act of incorporation, unless the acts required are conditions precedent to the corporate existence; and that same principle precludes the defendant from defeating the action by showing the non-compliance with the requirements of the statute. By holding otherwise, parties might avail themselves of the powers and privileges of a corporation, without in any manner subjecting themselves to its duties and obligations, and might set up their own neglect of duty, or wilful omission to comply with the requirements of the statute, as means of discharge'from all their just obligations under the law. This is forbidden by every principle of law and justice, and hence such a defence could never be tolerated. Frost vs. Frostburg Coal Co., 24 How., 274; Chubb vs. Upton, 95 U. S., 661, 667; Narragansett Bank vs. Atlantic Silk Co., 3 Metc., 282; Merrick vs. Reynolds Engine Co., 101 Mass., 381; Tarbell vs. Page, 24 Ill., 46.

Should the existence of .the corporation be found, the next question is, whether the defendant was a stockholder therein at the time the debt was contracted with the plaintiff. If the stock-book referred to in the evidence be in fact the stock-book of the corporation created by the Act of 1874, ch. 118, and the defendant’s name appears therein as a stockholder, that of itself would be sufficient prima facie evidence to warrant a jury in finding that the defendant was a stockholder, as the plaintiff has alleged. In the case of Turnbull vs. Payson, 95 U. S., 418, 421, it was expressly held, that where the name of an individual appears on the stock-book of a corporation as a stockholder, the prima facie presumption is that he is the owner of the stock, if there be nothing to rebut that presumption ; and, in an action against him as a stockholder, the burden of proving that he is not a stockholder, or of rebutting that presumption, is cast upon the defendant. And although the original subscription may have been made to the stock of the corporation formed under the general law, yet, if the subsequent Act of incorporation of 1874 was accepted, and by consent and general understanding the stock subscribed for in the first corporation was allowed to stand and be treated as stock taken in the second corporation, the defendant would be as effectually a stockholder in this last corporation as if he had become such by a new subscription. This mode of transferring' the stock-list of one corporation to another was rendered quite feasible and easy of accomplishment by the fourth section of the Act of 1874, which provided for a minimum capital stock of the same amount, divided into shares of precisely the same par value, as that in the articles of incorporation under the general law. In such case, therefore, the only thing necessary would be the adoption by the last corporation of the stock-list of its predecessor, with the assent of the parties naméd; and their subsequent receipt of dividends upon the stock from the new corporation would be evidence of an unequivocal character of their holding the stock in such corporation. National Bank vs. Case, 99 U. S., 628, 634. There was evidence, therefore, to have been submitted to the jury, from which they might have found that the defendant was stockholder as alleged by the plaintiff.

The only question in regard to the debt due the plaintiff is, whether it be the debt of the corporation formed under the articles of 1873,. or the alleged corporation chartered by the Act of 1874, ch. 118. If the corporation under the Act of 1874 was really brought into existence, and it was with that corporation that the plaintiff made deposit of his money, then, the fact that the certificate of deposit offered in evidence purports to have been made by the “Union Banking Co. of Baltimore City,” instead of the “ Union Banking Co. of Baltimore,” can make no manner of difference in the plaintiff’s right to recover. Such discrepancy would be wholly immaterial.

(Decided 28th January, 1880.)

The prayers offered on the part of the plaintiff we think were properly rejected. By them the case was presented in an aspect, and with a view to principles, quite different from the principles in respect to which we have considered the case. It becomes unnecessary to go into any critical examination of those prayers, or to point out wherein they .are defective. All that need be said is, that they could not be maintained consistently with the views expressed in the foregoing opinion.

The judgment of the Court below must be reversed and a new trial awarded.

Judgment reversed, and new trial awarded.