Purton v. New Orleans & Carrollton Railroad

3 La. Ann. 19

Opinion

The judgment of the court was pronounced by

Rost, J.

Footnotes

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This cgse involves a contest between the different classes of stockholders of the New Orleans and Carrollton Railroad Company, as to the proportion in which the capital stock .should bs refunded to them.

Th.e New Orleans and Carrollton Railroad Company was chartered in 1833, with a capital of $30,0,000, diyided into shares of $100, on each of which $5 were to be paid on subscription, and the residue in such instalments and at such times as might be required by the president and directors of said company, provided that at least ten day’s notice of such requisition should be given in two newspapers; and if any subscriber failed or neglected to pay the instalment thus required to be paid, for the period of ten days next after the same should he du.e apd payable, the Stock and previous payments were to be forfeited to the company. This stock appears to have beep entirely paid up.

In 1835, the company was authorised to do banking operations. Its capital Stock was increased to $3,000,000, diyided into shares of $100, on each o'f which $5 were to be paid op subscribing, and the residue thereof in such instalments, upon such notice, under such penalties and such provisions as are set forth with regard to the original sfock in the act of incorporation of 1833. The 18th section of the act of 1835, contains this provision: “ All future dividends of said company shall be participated in by all its stockholders in proportion to the amounts by them respectively paid in; but no dividend shall be made or received in favor of any instalments which shall not have been paid in more than three months prior to the declaration of such dividend.”

On this last subscription the directors did not call in more than $50 per share; but on the 13th May, 1836, they passed a resolution in these words:

“ Resolved, that »ny stockholder who shall pay jn anticipation a part, pr the full amount due on the capital held by him, shall be entitled thereon to dividends in proportion to the amount respectively paid in; provided that no dividend Shall be made or received in favor of any instalment which shall pot have beep paid in more than three months prior to the declaration of such dividends.”

This resolution was passed on the application of the large shareholders, who wished to throw their stock in the European market, where it is proved it could not have be.ep sold if not paid in foil. They ayailed themselyes of its provisions by paying up, received diyidends upon the whole amount when dividends were-made, and while the other shareholders were only entitled to borrow on pledge of sto.ck $15 on each half paid sharp, they had the privilege of borrowing $40 per share, thus paying their shares in full by an actu.al disbursement of $10 fop each. The bank suspended payment in 1837, and in 1839 the legislature passed an act relieving this and other banking institutions from the forfeiture incurred by the suspension, on certain conditions, oqe of which was that the amount of their capital would be limited to what should be actually paid in on the 1st of February, 1841. This act was accepted by the defendants, and became a part of their charter. The defendants,have since gone into a liquidation of the affairs of the bank, retaining their corporate powers 'for carrying on the railroad only: and, after paying all their liabilities, there remained in their possession a large amount of real estate not necessary to their operations, which, under a resolution of their board, was sold in 1844, payable in the capital stock of the company on which $50 had been paid, and with the privilege to those who had paid in full to give in payment $50 on each share, without prejudice to them or the company in regard to any rights which they might have as creditors for the remaining $50 per-share. . Many of both classes of stockholders purchased under this resolution, and the‘stock given by them in payment appears to have been sunk by the board.

A large amount of money having sinee been collected, and the company having no profitable use for it, the board came to the .conclusion to refund to the shareholders a part of the capital paid in, and declared a dividend distributing the fund on hand, as follows: $5 per share on the half- paid stock; $15 per share on the full paid stock; $10 per share to the shareholders who had originally paid in full, hut who purchased since property from the company to the amount of $50 per share.

Upon the declaration of this dividend, the plaintiffs, who are holders of half paid stock, brought this suit and obtained an injunction on the following grounds: 1st. That the fund ought in justice and equity to be divided among the stockholders according to their respective interests in the corporation, each to receive in the proportion in which he has paid, after accounting however for what he jmay already have received, and receiving nothing until those who have as yet -received hothing shallliave been placed on an equality with them. 2d. That the third class of stockholders, according to the classification made by the board, to whom $10 a share are allowed, have now no greater interest in the corporation than the petitioners, and, having already received $50 per share in real estate, are not entitled to receive any thing more until the other shareholders have received $50 on the capital respectively paid in by them. 3d. That among the stockholders of the second class many are indebted to the corporation for loans on pledges of stock, and that the dividend accruing to those stockholders should be applied to the extinguishment by compensation of their stock debt pro tanto, and not paid over to them as proposed by the board.

The answer is a general denial, and an averment that the distribution complained of was regularly ordered by the board of directors and by a majority of the stockholders, at a regular meeting, and that it conforms in all respects to the charter of the bank and the just rights of the parties interested. There was judgment in favor of the plaintiffs, that the defendants be perpetually enjoined from paying to the stockholders the dividend declared by them, and from making any dividend which shall not be in exact proportion to the amount of capital paid in, and remaining to the credit of each stockholder. From this judgment the .defendants have appealed, and the appellees allege error to their prejudice in this: 1st. That the judgment recognises the right of the holders of stock paid in full, who purchased property of the company to the amount of one-half of thejr stock, to participate in the assets now to be divided. 2d. That' it does not decree that the amount coming to the stockholders indebted to the bank shall go, pro tanto, to the extinguishment of their stock debt. The appel. lants ask the reversal of the judgment on the ground that, for the purposes of iquidation, the stock must all be treated as comjposed of shares of $100, as feed by the charter; and that the shareholders who have poid the whole amount are creditors of the corporation for $50 per share, and entitled to be reimbursed that amount before a dividend is made. They further allege that the stock given in payment of real estate was thereby extinguished,.and that on , , . , ., , ... other grounds it cannot be taken mto consideration at the present tune.

Most of the questions involved in this controversy came before the late Supreme Court, in the case of Millaudon against the same defendants, 3 Rob. 488, and the .court .there assumed as undoubtedly true that each share of $100 was to bear an equal loss on the final liquidation of the bank, without regard to the amount actually paid in by the various .classes of stockholders. The court came .to this .conclusion by viewing the association of the shareholders, inter se, as a partnership in all respects according to the custom of merchants.

We differ from this view of the law of the .cose, and we hold that incorporated, trading .companies are not partnerships according to the legal principles applicable to partnerships formed by the voluntary agreement of individuals, and that the association of the shareholders does not constitute a partnership according to the custom of merchants, nor within the principles of law established respecting joint-traders. Corporations are to be treated with reference to the objects of their creation, and to' the express powers with which the legislature may have invested them; to that extent the general law of partnership is superseded by the charter. Gow on Partn. p. 3. Wordsworth, Joint Slock Comp. 29. Law Library, p. 152.

The correctness of the opinion of the court in Millaudon’s case, therefore, must be tested with reference to the distinctions which bank charters establish between shareholders and ordinary commercial partners. One of the most material .differences is that, shareholders are not liable on account of the joint trade in their individual capacities, nor one of them for the debts and engagements contracted by others, but only for their respective shares or interest in the joint stock, and that upon the trade and contracts carried on or made in the corporate character. Another material difference is that the shareholders have at all times the right to transfer their shares; to introduce by so doing new partners in the association, and to withdraw themselves from it. This limitation of responsibility, and this power to transfer stock, do not exist in ordinary partnerships, and create this marked distinction that, while persons trading with an ordinary partnership are uninformed as to the amount of its capital and deal upon the personal credit of the partners, persons dealing with a corporation are uninformed as to the partners, and deal upon the knowledge of the capital and of the mode in which it is to be administered, as acquired by the promulgation of the act of incorporation. When this company began banking operations, they represented themselves to the public as trading upon a capital of $3,000,000, divided in shares of $100 .each, to be paid up as required by the business of the bank. It is the fact of so representing themselves which renders the stockholders liable to third persons for the full amount of their subscription, whether called in or not. The argument pressed upon us at bar that, if the obligation to pay the stock in full was not absolute between the shareholders, it could not be absolute as to creditors, misapprehends the nature of the obligation towards creditors, and has no bearing on the question whether the shares are equal or unequal.

Another material difference between ordinary partnerships and corporations is to be found in the power conferred upon the officers of the latter to make by-laws; and it is a remarkable fact that the claim of the plaintiffs to be considered as creditors of the corporation under the custom of merchants, origi nated in one of those by-laws which that custom no where recognises among commercial partners. The extent of the power given to .-corporations in authorising them to make by-laws is not accurately defined; but the effect of the power, when properly exercised, is that the shareholders are bound by a set of provisions and rules beyond those actually contained in the charter, and, as far as they extend, they also supersede the general law of partnership. Wordsworth, Joint Stock Companies, 39. Law Library, no. 256, p. 152. Civil Code, arts. 424, 436.

It is contended by the appellants, and it was held in Millaudon's case, that between the shareholders as well as towards third persons,each Was n debtor to the association for what he had promised to bring in, that is for the whole amount of his subscription. However this may be in ordinary 'partnerships under the custom of merchants, the charter of the defendants does not authorise that conclusion. It did not originally fix any definite period within which the whole capital was to be paid in, and we are satisfied that that period cannot be implied from the condition subsequently imposed on the company, to furnish within a given time the whole capital allowed to the branches of the bank. The stock was to be paid at such time and in such proportions as might be required by the president and directors, and the charter did not oblige them to call in the whole of it. Each call was to be made by a by-law; but the time of passing those by-laws, and whether they should be passed at all, was left, uncertain, and exclusively depended upon the will of a majority of the board. To guard under all contingencies the interest of the holders of the stools, subscribed under the act of 1833, which had been called in, the charter provided that the dividends made by the company should be participated in by the stockholders, in proportion to the amounts by them respectively paid in. This clearly recognises the inequality of shares between the stockholders; and the act of 1839, limiting the capital of the company to the amount actually paid in on the 1st February, 1841, without requiring the payment of the subscription in full, again shows the construction which the legislature put upon the charter. The shareholders, by consenting to make that act a part of the charter, must be considered as having also adopted that construction, and their rights must be tested by it.

The time given by the charter for the payment of the subscription was not the term of the obligation, as is the case when ordinary partnerships are formed. The passage of the by-laws making the calls was an uncertain event, and formed a condition which, between the shareholders, suspended the obligation to pay till it was accomplished. Under the general principles of the civil law, as well as by the express provisions of our Code, the dies certus is the term, and the dies incerlus is generally the condition, of the obligation. Civil Code, 2044. Mackeldey, Manuel de Droit Romain, p. —. Conceding that the dies incerlus does not in all cases create a condition, and that whether the parties intended to create a condition or only to modify the obligation without making its existence depend upon the event, should be determined, if the case admitted of a reasonable doubt, by applying the rules established for the interpretation of obligations, the construction put upon the charter by the stockholders, as evidenced by their receiving dividends of profits instead of interest, and by then-acceptance of the act of 1839, furnishes the safest rule of interpretation.

We consider that, between the shareholders', the obligation to pay the balance for their subscription was suspended until the calls were made in the manner prescribed by the charter.

The stockholders who paid in full, under a by-law, made at their own request, which authorises them to .do so, now insist that they made a loan to the company of $50 per share. If so, it is incumbent upon them to show that a contract of loan was intended and executed. A loan of money may be gratuitous, and when it is not the consideration of it is interest. In this case a participation .in the profits of the company, and not interest, was the coasideration stipulated ; it was essentially a contract of partnership. C. C. 2772. Under that contract the stockholders who paid in full were in fact to receive the whole profits made upon the additional sum paid, and they now claim to be exempted from contributing to losses on that sum. Had sueh. a stipulation been expressly entered into it would be void, both as it regards the partners and third persons. C. C. 2785.

The shareholders who, for their private emolument, paid up the whole amount of their stock, became partners of the company for the amount so paid in. The inequality of the shares was contemplated, authorised and provided for by the charter; and that inequality exists for the purposes of liquidation as well as for the division of profits.

There being no errors in the judgment of which the appellants can complain, those assigned by the appellees remain to be considered. We concur with the> judge of the first instance, that the first ground of error assigned cannot be noticed in the present controversy. It is true that, under the law of ordinary partnership, partners who hold property of the firm are bound to collate at the time of the final partition of the partnership assets. But this is not a final partition. The company is still in existence ; and if, at its final dissolution, any of the stockholders should be bound to collate, they will have it in their power to make the collation in kind by returning the property. The omission of the court below in not decreeing that the dividends of shareholders indebted to the bank for stock loans shall go pro tanto to the extinguishment of their debt, instead of being paid over to them, must have been an oversight under the view taken by the court of the rights of sharei olders. These loans are in fact debts due by the stock, and, as far as the dividends go, they should have been compensated with them; in that respect the judgment must be amended.

We have not noticed the exception as to the want of proper parties, because we consider it to have been properly overruled in the first instance.

It is therefore ordered that the judgment in this case be amended, so as to compensate any future dividends coming to stockholders indebted to the defendants on stock loans, with an equal amount of that indebtedness. It is further ordered, that the judgment as amended be affirmed, with costs.

Slidell, J., being interested, did not sit in this case.