88 Tenn. 476 | Tenn. | 1890
The G-rnbbs Cracker Company is a corporation organized July, 1885, under the general incorporation law of this State. In October, 1887, being insolvent, it made a general deed of assignment to Dickinson, as trustee, to equally secure all creditors. The original bill was filed by Cartwright, claiming to be a creditor of the corporation, for the purpose of enforcing payment out of the assets in defendant’s hands. One -of the \ demands set up is not now resisted; the other is contested as being without consideration. The as-signee, after answering, filed a cross-bill to recover some $6,000 alleged to be due upon unpaid calls on stock owned by Cartwright in the cracker.company, and to recover $1,000 paid back to him by the secretary and treasurer of that company upon an alleged ineffectual cancellation and rescission of his liability as a subscriber for stock. Cartwright, before the charter was obtained, subscribed for $8,000 of the stock of the proposed corporation. A charter was obtained by the usual application, provided by the Act of 1875. The subscribers thereupon met, and organized by accepting the charter, adopting by-laws, and electing directors. He was present at this meeting, and was elected a director, and acted as such for a year thereafter.
What Grubbs did, which he supposed authorized him to rescind the contract by which Caid-wright had purchased shares, was this: He went upon the streets and solicited new subscriptions to the stock of his company, and, when he had obtained these, he regarded himself as authorized to rescind the contract of Cartwright, and release him from all obligation as a share-holder indebted on account of his shares. To carry out his purpose he caused the books to show that Cartwright, instead of being debtor, was a creditor to the extent of the capital which he was allowed to withdraw.
The proof does not show any transfer of Cart-, wright’s stock to other persons, or any agreement that it should be transferred to others, or that they should be substituted to his rights and liabilities. There is no pretense of the purchase of shares from Cartwright by other persons. On the contrary, they were procured to subscribe for new shares, just as Cartwright had done in the first instance.
Before the organization of the corporation and
This view of the effect of a certificate has been heretofore settled in this State. Cornick v. Richards, 3 Lea, 1; Butler v. State, 86 Tenn., 621; Young v. Tredegar Iron Works, 85 Tenn., 189.
It follows that Cartwright was the owner of eighty shares of the capital stock of this corpora
The argument that if in fact, the corporation received from these new subscribers the same amount of money which Cartwright was to contribute, that, in that case, what was done would in effect be the substitution of the capital of one for that which another was bound to contribute is plausible, but is unsound in laAv, and unsustained by the facts of this case. Unsound in law because the mere fact of obtaining certain new and original capital cannot operate to empower the corporation to return capital theretofore embarked in the enterprise. These new subscribers, by their subscription, undertook to contribute additional
There -was no more authority to cancel Cartwright’s shares, and release him from his liability,' after this additional capital was contributed than there was before. The contention is not sound in fact. Mr. Grubbs seems to have supposed that he had the right to release share-holders from their obligations just as suited him or them. lie seems likewise to have supposed that he was authorized to take new subscribers to take the places of such as chose to withdraw, and to furnish new capital as the necessities of the business demanded. The share list shows several other share-holders, who, after experimenting with the cracker business, withdrew, and had their money returned. So, when Mr. Grubbs undertook to get new stock to take the place of old stock owned by Cartwright, he seems to have had other arrangements of the same sort to carry out; for he says that he got these new subscribers to “ cover ” Cartwright’s stock, and
The fact that the authorized limit of $40,000 had been reached, does not seem to have been auy embarrassment whatever. He says he got an amount of new subscriptions, after he agreed to place Cartwright’s stock, equal to his or greater. In this he is shown, by a careful examination of the stock list, to have been mistaken. The total of stock subscriptions July 1, 1886, was $50,000. The total in October, 1886, inclusive of Cartwright’s, was about $57,000. Then, to cover Cartwright’s $8,000, and that of others to whom he had made same promises, there could not have been over $7,000 obtained. Thus it is not even the case of money of a new subscriber having fully taken the place of an old one suffered to withdraw. That the corporation, at the time, had actually received the full sum of $40,000, and that that was the limit of its authorized capital, cannot avail Cartwright. If the shares subscribed after the limit of $40,000 had been reached were valid and lawful, then the corporation was- entitled to a much larger sum than $40,000. If, on the other hand, these subscriptions were void, then they were not enforceable, and money actually paid could not be lawfully held if demanded by such subscribers, creditors out of the way.
If the transaction be looked at- as a purchase of these share's by the corporation, then it is equally ineffective. Whatever power a corporation
The case of Sligo v. Jackson, 1 Lea, 210, does not hold a contrary doctrine, as argued by counsel. The sale of stock sustained in that case was not a sale to the corporation, but to one Sloan, a stranger.
The next defense urged is, that the corporation has violated its charter by increasing its capital stock, and that it has already' issued stock certificates in excess of its lawful capital, and that therefore it is not in the power of the corporation to issue valid shares to him. The capital fixed by by-law at $40,000 was, as we have already seen, exceeded by the action of Mr. Grubbs in obtaining subscriptions in excess of that limit. This was unauthorized by the share-holders or the directors. Such subscriptions for new shares, after $40,000 had been taken, were null and void. In February, 1887, the share-holders amended their by-laws so as to increase their authorized capital to $100,000. This was intended to legalize the excess of shares already taken and authorize a further increase. Under this amendment new stock was taken until the whole list reached about $76,-000. • After the assignment to Dickinson, a scheme 'for the reorganization of their business was conceived, and the share-holders again amended their
The question as to whether the issuance of preferred stock was valid and effective as against share-holders not assenting then or subsequently, we do not determine. Operative or inoperative, it does not affect the contract to pay for the shares he became the owner of by his contract of subscription. The fact that he has not had notice of subsequent meetings of share-holders, or opportunity to attend or protect himself against action of the other share-holders affecting value of his stock cannot operate to release him from his contract. Neither the directors nor the share-holders had any knowledge of the arrangement by which he supposed he was released.
In January, 1887, several months after his arrangement with Mr. Grubbs had been perfected, the latter informed the board of directors that
The next and last assignment of error necessary
The decree of the Chancellor must be affirmed with costs.