72 A. 399 | Md. | 1909
This action was brought in the Circuit Court for Baltimore County by John H. Morgan and Frank B. Smith, receivers of the Maryland Storage Company, a corporation under the laws of Maryland, duly adjudged to be insolvent, against Fairfax S. Landstreet, to recover the sum of $30,000, being the amount of the defendant's written subscription made June 10, 1907, for 600 shares of the capital stock of said company of the par value of $50 per share. The proceeding was by way of attachment against the defendant as a non-resident, who entered a voluntary appearance in the summons case. The short note contained one count for money due on account stated, and a special count on the contract of subscription. The defendant filed the two general issue pleas in assumpsit, and a third plea, "that the subscription mentioned in the plaintiffs' declaration was subject to a condition precedent, that said subscription was not to be binding on the defendant until all of the original capital stock of the said Maryland Storage Company was duly subscribed, and that *583 subscriptions were never obtained for all of said original stock, and said condition precedent never complied with, whereby the defendant's subscription never became effective or binding." The plaintiffs joined issue on the defendant's first and second pleas, and to the third plea filed two replications — first, that said subscription was not subject to the condition precedent pleaded; and, second, that the defendant, by his acts, had waived any and all defense on account of the alleged fact that all of the original capital stock of the Maryland Storage Company was not subscribed.
The defendant joined issue on the first replication to the third plea, and as to the second replication, rejoined that he had not, by his acts, waived any defense on account of the alleged fact that all of the said original stock had not been subscribed. And the plaintiffs joined issue by way of surre-joinder on the defendant's rejoinder to the plaintiffs' second replication to the defendant's third plea. It thus appears that the fact of the subscription was admitted, and also that no part of the same has been paid, and under the pleadings two questions only were in issue — first, whether the contract of subscription was subject to the condition precedent pleaded; and, second, if so, whether such condition had been waived by the acts of the defendant.
At the close of all the testimony on both sides of the case, the defendant moved to strike out certain items of testimony which had been admitted subject to exception, and the plaintiffs moved to strike all the testimony adduced at the trial which tends to qualify the written subscription, whether contained in the defendant's own statements or in his letters offered in evidence, or in the testimony of the witnesses Timanus and Brady; also defendant's statement of what he told Timanus as to taking the last $30,000 of stock, when he, Timanus, had secured the balance, and also what he said either to Redwood or Brady, as to any subscription to be made to this stock by the Western Maryland Railroad Company. Both these requests were refused.
The plaintiffs then offered five prayers, all of which were *584 rejected, and the defendant offered three prays, of which the second and third were rejected, and the first was granted, as follows: "The Court instructs the jury that by the uncontradicted evidence in the case the stock of the Maryland Storage Company authorized by its charter was never fully subscribed, and their verdict must be for the defendant, there being no evidence in the case legally sufficient to estop the defendant from setting up the defense of partial subscription to stock," thus withdrawing the case from the jury. The rejected prayers will be set out by the Rejorter. The defendant excepted specially to the plaintiffs' second prayer on the ground that there was no evidence that defendant subscribed to any increased capital stock of the storage company, and not its formative or original stock, and this special exception was sustained; all of these rulings being embraced in the single exception taken.
A brief statement of the history of the case will throw material light upon the situation, before going into the law applicable to the case.
The storage company was incorporated under the laws of Maryland, Nov. 18th, 1904, to carry on a forwarding and warehouse business, there being seven directors, and the authorized stock being 3,000 shares of the par value of $50 each. Mr. Timanus was then President of the storage company, and Mr. Landstreet was then Vice-President of the Western Md. R.R. Co. This company had recently established a tidewater terminus at Port Covington, and one of the principal objects of the organization of the storage company was to secure the storage business incidental to the new tidewater terminus. This appears in Mr. Timanus' letter of July 1st, 1904, to Mr. Landstreet as Vice-President of the railroad company. On November 17th, 1904, Timanus, learning that the railroad company was about to acquire the possession of Brown's wharf, on the north side of the harbor of Baltimore City, proposed to Landstreet to take a lease of the warehouse then on that wharf. This permitted, without further cost for building, a small active business, requiring nine or *585 ten clerks and laborers and doing a business of about $1,800 a month. He testified they were trying to get the railroad company or Landstreet interested in the storage company. No agreement was reached in the matter of the lease until June 12, 1906, when a lease of Brown's wharf was executed for five years, containing a covenant on the part of the storage company to erect a storage house on York Street, to be completed, if possible, by January 1st, 1907. At that time there was no actual subscription by Landstreet, either for the railroad company, in his own name, or for any other individual. In May, 1905, the charter was duly amended, so as to increase the number of directors from seven to nine. In July, 1906, a stockholders' meeting was called for the purpose of increasing the capital stock from $150,000 to $250,000 and the number of directors from nine to twelve. It appears from the minutes of that meeting that stockholders were present representing sixty-five shares of stock, that being more than two-thirds of the whole number of shares then issued, and that these voted to increase the amount of capital stock and the number of directors as above proposed. These proceedings, however, were abortive, both because the requisits notice was not properly addressed to the stockholders, and because the proposed amendment was not acknowledged and recorded as required by secs. 51, 52 and 55 of Art. 23 of the Code.
In May, 1907, Landstreet resigned as Vice-President of the railroad company, and Brady, Vice-President of the storage company, testifies that at that time he asked him when he would sign a subscription, as some who had subscribed would not pay until they felt sure of his subscription, as he had resigned from the railroad company, and he said he would let him hear in a few days. Later he told Landstreet they wanted him as a director. On June 10, 1907, he signed the subscription and consented to be elected a director. At that time there were ten directors elected and serving, being one more than the charter allowed. Landstreet never qualified *586 as director, and never attended any stockholders' or directors' meeting.
At the date of his subscription, Brady testifies there were subscriptions, including Landstreet's, of about $101,000, and no greater amount was ever subscribed.
Mr. Morgan, one of the receivers, testified from the books and papers that came into his hands as receiver, that at that time $40,000 had been paid in on subscriptions, about $36,000 unconditional subscriptions, unpaid, including Landstreet's $30,000, and some conditional subscriptions, unpaid, the whole amounting to about $101,000, as stated by Brady.
On July 1, 1907, there being then only $76,000 unconditionally subscribed, including the $30,000 of Landstreet, the directors resolved to build the York Street storage house at a cost not to exceed $145,000. The York Street lot was subject to two mortgages aggregating $51,000, and the building contract called for an expenditure of $136,000. The lot sold for barely enough to cover these mortgages. Brady in the latter part of July, 1907, tried to induce Landstreet to go to see the building, then started, but he declined to go. In September, 1907, he asked Landstreet for a payment on the subscription, and he told Brady that, under the business and financial conditions existing they ought to hold off the work, and Brady explained they had gone too far to stop. Later, and early in October, Landstreet did go with Timanus and Brady and examine the work in progress, and he said he thought it was a good building. Brady did not then ask for any payment and did not hear Timanus ask for any; and Brady never afterwards saw him on that subject.
Timanus testified that he asked Landstreet several times in the summer and fall of 1907 for payments on account, and his answer was that money was hard to get, and once, in September, 1907, he said he was not liable and would not pay it at all.
He also testified that Landstreet told him that when he subscribed Brady told him that all the stock had been either subscribed or promised. Brady, however, denied this, and *587 said that he told Landstreet that his binding subscription would enable them to get many others, but did not say they could complete the total authorized capital. Landstreet testified that when the organization of the storage company was under duscussion between Timanus and himself, he said that if he would get a strong management and have the finances in unquestionable form before undertaking the enterprise, the railroad company would co-operate with him and would take the last $30,000 of its stock of $150,000, and that in all the negotiations throughout he acted in behalf of the railroad company, and at no time and in no way as an individual, and that it was so understood by all concerned. He states that as early as January, 1907, when informed by Brady of their plan to acquire property on the south side of the harbor that he advised against any additional enterprises, and that after his resignation as Vice-President of the railroad company he remained one of its directors, and told both Timanus and Brady they would have to take up the subscription of the railroad company with other officials and that if the storage company complied with the previous understanding, he saw no reason why the matter should not be concluded. That shortly after this Brady came to see him, and said that he had responsible men in Baltimore, mentioning a number of them, who were only waiting for the signature of the railroad company, and who would then sign subscriptions to the full amount of the authorized capital stock of the company, and urged him to sign personally for this $30,000, which he did upon those assurances, and the further assurance that their finances were in condition to meet any undertaking entered into.
He also says, that in signing he expressly stated to Brady that he was not signing his name as an individual that would engage him in any financial obligation, and that Brady replied nothing was to be paid on that subscription until business conditions would warrant it. He also says that when he visited the building in October, 1907, no reference was made to his subscription, but Messrs. Timanus and *588 Brady stated that they wished to arrange with the Western Md. R.R. Co. to take over this building, and some of the officials advised them to get him to examine it, so that he could report thereon to the executive board.
We have thus condensed the most material testimony in the case, and will now consider the propriety of the granted instruction, which constitutes the principal and controlling question in this appeal.
We could not expect, and do not understand the appellants to deny the general rule, that where the capital stock and the number of shares are fixed by the act, or certificate, of incorporation as in the present case, no assessment can be lawfully made on the share of any subscriber until the whole number of shares has been taken. This principle was early adopted both in England and in this country, and is now firmly established as a rule of law. Two of the earliest cases in this country are Salem Mill Dam v. Ropes, 6 Pick. 23, andStoneham v. Gould, 2 Gray, 277, in both of which the reasons for the rule were given by eminent Chief Judges of the Supreme Court of Massachusetts, PARKER and SHAW. No more convincing reasons could be given than those stated by CHIEF JUDGE SHAW in 2Gray, supra. He says: "This is no arbitrary rule. It is founded on the plain dictate of justice and the strict principles regulating the obligation of contract. When a man subscribes for a share of stock, consisting of one thousand shares, in order to carry on some designated enterprise, he binds himself to pay one-thousandth part of the cost of such enterprise. If only five hundred are subscribed for, and he can have no assurance whichhe is bound to accept, that the remainder will be taken, he would be held, if liable to an assessment, to pay one-five hundredth part of the enterprise, besides incurring the risk of the entire failure of the enterprise itself, and the loss of the amount advanced towards it."
This rule, with the reasons which led to it, were adopted in this State in Hughes v. Antietam,
There are substantial differences, it is true, in this regard between "original or formative" stock and "increased" stock, but that question does not arise here, because the attempt to increase the stock was not operative.
It is sufficient that the Maryland rule is as stated, but, as indicating its soundness and universality, it may be stated that it prevails in New York, Missouri, Connecticut, New Hampshire, Wisconsin, Iowa, Georgia, California, Illinois, Maine, Tennessee, Ohio and generally throughout the United States.
It will be observed that it is spoken of generally as an implied rule, but it may of course be expressed, and in this case the uncontradicted testimony of Mr. Landstreet is that he expressly agreed to take only the last $30,000 of the wholeamount of $150,000, so that his subscription was upon the express condition that the whole residue of the stock should be taken before his subscription became binding. This condition not having been incorporated in the written subscription, might, perhaps, not have been available as a defense, if the residue had been fully and unconditionally subscribed; but the uncontradicted evidence in this case shows that there *590
were never over $76,000 unconditional subscriptions, and the cases are uniform that for this purpose there can be counted only unconditional subscriptions, payable in cash. Troy v. R.R.Co.. 8 Gray, 596; Oscaloosa v. Parkhurst,
While the appellants, as we have said, do not deny the general rule invoked, they do contend that "if the corporation is already a going concern at the time of the subscription, and is continuing to create liabilities to the knowledge of the subscriber, and the subscriber also knows that its stock fixed in its charter is not fully subscribed," then the presumption which this Court, in Gettysburg Bank v. Brown,
Another case cited for their contention is Arkadelphia Mills
v. Trimble,
We can perceive nothing in the case before us in the nature or kind of business for which the storage company was incorporated (if that can in any case be a proper subject of inquiry), nor in the time when, or the circumstances under which, the appellee made the subscription in suit which should take this case out of the general rule. It appears from the subscription blank that the capital stock was then designed to be $250,000, presumably upon the supposition that the attempted increase from $150,000, as fixed by the certificate, to $250,000 was regular and effective. The original stock, however, was $150,000, and there is no evidence, as in the Arkansas case, supra, that the charter authorized the organization of its main enterprise before the full amount was subscribed. The subscription in this case was made June 10, 1907. Prior to June 12th, 1906, the company was doing a small business, principally in towing and lighterage, requiring comparatively small capital. In July, 1906, it leased Brown's wharf and began a storage business there, but at that time it contemplated the expenditure of a large amount in the erection of a modern storage warehouse, to which it bound itself in that lease in pursuance of negotiations with the appellee representing the railroad company. The erection of that warehouse, for that purpose, then became and continued to be its main enterprise. The appellee's subscription was made June 10, 1907, and the building contract, made in July, 1907, called for an expenditure of $136,000, nearly the whole of the authorized capital. In addition to this, the storage company purchased ground on which to erect the warehouse, and mortgaged the same for $50,000. All this was done without the concurrence of the appellee, who at the time of making the subscription advised against undertaking any construction under *593
existing business conditions, and continued so to advise. In considering this situation it must not be forgotten, as said inHager v. Cleveland,
But it remains to enquire whether this defense has been waived, or the appellee estopped to claim its benefit.
In considering this question it must be kept in mind that there is not only no evidence to show that Landstreet did not know all the stock was not subscribed, but that he subscribed in reliance upon Brady's assurance that it was all either actually subscribed or promised to be subscribed immediately upon his subscription being made, as indicating the co-operation of the railroad company. Technical estoppel, it may be conceded, is not required, and any acts which constitute waiver will be sufficient.
It is uncontradicted that Landstreet never qualified as a director, and never attended any directors' or stockholders' meeting, nor participated in any way in the incurring of any obligation or the transaction of any business of the company.
In Garling v. Baechtel,
In Ridgefield R.R. v. Reynolds,
In Masonic Temple v. Channell,
In that case the defendant was a director, attended meetings as such, and was chairman of a committee to select a *595 building site, and only resisted payment when the site he favored was not selected. This was held a waiver. The facts in this case do not, in our opinion, bring it within any well-considered decision under which a waiver could be found, and we think the learned Judge below correctly granted the defendant's first prayer.
As this necessarily requires the affirmance of the judgment, there is no occasion to consider the other prayers, nor the disposition of the motions to strike out evidence, all of which were refused.
Judgment affirmed with costs to the appellee above and below.