63 A. 62 | Md. | 1906
This is an appeal from a decree of Circuit Court No. 2 of Baltimore City answering certain questions raised for the Court's decision, under the provisions of sec. 196 of Art. 16 of the Code (1904), and dismissing the bill after the cause had been remanded under our decree reported in
In view of the decision of the lower Court, the first question to be by us determined is whether the failure of the company to pay the franchise tax caused the corporation to cease to exist six months from June 1st, 1900, to wit, on December 1st, 1900, and thereby relieved the defendants (appellees) from liability, under the Act of 1892, to the creditors of the corporation for debts contracted after December 1, 1900.
Chap. 272 of the Acts of 1900 added three sections to Art. 23 of the Code, designated as sections 85A, 85B and 85C. The first provides that "All corporations heretofore chartered under any of the laws of this State * * * which have not within two years from the date of the granting of their charters or certificates of incorporation actually organized and began business, shall beconclusively presumed to have surrendered all corporate orcharter rights, unless within six months from the first day of June, 1900, each of said corporations pay to the Treasurer of this State a franchise tax equal to one-eighth of one per cent per annum, accounting from two years after the date of the granting of such charter or certificate of incorporation, upon the amount of capital stock required to be subscribed before it is authorized to begin business, and upon payment as aforesaid, and receiving the receipt of the Comptroller therefor, the said corporate or charter rights shall continue." Section 85B is applicable to corporations thereafter "organized." Section 85C, after requiring corporations mentioned in section 85A to pay the franchise tax annually (after a renewal of their corporate rights and franchises) until they actually organize and begin business, then provides; "The several corporations of the severalcorporations mentioned in sections 85A, 85B and 85C of this Article, shall be liable for the payment of the franchise tax imposed herein upon their respective corporations, and in the same manner as though they *504 had jointly and severally agreed to pay the same; and the State Tax Commissioner is hereby charged with the duty of carrying the provisions of said sections into effect by assessing the said franchise tax upon the several corporations in said sections required to pay the same."
This company did not actually organize and begin business within two years from the date of the granting of its charter, and therefore is within the language of the statute. The application for the preliminary decision by the Court of the questions of law raised states that, "the requisite number of shares of capital stock having been subscribed for and fifty per cent thereof having been paid in, the said stockholders met on the 27th day of April, 1899, and proceeded to organize the said corporation by the election of fifteen directors, who forthwith elected a president and other officers, and proceeded to carry on the business which the said corporation was authorized to engage in by the terms of the said charter." It did not, however, pay its bonus tax until the 16th day of June, 1900, but by the Act of 1900, ch. 104, approved March 24th, 1900, the Legislature amended its charter. In one of the briefs of counsel for the appellees it is said of that amendment, "This Act was undoubtedly a legislative recognition of the Trust Company as a legal entity at the time the Act was approved. And it is not questioned that the Act had that effect." Under the decisions by this Court of the Md. Tube Works v. West End Imp. Co.,
In Cleaveland v. Mullin, supra, Mr. Cleaveland had applied to the president and directors for twenty-five shares of the *505 capital stock of the Atlantic Trust and Deposit Company. They replied that he had been allotted twenty-five shares under the terms of his letter of subscription, and six days afterwards he asked them to cancel his subscription. That company did not pay the bonus tax until April of the following year. We held that the company was not capable in law of accepting the offer to subscribe, and hence he was not bound," as there must have been two parties competent to contract before there could be a contract," and its acceptance was "a sheer nullity;" but we added: "Being a nullity no contractual obligation arose and the appellant was in no way bound to pay for the twenty-five shares of stock for which in his letter of May twenty-fifth he offered to subscribe, unless after the payment of the bonus tax, and therefore after the corporation actually became a legal entity and was clothed with corporate powers, including the power to accept offers to subscribe to its stock, the appellant had by his own acts or conduct recognized himself as, or asserted that he was, a stockholder and the trust company had dealt with, or treated him as such." As Mr. Cleaveland had not done any act that brought him within the exception, he was relieved. But in this case four dividends were paid to all of the defendants whose certificates had been issued prior to June 16th, 1900, and many of them subscribed for their stock after the bonus tax was paid. The Cleaveland case was a suit by a receiver of the company to collect the amount of an alleged subscription to the stock which had not been paid, but it was in effect decided by that case that such an act as these defendants did — receiving dividends — after the payment of the bonus tax would bind them, for surely they recognized themselves as stockholders and the company dealt with them as such, when it paid and they received dividends on the stock so held by them. That being so between the corporation, or its representatives, the receiver and a stockholder, a fortiori it would be so between creditors and stockholders. The mere non-payment of the bonus tax prior to June 16th, 1900, cannot therefore be an obstacle in the way of recovery by the appellants. *506
The company being in legal existence with all the powers given it by the charter on and after June 16th, 1900, were its corporate or charter rights forfeited on December 1st, 1900, by reason of its failure to pay the franchise tax? A clear distinction is made by the authorities between acts of corporations required to be done as conditions precedent to their coming into existence, and those that cause a forfeiture of charter rights and powers, after they are once legally and validly acquired. In Canal Co. v. Railroad Co., 4 G. J. 1, the 18th section of the Charter of the Potomac Company was under consideration. CHIEF JUDGE BUCHANAN, on p. 123, said: "The penalty annexed to the breach of the condition in the first clause of the 18th section was, that `the company should not beentitled to any benefit, privilege, or advantage under the Act;'
and in the last that "all the interest, c., of the companyshould be forfeited and cease." Now to lose all benefit, privilege and advantage; or for all interest to be forfeited and cease would be to lose the charter itself." He held that what was required of the company was a condition subsequent, and, on p. 122, he thus spoke of forfeitures; "Where there is an existing corporation capable of acting, but which has been guilty of an abuse, or neglect of its franchise, or the powers committed to its trust, amounting to a cause of forfeiture, such cause of forfeiture can only be enforced by a scire facias or a quowarranto, issued at the instance of the government creating the corporation, and cannot be taken advantage of incidentally, or in any other way, or by any individual; since the government, with which alone the contract arising out of the charter is made, may waive the breach of any condition of that contract, and cannot be made to enforce the forfeiture, whether it will or no, and when it may have sufficient reason for not chosing to do so. Until it does, and that by judicial action and not by legislation, no individual or other corporation can treat it as a forfeited franchise." In Regents v. Williams, 9 G. J. 365, the same thing was said in substance, and JUDGE BUCHANAN pointed out on p. 426, when the proceeding should be by scire facias and when byquo warranto, and he said the *507
corporations "are entitled to be heard in either case before they are condemned on proceedings instituted for that purpose, which must be at the instance of the government, and in no otherway." In Planters Bank v. Bank of Alexandria, 10 G. J. 356, language to the same effect was used, and that was while considering a provision in the charter that if the bank "shall at any time refuse to pay specie for the notes when called on the charter shall be and is hereby declared null and void." See also Hammond v. Strauss,
We have thus referred at length to our own cases to show the position this Court has taken by an unbroken line of decisions — where the company was an existing, valid corporation, and a forfeiture was claimed to have been incurred, and the Supreme Court of the United States in dealing with a Maryland corporation adopted the same view. It is true that in Nicolai v. Md. Ag.An., supra, we said "There can be no doubt *508 that the Legislature may use such language in a charter as will make a forfeiture clause self-executing, and the corporation willipso facto cease to exist, but it requires strong and unmistakable language to work such results, and in the construction of clauses prescribing a condition or contingency, the Courts seem generally opposed to that which supports a forfeiture ipso facto without judgment of dissolution in a Court proceeding,' 9 Ency of Law, 555," and later in that opinion we added, that "Authorities are numerous in this State to the effect that no cause for forfeiture of a corporation which has actually come into existence, can be taken advantage of, or enforced against the corporation collaterally or incidentally, or in any other mode than by a direct proceeding instituted for that purpose." It must be admitted that the expression used in sec. 85A quoted above is very broad, but not more so than the language referred to in Canal Co. v. Railroad, supra, or in Planters'Bank v. Bank of Alexandra, or in Frost's Lessee v.Frostburg Coal Co. Yet in those cases the Courts held that the charters could only be forfeited in the instance of the State, although in them third parties were seeking to attack the charters collaterally and not, as here, stockholders who now assert that the company had surrendered all corporate or charter rights on December 1st, 1900, although they actually received dividends from its business four times after that period. InHammond v. Straus, supra, which was a suit of a creditor against a stockholder of a State bank on his statutory liability, after holding that the defendant could not defeat an action by showing non-compliance with the requirements of the statute, unless the acts required are conditions precedent to the corporate existence, the Court used this language: "By holding otherwise parties might avail themselves of the power 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 willful 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 *509 defense could never be tolerated," and referred to the Frostburg Coal Co. case and others.
We are aware that many of the Courts have announced a different doctrine on the subject from that adopted in this State. JUDGE THOMPSON, in his article on corporations in 10 Cyc., says on p. 1270, "Although it has been frequently said that there are but four ways in which corporations may be dissolved, yet on a little reflection it appears that there are five ways;" (1) by the expiration of the term of existence granted; (2) by an Act of the Legislature, where the power has been reserved; (3) by a surrender of its franchises, which is accepted, and a voluntary dissolution; (4) by loss of all its members, or of an integral part; (5) "by a forfeiture of its franchises by a judicial proceeding, usually an information in the nature of a writ ofquo warranto, but sometimes, under the operations of statutes, a proceeding in a Court of equity, which at the same time winds up the corporation and distributes its assets." On p. 1274, etc., he considers the question of forfeitures and cites many cases — some holding certain things to be ipso facto forfeitures and others taking the opposite view, and cites Canal Co. v.Railroad Co. as one of the latter class of cases. He refers to the disinclination of Courts to forfeit charters — says: "The reasons for declaring such a forfeiture must be solid, weighty and cogent," but it is evident he was not altogether in accord with the Maryland doctrine. But with the greatest respect for the views of others, we believe the doctrine that has prevailed in this State for three-quarters of a century the safer one, and have no desire to depart from it. The business in this State — large and small — is now done so largely by corporations that it behooves Courts not to encourage such conditions as are likely to arise at any time, if the views contended for by the appellees are to be sustained. As long as they are prosperous the public has little opportunity to know anything about the inside workings of corporations. It is only when the crash comes, or there are internal dissensions, that a confiding public is enlightened as to the real conditions. Stockholders may not be informed *510 either, but they at least have more opportunity to be and oftentimes when they are not it is by reason of their own neglect. This case illustrates the dangers of the other rule, without citing other illustrations. Here was a trust and banking company doing business in the city of Baltimore from April, 1899, until June, 1903 — declaring dividends regularly every six months during the last two years of its existence, receiving the deposits of many people, and apparently carrying on business in the usual way. Those dealing with it had the right to rely for their protection, not only on its property but on the personal responsibility of the stockholders, and when it winds up insolvent they are met by the claim that it has not been a corporation since December 1, 1900, because it had not paid the State of Maryland $62.50 for one year, if it be treated as organized in April, 1899, or $125.00, if the organization was not until the bonus tax was paid in June, 1900, and it is contended that therefore the stockholders are relieved from all liability — because their agents did not pay the State and the State did not demand payment. If such results may follow, is it not the duty of Courts to decline to declare forfeitures of charters to be self-executing when it is possible to avoid it? And when we have our own decisions adopting what is clearly the more equitable view, and certainly the one that best protects the public, we prefer to follow them, rather than others which in a case like this would result in great injustice to many innocent people.
Adopting that course we are of the opinion that the language used in sec. 85A, does not necessarily mean that such corporations shall be conclusively presumed to have surrendered all charter rights, in every proceeding that may be before the Court, but only in those taken by the State — then there may be the conclusive presumption spoken of, on proof of the necessary facts. In other words that this language does not authorize any one but the State to have the forfeiture declared for the failure to pay it a small sum of money, as it has a perfect right towaive it and no individual can take that right from it — especially can it not be done by stockholders, in order *511 to relieve themselves of a liability which they voluntarily assumed.
But in addition to this, there are other provisions in the statute which show that the Legislature did not intend, if we concede that it had the right to do so, that the forfeiture contemplated should be self-executing and thereby destroy valuable rights, without notice to the corporations affected, because they were guilty of doing what they had a perfect right to do — to delay the time for organization and to begin business for more than two years. Of course ignorance of the law is no excuse, but it would be manifestly unjust to cause such results as are here contended for, by passing a retroactive law requiring payment of a tax, previously not required, without giving some notice, and the statute itself indicates that the Legislature did not intend to do such injustice. Sec. 85C, after expressly referring to the three sections by numbers, and making a provision that is not very intelligible as published (or as found in the copy filed with the Clerk of this Court), concludes thus: "And the State Tax Commissioner is hereby charged with the duty of carrying the provisions of said sections into effect by assessing the said franchise tax upon the several corporations insaid sections required to pay the same." It is admitted that no such assessment was made against this company or any demand made upon it. The Tax Commissioner is an officer of the State, whose special duty is to assess corporations and his duties are mainly, if not exclusively, confined to matters connected with the taxation of corporations. He cannot legally assess property of a corporation without notice and an opportunity for it to be heard;Monticello Co. v. Baltimore City,
There are other things in this statute which were calculated to do great injustice, if the contention of the appellees is to prevail. The title is "An Act to add three new sections to Article 23 of the Code of Public General Laws, title `Corporations,' sub-title General Regulations,' to follow section eighty-five and to be designated as sections 85A, 85B and 85C." There were already "sections 85A, 85B and 85C" in that Article, which were enacted by the Act of 1892, ch. 109. If it be conceded that the title was not so misleading as to require the Act to be stricken down on that account, it was certainly so much so that it would not suggest to anyone that a new kind of tax was about to be imposed — the failure to pay which would work such disastrous results. When the bonus tax was imposed (by both the Act of 1890 and that of 1894) the titles disclosed the intention to require it — and that was in regard to prospective acts, while in this statute, which was to act retrospectively, no notice of the intention was disclosed in the title. Other peculiarities might be pointed out such as the errors in 85C, calling that section 86C in the enacting clause, etc., but without pursuing the subject further it is apparent that it would be taking away, not only the charter rights of the corporation but the rights of the creditors by, to say the least, a statute abounding in errors and dangerous provisions, to give it the construction contended for.
2. The next question for our consideration is the meaning of section 85L of Article 23 of the Code, as enacted by ch. 109 of laws of 1892. That is as follows: Each stockholder shall be liable to the depositors and creditors of any such corporation for double the amount of stock at the par value held by such stockholder in such corporation." In Murphy v. Wheatley,
The language of the statute, it seems to us, answers the question. When the Legislature said that each stockholder should be liable to the depositors and creditors "for double the amount of stock at the par value held by such stockholder," it did not mean only "for the amount of stock" held, etc., and that meaning cannot be given to the provision unless we strike out the word "double." Section 39 of Art. 3 of the Constitution prohibited the General Assembly from granting a charter for banking purposes, or renewing one then in existence, "except upon the condition that the stockholders shall be liable to the amount of their respective share or shares of stock in such banking institutions, for all its debts and liabilities upon note, bill or otherwise." Section 27 of Art. 11 (sec. 29 of Code of 1904) includes those provisions, but adds the words "and directors" after "stockholders." The charter of the South Baltimore Bank, considered in Colton v. Mayer,
It is argued that as Section 64 (72) of Art. 23 of the Code makes stockholders liable once for the amount of their stock, the Statute means that liability, and one other of the same amount, but section 64 expressly says "no stockholder shall be individually liable to the creditors of such corporation, except to the amount of his, her or their unpaid subscription to the capital stock." Originally all of the stockholders were liable to creditors until the whole amount of the capital stock was paid, and a certificate filed to that effect. As that was considered too burdensome, it was amended by the limitation just quoted being added to the original. It would have been better to have changed the first part of the section but there is no doubt about what it means. Before section 64 was amended, this Court held inBooth v. Hamill,
3. The question: "Can stockholder defendants be held liable under sections 85L of Art. 23 of the Code of Public General Laws, for debts due depositors who became such prior to the dates at which such stockholders acquired their stock in said City Trust and Banking Company?" was answered in the *517 negative by the Court below. We are aware that many courts — perhaps a majority of those in this country — have held to the contrary, but the decisions of this court unquestionably sustain that answer of the lower Court. It is to be regretted if this construction of the statute will cause such difficulties as are suggested by the appellants, but even such results would preferable to the risk of doing manifest injustice to those who became stockholders during the closing days of this company. For it cannot be doubted that the members of the bar, if consulted, had the right to advise their clients that the law of this State was as decided by the court below, and, if such was the law, it might do a great wrong to those who became stockholders shortly before the failure of the company to overrule or modify the previous decisions, or even what are called dicta of this court, if we were inclined to do so. A list of stockholders filed with the amended bill shows that the certificates for a large number of the shares of stock were issued within a few months prior to June 6th, 1903, when the receivers were appointed, — two certificates each for one hundred shares being dated June 5th, and another for one hundred shares June 4th. We refer to this to show the great danger of innocent people being imposed on by the rule contended for, as it is well known that sometimes institutions of this character and banks are not suspected by the public to be insolvent, or in financial trouble, until the doors are closed. Yet, under that rule, purchasers of stock may not only lose their entire purchase money, but incur this double liability without a dollar's return for their investment, although ignorant of and in no way responsible for the condition of the company. If depositors and other creditors become such before stockholders occupy that relation to the company they cannot say that they relied on those persons for additional security, or had any right to look to them, for they were not then, and might never become stockholders. But under the rule adopted by this Court, they can if they choose ascertain who the stockholders are when the debts are contracted. As the Legislature has changed the liability of stockholders of these companies *518 by the Act of 1904, the decision of the question may no longer be important as a precedent, but the rights of the parties to this suit are to be determined according to "the existing laws of this State" when that Act was passed.
The liability, in this respect, is well settled in this State by the earlier cases They held that the extent of the liability was measured by the amount of stock held by the stockholders atthe times the debts were contracted, and stockholders were not liable for debts contracted before they became such. Without quoting from them see Matthews v. Albert,
Those were cases of manufacturing and similar companies, but inHammond v. Strauss,
In Colton v. Mayer the question was whether the receivers of a bank could recover from a stockholder for this statutory liability. We held that they could not, and one of the reasons that influenced us in so holding was the fact that the liability is only to those creditors who became such while the party sought to be held was a stockholder. We quoted at some length fromHammond v. Strauss and other cases. We referred to the difference between the statute in the earlier cases and the one under consideration, and added, "but the character of the liability was the same, and the main difference being that under it the stockholders were relieved from their obligations to creditors when all of the capital stock was paid." After referring to Basshor v. Forbes,
Without deeming it necessary to determine whether the Act of 1900, ch. 272, could be regarded as an ex post facto law, or other questions not herein referred to, the conclusions we have reached may be summarized as follows:
First. That the failure to pay the franchise tax, imposed by ch. 272 of the Act of 1900, did not cause the corporate or charter rights of the City Trust and Banking Company to be ipsofacto forfeited, and hence the stockholders are not relieved from liability to the depositors and creditors by reason of that tax not being paid.
Second. That stockholders, who became such before the bonus tax was paid but accepted dividends from the company *521 after that tax was paid, are not exempted from liability to creditors on account of that not being paid before they acquired their stock.
Third. That the liability "for double the amount of stock at the par value," etc., means "for twice the par value of the stock held" in addition to the payment of the amount of the subscription for stock,
Fourth. But stockholders are not liable for debts due depositors, or other creditors, who became such prior to the times such stockholders acquired their stock.
It follows that questions (b) and (c) should have been answered in the negative and that the other answers were correct, but there was error in dismissing the bill.
Order affirmed in part and reversed in part, and causeremanded for further proceedings, one-half of the costs to bepaid by the appellants and the other half by the appellees.
(Decided January 9th, 1906.)