Oldham v. Mt. Sterling Improvement Co.

103 Ky. 529 | Ky. Ct. App. | 1898

JUDGE BURNAM

delivebed tiie opinion .or the cotjet.

This is a proceeding by plaintiff to enforce the payment of a subscription to its capital stock. Judgment is resisted upon the grounds;

1st. That he did not purchase of plaintiff any shares of its capital stock or agree to pay therefor in such installments or at such times as the board of directors might require.

2d. Because of false representations as to the condition and prospects of the company made to him by its alleged promoter to induce Mm to subscribe therefor at or about tbe time of the alleged subscription.

3d. Defendant seeks a dissolution of tbe company on the ground that it is no longer a “going” concern; that there has been no election of. directors since tbe time of its organization ; that plaintiff is doing none of the business contemplated by its charter, except to hold real estate theretofore purchased, and that the directors are-using the assets of the company to promote their personal interests.

The chancellor sustained a general demurrer to second, third and fourth paragraphs of the answer, and the case was tried out solely upon the plea of non est factum. If it is the intention of the pleader to rely upon the plea of non est factum by the first paragraph, he has failed to properly set it out, as there can be no such thing as a conditional plea of non est factum. He either signed or authorized the signing of the paper, or he did not. There may be a conditional signing of an instrument and special plea of non est factum based on it, and this is the issue which the answer probably intended to present.

There is no allegation that the plaintiff company made false or fraudulent representations to defendant to induce him to subscribe to the stock, but that the promoter of the company, the party getting it . up, made such representations to induce the defendant to make the subscription to the capital stock, and that payment of calls made by him were upon the idea that these representations so made by the promoter were true.

A corporation is not responsible for representations made by its promoters. The promoters of a corporation not in existence can not bind it as its agents, nor can the doctrine of ratification be invoked in order , to charge a corporation with engagements made on its behalf before it was formed. While a corporation may become a party to a contract made by its promoters through a novation of the contract, yet in this case the liability of the corporation rests upon a mutual agreement of all parties after the formation of the company (Morawetz on Private Corporations, 234; Cook on Stockholders and Corporation Law, volume 2, page 707). Any other rule would subject corporations to heavy obligations of which the mass of stockholders could have no knowledge or information, and which would, in many instances, destroy them, as promoters are proverbially sanguine in their expectations and profuse in their promises of extravagant returns, their connection with the corporation usually terminating with its organization. And courts of equity have, in the absence of statutory power, no jurisdiction over corporations for the purpose of decreeing their dissolution and the distribution of their assets among the individual incorporators at the suit of one or more stockholders, and a member can not sue for his part of the assets until a dissolution is, had. (Cook on Stockholders, etc., volume 1, page 629; Taylor on Private Corporations, page 432; Morawetz on Private Corporations, volume 1, section 416.)

Section 516, Kentucky Statutes, points out the mode of terminating the existence of corporations, but contains no provision authorizing a court of equity to decree their dissolution at the suit of a shareholder.

In the third paragraph of defendant’s answer he alleges that there has been no election of directors since the organization of plaintiff company, and that the affairs of the corporation have been managed fraudulently and negligently. A stockholder can not defeat an action to collect his subscription on this ground. He has other remedies of a different nature for such evils. For fraudulent appropriation of the assets of the company he may bring the guilty parties to an accounting (Hodgkinson v. National Live Stock Ins. Co., 28 Beav., 473). For mismanagement his only remedy is by corporate election. (Cook on Stockholders, volume 1, page 189.)

By the fourth paragraph he alleges that plaintiff is doing no business by way of manufacturing, building, loans, improvements or otherwise, save to buy and hold real estate, and that a considerable portion of the real estate now owned by the company was purchased nearly five years ago, and is now endangered by escheat under the laws of this State. It is no defense to an action on a subscription to allege that an enterprise is not being pushed or that it has been unduly delayed. These are matters which are necessarily left to the discretion of the board of directors, and if their management of'the affairs of the company is not satisfactory the stockholders have a sufficient remedy in their authority to change them; and it would not do to say that a single stockholder, in a suit brought to enforce a subscription to the capital stock, could be permitted to compel the sale of all the corporate property and a dissolution of the company. Such a rule would put it in the power of a single stockholder at any time to so embarrass the operation of a corporation as to render it of little or no value.

We think the chancellor properly sustained the demurrer to the second, third and fourth paragraphs of defendant’s answer.

And for the reasons indicated the judgment is affirmed.

Judge Hazelrigg not sitting.