Hunt v. Kansas & Missouri Bridge Co. , 11 Kan. 412 ( 1873 )

The opinion of the court was delivered by

Valentine, J.:

The principal questions involved in this, case are as follows: First, Has the legislature of the state of Kansas the power to pass an act authorizing the organization of a corporation to build a bridge across the Missouri river at a place where said river forms the boundary line between the state of Kansas and the state of Missouri? Second, Has the legislature passed any such act? or in other words, did the act of February 27th 1866, (Laws of 1866, page 124,). concerning corporations, authorize the organization of a corporation for such a purpose? Third, Did the Kansas and Missouri Bridge Company, in effecting their organization, comply with all the requirements of said act? Or to be more particular, Did the corporators describe sufficiently in their certificate of incorporation the location of the bridge and the boundaries within which they desired to claim corporate rights? (Laws of 1866, p. 125, § 3, subdiv. 2, and §§ 29, 31.) The description in said certificate was as follows: A “bridge across the Missouri river, from the state of Kansas to the state of Missouri, at some point within the county of Leavenworth in the state of Kansas, and within the county of Platte in the state of Missouri.” Fourth, Could the stockholders of the bridge company legally organize for the transaction of corporate business, as they claim they did, before all the capital stock of the company had been subscribed for? Or to be more exact, could they so organize when only ten per cent, of the amount had been subscribed? (Laws of 1866, pp. 126, 128, §§ 5, 10.) And if the company could so organize, could they then compel each stockholder to pay the full amount of the stock for which he had subscribed, when only one-tenth of the capital stock of the company had yet been taken by individual stockholders?

These questions were all raised by two demurrers, one to the fourth defense set up in the answer, and the. other to the plaintiff’s reply. It is conceded, and even claimed by both parties, that these demurrers may be carried back to any preceding pleading, and sustained as to the first insufficient pleading. This we think is correct, so far as this case is concerned. The demurrers were based upon the ground that the pleadings to which they were respectively intended to apply did not state facts sufficient, the first to constitute a sufficient defense, and the second to constitute a sufficient reply to the answer. These demurrers undoubtedly raised the question as to the'sufficiency of all the pleadings — the petition, the answer, and the reply — so far as either attempted to state a 'cause of action, a defense, counterclaim, or set-off, or a reply to the answer. In other. words, when such a demurrer as either of these two is filed, the court examines the whole record, and renders such a judgment as should be rendered upon all the pleadings taken together. Such a demurrer however never raises such questions as are deemed to be waived by not being specifically raised by demurrer or answer. (Gen. Stat., 648, § 91.) The court below sustained said demurrers as to the third and fourth defenses stated in the answer, and to these defenses only, and the defendant (plaintiff in error) now seeks in this court to have said rulings of the court below reversed. It seems however to us that the rulings of the court below must be sustained, and that all the foregoing questions must be answered in the affirmative.

I. We have no doubt concerning the power of the legislature to pass an act for the incorporation of a company to build a bridge, part of which shall be in Kansas and the other part in Missouri. If such a corporation cannot be organized in Kansas, then for the same reason such a corporation could not be organized in Missouri. If a Kansas corporation cannot build a bridge across the Missouri river, then for the same reason a Missouri corporation could not build such a bridge. And if neither a Kansas nor a Missouri corporation can build such a bridge, then for the same reason neither of them could build by itself or with the other any part of .that portion of the bridge which' may' not be located in its own state. It has already been settled that the two states acting together could not create a single corporation for such a purpose, or for any other purpose. (Ohio & Miss. Rld. Co. v. Wheeling, 1 Black, 286, 297.) Hence, it necessarily follows that no corporation) wherever or however organized, can build the whole of such a bridge; and no two corporations acting together, although one might be organized in Kansas and the other in Missouri, could build it jointly, or in common; for the Kansas corporation would be beyond its jurisdiction in Missouri, and the Missouri 'corporation beyond its jurisdiction in Kansas. Each corporation would therefore have to build, own, and operate separately and independently that portion of the bridge which might be located in its own state, and that portion only. Can this be law? We think not. A corporation of either state may build, own, and operate the whole of the bridge. It is true however, that the corporation that builds, owns or operates the bridge, must have the consent of both states in order to do so. But the consent of the state which authorizes the organization of such a corporation is necessarily given when the authority for the organization is given; and it must be presumed, in the absence of anything to the contrary, that the consent of the other state is given, for such consent, in our judgment clearly falls within the rules of comity between states. (L. G. Rly. v. Comm’rs of Coffey Co., 6 Kas., 254; Runyan v. Coster’s Lessee, 14 Peters, 122; Bard v. Pool, 12 N. Y., 495. See also in this connection Conway v. Taylor’s Executors, 1 Black, 603, 629, 630, and cases there cited.

II. The act is broad enough as we think, to cover all bridges which any corporation can get legal power from any state or person to build. Corporations may under said act be organized for the purpose of building one bridge alone, or for building a sytem of bridges. (Laws of 1866, pp. 124,133, §§ 2, 29.) A case may easily be imagined where it would be necessary for a Kansas corporation, organized for the purpose of building a system of bridges, to build a bridge wholly within the state of Missouri, in order to render their bridges built in Kansas of much service, or of much value. The act is broad enough, and was probably intended, to reach just such a case as this, as well as other cases. We have no doubt but that a Kansas corporation (without reorganizing as a Missouri corporation) could with the consent of Missouri build just such a bridge. We know of no good reason why we should limit the terms of the act by judicial construction, when the legislature has not seen fit to limit the terms of the act by legislation.

III. Was the company duly organized under said act? The certificate of incorporation should have stated more specifically and definitely the “termini or boundaries within which such company * * * desired the privilege of corporate rights.” (Laws of 1866, p. 125, § 3, subdiv. 2; pp. 133, 134, §§ 29, 31.) But still we do not think that the statements are so absolutely indefinite or defective as to render the organization of the company wholly illegal and void. At most, the organization is not so wholly void for that reason merely that the question of its validity may be raised in a collateral manner, as it is attempted to be done in this case. Besides, the defendant (plaintiff in error) participated in the organization of the company, becoming a director therein when it was first organized, and acting in that capacity; and it would now be a gross fraud upon the other stockholders, after they have paid for their stock, built the bridge, and assumed additional liabilities, for him to say that the company never had any legal or valid existence. He should be estopped from setting up any such fraudulent and unconscionable claim. (Hager v. Cleveland, 36 Md., 476, 490, 491; Eaton v. Aspinwall, 19 N. Y., 119, 121.)

IY. We think the corporation was created when the certificate of incorporation was filed with the secretary of state. In the said act concerning corporations the persons who execute and sign the certificate, are called “corporators;” (Laws of 1866, p. 125, §§ 3, 4.) The certificate is called a “ certificate of incorporation;” (§ 5.) And section 4 of the act provides “That when the foregoing provisions,” that is, the making and filing of said certificate, “have been complied with, the persons named as corporators in said certificate shall have the exclusive right to carry into effect the object named in said certificate, in accordance with the provisions of this act, and within the limits and boundaries named in said certificate ; and they and their associates, successors, and assigns, by the name and style provided in said certificate, shall thereafter be deemed a body corporate,” etc. (Laws of 1866, p. 125; and see also, Gen. Stat., 192, §10.)

Y. We think the company could legally organize for the transaction of corporate business when only ten per cent, of the capital stock of the company was subscribed. • This organization is effected by the election of a board of directors, and other proper officers, as provided in § 5 of the act of 1866. And when the company is thus organized we think they may compel each stockholder to pay the full amount of the stock for which he has subscribed, although only one-tenth of the capital stock has yet been taken by individual stockholders. The power to make assessments on the capital stock seems necessarily to follow from the power to transact corporate business. If a bridge company has power to build a bridge, they must necessarily have power to make assessments on the capital stock in order to do so. It requires money to build bridges, ferries, railroads, turnpikes, colleges, and the various other improvements authorized to be constructed and operated by said act of the legislature; and it can hardly be supposed that the legislature inténded or expected that the various corporations organized under said act should proceed to build and operate these various objects without any money, or without making any calls upon the capital stock. The question we are now considering seems to be the most important question 'in the case. It is purely a question of statutory law however, and depends upon the statutes of our own state. Hence it makes but very little difference what other courts have decided upon this question, unless their statutes are substantially like ours. The substance of our statutes affecting this question, will be found in the Laws of 1866, pp. 124 to 138, ch. 57, “an act to provide for the creation and regulation of incorporated companies.” The substance of § 4 of said chapter .has already been given. Sec. 5 provides that the persons named in the certificate of incorporation shall cause books to be opened for subscription to the capital stock of the company; but neither this nor any other section requires that anything be paid at the time of making the subscription; nor does this or any other section require that anything be paid by the subscribers at any other time except upon “a call” of the company. Said § 5 also provides that whenever ten per cent, of the capital stock of the company shall be subscribed an election shall be held for the purpose of electing directors of the company;' and that—

. “A majority of said directors [elected at said election] shall form a board, and be competent to fill vacancies in their board, and to transact all business of the corporation. An annual election shall be held for directors, at such time and place as the stockholders, at their first meeting, shall determine, or as the by-laws of the corporation may require; and the directors chosen at any election shall, so soon thereafter as may be convenient, choose one of their number president, and shall appoint a secretary and treasurer of the corporation. The directors, before entering upon their duties, shall each take an oath or affirmation faithfully to discharge his duties, and they shall, from time to time, make such dividends of the profits of said company as they may think proper.

“Sec. 6. All deeds conveying real estate belonging to any corporation, shall be signed by the president and secretary, with the seal of the company attached.

“Sec. 10. The directors shall have the general management of the affairs of the company, and may dispose of the residue of the capital stock at any time remaining unsubscribed, in such manner as the stockholders for the time being may prescribe, and may employ the capital and means of the company in such manner as they shall deem best for the company. They shall cause a record to be kept of all stock subscribed and transferred, and of all business transactions, and their books and records shall at all reasonable times be open to the inspection of any and every stockholder. They shall also, when required, present to the stockholders reports in writing of the situation and amount of business of the company, and declare and make such dividends of the profits from the business of the company, not reducing the capital stock while they have outstanding liabilities, as they shall deem expedient.”

Sec. 19. [This section provides for making “calls” upon the capital stock of the- company, and for collecting the amounts called for.]

The contract of subscription reads as follows: “We, the undersigned, hereby subscribe to the capital stock of the Kansas and Missouri Bridge Company for the number of shares set opposite our respective names, and bind ourselves, our heirs, executors and administrators to pay for the same,, at the rate of one hundred dollars per share, at such times and in such installments as the stockholders or board of directors may hereafter determine, five per cent, of which is to be paid at time of subscription.” The plaintiff in error (defendant below) was the first person who subscribed for stock and who signed this contract of subscription. We suppose it will be everywhere conceded that ordinarily, and in all cases, unless otherwise provided by the act authorizing the corporation to be created, or by the charter o’f the company, or by the contract of subscription, all the capital stock of a proposed corporation must be subscribed for by bona fide stockholders before any stockholder can be compelled to pay any assessment on his stock, or before the company can enter upon any of its corporate business, or before even any kind of a corporate organization can be effected. At least, we shall decide this case upon this theory. This disposes of all the authorities upon this question referred to by counsel for plaintiff in error; for none of them profess to go further, or even admit that they go any further than we have thus recognized the law to be.

All corporations are organized in this state under general laws. The present corporation was organized under the said laws of 1866. And said laws authorize, as we think, the organization of a corporation just as this was organized. And when the corporation is thus organized it may go into full operation at once, as such corporation. It may enter at once upon its corporate business, and may at once make assessments upon the stock of the shareholders up to the full face of their stock, although only ten per cent, of the capital stock has yet been subscribed. With respect to the present corporation, not only the law, but also the contract of subscription, authorizes the organization of a corporation just as this was organized, and authorizes assessments on the stock to be made, just as .they were made in this case. It will be admitted that the statutes do not in express terms authorize assessments to be made on the shares of stockholders as soon as the company is organized by the election of directors and other proper officers, and before all the stock is subscribed for; but we think they do by unavoidable implication. If the company after its organization can do nothing but receive subscriptions to the capital stock until the whole of the capital stock is subscribed, where is the propriety of allowing an organization •of the company at all where only one-tenth of the .capital stock is subscribed? Why go through with the farce of electing directors, a president, a secretary, a treasurer, etc., if such officers* can do nothing but receive subscriptions to the capital stock? The original corporators are the proper persons to receive subscriptions, and to do everything else connected with the corporation until the company is completely •organized for corporate business. This right belongs exclusively to them. Sec. 4 of said act of 1866 provides that “the persons named as corporators in said certificate shall have the exclusive right to carry into effect the object named in said ■certificate, in accordance with the provisions of this act.” It is not necessary under the law that anything be paid on the subscriptions until after the organization of the company is •completed; but if anything should, under the contract of subscription, be paid sooner, it may be paid to the original corporators, and taken care of as well by them as by the subsequent •directors or by any other persons or officers. Until directors .and other proper officers are elected, indeed, in our judgment^ until the corporation may enter fully upon its corporate functions, the original corporators are the representatives of the corporation, and are the only persons authorized to attend to the preliminary business of the corporation. The directors when elected are elected (in our judgment) to do the business •of a completely-organized corporation. They are not elected for the purpose of effecting an organization. That is the business of the original corporators. They are elected to attend to the business of the corporation after its organization. But if they are not, if they are elected only for the business •of receiving subscriptions.until the whole of the stock shall be subscribed, why say, as the statute does, that a majority ■of the directors elected at the organization of the company shall be a board of directors, and be competent “to transact all business of the corporation ?” And why allow the first directors chosen, as well as those subsequently chosen, to “dispose of the residue of the capital stock at any time remaining unsubscribed, in any manner as the stockholders for the time being may prescribe, if the stock can be disposed of only by subscription, and if all of it must be disposed of by bona fide subscriptions before any act can be done by the company as a corporation? The only theory upon which said unsubscribed stock can be disposed of in any other manner except by subscription is, that the company is completely organized for the transaction of corporate business, and that such unsubscribed stock belongs to the corporation as such. If however all the stock must be subscribed before the directors have the power to act ás directors, or to do any act except to receive subscriptions for stock, the stock must all be subscribed, and in the hands of individual stockholders, and beyond the reach of the directors, or even the stockholders as a body, before the directors or the stockholders as a body can have any control over it, or can dispose of it in any manner except by subscription, this makes the law absurd. The directors are authorized to do what they cannot possibly do. But if they .could so dispose of the unsubscribed stock, why authorize them to sell the unsubscribed stock when they cannot make an assessment of a dollar on the subscribed stock ? And does it not look absurd to give to the first directors, as well as to those subsequently chosen, the power to declare dividends of the profits of a corporation before the corporation has gone into operation at all, before it can possibly have a dollar of profits to divide, or even before it may have received a dollar on subscription, or from any other source ? The construction that we have given to said act of 1866 is the only natural construction that can be given to it; and it is the one that has been universally given to it in practice, so far as we are informed. The act authorizes the organization of over thirty different kinds of corporations, including railroad companies, and of course all stock corporations which are organized under it must be governed by its provisions, and by the same provisions that governed the organization of this bridge company. And so far as we are informed, such corporations have been organized and have proceeded to business just as this bridge company has done. Under the provisions of the act of 1865, (Laws of 1865, p. 94,) railroads were organized substantially in the same manner as they are under the act of 1866; subdivision 4 of § 3 of the act of 1865 corresponds to subdivision 3 of § 3 of the act of 1866. Section 8 of the laws of 1865 corresponds to § 5 of the act of 1866. And amended § 6 of the laws of 1865, (page 105,) corresponds to §19 of the laws of 1866. The act of 1865 was the first general law for the incorporation of railroad companies ever passed in this state. ' The act of 1866 was the second; and the act of 1868 (ch. 23, Gen. Stat., 190,) was the third and last. The most of the railroad •companies of the state are governed by these general laws; and yet in the construction and operation of railroads, the view taken by the plaintiff in error (defendant below) we believe has never been followed. In our system of constructing railroads it would have been impossible to procure the aid of counties under the construction claimed by the plaintiff in error. It could, before the legislature of 1872, only be done by counties subscribing to the capital stock; but according to the view of the plaintiff in error the capital stock must all be taken before the corporation has vitality to do anything, and therefore none could be subscribed, as the work on the road should be pushed from one county to another as the practice has been in this as in other western states. To say that the company is authorized to carry out the purposes of its organization, and yet that it cannot call for a dollar of its subscription to the capital stock, seems to us absurd in the extreme. The most reasonable view, as we think, is, that the legislature had in view the actual situation and wants of a young and growing state, and recognized the fact that almost every corporation in this state commenced its enterprise with but a part of its stock subscribed, and relied on obtaining further subscriptions as the enterprise should be forwarded and should commend itself to the interests of those to be benefited by it, and that this law was passed to meet the exact condition of affairs. The case of the Topeka Bridge Co. v. Cummings, 3 Kas., 55, does not in any manner affect the question now under consideration. But see the following cases as throwing some light upon the present case: N. H. & Derby Rld. Co. v. Chapman, 12 Am. Law Reg., N. S., 80; same case, 38 Conn.; Hoagland v. Cin., &c., Rld. Co., 18 Inch., 452; Schnectady Plank Road Co. v. Thacher, 11 N. Y., 102; Ashtabula Rld. Co. v. Smith, 15 Ohio St., 328, 333; Fry’s Ex’r v. Lexington Rld. Co. 2 Metc., (Ky.,) 323, 324; Taggart v. West. Md. Rld. Co., 24 Md., 563.

The judgment of the'court below must be affirmed.

Kingman, C. J., concurring. Brewer, J., not sitting.