People ex rel. Jenkins v. Parker Vein Coal Co. ( 1854 )

By the court—Morris, Justice.

The object of incorporating stock companies is to aggregate; from the many, sufficient capital to conduct a business which the fortune of an individual is not sufficient to transact, so that the community may be benefited by the active employment of the capital in business useful to them.

' Individuals are ‘ induced to invest their moneys in these stock companies, from the fact that, by law, they are not personally responsible (unless ‘declared to be' so by the charter) for any debt, obligation, or trespass'of the corporation; and because all that the" stockholder can lose is the amount :of money he voluntarily invests. The stockholder is also protected,-as regards the money he invests,- by the fact that the charter of the company limits and confines the business to be transacted, in kind and extent—does not permit a majority of stockholders, of directors or officers, to exceed the power given by the statute, or to bind the capital of the company bv acts beyond those expressly permitted by the charter.

’ The individual stockholder sees, in the charter and laws, all the powers given to stockholders, directors, and officers, and for such.purposes he confides the amount he invests.

Courts, knowing the language :of the act of incorporation, and that no act' of directors and officers, not authorized by the ■ charter, can bind the -stockholder or his investment, in many instances, direct guardians of infants, and trustees of estates, of idiots; and of the insahe; to invest their funds in the-stock of ' incorporated companies.

In this state, certain stocks are made the basis of the circulating medium of our banking institutions, and are by the banks ' deposited with the "comptroller of the state; as security to pay the- billholders' of the bank. This was done because our legislators had confidence in the laws creating those stocks,, ánd because they knew that the fraudulent criminal conduct of the officials empowered to issue such stock, could not, by fraudulently issuing false certificates, invalidate, or depress in valúe, the genuine stock issued under such laws.

A corporation has no more power than is conferred upon it by the act of incorporation.

The officers, directors, and stockholders of an incorporated company, cannot, even by an unanimous agreement, made under an honest misapprehension of their powers, increase the capital of the company, or give to the corporation any increased power beyond that which has been conferred upon it by the law of the legislature.

If the officers and directors of an incorporation, with even the unanimous consent of the stockholders, should, without legislative sanction, increase the capital of the company, or issue certificates of stock beyond the amount of capital, or assume to exercise other powers not given to the corporation by the legislature, such unauthorized acts would be good cause to cancel its charter. Can it then be contended that an officer of the company, by a secret and fraudulent act, can make an act legal and binding, which the unanimousmction of the whole corporate body could not do 1 Can the courts, whose duty it is to sustain the law in its integrity, to punish fraud and crime, declare that such fraudulent act of the officer is legal and binding1? Can adjudge that the corporation has a capital of $15,000,000, when the legislature, by its charter, said it should not have to exceed $3,000,0001 Can decide that the incorporation have 150,000 shares of stock of $100 each, when the legislature have declared, by the charter, that it shall only have 30,000 shares of $100 each1? I think not. If such be the law-making effect of fraudulent transactions of an officer of a stock company, then a swindling official has more law-making power, exercised by the commission of a crime, than has the legislature of the state; for his criminal act destroys the restrictive law of the legislature, and creates, where the legislature said there should be no existence.

It is also claimed, that the court must declare these false and fraudulent certificates to be genuine, as between the holders of them and the stockholders of the company, because.the stockholders elected the directors and appointed the officers, gave them credit in the community, and that the community could not tell whether the official was acting illegally or not; and that, as the officer was the agent of the stockholders, they are responsible for his acts, because he was authorized by them to issue stock.

Such principle would entirely destroy the business of this commercial community, where, of necessity, business must be transacted by agents.

An agent can only bind his principal, when he acts within the power delegated to him. There may be in the transactions of individuals a question as to the extent of the power delegated, because individuals may bind themselves to any pecuniary amount; and in the transactions of individuals, conduct may be such as to confer greater power upon the agent than the principal intended; but when the extent of the power delegated is established, no act of the agent beyond that power can bind the principal.

A corporation, being limited in its powers by law, cannot, ■either expressly or by implication, authorize acts not permitted by its charter. Therefore there is no difficulty in determining ■the limit of the power it delegates.

An individual, A, gives a written power of attorney to B, ■his agent, to execute for him, and in his name, three notes of •$1,000 each. After the agent has executed the three notes, ;he'exhibits the power of attorney, suppressing the fact that the power delegated has been exhausted, continues to issue $1,000 ■notes, and succeeds in getting off one hundred such notes.

The notes, after the first three, are void, as regards the principal, no matter how much innocent persons may have been injured: they dealt with an agent at their peril, and it was their ■duty, at the time they took the note, to see that the agent then had the power to give it—that he had not exhausted the power which had been conferred upon him.

The law creating the Parker Vein Coal Company contains all the power and authority that can be exercised by stockholders, directors, or officers; it may be deemed their written power of attorney. Such charter is the law of the land, and all persons are bound to know it. Ignorance of the law is no excuse, even for crime; and all persons are bound to know that the company had only $3,000,000 of capital stock, and that its officers could issue only 30,000 shares of $100 each; and when they purchased stock they did so at their peril, and should have ascertained whether he had exhausted his power.

It may be that the $3,000,000 stock of this company, or much of it, is held by original subscribers, who paid par value for it, as an investment, for the honest purpose of having the mines worked for the benefit of the community, relying upon the income from the business to compensate them for their investment; and it maybe that the funds of infants, lunatics, and the insane are thus invested. Would it be just to compel persons, who have thus invested 3,000,000 of dollars, to divide that sum among the persons who hold the spurious stock to the ostensable amount of $12,000,000, when there is no probability they have paid any such amount for it.

If the persons who hold this spurious stock were really ignorant of the fraud that wras being perpetrated, they have their remedy against the persons who defrauded them; in which case they would not recover the face of the false certificate, but only the amount they gave for it

The 120,000 false certificates, purporting to represent $12,000,000, cannot be enforced against the company.

Certificates of stock are evidence of the ownership of stock; they are witnesses to prove the amount of stock issued, and to whom it belongs. Should the books be opened for the transfer of stock, these 120,000 fraudulent certificates—false witnesses—could be, indiscriminately with the 30,000 genuine certificates, transferred upon the books of the company, and would greatly confuse the evidence in relation to both sets of certificates, and cause it to be more difficult to trace the false certificates, and to discriminate between the genuine and the spurious; and would enable holders of the false certificates, with greater facility to put them in circulation, and deceive the ignorant and- confiding.

The evidence of these respective claims should be left as it now stands. Parties should not receive aid from the courts in the manufacture of evidence to assist them in the investigation that must follow; neither should the public be further exposed to pecuniary injury from transfer of these fraudulent certificates.

Order of special term should be affirmed, and mandamus denied, with costs.

Mitchell, Justice.

The complainants show that they own stock in the Parker Vein Coal Company, and have sold shares of it held by them, and bought other shares; and that the company refuses to allow them to transfer the shares on the books of the company. The complainants applied at special term for a mandamus, to compel the company to allow the transfer in both cases. The motion was denied, and they appeal.

A similar application was made in Shipley agt. The Mechanics’ Bank, (10 J. it. 484,) in the year 1813, and denied. - The court said, that the applicants had an adequate remedy by an action on the case; that it was not a matter of public concern, and there could be no necessity of possessing the identical property, as in the case of a favorite chattel, protium affectionis; and that by recovering the market value of the shares, they could be replaced. These are all good reasons, and equally applicable to this case. The same decision was again made in 1843, in the matter of the Firemen’s Insurance Company agt. The Commercial Bank of Albany, (6 Hill, 243;) and on the ground that where a corporation improperly refuses to transfer' stock, the party injured has an ample, though not a specific, remedy by action. When the applicant has such remedy, and is a private person, he is left to that relief, unless he claims a right to exercise an office, perform a public service, or exercise a franchise; or the defendant holds a public office, and neglects to perform a duty prescribed by law, and which is imposed for the public benefit, and is not a mere private right. Of the last class was the case of The People agt. Steele, (2 Barb. S. C. R. 397. See the remarks of Lord Mansfield, as quoted by Judge Edmonds there at p. 417.)

The cases of Kortright agt. Buffalo Commercial Bank, (20 W. 91; affirmed 22 Wend. 348,) and of Pollock agt. The National Bank, (3 Selden, 274,) show that the remedy by action is effectual, and readily obtained.

It is said, that the action will be only a sort of suicide, as the stockholders would be suing themselves. The fact that the applicants own other stock, cannot be a foundation for giving them a remedy refused to all other parties whose stock the company will not transfer. If, as suggested, the company is insolvent, the applicants will be better off in a suit, where they recover damages, and hold the judgment as creditors, than if they compelled a transfer of the stock, and so were to be postponed to all creditors. If the company is solvent, the damages which they will recover will be a full compensation for all the injury which they sustain by loss of the stock.

There is also another difficulty in this application. The mandamus partakes of the character of a public writ—one in which the people are in some way interested; and it has never been allowed except for the purpose of controlling those who owe a public duty to the state in which it issues. This company is incorporated in Maryland; and although it has an office here, and may be sued here on its contracts and obligations to individuals or others, yet it does not owe allegiance or public duties to this state, or according to the laws of this state, but to the state of Maryland, and according to the laws of that state. If it violates its charter, the remedy should be in Maryland, and not here. On quo warranto, its charter could not be taken away here; and while it does not violate any law of our state, the state should not interfere with it.

The order appealed from is affirmed, with costs.

Tompkins agt. Acer.

Isaac S. Smith, [l. s.]