Willamette Freighting Co. v. Stannus ( 1872 )

By the Court,

McArthur, J.:

When the Willamette Freighting Company was organized the capital stock was fixed at thirty thousand dollars. No question is made but that, of this amount, fifteen thousand dollars were subscribed and taken before the Company increased its capital stock to fifty thousand dollars. We are led, therefore, to conclude that such was the fact, and it is alluded to at this time as it has an important bearing in considering the legality of the increase' of the capital stock. By virtue of the proviso in § 6 of the Act in relation to private corporations (Mis. Laws, ch. 7), it is lawful for such corporations to proceed to elect directors after one-half of the capital stock has been subscribed. After this important step is taken the organization of the corporation is so far complete as to enable the Board of Directors to proceed with the transaction of any and all business, always of course being controlled by the articles of incorporation, the by-laws, and the character and necessities of the enterprise. The Board of Directors, when once legally elected, may proceed to levy assessments, increase or diminish the capital stock, and do any other act necessary to promote the object of the corporation. (Mis. Laws, ch. 7, § 19.) In this case the proportion of the capital stock required by law had been duly subscribed, and the Board of Directors legally elected; they were, therefore, invested with full authority to increase the capital stock, and the assessments which it levied were legal and binding upon the subscribers to the original stock. If an incorporation sees fit to increase its capital stock, it is not necessary to wait until all the shares of the original stock, and of the increased stock also, are subscribed and taken before assessments can be levied, upon the shares of the original stock which have been subscribed for. Of course the subscription to the entire number of shares of the original, as well as any contemplated increase of stock, can be made a condition precedent to the exercise of the power of levying assessments. In this case there was no agreement or stipulation to that effect. The subscription of Stannus was absolute. He subscribed for and took twenty shares of stock, and promised to pay the Company therefor at the rate of fifty dollars per share in gold coin. The only conditions upon which the subscription was made were those contained in the articles of incorporation and the by-laws, and in the instrument signed by those subscribing to the stock, which “provided only that no assessment upon the shares subscribed shall become due prior to the first of April, 1870.” All the assessments having been made subsequent to that time, there was, of course, no violation of this proviso. We are aware of the full import of the authorities cited from Massachusetts. It is held there that a subscription for stock in a corporation whose capital stock is fixed at a certain amount, or is to be determined by the Directors, is conditioned that the subscriber shall not become liable until the whole stock is subscribed. This rule places the Directors in such a position as to prevent them from transacting any business until all the stock is subscribed. This doctrine cannot apply in this case, for, under our statutes, the proportion of stock necessary to be subscribed before the election of the Directors, or rather before the organization of the Company, was duly subscribed and taken before the business of the Company was proceeded with. The general principle, that a subscription of the whole amount of stock is not a condition precedent to legal corporate existence, except when made so by general statute or expressed in the charter (4 Eng. L. and Eq. 455), is recognized in Massachusetts (6 Pick. 23; 9 Id. 187; 10 Id. 142); and this fact furnishes incontestable proof that the Massachusetts rule invoked by appellant’s counsel grew out of legislative enactment. Its application is not universal, but is limited to those States whose legislation is of like character. The doctrine that whenever a corporation is so organized as to be capacitated to prosecute its business, it has, through its Board of Directors, the power to levy assessments (S. & S. P. R. Co. v. Thatcher, 11 N. Y. 107), is in harmony with the general incorporation laws of this State. We are of opinion, therefore, that the assessments levied by the Board of Directors upon the stock subscribed for by Stannus, were valid and lawful, and that the increase of the capital stock of the Company in no way prejudicially affects the right of the Company to maintain this action. The right of action of the Company is based upon the original contract, which, as has been before stated, was absolute. (H. D. P. R. Co. v. Rice, 7 Barb. 164; S. & S. P. R. Co. v. Thatcher, 11 N. Y. 107.)

It appears that two assessments, aggregating thirty-five per cent., were levied by the stockholders by virtue of Article 10 of the by-laws. These by-laws were framed and adopted by the stockholders, and Stannus assisted in framing them and gave his voice for their adoption. It is urged that the law in relation to corporations must be strictly construed; that as these assessments were not made by the Board of Directors they were illegal, and that they derive no legality or validity from the by-law authorizing stockholders to levy certain assessments, for that by-law itself is violative of the statute which places the control of the affairs of the Company in the hands of the Board. It will not be denied at this day that it is the duty of Courts to strictly construe the law touching the rights, duties and obligations of corporations in all cases arising between corporations and third parties, and in very many cases arising between corporations and individual stockholders. But it is not always that such construction can be insisted upon by the stockholder in an action by or against a corporation. When a corporation is organized, the principles of the law of partnership may in very many respects be held to govern the stockholders in their conduct in respect to each other and in respect to the corporation. (31 Barb. 323; 35 Mo. 26, 27.) The bill of exceptions shows that Stannus was a stockholder in the company, and that he was one of the principals of the enterprise. He assisted in making the by-law by virtue of which these assessments were levied by the stockholders, and now seeks to avoid its effect, and insists upon his right to have the statute strictly construed. We are of opinion that he is not in a position to justly ask for that strict construction. He had a right to waive, and did waive the condition fixed by law that the Directors must make all orders levying assessments, and by his acts he has estopped himself to question any irregularity in the levying of the assessments of which he complains.

We do not think it necessary to pass upon the question of demand and notice as presented.

Judgment affirmed.