Appeal of the Hite Natural Gas Co. , 118 Pa. 436 ( 1888 )

Opinion,

Mr. Justice Williams:

The Hite Natural Gas Company, Limited, was organized under the provisions of the act of June 2,1874, with a capital of $250,000, divided into twenty-five hundred shares of one hundred dollars each. The business contemplated was the production of natural gas from wells near Tarentum, and its transportation to the ,city of Allegheny for sale as a fuel. The company contracted with P. Y. Hite, one of its members, to furnish the right of way for its line, the pipe and other materials necessary for its construction, and to lay and complete the pipe line to Allegheny, a distance of about twenty miles, for $150,000. This sum was to be made up of cash $65,000, and stock of the P. T. Hite Natural Gas Company $85,000. Hite then contracted with the American Tube and Iron Company, the plaintiffs below, for the pipe, agreeing to pay for the same in sums of $5,000 each. The first payment to be made in cash; the next, in Hite’s note at four months with $5,000 of the stock of the company as collateral security therefor; and so on alternately until the whole quantity was delivered, paid for in this manner. Hite was then to deliver $20,000 more of the stock as an additional security for the payment of his notes. Hite then drew an order upon the gas company requesting it to pay the tube and iron company for the pipe as it was delivered, in accordance with the terms of his agreement. The gas company accepted this order subject to the provisions of its own contract with Hite. The tube and iron company then proceeded to deliver the pipe and were paid therefor in accordance with the agreement, one half in cash and one half in Hite’s notes with the stock of the company as collateral. When- the pipe was all delivered the tube and iron company held Hite’s notes for about $43,000, and a like amount of stock in pledge for their payment. As a further security for the payment of these notes they applied for the $20,000 additional stock provided for in the agreement with Hite. This the gas company refused to furnish, giving as reasons for their refusal the fact that they had made advances in cash to Hite in excess of the $65,000 cash provided for in their contract so that the stock was not due him, and the failure of Hite to procure the right of way, in consequence of which the company had been compelled to change its terminus and incur expenses and loss.

The first question, therefore, is whether the plaintiffs below had a just claim against the appellant for the value of the stock withheld by it. Hite had contracted to deliver it to the tube and iron company, and the gas company had undertaken to make the delivery for him subject to its contract with him for the construction of the pipe line. The tube and iron company had a right to insist upon its delivery, unless there was some valid reason set up as an excuse for its non-delivery. The findings of the master upon the questions of fact involved are against the gas company. The advances to Hite which it sets up, were made as he finds in excess of the contract obligations to Mm and in fraud of the rights of the tube and iron company. The change of terminus was made by the action of the company. The failure of Hite to procure the right of way ought not to be heard in the face of the fact that the certificate, signed by the stockholders and placed on file for the information of all persons dealing with the company, contained an express statement that the right of way had been obtained and received in payment of Hite’s subscription for eight hundred and fifty shares of the stock at $85,000. From these findings the master held that the tube and iron company had a valid demand against the gas company for its refusal to deliver the stock and recommended a decree in its favor for the entire amount due upon Hite’s notes. The court below concurred in the findings of fact, but made a decree for the payment of the value of the stock withheld and not for the general balance due from Hite. From a careful examination of the evidence we tMnk the facts are correctly found; and the decree of the court is clearly justified by them.

Our next question relates to the extent of the liability of the defendants. They claim to be regularly organized under the act of 1874, and to have no liability beyond that which attaches to the Hite Natural Gas Company, Limited. The plaintiffs below insist that the members of this company are liable as partners. On turning to the certificate of the stockholders, filed under act of 1874, we find it clearly stated that the subscription of $85,000 for eight hundred and fifty shares subscribed for by P. Y. Hite is paid for in property, viz.: “the right of way and privileges for laying and maintaining an eight-inch pipe line upon and over the lands and highways intervening” between the wells and the city of Allegheny. This was false. The answer of the defendants in this case fully justifies the finding of the master, that Hite did not have, and was unable to procure, the right of way and that the change of terminus was made necessary by this fact. This was calculated to give a false credit to the company. It had no right of entry by virtue of a grant of eminent domain, but was compelled to procure by private contract with each individual and each private or municipal corporation whose lands were crossed by their line, a grant of the right of way. If this was already done and the right of way paid for in full, the success of the enterprise seemed assured. If not done, the difficulty of securing the right of way for a line of such length through a populous region by purchase, would be regarded as very great and as making the enterprise an extremely hazardous one. To all persons interested in knowing the fact, the statement in the certificate was misleading and false. It was not ignorantly false; but it was made by those who knew, at least who could have known and were bound to know, that it was not true. Under such circumstances the master was right in his legal conclusion that as to creditors the stockholders in the Hite Natural Gas Company are general partners and liable as such. They have not fully and fairly complied with the requirements of the act of 1874, because they certified to the payment of $85,000 for stock that was not paid, and to the possession of property received in payment of subscriptions that was not received and has never been received. For this reason they are not entitled to the protection of the act.

But it is also urged that it was error to direct an injunction in this case. The facts found by the master on which this question depends are as follows: The enterprise of the Hite Natural Gas Company has proved a failure. Its wells have become practically worthless. Its stock is now worthless. The company is insolvent and its only valuable property is the pipe in its line. Most of its members have united in organizing a new company, called the Chicopee Gas Company, to which the old company is about to transfer its pipe line, thus placing its property beyond reach of its creditors. These findings which were concurred in by the court below, and which seem to be well supported by the evidence, made a sufficient foundation for the injunction awarded and for the appointment of a receiver.

On an examination of the whole case we are satisfied with the decree of the court below, and it is accordingly affirmed.

Appeal dismissed at the costs of the appellants.