Page images


The defendant moved for a nonsuit on the following grounds: (1) There is no evidence that demand was made for payment of all the claims named in the assessment. (2) The charter was not legally accepted, the corporation was not legally organized, the capital stock was not legally fixed or limited, and the charter became void three years after its date, because only fourteen days' notice was given of the first meeting. (3) The assessment was illegal because seventy-six shares only had been taken. (4) The plaintiffs could in no case assess the defendant beyond one hundred dollars, the amount of his share; and the defendant, having paid that amount before the assessment, could not be assessed any amount whatever. (5) The plaintiffs' sole remedy is by a sale of the defendant's share. (6) The plaintiffs can have no right of action against the defendant till after a sale of his share.

The court pro forma declined to order a nonsuit, and the defendant excepted. The defendant offered no evidence. It was agreed that there were no questions of fact, except the following: (1) Was a demand made before the assessment upon the corporation for payment of each of the debts named in the assessment? (2) Was a demand made before the assessment upon the corporation for the payment of any of the debts named in the assessment ? (3) Did the stockholders, present at the meeting of February 15, 1871, vote the assessment in good faith, exercising reasonable care and prudence and a sound judgment, for the honest purpose of paying the debts of the corporation ?

These three questions were submitted to the jury, who answered each in the affirmative, whereupon the court pro forma ordered a general verdict for the plaintiffs, subject to the opinion of the court on the questions of law raised in this case.

The court instructed the jury that a demand made upon the corporation by a creditor need not be in writing nor by express words; that anything said or done by a creditor or anybody authorized by a creditor, intended to give the corporation to understand that a demand for immediate payment was made, and so understood by the corporation, would be a demand; that a demand made upon the directors or the treasurer would be made upon the corporation; that a demand made upon one director or an acting treasurer, or other agent, would be a demand upon the corporation, if it was the duty of such director, acting treasurer, or other agent to communicate such demand to the directors, and if it was so communicated before the assessment, so that they understood, before the assessment, that payment was demanded; and the defendant excepted.

During the trial a person sat by the defendant's counsel, occasionally consulting with them in such a manner that the jury might have inferred that he was the defendant. Near the beginning of the trial, the defendant's counsel, being asked whether they would admit a certain fact, replied that they did not admit anything. Afterwards, one of the plaintiffs' counsel, while introducing evidence tending to show that the defendant was a stockholder, remarked to the defendant's counsel that he did not know whether the fact of the defendant's being a stockholder was in dispute. The reply was, in substance, a refusal to admit that fact; but after the plaintiffs' evidence on that point had been introduced, that fact was not controverted. In the closing argument, the plaintiffs' counsel comVol. II.


(No. 11.

he plaintiflittle weight being of

mented briefly upon the defendant's letter to Chick as showing a remarkable forgetfulness of the defendant on the point of his being a stockholder, and as giving a character to the whole defence. To this course of argument the defendant objected; but the court declined to interfere, being of opinion that, although this line of argument was of little weight in this particular case, it was not carried beyond the plaintiffs' legal right; and the defendant excepted.

The books and documentary evidence used at the trial may be referred to as part of the case.

Per CURIAM. I. This is an action in the name of an insolvent corporation, to collect an assessment levied for the purpose of paying their debts. The creditors of the corporation are the parties likely to be principally benefited by a recovery in this suit. Although the action is not prosecuted in the name of an assignee or receiver, we think the interest of the creditors is to be so far regarded, that no defence grounded on defects in the plaintiffs' organization can be maintained in this suit, unless it could have been successfully set up in answer to a creditor's bill against the stockholders to enforce their personal liability.

The defendant contends that the corporation has never had a legal existence. The charter provides that any three of the grantees " may call the first meeting of the corporation, by publishing a notice of the time and place of meeting .... at least fifteen days prior thereto." Only fourteen days' notice was given of the first meeting. Ordinarily such a provision in regard to the time of notice would be regarded as merely directory, and a literal compliance with it would not be held an essential prerequisite, a condition precedent to the existence of the corporation. See Narragansett Bank v. Atlantic Silk Co. 3 Met. 282, pp. 288, 289. The purpose of the provision was, “ to secure the rights conferred by the charter to those to whom it was granted, among themselves, by providing an orderly method of organization. Hoar, J., in Newcomb v. Reed, 12 Allen, 362, p. 364; and see Walworth v. Brackett, 98 Mass. 98. If neither the grantors of the charter (i. e. the state) nor any of the grantees complained of the defect in the preliminary notice, it would seem that the objection could not be subsequently raised by this defendant who has taken stock in the corporation, thereby recognizing the corporate existence, and manifesting his purpose to participate in the profits thereof. Angell & Ames on Corporations, 7th ed. $$ 83, 94, 524, 635; Methodist E. U. Church v. Pickett, 19 N. Y. 482; Eaton v. Aspinwall, 19 N. Y. 119; Appleton M. F. I. Co. v. Jesser, 5 Allen, 446, p. 448; Black River f Utica R. Co. v. Clarke, 25 N. Y. 208; Congregational Society v. Perry, 6 N. H. 164; Haynes v. Brown, 36 N. H. 545, pp. 562, 563.

The defendant, however, relies on sec. 35, of ch. 147, Comp. Stats., which provides that “any act of incorporation,” for a dividend paying corporation, “ shall become null and taken to be wholly void at the expiration of three years from and after the passage of such act, unless the grantees or corporators in the act named .... shall have, within said time, accepted such act or charter, organized as a company under it, and entered in good faith upon the proper business of the corporation.” The argument apparently is, that “organized as a company under it” means


(No. 11.

“ organized in literal compliance with all the provisions of the charter, whether merely directory or otherwise.” We think it means rather organized under color of the authority of the charter, with the bona fide purpose of acting under and according to the charter. The statute was not found to allow corporations, or their members, after professing to organize under the charter, and after acting under such organization, to repudiate their debts by setting up their own "neglect of duty" in a matter respecting which the public at large are not interested nor likely to be well informed. The object of the statute was rather to limit the time within which bona fide action should be taken by the grantees to avail themselves of the privileges of the charter. A de facto organization, formed and operated in good faith, under color of the charter, is an organization under the charter, within the meaning of the statute.

The present case differs from Unity Ins. Co. v. Cram, 43 N. H. 636. The so-called “Unity Insurance Company" was an association " which had undertaken to assume corporate powers" under a general act, — ch. 152, Comp. Stats., — a portion of which is as follows: Sec. 1. “Any persons may voluntarily associate themselves together, and have all the powers of a corporation, for either of the following purposes : .... to organize a fire-engine company, or a mutual fire insurance company." Sec. 2. “Every such association shall be formed by written articles specifying the objects of the association, and the conditions on which it is formed, and subscribed by each member thereof." The articles of association were not signed by the members. It was rightly held that the subscription of the articles was a condition precedent to the creation of a corporation or to the exercise of corporate rights. “It is the basis on which all subsequent proceedings are to rest, and is designed to take the place of a charter or act of incorporation, by which corporate rights and privileges are usually granted. If there were no such requirement, there would be an absence of any provisions by which the right to exercise corporate power could be definitely fixed and established. . . . . It is not a case of a defective organization under a charter or act of incorporation, .... but there is an absolute want of proof that any corporation was ever called into being, which had the power of contracting debts or of rendering persons liable therefor as stockholders.” Bigelow, J., in. Utley v. Union Tool Co. 11 Gray, 139, pp. 141, 142. “We think these reasons have no application to the case now before us. In this there was an act of incorporation from the legislature. There is no question that the corporate powers which it conferred were assumed by the persons by whom it was intended that they should be enjoyed, so far as they chose to avail themselves of them. .... The evidence was ample to show that the persons named in the act of incorporation with their associates, or at least all of them who desired to do so, have accepted the act,” organized under its authority, “issued stock, elected officers who have acted and served in that capacity, carried on business, contracted debts, and exercised all the functions of corporate existence. It is therefore too late " for a stockholder " to deny that the corporation ever had any legal existence." .... Hoar, J., in Newcomb v. Reed, 12 Allen, 362, p. 364; and see Walworth v. Brackett, 98 Mass. 98. In Unity Ins. Co. v. Cram, it seems to have also been held that the giving of the notice prescribed by statute was

Vol. II.


(No. 11.

essential to the creation of the corporation. If this part of the decision was correct, the foregoing observations seem to show its inapplicability to the present case.

In passing, it may be remarked that Unity Ins. Co. v. Cram is open to misapprehension in one respect. The court did not pass, and were not called upon to pass, upon the question whether a stockholder or contractor is estopped to deny the existence of a corporation. The case was submitted under an agreement of the parties, which would seem to leave the question of estoppel out of the case. When parties agree that the decision of a single point shall determine the case, the court are not called on to consider whether any other point might have been successfully raised by either side. See Gleason v. Emerson, 51 N. H. 405. Unity Ins. Co. v. Cram was submitted under an agreement, p. 640, “ That if the court shall be of opinion that the plaintiffs were a corporation, .... and as such had a right to issue a policy of insurance to the defendant, and that the assessment .... was legally made, judgment shall be rendered for the plaintiff; otherwise judgment shall be rendered for the defendant, with liberty of review to either party.”

Under our decisions — Littleton Manuf. Co. v. Þarker, 14 N. H. 543 ; N. H. Central R. R. v. Johnson, 30 N. H. 390 ; Contoocook Valley R. R. v. Barker, 32 N. H. 363 — the defendant could not have been compelled to pay his original subscription and accept the stock, until the whole entire eighty shares were subscribed for. But it was competent for him to waive his right of refusal ; and he did so by paying for and accepting the stock. He cannot raise now an objection, which, for aught that appears, might equally well have been taken then. In the absence of contrary evidence, it must be presumed that he would upon making reasonable inquiry have then ascertained the number of shares subscribed .for.

II. The ruling as to the challenge was not open to exception; State v. Pike, 49 N. H. 399, p. 406, and was correct. *McAllister v. Stewartstown Bridge Co. Coös, 1872, not reported.

III. The testimony of Quarles was properly admitted. To constitute a demand, it must ordinarily appear that what was said or done was intended as a demand by the one party, and was or ought to have been so understood by the other party.“ A demand may be made without words written or spoken. It is enough if both parties understand that a demand is made." *Norris v. Morrill, 40 N. H. 395, p. 401. The testimony of Quarles tends to show the understanding of the party (i. e. the corporation) on whom the demand was alleged to have been made. It is no objection to the evidence that it was only one link in a chain of proof. See Delano v. Goodwin, 48 N. H. 203, 206.

IV. The ruling, that the defendant's letter was evidence competent to be submitted to the jury to show an admission of the defendant that payment of all the debts named in the assessment had been demanded, was correct.

V. The objection, that some of the debts were not binding on the corporation, comes too late. The defendant should have insisted on it before the jury. It seems effectually waived by the agreement “ that there were no questions of fact except the following,” &c. The facts now relied on by the defendant do not appear from the case reserved.


No. 11.

sequence of the nor was therederation ; there

1, vizazom, then, intiffs clach. 146, S. Upon

VI. We come now to the principal question in the case, which is one of very great practical importance, viz., whether the statutes of this state entitled the corporation to assess the defendant for the payment of debts after he has paid in the full amount of his subscription to the capital stock. “ Very clearly, a corporation has not power as incident to it to assess for its own use a sum of money on the corporators, and compel them by action at law to the payment of it. The power must be derived from an express promise or from statute. .... Angell & Ames on Corp. 7th ed. sec. 544.

There is, in this case, no valid promise. The promise in the defendant's letter was without consideration; there was no benefit received by the defendant, nor was there any loss or damage to the plaintiffs in consequence of the letter. It was written after the assessment, and after the liabilities had been incurred, and the corporation had ceased to do business. There is no estoppel. It is unlike the case where a subscriber stands by and sees a corporation begin works and incur expenditures on the faith of his subscription. This case lacks one essential element of an estoppel, viz., change of position by the other party.

The question, then, as already intimated, turns on the construction of the statutes. The plaintiffs claim that the power to make this assessment was conferred by Rev. Stats. ch. 146, sec. 3, substantially reënacted in Gen. Stats. ch. 136, sec. 4, as follows: “Upon demand of payment of any debt of a corporation being made, if the same shall not at once be paid, or unincumbered personal property sufficient to satisfy it be exposed, the officers of the corporation shall forthwith call a meeting of the stockholders to provide means for its payment, by assessments upon themselves or otherwise, within sixty days from the date of such demand; and if any officer, whose duty it may be to call such meeting, shall unreasonably neglect or refuse to call the same, he shall forfeit one thousand dollars, to be recovered in an action of debt by any person injured.”

If the clause " by assessments upon themselves or otherwise ” had made its appearance in the General Statutes as a new provision, without having been previously incorporated into our legislation, one of the defendant's arguments would be entitled to great and perhaps decisive weight. Under the General Statutes, stockholders are made personally liable to creditors for corporate debts only in limited and exceptional instances. Sec. 4, ch. 136, Gen. Stats., makes no distinction, in terms, between cases where stockholders are personally liable to the creditors, and cases where they are not so liable. But the clause in question was not new. It first appeared in the Rev. Stats. of 1842, ch. 146, sec. 3, as a part of a body of laws under which stockholders, instead of a liability only in exceptional instances, were made personally liable generally for all corporate debts. By ch. 146, sec. 1, Rev. Stats., stockholders in corporations are made personally liable to pay the debts and civil liabilities of the corporation in the same manner and to the same extent as though the stock were owned and the business transacted by the stockholders as unincorporated copartners.

Section 2 provides that proper actions of debt, or assumpsit for the col1 The preceding portion of this opinion was der by Mr. Justice Isaac W. SMITH. — REprepared by Mr. Justice JEREMIAH Smith, be- PORTER. fore he retired from the bench, and the remain

« PreviousContinue »