Baltimore City Passenger Railway Co. v. Hambleton

McSherry, J., delivered the opinion of the Court. By chapter 71 of the Acts of 1862 the Baltimore City Passenger Railway Company was incorporated. Its capital stock was limited to forty thousand shares, which in the course of a few years were fully paid up. The Act of 1890, ch. 271, made provision for the substitution of some other motive power in the place of horses, which were then used to draw the company’s cars, and authority was given to the company by the Legislature to raise the money needed to effect this change, and to defray the expense of providing rapid transit.

The company was accordingly authorized to increase its capital stock, but not beyond two hundred and forty thousand shares, and also to borrow upon bonds secured by mortgage an amount of money not exceeding its author ³⁴⁵ ized capital stock. The Act declares that “all new or additional stock * * * * shall he paid for in money as and when the board of directors” shall call for the same, and that “all the shareholders of the said company shall have the privilege of subscribing for said new or additional stock, ratably and in proportion ’ to their respective holdings,” paying therefor the par value thereof. Under this Act of 1890 the shareholders, at a meeting held in July of that year, authorized the issue of forty thousand shares of new or additional stock, of the par value of twenty-five dollars per share, to he paid for in money as and when the hoard of directors should call for the same; and, following the directions of the Act, made provision for the shareholders to subscribe within a designated time for their respective ratable proportions thereof. Public notice was given of this action, and a circular containing the same information was sent to each shareholder.

Miss Cordelia D. Hollins was then the owner of eighty-five shares of the original stock, and electing to avail of the privilege accorded to the holders of that stock of subscribing to the new stock, caused her name to he entered in the company’s subscription book by her brokers, McKim and Company, as a subscriber for eighty-five shares of the new or additional stock. Subsequently Miss Hollins died, and her executor sold to the appellee, John A. Hambleton, the eighty-five shares of original stock standing in her name, and these shares were duly transferred on the books of the railway company to the purchaser. Mr. Hambleton claimed, that by virtue of his ownership of these shares of the original stock he became likewise the owner of the eighty-five shares of new stock for which Miss Hollins had subscribed, and that he was entitled to have these new shares transferred to him on the books, and to have a certificate issued to him showing him to he the owner of them, subject to ³⁴⁶ the right of the compauy to exact from him the payment of the par value thereof. The railway company refused to make the transfer or to issue the certificate, and he thereupon filed a hill of complaint in Circuit Court Number Two of Baltimore City, praying for an injunction against the company, requiring it to make the transfer and to issue the certificate.

After the comj)any had answered and considerable testimony had been taken the case was heard and an affirmative injunction was directed to issue as prayed. Prom that decree the pending appeal was taken. It will be observed that the shares in controversy are not part of the original stock of the company; they are some of the new or additional stock, and the distinction between these two classes — between original or formative stock and subscriptions for new stock, which a corporation after its organization has been authorized to issue — is important in its bearing on the decision of the principal question involved in this cause. There is a substantial difference between an increase of capital and a filling up of one both authorized and required.

Curry vs. Scott, 54 Pa. St., 276. When the subscription to formative stock precedes the creation of'the body corporate which will ultimately issue the certificates, there is, of necessity, at the time such subscriptions are entered into, no corporation in existence with which a contract could he made. The subscribers, as a consequence, and for the very purpose of effecting an organization, become stockholders by the mere act of subscribing if there are no conditions precedent prescribed, and they are thereby invested with the privileges and subjected to the liabilities incident to that relation.

The subscribers, in the absence of any statutory restrictions, acquire by such a subscription an interest in the body corporate and a right to participate in its organization. They all stand upon the same footing, incurring the risks and hazards of a fail ³⁴⁷ ure of the enterprise or sharing its profits in proportion to their interests, and to give vitality to the artificial entity they must become stockholders immediately upon becoming subscribers, if no other method be provided iu the charter. But the same reasons do not apply, and the same conditions do not obtain, in the case of new or additional stock authorized to be issued by an existing and completely organized corporation. A subscription to such new stock does not necessarily of itself make the subscriber a stockholder, because, generally speaking, it is a mere contract between the subscriber and the corporation.

If by a mere subscription for new stock the subscriber becomes a stockholder, he at once becomes clothed with all the rights of a stockholder, and without the payment of a dollar he would be at liberty to vote his stock, and entitled to claim dividends upon it. As between shareholders of the same class there can be no discrimination, and profits set aside for dividends must be evenly divided amongst the stockholders according to the amount of stock each one owns. Harrison vs. Mexican Railway Co., L. R., 19 Eq. Cases, 358.

Hence the policy of a corporation might be moulded or controlled by mere subscribers, who have paid nothing upon their subscriptions, to the prejudice or loss of the full paid shareholders, whose money, contributed in the beginning, had actually developed the enterprise. Part of the stock would then be full paid and the rest would be stock upon which nothing had been paid — and yet the latter would possess all the advantages, privileges and incidents which belong to the former, and might be so managed as to render the paid up stock wholly or partially valueless. Whilst it has been held that stockholders who have partially paid for, but have not been called upon to pay up their stock in full, are entitled, when dividends have been declared, to participate therein equally with shareholders whose stock has been entirely paid for, ³⁴⁸ Oakbank Oil Co. vs. Crum, L. R., 8 App. Cases, 65, still a mere subscriber for stock can claim no suck right. To constitute a subscriber for new stock a stockholder something more than a mere subscription is requisite— payment is necessary.

The subscription is but the contract; payment, when called by the company and when made by the subscriber, constitutes him a shareholder whether a certificate has. been issued or not. Fulgam vs. Macon & Brunswick R. R. Co., 44 Ga., 597 ; Terwilliger vs. G. W. Tel. Co., et al., 59 Ill., 249 ; Johnson vs. Albany & Susq. R. R. Co., 54 N. Y., 416 ; Jay Gould vs. Town of Oneonta, 71 N. Y., 298 .

In Pacific Nat. Bk. vs. Eaton, 141 U. S., 234 , it was shown that the