Morgan v. Landstreet

Pearce, J., delivered the opinion of the-.Court. -. ■ This action was brought'in the Circuit-Court -for Baltimore •County by John.

II

Morgan and.Prank B. Smith,, receivers -of the Maryland Storage Company; a corporation- under -the laws:.of Maryland, duly.'adjudged'.to-be-insolvent, -against Pai-rfax'S. -Landstreet, -to recover the: sum of $30-,0.0.0, being -the amount of the defendant’s written', subscription made June 10, -1907, for 600 shares of the capital -stock o-f. said company’óf the. par valúe of’$50 per share. The .proceeding was by'way'.of attachment- against, the defendant'as .a- nonresident-; who -entered 'a voluntary appearance- in the' summons ease. ■' The short note' contained one count for money;due on ¡account -stated;-¡and'a.special 'coúmt on the' contract-of subscription.' 'The defendant-.filed the-‘two general -issue pleas in "assumpsit;.-and a "third.plea',, “that the subscription'mentioned in the plaintiffs’ declaration was subject to'aJconditibn precedent, -that said kibscription was-not to be binding on the ■defendant until all * of.- the original-capital stock , of -.the :said Maryland Storage Company was duly subscribed, and that ⁵⁸³ subscriptions were never obtained for all of said original stock, and said condition precedent never complied with, whereby the defendant’s subscription never became effective or binding.” The plaintiffs joined issue on the defendant’s first and second pleas, and to .the third plea filed two replications—first, that said subscription was not subject to the condition precedent pleaded; and, second, that the defendant, by his acts, had waived any and all defense on account of the alleged fact that all of the original capital stock of the Maryland Storage Company was not subscribed. The defendant joined issue on the first replication to the third plea, and as to the second replication, rejoined that he had not, by his acts, waived any defense on account of the alleged fact that all of the said original stock had not been subscribed. And the plaintiffs joined issue by way of surrejoinder on the defendant’s rejoinder to the plaintiffs’ second replication to the defendant’s third plea.

It thus appears that the fact of the subscription was admitted, and also that no part of the same has been paid, and under.the pleadings two questions only were in issue—first, whether the contract of subscription was subject to the condition precedent pleaded ; and, second, if so-, whether such condition had been waived by tbo acts of the defendant. ' ' At the close of all the testimony on both sides of the case, the defendant moved to strike out certain items of testimony which had been admitted subject to exception, and the plaintiffs moved to strike all the testimony adduced at the trial which tends to qualify the written subscription,- whether contained in the defendant’s own statements or ín his letters offered in evidence, or in the testimony of the witnesses Tima-nus and Brady; also defendant’s statement of what he told Timanus as to-taking the last $30,000 of stock, when-he,Timanus, had secured (he balance, and also what he said either to Redwood or Brady, as to any subscription to be madé to- this stock by the Western Maryland Railroad Company.' Both these-requests were refused..' - ' ' • ■ • " • V The plaintiffs then offered five prayers, all of which'were ⁵⁸⁴ rejected, and the defendant offered three - prays, of which the second and third were rejected, and the first was granted, as follows: “The Court instructs the jury that by the uncontradicted evidence in the case the stock of the Maryland Storage Company authorized by its charter was never fully subscribed, and their verdict must be for the defendant, there being no evidence in the case legally sufficient to estop the defendant from setting up the defense of partial subscription to stock,” thus withdrawing the case from the jury. The rejected prayers will be set out by the Rejorter. The defendant excepted specially to the plaintiffs’ second prayer on the ground that there was no evidence that defendant subscribed to any increased capital stock of the storage company, and not its formative or original stock, and this special exception was sustained; all of these rulings being embraced in the single exception taken. A brief statement of the history of the case will throw material light upon the situation, before going into the law appplicable to the case.

The storage company was incorporated under the laws of Maryland, Nov. 18th, 1904, to carry on a forwarding and warehouse business, there being seven directors, and the authorized stock being 3,000 shares of the par value of $50 each. Mr. Timanus was then President of the storage company, and Mr. Landstreet was then Vice-President of the Western Md. R. R. Co. This company had recently established a tidewater terminus at Port Covington, and one of the principal objects of the organization of the storage company was to secure the storage business incidental to the new tidewater terminus. This appears in Mr. Timanus’ letter of July 1st, 1904, to Mr. Landstreet as Vice-President of the railroad company. On November-lYth, 1904, Timanus, learning that the railroad company was about to acquire the possession of Brown’s wharf, on the north side of the harbor of Baltimore City, proposed to Landstreet to take a lease of the warehouse then on that wharf.

This permitted, without further cost for building, a small active business, requiring nine or ⁵⁸⁵ ten clerks and laborers and doing a business of about $1,800 a month. He testified they were trying to get the railroad company or Landstreet interested in the storage company. Ho agreement was reached in the matter of the lease until June 12, 1906, when a lease of Brown’s wharf was executed for five years, containing a covenant on the part of the storage company to erect a storage house on York Street, to be completed, if possible, by January 1st, 1907. At that time there was no actual subscription by Landstreet, either for the railroad company, in his own name, or for any other individual.

In May, 1905, the charter was duly amended, so as to increase the number of directors from seven to nine. In July, 1906, a stockholders’ meeting was called for the purpose of increasing the capital stock from $150,000 to $250,-000 and the number of directors from nine to twelve. It appears from the minutes of that meeting that stockholders were present representing sixty-five shares of stock, that being more than two-thirds of the whole number of shares then issued, and that these voted to increase the amount of capital stock and the number of directors as above proposed. These proceedings, however, were abortive, both because the requisits notice was not properly addresed to the stockholders, and because the proposed amendment was not acknowledged and recorded as required by secs. 51, 52 and 55 of Art. 23 of the Code.

In May, 1907, Landstreet resigned as Vice-President of the railroad company, and Brady, Vice-President of the storage company, testifies that at that time he asked him when he would sign a subscription, as some who had subscribed would not pay until they felt sure of his subscription, as he had resigned from the railroad company, and he said he would let him hear in a few days. Later he told Landstreet they wanted him as a director. On June 10, 1907, he signed the subscription and consented to be elected a director. At that time there were ten directors elected and serving, being one more than the charter allowed.

Landstreet never quali ⁵⁸⁶ fiecl as director, and never attended any stockholders’ or directors’ meeting. At the date of his subscription, Brady testifies there were subscriptions, including Landstreet’s, of about $101,000, and no greater amount was ever subscribed. Mr. Morgan, one of the receivers, testified from the books and papers that came into his hands as receiver, that at that timé $40,000 had been paid in on subscriptions, about $36,-000 unconditional subscriptions, unpaid, including Band-street’s $30,000, and some conditional subscriptions, unpaid, the whole- amounting to about $101,000, as stated by Brady. On July 1, 1907, there being then only $76,000 unconditionally' subscribed, including the $30,000 of Landstreet, the directors resolved'to build the York Street storage house at a cost not to exceed $145,000. ■ The York Street lot was subject to two mortgages aggregating $51,000, and the building contract called for- an expenditure of $136,000.

The lot sold for barely enough to cover these mortgages. Brady in the latter part óf July, 1907, tried to induce Landstreet to go to see the building, then started, but he declined to go. In September. 1907, he asked Landstreet for a payment on the subscription, and he told Brady that, under the business and financial conditions’-existing they ought to hold off the work, and Brady explained they had gone too far to stop. Later, and early in October, Landstreet did go with Timanus and Brady and-examine the’work in progress, and he said he thought it was a good building.

Brady did not then ask for any payment- and’'1 did not hear Timanus ask for any; and Brady never afterwards saw him on that subject. ’ Timanus' testified that he asked Landstreet .several times in the summer and fall of-1907 for payments on'account, and his-answer was that nloney was hard to get, and once, in September, 1907, he said he was not liable and would not pay it at all. ■ ’ ' ’ ’ He also -testified that Landstreet told him that’when he subscribed-Brady told him that-all the stock had been either subscribed or promised. Brady, however, denied this, and ⁵⁸⁷ said, that he told Landstreet that his binding subscription would enable them to get many others, but did not say they could complete the total - authorized capital. Landstreet testified that when the organization of the storage company was under duseussion. between Timanus and himself, he said that if. he won cl get a strong management and have the finances in Unquestionable form before undertaking the enterprise, the railroad company would co-operate with him and would take tlu\ last $30,000 of its stock of $150,000, and that in all the negotiations throughout he acted in behalf of the railroad company, and at no tinie and in no way as an individual, and • that it was so understood by all concerned. ' He states .that as early-as January, 1907, when informed by Brady of their plan to acquire property ow the south side of the harbor that he advised against any- additional enterprises, and that after his resignation as Vice-President of the railroad company he remained one of its directors, and told both Timamos and Brady they would have to- take up the'subscription of the railroad company with other officials and that if the storage company complied with the previous understanding, he saw no reason why the matter should not be concluded'. 1 That shortly after this Brady came to see him, and said that he had responsible men in Baltimore, mentioning a number of them, who were only- waiting for the signature 'of the railroad company,-and who would then sign subscriptions- to the full amount of the authorized capital stock of the company, and urged him to sign personally for this $30,-000, .which he' did upon, those assurances, and the further assurance that their finances were in condition to- meet any undeifaking entered into. - He also says, that in signing he expressly stated to Brady that.he was not signing his name as an individual that would engage him in any financial obligation, and that Brády replied nothing was to he paid on that subscription until business conditions would warrant-it. 11 He also says that when he visited the building in October, 1907, no reference was-made, to his subscription, hut Messrs.1 Timanus and ⁵⁸⁸ Brady stated that they wished to arrange with the Western Md. R. R. Go. to take over this building, and some of the officials advised them to get him to examine it, so that he could report thereon to the executive board. We have thus condensed the most material testimony in the case, and will now consider the propriety of the granted instruction, which constitutes the principal and controlling question in this appeal.

We could not expect, and do not understand the appellants to deny the general rule, that where the capital stock and the number of shares are fixed by the act, or certificate, of incorporation as in the present case, no assessment can be lawfully made on the share of any subscriber until the whole number of shax-es has been taken. This principle was eaxdy adopted both in England and in this country, and is now fix-xnly established as a rule of law. Two of the earliest cases in this country are Salem Mill Dam v. Ropes, 6 Pick. 23 , and Stoneham v. Gould, 2 Gray, 277 , in both of which the reasons for the- rule were given by eminent Chief Judges of the Supreme Coux’t of Massachusetts, Parker and Shaw. No xnox-e convincing reasons could be given than those stated by Chief Judge Shaw in 2 Gray, supra.

He says: “This is no ai’bitrary x*ule. It is founded on the plain dictate of justice and the strict principles regulating the obligation of contract. When a man subscribes for a share of stock, consisting of one thousand shax’es, in order to camy on some designated enterprise, he binds himself to pay one-thousandth part of the cost of such enterpxise. If only five hundred ax*e subscribed for, and he can have no assurance which he is hound to accept, that the remainder will be taken, he would be held, if liable to an assessment, to pay one-five hundredth part of the enterprise, besides incuxning the risk of the entire failure of the enterprise itself, and the loss of the amount advanced towards it.”