Wright v. Lewis

⁶⁷⁷ Bond, C. J., delivered the opinion of the Court. The trustees in bankruptcy of the Eastern Shore Brokerage & Commission Company^ a corporation, now, after answers were filed to their bill of complaint which was upheld in the case of Wright v. Lewis, 149 Md. 71 , 130 A. 911 , and after testimony was taken, have obtained a decree compelling the appellants, as subscribers to the stock of the corporation, to pay unpaid portions of the pax value of the stock. And the principal question is whether the appellants did become subscribers to the extent of the amounts unpaid. They were all found listed on the records of the corporation as subscribers in the amounts contended for, and correspondence and other documentary evidence found in the corporation’s possession showed payments by them of calls for percentages of the amounts listed, and references by them to their subscriptions, all without any dispute of the correctness of the total amounts for which, on the corporation’s books, they appeared to have subscribed, but the method followed in procuring subscriptions is shown to have been informal in some respects, and understandings and expéctations are urged as rendering the subscriptions incomplete, and there are questions of conditions attached to subscriptions and not performed on behalf of the corporation.

The corporation was formed under the- General Incorporation Law of Maryland in March of 1919, and began business about a month later. Its purpose, as stated in the articles of incorporation, included specifically, among others, those of carrying on a general commission and brokerage business, and buying and selling, importing, exporting, trading and dealing in, canned, dried and preserved fruits and vegetables and all other food products. It appears from the evidence, however, that the primary purpose in the minds of the promoters and subscribers was that of carrying on the brokerage and commission business, selling the products, of canners of fruits and vegetables. And it was contemplated that subscribers to the stock should be procured chiefly from among persons interested in the canning industry, most of whom would sell their products through the corporation.

But there was no restric ⁶⁷⁸ tion of the business to> that of brokerage and commission transactions until April 19th, 1920, when at a meeting of stockholders it was formally resolved that the company should not buy any canned goods or other products for its own account, for profit or otherwise, except as might be deemed necessary by the executive committee to avoid loss. Hp to- that time the company had dealt in canned goods for its own account, and had sustained losses from which it never recovered. It is questioned, first, whether it has been sufficiently .shown that the corporation became insolvent, so that recourse against the subscribers to the stock was justified. Code, art. 28, sec. 77.

But on this we have met with no difficulty. We find from the testimony that the trustees made all due efforts to collect the assets, and that they were able to collect only $463.09 in all, and the claims filed against the bankrupt estate aggregate $28,260.39. Whether the defendants did subscribe to the shares with which they are charged on the corporation records is, first of all, a question of completion of a contract to take so many shares. The total authorized capital stock was $100,000 in 1,000 shares of $100 each.

There were no written signed subscriptions, but none were necessary to constitute complete subscriptions. Cantor v. Baltimore Overall Co., 121 Md. 65 , 87 A. 1115 ; Musgrave v. Morrison, 54 Md. 161, 165 ; 2 Fletcher, Corporations, 1181, 1189. A list of probable subscribers was made up by the promoters of the enterprise, proportioned somewhat to the amount of business that each might be expected to have with the corporation, and the officers, or others who had already subscribed, solicited subscriptions of those not yet included. From the list so made up a stock journal was opened, and the payments were entered as made.

It was generally assumed that there would be a demand for all the stock which the company might need to have subscribed, and that, if any person approached for a subscription should decline to take the number of shares allotted to him, all that he rejected could easily be placed among other persons. Ho one was to be permitted to take more than ⁶⁷⁹ stock to the par value of $5,000. In all, stock to the par value of $68,000 was put out, and appears on the stock journal as subscribed to. The promoters did not anticipate a need for more than half of the amount of money represented by so many shares, and to' expressions of hesitation by some of those approached for subscriptions assurances of some kind seem to have been given.

Many of the defendants testified that they were given options or privileges, but they differ as to the terms of the options or privileges, some saying that they were to make only partial payments on fixed numbers of shares, and some that they were to take no fixed numbers finally, at the time of subscribing, but were to decide later how many they would take, up to the limit of the numbers -stated on the list of subscriptions. Hone objected to the listing of their names for the numbers of shares stated, and none later failed to accept the allotted numbers as the proper basis of payments of percentages called for. On the contrary, all of them, with a few exceptions, definitely and clearly calculated their liabilities on the basis of the number of shares allotted, many referring to their subscriptions as for so many shares. The few who did not accept the number as listed have been hold in the decree only for the number for which they did pay, if any. 'So far as the records of the corporation and the letters in its file show, all of the defendants agreed with the facts as now found by the lower court.

There are thirty defendants and appellants, counting partnerships as single subscribers, and twenty of them were present and taking part at a meeting of stockholders on May 26th, 1919, when it was voted that “the stock be issued full for the amount subscribed to each subscriber and ten per cent, be paid in cash and the remainder be paid for by non-interest bearing notes on demand and stock held on collateral to said notes, said notes to be subject to call as to part payments whenever needed by the company.” And these and the remaining ten subscribers alike responded to the calls on the basis of the listed amounts. It is not clear from the testimony how far the plan of taking notes for unpaid portions was followed; seven subscribers testify to having received ⁶⁸⁰ certificates for shares to the value of the amounts paid in, half the whole par value of the allotted shares, and a little more in two instances. In the months of April to> August of 1919, calls were issued for a total of fifty per cent, of the par value of the shares listed on the books as subscribed, the first three calls for ten per cent, each, and one or two calls — the number is left uncertain — for the remaining twenty per cent. In each call, letters to the stockholders demanded the given percentage of the listed amounts of subscriptions, and in many instances the subscribers themselves described their payments as the called percentages of their subscriptions.

Payments were acknowledged by the corporation officers as constituting the given percentages. Some of the subscribers, indeed, have not denied the correctness of the listed subscriptions, except upon the ground that there were defeating conditions. In all this documentary evidence in the possession of the trustees, then, the defendants, whatever may have been the reservations or conditions they had in mind, appear assuming the positions of subscribers to> the number of shares listed, as definitely as if they had done so in previous signed subscriptions. This court concurs with the conclusion of the lower court that their declarations had the same effect in law as if they had been contained in such previous subscriptions.

And this fact renders them liable for unpaid portions of the subscription prices, notwithstanding any arrangements that they might in the end take reduced numbers of shares or pay less than the total par values, unless there should be defeating conditions as contended for, because such arrangements for reduction of shares or payments would not be valid as against creditors. Crawford v. Rohrer, 59 Md. 599, 604 ; Rider v. Morrison, 54 Md. 429 . “The rule is established by many authorities that an oral or secret agreement by which the subscriber is to be relieved, or by which he is to receive his money back or by which he is not to pay anything, or only a part of his subscription, is invalid and not sufficient to' release a subscriber either in whole or in part as against creditors. * * * It may be said that any secret agreement or arrangement by which the subscriber is not to pay, or is not to be ⁶⁸¹ called, upon, or that he is to pay when he is so disposed, or that the corporation will take the stock back, or that his money will be repaid on a contract, is void and will not have the effect to release him.” 1 Thompson, Corporations, sec. 874. One appellant I. Bichard Phillips, Jr., has made the additional separate defense that, after he had paid all the calls made upon the shares allotted to him, and before the bankruptcy and demand for further payment, he had transferred his stock, and a new certificate for the shares had been issued to his transferee. But it appears that, he had