§ 1739. Doctrine that Assessments may be Laid before All Shares Taken.- The doctrine already announced 1 has not met with universal acceptance. The view has been taken that calls may be made before all capital stock is subscribed, if so agreed between the corporation and the stockholders, unless the charter otherwise provides.2 The doctrine of these cases is that whenever the corporation is so organized as to be able to prosecute its business, it has, through its board of directors, the power to levy assessments.3 The Supreme Court of Oregon reason that when a sufficient amount of the capital stock of a private corporation has been subscribed to authorize the stockholders to proceed to the election of directors, after the election thereof assessments may be legally made upon the unpaid stock so subscribed, and this though the corporation has increased its capital stock and the entire amount of the shares of the original stock and of the increased stock has not been subscribed. But they concede that it is otherwise where a subscription of the entire number of shares, of the original as well as any contemplated increase of stock, has been made a condition precedent to the exercise of the power of levying assessments. So, it has been held that a stockholder is liable to creditors upon his subscription, although all of the capital stock was not taken up. Another court has held that an unconditional promise in a stock subscription to pay for a certain number of shares at par is binding, though the amount of 1 Ante, § 1724. 2 Cheraw &c. R. Co. v. Garland, 14 S. C. 63. That it is not necessary to fix the capital stock to enable a corpora. tion to maintain an action on the subscription agreement, see Bucksport &c. R. Co. v. Buck, 65 Me. 536. 3 This is the doctrine which obtains under the general incorporation laws of Oregon. Willamette Freighting Co. v. Stannus, 4 Oreg. 261. That a corporation may receive subscriptions to stock, and may sue thereon, before being fully organized, see Oregon &c. R. Co. v. Scoggin, 3 Oreg. 161. So, under the Indiana act of 1852, for the incorporation of railroad companies, after the subscription of $50,000 to its stock, the company may call in the subscriptions, without waiting for the subscription of the whole capital stock, as a condition precedent to their right to collect. Hoagland v. Cincinnati &c. R. Co., 18 Ind. 452. So, the Supreme Court of the United States has held that the subscription of the whole capital stock of $500,000 was not a condition precedent to the putting of the Mechanics' Bank of Alexandria into operation as a corporation. Minor v. Mechanics' Bank of Alexandria, 1 Pet. (U. S.) 46. 4 Willamette Freighting Stannus, 4 Oreg. 261. Co. v. 5 Farnsworth v. Robbins, 36 Minn. 369. capital stock was not fixed, and the minimum number of shares named in the charter was not subscribed for.1 The same conclusion has been reached where the corporation was organized under a general law, and the subscription agreement did not contain an express provision that all the stock should be subscribed. In New York a plank-road company might go into operation before the whole nominal amount of its stock was subscribed.3 § 1740. Further of this View. — In an action brought against a shareholder to subject so much of his subscription to the capital stock of the corporation as remains unpaid, if it appear that the certificate of incorporation fixed the capital stock at a given sum divided into a given number of shares of a given par value, it will be no defense that the corporation commenced business with a less sum, and that the defendant paid in his proportion of such smaller sum; nor that the smaller stake on which the corporation commenced business was not paid in as a subscription to capital stock, but merely as a capital generally, and that it was agreed among those who paid the money that it should be in full of all liability as to them. The reason is, that where the coadventurers in such a case have become incorporated under a statute, and have published to the world, by their certificate of incorporation, their intended capital, it would operate as a fraud upon the public dealing with them, for them to enter into a secret arrangement to carry on business with a smaller capital, and to exonerate the subscribers to their capital from liability for the full amount of their respective subscriptions. "The capital stock of a corporation," say the court, "other than a mining corporation, is the amount of money paid or promised to be paid for the purposes of the corporation. It is a fixed sum, not to be increased or diminished except in the mode permitted by the statute. This sum the law requires shall be stated in the certifi 1 Skowhegan &c. R. Co. v. Kinsman, 77 Me. 370. 2 West v. Crawford, 80 Cal. 19; 8. c. 21 Pac. Rep. 1123; 26 Am. & Eng. Corp. Cas. 85. Schenectady &c. Plank-road Co. v. Thatcher, 11 N. Y. 102; Rensselaer &c. Plank-road Co. v. Barton, 16 N. Y. 457, note; Hamilton &c. Plank-road Co. v. Rice, 7 Barb. (N. Y.) 157. 4 Thompson v. Reno Savings Bank, 19 Nev. 103; s. c. 3 Am. St. Rep. 797. See the next section. cate of incorporation, to be filed with the county clerk of the county in which the principal place of business of the corporation is situated, and a copy in the office of the Secretary of State. The purpose of this requirement is obvious. The shareholders are not, under the constitution, liable for the debts of the corporation. The capital stock, and especially the unpaid subscriptions thereto, is a trust fund for the benefit of the general creditors. When, therefore, the law requires a public declaration of the amount of the capital upon which the corporation operates, it contemplates a truthful statement in which the general public dealing with the corporation may confide. The certificate is made for the benefit of the public, not for the corporation or its stockholders. Those who participated in the incorporation of this bank, and, by a certificate made in pursuance of the statute, announced the amount of its capital stock, cannot, as against the creditors of the corporation, contradict their own certificate. Defendant Lake signed it, was president and one of the directors of the bank, participated in the management of its affairs during the period it was engaged in business, and received dividends upon his investment. He cannot now be heard to deny the truth of the certificate which he helped make, and to assert that the capital of the corporation was $30,000, instead of $100,000. Not only will equity refuse to hear the defense interposed, but the arrangement alleged to have been made is in defiance of the statute under which the bank was incorporated. Section 3543 of the compiled laws provides: It shall not be lawful for the directors to divide, withdraw, or in any way pay to the stockholders, or any of them, any part of the capital stock, nor to reduce the amount of the same.'" This is a sound and wholesome decision; but it is seemingly opposed to an early decision in New York made before the American doctrine that the assets of a corporation are a trust fund for its creditors became fully established and understood. This decision is to the effect that, where a certificate is filed in the office of the Secretary of State, pursuant to the statute, for the purpose of constituting the subscribers a "body politic and corporate," in which the capital is fixed at a certain sum, the subscribers of 1 Ibid., opinion by Belknap, C. J. the certificate are not liable individually to creditors for the difference between the sum specified and the sum actually subscribed; and it is discretionary with the company to raise the whole amount of capital mentioned in the certificate or not.1 § 1741. Sufficient Amount not Paid in, in Order to Transact Business. It is, then, no defense in a proceeding against a stockholder, whether by the company or by one of its creditors to recover in respect of a balance due upon his stock subscription, that, by the terms of its charter, the company was prohibited from commencing business until a prescribed amount of capital stock should be paid in. Such a provision, it has been held, was intended for the benefit of those who might deal with the company-not for the benefit of its shareholders as a condition precedent to the right to enforce the collection of calls duly made upon stock subscribed. Indeed, the contrary construction would be absurd; for then, recusant stockholders could, by their very recusancy, prevent the company from acquiring the necessary paid up capital to commence business, and thereby defeat their own contracts made with it. - § 1742. Rule under Particular Statutes. The preceding sections suggest that this rule is varied under particular statutes of incorporation. Thus, under the general statutes of Ohio relating to railroad companies, when ten per cent. of the capital stock of such a company has been subscribed, and the corporation has been fully organized, assessments upon the stock subscriptions may be made and enforced, although the whole amount of such stock, mentioned in the certificate of incorporation, may not have been subscribed. And the same rule has been applied under the general laws of Kansas relating to corporations, in respect of a bridge company.4 It is needless to say that, where a railroad corporation is authorized by its charter to begin the construction of its road whenever a given number of shares has been subscribed for, it can assess its shares when the subscriptions have reached that number, although the whole number of shares has 1 Brinckerhoff v. Brown, 7 Johns. Ch. (N. Y.) 217. Affg. s. c. 4 Johns. Ch. (N. Y.) 671. 2 McDermott v. Donegan, 44 Mo. 85; Naugatuck Water Co. v. Nichols, 58 Coun. 403; s. c. 8 L. R. A. 637; 20 Atl. Rep. 375. See also Sims v. Brooklyn 3 Jewett v. Valley R. Co., 34 Ohio St. 601. 4 Hunt v. Kansas &c. Bridge Co., 11 Kan. 412. not been determined;1 and of course the same rule applies relatively in the case of any other corporation. is a Condition Prece § 1743. Where an Organization dent. But it remains that where the act of incorporation contemplates some act to be done, as organizing the company before installments of stock can be required to be paid, such act must be done before the corporation can maintain an action for the installments, the subscription being made prior to the time of organization.2 ARTICLE III. SUFFICIENCY AND NOTIFICATION OF THE Assessment. § 1746. Form, Substance, Language of the Call. In respect of the form in which the board of directors choose to couch the assessment or call, it is not necessary that the resolution adopted by them should show that the call is made for any corporate purpose, or that it should show that the demands of the business of the corporation require that the subscriptions to its capital stock should be paid. All that is necessary is that there should be some act or resolution which evinces a clear official intent to render due and payable a part or all of the unpaid subscription. If a call leaves the date at which it is to be paid in blank, it will be invalid until another resolution is passed fixing the date, and the curative resolution will not relate back to the former one. An omission to make a record of a call for 1 Boston &c. R. Co. v. Wellington, 113 Mass. 79. 2 Carlisle v. Cahawba &c. R. Co., 4 Ala. 70; Anvil Mining Co. v. Sherman, 74 Wis. 226; s. c. 42 N. W. Rep. 226. 3 Budd v. Multonoma Street R. Co., 15 Ore. 413; s. c. 3 Am. St. Rep. 169, 172; citing Cook Stock, § 115. 4 Re Cawley, 42 Ch. Div. 209; s. c. 31 Am. & Eng. Corp. Cas. 425. |