Imágenes de páginas
PDF
EPUB

off.

(4) The question of limitations. (5) The right to contest creditors' claims.

§ 126. The condition implied in law. A defendant against whom the liability of stockholder is sought to be enforced, may escape by showing that his subscription never became effective, because all of the authorized stock was not taken. In this connection, it must be noted: first, that the condition does not apply to increased stock; and second, that it may be waived either (a) by an agreement in the subscription contract that business shall begin before all the authorized stock is subscribed, or (b) by actually participating in business so done.1

§ 127. Subscriptions obtained by fraud. In every case between the corporation and the subscriber-that is to say whenever the rights of creditors are not involved the law is, and always has been, that subscriptions fraudulently obtained may, like any other fraudulent transaction, be disaffirmed; and that the existence of fraud constitutes a cause of action in equity for cancellation as well as a defense at law. Of course, wherever fraud or misrepresentation is alleged it must be proved; and the person complaining must show that he has acted with diligence and not played fast and loose. In the earlier cases involving stock subscriptions, however, there was a tendency to hold the complainant to strict proof and to draw distinctions, sometimes shadowy, between fraud, misrepresentations and mere

1For cases in which the rule has been applied or denied, see Morgan v. Landstreet, 109 Md. 558; Bank v. Brown, 95 Md. 379; Garling v. Baechtel, 41 Md. 305; Hager v. Cleveland, 36 Md. 476. In Musgrave v. Morrison, 54 Md. 161, it was held, naturally, that the condition did not apply to shares in a building association.

expressions of opinion. At the present day, this tendency is not observable, and in the case of subscriptions induced by a prospectus, the weight of authority treats the contract as uberrimae fidei: "Those who issue a prospectus are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as a fact that which is not so, but to omit no one fact within their knowledge, the existence of which might in any degree affect the nature or extent or quality of the privileges and advantages which the prospectus holds out as inducements to take shares."-Savage v. Bartlett, 78 Md. 566.2

Suppose, however, that the defense of fraud in obtaining the subscription is set up in a suit brought by or on behalf of creditors? In a view once approved by the Supreme Court, implicitly at least, the reasoning was this: (1) A creditor trusts the corporation on the faith of its capital stock paid in or promised, and is presumed to know what an inspection of the books would show in regard to the shareholders and the amounts due by them. (2) Under a well recognized principle of law, a fraudulent transaction is voidable only and cannot be avoided against a purchaser for value. (3) The creditor of a corporation is a purchaser

1See generally 2 Thomp. Corp. sec. 1360 and following. The relationship of principal and agent must, in order that it may be bound, exist between the corporation and the person making false representations-Scarlett v. Academy of Music, 46 Md. 148.

2Quoting English decisions, as to which, see Peck v. Gurney, (L. R. 6 H. L. 377), as annotated in 7 E. R. C. 561.

"It has been several times adjudged in this court that in an action by such assignee to recover unpaid subscriptions upon stock in such an organization, the defense of false and fraudulent representations inducing such subscription, cannot be set up; especially when the subscriber has not been vigilant in discovering such fraud and in repudiating his contract." Chubb v. Upton, 95 U. S. 665.

for value and therefore after the rights of creditors have arisen, it is too late for the shareholders to set up the defense of fraud. This view has had some vogue, but now it is either repudiated or greatly qualified. In Savage v. Bartlett, 78 Md. 561, and in the succeeding case of Fear v. Bartlett, SI Md. 435, the question was directly presented. The defendant in each case claimed that material statements contained in the prospectus, and upon the faith of which he had subscribed, were fraudulent misrepresentations, and that while the corporation was still a going concern and within a reasonable time after learning of the fraud, he had given notification that he would not be bound by the subscription. The court summarized the law as follows: (1) That the equities of subsequent creditors are no greater than those of defrauded shareholders; (2) That the latter, who, not being guilty of laches, have repudiated within a reasonable time after the discovery of the fraud, and before the insolvency of the company are not liable; (3) That insolvency means "before proceedings in insolvency, voluntary or involuntary, have been instituted;" (4) That repudiation may, but need not, take the form of a suit in equity for cancellation; (5) "Whether the subscriber could repudiate his subscription obtained by the fraud of the company after its insolvency, when he had no opportunity of becoming aware of the fraud before insolvency, is a question in regard to which we are not to be understood as expressing any opinion."

1The question was answered in the affirmative by Judge Dillon in Upton v. Engelhardt, 3 Dill. (C. C.) Rep. 496, with the qualification, however, that in all cases, the defendant's plea must aver the "use of reasonable diligence to make himself acquainted with the matters of fact in respect of which the fraud is claimed." To the same effect is Newton Bank v. Newbegin, 74 Fed. 135,-a na

A similar question is left open in Lantry v. Wallace, 182 U. S. 536, in which the receiver of an insolvent national bank was suing a stockholder at law. The latter pleaded that he had been induced to subscribe by the fraud of the bank officers, made possible by the negligence of the comptroller. The court said that the defense was not a good one at law, but reserved two questions: (1) Whether in such a case, a court of equity could cancel the subscription even after insolvency; (2) Whether the defrauded shareholder could sue the bank for the damages suffered by the deceit, and, with the judgment thus obtained, participate like any other creditor in the distribution of its assets.

§ 128. Set-off. Since the statutory liability, when collected, now constitutes a fund in which all creditors including the defendant may share, the latter cannot set off against his obligation anything the corporation may owe him. The tional bank case. And for a valuable note on the subject generally, see Fear v. Bartlett as reported in 33 L. R. A. 721. There is not much reason in the position taken by some of the courts, that a shareholder must be diligent in finding out whether the statements upon which he has relied are true or false. He ought not to be required to suspect fraud until something has occurred to arouse suspicion. In Urner v. Sollenberger, 89 Md. 316, the rule is stated to be: "Subscriptions obtained by fraudulent means (are) revocable by the deceived subscribers, if rescinded by them whilst the company was a going concern, and within a reasonable time after the discovery of the fraud."

In the English rule, as established in Oakes v. Turquand (L. R. 2 H. L. 325), the deceived stockholder must not only exercise his right to rescind within a reasonable time but before restitutio in integrum becomes impossible. Consequently, the declared insolvency of the corporation followed by a winding-up order, puts an end to any right of rescission on the ground of misrepresentation or otherwise. But because of statutory procedure in winding-up cases, the English decisions are not safe guides.

same result follows where the receiver is suing for a balance due under the subscription contract, but otherwise where the corporation, as a going concern, is suing therefor.

§ 129. Limitations. In the case of a subscription where the day of payment is not fixed thereby or by some controlling statute, the bar of limitations begins from the time named in the call, whether it be made by the corporation or by a court of competent jurisdiction in the event of insolvency. In the case of watered stock, where the transaction is good as between the stockholder and the corporation but not as to creditors, the right of action does not accrue unless and until the corporate assets are insufficient to pay the debts and the additional amount necessary ascertained; consequently, there must be a call by some competent court before the statute begins to run. The same will doubtless be held, by analogy with the decisions under the national banking act, in the case of the extra statutory liability.

In all cases the

§ 130. Contesting creditors' claims. shareholder defendant is bound by the finding of the court administering the corporate assets as to the necessity for and the proper amount of the assessment. He cannot contest these questions or attack the claims of creditors in another court.1

1 Compare Williams v. Watters, 97 Md. 113; Williams v. Taylor, . 99 Md. 306.

2Hughes v. Hall, 117 Md. 547.

3 For the cases generally, see 3 Clark & Marshall Corp., sec. 802, note 590. Scovil v. Thayer, 105 U. S. 143. In this case it was held that before the stockholder could be sued at law, the agreement between him and the company must be set aside. The Maryland act of 1908, chapter 240, section 66 (ante, § 120) makes such a proceeding unnecessary.

4Glenn v. Williams, 60 Md. 93; Hawkins v. Glenn, 131 U. S. 328.

« AnteriorContinuar »