tion. For the promise of each subscriber to contribute to the capital stock of a company is the consideration for the promise of the others, the object of the enterprise being the advancement of the private interests of all; and after the act of incorporation has been obtained, none can withdraw without the consent of the others, whether the work has been undertaken or not. A release by the directors is of no avail.3 § 102. The same subject continued. In the subscription of each person, every other subscriber has a direct interest. Their respective subscriptions are contributions or advancements for a common object. The action of each in his subscription may be supposed to be influenced by that of the others, and every subscription to be based upon the ground that the others are what upon their face they purport to be. The fact that one man has bound himself to place a certain amount of his money upon the risk involved in the enterprise, is an inducement to others to venture in like manner. Seeing who are his associates, and the extent of the liability which they have assumed, he regulates his own upon that consideration; and though in form and legal effect the contract of each is with the corporation, yet among the subscribers themselves it is to be regarded as an agreement with every other subscriber to bear that proportion of the common burden to which he professes to bind himself by the contract which he holds out to them as his contract with the corporation." While the directors may compromise doubtful claims, they have no authority to release stockholders from liability upon their contracts of subscriptions. This would be putting into their hands an almost unlimited power. For in their capac 1 Selma &c. R. Co. v. Tipton, 5 Ala. 787; s. c. 39 Am. Dec. 344; Johnson v. Wabash &c. R. Co. 16 Ind. 389; Lake Ontario &c. R. Co. v. Mason, 16 N. Y. 451; Busey v. Hooper, 35 Md. 15. Cf. Cook v. Chittenden, 23 Fed. Rep. 544; Gelpecke v. Blake, 19 Iowa, 263; Marshall v. Glamorgan &c. Co., L. R. 7 Eq. 129. 3 Chouteau Ins. Co. v. Floyd, (1882) 74 Mo. 286. 4 White Mountains R. Co. v. Eastman, (1856) 34 N. H. 124, 141, 142. 5 Vide supra, § 101. 6"It would be putting into the hands of directors an almost unlimited power. I could not hold that the directors have power to release 2 Twin Creek &c. Turnpike R. Co. any shareholders who say that they v. Lancaster, (1883) 79 Ky. 552. wish to have their shares canceled, ity as corporate agents, their powers are defined and limited by the fundamental law of the corporation. For any loss or that such desire would be reason enough for the directors to resolve that they should be discharged from the company. That would be to inflict a monstrous injury on the shareholders, and would be directly against the constitution of the company, and a violation of the powers of the directors, and it might happen in cases where it would be impossible to fix fraud on them." Adams' Case, L. R. 13 Eq. 474, 483. 1 "First then, what power had the directors to cancel these shares? I can read nothing to that effect in the articles. They are entitled to compromise disputes, but they are not at liberty to cancel an allotment of shares." Adams' Case, (1872) L. R. 13 Eq. 474, 482. In Gill v. Baylis, (1880) 72 Mo. 424, 435, the court said: "It is, however, urged by counsel that notwithstanding the retirement of defendants from the company under the resolution of the directors, with $150,000 of its assets, the unpaid stock notes of other stockholders who did not retire, were sufficient to pay all creditors, and that no wrong was done by virtue thereof to creditors, and that they could not, therefore, complain. In the case of the Bedford R. Co. v. Bowser, 48 Pa. St. 29, a similar question to the one here presented was considered. In that case two hundred and sixty-six subscribers to the stock of a railroad company claimed to be released by virtue of an order of the board of directors authorizing the cancellation of their stock, and the court [below] instructed the jury that, if the company had sufficient assets to pay its debts, such order was valid, and the cancellation of the stock under it released the defendants. The court [above] held that this instruction was erroneous; and remarked, in passing upon it, that the directors of the company then in office were its agents, with limited power, the extent of which the defendant was bound to know. Their duties were to conduct the affairs to the furtherance of the ends for which the company was created. They had no right to give any of its funds, or to deprive it of any of its means, to accomplish the full purpose for which it was chartered. The creditors were not the only persons who had interest at stake. The stockholders who had paid their subscriptions or bought their stock . . . were at least equally interested. So in the case of Spackman v. Evans, L. R. 3 H. L. Cas. 186, where a kindred question came before the court, Lord Cranworth remarked that a stockholder might well object to relieving other stockholders and say: 'I became a stockholder, relying upon the names of those who were engaged with me in the partnership. I delegated the management to certain directors, with defined powers and duties. It was part of the stipulation of the deed of partnership that none of my fellow shareholders should quit the partnership except by substituting in his place some other person approved by the directors. This was, I thought, sufficient security to me, that, in the event of my being called upon by a creditor, who, having recovered judgment against the company, should proceed to enforce payment against me, I had solvent partners, from whom I might obtain contribution; and now I find that, without authority, occasioned by exceeding their powers in this regard, the directors are personally liable to the company.' While, of course, the power to release subscribers may be vested in the directors by the charter or by-laws of the company, it is not you, the directors, have taken upon yourselves to enable several of my partners to withdraw from the partnership, a proceeding which I never authorized.'" In Bedford R. Co. v. Bowser, (1864) 48 Pa. St. 29, 37, cited in the quotation above, the language of the court was: "The directors of the company then in office were its agents with limited powers, the extent of which the defendant was bound to know. Their duties were to conduct its affairs to the furtherance of the ends for which the company was created. They had no power to destroy it, to give away its funds, or to deprive it of any of its means, to accomplish the full purpose for which it was chartered." 1"We have already seen that the conduct of the directors of the Bank of St. Mary's, in allowing the stockholders to withdraw the amount of their subscriptions from its vaults, and in permitting Joseph S. Winter & Co. and John G. Winter to use, without security, more than a million and a half of its funds in their own private business, is a fraud upon the creditors, and will not only render the directors liable for the sums thus fraudulently withdrawn, but would render each agent of the bank who participated in it liable in his individual capacity to the creditors, for so much of said sum as could be traced to his hands. (Atty.-General v. Corporation of Leicester, 7 Beav. 176.) It is also clear, that, as to the creditors, these directors and agents are trustees, and as such liable to account with them for such sums as may have been lost by their mismanagement or misapplied by them selves; and in this respect the Chancery Court may afford relief independent of the act of 1846." Bank of St. Mary's v. St. John, Powers & Co., (1854) 25 Ala. 566, 618. In Hodgkinson v. National Live Stock Ins. Co., (1859) 26 Beav. 473, the directors of a company were alleged to have paid calls merely on a small portion of the shares for which they had subscribed the deed, and they had also, out of the company's funds, purchased part of the chairman's shares, and had canceled a considerable number of those subscribed for by him and by themselves. This not being authorized by the constitution of the company, or by the provisions of the deed of settlement, it was held that it was not a matter of internal management to be confirmed by a general meeting, and a demurrer to a bill to make the directors liable was therefore overruled. 2 Teasdale's Case, L. R. 9 Ch. 54; Wright's Case, L. R. 12 Eq. 331; Colville's Case, 48 L. J. Ch. 633. Thus, in In re North of England Banking Co., Thomas' Case, (1872) L. R. 13 Eq. 437, the directors of a limited company, who were authorized by their articles "to enter into, alter, rescind or abandon contracts, in such manner as they should think fit," and also, by another clause in their articles, with the previous sanction of a general meeting, to purchase the company's shares, or reduce, or cancel unissued or forfeited shares, accepted an offer from Thomas, their paid secretary, to take a thousand shares in order to raise money for the purposes of the company. After 1 to be inferred by implication from general authority to forfeit shares, or to compromise doubtful claims, nor yet even from so wide a grant of power as is conferred upon the directors by authority to do everything "conducive to the attainment of the objects" of incorporation. Neither has the president of a corporation any authority by virtue of his office to consent that an absolute and unconditional subscription shall be changed so as to become conditional, to the prejudice of the company or its creditors; nor can the agents of the corporation consent, on its behalf, to the withdrawal of a subscriber." 4 § 103. Compromise - Test cases.-The directors or corporate officers may compromise doubtful claims against subscribers to the capital stock; and if they have acted in good faith in so doing, the subscriber is not to be held liable thereon even by the creditors of the company. Even in such a case, however, it is requisite that the company be still a "going concern," and it must appear that there was in fact a dispute or doubt as to the liability of the subscriber, or an uncertainty as to his financial ability to pay the whole amount due upon his contract; and that by the release he was not placed in a position superior to other shareholders in respect of the shares Thomas had taken and paid for eight hundred and fifty of the shares, he resigned his secretaryship, and the directors, in consideration of the resignation, resolved to relieve him from further payments in respect of such shares as he had agreed to take. The company was subsequently wound up. It was held that the directors had not exceeded their powers in relieving him from his obligation, and that Thomas was not a contributory. 1 Richmond's Case, 4 Kay & J. 305. Adams' Case, L. R. 13 Eq. 474. 3 In re Dronfield Silkstone Coal Co., 17 Ch. Div. 76, in which, however, the surrender accepted by the directors was sustained on the ground that their action had been ratified by a general meeting of the shareholders. 4 Morgan Co. v. Thomas, 76 Ill. 120. 5 Upton v. Tribilcock, 91 U. S. 45, 48; Bedford R. Co. v. Bowser, 48 Pa. St. 29; Hughes v. Antietam Manuf. Co., 34 Md. 316; Jewett v. Valley Ry. Co., 34 Ohio St. 601; Chouteau Ins. Co. v. Floyd, 74 Mo. 286; Gill v. Balis, 72 Mo.424; 1 Morawetz on Corporations, § 109. 6 Philadelphia &c. R. Co. v. Hickman, 28 Pa. St. 318; Hollingshead v. Woodward, 35 Hun, 410. Cf. Bath's Case, 8 Ch. Div. 334. Where steck has been mistakenly registered in a wrong name, (Ex parte Knightley, Wood & M. 18, 47; Hartley's Case, L. R. Ch. 157,) or there has been an unauthorized issue of a stock dividend, the directors may correct the mistake or cancel their unauthorized acts. Hollingshead v. Woodward, 35 Hun, 410. retained by him; and further that the compromise in no wise operated as a fraud upon the corporate creditors or upon the other shareholders of the company. It can not be necessary for the directors to maintain a hopeless defense of a shareholder's well grounded claim to repudiate his shares; and the submission to an immediate decree after a bill filed can hardly be more efficacious than a submission to the same relief after the bill is prepared, but before it is filed; or after it is threatened, but before it is prepared; or after the claim is formally made, but before the bill is threatened in terms. And an agreement by the directors to abide by the determination of a suit by one shareholder as governing the case of another is as effectual for the exoneration of the latter as if he had filed a bill of his own. Thus, in the case last cited, one Ross, a shareholder in the Estates Investment Company, had filed a bill to repudiate his shares on the ground of misrepresentation in the prospectus, and nine other shareholders, of whom Pawle was one, entered into an arrangement with the directors, through their solicitors, that with a view to Ross's case being treated as a representative one, they were not to be prejudiced by their not taking separate proceedings of their own. Ross's 1 Upton v. Tribilcock, 91 U. S. 45; Tuckerman v. Brown, 33 N. Y. 297; Mann v. Pentz, 2 Sandf. Ch. (N. Y.) 257; Macon &c. R. Co. v. Vason, 57 Ga. 314; Bedford &c. R. Co. v. Bowser, 48 Pa. St. 29; Philadelphia &c. R. Co. v. Hickman, 28 Pa. St. 318; Gaff v. Pittsburgh &c. R. Co., 31 Pa. St. 489; Swartwout v. Michigan &c. R. Co., 24 Mich. 389; Penobscot &c. R. Co. v. Dunn, (1855) 39 Me. 587, 601, where the court while expressing doubt as to whether the directors had power, under the charter of the defendant company, without a consideration to release a subscriber from his obligation to take stock, was clear in its opinion that if the release was within their power the stockholder to avail himself of it must accept it within a reasonable time. "He could not avail himself of the privileges of a stockholder, by reason of his subscription, for those shares, and at the same time repudiate his liability as a subscriber, on the ground that he had elected not to pay under that vote of the directors;" Chandler v. Brown, 77 Ill. 333; Snell's Case, L. R. 5 Ch. 22; Sidney's Case, L. R. 13 Eq. 228; In re London &c. Co., 5 Ch. Div. 525; Bath's Case, 8 Ch. Div. 334; Kepling v. Todd, 3 C. P. Div. 350; Adamson's Case, L. R. 18 Eq. 676; Belhaven's Case, 3 De Gex, J. & S. 41. But see Sawyer v. Hoag, 17 Wall. 610. Cf. New Albany v. Burke, 11 Wall. 96; Wood's Railway Law, § 82. 2 Wright's Case, 19 W. R. 947; s. c. L. R. 12 Eq. 351, per Vice Chancellor Wickens. See also, "What is 'Repudiation' of Shares," 16 Sol. J. & Rep. 365, 366. In re Estates Investment Co., Pawle's Case, (1869) L. R. 4 Ch. 497. |