Chubb v. Upton/Opinion of the Court

The numerous questions raised u on the trial of this action depend upon a few general principles which are not difficult of application.

It is settled by the decisions of the courts of the United States and by the decision of many of the State courts that one who contracts with an acting corporation cannot defend himself against a claim on such contract, in a suit by the corporation, by alleging the irregularity of its organization. This was settled more than a half a century since in the courts of the State of New York, and has recently been affirmed in this court. Dutchess Collar Manufacturing Co. v. Davis, 14 Johns. (N. Y.) 237; Sanger v. Upton, 91 U.S. 56; Upton v. Tribilcock, id. 45; Buffalo & Allegheny Railroad Co. v. Cary, 26 N. Y. 75; Bissell v. Michigan Southern Railroad Co., 22 id. 258.

The same principle applies to the case of a subscription to the capital stock in an organization which has attempted irregularly to create itself into a corporation, and has acted as such. Methodist Episcopal Church v. Pickett, 19 N. Y. 482; Upton v. Hamborn, 3 Biss. 417.

The rule applies to increasing the stock of a corporation when the question arises upon paying a subscription for stock forming a part of such increase. The duty and the necessity of performing the contract of subscription are the same as in the case of an original stockholder.

An assignee appointed under the bankrupt laws of the United States represents both the corporation and its creditors, and the defence of irregular organization cannot be urged against him.

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 defence 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. Upton v. Tribilcock, 91 U.S. 45; Webster v. Upton, id. 65; Sanger v. Upton, id. 56; Ogilvie v. Knox Insurance Co., 22 How. 380.

The same authorities hold that one who receives a certificate of stock for a certain number of shares, at a given sum per share, thereby becomes liable to pay the amount thereof when called upon by the corporation or its assignee. Nor is it necessary to sustain the action that there suould have been a subscription for the whole amount named on the articles. Rensselaer & Washington Plank Road Co. v. Westel, 21 Barb. (N. Y.) 56.

The statute of Illinois of 1869 authorized an increase of the capital of the Great Western Insurance Company. Papers were filed under the law for that purpose, which were examined by the Attorney-General, and certified to be in due form; and the company proceeded to issue its stock upon that theory.

The defendant became a subscriber for fifty shares of this increased stock, the shares being $100 each. He paid a portion, to wit, thirty per cent, of this subscription. He attended meetings of the stockholders and of the directors, acting himself as such. He gave another person a proxy to attend a meeting of the stockholders at Chicago, and to vote for him; and he was elected and acted as the president of a branch of the said company.

It is idle to deny that this was the case of an organization which claimed to have taken, and apparently supposed that it had taken, the measures required by law to complete its increase of capital. It acted as such, and the defendant, by receiving his certificate of stock, entered into engagements with it as such. If it be conceded that its increased stock was but de facto, and that it could have been annulled or suppressed by the action of the Attorney-General as acting under an irregular organization, the defendant derives no aid from the admission. The cases cited are clear to the point that he cannot make the objection, but must perform the engagements he has made.

The last offer of the defendant was intended to present this question in its most formi able shape. It was to show that the original capital of $100,000 was fully subscribed; that the holders of this stock never increased the capital nor authorized its increase; that this company ceased to do business prior to 1868; that the $100,000 was not transferred to the company claiming to have organized on the increased capital; and that there was no valid transfer of the original stock or charter.

All this does not alter the fact that there was an attempted alteration of the company under the forms of law, approved by the Attorney-General, with an increased capital, in the organization and management of which the defendant took part; that he paid his money, received his certificate of stock, attended meetings, voted, acted as an officer, and, so far as the record shows, never repudiated his position at any time, even to the time of the trial. If successful, he would have shared in its profits. He may have been the dupe and victim of the action of others. He may have been an accomplice. At all events, he was so far an actor in the affair that he cannot escape the consequences of his position.

Another series of objections is to the admission of various pieces of evidence introduced to show that the defendant was a stockholder. The original stock-ledger had been destroyed by fire, and the plaintiff supplied its place by the introduction of sundry other kinds of evidence tending to prove who were the stockholders, and that the defendant was one of them. The importance of this evidence was at an end when the certificate of shares was afterwards given in proof, and when it was expressly admitted by the defendant that he held the same; that he made payments thereon, and acted as a holder of shares in the company. It is not necessary, therefore, to inquire whether or not the evidence was properly admitted.

At the time this writ of error was taken, the decisions of this court in Upton v. Tribilcock, Sanger v. Upton, and Webster v. Upton, to which we have referred, had not been made. They contain a clear statement of our views upon all the material questions arising in this record, and we suppose that this writ of error would not have been brought had they then been known to the party and his counsel. The careful examination then given to the several questions renders unnecessary a detailed review of them.

We think there is nothing in the record before us that would justify us in disturbing the verdict and judgment rendered in the Circuit Court.

Judgment affirmed.