Tonge v. Item Pub. Co.

• Decision Date: 16 March 1914
• Docket Number: 205,207
• Parties: Tonge v. Item Publishing Company, Appellant
• Court: Pennsylvania Supreme Court

91 A. 229

244 Pa. 417

Tonge v. Item Publishing Company, Appellant

Nos. 205, 207

Supreme Court of Pennsylvania

March 16, 1914

Argued January 8, 1914

Appeals, Nos. 205 and 207, Jan. T., 1913, by defendants, from decree of C.P. No. 3, Philadelphia Co., March T., 1911, No 4384, in equity, requiring defendants to pay stock subscriptions in case of Henry Tonge and Rae Tonge, suing as well for themselves as for all other creditors of the Item Publishing Company, v. Item Publishing Company, Harrington Fitzgerald, Frances L. Fitzgerald, Executrix under the will of Hildebrand Fitzgerald, deceased, and J. Raymond Parke. Reversed.

Bill in equity for discovery and accounting against subscribers to shares of stock of a corporation. Before DAVIS, J.

The opinion of the Supreme Court states the facts.

The court, on final hearing, awarded the relief prayed for. Defendant appealed.

Error assigned, among others, was the decree of the court.

The decree of the court below is reversed, and the bill is dismissed. The costs of this appeal to be borne by appellants.

John G Johnson, with him F. F. Brightly, for Harrington Fitzgerald, appellant.

G. W. Pepper, with him A. S. Weill, for Frances L. Fitzgerald, Executrix under the will of Hildebrand Fitzgerald, deceased, appellant.

Joseph R. Embery, for appellees.

Before FELL, C.J., BROWN, MESTREZAT, POTTER, STEWART and MOSCHZISKER, JJ.

OPINION

MR. JUSTICE POTTER:

From the history of this case it appears that in October, 1906, Henry Tonge and Rae Tonge, his wife, brought suit against "The Item Publishing Company" for damages previously sustained, by reason of injuries to the wife through the negligence of the driver of a wagon, who was engaged in delivering the newspaper known as "The Philadelphia Item." The suit resulted in verdicts for plaintiffs. Judgments were entered theron and no appeal was taken therefrom. Execution issued against the corporate property of the Item Publishing Company was returned "nulla bona." The present bill in equity was filed by the judgment creditors against certain subscribers and against the legal representatives of certain subscribers to the capital stock of a corporation which it was proposed to organize in the year 1903 to be known as "The Item Publishing Company," and payment of the stock subscriptions then made was sought to be enforced. It appeared, however, that no organization of the proposed corporation was ever actually effected under the charter, and that all the subscriptions were cancelled, and that the charter was never recorded in the recorder's office of the County of Philadelphia, where the business was to have been carried on. In Guckert v. Hacke, 159 Pa. 303, this court said: "It is plain even from a cursory reading of the Act of April 29, 1874, P.L. 77, that recording of the certificate 'in the office for the recording of deeds, in and for the county where the chief operations are to be carried on,' was intended to be made one of the conditions precedent to corporate existence. That was the last of successive steps required to be taken, and the right to begin the transaction of corporate business was made to depend upon the taking of that step. 'From thenceforth,' the act expressly declares, the subscribers and their associates and successors, 'shall be a corporation for the purposes and upon the terms named in the said charter.' One of the purposes of the act being exemption from personal liability in the transaction of business, it is obviously material that the public should have notice, and notice by record was accordingly prescribed. Failure to record was failure to comply with one of the express conditions of incorporation, and consequently an exemption from liability." In N.Y. Nat'l. Exch. Bank v. Crowell, 177 Pa. 313 (323); Guckert v. Hacke was expressly reaffirmed and followed. It is apparent therefore that the business of The Item Publishing Company, was not carried on as a corporation, but as a partnership. Appellees would without doubt have had a right of action against appellants as partners, but they chose rather to sue The Item Publishing Company as a corporation. The judgment which they obtained may be considered as establishing it as a corporation de facto, but that is not sufficient to sustain a bill in equity against the subscribers to the capital stock of the proposed corporation, to compel payment of the subscriptions. In Hahn's Appeal, 3 Sad. 10, which was a bill in equity by creditors of a corporation to enforce stock subscriptions Mr. Justice TRUNKEY said (p. 12): "There is no reason for holding that the creditors have any better rights in equity against the subscribers of the new shares than belonged to the company itself." Until the statutory requirements for the formation of a new corporation have been complied with, a subscriber to the stock is not estopped from denying the existence of the corporation. In Cook on Corporations (7th Ed. 1913) section 186, it is said: "There is one class of cases in which a subscriber for stock is always allowed to make the defense (to an action to collect the subscription for the benefit of corporate creditors) that the corporation has not been regularly and legally incorporated. Where the subscriber made his contract of subscription previous to and in anticipation of the incorporation, and does not by his subsequent acts acquiesce in the mode of incorporation, he may set up that the corporation has not been incorporated and that he is not liable. The rule that a person contracting with a corporation recognizes thereby its capacity to contract, and cannot afterwards deny it in that transaction, does not apply to one who subscribes before incorporation. He may insist upon the organization of a regular and legal corporation."

In 1 Morawetz on Private Corporations (2d Ed. 1886), section 67, it is said: "Every subscription by implication refers to and incorporates the terms of the charter or general law under which the corporation is to be formed; and every subscriber agrees to become associated with the others only upon condition that the formalities prescribed by the charter shall be observed in making the mutual contract. Thus, if certain preliminaries, such as the filing of a certificate, are required to be performed after the articles of association have been subscribed, but before the corporation shall be in existence, the contract of membership does not go into effect until these formalities are complied with; and a subscriber to the articles cannot until then be made to contribute the amount of his subscription."

In 4 Thompson on Private Corporations (2 Ed. 1909), section 3854, it is said: "The rule is that a subscription to preliminary articles of association, not purporting to be a contract with an existing corporation does not estop the subscriber from afterwards denying the legal existence of the corporation in a suit upon the subscription."

The trial judge however reached the conclusion that "The defendants are estopped from denying the corporate existence of The Item Publishing Company." He evidently based this conclusion on two findings of fact. First, that from 1903 until 1908 the Item newspaper contained a notice that all communications should be addressed to The Item Publishing Company. Secondly, that upon the various trials of the suit at law for damages, the company appeared, was represented by counsel, and made defense to the claims of plaintiffs. Reference to the first finding of fact, shows that in the published notice, there is no statement that The Item Publishing Company is a corporation. The mere fact that it is called a company, is not conclusive, as it was quite possible for a partnership to do business under the name company. Then in his twelfth finding of fact, the trial judge uses this expression: "Led by the above quoted announcement to believe that the publishers of the paper and owners of the wagon were incorporated." The announcement to which reference is made, however, contains no mention of the existence of a corporation, and we are at a loss to see how any one could have been led by it to believe that The Item Publishing Company was necessarily a corporation. Referring to the evidence, it appears that at the time of the trials, Hildebrand Fitzgerald was dead. Harrington Fitzgerald was present at the trials, and apparently was active in the defense. He testified that no such corporation as was in question, was in existence, and he cannot now therefore be held to be estopped by anything which he said in this respect at the trials; the result of those trials can only be regarded as establishing the existence of a...