Kelley v. Newburyport & A.H.R. Co.

• Decision Date: 06 May 1886
• Citation: 141 Mass. 496,6 N.E. 745
• Parties: KELLEY v. NEWBURYPORT & A.H.R. Co.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

141 Mass. 496

6 N.E. 745

KELLEY v. NEWBURYPORT & A.H.R. Co.

Supreme Judicial Court of Massachusetts, Essex.

May 6, 1886

This was an action of contract, brought to recover on certain promissory notes alleged to have been made by the defendant corporation, payable to the order of E.G. Kelley and William C. Binney. Trial in the superior court before BLODGETT, J., and upon the facts, which appear in the opinion, the defendant asked the court to rule:

"(1) There could be no ratification of the acts of the directors in making and issuing the notes declared upon while Kelley and Binney remained influential members of the board of directors, nor while a majority of the directors were persons who were on said board in 1875, when the vote authorizing the issue of the notes was passed and the notes given. (2) There can be no ratification of these contracts either by a succeeding board of directors or by the stockholders, unless they were fully aware of every material circumstance attending the making of the contract and unless they knew also the legal effect of the facts attending the issuing of these notes, and then, with a knowledge both of the law and the facts, ratified the contracts by some independent and substantive act; and the burden is on the plaintiff to prove such knowledge. (3) Nothing done by the directors can give legality, as against the stockholders, to their illegal acts in issuing the notes upon which this suit is brought. (4) There is no evidence upon which the jury can find that the defendant has ratified the contracts declared upon. (5) Upon all the evidence the plaintiff is not entitled to recover."

The court refused to give the rulings requested, and instructed the jury that if the acts proved and relied upon by the plaintiff to prove ratification were done with a knowledge on the part of the stockholders of the facts relating to the issuing of the notes, the jury might find a ratification of the notes on the part of the stockholders, and gave other instructions to the jury as to what would constitute a ratification, to which no exception was taken except that he did not instruct the jury that, in order to constitute a ratification, the stockholders must know the legal effect of the facts and circumstances attending the issuing of the notes. The jury found for the plaintiff, and the defendant alleged exceptions.

COUNSEL

R.D. Smith and M.M. Weston, for plaintiff.

H.N. Shepard, for defendant.

OPINION

C. ALLEN, J.

The first ground of defense is that by virtue of St.1871, c. 381, § 6, the defendant was forbidden to build its road until a certificate had been filed in the office of the secretary of the commonwealth, signed and sworn to by the president, treasurer, clerk, and a majority of the directors, stating that the whole amount of the capital stock had been unconditionally subscribed for by responsible parties, and that 50 per cent. of the par value of each share of the same had been actually paid into its treasury in cash. It appeared by the auditor's report that such a certificate was filed in season, but he received evidence to show, and found as a fact, that 50 per cent. of the par value of each share had not been paid in, though the whole of the capital stock had been duly subscribed for, and more than 50 per cent. of the whole amount of it had been paid in at the time of the making of the contract for the construction of the road. Under these circumstances, the defendant contends that it had no power to enter into a contract for the construction of its road; that the act was ultra vires; that the unanimous action of the stockholders would not cure the taint; and that all promises to pay for work and materials in building the road, and all notes given therefor, are void and incapable of ratification, and that it cannot now be held responsible therefor, although for nearly 10 years it has held, enjoyed, operated, and taken the earnings of the road so built for it, and paid the interest on the notes. In reference to this ground of defense, it is sufficient to say that, according to cases heretofore decided, it has been declared to be unavailable. It was not intended by the legislature to allow corporations to escape from their just debts in this manner. First Nat. Bank of Salem v. Almy, 117 Mass, 476; Augur Steel Axle Co. v. Whittier, Id. 451; Whitney v. Wyman, 101 U.S. 392. See, also, Davis v. Old Colony R.R., 131 Mass. 260; Monument Nat. Bank v. Globe Works, 101 Mass. 57; Gold Min. Co. v. National Bank, 96 U.S. 640; National Bank v. Matthews, 98 U.S. 621; Harris v. Runnels, 12 How. 79; O'Hare v. Second Nat. Bank, 77 Pa.St. 96.

The defendant then contends that the notes in suit cannot be enforced because they were...