This suit was brought on the nineteenth day of September, 1902.
On the twentieth day of October, 1890, The Lexington Development Company, one of the numerous speculative ventures which sprang into existence in the State of Virginia about the same period, was incorporated in the Thirteenth Judicial District of that State under the general incorporation laws. By the terms of the prospectus issued by the company, and in accordance with which subscriptions to its capital stock were received, it was provided that the company would offer for sale sixty thousand shares of stock of the par value of ten dollars per share; one dollar per share to be paid at the time of subscription, one dollar per share upon the call of the board of directors and one dollar per share each sixty days thereafter until by a sale of the lots owned by the company such payments should be declared unnecessary by the board of directors. The appellee subscribed for fifty shares of the capital stock upon the terms just above set forth. On the eleventh of November, 1890, the board of directors adopted a resolution fixing December the twentieth, 1890, as the time for the payment of the second instalment of one dollar per share, and thereupon, according to the terms of the prospectus above alluded to, the subsequent instalments of one dollar per share became due and payable on February, April, June, August, October and December the twentieth, 1891, and February and April the twentieth, 1892. The appellee paid the several instalments due on his subscription up to and including August the twentieth, 1891, by which time he had paid fifty per cent of the amount subscribed by him. No other instalments were paid by the appellee and the sequel will show the reason. On the eighteenth of November, 1891, at a meeting of the stockholders of the company it was determined that the stock subscribed for could be finally paid *Page 121 by dividends from the earnings of the company, and at the same meeting the solicitor for the company was instructed to secure from the Legislature of Virginia an amendment of the company's charter declaring the stock fully paid and non-assessable on the payment of fifty per cent thereof. On the ninth of January, 1892, the Legislature of Virginia enacted an amendment of the charter whereby, in effect, it was declared that the capital stock should not be liable for further assessments after fifty per cent of the par value thereof had been paid, and that upon the payment of fifty per cent of the stock then subscribed or that might thereafter be subscribed the Development Company should be authorized to issue full paid certificates for the par value of the stock to the subscribers; and it was distinctly declared that the holders of such certificates should not be liable for further assessments thereon for the debts or liabilities of the company contracted after the passage of that statute. The amendment of the charter was accepted by the company and in conformity to its terms a full paid certificate for fifty shares of capital stock was issued to and accepted by the appellee, which it is claimed was a new and materially modified contract of subscription in the place and stead of the original contract of subscription herein above set forth. The declaration avers that "as changed and modified said contract is a conditional contract to pay the balance remaining unpaid upon said defendants original contract of subscription only in the event of said balance being called for by the board of directors of said company for the purpose of discharging the debts or liabilities of said company contracted prior to the passage of said Act or subsequent to the passage of said Act and without notice thereof."
Right here is the pivotal point of the case as will appear a little later on.
On the nineteenth of January, 1893, after the occurrences thus far narrated had taken place, the Glasgow Manufacturing Company filed a creditor's bill against the Development Company in the Circuit Court for Rockbridge County in the State of Virginia, alleging that it was a creditor of the Development *Page 122 Company to the extent of $19,356 and praying that the assets of the latter company be subjected to the payment of its debts; but it is not stated in the declaration filed in the pending case whether the Glasgow Company became such creditor prior orsubsequent to the adoption of the statute of January the ninth, 1892, to which allusion has just above been made. The Development Company was duly summoned to appear and to answer that proceeding and upon failure to answer a decree pro confesso was entered against it whereby the amount of its indebtedness to the Glasgow Company was established. The proceedings seem to have then slumbered until 1898, when the Glasgow Company filed an amended bill in the same Court and alleged that all the tangible property of the Development Company had been sold and that nothing could be realized to pay the Glasgow Company's claim unless resort were had to the fifty per cent of the unpaid subscriptions which had never been called by the Development Company, and which was still due by the stockholders. The amended bill set forth that the stockholders claimed immunity from liability on account of the terms and provisions of the Virginia statute of January the ninth, 1892, and the action of the Board of Directors thereunder, which action, the bill alleged, was nugatory. On September the twentieth, 1899, a decree pro confesso was taken on the amended bill against the Development Company, and in the decree a call was made for the payment by the stockholders of the Development Company of the fifty per cent remaining unpaid upon their several subscriptions, and a receiver was appointed to sue for and collect such unpaid sums. Under that decree the pending suit was brought by the receiver to recover the unpaid fifty per cent of the appellee's original subscription. To the declaration which sets out in detail in a single count what has been in substance up to this point recited, the appellee interposed seven pleas and in addition quite a lengthy plea on equitable grounds. The first plea is the plea of the Statute of Limitations; the second and third are that the defendant never promised as alleged and that he was never indebted as alleged, and the others are quite lengthy *Page 123 and need not be stated, except the seventh, inasmuch as we shall not have occasion to consider any of them other than it. By the seventh plea it is alleged that the Development Company had long prior to January, 1892, entered into a contract with the Glasgow Company for the building by the latter of an hotel for the former and that the Glasgow Company had proceeded with the execution of the contract until the latter part of 1891, when it stopped work on the hotel and received payment in full for all that had been done and all that was then due to it and abandoned its contract, the Lexington Company consenting thereto: That thereafter andafter the adoption of the Virginia statute of January ninth, 1892, and after the appellee had fully paid up fifty per cent of his original subscription, the Glasgow Company, for whose sole use the pending suit was brought, with full knowledge of the Virginia Act of Assembly entered into a new contract with the Development Company to complete the hotel, and that any indebtedness that may be due by the Development Company to the Glasgow Company was incurred under that new contract. Upon thesecond and third pleas the plaintiff joined issue and to all the others he demurred. The Baltimore City Court overruled the demurrers and at once gave judgment for the defendant, the appellee, and from that judgment the receiver has appealed.
As there is but one count in the declaration there was no error in the Court's action in entering final judgment on overruling the demurrers, notwithstanding there were issues of fact joined on the second and third pleas, (Boehm v. Mayor, c.,Balto., 61 Md. 259), unless the demurrers ought to have been sustained.
There are a number of interesting questions presented by the record and they were very admirably argued at the bar; but we do not find it necessary to go into a consideration of them for the reason that before they can be reached there are two defenses lying at the threshold and decisive of the controversy; and to them we will confine the few observations we feel called on to make. *Page 124
If it be assumed, though it is not distinctly alleged in the declaration, that the Glasgow Company for whose sole use, according to the concessions of the demurrers to the pleas, the pending suit was brought, was a creditor of the Development Company prior to the adoption of the Virginia Act of January 9th, 1892, then it is obvious that that Act cannot impair the right of the creditor to pursue the stockholder. If the stockholder was liable to a subsisting creditor to the extent of the amount subscribed by the former then no enactment of the Legislature could interfere with that right, if the contract between the creditor and the company had been in fact made upon the faith of that liability. It would, then, result that so far forth as concerned the antecedent creditor the Act of January ninth, 1892, would be inoperative; and such in plain terms is the declared policy of the Act, for it specifically provides in its last clause that it shall have relation to debts or liabilities of the company contracted after the passage of the Act. On the assumption that the debt of the Glasgow Company was contractedprior to January ninth, 1892, the Act of that date would have no efficacy. Having no efficacy the original charter of the company would control. Under that and the resolution of November eleventh, 1890, the instalments of stock were distinctly payable at intervals of sixty days, and as the last instalment was due on April the twentieth, 1892, it is obvious that much more than the statutory period of limitations elapsed between that date and the date of the bringing of this suit, and therefore the first plea of the appellee, relying on the bar of the statute, was a complete defense to the action. Nor did the filing of the bill by the Glasgow Company against the Development Company in January, 1893, arrest the running of the statute, for it is not averred in the declaration that that proceeding sought to subject to any liability the stockholders who had paid fifty per cent of their subscriptions, or that it sought to recover from them any part of the unpaid fifty per cent, and therefore there was no cause pending which involved a demand for the unpaid fifty per cent until the amended bill was filed in August, 1898, *Page 125 when the bar of the statute as respects the original instalments had completely attached. The proviso to the Virginia Act of December 22d 1897, does not rescue the suit from the bar of the Statute of Limitations. That Act will be found set out later on in the margin. It is declared in the proviso that where chancery suits are pending at the time of the passage of the Act, inwhich it is sought to recover unpaid stock subscriptions, the Statute of Limitations shall not run as to any alleged subscription during the time which shall have elapsed between the institution of such suit and one month after an order shall have been entered authorizing a common law action as provided in the Act for the recovery of such a subscription. As just above observed there was no chancery suit pending for the recovery of the unpaid fifty per cent of the stock subscriptions when the Act of December the twenty-second, 1897, was passed nor until the amended bill was filed in August, 1898, and therefore the saving in the proviso has no application.
If, however, it be true that the claim of the Glasgow Company originated after the adoption of the Act of January ninth, 1892, and that the Glasgow Company knew of that Act as theseventh plea alleges and the demurrer thereto admits, then it is obvious that the claim must be treated as having arisen in subordination to the terms of that enactment; and, inasmuch as the appellee had fully paid in fifty per cent of his subscription, the creditor must be held to have entered into its contract with the Development Company upon the basis that stockholders who had in fact paid fifty per cent of their subscriptions would not be liable to pay more. Therefore, the creditor cannot repudiate the provisions of the Act and claim that the stockholder shall be required to pay that which he was not liable to pay when the contract between the company and the creditor was entered into. The decree of the Chancery Court must be read in the light of these circumstances and restricted in its application by them.
Under the case of Glenn v. Williams, 60 Md. 93, the questions we have been considering might be regarded as closed *Page 126 were it not for the Virginia statute of December twenty-second, 1897, which is set out in the pleas and thus brought before us. It will be found in the margin.* By that statute it is enacted that all suits for the recovery of unpaid subscriptions to the stock of any joint stock company shall be brought in the Courts of common law, and that said Courts shall have exclusive jurisdiction to hear and determine questions involving the validity of such subscriptions: That in all cases where it shall be necessary to resort to a Court of equity to settle and wind up the affairs of insolvent corporations or to make assessments *Page 127 on unpaid stock subscriptions, the Courts shall direct the trustee, assignee or receiver to sue at law to recover any call or assessment and that the defendant shall be entitled to a jury trial: That all pleas, defenses and evidence which would be admissible if the company were solvent shall be equally admissible and shall have the same effect in law in any action brought after insolvency; and that the Act shall apply to all suits heretofore or hereafter brought where no final judgment or decree on the merits has been rendered. The purpose of the enactment was to do away with the doctrine that the corporation represented the shareholders. The Chancery Courts of Virginia are by the Act stripped of the power they formerly possessed and whilst they are still permitted to make assessments the receiver is required to bring suit in a Court of law to recover and the decree fixing the assessments has, in cases to which the Act applies, no longer the conclusiveness and force attributed to it heretofore. The utmost which a Virginia Chancery Court can now do is to order an assessment, but when ordered the decree so ordering it can only be enforced by a suit at law, in which suit all defenses as to the validity of the subscription, and, therefore, as to the liability of the subscriber, are open to inquiry if the amount in controversy exceeds twenty dollars. If the Act limits the conclusiveness of the Virginia equity Courts' decree, that decree can have no greater force in Maryland than it would have in the State where it was passed; and as in the latter it would not preclude the stockholder from setting up the defenses here interposed, so neither can it be invoked to prevent the same defenses from being relied on in our Courts; for the very manifest reason that the Act goes to the jurisdiction of the Virginia Courts to pass a final decree binding the stockholders by representation. If such a decree under the terms of the Virginia statute be not final there, it cannot be final here, for the decree can have no greater effect here than it has in the jurisdiction where it was rendered.
Without considering the demurrers to the other pleas, we are of opinion that the rulings in respect to the demurrers to *Page 128 the first and seventh pleas were correct and the judgment must, therefore, be affirmed.
Judgment affirmed with costs above and below.
(Decided April 1st, 1903)
* Act of the General Assembly of the State of VirginiaPassed December 22d 1897.
All suits or motions for the recovery of unpaid subscriptions to the stock of any joint stock company shall be brought in the Courts of common law of this Commonwealth in the county or corporation where the defendant resides, if he be a resident of this State, or in the case of a joint or partnership subscription, then in the county or corporation in this State in which either of the joint subscribers or any member of the partnership subscribing shall reside; and said Courts shall have exclusive jurisdiction to hear and determine all questions involving the validity of such subscriptions, but nothing herein contained shall be construed to deprive Courts of Chancery of their jurisdiction to settle and wind up the affairs of insolvent corporations or to make assessments on unpaid stock subscriptions.
In all cases where it is necessary to resort to a Court of equity for the purposes aforesaid, the Courts shall direct the trustee, assignee or receiver, as the case may be, to sue at law when necessary to recover any call or assessment, and the defendant shall be entitled to a jury where the amount involved exceeds twenty dollars, and suits shall be governed in all respects by the provision of this Act.
All pleas, defenses and evidence which would be admissible if the company were solvent shall be equally admissible and shall have the same effect in law in any action brought after insolvency of any such company (except where the defense relied upon is an agreement on the part of the corporation not to assess the face value of the stock subscribed and such an agreement was unknown to the creditor at the date of his contract), and this Act shall apply to all suits heretofore or hereafter brought where no final judgment or decree on the merits has been rendered; provided that where chancery suits are pending at the time of the passage of this Act, in which it is sought to recover unpaid stock subscriptions, the statute of limitations shall not run as to any alleged subscriptions during the time which shall have elapsed between the institution of such suit and one month after an order shall have been entered authorizing a common law action as provided in this Act for the recovery of such a subscription.