Harvard Law Review/Volume 1/Issue 5/The Law School
THE LAW SCHOOL.
IN THE MOOT COURT.
Coram Keener, J.
Grant v. Attrill.
The defendant, holding a majority of the stock in a corporation, caused the directors to levy and threaten assessments for the avowed purpose of building works, but with the real purpose of enabling the defendant to get control of all the stock at a nominal price, the directors not intending to collect the assessment from the defendant. The plaintiff fearing that the assessment would be enforced and the proceeds not applied to the legitimate purposes of the corporation, sold his stock to the defendant, and now files this bill to have the transfer set aside. Held, That the secret motive of the directors did not make the assessment invalid; and that the fact that the plaintiff had been induced to make the transfer through mistrust of the management and of the way in which the proceeds of the assessment would be used, was not a sufficient ground for setting the transfer aside.
Bill in equity and demurrer thereto.
The bill is brought to set aside a transfer of stock and to have the defendant declared a trustee thereof for the plaintiff.
The bill alleges that the plaintiff subscribed for and was the owner of 200 shares of the capital stock of the “Crescent City Gas Light Co.,” of the par value of $100 per share, on which he had paid fifty cents per share; that defendant, having control of a majority of the stock of said Company, caused assessments to be levied and threatened by the directors of said Company, for the avowed purpose of building works, but with the real purpose of enabling defendant to secure all the stock of said Company from the holders thereof at a nominal price, the directors not intending to collect said assessments from the defendant; that plaintiff, fearing that the assessments would be enforced and other assessments levied, and fearing that no part of the proceeds would be applied to the legitimate purposes of said Company, sold to defendant his said stock at $2.50 per share; that the assessments levied were not enforced; that no further assessments were levied, and that the stock is now of great value.
H. B. Cabot and W. R. Trask for the Plaintiff.
W. A. Hayes, Jr., and W. C. Osborn for the Defendant.
Keener, J. The plaintiff asks to have a sale of stock made by him when called upon to pay assessments set aside, and the defendant declared a trustee thereof. He alleges as reasons why the Court should give him such relief: 1. That the assessments were levied, not to advance the interests of the Company, but at the dictation of the defendant to enable him to purchase the stock at a nominal price. 2. That the directors did not intend to collect the assessments from the defendant.
It does not appear from the allegations of the bill that the plaintiff knew of either of these facts when he sold his stock. That he sold his stock, not because of a knowledge of these facts, but because, owing to a want of confidence in the management of the directors, he preferred making a profit of two dollars per share to risking more money in the enterprise, is evident from the statement in the bill that “plaintiff, fearing that the assessments would be enforced and other assessments levied, and fearing that no part of the proceeds would be applied to the legitimate purposes of said Company, sold to defendant his said stock.”
The plaintiff, however, contends that the existence of these facts rendered the assessments null and void; and that when he sold, in consequence of a representation that assessments had been levied, the sale was induced by a false representation, to which the defendant was a party. One must not confound the doing of an act with the motive prompting it. The directors in levying assessments merely did what they were empowered to do, namely, called upon the plaintiff to perform his contract. The secret motive, whether good or bad, inducing them to exercise the power could not affect the levy, or change the plaintiff’s obligations under that levy. Oglesby v. Attrill, 105 U.S. 605 (semble). That the directors did not intend to collect the assessments from the defendant did not invalidate the assessments. Each stockholder has an interest in the subscription contract of every other stockholder that cannot be destroyed by an agreement or understanding such as the plaintiff alleges existed here between the directors and Attrill.
Notwithstanding the existence of such an agreement the defendant could have been compelled to pay the assessments. Preston v. Grand Collier Dock Co., 11 Sim. 327; Melvin v. Lamar Ins. Co., 80 Ill. 446.
In Preston v. Grand Collier Dock Co., a bill filed by a stockholder to compel certain other stockholders to pay assessments, the directors having refused to collect the assessments on certain stock, was sustained on demurrer.
The Vice-Chancellor (Sir Lancelot Shadwell), in delivering his opinion, says, on page 347:—
“But . . . my opinion is that there has been an error, which this Court will set right, namely, that when the directors thought to make the calls as they did, they stopped short of that which was their duty, and that they ought to have gone on to direct the same sums to be paid on each of these shares as had been directed to be paid upon the other shares. . . .
“Therefore. it is evident that in whatever manner it is to be done, this Court will rectify the error that has been made, and will take care that all the shareholders shall be put upon the same footing with respect to the liability to pay calls.”
And knowledge of such an agreement at the time when the assessments were levied would not have justified the plaintiff in refusing to pay the same. Dorman v. The Jacksonville Plank Road Co., 7 Fla. 265; The Macon & Augusta R. R. Co. v. Vason, 57 Ga. 314.
In Macon & Augusta R. R. Co. v. Vason the action was brought to collect an assessment. The defence set up was, that the directors had permitted other stockholders to pay their subscriptions in Confederate money, and that this act of the directors was illegal. The Court admitted the illegality, but held that it was no defence, saying:—
“We see no authority in the charter whereby the directors were empowered so to act. It seems to have been done ultra vires beyond the authority conferred, and the only trouble to the defence seems to be that no stockholder was released from legally called-for instalments by this illegal action of the board of directors, and that such instalments can still be collected from them in good money; or, at least, they can be made to contribute on a proper case made equally with this defendant.”
The case, then, is reduced to this, the directors having called upon the stockholders for a payment of a portion of their stock subscription, the plaintiff, because of a want of confidence in the directors, sold his stock to the defendant. Under these circumstances he is not entitled to the relief prayed for.
The demurrer is sustained.
LECTURE NOTES.
[edit]Of the Language necessary to create a Trust. — (From Professor Ames’ Lectures.) — Whether an instrument creates a trust is a question of fact in each case. The tendency now is to give the words their fair meaning, and many of the old cases would be decided differently at present.
If the distribution among the beneficiaries is left to the honor of the legatee or grantee there is no trust; he must be bound legally.
If property is left to “A, to pay debts,” the residue, after the debts have been paid, will go to the testator’s representatives; but, if the property is left “subject to the payment of debts,” the residue goes to the trustee.
Definition of Evidence. — (From Prof. Thayer’s Lectures.) — The state of being clearly seen is the etymological meaning of the word. The French call those things evident which do not need proof, and evidence is the corresponding noun. In our early law it had the same meaning as it did in Norman-French, and was used to denote writings or documents, as they spoke for themselves. In Smith’s “Commonwealth of England,” Book Ⅱ., chap. 18, is an instance of this use.
The word gradually acquired a broader meaning, and in chap. 26 of the same book it is used to include “indices or tokens.”
For a long time, however, it has had its present meaning, as may be seen in Finch’s “Common Law” (1654), Book Ⅲ., chap. 1, where it is defined as “anything whatsoever which serves the party to prove the issue for him.”
Bentham’s definition, as modified by Best, “Evidence is any matter of fact, the effect, tendency, or design of which is to produce in the mind a persuasion, affirmative or disaffirmative, of the existence of some other matter of fact,” is perhaps a good one, but requires a definition of fact. This can be defined by nothing narrower than anything whatever looked at from a certain point of view; that is, as something on which to base an inference. For legal use it must be narrowed by excepting all reasoning in regard to the law of the jurisdiction in question. Evidence does not include this, nor does it include such facts as are taken for granted.
Whatever, therefore, must be shown to the Court is the subject-matter of evidence. As thus used it may include the persons of the witnesses, as well as what they testify, and also any object shown to the jury,—what Bentham and Best call real evidence.
Statute of Limitations. Joinder of Times by Successive Disseisors. — (From Prof. Gray’s Lectures.) — The consecutive possessions of successive independent disseisors, although without privity of estate between them, can, perhaps, be tacked together to give the continuity of disseisin required by the Statute of Limitations. Thus, if A adversely occupies B’s land for ten years, and is then disseised by C, C, after ten years’ additional adverse occupancy of B’s land, will have a good defence in an action of ejectment brought against him by B.
The case is not analogous to the acquiring of title to an incorporeal hereditament by prescription. The adverse user of an easement for the prescribed time gains an absolute title to the easement. To gain this title it is necessary that the adverse use should be continued for the, entire time, either by the same person, or by successors who represent the same persona or estate. Therefore, if A, after adversely using a right of way for ten years over his neighbor’s land is disseised by C, the disseisor, after ten years continued adverse user of the right of way, will have gained no title to the easement; a disseisor does not represent the persona of the previous estate, and cannot tack his time to that of his predecessor. (Holmes’ Common Law, 368, and cases cited.)
The effect of the Statute of Limitations is different. The Statute 21 Jac. I. c. 16, from which our Statutes of Limitations as to ejectment are commonly copied, provided [S. I. (4)] that “no person or persons shall at any time hereafter make any entry into any lands, tenements, or hereditaments, but within twenty years, next after his or their right or title, which shall hereafter first descend or accrue to the same; and in default thereof such persons so not entering, and their heirs, shall be utterly excluded and disabled from such entry after to be made.”
Under this statute, the adverse occupancy of the land does not create a right or title in the occupier, but acts as a bar to the remedy of the original owner, who, after twenty years’ loss of possession, cannot set up his title against the occupier. This statute, like that of 32 Hen. VIII. c. 2, which it followed, did not run from the time when the defendant’s possession was acquired, but from the time when the plaintiff’s possession was lost. The statute looked not at the defendant’s possession, but at the plaintiff’s want of possession.
It would follow from this construction of the statute, although contrary to received opinion,[1] that in the case under discussion, to bar this remedy of the original owner, B, the second disseisor, C, can tack his time to that of his disseisee, A, although he does not represent the same persona or estate. No privity of estate or derivation of titles is necessary between the successive adverse occupants. The only essential is that the original owner shall have been kept out of possession the limited time. At the end of that time, the person in possession can plead the Statute of Limitations as defence in an action of ejectment.
This view is supported by the following decisions: Fanning v. Willcox,[2] Shannon v. Kinny,[3] and Hord v. Walton.[4] It is also supported by the dicta of Patteson, J., in Doe d. Carter v. Barnard,[5] and of Sir John Romilly, M.R., in Dixon v. Gayfere.[6] Smith v. Chapin[7] holds that the possession of the successive trespassers must be “connected and continuous,” although no privity of estate need be shown between them.
A distinction must, however, be noted between the older form of the Statute of Limitations, as generally followed in this country, and the more recent statues of 3 and 4 Wm. IV. c. 27, which has been followed in some of the more modern American statutes. This statute provides [S. 34] that when an owner’s right of entry and right of action have been lost by the operation of the statute, his title also shall be extinguished. This has been assumed by the Courts to mean that the title of the owner out of possession shall be transferred to the person in possession. Under such construction of the statute, by which it absolutely passes the title to the land, the same line of reasoning would apply as to the acquiring title to an easement by prescription. A disseisor should not be allowed to tack his time to that of his disseisee in order to gain such title to the land.
In the cases of Dixon v. Gayfere and Doe d. Carter v. Barnard, cited above, the Courts in applying this statute have made a distinction as to whether this last disseisor is in or out of possession, whether defendant or plaintiff. In these cases it was held that, although the last disseisor, if still in possession, could have tacked his time to that of his disseisee in order to successfully defend against an action of ejectment brought by the original owner, yet having lost the possession, he could not so tack the times in order to regain the land when it had come into the possession of the Court for settlement of title, or into the hands of a mortgagee of the original owner.
An examination of the cases cited in the reference given above from Washburn on Real Property, in support of the view that the Statute of Limitations passes the title, and that successive disseisors cannot tack their times, will show that in many, if not most, of the cases the distinction between the older and more recent forms of the statute is overlooked, as well as the distinction between a disseisin, which will give a good defence as a bar to an action, and one which will pass a title upon which an action can be maintained.
Sale without a Contract. — (From Prof. Keener’s Lectures.) — The case of Mactier v. Frith, 6 Wend. 103, Langdell’s Cases on Contracts, 77, raises the question whether there can be a sale without a contract. If there can be, then the decision in that case is not in conflict with the decision in McCulloch v. Eagle Ins. Co., 1 Pick. 278, Langdell’s Cases on Contracts, 72.
It is usual to speak of a sale as an executed contract, but it is submitted that it is not necessarily so. The term contract implies an obligation to do or refrain from doing something, because of a promise or covenant made by the party alleged to have contracted.
Suppose that A’s horse is in B’s possession, and A writes to B: “Deliver to the Adams Express Company a package containing $500, properly addressed to me, and the horse is yours.” At the moment B deposits the package, the horse becomes B’s, the money A’s.
Now, what obligation has either of the parties contracted or performed?
B, the offeree, was asked, not to make a promise, but do an act; and as he has simply complied with the terms of the offer, it can hardly be claimed that he has either contracted or performed an obligation. He has simply availed himself of the privilege conferred upon him by an offer.
What obligation has A contracted? If it be said, an obligation to sell the answer is that he was under no obligation until B did what the offer required to be done, and that the doing of the act by B could not precede the passing of the title, so as to create such obligation, as by the terms of the offer the title was to vest simultaneously with the deposit of the money. To say that A has contracted to sell is to say that you can have a contract in which there is not an interval of time between its creation and performance; which is performed without any act on your part, and which can never be broken.
It has been suggested that A contracts not to interfere with B’s possession. To say this is to attribute to the parties that of which neither of them thought, viz., the possibility or probability of A’s attempting to interfere with B in the enjoyment of his property and the necessity of guarding against it by a contract. A count in assumpsit framed on such a theory would indeed be a novelty.
If A should interfere with B’s property he would commit a tort, and could be sued as a tortfeasor.
The transfer of title to personal property would seem to rest, not on contract, but on mutual consent. A can pass title to the horse to B without contracting, if he chooses to give him to B, and B can pass the title to A to $500 in the same way. Now, the difference between a gift and a sale of personal property is, that in the latter the title is transferred in exchange for money. And as B can give money to A, and A can give the horse to B, it would seem that the two can be exchanged without a contract.
The case of Bussey v. Barnett, 9 M. & W. 312, is an authority in favor of the position here taken. In Bussey v. Barnett the defendant was allowed, under a plea of never indebted, to prove payment, on the ground that the sale being for ready money, there was no promise to pay, but immediate payment. So in the case supposed there was not a promise to sell, but an immediate sale.