Ohio College of Dental Surgery v. Rosenthal.
Corporations — Shares of stock — Interest.
The plaintiff in error is a corporation organized under a special act passed in 1845. It was not organized for profit and has made none. Its object was the maintenance of a college for instruction in dental surgery. Its capital consists of §12,000 in real estate, derived from the proceeds of one hundred and twenty certificates of shares which certify that the holder of each share “ is entitled to one share of the real estate property of the college, drawing an interest of 6 per cent.” On the margin of-each certificate, and a part of it, is : “ Shares, §100 each.” At this sum each certificate was valued and sold. All the shareholders are dentists and members of the corporation. Its capital — the real estate above mentioned — has always constituted its entire property. During its existence (a period of about forty years) no interest ‘has been collected or paid on any share. It is still a going corporation, and its capital — the real estate — is indispensable to its existence. The plaintiff below, a shareholder, brought his action, in 1882, to recover a money judgment for interest on his share. Held: The action is not maintainable.
(Decided May 10, 1887.)
Ekrok. to tbe Superior Court of Cincinnati.
Plaintiff in error was incorporated under a special charter set forth in the Local Laws of Ohio, vol. 43, p. 32. Its charter constitutes nine persons named, and their successors, a board of trustees, with power to establish a college of dental surgery; makes the trustees a body corporate; gives it power to acquire, hold, and convey property for the endowment of the college; to contract and be contracted with; and provides that the revenues from the property it may hold shall not exceed $5,000 per annum. That the officers, a president, vice president, registrar, and treasurer, shall be elected by the board. That the board shall appoint the professors, and may dismiss them at any time; and may make by-laws for the government and well being of the college; and shall, by election, fill vacancies occurring in the board.
The plaintiff below, C. H. Rosenthal, brought his action in the superior court of Cincinnati, July 18, 1882, upon a certificate of the following tenor, with its assignment:
*184“(Shares, $100 each.) No. 30.
Ohio College op Dental Surgery.
This is to certify that J. B. Smith, M. D., is entitled to one share of the real estate property of the college, drawing an interest of 6 per cent., and transferable only in accordance with the constitution of the college association.
Cincinnati, Feb’y. 16th, 1858.
Chas. Bonsell,
James Taylor,
John Allen,
Thos. Wood,
H. E. Peebles,
By his attorney, Jas. Taylor.
Trustees.
I do transfer within share of stock to C. H. Rosenthal, with all my rights and interests.
Mary E. Smith, Administratrix
The object of the action was to recover interest claimed to be duo the plaintiff, and the prayer of the petition was for a judgment against the corporation for $146, and for all other relief to which he was entitled.
The case was reserved to the general term, where it was heard upon the following agreed statement of facts:
“It is agreed, that the paper writing,-a copy of which is incorporated into and made part of the petition in this cause, a copy of which is hereto attached, marked Exhibit “ A,” and made part hereof, was executed by the trustees of defendant corporation, having authority so to do, and delivered to J. B. Smith, M. D., at the time at which the instrument bears date, and that at that time J. B. Smith, M. D., paid to defendant corporation the sum of one hundred dollars therefor. It is further agreed that J. B. Smith having deceased, Mary E. Smith was duly appointed administratrix of his estate, and being duly authorized, did, prior to the bringing of this action, for value, endorse said instrument to plaintiff in the following words: ‘ I do transfer wifhin share of stock to C. H. Rosenthal with all my rights and interests, Mary E. Smith, administratrix ; ’ and deliver the same to him. It is further agreed *185that plaintiff now has possession of said paper, with such title if any, as such assignment conveyed to him, and no other. It is further agreed that defendant corporation owns no property or assets of any kind, except the real estate described in plaintiff's petition. That said real estate was purchased at or about the date of the organization of the corporation. That at the date of the organization of defendant corporation, the money to purchase said realty was obtained by the corporation issuing paper writings, all being alike in tenor and effect, of which Exhibit “ A," is one. No one could be a member of the corporation, unless he subscribed for and paid up in full one or more shares. That the corporation originally issued one hundred shares, and subsequently twenty additional shares, making in the aggregate one hundred and twenty shares, of which Exhibit “A,” hereto attached, is one. The certificates were subscribed for and paid for at different dates. That any one otherwise qualified, who subscribed for and paid for one or more shares, became, by virtue of the ownership thereof, a member of the corporation, and any one by purchase of one or more shares became a member of the corporation. That defendant corporation has not and never had any capital stock other than said shares, so issued, and no property other than the real estate described in the petition of plaintiff, purchased, as aforesaid, with the funds realized from the subscription to such shares. That the corporation has made no profits. That there are no funds now in the hands of the trustees of the corporation belonging to it. That no interest has ever been paid by defendant corporation to any of the holders of certificates of shares, and no demand has ever been made for interest by plaintiff' or any of the holders or owners of certificates upon the certificate in the possession of the plaintiff hereto annexed as Exhibit “ A,'' or upon any other certificates, excepting only the demand of plaintiff made at or about the time of bringing this suit, and the demand made by J. L. Cilley about the same time upon a certificate claimed by him and for which suit is now pending, and a demand made by one E. C. Bryant about the-day of-, 1870, and for which suit was then brought in the superior court of Cincinnati, by E. C. Bryant *186against defendant corporation, and which, was finally settled by a compromise then made between said E. C. Bryant and defendant corporation. That defendant corporation has ever since its organization occupied and used, and is continuing to occupy and use the real estate in plaintiff’s petition described for the purpose for which the corporation was organized, tor-wit, maintaining or causing to be maintained therein a college for instruction in the science of dental surgery, by renting the property to another association, known as the Dental College Association, at a nominal rent. The faculty of the association are chosen by trustees of defendant corporation, and all the members of the association are shareholders in defendant corporation. That all the members of the corporation are dentists by profession; that plaintiff is a dentist. That defendant corporation annually holds an election for the selection of trustees thereof, at which election the holders and owners of certificates of shares, and they only, are permitted to vote. The property described in the petition, and the affairs of said corporation, are managed and conducted by the trustees so chosen, by a majority vote at election, and is now being controlled by a board of trustees so elected. That the fair value of said real estate is about $12,000. Defendant was incorporated under a special act of the legislature passed January 21, 1845, found in Local Laws of Ohio, Yol. 43, p. 32, which act is made part of this agreed statement of facts by reference. The transfer to plaintiff in form, if otherwise valid, is proper.”
The court rendered judgment against the college.for $99.00, being the interest on $100, computed from a period of fifteen years prior to the commencement of the action to the time of the judgment. To reverse this judgment the present proceeding is prosecuted.
J. J. Gliclden, for plaintiff in error.
1. The certificate creates no legal obligation to pay money. It contains no promise to pay interest. There is no principal debt to which the interest could attach as an incident.
2. The paper recites that it evidences an equitable interest in real estate which would descend to Smith’s heirs, and an as*187signmont by Smith’s administrator to defendant in error, gave him no title, because: a. The interest cannot be conveyed by assignment of the paper, and the parties cannot make it assignable by their agreement, b. The interest descending to the heir could only be sold by the administrator in the manner and for the purposes provided by- statute.
3. If the plaintiff obtained title he thereby became a member of the corporation, and cannot maintain this action for the reason that a member of a corporation cannot be permitted to enforce a remedy the necessary result of which is to defeat the purpose of the corporation.
4. Under the facts the paper can only be treated as a certificate of stock. A corporation cannot make a valid agreement to pay interest upon its stock except from its profits. There being no profits, the obligation is not enforceable. Lockhart v. Van Alstyne, 31 Mich. 76; Troy & Boston R. Co. v. Tibbits, 18 Barb. 297; Pittsburg & C. R. Co. v. Allegheny, 63 Pa. St. 136; Macdougall v. Jersey Imp. Hotel Co., 2 Hemming & Miller, 528; Painesville & H. R. Co. v. King, 17 Ohio St. 534.
5. If the corporation had no power to issue certificates of stock, and for that reason the paper is void as a certificate of stock, then it was void at its inception, and there immediately arose a cause of action in Smith to recover back the money. But that cause is long since barred by the statute of limitations. Or if a right to equitable relief arose, that has long since been lost by the lapse of time.
6. The paper is ambiguous. The construction claimed by the defendant in error is one that would necessarily, by its enforcement, defeat the very purposes for which the corporation was organized, and is in • conflict with the construction which the parties have, for more than thirty years, given these instruments. The conclusive presumption of the law, and a presumption that must control in giving construction to these paper writings, is that the parties issued them to aid in the accomplishment of the purpose for which the corporation was organized, and a construction which would necessarily involve the defeat of the purposes for which the corporation was organ*188ized, must be rejected, as one the parties certainly did not intend. These contracts were not with strangers, but between themselves, to further their common enterprise — the maintenance of the college — the dominant purpose in the light of which all their acts are to be regarded and all their contracts construed.
7. The remedy, if any ever existed, is barred by the statute of limitations if an action at law, and by the lapse of time if an equitable remedy.
Wilby & Wald, for defendant in error.
The agreed statement of facts must be “ read and understood in connection with and in the light of the other admitted facts of the case.; ” particularly the charter of the plaintiff in error. Wisby v. Bonte, 19 Ohio St. 238, 247.
The corporation is an eleemosynary one; not one organized for profit. There is no capital stock, nor are there any shares of stock. There being no shares of stock, there can arise no question of dividends upon stock. Huntington v. Savings Bank, 96 U. S. 388, 394.
The corporation having powers “ to acquire property for the endowment of the college,” could, on familiar principles, boi’row money with which to acquire such property, promise to repay the money, and pledge the property to secure such repayment; a fortiori could it accept the money upon an agreement merely to pay interest thereon and pledge the property acquired to secure the same. And that was what was done in this case.
The transaction here was a borrowing and loaning of money, although it was not intended that the principal sum should be repaid, but only six per cent, interest thereon. In the Appeal of the Philadelphia & Reading Railroad Co., 13 Reporter, 475, 477, the supreme court of Pennsylvania said, “ It is urged, however, that the meaning of the word 1 borrow/ as applied to moneyed transactions, involves an obligation to return the sum or thing borrowed. It. is true we often use this word in the sense of returning the thing borrowed in specie, as to borrow a horse. But it is not limited to this sense. Among the *189definitions given by "Webster are — first, ‘to take or to receive from another on trust, with the intention of returning or giving an equivalent therefor ;’ and second, ‘ to take from another for one’s own use; to adopt from a foreign source; to appropriate, to assume.’ While the borrowing of money is usually accompanied with a contract, for the return of the principal at a stated time, it is not necessarily so. The object of loaning money is to obtain a return in the shape of interest. If I agree to pay $60 for the use of $1,000 for one yeai’, it is a borrowing of money. It is equally so if I contract at the same rate for the use of it for ten years. Is it any the less so when the contract is perpetual and the loan irredeemable? The equivalent is paid annually in the shape of interest.”
This was the ground of the decision against this corporation, in a suit similar to this, made by the superior court, in general term, in 1871. Bryant v. Ohio College of Dental Surgery, 1 Cin. Sup. Ct. Rep. 307. That decision was rendered fourteen years ago, construing the charter of this defendant and the meaning of the certificates issued under that charter. The Ohio College of Dental Surgery has, during all that time, acquiesced in that decision; since it was pronounced, certificates have been bought and sold upon the faith of it. This defendant in error, for value, bought the certificate now in suit, after and upon the faith of that decision; and even if it had been erroneous (which we clearly submit it was not), on the principle of stare decisis, this court would not, we think, after the lapse of time, overrule it. Robb v. Irwin, 15 Ohio, 689, 703; Kearney v. Buttles, 1 Ohio St. 362; Gelpcke v. Dubuque, 1 Wall. 175.
It is objected that the certificate contains no promise to pay the interest; but it says, “drawing an interest of six per cent.,” which in law is equivalent to a promise to pay six per cent, interest.
As to the argument as to staleness of the claim, we understand this to be an action legal and not equitable in its origin, and that a claim at law is not stale until it is barred by the statute of limitations. Further it is said, that no promise in writing was made within fifteen years, which might be in point *190if the statute of limitations did (as it does not) begin running from the time a promise is made, instead of from the time it is broken.
Owen, C. J.
The action below was prosecuted upon the supposed promise of the college to pay interest at six per cent, upon $100, the stated value of the share represented by the certificate. The discussions of the case have developed a broad diversity of opinion concerning the true construction of this certificate and the real intention of the parties to it at the time it was issued. We are not called upon to solve the proposition : What does this certificate mean ? We are simply required to say whether it was, at the time the action below was commenced, a matured promise to pay six per cent, interest on $100, and if it was not, no matter what else it is or was intended to be. The certificate certainly does not bear an express promise to pay interest. No time of payment is named. There is no principal which can mature at any time prior to a dissolution of the corporation, and then nothing short of a “ share of real estate ” can satisfy the liability it represents.
In Waterman v. Troy & Greenfield R. Co., 8 Gray, 433, an action was brought upon the following agreement, for the recovery of interest:
“ We, the subscribers associated in this enterprise, do hereby severally agree with said corporation to take the number of shares placed against our names respectively, upon the following terms and conditions, viz.: until the proposed railroad is put in operation, interest shall be allowed upon all sums assessed and paid in, and each subscriber shall have the privilege of paying in at any time the whole or any part of his subscription, and shall receive interest thereon until the road goes into operation.”
Bigelow, J., speaking for the court, said: “ This is not a case where interest is claimed as incident to a principal demand ; but it is an action on an agreement for the payment of interest alone, as an independent substantive debt. No time is expressed in the contract for its payment. The question is, *191whether any can be fairly inferred from the terms of the contract.”
The court held that interest did not accrue until the road went into operation, although several years elapsed between the date of the contract and the completion of the road.
In Wright v. Vermont & M. R. Co., 12 Cush. 68, the stockholders of a railroad company, at the first meeting voted: “ That all subscribers be allowed interest on all sums paid by them up to the time when the road shall be completed and put in operation.” It was held that by this vote interest was not payable until the road was completed. Shaw, C. J., says: “ Taking the legal obligation of the company to pay interest, on the ground on which the plaintiff places it, interest was not payable annually, or at any other period, because the votes did not so provide. We think there was no implied promise to pay interest annually, even if such promise might be implied from undertaking to pay money at a distant day, with interest in the mean time, because here was no debt, no principal sum, to be paid. The directors have put no practical coivstruction upon the votes, by paying annually."
In Rutland & B. R. Co. v. Thrall, 35 Vt. 543, a subscription was conditioned that: “ Interest shall be allowed and paid by the company on all sums assessed and paid, from the time of payment until the railroad shall bo put in opex’ation.” It was claimed that this condition was in substance an agreement by the coxnpany to pay back to the subscribers part of the capital required by the charter, and void. The court say: “We deem this point untenable. No time is fixed for the payment of interest. Upon a similar proviso in Waterman v. Troy & Greenfield R. Co. (cited supra), it was held that the agreement did not bind the company to pay interest before the road went into operation.”
It is well settled that our statutes relating to interest were intended to fix the rate, and not the time of payment. Monett v. Sturges, 25 Ohio St. 385; Cook v. Courtright, 40 Ohio St. 248.
“ An act to fix the rate of interest ” (29 Ohio L. 451), in fox’ce when this certificate was issued, provided: “ That all *192creditors shall be entitled to receive interest on all money, after the same shall become due, either on bond, bill, promissory note, or other instrument of writing, or contract for money or properly; .... at the rate of six per cent, per annum and no more.'” If parties would have their agreements bear interest before maturity, or if they would have the interest payable at an earlier day, they must so stipulate.
The tendency of this court to hold parties to the express stipulations of their agreements, so far as they concern the time of payment of interest, is well illustrated by Patterson v. McNeeley, 16 Ohio St. 348. In that case a promissory note had the following clause: “ The above to be at ten per cent, interest annually.” The court say: “The whole clause certainly contains no express reference to anything else, than the rate of interest which the note shall bear, and the words used are all pertinent and necessary in defining that rate with precision. And we see no room for the inference that anything more was meant than that the note should bear interest at the rate óf ten per cent, per annum.” It was held that the word “ annually ” was to be understood as relating to and defining the rate of interest, and was not a stipulation for the annual payment of interest.
There are no words in this certificate to suggest, in the most remote degree, when the interest was to be paid. If the parties intended it to be a “ contract for property,” (in the language of the interest act above cited), which should bear interest to be paid before the principal was due, they were unfortunate in the selection of language to express that intention.
2. There are other considerations, however, which seem conclusive against the construction - which the defendant in error claims for this certificate. While its charter gave to this corporation power to make contracts, this power, by a fundamental rule of construction, is to be limited to the-making of such contracts, as are likely to promote the general purposes of its creation.
The corporation was not organized for profit, and it made none. All its member are dentists. So is the plaintiff. The *193purpose of its organization was the maintenance of a college for instruction in the science of dental surgery — an -enterprise in which all its members, as well as the plaintiff, had an interest beyond the hope of mere private pecuniary gain. There were issued in all one hundred and twenty certificates of “shares of real estate property of the college,” — “shares, $100 each.” These certificates represent, without interest, $12,000. It is agreed that this sum represents the entire property of the college. We do not feel at liberty to give a construction to this certificate which must imply that the parties to it intended that its enforcement would inevitably work a dissolution of the corporation and the defeat of the purposes for which it was embarked. If the holders of these certificates may successfully press their demands for interest upon them, the utter destruction of the corporation and defeat of its purposes are inevitable. Each certificate holder was and is a member of the corporation. The certificates represent, exclusively, its capital. The money paid upon them was invested in the real estate, which constitutes its entire assets. It has made no profits. There has never been a time in its history when the demand and enforced collection of interest on its certificates would have had any other effect than its complete dissolution and the hopeless defeat of the only purposes of its organization. The suggestion that these dentists, while pretending to set on foot an enterprise for the maintenance of a college for instruction in the very important and useful science of dental surgery, were really concocting a scheme to constitute themselves pensioners or annuitants upon the college, and hence upon each other, to the extent of $6.00 a year for each certificate, involves too grave a reflection upon either their good faith or their sanity to justify us in reaching such a conclusion without a clear expression of such a purpose. The improbability, if not the absurdity of such a construction of these certificates will become apparent when we reflect that these pensions or annuities could only be paid out of the capital of the college ! An attempt to enforce their collection would inevitablv involve the entire enterprise in hopeless ruin. It *194not only aids us in construing this contract, but it is highly creditable to all concerned in the college, to recall the fact that although it is more than forty years old, not a dime of interest has ever been collected or paid upon any of its certificates.
We have seen that in the case of Wright v. Vermont & M. R. Co., supra, much significance was attached to the fact that the parties had construed the contract by failing to provide for the payment of interest before completion of the road.
3. We may well conclude our consideration of this case with the proposition that if this certificate is to be construed (as the defendant in error contends), to embrace a contract to-pay interest either annually or on demand, out of the capital of the college — and it must be paid out of the capital if at all — the contract is a nullity. In Painesville & H. R. Co. v. King, 17 Ohio St. 534, the directors of a railroad corporation assumed to sell shares of the capital stock, stipulating, expressly, for the payment of interest annually on such stock until the completion of the road. As in the case at bar, it appeared that the company had no means for the payment of interest except its capital stock. It was held that such payment of interest could not be enforced by action. Scott, J., said: “ If all the stockholders are, by similar contracts or otherwise, entitled to demand interest on stock paid in, we think it is clearly against public policy that the stock subscribed for the building of the road should be diverted from its proper purpose, and distributed among the stockholders in payment of interest.” Every consideration of public policy which affected the case last cited, applies with equal force to the case at bar. That promises by a corporation to pay its members interest on their shares out of the capital are void, is abundantly established by authority : Miller v. Pittsburgh & C. R. Co., 40 Pa. St. 237; Richardson v. Vermont & M. R. Co., 44 Vt. 613; Cunningham v. Vermont & M. R. Co„ 12 Gray, 411; Lockhart v. Van Alstyne, 31 Mich. 76; Cook’s Stock and Stockholders, § 277.
4. There is nothing in the record before us (unless it be the fact of the prosecution of the case below) to suggest that any member of this corporation desires or intends its dissolution. *195It is a going corporation. Its object is a worthy and benevolent one. We cannot conclude, after the construction which its members have for so many years given to their certificates, that they intended by them to provide for the summary destruction of the college, at the caprice of any member; a result which must inevitably follow the construction we are asked by the defendant in error to place upon them. Each certificate clearly evidences an equitable interest in the real estate of the college. It is idle to prosecute our inquiries concerning their meaning beyond the conclusion we have reached that they do not represent a matured promise to pay interest before the holders may, by dissolution of the corporation or otherwise, reduce to individual and separate ownership, their respective interests in such real estate.
Judgment reversed.