THE GREEN BAG
CORRESPONDENCE CORPORATION
CHARTERS
AN ENGLISH VIEW OF THE DOCTRINE OF PINNEY v. NELSON By our London Correspondent
TEMPLE, LONDON, ENG., April, 1905. AN action of very great importance to shareholders in English companies doing busi ness in the United States, as well as to cred itors in America of such companies, has re cently been decided in the English Courts. The plaintiffs in the action were the Risdon Iron and Locomotive Works of San Francisco and the defendant was Sir Christopher Furness, who is a large shareholder in the Copper King (limited). The Copper King Company was incorporated in England under the English Companies' Acts, and according to its memo randum of association, or charter, its objects, inter alia, were to acquire mining rights and lands in the United States of America and elsewhere, to purchase or hire machinery, and to do all other things incidental or conducive thereto; and by its articles of association the company was empowered to appoint any per son at its attorney for the transaction of busi ness abroad, with such powers as it might deem necessary to enable the company's oper ations to be validly carried on abroad, and to do all such acts as might be necessary to com ply with the law of any country where the company might carry on business. As a matter of fact the company carried on business in California and incurred debts there in the purchase of machinery in that state. By the law of California each stock holder of a corporation is individually liable for debts contracted by the corporation dur ing the time he is a stockholder, according to the proportion which his holding bears to the subscribed capital of the corporation, and no corporation organized outside the state is allowed to do business within the state on more favorable conditions than are prescribed by law to similar corporations organized under the laws of the state. The debts incurred by the company in California to the plaintiffs amounted to $10,404.96, for which the plain tiffs began an action in San Francisco, but before the trial was reached the company, upon the petition of certain creditors in California,
was adjudicated bankrupt under the United States laws, and subsequently went into vol untary liquidation in England. The plaintiffs thereupon brought an action in England against Sir Christopher Furness for .£456,175. Bd., that being the proportion his holdings of the company's shares bore to the amount of the company's debt to the plaintiffs. They thus sought to enforce against him in this forum the provisions of the California Civil Code with respect to the liabilities of stock holders for the debts of insolvent companies. The case attracted a good deal of interest and was very ably argued, counsel for the plaintiffs contending that the defendant as a shareholder had authorized the directors to pledge his personal credit, and that if a share holder gave his directors power to do all things necessary to make the company a legal entity in California, he had thereby empow ered them to bind himself as a surety for the company's debts in California. The defen dant on the other hand submitted that as the Copper King was a company incorporated under the English Companies' Acts and by its memorandum of association the liability of its shares was limited, the defendant could be under no personal liability for any amount beyond anything which might be uncalled upon his shares, and as they were fully paid, he was exempt from further demands. They further argued that it would be contrary to the whole conception of a limited company that a person by buying a share in an open market, should be authorizing the directors to bind him by the law of a foreign country where the company whose shares he bought carried on business. The case was heard by Mr. Justice Kennedy, one of our ablest judges, who has made several visits to America in which he has delivered addresses to American lawyers. He decided that the defendant was not liable, on. the ground that his liability was limited under the English Companies' Acts to the amount of his shares, and an English court could not
