ART. I. II. III. CHAPTER XXI. THE CONTRACT OF SUBSCRIPTION. THEORIES AS TO THE NATURE AND FORMATION OF THE CON- THEORIES AS TO THE CONSIDERATION, §§ 1200-1213. THEORIES AS TO THE NECESSITY OF PAYING THE STATUTORY IV. THEORY THAT THE FULL AMOUNT OF THE CAPITAL MUST BE SUBSCRIBED, §§ 1235–1242. V. OTHER THEORIES AND HOLDINGS, §§ 1245–1262. ARTICLE I. THEORIES AS TO THE NATURE AND FORMATION OF THE CONTRACT. SECTION 1136. Relation of stockholders to the corporation rests in contract. 1137. Governing statute forms part of the contract. 1138. General views as to what constitutes one a stockholder. 1139. Subscription constitutes one a member. 1140. Certificate not necessary. 1141. Circumstances under which necessary. 1142. Contract of subscription when not necessary. 1143. If no certificate issued, written agreement necessary. 1144. View that a contract of subscrip tion necessary in some form. 1145. Such contract not created by recitals in a bond. 1146. View that a contract of subscription must be in writing. 1147. A writing not in strictness necessary. SECTION 1148. Oral promise to subscribe for shares and note given therefor. 1149. Subscription not varied by parol evidence. 1150. When explainable by parol. 1151. Form of the subscription. 1152. In what kind of a book - on what kind of paper. 1153. Signing in blank. 1154. Effect of erasures. 1155. Explanatory memorandum annexed. 1156. Receipt on margin of subscription book. 1157. Rule which requires a subscription to the articles of association. 1158. Reasons which support this rule. 1159. Consequence of this rule; no contract if subscriber dies before corporation formed. 1160. Other consequences of this rule. SECTION 1161. Doctrine that subscriptions not binding unless regularly made. 1162. View that a subscription to the shares of a corporation not formed creates no liability. 1163. Further of this view: reasoning of Chief Justice Black. 1164. Distinction between a subscription and an agreement to subscribe. 1165. The infirmity of this distinction. 1166. Unsoundness of the view that the proposal is bad unless made in strict compliance with the statute. 1167. Difficulty avoided by subsequent ratification. 1168. Subscription and payment of deposit. 1169. Another road out of this difficulty. 1170. Rule that subscriptions made before organization are good. 1171. Reasons in support of this rule. 1172. Nature of such an offer before acceptance. 1173. Instances under this rule. 1174. Rights and liabilities of subscribers to a common fund for a common purpose. 1175. Subscription must be accepted or acted upon. 1176. Action against one member of building committee by the other members. SECTION 1177. Acceptance necessary if corporation in existence. 1178. Manner in which acceptance manifested. 1179. Distinction between cases where the proposition comes from the company and where it is made to the company. 1180. Revocation of offer before acceptance. 1181. Whether presumable in the case of a subscription to a future corporation. 1182. A case in illustration. 1183. Locus penitentiæ where subscription illegal. 1184. Other instances of sufficient subscriptions. 1185. Subscriptions enforcible by action without an express promise to pay. 1186. Illustrations of the foregoing. 1187. Doctrine that an express promise to pay is necessary. 1188. The absurdity and immorality of this doctrine. 1189. Illustration of the foregoing doctrine. 1190. When contract to take shares complete under the English statute. 1191. What facts amount to a contract to take shares. 1192. Continued. 1193. Continued. 1194. Continued. 1195. Continued. § 1136. Relation of Stockholders to the Corporation Rests in Contract. 66 The relation of stockholders to the corporation whose stock they hold is that of contract; and the rights and duties of both parties grow out of contract, implied in a subscription for stock, construed by the provisions of the charter or articles of incorporation." 1 1 1 Supply Ditch Co. v. Elliott, 10 Colo. 327; s. c. 3 Am. St. Rep. 586, 531, opinion by Macon, C. § 1137. Governing Statute Forms Part of the Contract. Whether the corporation is organized under a special charter or under a general statute, the statute which authorizes its organization is deemed to enter into and form a part of it, and to furnish the rule for determining the effect of every subscription to its capital stock, as fully as though it were embodied in express terms in the subscription paper. The rule is thus laid down by Selden, J., after reviewing the authorities: "Whatever may be the form or language of a subscription to the stock of an incorporated company, every person who in any manner becomes a subscriber for, or engages to take, any portion of the stock of such company, thereby assumes to pay for the same according to the conditions of the charter. Whenever the subscription papers refer to the charter of the company, the provisions of such charter are virtually incorporated in the subscription and are to be referred to for the purposes of explanation." 2 "The subscription," said Gardner, J., in another case, "must be construed as if all the provisions of the statute affecting the liability of the subscriber, or his title to the stock purchased by him, were incorporated in his agreement. This has never been questioned." 3 § 1138. General Views as to what Constitutes One a Stockholder. ― Recurring to the subject with the aid of later decisions, longer study and wider experience, the author sees no reason essentially to modify the general views advanced by him in his work on stockholders, as to what is necessary to constitute a binding contract to take shares in a joint-stock corporation. It was there stated as a general rule,5 applicable to all the charters and statutory schemes of incorporation in vogue in this country, that whoever subscribes to an unconditional agreement to take a given number of shares becomes thereby a stockholder, 1 Hoagland v. Cincinnati &c. R. Co., 18 Ind. 452. 2 Rensselaer &c. Co. v. Barton, 16 N. Y. 457, 460, note. Small v. Herkimer Man. Co., 2 N. Y. 330. A subscription good at common law is not invalidated by N. Y. Laws, 1850, ch. 140, § 4. Buffalo &c. R. Co. v. Gifford, 87 N. Y. 294. 4 Thomp. Stockh., § 105. 5 That in some States an express promise to pay is necessary, see post, § 1187. subject to the conditions named in the subscription paper and to those imposed by the charter or by the general law. The constating instrument, by which persons associate themselves together as members of a corporation or joint-stock company, is usually termed in this country the articles of association, and in England the deed of settlement. It is, therefore, but another way of expressing the foregoing rule to say that, in the absence of fraud, every person who signs the articles of association or the deed of settlement, agreeing at the same time to take a certain number of shares, thereby acquires the advantages, and subjects himself to the liabilities, of a shareholder; and this is more clear where the governing statute declares that those signing such articles shall be deemed a body corporate. The act of subscribing for shares fixes the subscriber's liability to creditors as a shareholder, although he has not paid in any part of his subscription, or done any act whatever as such. If a person orders goods to be delivered to him, a promise is implied that he will pay for them. So, if a person subscribes for shares of stock in a corporation or jointstock company, a promise is implied that he will pay for them; and the same effect is given to the acceptance and holding of a 3 1 Hartford & New Haven R. Co. v. Kennedy, 12 Conn. 499; Sagory v. Dubois, 3 Sandf. Ch. (N. Y.) 466; Union Turnpike Co. v. Jenkins, 1 Caines, (N. Y.), 380; Goshen Turnpike Co. v. Hurton, 9 Johns. (N. Y.) 217; Dutchess Cotton Man. Co. v. Davis, 14 Johns. (N. Y.), 237; Spear v. Crawford, 14 Wend. (N. Y.), 20;s. c. 28 Am. Dec. 513; Highland Turnpike Co. v. McKean, 11 Johns. (N. Y.) 98; Strong . Wheaton, 38 Barb. (N. Y.) 616; Burr v. Wilcox, 22 N. Y. 551; Pickering v. Templeton, 2 Mo. App. 424; Beene v. Cahawba &c. R. Co., 3 Ala. 660; Upton v. Tribilcock, 91 U. S. 47; Brigham v. Mead, 10 Allen (Mass.), 245; Buffalo &c. R. Co. v. Dudley, 14 N. Y. 336; Seymour v. Sturgess, 26 N. Y. 134; Dayton v. Borst, 81 N. Y. 435; Rensselaer &c. Co. v. Barton, 16 N. Y. 457; Lake Ontario &c. Co. v. Mason, 16 N. Y. 451; Hartford &c. R. Co. v. Croswell, 5 Hill (N. Y.), 383; Northern R. Co. v. Miller, 10 Barb. (N. Y.) 260; Kennebec &c. R. Co. v. Palmer, 34 Me. 366; Connecticut &c. R. Co. v. Bailey, 24 Vt. 465. 2 Post, Ch. XXIV. Strong v. Wheaton, 38 Barb. (N. Y.) 616; Cole v. Ryan, 52 Barb. (N. Y.) 168; Sagory v Dubois, 3 Sandf. Ch. (N. Y.) 466. 4 Strong v. Wheaton, 38 Barb. (N. Y.) 616. Spear v. Crawford, 14 Wend. (N. Y.) 20. • Spear v. Crawford, 14 Wend. (N. Y.) 20; s. c. 28 Am. Dec. 513; Hartford & New Haven R. Co. v. Kennedy, 12 Conn. 499; Fry v. Lexington R. Co., 2 Metc. (Ky.) 314; Klein v. Alton &c. R. Co., 13 Ill. 514; Banet v. Alton &c. R. Co., 13 Ill. 504. certificate of stock,1 although, in order to constitute one a shareholder, it is not necessary that a certificate should have been issued. This promise may be enforced by the corporation by assumpsit, or other suitable action; and in case of the insolvency of the corporation, it will be enforced by a court of equity or of bankruptcy for the benefit of its creditors. From the privileges and advantages flowing to the subscriber in consequence of his subscription, and from its acceptance by the other associates or by the corporation, the law implies a consideration sufficient to support the contract.5 1 Upton v. Tribilcock, 91 U. S. 48; Palmer v. Lawrence, 3 Sandf. (N. Y.) 161; Brigham v. Mead, 10 Allen (Mass.), 245. And this is so although the certificate contains a promise on the part of the corporation to pay interest thereon until the happening of a certain specified event. McLaughlin v. Detroit &c. R. Co., 8 Mich. 100. Making and mailing a certificate is regarded as the issuing of it. Jones v. Terre Haute &c. R. Co., 17 How. Pr. (N. Y.) 529. 2 Post, § 1140; Chaffin v. Cummings, 37 Me. 76; Chase v. Merrimac Bank, 19 Pick. (Mass.) 564; Beckett v. Houston, 32 Ind. 393; Burr v. Wilcox, 22 N. Y. 551; Schaeffer v. Missouri Ins. Co., 46 Mo. 248. One who sells shares before the issue of the certificate, agreeing to give the buyer a certificate when he gets it, has been held not bound, as between the buyer and himself, to pay an assessment laid upon the shares subsequently to the sale, and before the issuing of the certificate. Brigham v. Mead, 10 Allen (Mass.), 245. Some courts have, however, held that an express promise to pay is necessary, a subject hereafter considered. Post, § 1187, et seq. Interpretation and effect of peculiar contracts of subscription, prescribing unusual modes of issuing stock, terms of payment, etc.: Bailey v. Railroad Co., 17 Wall. (U. S.) 96; Van Alen v. Ill. &c. R. Co., 4 Abb. App. Dec. (N. Y.) 443; New York &c. R. Co. v. Van Horn, 57 N. Y. 473. 3 Selma &c. R. Co. v. Tipton, 5 Ala. 787; Beene v. Cahawba &c. R. Co., 3 Ala. 660; Union Turnpike Co. v. Jenkins, 1 Caines (N. Y.), 381; s. c. 1 Caines's Cas. 95; Goshen Turnpike Co. v. Hurtin, 9 Johns. (N. Y.) 217; Dutchess Cotton Man. Co. v. Davis, 14 Johns. (N. Y.) 238; Highland Turnpike Co. v. McKean, 11 Johns. (N. Y.) 95; Spear v. Crawford, 14 Wend. (N. Y.) 20; s. c. 28 Am. Dec. 513; Harlem Canal Co. v. Seixas, 2 Hall (N. Y.), 504; Worcester Turnpike Co. v. Willard, 5 Mass. 80; Delaware &c. Canal Co. v. Sansom, 1 Binn. (Pa.) 70; Instone v. Bridge Co., 2 Bibb (Ky.), 576; Tar River Navigation Co. v. Neal, 3 Hawks (N. C.), 520; Sanger v. Upton, 91 U. S. 56; Webster v. Upton, 91 U. S. 65; Chubb v. Upton, 95 U. S. 665. 4 Ante, §§ 12-17; post, § 258 € seq. • Union Turnpike Co. v. Jenkins, 1 Caines (N. Y.), 381; Goshen Turnpike Co. v. Hurtin, 9 Johns. (N. Y.) 217; Dutchess Cotton Man. Co. v. Davis, 14 Johns. (N. Y.) 238; Kennebec &c. R. Co. v. Palmer, 34 Me. 366. See post, § 1200, et seq. |