the articles should be sent to them for execution, or they may act by attorney. In the latter case, the written power of attorney should be attached to, and recorded with, the articles of association. Where there is more than one class of stock, the articles should clearly show the number of shares of each class subscribed by each incorporator. It has been held in this State, that, where the statute requires the observation of certain formalities, a subscription taken in the absence of such formalities is unenforcible, except when waiver or ratification has intervened. Acceptance of benefits, or exercise of privileges flowing from such a subscription would undoubtedly estop the subscriber from denying liability52.

§37. Preliminary Subscriptions.

For the purpose of determining in advance whether or not organization is possible or feasible, it is frequently necessary to seek preliminary subscriptions. To avoid misunderstandings, the preorganization subscription agreements should accurately set forth, in substance, all the material facts which are afterwards to be embodied in the articles of association53. True, such detail of statement is not indispensable, but each omitted fact adds latitude and plausibility to the possible subsequent claim

cases the promises are mutualacts are done and moneys expended in reliance upon the subscriptions and the moment the promises are accepted by the organization and action of the corporation to which they are provisionally made, there can generally be no difficulty in their enforcement if the corporation then has it in its power to give the stock subscribed for, and offers to do so. In such a subscription thus accepted there would be all the requisites of a valid contract; proper parties, and a promise made upon a legal and valuable consideration." In stating the majority opinion of the court, in the same case, Justice Cooley said: "We cannot imagine any reasons of public policy for requiring all the preliminary subscribers to sign the articles, or for relieving from responsibility all who do not sign. As the articles

constitute a more formal document than the preliminary subscription usually does, and set forth the definite particulars of the enterprise, it will be more satisfactory and conclusive of the precise work the subscribers purpose to accomplish, and be less likely to leave questions open to dispute between the individual associates and the organization."

51. Northern Cent. R. Co. v. Eslow, 40 Mich. 222; Parker v. Northern Cent. R. Co., 33 Mich. 25; Wright v. Irwin, 35 Mich. 347; Carlisle v. Saginaw Valley & St. L. R. Co., 27 Mich. 315; Shurtz v. Schoolcraft & Three Rivers R. Co., 9 Mich. 269.

52. Bissel v. Heath, 98 Mich. 472; Duffield Wire & Iron Works, 64 Mich. 293.

V.

53. Peninsular R. Co. v. Duncan, 28 Mich. 130-147.

that the corporation organized differs from that to which the subscription was intended to apply. In the absence of estoppels, this claim, if made out, is a complete defense against the subscription contract. Individual, preliminary subscriptions, unless made irrevocable by the express, or implied terms of the statute, remain revocable, as between the subscribers and the corporation, until accepted by the organized company 55. Where, after organization, acts are performed by the corporation in direct reliance upon the subscription-for example, where the subscriber is permitted to participate in meetings, or where the corporation gives notice of an assessment upon the subscription-the subscription is thereby accepted and ceases to be revocable

Preliminary subscriptions may be made by joint agreement58, or by an assignable contract between the subscriber and the promoter59. Where the subscription is in the form of a joint agreement, it is in the nature of a continuing offer and, as against the corporation, is revocable at any time before the corporation has been formed and the subscription accepted. Notice of revocation will be sufficient if given to the person by whom the

54. Plank's Tavern Co. v. Burkhard, 87 Mich. 182; International Fair Ass'n v. Walker, 83 Mich. 386, 88 Mich. 62, 97 Mich. 159.

55. Carlisle v. Saginaw Valley & St. L. R. Co., 27 Mich. 351-318. The "subscriber is not bound to the corporation, until the corporation is bound to the subscriber. While want of mutuality continues. the subscription is unenforcible by the company." See also Parker v. Northern Cent. R. Co.. 33 Mich. 22-24. In Peninsular R. Co. v. Duncan, 28 Mich. 130-133, Justice Cooley said "Whether any other agreement could be made or not, the articles of association are not only a contract, but the only contract which brings any one within the rights of corporate existence. There can be no corporation without them, and no corporation differing from them. They are the rule and the origin of corporate life. And it is at least anomalous, if, when the statute has laid down so rigidly the terms of the only contract whereby there can be any

corporation, it can permit persons who are not parties to it, to be brought within its rights and obligations by another agreement made in advance, and containing no provisions identifying it, and no authority empowering any one to execute it."

56. International Fair Association v. Walker, 83 Mich. 386, 88 Mich. 62.

57. Where organizers join in an agreement to take stock in a corporation to be organized, the contract will be held binding and enforcible, after its acceptance by the company, when its terms have been complied with fairly and in good faith. International Fair Association v. Walker. 83 Mich. 386392; Peninsular Rv. Co. v. Duncan, 28 Mich. 139; Badger Paper Co. v. Rose, 95 Wis. 145.37 L. R. A. 162; Marshall's Corp. p. 626.

58. International Fair Ass'n v. Walker, 83 Mich. 386, 88 Mich. 62. 59. Dill Corp., p. 179.

60. Plank's Tavern Co. v. Burkhard. 87 Mich. 182.

subscription was solicited or to the person in active charge of the organization, or to the corporation itself, after organization and before the subscription has been accepted". While, as against the corporation, the right of revocation continues until the moment of acceptance, the subscriber may become liable to his co-subscribers for damages for breach of contract, if he has permitted them to incur expense in reliance upon the mutual agreement to which he is a party. Notwithstanding his revocation, he may be liable to them, although not liable to the corporation63.

Where the preliminary agreement is in the form of an assignable contract between the subscriber and the promoter, in consideration of which the promoter agrees to use his best endeavors to bring about the formation of the proposed company, the arrangement is not generally enforcible as a subscription. It is rather, an agreement to make a subscription at some future time. For breach of such an agreement, the measure of damages is the difference between the par values of the stock, or the subcription price, and the market value, below par64, as of the date when the breach occurred.

§38. Capital Stock Paid Up.

Subscriptions are regarded as paid in cash when payment is inade in money, or its equivalent. Thus, payment made by check drawn in good faith against an actual deposit out of which the check is paid in due course, is a payment in cash65. So also is a payment made by giving a note which is immediately converted into money66. A good faith payment by note, where the obligation is designed to be held by the corporation is a payment in property. Where the corporation is authorized to receive both cash and property in payment of subscriptions, the fact that property is mistakenly designated as cash is not very material, provided the property so taken was actually needed and honestly valued. In the absence of statutory requirements to the

61. Plank's Tavern Co. v. Burkhard, (Id). Cook's Corp. Sec. 167.

62. Marshall's Corp, p. 626; as to the binding force of mutual promises, see Conrad v. La Rue, 52 Mich. 83-86, and cases there cited.

63. Marshall's Corp., p. 626. 64. International Fair Association v. Walker, 88 Mich. 62-87;

Cook's Corp., Sec. 336.

65. Carlisle v. Saginaw Valley & St. L. Co., 27 Mich. 315, note citing People v. Stockton, etc., R. Co., 45 Cal. 306.

66. Rouse, Hazard & Co. v. Cycle Co., 111 Mich. 251, 38 L. R. A. 794.

67. Staver & Abbott Mfg. Co. v. Blake, 111 Mich. 282.

contrary, there is no reason why subscriptions may not be paid by transfer to the corporation of any property of which it is capable of purchasinges. For this purpose, services69, patent rights, formulas 71, copyrights", good will, trade marks and trade names, are property. The fact that the statute forbids the acceptance of certain classes of property in payment of subscriptions, does not prevent the corporation from afterwards purchasing such property with the proceeds of subscriptions, if the property is proper for corporate purposes75.

§39. Valuation of Property.

When it is permissible under the statute to take property in payment of subscriptions, the valuation at which such property is taken should be reasonable. In fairness to cash subscribers and future creditors, this rule should be strictly applied. Incorporators should not make future creditors unwitting parties to a venture founded upon pretended assets masquerading behind inflated valuations. As to cash subscribers, the wrong of overvaluation is instant in its operation.

$40. Rules of Valuation.

The rules governing the valuation of property transferred to a corporation in payment of subscriptions may be gathered from the Michigan decisions, as follows:

68.

Young v. Erie Iron Co., 65 Mich. 111.

69. Peninsular Savings Bank v. Black Flag Stove Polish Co., 105 Mich. 535.

70. Graves v. Brooks, 117 Mich. 424.

71. Wood v. Sloman, 150 Mich. 177; Dieterle v. Ann Arbor Paint & Enamel Co., 143 Mich. 416.

72. Schumacher v. Schwencke, 25 Fed. Rep. 466.

73. Feige v. Burt, 124 Mich. 565568; Long v. Evening News Association, 113 Mich. 274; Williams v. Farrand, 88 Mich. 473-387. In the case last cited, Justice McGrath said, "Good will may be said to be those intangible advantages or incidents which are impersonal, so far as the grantor is concerned, and attached to the thing conveyed." In Chittenden v. Witbeck,

50 Mich. 401-420, Justice Cooley defined good will to be, "The favor which the management of the enterprise has won from the public, and the probability that the old customers will continue to give it their patronage in the future."

74. Williams v. Farrand, 88 Mich. 473.

75. Cook's Corp., Sec. 20. 76. Atlantic Dynamite Co. v. Andrews, 97 Mich 466.

77. The effect upon cash subscribers, where over-valuation occurs, may be illustrated as follows: Assume that A, B & C form a corporation capitalized at $10,000, of which A and B together contribute $5,000 in cash and C contributes a worthless patent valued at $5,000. In effect, the immediate result is that A and B acquire a half interest in a valueless piece of prop

(a) As between the corporation and its creditors, an arbitrary overvaluation, however free from fraudulent intent, leaves the stock issued for the overvalued property, assessable to an amount equalling the difference between the true value of the property and the par value of the stocks. By "arbitrary overvaluation" is meant, an excessive valuation placed upon the property recklessly, or without the fair exercise of discretion, or in violation of the discretion, if any, exercised.

(b) Where property has been transferred to a corporation at a valuation carefully made and believed to be fair, the fact that