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1. Subscriptions to stock of a railroad company are trilateral contracts. They are undertakings not only with the company and the Commonwealth, but with all the other subscribers to the stock.

In February, 1891, the defendant subscribed to twenty shares of stock of the plaintiff company of the par value of $50.00 each, and at the time of the subscription paid an assessment of $5.00 per share upon them, amounting in all to $100.00. A short time thereafter he received notice of a second assessment of the same amount, to recover which assessment this suit was brought. In February, 1893, a paid-up certificate of the plaintiff company for two shares of stock was delivered to the defendant duly signed by the president and by the secretary with the corporate seal attached. Plaintiff resisted a call for a second installment, alleging that since the paid-up certificates were delivered to him he was released from his liability to pay for the balance of the stock. It was held that no release could be inferred from the delivery of the certificates,

such release, even if intended, being ultra vires. Beeber, J., said: "By his subscription the defendant not only made a contract with the company, but with the other stockholders. It is well settled that subscriptions to the stock of a corporation are trilateral contracts. They are undertakings not only with the company and the Commonwealth, but with all the other subscribers to the stock. We do not think it was within the power of the president and secretary, nor within the power even of the board of directors, to release the subscription of the defendant to the stock of the company without a sufficient consideration. The assets of the company cannot be given away even by the directors, because it would be in violation of their duty to preserve them which they owe to all the other stockholders, to the bondholders, and to the company itself." 1

In an action by a railroad company to enforce the defendant's subscription to the stock of a company, the defendant cannot set up the defence that he was induced by the misrepresentations of a co-subscriber to sign his name to the articles of association without reading them for himself.2

Where a subscription to stock was made by an agent of a railroad company for the purpose of obtaining from a third party a loan, and such subscription was recognized by the stockholders and directors of the company, who accepted the loan with a knowledge of such subscription, and, presumably, with a knowledge that without such subscription the loan would have been invalid and contrary to law, the stockholders and directors of the company are estopped from denying or questioning the validity of the subscription, because it was not made in writing and in the prescribed form.3

A person who has agreed in writing to subscribe to the stock of a railroad company cannot defeat the written contract by setting up an agreement made in parol with the agent of the company to the effect that the company would build a station upon the property adjoining the property of the subscriber, and that this had not been done.*

I Braddock Electric Railway Co. v. Bily, 11 Super. Ct. 144 (1899.)

2 Path Valley R. R. v. Brinley, 15 Pa. C. C. R. 339 (1894.)

3 Shellenberger v. Patterson, 168 Pa. 30 (1895.)

4 Philadelphia & Delaware County R. R. v. Conway, 177 Pa. 364 (1896.)

Preferred Stock.

2. A railroad company purchased for cash the shares of stock of several other railroad companies which were fully paid up, and after the merger, the consolidated company issued and substituted new certificates for the shares it acquired by purchase and surrendered and cancelled the latter; it was held that it had the right under the Acts of April 3, 1872, and April 28, 1873, to convert such shares of stock into preferred stock. Weiss, J., said: "It is clear that with the consent of the majority in interest of the stockholders the company may issue preferred stock, not exceeding at any time one-half of its capital stock, which entitles the holder to a preference in the payment of dividends out of the net earnings, not exceeding a prescribed per centum per annum. Having the right to issue preferred stock it is not doing violence to any canon of construction to hold that it may surrender and cancel common stock issued, held and owned by it, and issue instead thereof preferred stock, either as part of a larger issue of that kind of stock, or to that amount only. The conversion of common stock into preferred stock is not an exercise of a power higher or greater than the issue of preferred stock primarily. The Act of May 7, 1887, does not apply to and is not intended to regulate the price or sales of stock by holders and owners. It has the wider and loftier aim of protecting 'the public against the creation of fictitious capital' by railroad companies issuing capital stock ‘in excess of the money paid in or of the value of labor done or property received therefor,' and of rendering effective 'the provisions of Sec. 7 of Art. XVI of the Constitution.' " 5

Increase of Stock.

3. A traction company incorporated under the Act of May 22, 1887, is within the prohibition of Art. XVI, Sec. 7 of the Constitution and also within the Act of May 7, 1887, requiring a sworn statement of increase of capital stock to be filed in the office of the Secretary of the Commonwealth. Although the bonus on the increased capital stock had been collected the

5 Com. v. Buffalo & Susquehanna R. R., 11 Dist. 750 (1902); 26 Pa. C. C. R. 635 (1902); 5 Dauph. 209 (1902.)

Commonwealth is not estopped from declaring void such illegal increase.R

Where a railroad company has agreed to issue stock to a person who has subscribed for it under an agreement by which he had obligated himself to make a loan to the railroad company and the subscription could not otherwise have been obtained, and it appears that the company agreed to issue the stock without offering to allot any of it among the stockholders, a stockholder claiming to be injured has no remedy in equity to compel the issue of any proportion of such stock to himself. If he has been injured, he has his remedy at law. If, in such a case it appears that no stockholder offered to take, or was willing to take the stock at par, or that it would have sold for more, it seems that no stockholder would have a right to complain.7

Where a railroad company purchased all the paid-up capital stock of three other railroad companies and merged with them, exchanging all the stock thus purchased for its own capital stock in like amount, such stock, together with its stock already issued and outstanding represents the amount to which the company may issue its corporate bonds, or other certificates of indebtedness, under the Acts of April 4, 1868, Sec. 8, and May 7, 1887, Sec. 3. The Act of February 9, 1901, providing for the increase of capital stock and indebtedness of corporations broke down the partition wall between paid-up capital stock and corporate debt; under the Act power to increase the indebtedness is limited only by the consent of the stockholders and the necessities of the company.8

Specific Performance of Sale.

4. Specific performance of the sale of railroad stock will not be decreed where the party acted in bad faith to the defendants and there was an adequate remedy at law.9

6 Com. ex rel. v. Reading Trac. Co., 25 Pa. C. C. R. 156 (1901); 4 Dauph. 82 (1901); Affirmed 204 Pa. 151 (1902.)

7 Shellenberger v. Patterson, 168 Pa. 30 (1895.)

8 Com. v. Buffalo & Susquehanna R. R., 10 Dist 363 (1901); 25 Pa. C.

C. R. 274 (1901); 4 Dauph. 135 (1901.)

9 Rigg v. Reading & Southwestern Str. Ry., 191 Pa. 298 (1899.)

Pooling Agreement-Voting Stock.

5. Certain stockholders in a corporation may agree to stand together in carrying out an honest business policy consistent with what they believe to be to the best interest of stockholders, and such an agreement is not an illegal pooling agreement.10

Where a railroad company deposits stock of another railroad company with a trustee under an agreement in writing, reserving "all the rights, powers and privileges belonging to or incident to the ownership of the stock," including the right to vote the stock, the railroad company has a right to exact a proxy from the trustee so as to vote the stock for the merger of the railroad company whose stock is deposited with another company, such merger being authorized by law and this is the case although the trustee will as a consequence of consolidation be compelled to receive back the stock of the consolidated company instead of stock of the original company.11

Forfeiture.

6. Where persons constituting a firm of brokers made an agreement with the president, directors and stockholders of a street railway company to organize a corporation which would lease the railway company, and the traction company after said incorporation and lease, in payment for such agreement, issued to the brokers a large amount of capital stock, such issue of stock is void and without consideration and may be cancelled at the instance of the Commonwealth; but as the stock had passed into the hands of innocent purchasers for value, the court refused to cancel the stock.12

10 Rigg v. Reading & Southwestern Str. Ry., 191 Pa. 298 (1899.) 11 Pennsylvania R. R. v. Pennsylvania Co. etc., 205 Pa. 219 (1903.) 12 Com. ex rel. v. Reading Trac. Co., 25 Pa C. C. R. 156 and 583 (1901); 4 Dauph. 82 (1901); Affirmed in 204 Pa. 151 (1902.) See Cheltenham v. McCormack, 178 Pa. 186 (1896.) The Supreme Court refused upon motion to allow the record to be remitted to the court below for the purpose of having the holders of the stock made parties defendant, as complainants allowed three years to elapse after the fictitious increase was made, and delayed for a further period of five years in moving to amend their bill so as to add as parties defendant the real owners of the stock.

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