Galveston Hotel Co. v. Bolton

Roberts, Chief Justice. The questions in this case are, 1st, did appellee ever become a corporator in the company ? and 2d, if he did, were the assessments legal and binding upon him ? and 3d, was this suit properly brought to recover the amounts assessed against him ? — 641 — These will be considered without any special reference to the division here made. A subscription of stock in an incorporated company, or in anticipation of a company expected to be incorporated, is usually in the shape of a mutual agreement, written and signed by those desiring to be corporators, or of a mutual undertaking in writing; to be bound to take a share or shares in an incorporation already created, in which the nature, object, and terms of the association are to some extent indicated. "Whether in one shape or in the other, the mutual agreement, or undertaking of all of the subscribers, may constitute the consideration for the agreement, or undertaking, of each one of them, so as to make it a valid contract in favor of and against each, to be carried out or enforced by the company when organized, if not already recognized. The company becomes a party to the contract, either expressly or by implication, from the terms of the subscription. An example may be here given, by way of illustration. “ Cordoocook Valley Railroad subscription for stock: “ We, tire subscribers, hereby agree to take the shares set against our names, being at $100, and to pay the amount in such assessments,-as the directors for the time being may order, said subscription to be expended between Oontoocookville and Henniker West village. “Joseph Barnard, Jr. - - Ten shares. “H. E. Perkins - Twenty shares.” This subscription should be preserved in a stock book, or in some shape, as part of the papers of the company, being the foiuidation and evidence of the obligation of the subscribers. Should it be deficient in its terms, so as not to contain an express obligation upon which to bring a suit, such facts should be stated in connection with, and in addition to it, as would show it to be a cause of action. The petition in this case states the general conclusion, that — 642 — the defendant subscribed for five shares of stock, instead of setting out the subscription, with such other facts as would give effect to it as a contract, binding on the defendant in favor of the company. There is, however, no special exception to the petition on that account, and this specification of what should have been alleged is made, as showing the character of the evidence necessary to establish a cause of action against the defendant. The subscription, upon which this suit was brought, was in form as follows: “ Subscription to Galveston Hotel Co. “ C. L. Bolton, 5 shares.....$2,500.” The facts proved in connection with this were, that it was seen before the organization of the company in the hands of one, who is not shown to have had any authority to procure subscriptions, written on a paper which is lost, and is not shown to have ever been in the possession of the company, or of its officers; the said Bolton’s name is not found on the books of the company as a corporator, or subscriber for stock; he did not pay the ten per cent, upon his subscription, when it was made, if made as a subscription; has never paid anything on it, and has never participated in any action of the company, but after the organization of the company acknowledged to the secretary his obligation to pay his percentage, and begged time on it on two occasions, when his attention was called to it by the secretary. The conclusion that these facts, in connection with that paper, would tend to establish, is, that it was carried around in an experimental effort to ascertain who would subscribe, and how much,, rather than that it was a subscription in fact, and that his acknowledgment of his obligation to pay his percentage was prompted by a feeling of honorable, rather than of legal, obligation. (P. & S. R. R. Co. v. Gazzan, 32 Penn., 340.) It contains no express undertaking, and there are no sufficient facts proved to establish, in connection with it, an implied undertaking, and there is nothing to show that it — 643 — was ever a paper in the possession of, or belonging to the company. There having been no percentage paid, is an important fact as evidence, tending to show that, whatever was done, was an incomplete transaction, and not a consummated act of subscription. That effect may certainly be given to it. It is contended that this fact alone is sufficient to relieve the defendant from responsibility as a subscriber, as in that event the company would not be bound to recognize him as a subscriber. The chief argument of counsel is on this point. There would seem to be very weighty reasons why, when a charter requires a subscription to be accompanied with the payment of a percentage of the share of stock, its payment is necessary to make the subscription valid. (Jenkins v. Union Turnpike Co., 1 Caine’s Cases, 86; P. M. & Co. Hibernia Turnpike Road v. Henderson, 8 Serg. & Rawle, 217.) We are referred to decisions that hold differently. (Wright v. Shelby R. R. Co., 16 B. Monr., 4; V. S. & Texas R. v. A. C. MeKeen, 12 La. Ann., 634; Mitchell v. The Rome R. R. Co., 17 Ga., 588.) Upon the question also of whether this action by the company for the amount assessed can be maintained, when the charter itself gives a remedy, as was done in this charter, by a sale of the shares of stock, upon a default of the payment of an assessment, we find a conflict of decision. (1 Redfield on Railways, sec. 594; New Bedford & B. T. Corporation v. J. Q. Adams, 8 Mass., 137.) Without deciding these legal questions, it will suffice to say, that the evidence was not sufficient to establish that the defendant was not a legal subscriber, so as to bind him for the assessments, as, we must presume, was the conclusion of the judge to whom the facts and law were submitted. There remains to be considered the very important question of whether or not the company had a right to make these assessments, for the general purposes of the corporation, ' before the amount of $250,000 had been taken in — 644 — shares, that being the amount of the capital stock fixed by the charter, with a power to increase it to $1,000,000 by a two-thirds vote of stockholders. It is argued by counsel for the plaintiff, that, as the charter allowed the company to be organized when shares to the amount of $50,000 had been taken, the intention was thereby indicated that the company should then enter fully upon the performance of the enterprise for which it had been chartered. That construction of the charter would render nugatory the most important provision of the charter, which is the amount of its capital stock, fixed at $250,000. That was the amount which the Legislature must have suppo'sed would be sufficient to erect a first-class hotel in the city of Galveston. Their fixing it at that amount shows, that they did not believe that $50,000 would be sufficient for that purpose. There were good reasons for organizing the company, to be found in the increased facility of thereby raising the subscription to the amount fixed for the capital stock, and of other preliminary preparations for the execution of the work, when the subscription should reach that amount. It is laid down by a law writer, that “ it is an essential condition to making calls in • those companies where the number of shares and the' amount of capital is fixed, that the whole stock shall be subscribed before any calls can be lawfully made.” (1 Redf. on Railways, sec. 51, p. 175.) This is supported by numerous authorities, and none in opposition to it have been cited by counsel, or found by us. (Salem Milldam Corp. v. Ropes, 6 Pick., 23; Stoneham B. R. R. Co. v. Gould, 2 Gray, 277; Central T. Corp. v. Valentine, 10 Pick., 142; Contoocook V. R. R. v. Barker, 32 N. H., 363; Penobscot R. R. Co. v. Dummer, 40 Me., 172; Littleton M. Co. v. Parker, 14 N. H., 543.) In the above case, cited from 2 Gray, Chief Justice Shaw says: “This is no arbitrary rule. It is founded on a plain dictate of justice and the strict principles regulating the obligation of contracts. When a man subscribes a share to a — 645 — stock, to consist of one thousand shares, in order to carry on some designated enterprise, he binds himself to pay a thousandth part of the cost of such enterprise. If only five hundred are subscribed for, and he can have no assurance which he is bound to accept, that the remainder will be taken, he would be held, if liable to assessment, to pay a five hundredth part of the cost of the enterprise, besides incurring the risk of the entire failure of the enterprise itself, and the loss of the amount advanced towards it.” Thus, when there is no provision to the contrary, the man who takes the first share of stock takes it on condition that all of the shares will be taken, until the amount fixed as the capital stock of the company shall be taken by persons who will be equally bound with himself to hear the expense of the enterprise, share and share alike. In principle, it is the same as if one would say, “I will be one of five hundred persons who will bind themselves to contribute equal amounts, not exceeding five hundred dollars each, in building a first-class hotel in Galveston.” The proposition is not accepted and contract made so as to bind the proposer, if only two hundred and fifty persons join in it. The evidence shows that the stock of $250,000 was never subscribed, and therefore, under the rule here announced, the assessments were unauthorized and illegal. If otherwise, this action could have been maintained. Judgment affirmed. Affirmed.