Spellier Electric Time Co. v. Leedom

Opinion by Mb. Justice Gbebn, We are of the opinion that upon the facts set forth in the affidavit of defence in this case, a sufficient prima facie defence was alleged to carry the cause to a jury. The articles of association provided that the actual capital stock of the plaintiff company was to be $200,000 in 20,000 shares of $10 each. That of these, 3500 were to be paid, together with $18,000 in money, to the promoters for their patents and personal property, and that 16,500 shares were to be paid for in cash, and that business was to be commenced with $10,512.50, being 25 per cent, of the par value of 4205 shares of the 16,500 of the cash subscriptions. The affidavit alleges that in point of fact only about $50,000 of the cash subscriptions were made, whereas the articles of association required that $165,000 of cash subscriptions should be made in order to create the capital which was fixed at $200,000. Independently of any verbal misrepresentations as to the amount of capital subscribed when the defendant made his subscription, this very great discrepancy between the amount required by the articles and the actual [188] subscriptions, raises a question as to the validity of the charter which ought not to be adjudged conclusively upon an affidavit of defence. What explanations there may be of so serious a discrepancy, and whether the charter may still be regarded as in compliance with the law, are matters which cannot even be considered now, and when they are heard the duty of explanation will rest with the plaintiff. A subscriber to stock in a proposed incorporation has, at least, the right to expect that the capital named in the articles shall be raised, because the articles explicitly so state, and they are necessarily to be considered in deciding what are the terms of the subscriber’s contract. In this case, however, even the 6500 shares which, by the terms of the subscription paper signed by the defendant, were to be raised, were never subscribed, and it is difficult to understand how we are to hold the defendant absolutely liable for the whole amount of his subscription, when this important express term of the very contract in suit has not been carried out. We have not the laws of New Jersey before us, and we do not know to what extent the validity of the plaintiff’s charter may be affected by the discrepancies referred to, but we would be proceeding rashly if we were now to determine absolutely, without argument of the question, and without knowledge of the laws of the state within which the plaintiff’s charter was obtained, that the defendant is legally bound to pay his full subscription in the face of such a serious apparent defect in the proceedings to obtain the plaintiff’s charter, and so important a variance from the express terms of the subscription contract upon which the present action is brought. Judgment reversed and procedendo awarded.