Kramer v. Hamsher

Opinion by Kephart, J., The appellee was a subscriber to one share of stock in the Farmers’ Produce Company. The subscription agreement stated that the capital stock of the company was to be $30,000.00, and consist of three hundred shares of $100.00 each. From the statement it appears that of this capital some $26,000.00 was paid in in cash, leaving a balance unpaid, of which the defendant’s subscription was a part, and that because of insolvency receivers had been appointed to wind up its affairs; all the assets of the company had been reduced to cash and distributed, leaving a balance due creditors of approximately $2,000.00. The statement avers that all of the stock had been subscribed, and the Court of Common Pleas of Dauphin County granted an order directing an assessment to be levied against those stockholders who .had not paid their subscriptions in full. The defendant sets up a parol agreement with the company to the effect that all milk furnished to it by the defendant should be paid for at the rate of twenty cents per gallon, and that the company failed to purchase and to pay twenty cents per gallon therefor. The averment does not state that the company refused to purchase milk offered, or that it purchased milk elsewhere to the detriment* of the defendant. Apart from the insufficiency of ■the averment, it cannot be sustained as a defense to the subscription agreement. As a condition precedent, the supposed agreement lacks the essentials of a valid agreement. It is unlimited as to the time of performance and the quantity of the article to be purchased. It is impos [216] sible of performance. To attempt to comply with it would make it impossible to bring about the status necessary to all conditions precedent that there must be sometime when a condition may be said to be complied with and the subscription be absolute or the condition fail; but in this case, though the corporation might, for a certain time, purchase and pay for milk as here stipulated, that would not satisfy the condition of the subscription; it requires the company at all times to purchase and pay for the milkj] Further, its effect was to establish a secret parol agreement in violation of the rights of creditors as well as cosubscribers who had a right to rely on the subscription contract as written. The condition should be treated in the same light as if made after incorporation or as no condition at all. A contract to take and pay for stock in a corporation, made in consequence of fraudulent representations, is voidable and not void and can only be avoided subject to the rights of creditors where there is a winding up order or voluntary winding up. In such case the intervening rights of creditors and the •stockholders call for prompt action on the part of the subscriber who seeks to avoid his liability on the ground of fraud: Howard, Receiver, v. Turner, 155 Pa. 349. The allegation that there was no outstanding indebtedness incurred on the faith of the appellee’s subscription and that the Receipts were taken in full from creditors does n ot present' the precise question. There were other intervening equities as appears by the order of the court of Dauphin County and the plaintiffs’ statement filed. It there appears that in addition to debts, stock subscriptions were paid on a large amount of stock. The appellants do not allege that there were no intervening equities. This is a substantial element of the case, and when averred the burden of proof is thrown to the plaintiff to establish intervening equities: Van Dyke v. Baker, 214 Pa. 168. These equities are not limited merely to those to whom money is owed as a creditor but reaches out to stockholders who have in good faith paid their subscrip [217] tions, as well as the 'officers of the company who are liquidating its affairs: Van Dyke v. Baker, supra. Furthermore, the order of the court of Dauphin County is conclusive upon the validity and the amount of the assessment, though it does not touch any defenses on individual grounds that might be made to it: Capital City, Etc., Fire Ins. Co. v. Boggs, 172 Pa. 91; French v. Harding, 235 Pa. 79; Philadelphia & Gulf Co. v. Clark, 59 Pa. Superior Ct. 415. And this allegation as to creditors is not an individual defense; it is a finding common to all creditors. The affidavit in all these particulars was insufficient. The affidavit further states that the subscription contract “should not be in force......unless 300 shares of the par value of. 1100.00 each were subscribed by bona fide subscribers; and the defendant avers that the said 300 shares were at no time subscribed by bona fide subscribers.......whereupon the said defendant declined to make any payments on account of the said subscription.” If the subscription was dependent upon an oral agreement, its effect must be to contradict or vary the terms of a writing which is clear and definite in its terms. Parol or secret agreements, varying the terms of a written subscription, absolute on its face, in the absence of fraud, are void and the subscription is valid and binding. To make a subscription conditional the condition must not only be in writing but must be a part of the subscription itself: 1 Thompson 633. It is not necessary for us to discuss the question as to there being an implied condition, that the capital stock must be fully subscribed, which condition is attached to all stock subscriptions arising from the very nature of the subject-matter under consideration, and uncomplied with relieves the stockholder from liability. Assuming that such condition exists with respect to corporations organized under the laws of this State, to the full amount of the capital stock (bnt we do not so decide), where a subscriber to the capital stock of a proposed corpora [218] tion, after the articles of association are duly filed, evidencing incorporation, permits, without protest, the corporation to become organized into a going concern, to engage for a long time in the corporate business, wherein the rights of creditors have intervened,, and makes no protest to the company of any failure to comply with the condition upon which his subscription was based, such subscriber waives whatever right he has to insist on the condition being complied with and is liable on his subscription as though such condition had not existed. He is required to be diligent and ascertain his rights and not sit quietly by and see other persons expend their money without giving notice of his intention to act. This subscriber, by his acts, is brought within this rule. But there'is a positive averment that the stock was all subscribed. A list of some thirty names is set forth in the plaintiffs’ statement showing unpaid subscriptions; notes apparently good are taken for a portion of the subscription. In no specific instance does the appellee point out where the corporation failed to comply with the condition contended for by him. When the appellants presented to him the facts, as full as are here presented, it was incujnbent on the appellee to indicate what subscriptions were fraudulent. In this respect we feel that the affidavit is not full and complete. The appellee states in his affidavit that he repudiated the subscription contract when he became aw'are of the failure of the company to comply with its oral agreement, as well as the other “breaches of the contract hereinafter set forth.” But there is no allegation to whom this repudiation was made or that it was assented to by the company. And as it was made long after the incorporation of the company, when the rights of creditors had intervened, and when the acts of the defendant .were tantamount to a waiver of his rights, the averment of withdrawal of subscription was entirely insufficient and had it been all that an affidavit should contain for the reasons here set forth, it would not have availed the [219] defendant. The appellee, before the articles of association were filed in the secretary of the Commonwealth’s office, might have withdrawn from the subscription agreement. After incorporation, the corporation further would not have the right to accept this cancellation to the prejudice of other stockholders or creditors: Altoona Milk Co. v. Armstrong, 38 Pa. Superior Ct. 350. We are of the opinion that the rule for judgment should have been made absolute. The assignments of error are sustained, and it is now ordered that judgment be entered for the plaintiffs by the court below unless other legal and equitable grounds be shown to the contrary.