Balfour v. Baker City Gas Co.

Opinion by Mr. Chief Justice Bean. The only question here is whether the defendant I. Bloch is liable as a stockholder to the creditors of the corporation. The facts are that prior to August, eighteen hundred and eighty-eight, certain citizens of Baker City, desiring to organize a corporation to furnish the city and its inhabitants with light, circulated a subscription for stock in a corporation thereafter to be formed for that purpose, and Bloch signed the same for twenty shares of the par value of fifty dollars each. After one half of the capital stock of the proposed corporation had been thus subscribed, and on the sixteenth day of August, eighteen hundred and eighty-eight, articles of incorporation were regularly executed and filed. No formal stockbooks were ever opened or stock subscribed other than as above mentioned, but on the twenty-fifth of August, eighteen hundred and eighty-eight, a portion of the signers to the preliminary stock subscription held a meeting by the written consent of the others, and elected a board of directors for the corporation, and completed its organization. Bloch was not present at this meeting, but was one of the consenting parties. Subsequently his name and those of all the other subscribers to the preliminary agreement were entered as stockholders upon the stock journal and ledger of the company by its officers, and on the twenty-first of November, eighteen hundred and — 306 — eighty-eight, a certificate of stock in favor of Bloch was made out and signed by the president and secretary of the corporation. If these were all the facts in the case, defendant’s liability would be clear, for it may now be accepted as established by the overwhelming weight ©f authority that an unconditional subscription to the stock of a proposed corporation takes effect and becomes irrevocable upon the birth of the corporation, unless sooner revoked. “Each subscription, when made,” says Judge Davis, “becomes a conditional contract with every other person who may subscribe; that the amount subscribed shall, upon the formation of the company, be paid in accordance with the terms of the subscription; and when the requisite stock is subscribed, and the company is duly organized, it becomes the offer or basis of credit to the public, or to all who may deal with it, and every subscriber participating in the organization thereby makes his subscription absolute, and is bound to pay it according to the terms of the charter and by-laws of the company, and he can discharge his liability in no other way”: Marshall Foundry Company v. Killian, 99 N. C. 501. (6 S. E. 682, 6 Am. St. Rep. 539). And in Minneapolis Threshing Machine Company v. Davis, 40 Minn. 110, (41 N. W. 1027, 3 L. R. A. 796, 12 Am. St. Rep. 701,) it is held that a subscription by a number of persons to the stock of a corporation thereafter to be formed by them has in law a two-fold character. It is, first, a contract between the subscribers themselves to become stockholders, without further act on their part, immediately on the formation of the corporation and is binding from the date of the subscription; and, second, it is in the nature of a continuing offer to the proposed corporation, which, upon acceptance by it after its formation, becomes, as to each subscriber, a contract between him and the corporation. And the authorities generally seem to be to the same — 307 — effect: 1 Cook on Stocks and Stockholders (3d ed.), §§ 72, 75; 1 Thompson on Corporations, § 1170. And this is the better rule, although the statute may provide for the opening of stockbooks by designated persons after articles are filed: 1 Cook on Stocks and Stockholders, § 57; 1 Thompson on Corporations, § 1166; Peninsular Railway Company v. Duncan, 28 Mich. 130; Buffalo Railroad, Company v. Gifford, 87 N. Y. 294. From an extended examination of the authorities we take the law to be that when the proposed corporation is formed as contemplated in the preliminary subscription, and within a reasonable time thereafter, the subscription, unless revoked in the manner authorized by law, becomes irrevocable; the subscriber becomes a shareholder, and liable as such without any further act on his part; Marysville Electric Light Company v. Johnson, 93 Cal. 538 (29 Pac. 126); Twin Creek Road Company v. Lancaster, 79 Ky. 552; Hudson Real Estate Company v. Tower, 156 Mass. 82 (32 Am. St. Rep. 434, 30 N. E. 465); Minneapolis Threshing Machine Company v. Davis, 40 Minn. 110 (41 N. W. 1026, 3 L. R. A. 796, 12 Am. St. Rep. 701). But it is said for the defendant that the preliminary subscription and his consent to a meeting of the stockholders for the election of directors were each signed by him some months before the articles of incorporation were executed or filed, and that before the formation of the corporation he notified Messrs. Parker and Hyde, the promoters thereof, that he could and would not take any stock in the proposed corporation. It seems to be agreed that Bloch did seek to be relieved from his subscription a short time after it was made, and that the two principal promoters of the enterprise, who afterwards became president and secretary of the corporation, consented thereto, and agreed to divide his stock among the other shareholders, and for that reason no call was ever made upon him by the company for the payment of his — 308 — stock. But the main question is whether his attempted withdrawal was before or after the organization of the corporation. If it was after such organization, it was of no force or effect whatever as to the creditors of the company, because his contract or liability as a stockholder became binding and irrevocable as to. them when the company was formed. Nor could the agents of the corporation, by their consent to his withdrawal, relieve him from such liability: 1 Morawetz on Corporations, § 109. In Hawley v. Upton, 102 U. S. 316, the rule is thus stated by Mr. Chief Justice Waite: “It cannot be doubted that one who has become bound as a subscriber to the capital stock of a corporation must pay his subscription if required to meet the obligations of the corporation. A certificate in his favor of stock is not necessary to make him a subscriber. All that need be done, so far as creditors are concerned, is that the subscriber shall have bound himself to become the contributor to the fund which the capital stock of a corporation represents. If such an obligation exists, the courts can enforce the contribution when required. After having bound himself to contribute, he cannot be discharged from the obligation he has assumed until the contribution has actually been made, or the obligation in some lawful way extinguished.” The original stock subscription was not produced on the trial, having been lost or mislaid, and hence we do not have its date, if it was dated, to aid us in determining the time at which it was signed, but must determine this question, as well as the time of Bloch’s attempted withdrawal, from the indefinite and shadowy recollection of witnesses, and the admitted facts and probabilities of the case. The defendant testifies quite positively that he signed both it and the consent to the stockholders’ meeting in May or June before the organization of the corporation, but the weight of testimony is against him on — 309 — this point, and it seems to us that his recollection is at fault. The great weight of the oral testimony is that the preliminary subscription was signed a few days before the articles were filed, and in contemplation of the immediate organization of the company, and we have no doubt the consent to the stockholders’ meeting was signed by Bloch after the articles were filed and copied in the records of the company. The record of the organization of the company is of itself such persuasive' evidence on this point as to prevail over the mere indistinct recollection of witnesses testifying from memory to transactions occurring five or six years before. The first entry in this record is a copy of the articles of incorporation, immediately following which, and commencing at the top of the succeeding page, is the consent of the stockholders’ meeting, signed by Bloch and others, and which recites that the parties signing are subscribers to the capital stock of the corporation. Following this is a list of stockholders, and the minutes of the meeting of August twenty-fifth. The original consent to the stockholders’ meeting being in the record-book immediately following the copy of the articles of incorporation and preceding the minutes of the meeting, is almost conclusive proof that it was written in the book and signed by the parties after the articles of incorporation were not only executed and filed but copied in the record. And, besides, this written consent is for a stockholders’ meeting to be held on the twenty-fifth of August, eighteen hundred and eighty-eight, and at a particular place. If the preliminary subscription for stock and consent to the stockholders’ meeting had been signed at the time claimed by the defendant, it is highly improbable that one would have been on a loose sheet of paper and the other in a record-book; and it is still more improbable that the consent to the stockholders’ meeting of a corporation there — 310 — after to be formed, signed in May or June, would have fixed the date of such meeting on the twenty-fifth of August following. For this reason, as well as the place at which it appears in the records of the company, we think it must be taken as one of the established facts in this case that defendant gave his written consent as a stockholder to the first meeting of the shareholders of the company for the purpose of organization, after the articles of incorporation were filed, and that therefore he was acting as a shareholder and to that extent participated in the organization of the company. And, besides, without his subscription the company could not have been legally organized, for want of a sufficient subscription to its capital stock. The undisputed facts in the case, as well as the great preponderance of evidence and the general probabilities, clearly indicate to our minds that defendant’s attempted withdrawal must have been after the organization of the corporation, otherwise the company could not have been organized, his signature would not appear to the consent for a stockholders’ meeting, nor is it likely that his name would have been entered on the books of the company as a stockholder by one of the very parties who, he claims, consented to his release, nor would a certificate of stock have been made out in his name three months after the organization signed by all the parties whom he claims consented to his withdrawal. Assuming, therefore, — but without deciding, — that a subscriber to the stock of a proposed corporation may withdraw his subscription before the formation of the corporation, without the consent of all the other subscribers, we are clear that from this record the facts do not justify the application of the rule, and the decree must be affirmed. Affirmed.