Nowlin v. Memphis Packing Corp.

Hart, J., (after stating the facts). It is true, as contended by counsel for the plaintiff, that parties may make a valid preliminary stock subscription contract which will be enforced according to its terms, just as other contracts are enforced. Snodgrass v. Zander & Co., 106 Ark. 462, and cases cited. It is also true that, like other contracts, an agreement to take shares in the capital stock of a corporation may depend upon a condition precedent or subsequent, just as the parties may agree upon, and that they are bound to perform their contract according to their intention, as it may appear from the language of the contract. Arkadelphia Cotton Mills v. Trimble, 54 Ark. 316; Turner v. Baker, 30 Ark. 186, and Rogers v. Galloway Female College, 64 Ark. 627. In the case first cited, the articles of association subscribed by Trimble contained the following provision: “The amount of capital stock of the said corporation shall be fifty thousand dollars, of which fourteen thousand five hundred have been subscribed by the corpora-tors aforesaid, and the residue may be issued and disposed of as the board of directors may from time to time order and direct.” The court held that it did not appear, from the language quoted, that the corporation should not begin business until all the capital stock was subscribed, or that the subscriber should not be required to pay anything until that time. The corporation was engaged in business when Trimble subscribed for the stock, and the court held that he was liable. In Rogers v. Galloway Female College, supra, following Turner v. Baker, supra, it was held that, where a committee, authorized to locate a college, proposed to locate it when the sum of $25,000 was subscribed, neither the committee nor the subscribers were bound, under the terms of such offer, if less than the sum specified was subscribed. We think that, under the terms of the contract in the present case, the securing of subscriptions of at least 2,500 shares of preferred stock and 1,250 shares of common stock was a condition precedent to a right of recovery on the part of the corporation. The note sued on recites that it is non-negotiable, and that it is subject to the provisions of the subscription agreement. Section 2 of the subscription agreement is copied in full in our statement of facts. By reference to it it will be seen that the cash payment made by the subscriber was to be used for organization expenses, and that the balance of his subscription is represented by the nonnegotiable note sued on. The agreement recites that it shall become due and payable in accordance with its provisions after the subscription for at least 2,500 shares of preferred stock and 1,250 shares of common stock shall have been secured by the corporation. It further recites that the necessity of securing any additional subscriptions above said amounts is waived. Until its contract with the subscriber was performed and it was made to appear that the subscriptions had been secured as provided in the contract, the corporation had no right whatever to recover from the subscriber. It appears that the subscriber had made his cash payment for organization expenses, as he agreed to do. It was then incumbent upon the corporation to perform its part of the contract by securing the subscriptions in the amount agreed upon, and without this it could not recover in this case. We think that it is plain, from a consideration of the note sued on, in connection with the stock subscription agreement, it was the intention of the parties to make the subscription for shares, as expressed' in the agreement, a condition precedent to the right of the corporation to recover upon the note sued on. The note sued on expressly states that it is subject to the provisions of the subscription agreement, and it recites that it shall become due and payable after the subscriptions for a designated number of shares of preferred stock and of common stock shall have been secured. The fact that the securing of these shares of stock is a condition precedent to the right of the corporation to recover on the stock subscription note is thus shown by the plain language of the contract, and this, as we have already seen, must govern. This construction of the contract is borne out by the words which follow, stating that the necessity of securing additional subscriptions over and above such amounts is waived. There is nothing in the record showing that the corporation complied with the condition to secure the subscriptions in the amounts agreed upon, and it follows that the court erred in finding for the plaintiff and rendering judgment in its favor against-the defendant upon the subscription note. For this error the judgment must be reversed, and the cause will be remanded for a new trial.