Avon Springs Sanitarium Co. v. Weed , 104 N.Y.S. 58 ( 1907 )

Williams, J.:

The interlocutory judgment should be affirmed, with costs, with leave to plead over upon payment of the costs of this appeal and of the demurrer.

The action was brought to recover the amount of a subscription for stock in the plaintiff corporation. ■

The ground of the demurrer was that the complaint"did not allege facts sufficient to constitute a cause of action.

The complaint alleged that the plaintiff was a domestic corporation, organized with a capital stock of $40,000, of which $25,000 was seven per cent preferred, of the par value of $50 per share; . that the defendant and certain other persons, on or about October 26, 1905, in contemplation of the in'corporation of the plaintiff, made and subscribed an agreement in writing as follows: “ I hereby subscribe for 10 shares of 7 per cent preferred stock, at $50 per share, par value $50, in a new company to be formed for the purpose of purchasing and carrying on the Avon Springs Sanitarium, to be known as the. Avon Springs Sanitarium Company, or a name to be selected. It is understood and agreed that this stock is fully paid and non-assessable, I to receive seven per cent dividends upon the above number of shares to be paid the 1st day of January of each and every year commencing January 1, 1907. I agree to pay for the above number of shares of stock as soon as the company is incorporated and upon delivery of stock to me;” that on or about December 1,1905., the plaintiff was organized as before alleged for the purpose of conducting a sanitarium and the business con- • nected therewith; that plaintiff, after incorporation, accepted the defendant’s subscription for stock, and relying thereon, purchased the Avon Springs Sanitarium and began to carry on the same and has continued to carry it on; that the defendant was notified that the stock subscribed for by him was ready for .delivery, and delivery of the certificate for such stock was tendered to defendant before the commencement of this action and on October 30,1906; that the defendant has at all times omitted to pay for the stock, and then judgment was demanded for $500, with interest from October 30, 1906.

Upon demurrer to a complaint defendant admits all the facts alleged, and such inferences as can fairly be drawn from them. -The complaint must be held to state all the facts that can be implied from the' allegations by reasonable and fair intendment. (Sage v. Culver, 147 N. Y. 241, 245; Greeff v. Equitable Life Assurance Soc., 160 id. 19, 29.)

When this action was commenced and the complaint .was served, the certificate of incorporation had been made and filed and -the 'plaintiff had been’ incorporated and was in existence. The contents of the certificate • were not alleged, and it was not annexed to or made a part of. the complaint. We do not. know what the contents of the .certificate or the details of the, organization of the incorporation were. If the complaint was indefinite and uncertain for these reasons, the proper remedy was by motion to make it inore ■ definite and certain. We must assume that it was legally and prop erly incorporated-,, and that the Certificate contained the necessary information . required by the statute. The Complaint alleges that ■ the agreement subscribing for stock was made in - contemplation of the incorporation of the plaintiff; that is, they made the agreement understanding that the corporation was to be organized" just as this plaintiff had been organized, and existed "when .the complaint was served. This-allegation and these facts are admitted by the demurrer. A different condition of things may appear when, a trial is had and all the facts are made to 'appear. Upon thé facts as admitted by the demurrer we think a good -cause of action existed. The appellant claims the agreement was not binding Upon the defendant and could not.be enforced under the law applicable to-"such agreements. Morawetz on Corporations (2d ed.). states the law as follows: (§ 47) “ If a- number of persons- mutually agree to become shareholders in a corporation to be formed by them subsequently, either under a special, charter .or tinder some general law, the agreement between the parties is originally made up" of a series, of ordinary common law contracts. • If the parties intend' to become shareholders, without’ further act on their part, immediately after the incorporation of the company, their agreement may very properly be held to include, a continuing offer to become shareholders as soon as the corporation shall be. formed. This offer may be accepted by the corporation, through its regular agents, after organization, unless previously revoked.; by .such acceptance the contract of. membership is consummated, and-.the parties become stockholders in the corporation, with all the resulting rights and liabilities; (§ 49)

.“ A different case is presented where the parties mutually agree -to '. subscribe for shares in a corporation to "be formed thereafter. Here there.- is. no Unconditional agreement, to become shareholders as soon as the corporation shall be formed^ but it is contemplated that the parties shall'themselves perform an. additional act before becoming shareholders; namely,' execute the statutory contract .of membership by subscription upon'the stock-books. It is plain, there- • fore, that in this case there is no offer which the corporation- can accept, and the parties do not become stockholders, and cannot be charged as such, unless they subsequently carry out their agreement by subscribing, for the shares.”

Buffalo & Jamestown R. R. Co. v. Gifford (87 N. Y. 294) is an illustration of the rule under section 47 (supra), and Lake Ontario Shore R. R. Co. v. Curtiss (80 id. 219) is an illustration of -the rule under section 49 (supra).

In the Curtiss case the agreement was to subscribe for stock in the-future," and in the opinion the court say: “It is, therefore, not a subscription to the capital stock of the plaintiff, taking effect presently, but a promise, each subscriber with the other, to do so at some future time. * * * If any action could be maintained upon it by any person, it must be some one of the subscribers or his assignee. The legal effect of the contract is restricted to them. * * When two persons for a consideration sufficient, as between themselves covenant to do some act which if done would incidentally result in the benefit of a mere stranger, that stranger has not a right to enforce the covenant, although one of the contracting parties might enforce it as against the other. As to the plaintiff the contract is-purely.voluntary, and without consideration.”

In the Gifford case the agreement was a present subscription for the stock, and it was held valid and enforcible by the corporation. The court said : “ While the subscription was not valid'and binding before the complete formation of the corporation, because there was no party with whom the-defendant could then contract, yet after the corporation was formed, it accepted the subscription and recognized the defendant as a stockholder, and he recognized himself as " a stockholder and ratified, and confirmed- his subscription by payments thereon. He thus, within all the authorities, upon general principles, became a stockholder in .the company, .liable to' pay the full amount of his subscription. * * In that (the Curtiss) case, the contract sued upon was not one of subscription to plaintiff’s stock. It was simply a promise that the defendants .would subscribe,” etc.

The principle that a subscription for stock, before the corporation is forme'd, may be enforced by the corporation - after it comes into existence is recognized in many cases in this State and seems never to have been questioned. (Lowville & B. R. R. Co. v. Elliot, 101 N. Y. Supp. 328.) (See Schenectady & Saratoga Plank Road Co. v. Thatcher, 11 N. Y. 102; Buffalo & Pittsburgh R. R. Co. v. Hatch, 20 id. 161; Buffalo & N. Y. City R. R. Co. v. Dudley, 14 id. 336; Stanton v. Wilson, 2 Hill, 153; Non-Electric Fibre Mfg. Co. v. Peabody, 21 App. Div. 247; Yonker's Gazette Co. v. Taylor, 30 id. 334.)

In the last case cited the distinction between the two classes of agreements, referred to by Morawetz above, is clearly pointed out, and one being a present subscription for stock was upheld. In Woods Motor Vehicle Co. v. Brady (181 N. Y. 145), which seems to be mainly relied upon by the appellant, the general doctrine is not questioned, but the decision is based upon other considerations which are entirely consistent with adherence to the principle of law referred to, established by repeated decisions prior thereto in the Supreme Court and in the Court of Appeals, and which we do not think the Court of Apjieals intended to overrule. The principal consideration in the Motor Vehicle Co. case was that the corporation actually formed was not the one contemplated when the stock was subscribed for, but entirely different in name and in the purpose for which it was organized .arid was to.be carried on. ' Many‘things are said in the prevailing opinion, but this is the only consideration referred to in the head note, and the decision being by. a bare majority, the grounds should not be extended beyond the fair intention of the court. Assuming t-hén that this agreement in question was enforcible by this corporation when it came into being, although made before the organization thereof, unless there are some special reasons why the general rule is not applicable, let us examine the claim made by the appellant here.

1. It was said there was no agreement between the parties to form a corporation.

2. The .corporation was. not formed by the parties 'or their common representative. .

3. The agreement was indefinite and uncertain because it did riot state whether the corporation to be formed was foreign or domestic, and did not state the amount .of capital stock, nor the proportion which was common or preferred.

It must be remembered here that we. are dealing with the allegations of the complaint which are admitted on demurrer to ascertain the facts. In the Motor Vehicle Go. case referred to there had been á trial "and all the facts ascertained by proof given thereon. In that case it appeared beyond question that there was no agreement to form the corporation that was seeking tó enforce the agreement, The papers themselves showed this, as we have already pointed out. In this case the allegation is that the parties made the agree- • ment in. contemplation of forming the very corporation, in name, and for the purpose that "it ivas eventually formed. "In that case there was no understanding, in or out of the agreement, as to what the defendant should pay for ■ the stock subscribed for, or its par value. Here the agreement itself shows what the defendant was to-pay and the par value of the stock. The agreement here did not itself show whether tlie corporation was to be domestic or foreign, but the allegation of the complaint was in effect that the parties contemplated and understood the corporation was to be what it was organized, a domestic one. The agreement did not itself state the amount of capital stock, nor the proportion.that was to be preferred and common. We must, however, assume and infer that the certificate of incorporation did state these things, and the allegation • is that the corporation formed was just .the one the parties had in contemplation when the subscription for stock was made. It was" not essential that the corporation should be organized by the parties to this agreement or their representatives, and even if it was, it does not appear that they were not engaged in forming the corporation and joined in making the certificate which was filed. In short, while in the Motor Vehicle Go. case the facts were all proven, here "they do not appear by any evidence but are admitted by the demurrer, and as so admitted they do not tend to invalidate the agreement. As we have suggested, when a trial is had and the facts are proven instead of admitted, a different condition, of things may appear and questions may then arise which are not before ns now.

Oiu" conclusion is that the judgment appealed from should be affirmed. ,

All concurred, except McLennan, P. L, who dissented in an opinion.