CHAPTER IV.

SUBSCRIPTIONS TO STOCK.

§ 73. The form of the contract of subscription.

§ 74. Of statutory requirements with respect to the form of the contract. $75. Subscription by signing the articles of association.

§ 81.

Whether railway companies may subscribe to stock in other rail

ways.

Of the manner of taking subscriptions-The New York method.
Of the manner of taking subscriptions-The English method.
Of the manner of taking subscriptions-By commissioners.

§ 85.

When acceptance by the corporation is requisite to bind the subscriber.

§ 86. Of the acceptance and ratification of subscriptions made prior to

§ 88.

The consideration for the contract-Consideration distinguished from motive.

§ 89.

Of payment in property, and of the effect of an extension of credit.

§ 90.

Of cash deposits at the Lime of making the subscription.

§ 91. The subscriber's right to demand a certificate of stock.

§ 92. Of subscriptions in excess of the capital stock.

§ 93. Of agreements to issue shares at less than their face value.

§ 73. The form of the contract of subscription. As a general rule the contract of subscription for the stock of a corporation need not be expressed in formal language, for the courts look to the intention of the contracting parties rather than to the manner in which that intention is manifested.1 Irreg

u'arities or defects in the contract of subscription will not render it void, where the paper taken as a whole sufficiently indicates the intention of the contracting parties. Thus an incorrect designation of the termini of a railroad, the railroad being otherwise sufficiently described, will not vitiate the subscription." The intention to subscribe is a question of fact for the jury. Accepting a certificate of stock waives all informalities in the contract of subscription. Non-essential irregularities in the subscription may be cured by legislative enactment.5

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1 Dutchess etc. Co. v. Mobbett, 58 N. Y. 397; Fry v. Lexington etc. R. Co. 2 Met. (Ky.) 314; Mexican Gulf etc. R. R. Co. v. Viavant, 6 Rob. (La.) 505; Wellesburg etc. R. R. Co. v. Young, 12 Md. 476; Oler v. Baltimore etc. R. R. Co. 41 Md. 583; Boston etc. R. R. Co. v. Wellington, 113 Mass. 79; Oakes v. Turquand, Law R. 2 H. L. 325.

2 Cayuga etc. R. R. Co. v. Kyle, 64 N. Y. 185; Burlington etc. R. R. Co. v. Palmer, 42 Iowa, 222; Boston etc. R. R. Co. v. Wellington, 113 Mass. 79.

3 Philadelphia etc. R. R. Co. v. Cowell, 22 Pa. St. 329; 70 Am. Dec. 128; Galveston etc. Co. v. Bolton, 46 Tex. 633.

4 Hamilton etc. Co. v. Rice, 7 Barb. 157; Lone v. Brainerd, 30 Conn. 565. 5 Rice v. Rock Island etc. R. R. Co. 21 Ill. 93. See, however, Richmond etc. Co. v Clarke, 61 Me. 351.

§ 74. Of the statutory requirements with respect to the form of the contract.-When there are statutory requirements with respect to forming the contract of subscription, they should be complied with; but an immaterial departure from the statutory form does not vitiate the contract,1 provided that there be a substantial bona-fide compliance.2 For example a subscription on a separate sheet of paper will be valid, although the statute provides for subscription books. Likewise a subscription in a small pocket memorandum, without proof of its having been transferred to the books of the com

pany or having been accepted by the corporation has been held to bind the subscriber.* And it has been held that although the statute provide for subscriptions to be made through commissioners those made in another way are not necessarily void. But it would seem that where a subscrip tion has not been made in the regular way, it is necessary in order to bind the subscriber thereby that it be accepted and acted upon by the corpora tion; notice of acceptance, however, is not requisite in such a case,' unless required by statute.

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1 Peninsular etc. R. R. Co. v. Duncan, 23 Mich. 130; Birmingham etc R'y Co. v. Locke, 1 Q. B. 256; London etc. R'y Co. v. Fairclough, 2 Man & G. 674.

2 Buffalo etc. R. R. Co. v. Gifford, 87 N. Y. 294; Harris v. McGregor 29 Cal. 14; People v. Stockton etc. R. R. Co. 45 Cal. 36; 13 Am. Rep 178; Brownlee v.Ohio etc. R. R. Co. 18 Ind. 68; Ashtabula etc. K. R. Co v. Smith, 15 Ohio St. 328.

3 Hamilton etc. Co. v. Rice, 7 Barb. 157; Mexican Gulf etc. R. R. Co. v Viavant, 6 Rob. (La.) 305; Stuart v. Valley R. R. Co. 32 Gratt. 146. Ir Woodruff v. McDonald, 33 Ark. 97, the loose sheets were afterwards bounc tog ther in a volume and made a part of the records of the company Brownlee v. Ohio etc. R. R. Co. 18 Ind. 68; Ashtabula ctc. R. R. Co. v Smith, 15 Ohio St. 328; Iowa etc. R. R. Co. v. Perkins, 28 Iowa, 281. Cf Hawley v. Upton, 102 U. S. 314; Bucher v. Dillsburg etc R. R. Co. 73 Pa St. 306.

4 Buffalo etc. R. R. Co. v. Gifford, 87 N. Y. 294; Brownlee v. Ohio etc R. R. Co. 18 Ind. 68. But see McClelland v. Whiteley, 11 Biss. 444.

5 Buffalo etc. R.

R. Co. v. Gifford, 87 N. Y. 294; Stuart v. Valley R R Co. 32 Gratt. 146. Contra, Troy etc. R. R. Co. v. Tibbits, 13 Barb. 297; Schurtz v. Schoolcraft etc. R. R. Co. 9 Mich. 269. And see Parker v. Northern etc. R. R. Co. 33 Mich. 23.

6 Ashtabula etc. R. R. Co. v. Smith, 15 Ohio St. 328.

7 Brownlee v. Ohio etc. R. R. Co. 18 Ind. 68.

8 Eppes v. Mississippi etc. R. R. Co. 35 Ala. 33.

§ 75. Subscription by signing the articles of association.-A valid subscription, binding both upon the person making it and upon the corporation, may be effected by signing the certificate required by law to be filed in order to obtain the charter, and by writing opposite the signature the number

of shares intended to be taken.' If the articles of association used for obtaining subscriptions be written in duplicate, as is often the case, and one of these duplicates be filed according to the general incorporation law with the Secretary of State, the question arises whether the subscribers to the other duplicates, not so filed, have become members of the corporation and liable upon their subscriptions. In New York the question has been decided in the negative; but Mr. Cook, in the discussion of this point doubts the soundness of this decision. A person cannot be held bound by a subscription to an incomplete copy of the articles of association;* nor when the names of the directors were left blank and afterwards filled without his concurrence.5

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N. Y. Law of 1850, ch. 140, § 1; Phoenix etc. Co. v. Badger, C7 N. Y. 291; S. C. 6 Hun, 295; Nulton v. Clayton, 51 Iowa, 425; 37 Am. Rep. 213. 2 Erie etc. R. R. Co. v. Owen, 32 Barb. 616.

3 Cook on Stock & Stockh. § 53.

4 Dutchess etc. R. R. Co. v. Mabbett, 58 N. Y. 397; Bucher v. Dillsburg etc. R. R. Co. 76 Pa. St. 306.

5 Dutchess etc. R. R. Co. v. Mabbett, 58 N. Y. 337.

§ 76. Of subscriptions in escrow.-A subscription to stock may be made and delivered in escrow. It is held that a delivery of such a subscription to an agent of the company who is taking subscriptions,1 or to a director,' does not destroy its character as an escrow; but that a delivery to a commissioner will render the contract absolute. A subscription delivered in escrow is, strictly speaking, no subscription until the occurrence of the contingency upon which it was to be a second time delivered; and it can only be delivered to the corporation upon the happening of that event. Parol evidence is

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admissible to show that a subscription delivered in escrow was not absolute. And it may be shown by parol that an agreement with a corporate agent was that the signing of one's name upon a blank sheet of paper should not be a subscription to stock, until the person so signing should see and approve the agreement subsequently to be written above."

1 Cass v. Pittsburgh etc. R. R. Co. 80 Pa. St. 31.

2 Ottawa etc. R. R. v. Hall, 1 Bradw. 612.

3 Wright v. Shelby R. R. Co. 16 Mon. B. 4. Cf. Price v. Pittsburgh etc. R. R. Co. 34 Ill. 36.

4 Ottawa etc. R. R. Co. v. Hall, 1 Bradw. 612; Ashtabula etc. R. R. Co. v. Smith, 15 Ohio St. 323.

5 Ottawa etc. R. R. Co. v. Hall, 1 Bradw 612. Cf. Jewell v. Rock River etc. R. R. Co. 101 Ill. 57; Tonica etc. R. R. Co. v. Stein, 21 Ill. 96 6 Bucher v. Dillsburg etc. R. R. Co. 76 Pa. St. 306.

§ 77. Of subscriptions to stock by parol.-It has been said that a subscription to the capital stock of a corporation cannot be made by parol.1 Thus one cannot be held liable upon an oratorical declaration at a public meeting of a corporation, to the effect that he would spend half of his estate if need be to insure the success of the scheme.2 And it is certain that where a particular form of contract of subscription is prescribed by statute, or by the act of incorporation, a parol contract of subscription is not binding.3 The contract must be in writing, and substantially comply with the statutory provisions. Where a person made a conditional parol subscription, and wrote his name upon a blank sheet of paper, and the secretary of the company afterwards, without his knowledge, subscribed the name to an unconditional contract of subscription, it did not render the subscriber liable upon the latter contract.5