After the promoters' contract has been adopted by the corporation, or, more properly speaking, after the corporation has 50 Am. St. Rep. 34; Kohler v. Agassiz, 99 Cal. 9, 15, 33 Pac. 741; San Joaquin Land & Water Co. v. Beecher, 101 Cal. 70, 35 Pac. 349; Horseshoe Pier, etc., Co. v. Sibley, 157 Cal. 442, 447, 108 Pac. 308. District of Columbia.-Glenn v. Bussy, 16 Dist. of Col. (5 Mackey) 233. Illinois.-Johnston v. The Ewing Female University, 35 Ill. 518; Cross v. Pinckneyville Mill Co., 17 Ill. 54; Richelieu Hotel Co. v. International Military Enc. Co., 140 Ill. 248, 29 N. E. 1044, 33 Am. St. Rep. 234; Tonica & P. R. R. Co. v. McNeely, 21 Ill. 71; Stone v. Great Western Oil Co., 41 Ill. 85. Iowa.-Nulton V. Clayton, 54 Iowa 425, 6 N. W. 685, 37 Am. St. R. 213. Kentucky.-Anderson V. West Kentucky College, 10 Ky. Law Rep. 725. Maine.-Penobscot R. R. Co. v. Dummer, 40 Me. 172, 63 Am. Dec. 654; Kennebec & Portland R. R. Co. v. Palmer, 34 Me. 366. Massachusetts.-Athol Music Hall Co. v. Carey, 116 Mass. 471; People's Ferry Co. v. Balch, 8 Gray 303, 311. Michigan.-Peninsular Ry. Co. v. Duncan, 28 Mich.. 130; Michigan Midland & Can. R. R. Co. v. Bacon, 33 Mich. 466. Minnesota.-Red Wing Hotel Co. v. Friedrich, 26 Minn, 112, 1 N. W. 827. Missouri.-Haskell Mo. App. 91, 101. V. Sells, 14 Nebraska.-Nebraska Chicory Co. v. Lednicky, 79 Neb. 587, 113 N. W. 245. New Hampshire.-Ashuelot Boot & Shoe Co. v. Hoit, 56 N. H. 548. New York.-Lake Ontario Auburn & N. Y. R. R. Co. v. Mason, 16 N. Y. 451; Federal Sanitary Clearing & Refining Co. v. Loeb, 147 App. Div. 737, 132 Supp. 65; NonElectric Fibre Mfg. Co. v. Peabody, 21 App. Div. 247, 47 Supp. 677; Woods Motor Vehicle Co. v. Brady, 181 N. Y. 145, 73 N. E. 674, (reargument denied, 181 N. Y. 554, 74 N. E. 1128), reversing, 90 App. Div. 610, 85 Supp. 1151, which affirmed, 39 Misc. 79, 78 Supp. 203. Pennsylvania.-Arnold M. E. Co. v. Chew, 21 Pa. Super. Ct. 407; Jeannette Bottle Works v. Schall, 13 Pa. Super. Ct. 96, and cases cited. Cf. Philadelphia Medical Pub. Co. v. Wolfenden, 248 Pa. 450, 94 Atl. 138, where it was held that defendant's agreement was with the promoter personally, and not a subscription to the shares of the corporation. Tennessee.-Gleaves V. Brick Church Turnpike Co., 1 Sneed 491. Texas.-McCord v. Southwestern Sundries Co. Tex. Civ. App. 158 S. W. 226. agreed that the terms of the promoters' contract shall be binding upon it, no action for the breach of the contract can be maintained by the promoters, as their contract has been superseded by that of the corporation.15 See note to Winston v. Brooks, 4 L. R. A. 507. And see ante, § 52. It has been held that if the subscription agreement contemplated payment to a contractor, and not to the corporation, the latter cannot sue thereon. Dotson v. Savannah Pure Food Canning Co., 140 Ga. 161, 78 S. E. 801. Some authorities hold that a mere agreement between the parties that they will subscribe for shares of a corporation when the same is formed, is not enforceable by the corporation; that the agreement is enforceable by the corporation only if some party thereto therein agrees to form the corporation. California.-California Sugar Manufacturing Co. v. Schafer, 57 Cal. 396. Kentucky.-Twin Creek, etc., Turnpike Road Co. v. Lancaster, 79 Ky. 552. New York.-Avon Springs Sanitarium Co. v. Weed, 189 N. Y. 557, 82 N. E. 1123, (reargument denied, 190 N. Y. 521, 83 N. E. 1122), reversing, 119 App. Div. 560, 104 Supp. 58; Yonkers Gazette Co. v. Taylor, 30 App. Div. 334, 51 Supp. 969, 5 Ann. Cas. 384; Lake Ontario Shore R. R. Co. v. Curtiss, 80 N. Y. 219. Ohio.-Dayton W. V. & X. T. Co. v. Coy, 13 Ohio St. 84. Pennsylvania.-Strasburg R. R. Co. v. Echternacht, 21 Pa. 220, 60 Am. Dec. 49. A mere agreement to subscribe for shares is, however, enforceable by the corporation, against a signer who subsequently accepted his shares. Avon Springs Sanitarium Co. v. Kellogg, 125 N. Y. App. Div. 51, 109 Supp. 153, affirmed, sub nom. Smith v. Kellogg, 194 N. Y. 567, 88 N. E. 1132. It has been held that if the defendant has not formally subscribed for shares, but merely agreed to subscribe for shares, the corporation cannot sue him for the subscription price, its remedy being an action for damages. Thrasher V. Pike County R. R. Co., 25 Ill. 393; Mt. Sterling Coalroad Co. v. Little, 14 Bush (Ky.) 429. 15. Wiley V. Borough of Towanda, 26 Fed. Rep. 594; Smith v. Parker, 148 Ind. 127, 45 N. E. 770; Norcross, etc., Co. v. Summerour, 114 Ga. 156, 39 S. E. 870. But see McCausland v. Hill, 23 Ont. App. Rep. 738, also Watson v. Gugino, 140 N. Y. App. Div. 33, 124 Supp. 321, questioned (but reversed on other grounds), 204 N. Y. 535, 98 N. E. 18, 39 L. R. A. N. S. 1090, Am. & Eng. Ann. Cas. 1913. D. 215. After the promoters' rights under a contract have passed to the corporation, it is improper to join them with the corporation as plaintiffs in an action thereon. Lott As the promoters have no power to contract for the corporation, a suit arising out of the breach of a contract made by the promoters cannot be maintained by the corporation unless there is shown, some act on the part of the fully organized company from which its agreement to be bound by the terms of the promoters' contract can at least be implied. The mere commencement of the action is insufficient. Some prior act of assumption must be shown.16 In order that the corporation may maintain a suit for the breach of the terms of a contract made for it by its promoters, it must appear that the corporation, before the other party gave notice of his withdrawal, acted upon the promoters' contract and agreed to be bound by its terms. The corporation cannot, according to the weight of authority, "ratify" or "adopt " a contract made for it by its promoters, and it acquires no rights thereunder unless it can show a new contract, express or implied, the terms of which may be sought in the agreement made by the promoters.17 An agreement made with the promoters of a projected corporation is ordinarily nothing more than an agreement to enter upon a contract with the corporation when organized. If the other party refuses to contract with the corporation he may become liable to the promoters because of the breach of his contract man, etc., Co. v. Houston Water Works Co. (Tex.), 38 S. W. 357. It is unnecessary to join the promoters as defendants, Federal Sanitary & Refining Co. v. Loeb, 3 New York Current Decisions 78. 16. Penn Match Co. v. Hapgood, 141 Mass. 145, 149, 7 N. E. 22; Essex Turnpike Corp. v. Collins, 8 Mass. 292; Montgomery v. Whitbeck, 12 N. D. 385, 96 N. W. 327; Matter of Rochester H. & L. R. R. Co., 50 Hun (N. Y.) 29, 18 St. R. 654, 2 Supp. 457; Raegener V. Brockway, 58 N. Y. App. Div. 166, 170, 68 Supp. 712, affirmed, 171 N. Y. 629, 63 N. E. 1121, (citing Thompson on Corporations, § 482); Tinnevelly Sugar Ref. Co., Ltd., v. Mirrlees, etc., Co., Ltd., Sessions Cases, 21 Rettie 1009. Cf. Chas. F. Hollwedel Co. v. Auerbach & Co., 67 N. Y. Misc. 148, 121 Supp. 597. And see the Tennessee Code of 1896, § 2036. 17. See ante, § 50. with them,18 but the only complaint of the corporation is that the other party refused to enter upon a contract with it, and no cause of action accrues to it therefrom.19 If the promoters insert in the contract made by them for the projected corporation, a provision that they shall in no event be personally liable thereunder, their contract is, in the absence of an independent consideration, void for lack of mutuality and not enforceable by either the corporation or the promoters. It is held in Kline Bros. & Co. v. Royal Insurance Co.20 that an insurance policy taken out by the promoters in the name of the company, inures to the benefit of the fully organized corporation upon acceptance by it, provided that such acceptance takes place before a loss occurs. It has been held that a check given to the promoters as a deposit upon a subscription to the shares of a company to be formed, may after its organization be sued upon by the corporation.21 It was held in Newberry Land Co. v. Newberry 22 that the sale by the promoters to the corporation, of lands contracted for by the former in their individual capacity, did not enable the corporation on failure of title to recover from the vendor the sums paid on the contract by the promoters, as the contract had not been assigned to the corporation; that the right of recovery remained in the promoters, and that the corporation must look to them for relief. In Jenkins v. Bradley,23 the promoters were tenants in common of certain property to be sold to the corporation. There was a question as to the validity of the title to one of the undivided interests. The other promoters agreed with the apparent owner of 18. See post, § 79. 19. Natal Land Co. v Pauline Colliery Synd. 1904, App. Cas. 120. 20. 192 Fed. Rep. 378. Reversed on another ground, (sub nom. Royal Ins. Co. v. Kline Bros. & Co.), 198 Fed. Rep. 468, 117 C. C. A. 228. 21. Syracuse, etc., R. R. Co. v. 22. 95 Va. 111, 27 S. E. 897. the doubtful title that they would indemnify both him and the corporation against any failure of title. The court held that this agreement did not inure to the benefit of the corporation. In Hillside Cemetery Association v. Holmes,24 a corporation was allowed to maintain an action for the cancellation of certain of its shares, because of the failure of the consideration for their issue agreed upon by the promoters. § 74. Right of corporation to conveyance of property purchased for it by promoter. Whether a corporation can compel its promoters to convey to it property which they purchased for it before its organization, is a question upon which the cases are not in accord. Some authorities hold that while the corporation is not bound by the promoters' contracts, it can after it has been fully organized, incur the obligations and assume the benefits thereof and compel the promoters to convey to it the property purchased for it before its organization,25 particularly if it acts before any withdrawal or disavowal on the part of the promoters.26 Other authorities hold that a mere intention on the part of the promoters that their purchase is made for a corporation to be formed, does not subject the property to any trust and that the promoters are 24. 97 Minn. 261, 105 N W. 905. 25. Seacoast R. R. Co. v. Wood, 65 N. J. Equity 530, 537-539; 56 Atl. 337; affirmed, sub nom. Atlantic City R. R. Co. v. Wood, 78 N. J. Eq. 298, 81 Atl. 1132; Central Trust Co. of Pittsburg v. Lappe, 216 Pa. 549, 65 Atl. 1111. See also Nester v. Gross, 66 Minn. 371, 69 N. W. 39. In the case last cited the retention of the property by the promoter was under the additional facts a gross fraud upon the corporation. Instalments of stock subscriptions paid to the promoters must, of course, be accounted for to the corporation. San Joaquin L. & W. Co. v. West, 94 Cal. 399, 29 Pac. 785. 26. Central Trust Co. of Pittsburg v. Lappe, 216 Pa. 549, 65 Atl. 1111. If the company at first refuses to take the property from the promoter it cannot afterwards compel a conveyance. Sandy River R. R. v. Stubbs, 77 Me. 594, 2 Atl. 9. |