and not of the defendant, and that the remedy of the plaintiffs was against the company.

§ 32. Donating shares to the treasury.

The fact that the promoters return to the treasury of the corporation, a portion of the shares previously issued to them, does not necessarily give rise to an implied agreement of the corporation to pay therefor.

In Eldred v. Bell Telephone Co.,36 the plaintiff acquired from the National Bell Telephone Company the right to operate telephone exchanges in Kansas City and St. Louis, his agreement requiring the organization of the defendant corporation under the laws of Missouri and, among other matters, the acquisition by it of certain outstanding contracts between the National Bell Telephone Company and the American District Telegraph Company of St. Louis. The defendant corporation was thereupon organized with a nominal capital of $400,000, all of which was issued as full paid to the plaintiff and his associates in consideration of the transfer to it of the rights acquired, or to be acquired, from the National Bell Telephone Company. A preliminary understanding was arrived at, under which the four associates of the plaintiff were to receive 1770 shares and the plaintiff was to retain the remaining 2230 shares for himself. It was subsequently found that shares were needed in order to take in the American District Telegraph Company, and the plaintiff thereupon, for this purpose, surrendered 250 shares of the stock allotted to him. The plaintiff subsequently brought suit upon a supposed implied agreement of the defendant to pay him the reasonable value of the 250 shares so surrendered. The court, upon a consideration of the evidence, decided that there was nothing to warrant the conclusion that there was any sale of this stock by the plaintiff to the defendant, or any loan or advance of it for its uses, for

36. 119 U. S. 513, 7 Sup. Ct. 296, 30 Law Ed. 496.

which it was expected that any return or payment should be made. It has been held that an agreement between the parties engaged in the formation of a corporation, that a portion of the stock to be issued to them shall be used for the benefit of the corporation, cannot be enforced by the corporation, but only by the parties to the agreement.37

§ 33. Interpretation of agreements relating to promoter's compensation.

Corporations are often promoted in pursuance of an agreement by which a person owning property which he desires to sell to the contemplated company, undertakes to pay the promoter a stipulated compensation for his services. Such agreements are, if properly disclosed to the corporation, unobjectionable, but questions arise as to their interpretation.38

In Locke v. Wilson 39 the defendant Wilson employed the plaintiff to form a corporation to take over certain brewery properties under an agreement to pay the plaintiff for his services, $2,000 in the shares of the company, provided that the plaintiff secured $28,000 in bona fide subscriptions, of which said defendant agreed to take $12,000. The plaintiff maintained that the correspondence and evidence did not constitute the entire contract and that the defendant Wilson had orally agreed to take all the stock that the plaintiff could not place elsewhere. The court held that the written contract conclusively negatived this contention, and that the trial court had erred in submitting the question to the jury.

In Hix v. Edison Electric Light Co.,40 the defendant had em

37. Flanagan v. Lyon, 54 N. Y. Misc. 372, 105 Supp. 1049. See also Brennan v. Vogler, 174 Mass. 272, 54 N. E. 556.

38. See in addition to the cases discussed in this section, Proskey v. Manning, 110 N. Y. Supp. 221. See also 30, 34 and 42.

39. 135 Mich. 593, 98 N. W. 400, 10 Det. Leg. News 900.

40. 10 N. Y. App. Div. 75, 75 N. Y. St. R. 1067, 41 Supp. 680. See same case on later appeal, 27 N. Y. App. Div. 248, 50 Supp. 592, affirmed, 163 N. Y. 573, 57 N. E. 1112.

ployed the plaintiff to promote and organize a corporation for electric lighting in Philadelphia, under a memorandum reciting that of the $1,000,000 of capital stock of the Philadelphia company, the defendant company was to receive 30 per cent in stock and 5 per cent in cash, that the "promoters " were to receive 10 per cent in stock, as a rebate from the defendant company's 35 per cent, and that the plaintiff was to receive 5 per cent, as a rebate from the defendant company's remaining 25 per cent. The contract further provided that in case of any future increases in the capital of the Philadelphia corporation, 35 per cent of the increase was to go to the defendant, and a rebate of 5 per cent therefrom to the "present promoter." The court admitted evidence of surrounding circumstances to aid in determining whether the plaintiff was the " present promoter" intended by the agreement. After the Philadelphia company was organized, the successor of the defendant company made a new agreement whereby it reduced its percentage of future increases from 35 per cent to 10 per cent, in consideration of which the Philadelphia company relinquished certain rights. The plaintiff was a stockholder in the Philadelphia company and voted in favor of this new contract. The court held that neither the fact that the defendant's percentage had been reduced, nor the fact that the plaintiff as a stockholder of the Philadelphia company voted in favor of the agreement reducing such percentage, affected his right to receive his 5 per cent of the increase from the defendant. The court did, however, hold that the plaintiff was not entitled to 5 per cent upon the first issue of increased stock, as that increase represented the value of earnings put into betterments, and was not an increase within the meaning of the contract.

In Varnum v. Thruston,11 the plaintiff had induced one Cowles, the holder of certain contracts for the purchase of coal lands, to enter into an agreement with the defendants which provided for

41. 17 Md. 470.

the conveyance of the lands to the defendants, who were to provide the funds necessary to complete the contract, and to organize a corporation to take title to the lands and mine the coal. The defendants were to sell sufficient shares to reimburse themselves for the cost of the land and the expenses in relation thereto, to pay to Cowles the sum of $15,000, and to raise the sum of $200,000 working capital. The agreement then provided that the defendants "after making the sales and payments aforesaid, shall next transfer one-twentieth part of the whole of the said capital stock to Charles M. Thruston (the plaintiff), and the balance of the said stock then remaining shall belong" one-half to Cowles and the other half to the defendants. The enterprise was not successful. The plaintiff brought suit, claiming that he was in any event entitled to a one-twentieth part of the entire capital stock. The court held that the plaintiff was not entitled to receive any part of the stock until sufficient shares had been sold to reimburse the defendants for the cost of the land, the incidental expenses, and the amount agreed to be paid to Cowles.

§ 34. Interpretation of agreements for division of profits of promotion, or shares of corporation.

Agreements for the division of the shares of the corporation, or of the profits of its promotion, frequently give rise to questions of interpretation.42 The courts, in case of doubt, always attempt to interpret the agreement in such manner that it shall, in view of all the circumstances, effect justice between the parties. In Bates v. Wilson 43 an agreement between three parties that

42. See also cases cited, ante, §§ 30 and 33, and post, § 42.

43. 14 Colo. 140, 159-160, 24 Pac. 99, 105.

The mere fact of being an incorporator does not, independent of a contract, entitle one to a proportionate share of the capital stock

an

of the company based upon equal division of the total capital stock among all the incorporators. Brown v. Florida Southern Railway, 19 Fla. 472.

A promoter who has refused to take his share of the unissued stock, will not be heard to complain

the capital stock of the corporation to be formed should be “divided half and half between the parties" was held, standing alone and unexplained, to be without significance unless construed to mean "equally between the parties."

In Donner v. Donner, the plaintiff bought from the defendant $25,000 worth of the defendant's interest" in three companies. These companies were shortly afterwards sold to the United States Steel Corporation, at a large profit. A dispute having arisen as to the plaintiff's interest in the profits, the court found that the evidence established that the plaintiff acquired one-tenth of the defendant's interest of $250,000 in the stock of these companies, and should consequently have been allowed one-tenth of the profits of the transaction.

In Logan v. Simpson,15 the plaintiff had obtained control of 7202 shares of the stock of the Williamsburg Gaslight Company, and agreed to transfer the same, at a price of $87.50 a share, to a syndicate formed to effect the consolidation of various gas companies in Brooklyn. A syndicate agreement was prepared under which the subscribers agreed to raise a fund of $15,000,000 to be used for the purpose of bringing about such consolidation. This agreement was subscribed by the plaintiff for $650,000. The syndicate committee proceeded with the consolidation, organized a new company under the name of Brooklyn Union Gas Company, and received from such company for the transfer to it of the shares of the various constituent companies, bonds of the Brooklyn Union Gas Company, amounting to $5,816,069.09 and stock of that company of the par value of $8,710,761.47. The sum which the committee had paid for the stock of the constituent

that all of such stock was then taken by his co-promoter. Conklin v. United Construction & Supply Co., 166 N. Y. App. Div. 284, 151 Supp. 624.

44. 211 Pa. 409, 60 Atl. 1036. See also Donner v. Donner, 217 Pa. 37, 66 Atl. 147.

45. 60 N. Y. App. Div. 617, 70 Supp. 86. Appeal dismissed, 169 N. Y. 599, 62 N. E. 1097.