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In Burdette v. Universal Cleanser & Mfg. Co.,49 the plaintiff agreed to sell his one-tenth interest in a certain business known as the Universal Manufacturing Company under an agreement that a corporation should be organized to take over such business, and that the plaintiff should have a full one-tenth interest represented by this sale in said corporation.” The court held that the plaintiff was entitled to receive one-tenth of the issued stock but could not insist on a full one-tenth of the authorized capital, a large part of which had, pursuant to the agreement of the organizers, been returned to the treasury for the use of the corporation.
In Hennessy v. Griggs,50 the parties entered into an agreement to form a copartnership under the name of Dakota Gas & Fuel Company, it being agreed that the copartnership should, as soon as possible, proceed to organize a corporation under the same name to take over the partnership property. The agreement provided that “the capital of said copartnership shall consist of $50,000,-Alexander Griggs to furnish $5,000; Thomas Hennessy, $10,000; and J. S. Eshelman, $10,000; the remaining $25,000 to be held by Griggs, to be by him negotiated and raised to and from certain persons in St. Paul, Minn.” The plaintiff claimed that the capital to be furnished by Griggs, Hennessy and Eshelman was nominal only, that they were to pay in no money, but that their services as copartners were to be accepted as such capital, and that the works were to be constructed with the $25,000 to be raised from outside parties. The court held that such was not the contract, that the capital to be furnished by these parties was to be actual capital and that no compensation was to be paid for services.
It was held in A. J. Cranor Co. v. Miller 51 that an agreement providing that one-fourth of the capital stock of the proposed corporation should be issued to the owner of a certain mill property in payment therefor, and the other three-fourths to the pro
49. 44 Utah 275, 140 Pac. 119. 51. 147 Ala. 268, 41 So. 678 50. 1 N. D. 52, 44 N. W. 1010.
moter, intended, not that three-fourths of the capital stock should be issued to the promoter without consideration, but that such stock should be paid for by him.
§ 35. Interpretation of agreements restricting sale of shares.
In Burden v. Burden,52 the parties agreed to organize a corporation with a total capital of 2,000 shares, of which the defendant was to have 1,000, the plaintiff 998 shares, and one Arts 2 shares. The defendant agreed with the plaintiff that if he, the defendant, should at any time sell 998 of his 1,000 shares, then he would, without consideration, transfer the other two shares to the plaintiff. It was further agreed that Arts should not receive any dividends on his shares, but should receive a salary in lieu thereof, and that all the profits were to be divided equally between the plaintiff and the defendant. Thereafter the defendant caused the corporation to increase the number of its directors from three to five, and transferred to the new directors their qualifying shares. The plaintiff brought suit, claiming that the defendant was by the agreement prohibited from making any disposition of his shares, except a single sale of 998 shares, accompanied by a transfer to the plaintiff of the remaining two shares. The court held that the agreement did not intend that the defendant must sell 998 shares at one time, but merely that when the defendant had by one sale, or by a number of sales, disposed in the aggregate of 998 shares, he must then transfer his remaining two shares to the plaintiff.
52. 159 N. Y. 287, 54 N. E. 17.
OF THE ENFORCEMENT OF AGREEMENTS FOR THE PROMOTION OF
Section 36. Introductory.
37. Specific performance of agreements to promote corporation.
§ 36. Introductory.
When it has been found that a valid agreement for the promotion of a corporation has been broken, the next question to be considered is that of the remedy. of the party aggrieved. The primary remedy, that of an action at law for damages, is often, because of the difficulty or impossibility of making satisfactory proof of the damages, inadequate. A search for some more satisfactory form of relief necessarily results.
§ 37. Specific performance of agreement to promote corporation.
for specific performance. Actions for the specific performance of contracts for the promotion of corporations divide themselves into two classes ; actions in which the contemplated corporation has been organized, and all that the court is required to do is to decree the transfer of shares in accordance with the agreement, and actions in which the corporation has not been organized and the court is asked, not merely to decree the issue and transfer of shares, but to order and supervise the organization of a corporation.
§ 38. Specific performance where corporation has not been
organized. An action for the specific performance of an agreement to organize a corporation, involving the formation of a company under the direction of the court, presents almost insurmountable difficulties. Relief of that character has been denied on the ground that the covenants to be performed by the plaintiff were such that specific performance thereof could not be decreed, on the ground that some of the parties to the agreement were insolvent and could not perform, on the ground that the contract in suit was not sufficiently definite, and on the ground that the parties were hostile and unfriendly.*
All of these are valid objections, and the last two none the less so because they apply to substantially every action of the character under consideration. It is difficult to imagine an agreement setting forth with particularity each of the innumerable matters to be determined upon the organization of a corporation, and a case is not likely to arise in which the parties to an action for the specific performance of an agreement to form a corporation, come into court in an amicable and friendly spirit. It might, perhaps, be categorically stated that an agreement to form a corporation will not be specifically enforced.5
1. Stocker v. Wedderburn, 3 K. & J. 393.
2. Hernreich v. Lidberg, 105 Ill. App. 495.
4. Rudiger v. Coleman, 112 N. Y. App. Div. 279, 98 Supp. 461.
3. Brown v. Swarthout, 134 Mich. 585. 96 N. W. 951; Loewenberg v. De Voigne, 145 Mo. App. 710, 123 S. W. 99.
5. Avery v. Ryan, 74 Wis. 591, 597–598, 43 N. W. 317, 319; Rudiger v. Coleman, 112 N. Y. App. Div. 279, 98 Supp. 461; Perrin v. Smith, 135 N. Y. App. Div. 127, 119 Supp. 990.
§ 39. Specific performance after corporation has been organized.
If the corporation contemplated by the agreement of the parties has been organized, an action to specifically enforce the provisions relating to the division or transfer of its shares may often be successfully maintained. It is, in such cases, necessary to show that the corporation organized is actually the corporation contemplated by the parties. This is a question of fact," and though there be some difference in detail between the corporation contemplated and that organized, the parties who organized the corporation and are responsible for the departure from the precise original scheme, will not readily be permitted to escape the performance of their engagements, if the company as organized substantially conforms to that contemplated by the agreement of the parties. 8
Specific performance of a contract relating to the sale or transfer of corporate shares will not be decreed if the remedy at law is adequate. If the shares of the company are, at or about the time of the breach of contract complained of, bought and sold in the open market so that the desired shares can easily be obtained and their market value be readily established, complete relief may ordinarily be had at law and a resort to equity is unnecessary."
Though no market value has been established and the shares cannot be readily purchased, it does not necessarily follow that the remedy at law is inadequate. The measure of damages in such case depends upon the intrinsic value of the shares. Proof of the intrinsic value is not necessarily a matter of great difficulty. If the corporation is organized to take over real or per
6. The corporation may be a proper, but is not a necessary, party to such suit. Williamson v. Krohn, 66 Fed. Rep. 655, 661, 13 C. C. A. 668, 31 U. S. App. 325.
612, 24 Supp. 599.
7. Crichfield v. Julia, 147 Fed. Rep. 65, 77 C. C. A. 297, and see Sessions v. Elwell, 71 Hun (N. Y.)
8. Dennison v. Keasbey, 200 Mo. 408, 98 S. W. 546. Cf. Hennessy v. Griggs, 1 N. D. 52, 44 N. W. 1010.
9. Bernier v. Griscom Spencer Co., 161 Fed. Rep. 438; Avery v. Ryan, 74 Wis. 591, 43 N. W. 317, and cases cited in succeeding notes.