CHAPTER XIX. OF ABORTIVE PROMOTIONS. Section. 315 Introductory. 316. Expenses of attempted organization of corporation. 317. Compensation of promoters. 318. Contribution between promoters. 319. Subscribers not liable for expenses of abortive promotion. 320. Circumstances rendering subscribers liable for expenses. 321. Repayment of subscribers' deposits. 322. The same subject.-Circumstances under which expenses may be deducted. 323. Liability upon subscription notes. 324. Proof of abandonment of promotion. 325. All promoters not necessarily liable for return of deposits. 326. Recovery from depositary. 327. Rights of purchasers of shares of abortive corporation. 328. Subscriber's action for recovery of deposit. 329. The same subject.-Voluntary account of promoter as bar to subscriber's action for accounting. 330. Accounting by promoters.-Disbursements allowable. 331. Disposition of property acquired pending promotion of abortive corporation. 332. Liability of promoters of defectively organized corporation. § 315. Introductory. Questions relating to abortive promotions are, because of the method of organization there pursued, bound to arise with greater frequency and in a more complicated form in England than in this country. The granting of the corporate charter is in England often postponed until after the share capital has been subscribed and the company is substantially ready to carry on the corporate business.1 Deposits on the shares are in such case received, and heavy obligations and expenses often incurred, while the company is still in process of formation. If the enterprise proves abortive and the incorporation of the company is abandoned, the adjustment of the rights and obligations of the parties is a matter of much difficulty. While many of the questions that arise in England do not arise under the method of organization generally followed in this country, it is thought best to consider the English and American cases together. § 316. Expenses of attempted organization of corporation. The expenses of the attempted organization of an abortive corporation are in general to be borne by the promoters. As promoters are not partners,2 it does not follow that all the promoters are jointly and severally liable for these expenses.3 A promoter is liable for the expenses arising out of contracts made by him, or by his co-promoters or agents pursuant to his authority, but some privity must be shown. The authorization 1. Miller v. Denman, 49 Wash. 217, 222, 95 Pac. 67, 69, 16 L. R. A. N. S. 348, 351. And see ante, § 12. 2. See ante, §§ 77, 302. 3. Hamilton v. Smith, 5 Jur. N. S. 32; Wood v. Argyll, 6 M. & G. 928. 4. The cases found in the English reports relating to the liability of provisional committeemen of abortive corporations have some bearing upon the question of the liability of the promoters of abortive corporations. It is held that one does not, merely by becoming a provisional committeeman, make himself liable for the debts incurred by his fellow committeemen. Norris v. Cottle, 2 H. L. Cas. 647, affirming, Ex parte Cottle, 2 Macn. & G. 185, 19 L. J. Ch. N. S. 366; Ex parte Roberts, 2 Macn. & G. 192, affirming, 3 DeG. & Sm. 205; Ex parte Besley, 3 Macn. & G. 287, reversing on rehearing, 2 Macn. & G. 176, which reversed 3 DeG. & Sm. 224; McEwan v. Campbell, 2 Macq. 499; Maitland's Case, 3 Giff. 28; Ex parte Lloyd, 1 Sim. N. S. 248; Carrick's Case, 1 Sim. N. S. 505; Norbury's Case, 5 DeG. & Sm. 423; Ex parte Stocks, 22 L. J. Ch. N. S. 218; Barker v. Stead, 3 C. B. 946; Newton v. Belcher, 12 Q. B. (Ad. & El. N. S.) 921, 18 L. J. Q. B. N. S. 53; Newton v. Liddiard, 12 Q. B. (Ad. & El. N. S.) 925, 18 L. J. Q. B. N. S. 53; Griffin v. Beverly, 2 Car. & K. 648; Barker v. Lyndon, 2 Car. & K. 651; Giles v. Comfoot, 2 Car. & K. 653; Cooke v. Tonkin, 9 need not be express. It may be implied from the circumstances surrounding the transaction." Q. B. 936; Ex parte Clarke, 20 L. J. Ch. N. S. 14; Reynell v. Lewis, 15 M. & W. 517; Wyld v. Hopkins, id; cf. Doubleday v. Muskett, 7 Bing. 110; Ex parte Studley, 14 Jur. 539; Bremner v. Chamberlayne, 2 Car. & K. 560. If the fact is that a provisional committeeman was not originally liable for the debts of the abortive company, he does not make himself liable by making payments causa pacis. Ex parte Besley, 3 Macn. & G. 287, reversing 2 Macn. & G. 176, reversing, 3 DeG. & Sm. 224; Ex parte Roberts, 2 Macn. & G. 192, affirming, 3 DeG. & Sm. 205; Norris v. Cottle, 2 H. L. Cas. 647, 669; Ex parte Stocks, 22 L. J. Ch. N. S. 218; Hall's Case, 3 DeG. & Sm. 214; Tanner's Case, 5 DeG. & Sm. 182. Allowing one's name to be published as a director does not make one liable for the expenses of organizing the company. Burbidge v. Morris, 3 H. & C. 664. A provisional committeeman is not responsible for the debts incurred by a managing committee appointed by the provisional committee, even though the defendant committeeman participated in the appointment of the managing committee. Tanner's Case, 5 DeG. & Sm. 182, see also Bright v. Hutton, 3 H. L. Cas. 341, and Dawson v. Morrison, 5 Ry. & Can. Cas. 62; cf. Brown v. Andrew, 13 Jur. 938. Nor is he liable if he is without his knowledge appointed a managing committeeman, but does not act as such. Ex parte Hight, 1 Drew. 484. It is held that a regulation of a managing committee (empowered by the subscribers' agreement to make regulations) that checks shall be drawn by any three members of the committee, is valid and proper, and that the other members of the committee are not responsible because of a check drawn by three members of the committee in pursuance of this regulation, (Maitland's Case, 4 DeG. M. & G. 769), unless such other committeemen authorized the signing of the check, or were in some other way connected with the transaction. Carpenter's & Weiss's Case, 5 DeG. & Sm. 402. A provisional.committeeman is, of course, liable for debts incurred by him personally, (Pearson's Executors' Case, 3 DeG. M. & G. 241, 252; Ex parte Lloyd, 1 Sim. N. S. 248; Carrick's Case, 1 Sim. N. S. 505, 509), or pursuant to his authorization, (Reynell v. Lewis, 15 M. & W. 517; Wyld v. Hopkins, id.), and for debts incurred by his fellow committeemen if sanctioned or ratified by him. Pearson's Executors' Case, 3 DeG. M. & G. 241, 252-253; Spottiswoode's Case, 6 DeG. M. & G. 345, 371; Carrick's Case, 1 Sim. N. S. 505, 509; Bright v. Hutton, 3 H. L. Cas. 341, also Brown v. Andrew, 13 Jur. 938, 18 L. J. Q. B. N. S. 153. The question of authorization is one of fact, (Bailey v. Macaulay, 13 Q. B. (Ad. & El. N. S.) 815; Power to bind the co-promoters will more readily be implied if it is shown that the parties had in addition to acting as promoters, joined in the purchase or acquisition of franchises or properties to be conveyed to the corporation, for they occupy, as parties to such venture, a relation akin to that of partners. The promoters are not liable to an agent who renders services, or incurs expenses, under an agreement that he will look for reimbursement to the moneys to be paid in by the subscribers for Maddick v. Marshall, 17 C. B. N. S. 829, affirming, 16 C. B. N. S. 387; Williams v. Pigott, 2 Exch. 201; Rennie v. Clarke, 5 Exch. 292; Barrett v. Blunt, 2 C. & K. 271; Norbury's Case, 5 DeG. & Sm. 423), and an authorization or sanction will be readily inferred, (Barnett v. Lambert, 15 M. & W. 489; Spottiswoode's Case, 6 DeG. M. & G. 345, and see cases cited in preceding parenthesis). The burden of proof, however, rests upon the person asserting the liability of the provisional committeeman, (Reynell v. Lewis, 15 M. & W. 517; Bright v. Hutton, 3 H. L. Cas. 341; Patrick v. Reynolds, 1 C. B. N. S. 727; Brown v. Andrew, 13 Jur. 938). A modification of the contract will not always release a non-assenting comAmsinck's mitteeman. Case, DeG. M. & G. 345. 6 It was at one time supposed that the House of Lords had in the case of Hutton v. Upfill, (2 H. L. Cas. 674-August, 1850), established a rule that a provisional committeeman who accepts an allotment of shares is responsible for the debts of the company; that neither the fact of being a provisional committeeman nor the fact of taking shares is in itself sufficient to make him liable, but that the concurrence of the two establishes his liability. The lower courts felt themselves bound by what they believed to be the decision of the House of Lords and, with some remonstrance, applied it, (Markwell's Case, 5 DeG. & Sm. 528, 16 Jur. 989; Sharpe & James' Case, 1 DeG. M. & G. 565; Ex parte Stocks, 22 L. J. Ch. N. S. 218; Maudslay & Field's Case, 17 Sim. 157, 20 L. J. Ch. N. S. 9; Carmichael's Case, 17 Sim. 163; Ex parte Roberts, 1 Drew. 204; Ex parte Brittain, 1 Sim. N. S. 281; Ex parte Sichell, 1 Sim. N. S. 187; Ex parte Morrison, 20 L. J. Ch. N. S. 296, 15 Jur. 346; Nicholay's Case, 15 Jur. 420), until the House of Lords itself disclaimed the supposed effect of its decision. Bright v. Hutton, 3 H. L. Cas. 341, 385, et seq., (June, 1852), reversing Bright's Case, 1 Sim. N. S. 602. 5. Patrick v. Reynolds, 1 C. B. N. S. 727; Lake v. Argyll, 6 Ad. & El. N. S. 477; Wood v. Argyll, 6 M. & G. 928. 6. See Ijams v. Andrews, 151 Fed. Rep. 725, 81 C. C. A. 109; also Sanders v. Herndon, 128 Ky. 437, 32 Ky. L. R. 1362, 108 S. W. 908. 8 the company's shares. Nor do the promoters in such case become liable to the agent if, upon the abandonment of the corporate scheme, or upon learning that the subscriptions were made in reliance upon a misrepresentation of the facts, they return the moneys received from the subscribers. An agreement of one employed by the promoters, that he will make no claim for compensation unless the company is actually organized and the stipulated capital paid in, does not relieve the promoters from personal responsibility, but no recovery can, in such case, be had against them unless it is shown that the conditions of the agreement have been complied with.10 § 317. Compensation of promoters. There is a presumption that a promoter looks for his reward to the success of the enterprise, and not to his fellow promoters. A recovery of compensation from his fellows can be had only upon an express agreement to pay for the services.11 7. Barron v. International Trust Co., 184 Mass. 440, 68 N. E. 831; Landman v. Entwistle, 7 Exch. 632. When such moneys have been paid in, suit will lie against the promoters personally. Higgins v. Hopkins, 3 Exch, 163, and see cases cited under note 10. See also ante, §§ 77, 88. 8. Landman v. Entwistle, 7 Exch. 632. 9. Barron v. International Trust Co., 184 Mass. 440, 68 N. E. 831; Locke v. Wilson, 135 Mich. 593, 98 N. W. 400, 10 Det. Leg. News, 900. The employee might recover from the promoters if the representations which induced the subscriptions were made by the promoters themselves, or by some other person in reliance upon their statements. Locke v. Wilson, 135 Mich. 593, 98 10. Locke v. Wilson, 135 Mich. 593, 98 N. W. 400, 10 Det. Leg. News 900; Fry v. Miles, 71 N. J. L. 293, 59 Atl. 246; Nichols v. North Metropolitan Railway & Canal Co., 71 L. T. N. S. 836, affirmed, 74 L. T. N. S. 744, and see ante, §§ 88, 77. But an assurance given to a promoter or subscriber that he shall not incur any liability for the services of the person giving such assurance unless the organization of the company is completed, has been held to be not an agreement to exonerate the common fund, but simply an agreement to indemnify the promisee personally. Shaw's Claim, L. R. 10 Ch. App. 177. 11. Eakins v. American White |