CHAPTER III.

OF THE ENFORCEMENT OF AGREEMENTS FOR THE PROMOTION OF

CORPORATIONS.

Section 36. Introductory.

37. Specific performance of agreements to promote corporation.

38. Specific performance where corporation has not been organized.

39. Specific performance after corporation has been organized.

40. Actions of accounting.

41. Action to compel corporation to issue shares.

42. Actions for damages.-Definiteness of agreement.

43. Measure of damages.

44. Action to recover property conveyed, or value thereof.

45. Actions to enforce mechanics' liens.

§ 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. A remedy which immediately suggests itself is that of an action 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 corpo

ration.

§ 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,1 on the ground that some of the parties to the agreement were insolvent and could not perform,2 on the ground that the contract in suit was not sufficiently definite,3 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.

3. Brown v. Swarthout, 134 Mich. 585, 96 N. W. 951; Loewenberg v. DeVoigne, 145 Mo. App. 710, 123 S. W. 99.

4. Rudiger v. Coleman, 112 N. Y. App. Div. 279, 98 Supp. 461.

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.9

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.

7. Crichfield v. Julia, 147 Fed. Rep. 65, 77 C. C. A. 297, and see Sessions v. Elwell, 71 Hun (N. Y.)

612, 24 Supp. 599.

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.

sonal property, or an existing enterprise or business, of readily ascertainable value, the matter of proving, to a reasonable degree of certainty, the intrinsic value of the shares, presents no insurmountable difficulties and a decree of specific performance will generally be denied. 10 If, however, the value of the shares depends upon the commercial value of some novel patent or device, or upon the success of some theretofore untried enterprise, or upon the successful operation of a new mine, or of a projected railroad, the accurate determination of the intrinsic value of the shares is impossible. The value of the shares of a corporation organized to develop such an enterprise becomes a matter of even greater uncertainty if the shares are, as is often the case, subject to the prior rights of bondholders or preferred stockholders. The intrinsic value of the shares can in these cases not be computed or with any reasonable degree of certainty ascertained, and if no market value has been established, a court of equity will, according to the great weight of authority, decree specific performance of the agreement to sell or transfer the shares.11

10. Clements v. Sherwood-Dunn, 108 N. Y. App. Div. 327, 95 Supp. 766, affirmed without opinion, 187 N. Y. 521, 79 N. E. 1102; Bateman v. Straus, 86 N. Y. App. Div. 540, 83 Supp. 785; Ehrich v. Grant, 111 N. Y. App. Div. 196, 198, 97 Supp. 600. But see Selover v. Isle Harbor Land Co., 91 Minn. 451, 98 N. W. 344, 100 Minn. 253, 111 N. W. 155.

11. Federal.-Krohn v. Williamson, 62 Fed. Rep. 869, 877, affirmed, sub nom. Williamson v. Krohn, 66 Fed. Rep. 655, 13 C. C. A. 668, 31 U. S. App. 325.

California.-Krouse v. Woodward, 110 Cal. 638, 42 Pac. 1084; Treasurer v. Commercial Mining Co., 23 Cal. 390; Wait v. Kern River Min. Mill. & Dev. Co., 157 Cal. 16, 106

Ill. 458, 53 N. E. 969.
Iowa.-Schmidt v. Pritchard, 135
Iowa 240, 112 N. W. 801.

Minnesota.-Selover v. Isle Harbor Land Co., 91 Minn. 451, 98 N. W. 344, 100 Minn. 253, 111 N. W. 155; Northern Trust Co. v. Markell, 61 Minn. 271, 63 N. W. 735.

Missouri.-Butler v. Murphy, 106 Mo. App. 287, 80 S. W. 337; Dennison v. Keasbey, 200 Mo. 408, 98 S. W. 546; Baumhoff v. St. Louis & K. R. Co., 205 Mo. 248, 104 S. W. 5, 120 Am. St. Rep. 745.

Nevada.-Turley v. Thomas, 31 Nev. 181, 101 Pac. 568, 135 Am. St. R. 667.

Some jurisdictions allow an action for specific performance in any case in which it appears that the shares which the plaintiff has contracted to purchase cannot be obtained elsewhere than from the defendant.12 There is much to be said in support of this rule. If one has agreed to transfer to another the shares of a corporation but refuses so to do, and the promissor is the owner of the shares which he has agreed to transfer and is able to complete his contract, the simplest and surest method of doing