§ 318. Contribution between promoters.

A promoter who has paid the expenses, or a part of the expenses, of the attempted organization of a company, is entitled to contribution from such of his fellow promoters as were also liable for the same, or a part of the same, expenses.12 Due allowance must of course be made to the defendant promoters for any expenses paid by them for which the plaintiff was liable.13 The adjustment of the liabilities of the promoters may sometimes be a matter of considerable intricacy, as varying combinations of promoters may well be liable for different items.

It has been said, in some English cases, that a promoter though not liable directly to the creditors, may still be liable for contribution to his co-promoters who are liable to the creditors, if their liability to the creditors was incurred upon his engagement

Bronze Co., 75 Mich. 568, 42 N. W. 982; Baily v. Burgess, 48 N. J. Eq. 411, 22 Atl. 733; Parkin v. Fry, 2 C. & P. 311; Wilson v. Curzon, 16 L. J. Exch. N. S. 122, 15 M. & W. 532; Patterson v. Brown, 6 Ont. W. R. 204.

As to the right of promoters to recover compensation from the fully organized corporation, see ante, §§ 84-87.

12. Lefroy v. Gore, 1 Jones & LaTouche 571; Pearson's Executors' Case, 3 DeG. M. & G. 241, 248; see Spottiswoode's Case, 6 DeG. M. & G. 345, 371.

It is held in Pearson's Executors' Case, 3 DeG. M. & G. 241, that a member of the managing committee liable for contribution for the expenses paid by one of his fellow committeemen, is not saved from further liability by a letter from

the secretary of the committee calling upon the members thereof to pay a sum named, and stating that they would be exonerated from further liability. The court said that the letter" might have been a good exoneration to persons, who, being subject to a doubtful liability, were called upon by those whose liability was admitted, offering, on payment of £160, to exonerate the persons whose liability was doubtful. As addressed to such persons the letter is intelligible. But, as between the secretary and those members of the managing committee who are ex concessis the parties liable, the letter seems nugatory. It is only a statement to them from their own agent, that on payment of £160 each they will be exonerated." See post, § 320.

13. Denton v. Macneil, L. R. 2 Eq. 352.

with his co-promoters to contribute ratably with them.14 Such agreement to contribute would, however, seem to establish an agency, and render the promoter who agreed to contribute liable directly to the creditors.

§ 319. Subscribers not liable for expenses of abortive promotion. The undertaking of the subscriber is ordinarily a mere agreement to take shares in a corporation to be organized in accordance with the subscription contract. Whether the formation of such a corporation is feasible, whether the contemplated properties can be acquired and the desired capital obtained, are matters of which the subscriber has ordinarily no means of judging, and as to which the promoter must, in the absence of a contrary understanding, take the risk. If the corporation is not organized and the shares subscribed for are not delivered, the subscriber is released from liability upon his subscription and is in no way responsible for the expenses of the attempted organization. He cannot be compelled to reimburse the promoters for any part of the expenses incurred by them,15 nor is he liable directly to the creditors for the debts incurred by the promoters.16

§ 320. Circumstances rendering the subscribers liable for ex

expenses.

Subscribers may, by express agreement, make themselves liable

14. Carrick's Case, 1 Sim. N. S. 505, 510; Norbury's Case, 5 DeG. & Sm. 423, 427.

Cf. Lefroy v. Gore, 1 Jones & LaTouche, 571, 581.

15. Middle Branch Mut. Tel. Co. v. Jones, 137 Iowa 396, 115 N. W. 3 and cases cited under note 16. See also cases cited, post, § 321.

16. Ex parte Beardshaw, 1 Drew. 226; Capper's Case, 1 Sim. N. S. 178,

(overruling Mathew's Case, 14 Jur. 928, 3 DeG. & S. 234; Hutton v. Thompson, 3 H. L. Cas. 161; Maudslay & Field's Case, 17 Sim. 157, 20 L. J. Ch. N. S. 9; Carrick's Case, 1 Sim. N. S. 505; Ex parte Walstab, 20 L. J. Ch. N. S. 58; Ex parte Hirschel, 15 Jur. 942; cf. Rambaut v. Tevis, 164 N. Y. App. Div. 324, 149 Supp. 993.

See also cases cited, post, § 321.

for the expenses of the attempted incorporation.17 The subscribers may also be liable for their proportionate share of the expenses if their agreement, instead of a mere contract to take shares of the corporation when organized, amounts to a contract to join the promoters in the organization of the company.18 The subscribers may perhaps be liable for the compensation of an agent who rendered services in the organization of the company pursuant to appointment at a meeting of the subscribers, if the circumstances are such as to justify the inference that the agent was to be paid for his services.19

It was held in Ex parte Apps 20 that if the circumstances of the transaction are such as to render the subscribers liable for

17. Gay's Case, 1 DeG. M. & G. 347, affirming, 5 DeG. & Sm. 122; Hopkinson's Case, 7 DeG. M. & G. 193; Ex parte Bowen & Martin, 22 L. J. Ch. N. S. 856, and see Prichard's Case, 5 DeG. M. & G. 484, also Sandusky Coal Co. v. Walker, 27 Ont. 677.

It was held in Carew's Case, (7 DeG. M. & G. 43), that an agreement of the subscribers to indemnify the managing directors against the expenses of the formation of the company, may be avoided by showing that it was procured from the subscribers by misrepresentations of the promoters. It was also held that the indemnity agreement was unenforceable for the reason that it was entered into by the subscribers on the faith that the managing directors would sign as subscribers and be bound jointly with them, and that, the managing directors having failed to sign, the subscribers were entitled to have the agreement cancelled.

Subscribers are sometimes made liable for the expenses of the attempted organization of a corporation, by the terms of the special act of incorporation under which the organization is attempted. See Salem Mill Dam Corporation v. Ropes, 6 Pick (Mass.) 23, 41, 9 Pick. (Mass.) 187, 19 Am. Dec. 363.

18. See Beaunisne v. Scholz, 182 Ill. App. 238, also Aldham v. Brown, 7 E. & B. 164, affirmed, 2 E. & E. 398.

In Beaunisne v. Scholz, parol evidence was admitted to show the real agreement of the parties.

19. Sproat v. Porter, 9 Mass. 300. The agent was, in this case, allowed to recover even against those subscribers who did not attend the meeting.

20. 18 L. J. Ch. N. S. 409. Cf. Williams v. Salmond, 2 K. & J. 463, 470, discussed in § 328, post. See also post, § 329, and see ante, § 318n.

the expenses of the attempted organization of the company, they are not protected from further liability by the fact that the promoters rendered their accounts, distributed the balance of the deposits remaining in their hands and were, by the subscribers, released from further liability, as it does not necessarily follow that because a subscriber has released the promoters, the promoters have in turn released the subscriber.

§ 321. Repayment of subscribers' deposits.

As the subscribers are not liable for the expenses of the abortive promotion, they are upon the abandonment thereof entitled to recover any sums paid by them as deposits upon their shares,21 without any deduction for services rendered or expenses incurred.22 It has even been said that the subscribers are entitled

to interest upon their deposits.23 To compel the promoters to pay interest upon moneys deposited by the subscribers would, ordinarily, be unreasonable. Interest should be allowed only

after a lawful demand and the promoters' refusal to repay the deposits, or from the date when the promoters should, in fairness, have announced the abandonment of the proposed corporation and returned the deposits to the subscribers.2

24

§ 322. The same subject.-Circumstances under which expenses may be deducted.

While the expenses of an unsuccessful attempt to organize a corporation are in general to be borne by the promoters and cannot be deducted from the deposits made by the subscribers, such deposits may be applied to the payment of expenses if a provision to that effect is contained in the prospectus, the notice of allotment, or in the subscription agreement.25 The deposits may also be subjected to the payment of the expenses of the unsuccessful promotion if the agreement of the parties can fairly be construed as an agreement to join the promoters in the enterprise of forming the company, rather than an agreement to take shares in the fully organized corporation.26

Spottiswoode, 15 M. & W. 501; Capper's Case, 1 Sim. N. S. 178, 184, citing Ashpitel v. Sercombe, 5 Exch. 147, 19 L. J. Exch. N. S. 82, 6 Ry. Cas. 224; Baird v. Ross, 2 Macq. 61, 68-69, and see Hutton v. Thompson, 3 H. L. Cas. 161, 191-192.

See also cases cited under note 21. But compare Brackbill v. Bucher, 19 Lanc. Law. Rev. 414.

23. Jacobson v. McCullough, 113 Minn. 332, 339, 129 N. W. 759.

24. See Mowatt v. Lord Londesborough, 4 E. & B. 1, 12.

25. Baird v. Ross, 2 Macq. 61; Moore v. Garwood, 4 Exch, 681, 19

L. J. Exch. 15; Ashpitel v. Sercombe, 5 Exch. 147, 19 L. J. Exch. N. S. 82, 6 Ry. Cas. 224; Jones v. Harrison, 2 Exch. 52, 12 Jur. 122, 5 Ry. Cas. 138; Willey v. Parratt, 3 Exch. 211, 18 L. J. Exch. N. S. 82, 6 Ry. Cas. 32; Watts v. Salter, 10 C. B. 477, 20 L. J. C. P. 43; Garwood v. Ede, 1 Exch. 264; Clements v. Todd, 1 Exch. 268, 17 L. J. Exch. 31, 5 Ry. Cas. 132.

26. See perhaps Clark V. McManus, 105 Minn. 111, 117 N. W. 476; also Aldham v. Brown, 7 E. & B. 164, affirmed, 2 E. & E. 398.