Arkadelphia Cotton Mills v. Trimble

• Citation: 15 S.W. 776,54 Ark. 316
• Parties: ARKADELPHIA COTTON MILLS v. TRIMBLE
• Decision Date: 14 March 1891
• Court: Supreme Court of Arkansas

15 S.W. 776

54 Ark. 316

ARKADELPHIA COTTON MILLS v. TRIMBLE

Supreme Court of Arkansas

March 14, 1891

APPEAL from Miller Circuit Court, C. E. MITCHEL, Judge.

Judgment reversed and cause remanded.

Arnold & Cook for appellant.

It is true the general rule is that it is an implied contract that the subscription is binding only after the full capital stock has been subscribed. 6 Pick. 23; Cook on Liability of Stockholders, sec. 176; Morawetz on Pr. Corp., sec. 137. But the statute does not require the whole capital stock to be subscribed, and where a charter by its terms shows an intention to begin business after a certain sum is subscribed, then the subscription is binding. 113 Mass. 79; 13 Met. (Mass)., 311; 12 Gray, 244; 34 Me. 360; 40 Me. 44; 2 Met. (Ky.), 219; 11 Kan. 412; 11 N.Y. 102; 18 Ind. 452; 65 Me. 636; 68 Mass. 277; 128 Mass. 445. This was an unconditional subscription. Mor. Pr. Corp., sec. 149, 31 Ohio 23; Mor. Pr. Corp., sec. 410.

Scott & Jones for appellee.

Appellee was not liable upon his subscription until the whole of the capital stock was subscribed. 5 Am. and Eng. Corp. Cases, 40. This is the rule, unless there is a clear provision in the contract to the contrary. 46 Tex. 633; 7 S.W. 480; 10 Am. and Eng. Corp. Cases, 72; 12 id., 85; 37 F. 508; 1 N.E. 268; 37 Pa.St. 210; 7 A. 482; Cook on Stock, etc., sec. 176.

2. Under our laws it is a jurisdictional condition precedent to parties becoming an incorporation to transact business, that the fixed amount of capital must have been subscribed. Mansf. Dig., secs. 961-8; 1 Mor. Pr. Corp., sec. 29.

OPINION

BATTLE, J.

The Arkadelphia Cotton Mills is a corporation organized and existing under the laws of this State. Sometime in January 1888, M. H. Trimble subscribed the articles of association of the corporation, and an agreement to take and pay for twenty shares of its capital stock, amounting in the aggregate to $ 500. Afterwards four assessments of 25 per cent. each on all the shares taken in the capital stock were made by the board of directors. Trimble was duly notified of the assessments upon his share, but refused to pay them because the full amount of the capital stock, as fixed by the articles of association had not been taken. The question is, was he subject to the assessment?

As a general rule every contract to take and pay for shares in the capital stock of a corporation is based on the implied condition that no part of it is to be performed until the corporation is authorized to begin the prosecution of its enterprise. The reason of the rule is that "until that time the company can have no use for its capital, nor can there be any assurance that it will ever be required." It is also based on another condition, and that is, no assessments upon the shares taken shall be made until the whole amount of the capital stock has been subscribed. This condition, in the absence of a contrary agreement, arises by implication from the just and reasonable understanding of the subscriber that he is to be aided by other subscriptions, which, with the amount subscribed by himself, will be equal to the amount fixed as the capital stock of the company. Stoneham Branch R. Co. v. Gould, 2 Gray 277; Galveston Hotel Co. v. Bolton, 46 Tex. 633; 1 Morawetz on Private Corporations, sec. 137, and cases cited.

In Stoneham Branch R. Co. v. Gould, Chief Justice Shaw said: "It is a rule of law too well settled to be now questioned, that when the capital stock and the number of shares are fixed by the act of incorporation, or by any vote or by-law passed conformably to the act of incorporation, no assessment can be lawfully made on the share of any subscriber, until the whole number of shares has been taken. This is no arbitrary rule; it is founded on a plain dictate of justice, and the strict principles regulating the obligation of contracts. When a man subscribes a share to a. stock, to consist of one thousand shares, in order to carry on some designated enterprise, he binds himself to pay a thousandth part of the cost of such enterprise. If only five hundred are subscribed for, and he can have no assurance which he is bound to accept that the remainder will be taken, he would be held, if liable to assessment, to pay a five-hundredth part of the cost of the enterprise, besides incurring the risk of the entire failure of the enterprise itself, and the loss of the amount advanced towards it."

This rule is further explained in Galveston Hotel Co. v. Bolton, 46 Tex. 633, as follows: "When there is no provision to the contrary, the man who takes the first share of stock takes it on condition that all of the shares will be taken, until the amount fixed as the capital stock of the company shall be taken by persons who will be equally bound with himself to bear the expense of the enterprise, share and share alike. In principle, it is the same as if one would say, 'I will be one of five hundred persons who will bind themselves to contribute equal amounts, not exceeding five hundred dollars each, in building a first-class hotel in Galveston.' The proposition is not accepted and contract made so as to bind the purchaser, if only two hundred and fifty persons join in it."

But it is obvious that this rule does not apply where the articles of association, or the circumstances which affect the interpretation of the agreement to take stock, show an intention that the corporation shall be fully organized and commence business before shares amounting to the...