Bole v. Fulton

• Decision Date: 02 January 1912
• Docket Number: 10
• Citation: 82 A. 947,233 Pa. 609
• Parties: Bole v. Fulton, Appellant
• Court: Pennsylvania Supreme Court

82 A. 947

233 Pa. 609

Bole v. Fulton, Appellant

No. 10

Supreme Court of Pennsylvania

January 2, 1912

Argued October 16, 1911

Appeal, No. 10, Oct. T., 1911, by defendant E. D. Fulton from decree of C.P. No. 2, Allegheny Co., April T., 1908, No 1,068, on bill in equity in case of George M. Bole, Receiver et al., v. The Belden Automobile Transmission Company and E. D. Fulton et al. Reversed.

Bill in equity by creditors to compel the payment of a stock subscription. Before HAYMAKER, J.

From the record it appeared that after the incorporation of the Belden Automobile Transmission Company under the laws of New Jersey, E. D. Fulton subscribed for a certain number of shares of the stock of the company. Ten days after he signed the subscription paper, he repudiated his subscription and told the agent of the company who had taken his subscription that he would not pay for the shares. The company made no tender of the shares with demand for payment. Subsequently Fulton was included with delinquent stockholders as a party defendant in a bill to enforce payment of stock subscriptions. A decree was entered against Fulton.

Error assigned was the decree of the court.

David E. Mitchell, with him William A. Griffith, for appellant.

Charles F. Patterson, with him C. C. Dickey, of Shiras & Dickey, R. B. Wolf and Weil & Thorp, for appellees.

Before FELL, C.J., BROWN, MESTREZAT, POTTER, ELKIN and STEWART, JJ.

OPINION

MR. JUSTICE STEWART:

There is a well-recognized distinction between original subscriptions for stock in a corporation to be formed, and subscriptions for shares in an existing corporation. In the one case the engagement between the subscribers is created directly by the act of subscription, which, when once the corporation has been created by letters patent, issued on the strength of the subscription, becomes absolute, not subject to recall, and dischargeable only by actual payment. By the act of incorporation, without more, the original subscribers become members of the corporation, entitled to all the rights and privileges of membership, including the right to vote, the right to share in the profits, and the right to compel specific performance of the contract of membership: Curry v. Scott, 54 Pa. 270, Garrett v. Dillsburg, etc., R.R. Co., 78 Pa. 465. In the other case the contract is not between the subscribers, except as it is shown that the subscriptions were mutual considerations for each other, but between each individual subscriber and the corporation as it exists, and is simply a contract of purchase and sale: Pittsburg & Connellsville R.R. Co. v. Byers, 32 Pa. 22; Weiss v. Mauch Chunk Iron Co., 58 Pa. 295. The distinction is thus defined in Morawetz on Private Corporations, sec. 46: "It is important to distinguish between the contract of membership actually existing among the shareholders or members of a corporation, and a contract to become a shareholder at a future time; and the contract to become a shareholder at a future time must again be distinguished from a contract to purchase shares which have already been issued.

"The contract which exists among the members of a corporation, and which constitutes them a corporate association, is the contract of membership. This contract gives the contracting parties the status of shareholders; it invests them with the continuing rights of shareholders, together with the corresponding liabilities; and the performance of this contract will always be specifically enforced, though a failure to perform rarely presents a ground for an action for damages. On the other hand, a contract to become a shareholder, or to subscribe for shares in a company at a future day, does not give the contracting party the status of shareholder until after the contract has been fully executed by taking the shares or actually subscribing upon the books, and, upon failure to perform the contract, the corporation will be entitled to recover only the damages suffered, -- that is, the difference between the amount which the defendant agreed to pay or contribute on account of the shares, and the value of an equal number of shares in the market.

"A similar distinction exists between a contract of partnership and a contract to form a partnership at a subsequent time. The contract of partnership constitutes the...