Nebraska Chicory Co. of Schuyler, Neb., v. Lednicky

• Decision Date: 12 July 1907
• Docket Number: No. 14,779.,14,779.
• Citation: 113 N.W. 245,79 Neb. 587
• Parties: NEBRASKA CHICORY CO. OF SCHUYLER, NEB., v. LEDNICKY.
• Court: Nebraska Supreme Court

79 Neb. 587

113 N.W. 245

NEBRASKA CHICORY CO. OF SCHUYLER, NEB.,

v.LEDNICKY.

No. 14,779.

Supreme Court of Nebraska.

July 12, 1907.

Syllabus by the Court.

Any agreement by which a person shows an intention to become a stockholder in a corporation is sufficient as a contract of subscription, as against both himself and the corporation.

A subscription by a number of persons to the stock of a corporation, to be thereafter formed by them, constitutes a contract between the subscribers themselves to become stockholders when the corporation is formed, upon the conditions expressed in the agreement, and as such it is binding and irrevocable from the date of the subscription. It is in the nature of a continuing offer to the proposed corporation, which, upon acceptance by it, becomes as to each subscriber a contract between him and the corporation.

Such contract is based upon a sufficient consideration. There is a mutuality of promise in the act of the particular subscriber in subscribing with others which obliges him to make good his promise to the corporation after it comes into existence.

A subscription to corporate shares, made before the corporation comes into existence, but accepted by the corporation after coming into existence, either expressly by issuing the share certificates, or impliedly by recognizing the subscriber as a shareholder, makes him a shareholder, and the corporation may maintain an action upon the subscription against the signers.

Section 1973, Comp. St. 1905, authorizing the opening of books for stock subscriptions, does not limit the right of individuals to subscribe for stock by special agreement for that purpose made either before or after the filing of the articles of incorporation.

Commissioners' Opinion. Department No. 1. Appeal from District Court, Cuming County; Graves, Judge.

Action by the Nebraska Chicory Company of Schuyler, Neb., against Anton Lednicky, to recover an unpaid balance on a stock subscription. Judgment for defendant and plaintiff appeals. Reversed and remanded for new trial.G. W. Wertz and Moodie & Burke, for appellant.

A. R. Oleson, for appellee.

EPPERSON, C.

In February, 1897, certain citizens of Schuyler, Neb., united in a movement for the organization of a company for the manufacture of chicory at that place. Articles of incorporation were prepared and discussed on one or more occasions by the interested parties, and during said month a written agreement, of which the following is a copy, was prepared and circulated and signed by a considerable number of persons; the signature of the defendant being attached thereto as below indicated: “We, the undersigned, do hereby agree to take shares of stock in the Nebraska Chicory Company of Schuyler, Nebraska, to be organized on the plan set forth in the articles of incorporation, and we agree to pay for the number of shares set opposite our respective names in accordance with the by-laws, rules and regulations of the company, which provide for a division of the capital stock of $50,000.00 in shares of $50 each, to be paid in monthly installments of 4 per cent. per month, beginning the first Saturday of March, 1897. [Signed] Anton Lednicky, 5 shares.” Some time after the defendant signed the foregoing, and on or about March 8, 1897, a certificate of incorporation was filed with the county clerk, and with the Secretary of State on March 25th. Section 4138, Cobbey's Ann. St. 1903, provides that upon this latter filing the organization should be deemed completed, and the persons whose names are subscribed thereto be deemed a body corporate. Section 4140 is as follows: “The persons named in the certificate of incorporation, or a majority of them, shall be commissioners to open the books for the subscription to the capital stock of said company, and at such time and places as they deem proper, and the said company are authorized to commence operations upon the subscription of ten per cent. of said stock.” No stock subscription book, other than the paper above set out, was opened by the authority of the corporation, but that body proceeded to transact business by the purchase of grounds and the erection of buildings and supplying the same with fixtures and machinery, chicory, etc., and the defendant, for eight months consecutively, paid into its treasury monthly installments of $10 each pursuant to the terms of his agreement. On June 29, 1897, the president and secretary executed and delivered to him a paper certifying that he had subscribed for five shares of the capital stock of the company and would be entitled to the same “upon the surrender of this certificate and compliance with the rules and by-laws of this company.” For this “certificate of entitlement,” as it was called, he subscribed and delivered to the company a written receipt. He ceased to pay on and after the ninth installment, and this is an action to recover the unpaid residue upon his promise of subscription above copied. At the close of plaintiff's evidence, the court directed a verdict for defendant. Plaintiff appeals.

The principal question for determination is whether the written agreement for subscription to the capital stock of the corporation is a contract which the corporation can enforce. It appears that more than 10 per cent. (about $20,000) of the capital stock had been subscribed before the company began business; that the paper signed by defendant and other subscribers was the only subscription book used or kept by the company; that defendant signed the instrument before the time of the filing of the articles of incorporation, and had paid $80 on his subscription before this suit was instituted. It has been held (Bolton v. Nebraska Chicory Co., 69 Neb. 681, 96 N. W. 148) that this identical corporation is a manufacturing corporation; the court saying: “The statute here in question was obviously designed to encourage the promotion of manufacturing enterprises of all kinds in the widest sense by relaxing the rules as to organization. There is every reason for giving it a liberal construction, and no fraud can result from so doing.”

Defendant contends, however, that one who signs a subscription paper, whereby he agrees to take a certain number of shares in a corporation thereafter to be formed, does not become liable as a shareholder even after the corporation is formed, and the corporation cannot maintain an action against him upon the subscription paper. There are courts, notably Kansas, Massachusetts, Michigan, Pennsylvania, and West Virginia, which hold to this doctrine. Nemaha Coal, etc., Co. v. Settle, 54 Kan. 424, 38 Pac. 483;Hudson Real Estate Co. v. Tower, 161 Mass. 10, 36 N. E. 680, 42 Am. St. Rep. 379;Shurtz v. Schoolcraft & T. R. R. Co., 9 Mich. 269;Parker v. Northern Cen. M. R. R. Co., 33 Mich. 23;Northern Cent. M. R. Co. v. Eslow, 40 Mich. 222;Fair Ass'n v. Walker, 88 Mich. 62, 49 N. W. 1086;Tavern Co. v. Burkhard, 87 Mich. 182, 49 N. W. 562;Traction Co. v. Green, 143 Pa. 269, 13 Atl. 747;Auburn Bolt, etc., Works v. Shultz, 143 Pa. 256, 22 Atl. 904;Greenbrier Ind. Exposition v. Rodes, 37 W. Va. 738, 17 S. E. 305. See decisions cited in 10 Cyc. p. 385, note 97; Id., p. 386, note 99; also, Thrasher v. Pike County R. R. Co., 25 Ill. 393;Sedalia, W. & S. R. R. Co. v. Wilkerson, 83 Mo. 235;Coyote G. & S. Mining Co. v. Ruble, 8 Or. 284. The doctrine of these cases cannot be regarded as settled in American law. “This rule proceeds upon the narrow and strict ground that a contract, such as will bind the intending obligors, must be tendered to the other contracting party, to an artificial being not yet in esse, and in the precise statutory mode, or not at all.” 10 Cyc. 386, note 2. It is said that this court is committed to the rule of the cases above cited, and our attention is called to Livesey v. Omaha Hotel Co., 5 Neb. 50, and Macfarland v. West Side Improvement Association, 53 Neb. 417, 73 N. W. 736. In Livesey v. Omaha Hotel Co., supra, the sole ground upon which the defendants were held not liable upon their subscription was that the specified amount of capital stock was not subscribed for, and in Macfarland v. West Side Improvement Ass'n, supra, the same principle was announced, to wit, that the subscriber was not liable upon his subscription until the capital stock was fully subscribed for, “unless by law or charter provisions the corporation is permitted to proceed with its main design with a less subscription.” In that case, however, it was held that the defendant was estopped by his conduct to deny his liability. Neither of the above cases have any application to the case at bar, since the statute under which this corporation was formed provides that the corporation may commence operations upon the subscription of 10 per cent. of its capital stock. In Lincoln Shoe Mfg. Co. v. Sheldon, 44 Neb. 279, 62 N. W. 480, it is held that a contract as follows: “For value received, we, the undersigned subscribers hereto, bind ourselves to purchase the number of shares set opposite our names in the Lincoln Shoe Manufacturing Company at $50 per share”--upon several conditions recited, was a subscription to the stock of the corporation. This case, however, may be distinguished from the case in hand. In that case, the subscription paper was signed after the articles of incorporation were filed. In the case at bar, it was alleged, and we understand the evidence to show, that the defendant placed his name to the subscription paper prior to the filing of the articles of incorporation.Therefore whether defendant herein is liable to the corporation on the subscription paper we deem an open question in this...