Utah Hotel Co. v. Madsen

• Decision Date: 04 June 1913
• Docket Number: 2447
• Court: Utah Supreme Court
• Parties: UTAH HOTEL CO. v. MADSEN

134 P. 577

43 Utah 285

UTAH HOTEL CO. v. MADSEN

No. 2447

Supreme Court of Utah

June 4, 1913

On application for re-hearing July 30, 1913.

APPEAL from District Court, Third District; Hon. T. D. Lewis, Judge.

Action by the Utah Hotel Company against P. W. Madsen.

Judgment for plaintiff. Defendant appeals.

AFFIRMED.

James Ingebretsen for appellant.

King &amp Nibley for respondent.

FRICK J. McCARTY, C. J., and STRAUP, J., concur.

OPINION

FRICK, J.

This action is based upon the following agreement, which appellant admitted was signed by himself:

"Salt Lake City, Utah, April 19, 1909. We, the undersigned residents of the State of Utah, in consideration of one dollar to each by the other subscribers paid, do hereby subscribe in the proportion hereinafter set opposite our respective names, for the stock of a company to be organized, under the laws of the State of Utah, with a capital stock of fifteen hundred thousand ($ 1,500,000) dollars, divided into fifteen thousand (15,000) shares of the par value of one hundred ($ 100) dollars each. The principal place of business to be located in Salt Lake City, Utah. The name of the company to be the Utah Hotel Company. The general purpose of the company will be the erection and ownership of a first class hotel to be built on the northeast intersection of South Temple and Main streets, Salt Lake City, Utah, and such other places as may be provided in the articles of association, which are to be hereafter adopted. The payment on the above subscription shall be payable in sums not to exceed ten per cent of the amount by us subscribed in any one month."

Respondent, in substance, alleged, proved, and the court found that the appellant and a large number of others had signed the foregoing agreement, and that he had agreed to take fifty shares of the capital stock of the corporation mentioned therein; that the corporation therein mentioned was duly organized in accordance with the terms and conditions and for the purpose mentioned in said agreement; that calls for the payment of the amounts subscribed for by the several subscribers were duly made in the proportions and within the time specified in said agreement; and that appellant was duly notified of each call as made and of the amount due thereon, but notwithstanding that fact that he had failed and refused to pay the amount he had agreed to pay or any part thereof, and that the whole amount of said subscription was due and payable. The articles or agreement of incorporation was produced in evidence, and it appears upon the face thereof that the laws of this state were duly complied with in organizing the corporation.

The appellant introduced no evidence, and the court made conclusions of law upon the findings aforesaid and entered judgment in favor of respondent for the full amount of the subscription, and he appeals.

While appellant has made quite a number of assignments, there is really but one question to be decided, namely: Is the subscription agreement we have set forth above legally enforceable against him? His counsel has filed two briefs in which he presents very elaborate arguments to convince us why his client should be relieved from the obligation he has assumed by signing the agreement we have set forth. The first reason given by counsel, as we understand him, is that under our statute (Comp. Laws 1907, sections 314, 315, 316, and 332), in order to enforce a subscription for capital stock of a corporation, the subscribers must sign the articles or agreement of incorporation, or, if a separate agreement is signed, that it must, at least in substance, be incorporated into the articles or agreement of incorporation as a substantive part thereof or the subscriber must in some way have estopped himself from making any defense.

Section 314, supra, so far as material, provides that any number of individuals not less than five, at least one of whom must be a resident of this state, may become incorporators of a private corporation "for any purpose for which individuals may lawfully associate."

Section 315, in substance, provides that in order to organize a corporation "the incorporators shall enter into an agreement in writing, signed by each of them, and sworn to by at least three of their number, as hereinafter provided," in which agreement they must state the following matters: (1) The name of the corporation; (2) the place where organized; (3) the names of the incorporators and their places of residence; (4) the duration of the corporation, which cannot be more than 100 years; (5) the pursuit or business agreed upon stated in general terms; (6) the principal or general place of business; (7) "the amount of stock each party (incorporator) has subscribed;" (8) the par value of each share and the limit of capital stock agreed upon; (9) the number and kind of officers, the number of directors, their term of office, and who shall constitute the officers and directors until the first annual meeting is held, etc.; (10) how many of the board directors shall constitute a quorum for the transaction of the corporate business; (11) whether or not the private property of the stockholders shall be liable for the corporate obligations; and (12) any other additional matters that the incorporators may "deem necessary for conducting the business of the corporation and for its future safety and welfare."

Section 316 provides that to the foregoing statements "there shall be added the oath or affirmation of three or more of the incorporators, . . . to the effect that they have commenced, or it is bona fide their intention to commence and carry on, the business mentioned in the agreement, and that the affiants verily believe that each party to the agreement has paid or is able to and will pay the amount of the stock subscribed for by him: Provided, that said affidavit shall not be made until at least ten per cent. of the stock subscribed for by each stockholder and not less than ten per cent. of the capital stock of the corporation has been paid in: . . . Provided, further, that where subscriptions to the capital stock of any corporation formed under the provisions of this chapter shall consist, in whole or in part, of property necessary to the pursuit agreed upon, there must appear in the articles of incorporation a description of the property so taken, with a statement of the fair cash value thereof, which statement . . . shall be supplemented by the affidavits of three persons, to the effect that they are acquainted with said property, and that it is reasonably worth the amount in cash for which it was accepted by the corporation."

Section 332 reads as follows:

"The stockholders of any corporation may regulate the mode of making subscriptions to its capital stock and of calling in the same by by-laws or by express contract."

What is there in any one or all of these sections that prevents any number of individuals from entering into an agreement whereby they agree among themselves that, in case a certain corporation is organized, each of them will become a stockholder therein and will take and pay for a specified amount of the capital stock to be issued when the corporation is organized? If such an agreement is sufficiently specific in its terms so as to make clear just what the parties agree to do and states the amount of stock that each subscriber agrees to take, why are not the signers to such an agreement bound in case a corporation is organized in accordance with the terms of the agreement and as provided by the latter? Certainly, in the absence of a statute prohibiting it, neither good morals nor sound public policy does so. Indeed, both public policy and good morals would require its enforcement. The statute is very clear that, in case it is proposed to organize a corporation with a large number of stockholders, it is only necessary that the names of five incorporators be inserted in the articles of incorporation, together with the amount of the capital stock that each of them agrees to take, and that those five and no more need to sign the articles. It is true that the incorporators must set forth the amount of the capital stock agreed upon and the number of shares into which it is divided and the par value of each share; but the statute does not require, nor would it always be practical, to either state the names of all the prospective stockholders nor the exact amount of stock that each one will ultimately take. Besides, section 332 in express terms confers power upon the stockholders to "regulate the mode (manner) of making subscriptions to its capital stock and calling in the same by by-laws or by express contract." Since it may be done by express contract shows that it was intended that a contract to that effect may be entered into even before the corporation is organized, and the contract agreement is enforced if a corporation is in fact organized. It would hardly be necessary to enter into a contract after organization where the thing could be reached by regulation or by by-laws, but a contract would be necessary if it were attempted to be done before organization.

But counsel contend that section 316 provides that "at least ten per cent. of the stock subscribed by each stockholder" must be paid in before the corporation is authorized to commence business. From this counsel argues that, because appellant did not pay in ten per cent. of the amount subscribed by him, therefore he did not become a stockholder, and if he did not become a stockholder he is not bound. We think that there are two answers to this contention:

(1) If it were assumed that, where the whole subscription is to be represented by cash, each subscriber must pay ten per cent of his subscription before the corporation is authorized...