38 A. 116 | R.I. | 1897
In the opinion heretofore given in this case1 it was held that the by-laws of the defendant corporation providing for the right of preemption of the stock in question was invalid. Since the rendition of that opinion the defendant by leave of court, has filed additional pleas setting up that, by virtue of an agreement entered into on July 27, 1892, between the subscribers to the stock of the then proposed corporation, and also of an agreement between said subscribers and the corporation on August 10, 1892, the stock in question could not be transferred without first giving to the corporation the option of purchase.
Without referring to the voluminous pleadings in detail, it is sufficient to say that the main question now raised thereby is whether the alleged agreements had the effect to bind the plaintiff's vendor, William R. Stearns, who was one of said subscribers, to offer the stock in question to the defendant corporation, at the lowest price at which he was willing to sell, before selling said stock to the plaintiff.
The case shows that, although the defendant corporation was organized at Saco, Maine, on the 10th of August, 1892, under the laws of the State of Maine (see cap. 48, §§ 16-19, printed in connection with our former opinion), as alleged in defendant's pleas, yet that it did not become a corporation, so *192
as to be able to transact business, until the 31st of August, 1892, at which time the certificate required by section 19 of said chapter was filed with the secretary of State. And this being so, we fail to see any force in the alleged contract with the corporation prior to that time. In other words, the contract or agreement set up by defendant was made before the corporation was in existence as a legal entity. And it is hardly necessary to argue against the power of a person not in being (if indeed there can properly be said to be such a person) to make a contract. A corporation like the defendant is purely a creature of statute and only exists, for the transaction of business, when all of the requirements prescribed for the creation thereof have been complied with. In Thompson on Corp. vol. 1, § 480, the learned author says: "The corporation must have a full and complete organization and existence as a legal entity before it can enter into any kind of a contract or transact any business." In Gent
v. Ins. Co.,
It is to be observed, in this connection, that there is a manifest difference, as to the effect of omission of the requirements of the law in the organization of corporations, between a case where the corporation is created by special charter and there have been acts of user, and a case where individuals seek to form themselves into a corporation under provisions of the general law. In the latter case, which is the one before us, it is only in pursuance of the provisions of the statutes for such purposes that corporate existence can be acquired. Bigelow v. Gregory,
But defendant contends that the case presented is not that of an agreement between the promoters of a corporation and other parties, but is that of an agreement between the incorporators themselves. But suppose it is; how does that change the case? It is then only a contract between the incorporators, or rather the proposed incorporators, individually, and not one of which the defendant can avail itself. And, therefore, even assuming that a contract between said proposed incorporators not to transfer their stock, when obtained, without giving the option of purchase to the corporation, would be binding on them as individuals, yet the only remedy for a breach of such contract would be a personal one against the offending stockholder. Thus in Carmody v.Powers,
The case of Vansands v. Bank,
The case of Waln's Assignee v. Bank, 8 Serg. Raw. 86, which is specially relied on by defendant, is very similar to the one just cited. There the court found that, by a long usage and course of dealing well known to and acquiesced in by the assignor of the stock in question, the bank had a lien on the stock for the indebtedness to it of its stockholders; and that the plaintiff, who was the assignee of Waln, and therefore stood precisely in his situation, was bound by the custom, usage and well known understanding, which was tantamount to a contract with the bank, regarding the transfer. In this case, as in the other, it will be seen that there were two parties fully competent to enter into the contract in question.
McCready v. Rumsey, 6 Duer, 574, is also similar to the cases just referred to, except that there, under the articles of association, no stockholder could transfer his shares while he was indebted to the bank. And the court held that the assignee *195 of the stockholder, as his successor and under the statute, took the stock subject to the same liabilities.
In re Dunkerson, 4 Biss. 227, is a case where the articles of association expressly authorize the restriction on the sale of the stock, which is contained in the by-law, and hence was properly held to amount to a binding contract between the subscribers and the bank.
Bank v. Laird, 2 Wheat. 390, is a case where the act of incorporation provided that no stockholder should transfer his stock until his indebtedness to the bank was satisfied, unless the president and directors should direct to the contrary.
In Stebbins v. Ins. Co., 3 Paige, 350, also, the act of incorporation prohibits a transfer of stock until the stockholder's liabilities to the corporation are satisfied.
We have examined the numerous other cases cited by defendant's counsel in his elaborate brief bearing upon the questions under discussion, but we do not find that they sustain the position taken. But, even admitting that they do, the decided weight of authority, as well as the better reason, is to the contrary. Even conceding, therefore, that the defendant's contention as to the validity and effect of such an agreement or contract as is set up in its pleas, when made between parties who are competent to enter into it, is correct, yet, as no binding contract and, indeed, no contract at all, is shown to have been made between Stearns and the defendant corporation regarding the restrictions on the transfer of the stock, as claimed, by reason of the fact that the defendant was not capable of making it, the entire defence, in so far as said pleas are concerned, necessarily fails.
It is earnestly insisted by defendant's counsel, however, that the agreement in question, although made before the corporation was in existence, became operative upon the complete organization thereof, by reason of the issuance of stock to the subscribers, including said Stearns.
It is to be observed, incidentally, that the defendant does not allege in its pleas that any ratification of the contract, said to have been made on August 10, 1892, ever took place. But even assuming such an allegation therein, we do not *196 think it would be of any avail, so long as there is no vote of the corporation in any way relating thereto; and we do not think that the mere act of the corporation in issuing the certificates of stock to Stearns, after the corporation was in fact in existence, amounted to a ratification by it of a contract made simply between the subscribers to the stock prior to the time when the corporation became a legal entity. In order to avail itself of the agreement alleged to have been made by the incorporators with the corporation before the existence of the corporation, the defendant must, as argued by plaintiff's counsel, show some new and positive act done after its complete organization ratifying said alleged agreement.
The case at bar, in which the defendant seeks to avail itself of an agreement made before its incorporation, differs very materially from the case of a corporation which has accepted the benefit arising from a contract made by its promoters and is held to be bound by such contract.
The English authorities hold that a corporation cannot adopt or ratify a contract made before its incorporation. Kelner v.Baxter, L.R. 2 C.P.C. 174; In re Northumberland, etc., L.R. 33 Ch. Div. 16.
This rule has been followed in Massachusetts. In Abbott v.Hapgood,
Having thus come to the conclusion that the agreement set up in the defendant's pleas is invalid, and that the plaintiff is not bound thereby, any further consideration of the case at this time becomes unnecessary. We desire to add, however, that it has been brought to our notice in the amended pleadings, and also in the defendant's new brief, that there are certain other statutes of Maine in addition to cap. 46, § 6, relied on in our former opinion, relating to the *197 power of corporations to pass by-laws. And the defendant now claims that, under said statutes and the decisions of the Supreme Court of Maine, the by-law aforesaid is valid. As the case is only before us on the amended pleadings, however, and as this question is not discussed in the plaintiff's brief, we cannot now decide it. In view, however, of the importance of the question and of the newly discovered statute aforesaid, a motion for reargument of the original question would be entertained by the court.