California Southern Hotel Co. v. Russell

California Supreme Court Mar 9, 1891 No. No. 13837Published

Before: Belcher

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Holding. The court held that the defendant was not liable for his stock subscription because the condition precedent of obtaining $70,000 in valid, unconditional subscriptions was not met prior to the corporation's formation.

Issues

Whether a subscriber is liable for a stock subscription when the condition precedent of reaching a specific subscription threshold was not met.
Whether unauthorized and conditional subscriptions can be counted toward the threshold required to form a corporation and bind other subscribers.

Disposition. affirmed

Quotations verified verbatim against the opinion

“Under the agreement the subscription of seventy thousand dollars was a condition precedent to the calling of a meeting and forming a corporation. And until that condition was complied with, the defendant incurred no obligation to pay his subscription.”

“The second subscription for ten thousand dollars, having been made without authority, was invalid, and could not be counted in making up the seventy thousand dollars”

“The second and third subscriptions, amounting to twenty-two thousand five hundred dollars, were both conditional, and not absolute.”

Synopsis

Corporations — Subscriptions to Stock — Condition Precedent to Organization. —Under an agreement between the subscribers to a proposed corporation, that a certain amount o£ the capital stock shall be subscribed before a meeting of the stockholders shall be called and the corporation formed, a subscriber incurs no obligation to pay his subscription unless the condition precedent to the organization is complied with.

Id. — Requisite Amount of Stock — Unauthorized Subscriptions — Ratification. — Unauthorized subscriptions of other corporations to the stock of the proposed corporation cannot be counted in making up the requisite amount to be subscribed before organization; and no ratification of the unauthorized subscriptions subsequent to the organization can affect the liability of another subscriber without his consent, if the condition precedent to organization was not complied with.

Id. — Conditional Subscriptions. — Conditional subscriptions cannot be counted in making up the proposed subscription of a certain amount of stock before organization.

Belcher, C. The facts of this case are as follows: Prior to August 17, 1887, the defendant and others signed a paper by which they agreed to and with each other that they would organize and form a corporation for the purpose of erecting and owning a hotel building in the city of San Luis Obispo, and of purchasing all real and peronal property necessary to be used in connection with the said building; that the capital stock of the said corporation should be one hundred thousand dollars, divided into one thousand shares, of the par value of one hundred dollars each; that they respectively subscribed for such number of shares of the stock of the corporation as were set after their respective names, and would pay for the same up to the par value thereof, at such times and in such manner as might be determined by the board of directors of the corporation to be thereafter chosen.

The paper then contains the following clause: “ And we further agree that whenever seventy thousand ($70,000) dollars of said capital stock has been subscribed for, a meeting shall be called for the purpose of electing a board of directors, and taking such steps as are required by law to form the said corporation, and that at such meeting the owners of a majority of said subscribed stock shall constitute a quorum, and are authorized to elect said board of directors, and transact any [279]business necessary to fully complete the organization, of the said corporation.”

The defendant subscribed for ten shares of the stock, and the paper showed subscriptions in the aggregate for 772 shares.

The second and third subscriptions in the list were as follows: —

“ Pacific Coast Steamship Company, for itself and Pacific Coast Railway Company, for amount of freight on furniture and material shipped from ports south of Mendocino and north of San Diego, both inclusive.

[This subscription is in place of and is a substitute for any and all other subscriptions made by or for or on account of the Pacific Coast Steamship Company, or the Pacific Coast Railway Company, for stock of or in any proposed hotel company since the burning of ‘ The Andrews ’ about April, 1886.

Goodall, Perkins & Co., General Agents.]

Estimated about -„ No. shares, 100. Amount,

$10,000.”

California Southern Hotel Co. v. Russell

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