Dummy stockholders.

Those who sign the articles of association must be taken to have assumed the responsibilities and to have the rights of stockholders, in the absence of further evidence, even though it appears that their shares were paid for by one of the incorporators and that they took shares at his request.587

b. Nature of subscription for stock.

An agreement to take stock in a corporation is an offer which becomes a binding contract only when accepted by the corporation after its organization.588

"The corresponding agreements of the other subscribers, the organization of a corporation, and the allotment to the defendant of the shares for which he subscribed, furnish sufficient consideration for his promise to take and pay for those shares. Although his promise was originally voluntary or in the nature of a mere open proposition, yet having been accepted and acted on by the party authorized to do so, before he attempted to retract it, he has lost the right to revoke. His proposition has become an accepted mutual contract, and is binding upon him as well as upon the corporation." 589

"The admission of the subscribers as stockholders is the consideration for their promises to pay, and the corporation can recover the amount agreed to be paid, not merely as a debt due to the corporation, but as a part of the capital stock which the subscribers have agreed to furnish and put at the risk of the business. The unpaid subscriptions are a trust fund held for

587 Bi-Spool Sewing Machine Co. v. Acme Co., 153 Mass. 404, 408. Cf. England v. Dearborn, 141 Mass. 590.

588 Hudson Real Estate Co. v. Tower, 156 Mass. 82; Hudson Real Estate Co. v. Tower, 161 Mass. 10; People's Ferry Co. v. Balch, 8 Gray, 303, 310; New Bedford & Bridgewater Turnpike v. Adams, 8 Mass. 138; Essex Turnpike v. Collins, 8 Mass. 292; Kennebec & Portland R. Co. v. Palmer, 34 Me. 366; Penobscot R. Co. v. Dummer, 40 Me. 172; Richmond Factory v. Clarke, 61 Me. 351; Starrett v. Rockland Ins. Co., 65 Me. 374; Skowhegan, etc., R. Co. v. Kinsman, 77 Me. 370; Athol Music Hall v. Carey, 116 Mass. 471; Cottage St. Church v. Kendall, 121 Mass. 528; Gray v. Portland Bank, 3 Mass. 364; Sewall v. Eastern R. Co., 9 Cush. 5.

589 Athol Music Hall Co. v. Carey, 116 Mass. 471, 474, per Wells, J. Cf. Phillips Limerick Academy v. Davis, 11 Mass. 113, 116, 117.

the benefit of the creditors of the corporation, and any creditor whose debt has been reduced to a judgment, and who has been unable to obtain satisfaction of it from the corporation, may, under the general jurisdiction of a court of chancery maintain a bill to apply these subscriptions to the payment of his judgment."

"" 590

The mere declaration of a member of a corporation at one of its meetings that he will contribute half of his estate to the purposes of the corporation is not a promise to pay assessments to that amount, for the corporation cannot make a verbal contract except through some duly authorized officer or agent.591

The fact that by reason of a gratuitous promise to a corporation, others are induced to subscribe, is no consideration for the gratuitous promise; the latter can be binding only if it is accepted or acted upon by the corporation.592 "In every case in which this court has sustained an action upon a promise of this description, the promisee's acceptance of the defendant's promise was shown, either by express vote or contract, assuming a liability or obligation, legal or equitable, or else by some unequivocal act, such as advancing or expending money, or

590 Pettibone v. Toledo, etc., R. Co., 148 Mass. 411, 414, per Field, J., citing Sawyer v. Hoag, 17 Wall. 610; Hatch v. Dana, 101 U. S. 205; Morgan v. Allen, 103 U. S. 498; Bartlett v. Drew, 57 N. Y. 587. In the principal case, the court held that subscribers for bonds were not in the same position as subscribers for stock.

591 Andover & Medford Turnpike v. Hay, 7 Mass. 102, 107.

592 Cottage St. Church v. Kendall, 121 Mass. 528, overruling dicta in Hanson Trustees v. Stetson, 5 Pick. 508, Ives v. Sterling, 6 Met. 310, 316, Watkins v. Eames, 9 Cush. 539; Sherwin v. Fletcher, 168 Mass. 413. See also Phillips Limerick Academy v. Davis, 11 Mass. 113; Williams College v. Danforth, 12 Pick. 541; New Bedford Turnpike v. Adams, 8 Mass. 138; Essex Turnpike v. Collins, 8 Mass. 292; Holmes v. Dana, 12 Mass. 192; Bryant v. Goodnow, 5 Pick. 228; Amherst Academy v. Cowls, 6 Pick. 427; Fisher v. Ellis, 3 Pick. 322; Thompson v. Page, 1 Met. 565; Mirick v. French, 2 Gray, 420; Ladies Collegiate Institute v. French, 16 Gray, 196; Athol Music Hall Co. v. Carey, 116 Mass. 471.

erecting a building, in accordance with the terms of the contract, and upon the faith of the defendant's promise." 593

Nor is the mere organization of the corporation an acceptance of the offer to subscribe, and an acceptance can be made only by vote of the corporation, or by some officer of the corporation duly authorized to make it.594

A subscription paper made before the organization of the corporation, but after the act of incorporation is passed, is prima facie evidence that the persons whose names are thereon are members of the corporation.595 So also is evidence that such persons petitioned for an act of incorporation, or, being within the description of persons incorporated, acted under it as by attending organization meetings, inviting and distributing votes and voting themselves.596

e. Promise to take shares and the promise to pay assessments.

The offer, when accepted, creates two distinct undertakings on the part of the subscriber; first, to take the shares, and, second, to pay any instalments of the price when duly called for. This is shown by the fact that a waiver of a condition on which one agrees to take stock is not a waiver of the same condition as regards payment.597

The present act gives to the corporation a right of action either before or after the sale of his rights. The subscriber is therefore liable to pay his assessments without any express promise.598

598 Cottage St. Church v. Kendall, 121 Mass. 528, 530, per Gray C. J., citing the cases in the last note.

594 Essex Turnpike v. Collins, 8 Mass. 292.

595 Lexington, etc., R. Co. v. Chandler, 13 Met. 311.

596 Ellis v. Marshall, 2 Mass. 269; Lexington, etc., R. Co. v. Chandler, 13 Met. 311.

It was said in one

597 Atlantic Cotton Mills v. Abbott, 9 Cush. 423, 426. 598 Historical. Formerly the law was otherwise. case, for example: "It is the well settled law of this Commonwealth, that a subscription, authorized by law to lay assessments upon shares and to sell the shares for the non-payment of such assessments, does not impose any personal liability upon the subscriber to pay assessments upon the shares, unless he has expressly promised to do so." Katama Land Co. v.

The provision of the present act giving the corporation the right to collect subscriptions either by sale of the shares or by action, is an enactment of the previous law, holding that the remedies were cumulative and not mutually exclusive.599

Jernegan, 126 Mass. 155, 156, per Morton, J.; Mechanics, etc., Machine Co. v. Hall, 121 Mass. 272; Andover & Medford Turnpike v. Gould, 6 Mass. 40, 44; Franklin Glass Co. v. White, 14 Mass. 286; Cutler v. Middlesex Factory Co., 14 Pick. 483; Salem Mill Dam Corporation v. Ropes, 6 Pick. 23, 31; Atlantic Cotton Mills v. Abbott, 9 Cush. 423; Farmington Academy v. Allen, 14 Mass. 172, 175; Phillips Limerick Academy v. Davis, 11 Mass. 113; New Bedford Turnpike Co. v. Adams, 8 Mass. 138, 142; Belfast & Moosehead R. Co. v. Moore, 60 Me. 561; Belfast & Moosehead R. Co. v. Cottrell, 31 Me. 470. Cf. Bryant v. Goodnow, 5 Pick. 228; Bridgewater Academy v. Gilbert, 2 Pick. 579. Conversely, where a subscriber had promised to pay assessments he was liable in an action at law. New Bedford & Bridgewater Turnpike Co. v. Adams, 8 Mass. 138; Salem Mill Dam Corp. v. Ropes, 6 Pick. 23; Salem Mill Dam Corp. v. Ropes, 9 Pick. 187; Taunton & South Boston Turnpike v. Whiting, 10 Mass. 327; Worcester Turnpike v. Willard, 5 Mass. 80; Ripley v. Sampson, 10 Pick. 371; Chester Glass Co. v. Dewey, 16 Mass. 94; City Hotel v. Dickinson, 6 Gray, 586; Boston, etc., R. Co. v. Wellington, 113 Mass. 79. See Amherst Academy v. Cowls, 6 Pick. 427; Williams College v. Danforth, 12 Pick. 541. The reason of this was, that unless a statute expressly gave the right of action against the subscribers, the corporation had no common-law right to assess the corporators and compel them to pay in an action at law. Andover & Medford Turnpike v. Gould, 6 Mass. 40, 43.

Cutler v.

The general statutes of 1804 and 1808 gave no such power. Middlesex Factory, 14 Pick. 483; Franklin Glass Co. v. White, 14 Mass. 286; Andover Turnpike v. Gould, 6 Mass. 40; Andover Turnpike v. Hay, 7 Mass. 102; Bedford Turnpike v. Adams, 8 Mass. 138; Ripley v. Sampson, 10 Pick. 371.

Where a corporation could not sue directly to recover, it could not recover indirectly by setting off assessments against debts owing to the subscriber. Cutler v. Middlesex Factory Co., 14 Pick. 483.

A promise to pay assessments could be implied where the subscriber had been one of the incorporators and participated in their acts. Farmington Academy v. Flint, 14 Mass. 175. Cf. Holmes v. Dana, 12 Mass. 192; Bryant v. Goodnow, 5 Pick. 228. So where he had sent his servants to work out part of his subscription. Farmington Academy v. Allen, 14 Mass. 172.

599 Worcester Turnpike v. Willard, 5 Mass. 80; New Bedford & Bridgewater Turnpike v. Adams, 8 Mass. 138, 141; City Hotel v. Dickinson, 6 Gray, 586; Boston, etc., R. Co. v. Wellington, 113 Mass. 79, 86, 87; Salem Mill Dam v. Ropes, 6 Pick. 23; Ripley v. Sampson, 10 Pick. 371. This was so under the prior law, even if the subscription paper contained an express promise to pay any deficiency arising from the sale of shares for less than par. Boston, etc., R. Co. v. Wellington, 113 Mass. 77, 86, 87.

f. Withdrawal and release of subscription.600

From the fact that a subscription is an offer, it may be withdrawn before the organization of the corporation and its acceptance of the offer.601 "Until the organization of the corporation, the subscription is a mere proposition or offer, which may be withdrawn like any other unaccepted offer. Unless the signer is bound upon a contract, he is not bound at all. It is open to him to withdraw. It is not upon the ground that there was no sufficient consideration. The seal would do away with any doubt on that score. But it is on the ground that, for the time being and until the corporation is organized, the writing does not take effect as a contract, because the contemplated party to the contract, on the other side, is not yet in existence, and for this reason, there being no contract, the whole undertaking is inchoate and incomplete, and since there is no contract the other party may withdraw." 602

A subscriber has, therefore, the right to withdraw although all of the other subscribers object,603 and although action has been taken on the strength of the subscription.604

But, after the corporation is organized, the directors, in the absence of a statute, by-law or vote of the corporation, have no power to release a subscriber from his obligation as to any part of the shares for which he has subscribed.605

In order to effect a withdrawal of a subscription some unequivocal statement to that effect must be made to the proper

600 As to compromise with a subscriber, see infra, under y.

601 Hudson Real Estate Co. v. Tower, 156 Mass. 82; Hudson Real Estate Co. v. Tower, 161 Mass. 10; Essex Turnpike v. Collins, 8 Mass. 292; Bryant's Pond Steam Mill Co. v. Felt, 87 Me. 234; Munsy Traction Engine Co. v. Green, 143 Pa. St. 269.

602 Hudson Real Estate Co. v. Tower, 156 Mass. 82, 83, 84, per Allen J. 603 Hudson Real Estate Co. v. Tower, 161 Mass. 10.

604 Hudson Real Estate Co. v. Tower, 161 Mass. 10; Hudson Real Estate Co. v. Tower, 156 Mass. 82.

605 Hastings Lumber Co. v. Edwards, 188 Mass. 587. Cf. Penobscot, etc., R. Co. v. Dunn, 39 Me. 587; White Mountains Railroad v. Eastman, 34 N. H. 124; Meyer v. Blair, 109 N. Y. 600.