
    CASE 63. — ACTION BY JOHN F. PETERSON, T. A. BEAV1N AND JOHN M. MAHON AGAINST THE CHICAGO BUILDING & MANUFACTURING COMPANY.
    April 30, 1909.
    Chicago Bldg. & Mfg. Co. v. Peterson
    Appeal from Marion. Circuit Court.
    I. H. Thurman, Circuit Judge.
    Judgment for plaintiff, defendant -appeals.
    Reversed.
    1. Corporations — 'Subscription to Stock- — Construction.—-A contract was entered into between subscribers to -a voluntary association and a,, manufacturing company, whereby the subscribers each agreed to subscribe to one share- of stock, -and the -company agreed for a certain price, to he paid from the subscriptions, to erect a butter factory, the balance of the '.subscriptions to be -delivered to a corporation which was to he formed by the subscribers, -and provided th'at for any unpaid or deferred balance of subscription all delinquent sub-crdbers should he jointly liable, that as s.oon as the -corporation was formed, stock certificates should fee -issued to each paid-up stockholder, and that pursuant to the laws of his state, etc., each stockholder should he liable fo-r the amount jo«f stack set opposite his name, and no more. Nine sub- ■ iscribers to one share, each of the par value of $100, refused to pay their subscriptions. Held, that they were jointly and severally liable for the total amount due from them, the provisions for limitation of liability to the amount of stock [subscribed by each having reference solely to the rights -and liabilities of stockholders in the corporation which was to ■ be formed.
    /2. Corporations — -Subscriptions to Stock — Construction.—As each subscriber could extinguish his liability by paying the amount of 'his subscription, there was no liability on the part of a single subscriber for the whole amount to be paid the building company; the liability of the subscribers being several, unless they elected to make it joint by becoming delinquent.
    3. Appeal -and Error — Decision Reviewable — Court of Appeals— Amount in Controversy. — The liahilily of each of the nine delinquents being for the entire $900 the Court of Appeals had jurisdiction of appeals, in actions brought by them against thie building ■ company to have their subscriptions declared void. <
    
      4. Subscriptions — .Construction.—Where ’ a subscription paper, signed by subscribers to stock in an enterprise, consisted of 'one sheet of paper folded so as to make four pages, the first page containing the specifications of the building the other party to the contract proposed to erect; the second page con- ■ itaining the contract between the subscribers and the other party; the third page containing blank columns in which to insert the names of the subscribers, and the numbers of shares of stock subscribed for by each, presenting, at the top of the page over one column, the word® “names of stock subscribers,” over the next words “numbers of shares,'" and over the next “amount of stock subscription”: and the fourth page containing a diagram of the factory to be erected — held, that the paper embraced a single contract, the page containing the subscribers being their acceptance of the terms thereof.
    5. 'Corporations — Stock Subscriptions — Right of Subscriber to Withdraw. — Where numerous persons agreed with each other and with a building company that they would pay the amount 'of stock subscribed by them to establish a butter factory, and when the plant was completed by the building company they would organize themselves into a corporation, none of them could, in the absence of fraud or 'other good cause, withdraw before the corporation was formed', and avoid payment of his subscription.
    6. Corporations — ¡Subscriptions to Stock — Validity—Failure to Read Before Signing. — That persons signing -a written contract of subscription to stock failed to rea'd or understand it 'before signing would not relieve them from liability thereon in the absence of fraud.
    JOHN Mc.CHORD for 'appellant.
    W. W!. SPALDING, H. W. RIVES and P. K. McBLROY for appellees.
    No briefs record out of office.
   Opinion of the Court by

Judge Carroll

Reversing’.

These three appeals, involving the same questions of law, will be ’disposed of together.

In July, 1908, the appellant company, which wias «ng'aged in erecting creamery or butter factories, sent one of its agents, to St. Marys, in Marion county, for the purpose of interesting the farmers of that community in establishing a factory. The. agent was successful in securing 55 persons to subscribe for one share of stock each of the par value of $100. The subscription paper signed by all of the subscribers consisted of one sheet of paper, folded so as to make four pages. The first page' contained the specifications of the building the manufacturing company proposed' to erect; the second page contained the com tract between the company and the subscribers; the third page contained blank columns in which to insert the names of the subscribers and the number of shares of stock subscribed for by each. At the top of this page there is printed over one column the words “names of stock subscribers,” over the next, the words “number of shares,” and over the next “amount of stock subscription.” The fourth page contained a diagralm of the factory. The contract on the second page reads in part -as follows: “WitnesS" eth: That the first party hereto until full and final payment of this contract is a voluntary association of person's in and around the city of St. Marys, county of Marion, and State of Kentucky, and known as the St. Marys Creamery Association, and who will subsequently organize themselves into a going corporation, to permanently conduct the creamery business as contemplated herein. The second party hereto is the Chicago Building & Manufacturing Company, manufacturers and builders, doing a manufacturing and wholesale business solely from Chicago, Illinois. On the 6th dlay of January, A. D., 1908, the said parties execute the following contract, to-wit: In consideration of the entire purchase price of forty-nine hundred and fifty ($4,950) dollars, which first party herein pledges itself to pay in cash or equivalent note, as hereinafter specified, second party and successors agree, as follows: To devise, erect, equip and deliver, on land hereafter to be acquired, a butter factory, at or near St. Marys, Ky., to be delivered at any time within ninety days from date of final approval to said contract, unavoidlaible accidents and delays excepted. (Then follows a description of the factory to be erected.) First party and successors further agree as follows: On notice from second party to appoint a building committee, consisting of not inore than five persons, with conclusive authority to represent first party from date of appointment, till final settlement and permanent organization of the future corporation. Within three days thereafter said committee, at expense of first party, shall procure and purchase in fee simple suitable level land with good legal title and to furnish thereon, in time for the builder, suitable water for direct connection with pump for the needs of said factory, and properly assign iand describe said site to second party, to be held in trust for first party till full discharge of this contract agreement by first party. Said Committee shall inspect work and material during construction and shall specify in writing to second' party any defects therein, if any, at occiirrence, to he remedied within a reasonable time. At date of delivery said committee shall meet with a representative, of second party and together compare the details of said factory, and if it is in substantial accordance with the within contract and specifications, with the machinery and fixtures set up in a workmanlike manner, second party’s discharge of this • contract is complete and payment is due thereunder. * * * For any unpaid or deferred balance of 'subscription, all delinquent subscribers are jointly liable and first party agrees that any failure in any of its covenants may he construed as a joint and total breach of the within contract. * * * All remaining subscriptions or note balance, after said association’s entire indebtedness to second party has been so paid, shall be duly assigned to the said corporation for a working capital. After payment and delivery has been made, as 'above, said association shall organize a co-operative society under State law, fixing aggregate amount of stock at not less than the amount subscribed hereto, represented by stock certificates for $100 each. Said certificates will then be issued to each paid-up stockholder, in proportion to his interest, it being especially agreed that there can be no default, withdrawal or transfer of subscription or stock until lawfully entered on the books of said future corporation by its regulárly elected officers. Pursuant to the laws of his State and these conditions, it is agreed that each stockholder shall be liable for the amount of stock set opposite his or her name and no more.”

On September 1, 1908, the manufacturing company executed the following additional Obligation: “The Chicago' Building & Manufacturing Company, of Chicago, Illinois, hereby agrees that it will carry out in full the conditions' of its contract made July 6, 1908, with the subscribers to the St. Marys Creamery Association and guarantees that it will collect by suit or otherwise the subscription contract amounting to $5,500.00, and will turn over to said association through its duly .authorized agent the surplus of $550.00 as a running fund, as soon as collection is mJade by said company or as soon as said manufacturing company has had reasonable time to coerce payment of said subscription list. Said manufacturing company guarantees the collection of said subscription list for the purpose of satisfying the cost of the creamery and said working fund.”

It appeiars that 46 of the subscribers paid their subscriptions in full, and on the 21st day of September, 1908, a committee of 5, appointed by the subscribers to examine the factory that had just been completed by the company, certified in writing that it was finished according to the specifications and contract, and accepted t'he same. But, previous to this time, and on August 27, 1908, the appellees instituted separate actions against the appellant company, in which they asked to have their several subscriptions declared void, and that the, company be required to erase and cancel their respective names from the subscription list, land be perpetually enjoined from asserting any claim against -either of them on account of said subscription. They -sought this- relief upon the ground that the agent who secured the subscriptions practiced a fraud upon the subscribers by representing, as an inducement to obtain their subscriptions, that the Company was going to erect a creamery at St. Marys, and organize the company to operate it, and that -the stock would be $100 per share, and the cost of the plant $4,950, and that the company would guarantee dividends of 6 per cent, on the stock, and, further, that the president of the Marion National Bank ’had agreed to take two shares of stock, and to furnish to the creamery the milk of 20 cows. They averred that in subscribing they did not know they were signing any contract as individuals, but supposed they were obligating themselves to take stock to the amount of their subscription in the company that would be organized. When the case came on .for trial, the company filed an answer and counterclaim, in which, after traversing the averments of the petition, and setting up the facts hereinbefore stated in ref-.ere-nee to the completion of the creamery, arid its acceptance by the subscribers, it asked judgment against each of the appellees for the amount of their respective subscriptions. A general demurrer to this pleading was sustained, and thereupon an amended answer, counterclaim, and cross-petition was- filed. In this pleading it was averred that ail of the subscribers had paid their subscriptions, -except 9, and that each of these 9 had filed suits similar to the ones brought by these 3; that of the $4,600 received from the paying subscribers, it had retained $4,050, and had paid $555 to the creamery company, leaving $900 due to it las a balance on the construction price of the factory. It further averred that the paying subscribers had in October, 1908, organized a corporation under the laws of the State for the-purpose -of operating the creamery. It set up the -stipulation in the contract providing that “For -any unpaid or deferred balance of subscription, (all delinquent subscribers are jointly liable and first -party agrees that any failure in any of its covenants may be construed as a joint and total breach of the within contract,” and asked that the 9 actions brought by the 9 delinquent subscribers be consolidated, and that it have judgment against each and all of them jointly and severally for the sum of $900. To this pleading a demurrer was sustained, and a judgment entered canceling each subscription, 'and enjoining the manufacturing company from asserting any claim against the subscribers on account of their several subscriptions.

The first question raised is, Has this court jurisdiction of the appeal? It is the contention of appellees that each subscriber was only liable for the amount of his subscription; and, as each subscription was only for $100, this court has not jurisdiction. On the other hand, the manufacturing company insists that each of the delinquent subscribers is jointly and' severally liable for the total atolount of delinquent •subscription, land hence it was entitled to judgment against each of them jointly and severally for $900, and so this court has jurisdiction, and the power to review the judgment dismissing its answer, counterclaim, and cross-petition which sought judgment for this amount. In addition to this it is said that, as the actions by the appellees were not brought for the recovery of money o>r property, but for the purpose of having their subscriptions canceled, this court would have jurisdiction even though it be conceded that the amount in controversy in each case was only $100. In the view we have of the matter it does not seem necessary to pass upon the question whether this court would have jurisdiction if the only relief sought and granted was the cancellation of a subscription for $100. Tn our opinion, under the terms of the contract, elach of the delinquent subscribers was liable, jointly and severally, for the total amount due by the delinquents. This seems to be the plain reading of the contract. Nor is there any conflict between the clause in the contract containing this condition and the clause stipulating, “Pursuant to the laws of his State and these conditions, it is agreed that each stockholder shall be liable for the amount of stock set opposite his or her name and no more.” This last provision has reference to the rights and liabilities of the stockholders in the corporation it was contemplated and agreed in the contract should be created. Whereas the provision that “for any unpaid or deferred 'balance of subscription all delinquent subscribers are jointly liable” has reference to the liability of the subscribers in the voluntary association that was organized for the purpose of erecting the factory. Under this construction, which seems to be the reasonable one, both clauses may stand, and the contract as a whole remain a harmonious instrument.

In its inception, and when the contract in controversy was “signed by the subscribers, it was merely a voluntary association; but it was contemplated, and so provided in the contract, that the members of this voluntary association “will subsequently organize themselves into a going corporation to permanently conduct the creamery business as contemplated herein.” In the corporation to be organized the manufacturing cotnpany had no interest or concern. It was only interested in obtaining the requisite number of subscriptions to the voluntary association to guarantee the purchase price of the plant it proposed to erect. The whole paper must be construed as one contract, and the page containing the names of the subscribers be treated as their acceptance of the terms of the contract. We find nothing unconscionable or against public policy in this contract. The manufacturing company obligated itself to furnish for a specified sum a plant equipped according to the plans and specifications that were a part of the contract, and the subscribers bound themselves to pay for the stock they took in the association. They further agreed that, if any of them failed to play when due the amount subscribed, each subscriber so in default would be jointly and severally liable for all delinquent subscriptions. In other words, each subscriber said, “I will either pay the amount I 'have subscribed, or if I fail to pay, I will become responsible for all the others who Sail to pay their subscriptions.” Any subscriber could extinguish his liability by paying the amount of his subscription. It was only in the event that he failed to pay his subscription that his obligation to become responsible for the other delinquent subscriptions attached. So that there is no foundation in fact for the argument presented by counsel ■ for appellees that each subscriber bedame liable for the whole aamount they agreed to pay the manufacturing company. The person who first subscribed for one share of stock, as well as the person who last subscribed for a share, could relieve himself from any further liability by paying, when due, the amount subscribed. .They did not become liable for any other unpaid or deferred subscription unless they were also delinquent. The clause covering this feature of the contract is plain. It reads: “For any unpaid or deferred balance of subscription, all delinquent subscribers are jointly liable.” Except for this clause, which was evidently inserted for the purpose of inducing all of the sub • scribers to pay the amount of their., subscription, no one of them would be liable for any more than the amount he subscribed. The liability of the subscribers was la several one, unless they elected to make it a joint one by becoming delinquent The contracts construed in Davis v. Belford, 70 Mich. 120, 37 N. W. 919, Gibbons v. Grinsel, 79 Wis. 365, 48 N. W. 255, and Davis, etc., Co. v. Barber (C. C.) 51 Fed. 148, did not contain the joint liability clause we are considering.

The further argument is made that the appellees had the right, lat any time before the voluntary association was converted into a corporation, to" withdraw their subscriptions; and, as this action was instituted in August, 1908, and the corporation was not organized until October, 1908, it is said that appellees had the right to withdraw, iand that after their withdrawal they could not be proceeded against on their subscriptions; that the remedy, if any, against them would be an action in damages. There is some authority supporting this view. Bryant’s Pond Steam Mill Co. v. Felt, 87 Me. 234, 32 Atl. 888, 33 L. R. A. 593, 47 Am. St. Rep. 323; Davis v. Bronson, 2 N. D. 300, 50 N. W. 836; 16 L. R. A. 655, 33 Am. St. Rep. 783. It does not, however, seem necessary that we should express an opinion as to the right of a subscriber to stock in a proposed corporation to withdraw his subscription before the corporation is organized. That question is not before us on this record. The subscribers to the contract we are considering bound themselves to pay to the manufacturing company a certain sum in consideration of its lagreement to erect and equip a factory according to the specifications agreed upon. Upon 'this state of facts we are of the opinion that, in the absence of fraud, mistake, or some other good reason that would authorize a cancellation of the subscription, the subscribers could not defeat the purpose of the association, or relieve themselves from liability to the company, simply by declaring that they intended to withdraw from the association. In Twin Creek & Colemansville Tp. R. Co. v. Lancaster, 79 Ky. 552, 3 R. 368, Lancaster and others subscribed stock in a corporation proposed to be organized for the purpose of constructing turnpike roads. After the company w;as organized, some of the subscribers declined to play, andan action to recover the amount of their subscription was instituted against them. In the course of the opinion holding them liable, the court said: 1‘ The purpose of signing the subscription was to enable the subscribers to organize and form a corporation that Would inure to the benefit of all. It was in fact a mutual agreement 'by which each subscriber pledged himself to pay a certain sum of money in order to perfect the organization and complete the enterprise. A subscriber or'partner in an intended undertaking, subscribing an agreement to take measures to carry out the same, cannot discharge himself from liability, or repudiate the concern to which he may have pledged himself. This was not in fact an agreement to subscribe, but it was a subscription without any other condition than the organization of the company or corporation. * * * There was no other condition annexed. * * * The agreement in this case is not & mere voluntary donation by the appellees, but an agreement, in effect, to form an association which, when organized and the enterprise completed, will vest the parties with a right of property that will advance their private, as well fas the public, interests; and in such a case we regard the doctrine as well settled that it is too late after the act of incorporation, takes place, whether the work has or not been undertaken, to withdraw from the association.” Tins case was followed in Bullock v. Falmouth, etc., Tp. R. Co., 85 Ky. 185, 3 S. W. 129, 8 R. 835, and Cadiz R. Co. v. Roach, 114 Ky. 931, 72 S. W. 280, 21 R. 1761. And we see no difference in principle between the rule announced in those cases and the one we have applied in this. The parties to this contract agreed, not only with the manufacturing company, but with each other, that they would pay for the purpose of establishing the proposed enterprise the amount of stock subscribed, and further 'agreed that when the plant was completed they would organize themselves into a corporation. Thus a complete and binding contract was entered into by each of the subscribers, and neither, in the absence of fraud or other good cause, had the right to withdraw from the corporation, nr fail to pay his subscription and thereby defeat the ends intended to be accomplished when the contract of subscription was entered into. Cross v. Pinckneyville, 17 Ill. 54; Hughes v. Antietam Mfg. Co., 34 Md. 316; Johnson v. Wabash R. Co., 16 Ind. 389; Gibbons v. Bente, 51 Minn. 499, 53 N. W. 756, 22 L. R. A. 80. The manufacturing; company was only interested in the subscriptions to the extent of the contract price of $4,950, After this sum had been collected, the remainder of the subscriptions belonged to the voluntary subscribers, arid was intended to be, as expressed in the contract, turned over to the corporation for a working capital. If one of the subscribers could withdraw, others could, of course, do the slame, and the result would be that the purpose for which the association was formed would be defeated. It would be the merest child’s play to permit persons to enter into voluntary 'agreements of this kind one day arid repudiate them the next. It may be, as said by counsel for appellees, that if these subscribers had known the termis of the contract, they would not have subscribed to the enterprise, but the fiact that they did not see proper to read or understand the contract is no reason why they should be released. Their failure to read it is another of the many illustrations that colme before courts that persons entering into contracts read them after they have signed them, in place of before.

The judgment in each case is reversed, with directions to overrule the demurrers to the pleadings filed by appellant and for other proceedings not inconsistent with this opinion. ,  