the stockholder has settled for his shares, that is to say paid for them, by giving his promissory note to the company, then the purchaser takes them free of liability. The acceptance of the note by the company ordinarily releases its lien on the shares, and they thereby become " paid-up shares." If, in such a case, the original subscriber, who has given his note to the company in payment of his shares, and who has afterwards transferred them to another, attempts to substitute the credit of that other for his own, this, it seems, can be done in the absence of fraud, and provided the transferee is solvent and capable of taking.1 While the author finds no direct authority on this point, no reason is perceived why one solvent creditor could not, by agreement with all the parties, acting in good faith, be substituted for another. An English case has been found which supports the author's suggestion. A person agreed to take shares in a company incorporated under an act of Parliament providing that the company should not issue any share, nor should any share vest in the person accepting the same, unless at least one-fifth of the amount of the share had been paid. Under the agreement twenty-five shares of £20 each were issued to the applicant, and he gave his check to the secretary of the company for £100; but this check was never presented to the bankers, nor was any payment ever made by the shareholder in respect of the shares. After holding these shares for over a year, he transferred them, which transfer was duly registered, and the name of the transferor was removed from the register of shareholders. The company was subsequently ordered to be wound up, and the name of the transferor was placed upon the list of contributories. On an application to rectify the list, the lord chancellor (Selborne) stated that if the first holder of these shares paid £100 upon them the transfer was valid. If this payment was not made, the transfer was invalid, for the shares did not vest. Could he, then, be made a contributory by reason of his agreement to take shares? This agreement rested wholly in fieri, and was capable of being discharged by a fresh agreement. The transfer, having been accepted by the company, was such an agreement, operating as a new contract between the transferor, the transferee, and the 1 Post, §§ 3231, 3255. company. The original holder of the shares was therefore discharged from liability as a contributory.1 While as between § 1538. Release by Act of the Creditor. the subscriber and the corporation, e. g., in an action for calls, a release can only be shown by the act of both parties,2 yet as against a creditor whose rights have accrued it seems clear that there can be no release without his consent. If, after the retiring of a stockholder from the corporation by the sale of the stock, and due notice thereof as required by the charter, the creditor gives up old notes upon which the stockholder was liable and takes new ones, especially if done for the purpose of absolving him from liability, and imposing it upon his successor in the stock, this operates as a complete release to him, both at law and in equity. § 1539. When Release of One Stockholder by a Creditor no Release of the Others. Where the liability of the stockholders is several and not joint — and this is nearly always the case — a release by a creditor of one shareholder, does not operate as a release of the others. It is not like releasing one of several joint trespassers. § 1540. Revocation by Default or Neglect of Commissioners. - Decisions which turn on the conduct of the commissioners appointed to take subscriptions and to organize corporations are now nearly obsolete; because, under the general statutes existing in most of the States, permitting the organization of corporations, they are seldom organized by the aid of such functionaries, yet it may not be amiss to allude to the rule that a contract of subscription taken by such commissioners is not avoided by their subsequent neglect to perform, within the time prescribed by the act, some other duty devolved upon them by the governing statute, which is in its nature directory, e. g., the duty of giving 1 Morton's Case, L. R. 16 Eq. 104. 2 Stuart v. Valley R. Co., 32 Gratt. (Va.) 146. 3 New England &c. Bank v. New port, 6 R. I. 154; s. c. 75 Am. Dec. 688. 4 Bank of Poughkeepsie v. Ibbotson, 5 Hill (N. Y.), 461. Compare Robinson v. Bealle, 20 Ga. 275. notice to choose directors as soon as the given number of shares is subscribed.1 § 1541. Refusal by the Corporation to Receive the Subscription. It is not intended to enter here into the question under what circumstances the corporation may, after being called into existence, reject the subscriptions of any of those who have called it into existence, if at all. If it does so, not colorably and collusively but in good faith, its assignee in the event of its insolvency will be bound by its action. He will not be allowed to disaffirm it and compel payment of the subscriber; but the obligation is extinguished.2 - § 1542. Refusal to Sign Articles of Association after Signing Preliminary Contract. As already seen,3 there are two theories on this question: One is that there is a locus pœnitentiæ— a power of rescission at any time before the final articles of association or other formal compact prescribed by the governing statute is signed. The other, and the only one consistent with honesty and fair dealing, is that after the subscriber signs the preliminary paper, and others also sign, he is bound to them and they are bound to him, and he cannot escape the obligation of his contract by refusing to sign the final paper.5 One who subscribed for stock in acompany chartered but not organized, the charter providing for subscription before organization, was held to his subscription unless he expressly dissented before the charter was accepted. Gleaves v. Turnp. Co., 1 Sneed (Tenn.), 491. On this theory it was held that while a subscriber to the preliminary articles might refuse to sign the final articles which were to be recorded, yet when the necessary number of signers to this final paper was obtained, and the same recorded and the corporation thus called into existence, it might enforce the contract of subscription against the subscriber. Johnson v. Wabash &c. Co., 16 Ind. 389. Another court has held that the representative of creditors may do the same thing after the corporation becomes insolvent. Haskell v. Sells, 14 Mo. App. 91. As to the validity of subscriptions to enterprises where there is not the strict element of a contract for want of contracting parties, see Swain v. Hill, 30 Mo. App. 436; Underwood v. Waldron, 12 Mich. 73; Bryant v. Goodnow, 5 Pick. (Mass.) 228; Trustees v. Allen, 14 Mass. 172; s. c. 7 Am. Dec. 201; Griswold v. Trustees, 26 Ill. 41; s. c. 79 Am. Dec. 361. That subscriptions to the capital stock of corporations not § 1543. The English Doctrine on this Subject. This is quite conformable to the English doctrine as to the effect of signing the provisional paper which in that country is called the memorandum of association, where the name of the signer, in consequence of some effort or agreement of rescission, never goes upon the permanent register of shareholders. The circumstances of Levick's case1 furnish an illustration of one of the strictest applications of the liability growing out of a simple subscription to a memorandum of association. Levick signed the memorandum of association of a company for fifty shares, in January, 1866. The company was registered on January 18, 1866. Directors were appointed on February 24, 1866. The company was wound up on September 23, 1867. No shares were ever allotted to him in respect of his subscription. He made no application for shares, except as above mentioned, and never acted as a director of the company. The vice-chancellor, under this statement of facts, indicated that, during the period from the registration of the company to the appointment of the directors, the effect of the signing of the memorandum was to make the subscriber a director until another board of directors was appointed, and that it was the duty of Mr. Levick, as such director, or of the subsequently appointed board, to place his name upon the list of shareholders. Neither the counsel nor the court, in this case, were aware of any case in which a person who had signed a memorandum of association for any number of shares did not become absolutely bound to take those shares, no delay operating as a bar to putting the name on the register of shareholders. The twenty months' delay, therefore, from the formation of this company to the winding-up, could not relieve the subscriber from liability. The decision was placed upon grounds of policy as well as of principle, viz.: that persons should know that they cannot subscribe a memorandum of association to form a company, and become members of it, without yet in existence become binding when action is taken on the faith of them,see ante, § 1175; Hamilton v. Rice, 7 Barb. (N. Y.) 157; Stanton v. Wilson, 2 Hill (N. Y.), 153; Shober v. Lancaster &c. Asso., 68 Pa. St. 429; Edinboro Academy v. Robinson, 37 Pa. 1 40 L. J. (Ch.) 180. incurring the responsibility of shareholders. The principles enunciated in Levick's case had a striking application in Sidney's case,1 on account of the greater lapse of time from the formation of the company to the winding-up, and the distinct and positive withdrawal of the subscriber from the company. The circumstances were that, in 1865, Sidney agreed to become a director of a company, and signed the memorandum for two hundred shares. The articles of association empowered the directors to decline to commence business unless two-thirds of the capital were subscribed. Sidney having unsuccessfully opposed a resolution to commence business, notwithstanding two-thirds of the capital had not been subscribed, on January 3, 1866, his resignation as director was accepted, and his name was never placed upon the list of shareholders. In February, 1870, the company was ordered to be wound up; and, there being a large number of unallotted shares, Sidney was placed on the list of contributories for the two hundred shares as originally subscribed for by him. This action was sustained by the court on the principle of Levick's case; the court saying that there was no way of getting rid of the liability incurred by signing the memorandum of association except by taking the shares and then making a valid transfer." § 1544. Erasure or Revocation of the Subscription Before Delivery. A contracting party cannot, of course, destroy the obligation of his contract by destroying the written evidence of it, provided there has been a delivery, or provided that something has taken place which is tantamount to a delivery. The erasure of a contract of subscription does not, therefore, prevent a suit to charge the party as a subscriber, but merely lets in parol evidence in explanation of the circumstances. It has been held that the authority of an agent appointed to receive subscriptions to the stock of a company is exhausted by the act of receiving the subscriptions. The subscription instantly inures to the benefit of the company, creating a contract between it and the subscriber, which the agent cannot rescind. Notice to the agent in such a case, of the intention to revoke the subscriptions, is a 1 L. R. 13 Eq. 228. 3 Johnson v. Wabash &c. Co., 16 'Levick's Case, 40 L. J. (Ch.) 180. Ind. 389. |