Story Case

Henry Thompson, Walter Pugh, and William Beachey were promoters working in the amusement field. Early in the year 1914, they started to promote a corporation to present a mammoth naval pageant at the international fair in San Francisco during the year 1915. Thompson interested his friend Edward Lawler in the venture, and Lawler agreed to subscribe for 100 shares of stock in the company on December 14,1914, provided no unusual event or catastrophe occurred to imperil the success of the San Francisco Fair. After December 14, Lawler refused to accept stock, on the ground that the condition upon which his contract should end had occurred in the great European war. Suit was brought against Lawler for his subscription. Is his defense effective?

Ruling Court Case. Lawrenceville Branch Railroad Company Vs. Brand, Volume 77 Georgia Reports, Page 506

The Lawrenceville Branch Railroad Company was a corporation engaged in the business of constructing and operating railways, Brand subscribed to the stock of this company, upon the express condition that the road was to be extended from Lawrenceville to Logansville, where he lived. There was a further condition in his contract that $20,000 or an amount sufficient to build the road, should actually be subscribed, before he would be compelled to pay in his subscription. This is an action by the company to recover Brand's subscription. He contends that he is not lia-ble upon the contract because the foregoing conditions have not been fulfilled. He shows that $20,000 worth of stock has not been sold, nor an amount sufficient to build the road.

Decision

When a person subscribes to stock in a corporation and it is agreed that certain obligations shall be fulfilled by the corporation, as terms precedent, until those conditions have been performed, the subscriber is under no duty to pay in his subscription.

In this case, the conditions, though expressly provided for, have not been performed by the corporation.

Mr. Justice Hall said: " The subscription list which comes up with this record shows that there was less by several thousand dollars, than the amount necessary to build the road, and that at the time the capital stock was fixed, one of the conditions on which subscriptions were made had been fulfilled. In order to recover from one who subscribed unconditionally, where subscriptions have been made upon conditions precedent, the plaintiff must show that the conditions either have been complied with or waived."

Judgment was given for Brand.

Ruling Law. Story Case Answer

A person, subscribing to the stock of a corporation, has a right, if he chooses, to stipulate the terms or conditions upon which he will accept the stock. Unless those conditions are satisfied he is under no obligation to pay his subscription. Whether or not, in the Story-Case, the condition, upon which Lawler's stock subscription should end, had occurred, is a difficult question of fact. We are inclined to believe that the event was sufficient to cancel the contract, and, therefore, Lawler's defense is valid.