Case Name: Fanning v. Insurance Company
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1881-01
Citations: 37 Ohio St. 339
Docket Number: 
Parties: Fanning v. Insurance Company.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 37
Pages: 339–344

Head Matter:
Fanning v. Insurance Company.
1. To entitle a person to become a member of a corporation, which is being organized under “An act to regulate insurance companies” (S. & S. 205), his contract to take shares therein must be in writing, and be mutually binding on both parties.
2. A verbal promise to take shares, while the stock is being subscribed which is necessary to authorize an organization, does not constitute the promisor a stockholder or member of such corporation, and a promise to pay for such shares is without a sufficient etnsideration to support it. A recovery on such promise to pay cannot he had, in the absence of facts showing that the promisor is estopped from setting up such want of consideration.
Error. Reserved in the District Court of Cuyahoga County.
The Hibernia Insurance Company, for a cause of action in the court below, in which it was plaintiff and said Mary Fanning was defendant, alleged that. it was a corporation under the laws of Ohio; that on November 1, 1870, the defendant executed and delivered her promissory note for $3,000, payable to plaintiff on demand, with interest at six per cent, together with a mortgage on certain real estate, to secure the same, and that said note is due and the condition of said mortgage is broken ; wherefore judgment is asked for the amount due and for the sale of the mortgaged premises. The defendant alleges, that plaintiff was never lawfully organized as a corporation and has no legal capacity to sue, and that said note and mortgage are without consideration and void, by reason of certain fraudulent representations set out, and for the reason that she was not a subscriber for the stock in said company, for which said note and mortgage were given, nor was she ever a stockholder in said company.
The reply put the allegations of the answer in issue. The trial resulted in a verdict for plaintiff, and a judgment for the amount of said note and mortgage. There was a motion for a new trial for error in admitting evidence and in charging the jury, as well as for other causes, which was overruled, a bill of exceptions was taken, and on error to the district court the case was reserved for decision in this court. On the trial the plaintiff offered in evidence the certificate of incorporation of the company, dated March 2, 1870 ; proved that this note and mortgage were given November 1,1870, for a subscription to the capital stock thereof, which was then being made up preparatory to an organization, and that it commenced business January 1, 1871, as a fire insurance company. The defendant then offered evidence tending to show that after obtaining the charter, the incorporators did not open books for subscriptions to stock, but placed the stock through the agency of canvassers, who took in payment notes and mortgages, as well as cash, approved by an executive committee, or temporary board of directors, selected by a meeting of those engaged in forming the company as stockholders. In the case of defendant, it was shown that she verbally agreed with one of these canvassers, to take $3,000 in stock, and gave this note and mortgage in payment, but that she never subscribed for stock, in a subscription book for that purpose, or by any contract in writing, and never received any certificates of stock from the company.
In rebuttal, for the purpose of creating an estoppel, plaintiff produced and offered in evidence, without first proving its execution, a proxy, purporting to be signed by defendant, authorizing one Lavan to vote her stock in 1875, on which he voted said stock. This paper was put in evidence over the defendant’s objection.
Among other things the court charged the jury, that, “ if she ” (the defendant) “ subscribed for, or agreed, to take, capital stock, and she could agree verbally, it is not necessary she should sign any book or anything of that kind; if she agreed to take capital stock, she owed so much money.”
The bill of exceptions and charge of the court contain other matters for review, but only so much is stated as raise the points passed upon.
Arnold Green, for plaintiff in error:
A contract of subscription must be in writing, and cannot be established by parol testimony. Angell & Ames on Corp. 539; 21 Ill. 96; Thames Tunnel Co. v. Sheldon, 6 B. & C. 341; Railroad Co. v. Lacy, 3 Younge & J. 80; Railroad Co. v. Gazzam, 32 Pa. St. 348; Vreeland v. N. J. Stove Co., N. J. Eq. 188, 191; Railroad Co. v. Clark, 29 Pa. St. 146, 152; Brown v. Appleby, 1 Sandf. 170.
The admission in evidence of what purported to be a proxy of Mrs. Fanning, was clearly erroneous. No evidence was offered to prove it was executed by her.
W. S. Kerrnish and S. Burke, for defendant in error.

Opinion:
Johnson, J.
1st. It was clearly erroneous to allow the paper purporting to be the proxy of Mrs. Fanning to vote her stock, to be read in evidence over her objection without first proving its execution. If its execution had been proven to the satisfaction of the court, it might have been competent, as tending to show that she was estopped from taking advantage of any irregularity in the organization or informality in her obligation to take stock, but until such preliminary proof was made it was error to allow it to go to the jury.
2d, Did the court err in its charge that a verbal agreement to take stock created an indebtedness to the corporation %
It appeared that the certificate of incorporation was dated March 2, 1870. This charter was obtained under the act of April 15, 1867 (S. & S. 205). Under this statute, any number of persons, as Required by the act. entitled " an act to provide for the creation and regulation of incorporated companies in the state of Ohio," passed May 1, 1852, may form an insurance company, other than life insurance, by giving notice of their intention so to do, four weeks in a public newspaper in the county and by making a certificate, specifying the name of the company, its object, the amount of capital, and place of business, which on being properly executed shall be filed with the secretary of state. If approved as required by section 2 of the act, it shall be recorded and copied as provided by section 2 of the act of 1852; " and said persons, when incorporated, and having in all respects complied with the provisions of this act, are hereby authorized to cany on the business of insurance as named in said certificate of incorporation," &c. By section 4, the persons named in the certificate, or a majority of them, shall be commissioners, to open books for the subscription of stock . . and shall keep the same open until the full amount specified. in the certificate is subscribed. Section 5 provides for an election of a board of directors after the stock is all taken.
It is a fact in this case that this note and mortgage were taken before the corporation was authorized to elect directors and officers. It also appears, that +he note and mortgage were received and counted as part of the amount of stock necessary to make the amount to be obtained, before holding such an election.
Waiving all questions arising out of alleged irregularities in obtaining the requisite amount of capital stock to authorize the company to organize, or make loans, let us inquire what validity there was in the promise of Mrs. Fanning to pay for capital stock, based upon a verbal agreement, made with an agent of the company, to take that amount of stock.
In the manner in which the charge was given on this point, the jury might, and probably did, find in favor of the plaintiff below, independent of any question of ratification or estoppel. There was evidence tending to show that Mrs. Fanning had, by her acts, estopped herself from taking advantage of any defects in the organization, or any informality in the agreement ; but this charge, that a verbal agreement to take stock was sufficient to create an indebtedness, left the jury free to find for the plaintiff, without passing upon the question of estoppel.
The note was a promise to pay for stock which the maker had verbally agreed to take. Had Mrs. Fanning been a subscriber to the stock she would have been entitled to be treated as a stockholder. This would have been a sufficient consideration to have supported a promise either express or implied to pay for the stock. The agreement must be mutual and binding upon both parties. If the corporation are not bound to treat her as a stockholder, her promise to pay is a mud/um pactum, for want of a mutual promise by the corporation to award her the stock. In the absence of proof that she had received the stock, or of any other consideration to support her promise, or of any acts by her, creating an estoppel, her promise to pay for stock for which she has not subscribed, and which the corporation is not bound to deliver at the proper time, is without a sufficient consideration to support it.
The constitution of the state provides for the individual liability of stockholders, and the statute prescribes the mode by which those who constitute themselves such, preliminary to an organization of the corporation, shall become stockholders and entitled to rights as such. The law contemplates such proceedings as will constitute the members of the proposed corporation stockholders by requiring them to be subscribers to the stock. By the act of thus becoming a stockholder, they acquire an interest in the franchises and business of the company, and are subject to all the liabilities of stockholders, including the obligation to pay for the the stock sub scribed. If this obligation is not mutual and equally binding upon the corporation, the promise to pay is not supported by a sufficient consideration. The criterion of liability is whether any act has been done by which the corporation is compelled to recognize the promisor as a stockholder. If the corporation was not bound by what took place, to recognize Mrs. Panning as a stockholder1, neither is she bound to pay for stock. Angell & Ames on Corp. ch. 15, et seq. ; Thompson on Liability of Stockholders, § 105-110 ; Valk v. Crandall, 1 Sandf. Ch. 179 ; Tonica v. Petersburgh R. R. Co., 21 Ill. 96; Chelsea Glass Co. v. Dewey, 16 Mass. 94; Spear v. Crawford, 14 Wend. 20; Selma & Tenn. R. R. v. Tipton, 5 Ala. 787; Phillips Limerick Academy v. Davis, 11 Mass. 113; New Bedford v. Adams, 4 Mass. 138; Essex Turnpike Co. v. Collins, 4 Mass. 292; Lake Ontario, A. & N. Y. R. R. Co. v. Mason, 16 N. Y. 451; Vreeland v. N. J. Stone Co., 29 N. J. Eq. 188; P. & S. R. R. Co. v. Gazzam, 32 Pa. St. 340; Thames Tunnel Co. v. Sheldon, 6 B. & C. 341.
A careful consideration of the statutes authorizing the formation of such corporations, as well as of the authorities cited, requires us to hold that a mere verbal agreement to take.stock in a company whose promoters are engaged in securing the amount of stock required before it can organize, does not constitute the promisor a member of such corporation, and is without a sufficient consideration to support it.
Judgment reversed.