159 Utah Hotel Co. v. Madsen AUTHOR: Miguel M.

Consing
[134 Pac. 557 (1913)] NOTES:
TOPIC: Nature of Subscription Contract; Pre-incorporation Guys, it wasn’t explicitly stated who the private petitioner
subscription was. Kulang sa facts.
PONENTE: Frick, J.
I think that the private petitioner is an incorporator or
director, because the facts show that he questioned the
validity of the contract after he refused to pay. Everyone
else paid but him.
FACTS:
 Prior to Utah Hotel Co.’s incorporation, Petitioner entered into a subscription agreement with its subscribers,
including the respondent Madsen.

 The agreement provided, among other things, that the payment of the subscription shall be payable in sums not to
exceed 10% of the amount subscribed by the subscribers in any one month.

 After Utah Hotel Co. was incorporated, the petitioner filed an action questioning the validity of the above agreement.
It argued that in order to enforce the subscription, all the subscribers must have signed the AOI. If it was a separate
agreement, it must have been incorporated into the AOI.
ISSUE(S):
Is the above subscription agreement valid?

HELD/RATIO:
Yes. The Court held that the agreement, being valid contract, bound the parties by its terms. There was nothing in the law
that prohibited the means by which the subscription agreement was entered into, in this case, by explicit contract. The
Court held that in the absence of an explicit prohibition in the law against this kind of contract, and provided that it does
not go against public policy and morals, then it is a valid subscription agreement.

[COROLLARY ISSUES]
With regard to the issue of the Corporation’s acceptance of the agreement, the Court found that the corporation itself sent
notices demanding payment of the installments of the subscription. This was held to be sufficient acceptance of the
agreement.
CASE LAW/ DOCTRINE:
In the absence of an explicit prohibition in the law against a pre-incorporation subscription agreement, then such an
agreement in valid and binding upon the stockholders.