The learned trial judge in directing the verdict said: “ I think these defendants stand in a different relation from other persons who gave these stock notes. Under the will, in their representative capacity, they had power only to transact the business which was delegated to them, or which they were authorized to transact by the terms of the will. They had a right to effect insurance upon any of the property that was put in trade by them under the authority of the will. They would not have any authority to become stockholders in a company as an individual might; they could only effect the insurance ; and the object of this stock note * * * was to effect the insurance. There was no insurance effected. Upon that ground alone I think that these defendants are not liable in their representative capacity upon the facts in this case.”
As both sides had rfioved for a direction of a verdict, and it was finally directed for the defendants, we must assume that the disputed questions of fact were resolved in their favor; and it is thus made to appear that it has been found as a fact that no policy of insurance was actually issued and delivered to the defendants.
Section 111 of the Insurance Law (Laws of 1892, chap. 690) provides : “ No such note shall be represented as capital stock unless a policy be issued upon the same within thirty days after the organization of the corporation.” If, however, we assume from what was said, in Raegener v. Hubbard (40 App. Div. 359) that the payment of the note is not conditioned upon the issuance of the policy, or if we should reach the conclusion that the powers con*170ferred upon these defendants as executors were sufficient to authorize them to make the note, neither of which questions we deem it necessary in this case to decide, we still think that there is a ground upon' which the defendants may successfully resist the claim of liability made against them upon the note. It was sent to the promoters of the company, and thereafter its legal character was an open, continuing proposal to: the promoters of a company to be formed, subject to revocation at any time before such company was actually formed or had accepted the proposition. And unless there were some .facts appearing to show that the makers of the note were estopped from withdrawing their proposal, as against the State or creditors, they had the right to elect to cancel the note and demand it back.
In Thompson on Corporations (§ 482) it is said: “ It has been held that where there is no formal act of acceptance on the part of the corporation when it comes into existence, prior to the bringing of an action, it cannot maintain an action on such a promise made prior to its organization to its promoters in" its behalf.” And in Yonkers Gazette Co. v. Taylor (30 App. Div. 334),. referring to other cases, the learned justice writing the opinion says: “ These decisions recognize that such an agreement is not valid and binding when made, as there is then in. existence no party representing the company who is capable of contracting. But when the company is organized and acts upon the contract by an acceptance of what is regarded as an open, continuing proposal, it becomes a valid, binding agreement to be enforced according to its terms;”
Undoubtedly when such a note is given, and on the faith of it the company secures its right to form the corporation and do business, one who has given a capital stock note, though he may have received no policy or consideration therefor and may not have intended to be bound, cannot escape liability; but that is for the reason that the rights of the State, and creditors, and those dealing with the corporation have intervened, and, as against them, the maker of the note is estopped from asserting that it was not a valid and binding obligation. The reason usually given for this rule of liability is that to hold otherwise would result in a fraud upon those dealing with the company. .Where, however, as here, it appears that a proposal was made and a note in accordance was given to the promoters of *171a company, and long before the incorporation the maker of the note rescinded the proposal and sought to get it back, and as the result of false representations as to its being misplaced or lost he was-unable to obtain its return, it would be a palpable fraud on him to hold that under such circumstances he was liable.
The evidence is conclusive that upon the failure to incorporate the company within a reasonable time, the defendants made every effort during the fifteen months that elapsed before the corporation was actually formed to rescind their proposal for insurance and get back the note; and it was only because of the statements of the promoters that the note was mislaid or lost, and that the defendants were not members of the company, and were not liable upon the note, that the latter were set at rest and did not discover that the note was fraudulently delivered to the company when formed and held as part of its assets.
The company on these facts cannot recover upon the note, nor do we think that the rights of the receiver or creditors are of so paramount a nature as to prevent the defendants from showing that the note was fraudulently retained and used. The exception taken to the introduction of evidence showing the fraud practiced on these defendants by the promoters of the company in retaining the note for months before the company was formed and while the defendants were diligently seeking to have it returned, we do not regard as tenable. The rule as to the competency of such evidence is well expressed in Abbott’s Trial Evidence wherein it is said (p. 45, § 52): “ Where a corporation adopts and acts on the negotiations and inchoate contracts of the promoters who formed it, their acts and declarations, so far as they would have been competent against themselves, are competent against the corporation.”
We think that the judgment entered was right, and the judgment and order should be affirmed, with costs.
Van Brunt, P. J., Rumsey, O’Brien and McLaughlin, JJ., concurred.
Judgment and order affirmed, with costs.