In October, 1912, the Canadian Pacific Eailway Company authorized an increase of its capital stock from $200,000,000 to $260,000,000, the additional $60,000,000 to be issued in such *854manner and upon such terms as the directors might prescribe. On the same day the directors prescribed the terms upon which .such issue might be made. Each stockholder was entitled to subscribe for his proportionate share of the new stock at $175 per share, the subscription price to be paid in five equal installments of $35 each, namely, on or before the 13th of February, the 14th of April, the 16th of June, the 18th of August and the 20th of October, 1913. Upon payment of all the installments the subscriber, on December 3, 1913, was entitled to receive the certificate for the stock so subscribed and paid for and to participate with the stockholders in the dividends accruing for the quarter ending December 31, 1913, payable April, 1914. Until the issuing of the stock certificate no subscriber should have any right to vote as a stockholder or participate in the dividends. He was, however, allowed seven per cent interest upon the moneys actually paid on his subscription. Upon the payment of the first installment each subscriber was given “ a certificate of subscription ” transferable on the books of the company. The certificate provided that a failure to pay any installment by the date at which it is due renders previous payments liable to forfeiture. Various subscribers, after the first payment, sold and transferred their certificates of subscription and the company transferred the same upon its books.
It is contended by the plaintiff that under section 270 of the Tax Law * the transfer of such certificates was taxable on the theory that they were stock, or represented stock. The tax, if any, upon such transfers prior to July 1, 1913, amounted to $413.84. The tax, if any, upon the transfers made after July 1, 1913, amounted to $608.30. It is stated that if any tax is due on such transfers it is due and payable by the defendants. The defendants claim that no tax is due on account of such transfers.
Where a corporation is forming the stockholders named in the certificate, or the original subscribers forming the corporation, are stockholders under the law, although the stock is not paid in full and the certificates of stock have not been issued. Otherwise there would be no corporation, as it is an association of stockholders. This corporation was actually formed *855and had authorized the issue of the stock, and the subscribers for the new stock only acquired such rights as the agreement of subscription gave them. By subscribing and paying the first installment they were not entitled to vote as stockholders, to receive dividends or to act as officers of the company. They were simply parties to an agreement which in time might enable them to become stockholders. If they failed to pay the installments as they became due the company might forfeit their right to the stock. The capital, stock of the company actually remained $200,000,000 until the new stock was paid for and issued, or entitled to he issued. In Boston & Albany R. R. Co. v. Commonwealth (157 Mass. 68) the company authorized an increase of its stock to he paid for in installments, ten per cent on January 5, 1891, and ninety per cent on January 5, 1892. Subscription certificates were issued and apparently dealt in substantially as in the case at bar. Some of the certificates had been paid in full. It was held that under a statute taxing the value of the stock of the company on May 1, 1891, the new stock, even the part of it which was fully paid, should not be included, as the stock did not come into existence until January 5, 1892. The case seems directly in point and apparently recognizes the correct rule. Until the subscriber has fully performed his part, and the day for the issue of the new stock arrives he is not a stockholder, but may become one if he complies with the terms of the subscription. The essential rights of a stockholder, the participation in dividends, the right to vote or hold office in the company, are denied him. The income which he receives on his investment is not by way of dividends depending upon the earnings of the company, but is a fixed sum as interest upon the money which he has paid, without regard to whether the business is profitable or unprofitable during the time. In our judgment the transfer of the certificate of subscription was not a transfer of stock within the meaning of section 270 of the Tax Law.
Judgment should, therefore, enter in favor of the defendants, with costs and disbursements to he taxed.
All concurred, except Woodward, J., dissenting in opinion, in which Lyon, J., concurred.
See Gonsol. Laws, chap. 60 (Laws of 1909, chap. 62), § 270, as amd. by Laws of 1913, chap. 292; since amd. by Laws of 1913, chap. 779.— [Rep.