Friedlander Bros., Inc. v. Deal

• Citation: 118 So. 508,218 Ala. 245
• Decision Date: 14 July 1928
• Docket Number: 4 Div. 363
• Parties: FRIEDLANDER BROS., Inc., v. DEAL et al.
• Court: Supreme Court of Alabama

118 So. 508

218 Ala. 245

FRIEDLANDER BROS., Inc., v. DEAL et al.

4 Div. 363

Supreme Court of Alabama

July 14, 1928

Rehearing Denied Oct. 25, 1928

Appeal from Circuit Court, Houston County; H.A. Pearce, Judge.

Bill in equity by Friedlander Bros., Incorporated, against Walter M Deal and Wiley R. Deal, Jr. Decree for respondents, and complainant appeals. Reversed, rendered, and remanded.

Lee &amp Tompkins, of Dothan, for appellant.

Mullins & Cotton, O.C. Doster, and O.S. Lewis, all of Dothan, for appellees.

SOMERVILLE J.

The decisive and, indeed, the only question presented by this appeal is whether a foreign mercantile corporation, organized and chartered to do a merchandising business, and authorized to buy, lease, or hold real estate suitable to the purposes of the corporation, may lawfully lease for its intended use in its future business in Alabama a storehouse in Alabama without first complying with the laws of Alabama imposing certain conditions, requirements, and retrictions upon foreign corporations "before engaging in or transacting any business in this state." Code 1923, §§ 7209-7220. Respondents' contention is that merely leasing a storehouse, under the conditions stated, in engaging in or transacting business within the meaning of our inhibitory statutes.

The statutory phrase "engaging in or transacting any business" does not differ in substance or in meaning from the constitutional phrase "do any business." Const.1875, art. 14, § 4; Const.1901, § 232.

The meaning of the phrase to "do any business in this state," as applicable to foreign corporations, was clearly and simply stated by Stone, J., in the often cited case of Beard v. U. & A. Pub. Co., 71 Ala. 60:

"There must be a doing of some of the works, or an exercise of some of the functions, for which the corporation was created, to bring the cae within that clause. A railroad, bank, or insurance company, of foreign incorporation, performing its corporate functions within the limits of Alabama, would be required to keep 'at least one known place of business, and an authorized agent or agents' in this state. That would be doing business; the business, or a part of it, which falls directly within the purview of their corporate powers." (Italics ours.)

In Farrior v. N.E. Mort. Sec. Co., 88 Ala. 275, 278, 7 So. 200, in holding that a loan of money was doing business, it was said:

"In engaging in such a transaction, the complainant was in the exercise of its chief corporate function, as imported by its very name." In Sullivan v. Sullivan Timber Co., 103 Ala. 371, 379, 15 So. 941, 944 (25 L.R.A. 543), it was said per Brickell, C.J.:

"In Christian v. American Freehold Land Mortgage Co., 89 Ala. 198 , it was held, that the prosecution or defense of an action in the courts of the state, is not the doing of business within the meaning of the Constitution. And according to all the authorities, construing similar constitutional or statutory provisions, having in view the like objects or purposes, there are many acts of business a foreign corporation may do, without coming within the constitutional or statutory provision. 2 Mor. Corp. §§ 661, 662. The real test is that applied in Beard v. U. & A. Publishing Co. supra; is the corporation engaged in the transaction of business, or any part thereof, it was created and organized to transact. If it be, it 'does business' within the meaning of the Constitution. If it be not--if the act it is doing, or has done, is not within its general powers and franchises--it is not the business to which the constitutional requirement is directed."

In Int. Cotton Seed Oil Co. v. Wheelock, 124 Ala. 367, 370, 27 So. 517, 518, it was said:

"Not every act done within the corporate powers will constitute the business meant by the statute. [ And, after restating the rule laid down in Sullivan v. Sullivan Timber Co. (103 Ala. 371, 15 So. 941, 25 L.R.A. 543) and Beard v. U. & A. Pub. Co. (71 Ala. 60) supra] In applying that test it may not always be easy to distinguish between acts done in the exercise of corporate functions and those done merely within corporate powers."

Reaffirming the rule of the Beard Case, it was held in State v. Anniston Rolling Mills, 125 Ala. 121, 27 So. 921, that a corporation "organized for the purpose of 'buying, manufacturing and sale of iron, and of articles of merchandise or manufacture in which iron is used, and the buying and selling of such manufactured articles,' " was not "doing business" as a corporation, although it leased its plant, collected the rent and lent some of it at interest, paid taxes, and held directors' meetings and did other acts of corporate concern intended mainly for the protection of its property, all within the state of Alabama. The reason given was that none of these things "constituted a doing of the business or any part of the business for which it was created, and were mere incidents for the preservation of its property."

The principle of the foregoing cases was recognized in Ala. Western R. Co. v. Talley-Bates Const. Co., 162 Ala. 396, 404, 405 50 So. 341. Most of them were reviewed in F. & G. Cotton Co. v. Baccus, 207 Ala. 75, 92 So. 4, and the principle of the Beard and Sullivan Cases fully approved, with recognition of the important distinction between a merely incidental preliminary step and the doing or transaction of the real business of the corporation.

In Holman v. Durham Buggy Co., 200 Ala. 557, 76 So. 914, we said:

"Our decisions have made it perfectly clear that the mere collection of validly created debts--and, a fortiori, their securement by note or otherwise--though within the general corporate powers, is not the transaction of corporate business within the meaning of our inhibitory laws [citing the Beard and Sullivan and other cases]."

The principle of these cases is in accord with the overwhelming weight of authority elsewhere. 12 R.C.L. 71, § 49; 14a C.J. 1279, 1280, §§ 3986-3989. The text of Corpus Juris, § 3986, states:

"Under the rule that the statutes under consideration have no application to acts done within the state which are merely incidental to the prosecution of its ordinary business, it has been held that where such transactions do not constitute a part of its ordinary business, a foreign corporation is not doing, transacting, carrying on, or engaging in business within a state by the acqusition, holding, or disposal of real or personal property there situated;" or (section 3986) "by the doing of acts therein which are merely preliminary to the transaction of the business for which the corporation is organized."

An excellent and pertinent statement of the rule, and of its principle, is found in General Conference Free Baptists v. Berkey, 156 Cal. 466, 470, 105 P. 411, 413:

"The purposes of the plaintiff, as defined in the articles of incorporation, are 'religious, missionary, educational and charitable.' As incidental to these purposes it is granted a variety of powers, i.e., the power to use a common seal, the power to take and hold for the objects of said corporation any real or personal porperty, and the power to sell and convey any estate which the interests of the corporation may require to be sold and conveyed. All of these powers are to be exercised in subordination to the main purposes a first declared. The purchase and sale of property by such a corporation is not one of the ends for which it is organized, but is merely a means to enable it to accomplish those ends. Property is to be acquired only for the objects of the corporation, and to be sold only when the interests of the corporation require such sale. The power to sell property by a corporation of this character is as purely incidental to the prosecution of its main purposes as are the other powers enumerated in the charter, as, for example, the power to prosecute and defend suits at law."

So, in Wulfing v. Armstrong Cork Co., 250 Mo. 723, 157 S.W. 615, it was held that a lease to a foreign corporation of real estate for a local office was not void because made before the company had complied with the statutes authorizing it to "do business" in Missouri. See, also, Meir v. Crossley, 305 Mo. 206, 264 S.W. 882, 35 A.L.R. 611, and note, 625.

We do not overlook the fact that several of the Alabama cases above reviewed relate to doing business within the meaning of the venue laws, but in the particular under discussion here there is no difference in the application of the principle. Nor do we overlook the case of Langston v. Phillips, 206 Ala. 174, 89 So. 523, which involved the validity under our regulatory statutes of a sale by a foreign corporation of its corporate stock to a citizen of Alabama. That such a sale is not within the inhibition of such statutes as a general rule seems to have been settled by the overwhelming weight of authority. See 35 A.L.R. note, 625. We note that in that case apparently the parties had submitted the case upon pleadings and an agreed statement of facts, whereon, to quote from the opinion:

"All else being agreed upon, *** the issue to be decided was whether the contract for the sale of the stock in question was made in Alabama, or in Delaware, where, of course, the law of this state had no effect."

Finding that the contract was made in Alabama, it was, under the issue as framed, held to be void. Whether the case came within the principle of the Beard Case, supra, and of the later cases following it, cannot be determined from the report of the case, but we presume that the plaintiff corporation did not bring itself within the principle of immunity. For aught that appears, selling the stock may have been a part of the business for which it was incorporated and it may not have been an incident preliminary to, and in preparation for,...