O'Bear-Nester Glass Co. v. Antiexplo Co.

• Decision Date: 18 March 1908
• Citation: 108 S.W. 967
• Parties: O'BEAR-NESTER GLASS CO. v. ANTIEXPLO CO. et al.
• Court: Texas Supreme Court

108 S.W. 967

O'BEAR-NESTER GLASS CO. v. ANTIEXPLO CO. et al.

Supreme Court of Texas.

March 18, 1908.

Error from Court of Civil Appeals of Third Supreme Judicial District.

Action by O'Bear-Nester Glass Company against the Antiexplo Company and others. From a judgment of the Court of Civil Appeals (106 S. W. 180) affirming a judgment against the Antiexplo Company, and in favor of other defendants, plaintiff brings error. Reversed and remanded.

Jno. W. Davis and Geo. M. Shelton, for plaintiff in error. Prendergast & Williamson and Sanford & Denton, for defendants in error.

BROWN, J.

John Skimming, A. S. Dennison, and Sam H. Hamilton owned a secret formula of "a compound to be mixed with gasoline, kerosene, and other oils to prevent explosion," and on the 2d day of January, 1904, the said Skimming, Dennison, and Hamilton organized a corporation, the Antiexplo Company, under the laws of the state of Texas, for the purpose of manufacturing and selling the said compound. The capital stock was stated in the charter to be $100,000, and the incorporators sold to the said corporation the formula for making the said compound at the price of $100,000, taking stock therefor as follows: Hamilton, $35,000; Skimming, $35,000; Dennison, $12,500; and $17,500 was left for sale, the proceeds to go into the treasury of the company. The $17,500 in stock was sold to the other defendants herein, but, for the purposes of this opinion, it is unnecessary for us to state in detail the transactions or the amount of stock owned by each. The said Hamilton, Skimming, and Dennison believed that the formula which they owned and transferred to the company was worth the sum of $100,000, and all of the parties who bought stock, as well as the incorporators, acted in good faith in the transaction. The corporation was organized and entered upon its business in the city of Waco, and was doing a prosperous business when "the fire insurance companies issued circular letters to all of their policy holders and to all persons who were then handling the product of the said formula, warning them against buying or selling any of the said compound in their business, and threatening that if they did so the companies would cancel the insurance held by said policies, and would not insure them, whereby the business of the said corporation was wrecked and largely ruined." O'Bear-Nester Glass Company, a creditor of the Antiexplo Company, brought this suit against the company to recover its debt, and against the other defendants to recover the difference between the face value of the stock held by them and the value of the payments actually made by them to the company for the stock. A trial was had before the court without a jury, and judgment was rendered in favor of the O'Bear-Nester Glass Company against the Antiexplo Company for $1,604.50, and judgment was rendered in favor of all the other defendants against the said O'Bear-Nester Glass Company.

Section 6 of article 12 of our state Constitution is in this language: "No corporation shall issue stock or bonds except for money paid, labor done, or property actually received." The purpose of the convention in enacting that provision of the Constitution was to secure creditors as well as stockholders of corporations against the practice which was too common of corporations issuing fictitious stock and stock upon an insufficient consideration, whereby the actual capital was much less than the amount represented by the shares issued and sold by the corporation. The terms in which this section of the Constitution is expressed indicates the purpose that the assets of the...