Elyton Land Co. v. Birmingham Warehouse & Elevator Co.

• Decision Date: 01 May 1891
• Citation: 9 So. 129,92 Ala. 407
• Court: Alabama Supreme Court
• Parties: ELYTON LAND CO. v. BIRMINGHAM WAREHOUSE & ELEVATOR CO.

9 So. 129

92 Ala. 407

ELYTON LAND CO. v. BIRMINGHAM WAREHOUSE & ELEVATOR CO.

Supreme Court of Alabama

May 1, 1891

Appeal from chancery court, Jefferson county; THOMAS COBBS chancellor.

Alex. T. London, for appellant.

Garrett & Underwood, for appellee.

WALKER J.

The bill was filed by the Elyton Land Company as a judgment creditor of the Birmingham Warehouse & Elevator Company, a corporation, and its purpose is to secure the payment of the judgment by the enforcement of the alleged unsatisfied liability of the individual defendants as original subscribers to the stock of the defendant corporation. It is averred that said individual defendants pretend that they have discharged and satisfied their liability as such subscribers, but it is alleged that the transaction whereby it was attempted to discharge that liability is merely colorable, and is void as against the creditors of said corporation, and that said subscribers are liable to pay in money the amount of their said subscriptions, or so much thereof as is necessary to satisfy said judgment. The following is the substance of the case stated by the bill:

On the 9th day of March, 1887, the Elyton Land Company executed and delivered to defendant J. A. Van Hoose, as trustee for the Birmingham Warehouse & Elevator Company, a corporation then in process of organization, its bond of title for two blocks of land near the city of Birmingham, to be paid for at the price of $53,000. Said Van Hoose paid to the Elyton Land Company $5,000 on the execution and delivery of the bond for title, by the terms of which it was provided that he was to execute a transfer and conveyance of his rights and interests thereunder to the Birmingham Warehouse & Elevator Company upon its organization, and that that company should make its nine notes for the balance of the purchase money to the Elyton Land Company, said notes to be each for $5,333.33, bearing interest from August 20, 1886, payable, respectively, at 1, 2, 3, 4, 5, 6, 7, 8, and 9 years from that date. On the 19th day of February, 1887, said Van Hoose and the other individual defendants Johnston, Sage, and McLester filed their petition in the office of the probate judge of Jefferson county for the organization as a corporation of the Birmingham Warehouse & Elevator Company, the capital stock of which was to be fixed at $250,000, to be divided into 2,500 shares of $100 each. On the same day a commission was issued to said Van Hoose, Johnston, Sage, and McLester, constituting them a board of corporators, and authorizing them to open books of subscription to the capital stock of the proposed corporation. On the 11th day of March, 1887, said board of corporators, over their signatures, reported and certified to said probate judge that on the 9th day of March, 1887, they had opened books of subscription to the stock of said proposed corporation, and that they had each subscribed for 500 shares, "subscribed through James A. Van Hoose, trustee for the subscribers, and payable in real property near the city of Birmingham, *** of the money value stated in said subscription of two hundred and fifty thousand one hundred and thirty-three dollars and thirty-three cents, subject to the unpaid purchase money due to the Elyton Land Company, amounting to fifty thousand one hundred and thirty-three dollars and thirty-three cents, the payment of which is to be assumed by said company, said lands being fully described in the bond for titles of the Elyton Land Company to said James A. Van Hoose, trustee, dated March 9, 1887, which said trustee is to convey to said company in payment of said two thousand shares of stock," and Van Hoose, Johnston, and McLester each subscribed for one share, payable in money. Said corporators further reported that on the organization of said company said Van Hoose, Johnston, Sage, and McLester were present, and each represented in person 501 shares in stock; that each of said persons was elected a director of said corporation, and that the board of directors elected Van Hoose as president and McLester as treasurer and secretary of the corporation. It was further reported and certified by the corporators that on the 10th day of March, 1887, after the organization of said company, all the capital stock thereof payable in money was paid to the treasurer, and all the property subscribed was delivered to him. The subscriptions were made as reported, and certified by the corporators. It was not true at the time of the filing of the bill, or when the subscriptions were made and reported, that said land was of the money value of $200,000.

The price named in said bond for title-$53,000-was at the time of said subscriptions the full money value of said land when sold on long credit. Said Van Hoose, Johnston, Sage and McLester well knew that said land was not worth, nor was it of the money value of, $200,000, or anything near that sum. After said subscriptions were made, and after said Birmingham Warehouse & Elevator Company was organized, said Van Hoose indorsed to it said bond for title, and said company executed its nine promissory notes, as by the terms of the bond for title it was provided it should do; and said Van Hoose, Johnston, Sage, and McLester now claim that the assignment of said bond was a discharge and satisfaction of said subscription of $200,000, which has not been otherwise paid. It is this transaction which the bill alleges is merely colorable and is void as against the creditors of said corporation. Only $5,000 has been paid on account of said purchase money. The Elyton Land Company has recovered judgment against said Birmingham Warehouse & Elevator Company on two of said notes. That judgment remains unsatisfied, and said corporation has no property out of which it could be satisfied by execution.

Each of the individual defendants demurred to the bill upon the following, among other, grounds: (1) That the bill on its face shows that the complainant has no right to the relief therein prayed because it shows that this defendant owes nothing to the Birmingham Warhouse & Elevator Company, either in unpaid subscriptions for stock or otherwise; (2) because said bill alleges no facts which render this defendant liable personally in any way for the alleged debt mentioned therein as due from said Birmingham Warehouse & Elevator Company to the complainant; and (3) because said bill shows that this defendant subscribed for stock in said Birmingham Warehouse & Elevator Company, payable in property, at a valuation mentioned in said subscription, which property has been delivered and received in full payment for said stock; and said bill fails to show that said property was overvalued unreasonably, intentionally, and fraudulently, or that the defendant has made a profit from the stock so subscribed and taken by him. A decree was rendered sustaining the demurrers as to the grounds here mentioned. The appeal is from that decree.

On the averments of the bill it is to be taken as true that the property which was received by the corporation as full payment of the stock subscription was worth only $5,000, the amount which had been paid on the bond for title. It follows that the decree of the chancery court involves the assertion of the validity as against the creditors of the corporation of the payment of a stock subscription of $200,000 by the transfer to the corporation of property worth only $5,000. In reviewing this determination regard is to be had to certain constitutional and statutory provisions, which are to be construed and applied in the light of settled principles governing the relations of stockholders to the corporation of which they are members, and to the creditors thereof. By the constitution of 1875 it was provided that "no corporation shall issue stock or bonds, except for money labor done, or money or property actually received; and all fictitious increase of stock or indebtedness shall be void;" and that "dues from private corporations shall be secured by such means as may be prescribed by law, but in no case shall any stockholder be individually liable otherwise than for the unpaid stock owned by him or her. Sections 6, 8, art. 14, of the constitution. Prior to the adoption of the present constitution each stockholder in any corporation was liable to the amount of stock held or owned by him, the law imposing a liability not only to the extent that the stock was unpaid, but for an additional sum equal to the amount of such stock. Section 3, art. 13, of the constitution of 1868; section 1760, Rev. Code 1867; McDonnell v. Insurance Co. 85 Ala. 401, 5 South. Rep. 120. Before the creation of this additional liability the stock and other property of a private corporation was regarded and treated in a court of equity as a trust fund for the payment of the debts of the corporation, and in the event of the insolvency of the corporation unpaid stock subscriptions could be condemned for the satisfaction of the creditors; and said additional liability was a mere increase of the security for the payment of the corporate debt. Smith v. Huckabee, 53 Ala. 191. While corporate creditors were secured by this special liability existing in their favor there was no direct constitutional or general statutory prohibition against the abuse of corporate powers by the issue of stock not in good faith representing the value of money, service, or property actually contributed to the corporate enterprise; and the general incorporation law then in force contained no requirements as to the mode of subscribing for stock, or as to how the subscription liability should be satisfied. Chapters, 3, 4, tit. 2, pt. 2, Code 1867. The dangers to which corporate creditors were exposed by the absence of such regulations were obviated by the provisions for...