Gill Printing Co. v. Goodman

• Decision Date: 14 January 1932
• Docket Number: 1 Div. 686.
• Citation: 139 So. 250,224 Ala. 97
• Parties: GILL PRINTING CO. ET AL. v. GOODMAN.
• Court: Alabama Supreme Court

139 So. 250

224 Ala. 97

GILL PRINTING CO. ET AL. v. GOODMAN.

1 Div. 686.

Supreme Court of Alabama

January 14, 1932

Appeal from Circuit Court, Mobile County; Claude A. Grayson, Judge.

Bill in equity by J. G. Goodman, as trustee in bankruptcy of the Handy Andy Community Stores of Alabama, Inc., against the Gill Printing Company, H. A. Bruner, J. M. Weldon, Wm. R Meeker, G. O. Segrest, J. Platt Roberts, E. A. Roberts, L Lerio and others. From a decree for complainant, the named respondents appeal.

Affirmed.

Lyons Chamberlain & Courtney, of Mobile, for appellants.

Harry T. Smith & Caffey, of Mobile, for appellee.

FOSTER J.

This is a suit by the trustee in bankruptcy to collect a balance due by some of the stockholders of the Handy Andy Community Stores of Alabama, Inc. Stevens v. Hopson, 215 Ala. 261, 110 So. 147; Hundley v. Hewitt, 195 Ala. 647, 71 So. 419.

The corporation was formed under the laws of Alabama by declaration and necessary affidavits filed in the office of probate judge of Mobile county on November 23, 1927.

The bill of complaint alleges that all the respondents were subscribers to its capital stock. The contention is made that the other allegations of the bill show that they were not subscribers to its stock, but that they agreed to become purchasers of stock, and that the bill does not show that the trustee has offered or in fact is able to issue and deliver the stock, on account of the bankruptcy and insolvency of the corporation. They contend that the bill is subject to demurrer on that account, and that the facts and evidence show that they are not subscribers but purchasers of the capital stock by executory contract, and on that account, as such, they are not bound to pay for the stock because certificates cannot be issued and delivered to them. They also concede that subscribers to the common stock, if such subscription did not include preferred stock, are not controlled by the principle which they invoke.

In the case of Stern v. Mayer, 166 Minn. 346, 207 N.W. 737, 738, 46 A. L. R. 1167, referring to this subject it is said:

"The distinction between the sale of corporate stock and subscription thereto is that a subscriber has certain attributes in the way of rights, privileges, and liabilities, ordinarily including title, that do not attach to a purchaser. Plaintiff asks to have this instrument construed as a subscription with the attributes mentioned withheld from the defendant, or suspended until he makes payment. The absence of such rights and liabilities is the very thing that prevents holding the instrument to be a subscription. If these attributes are to attach only on complete performance by defendant, the transaction is ordinarily a sale. The subscriber by the terms of his contract becomes the owner of the stock before the certificate is issued or delivered. *** Whether the instrument indicates an intention to become a stockholder prior to the party thereto fully performing his contract is the important element. The effect of an unconditional subscription of stock is to give him an interest in the corporation, i. e., it makes him a stockholder."

It is also held that the bankruptcy of the corporation does not prevent a recovery by its trustee of the unpaid subscription to its common stock by its stockholders, unless the company made an express agreement to issue such stock, or other executory contract.

In the notes to 46 A. L. R., at page 1172, there appears a further discussion of the subject.

It is thus expressed by Fletcher on Corporations, vol. 5, page 5613, § 3427: "So long as the contract remains executory the issue or tender of a certificate as evidence of the stock is a condition precedent to the right to maintain an action for the price. But where an actual sale has been made and the title to the stock has passed there is no distinction in this respect between a sale and a subscription and under such circumstances the purchaser is a stockholder though no certificate has been issued to him."

In the case of Stern v. Mayer, supra, the court held the contract to be executory, and was apparently largely influenced by the circumstance that the corporation had expressly agreed to issue a certificate of stock. It was on this point said: "Where the contract in a stock subscription provides for delivery of stock when paid for, the acts must be regarded as contemporaneous. And in such case [it proceeds] the corporation's inability to perform should disable it from enforcement against the subscriber."

The case of Galbraith v. McDonald, 123 Minn. 208, 143 N.W. 353, 354, L. R. A. 1915A, 464, Ann. Cas. 1915A, 420, refers to the subject as follows: "Text-books and decisions assert that there is distinction to be noted between sales of corporate stock and subscriptions thereto. That is undoubtedly true in respect to executory contracts of sale. But where an actual sale has been made, and the title to the stock has passed, we fail to see any distinction between persons who are subscribers to stock and those who have actually bought it of the corporation."

In our case of Jefferson County Savings Bank v. Compton, 192 Ala. 16, 68 So. 261, a similar defense was interposed to a suit on a note by a bankrupt corporation. The court refers to the rules applicable to subscribers. The record shows that there was a sale as distinguished from a subscription, but no condition is shown to the ownership of the stock. The purchase money was not paid, but that did not show an executory contract by which the title did not pass. Without making any distinctions, the court held that the failure to issue the stock was no defense in the absence of a demand. The inability to issue by reason of bankruptcy was not set up in defense. But the rule applied is consistent with the authorities governing an executed sale. The sale may be executed, as there shown, without an issuance of the certificate, which is only evidence of title.

The declaration of incorporation here involved and affidavit and subscription list show that appellants Bruner, Welden, Segrest, J. Platt Roberts, and E. A. Roberts were original subscribers to common and preferred stock, who signed the declaration of incorporation and the subscription list, and their notes were made prior to the filing of the incorporation papers. The declaration of incorporation provides that its incorporators who had subscribed to its stock shall pay one dollar per share of common stock, and the balance of the authorized common stock will be sold for twenty-five dollars per share. The common stock was non-par, and the preferred was fifty dollar par. All should pay the same for preferred stock. The notes of the above-named shareholders who were incorporators subscribed at one dollar per share for common stock and fifty dollars per share of preferred. The other appellants, Gill Printing Company, William R. Meeker, and L. Lerio executed contracts of the same tenor as those executed by the former, but were not incorporators, and their contracts were made after incorporation, and at twenty-five dollars per share of common stock. The instruments executed by all of the appellants were promissory notes reciting as the consideration the purchase price of the named shares of stock, common and preferred separately, and provide that the "title to the named security shall vest and remain in said company until the debt therein is fully paid," and that "the said company shall have full power and authority to sell, assign and deliver all or any part of the above mentioned property and securities at private or public sale," etc., and apply the proceeds to the payment of the balance of the note unpaid, with the surplus, if any, payable to the makers, etc. There is no agreement about the issuance or delivery of the certificate, but it provided that the dividend shall be held by the company in lieu of interest.

It seems to us very clear that those who were incorporators and signed the subscription list and executed the notes prior to or at the time of incorporation were subscribers and not purchasers; but that those who executed notes later for a different consideration were not subscribers but purchasers, according to the text which we have quoted from the Minnesota case, which is well supported by authority.

Appellants therefore concede that if such is the situation, the subscribers would be due the amount agreed to be paid for the common stock but not for the preferred, and claim that as their contract for the two was joint, it is not enforceable to any extent.

Reliance is made upon Snodgrass v. Zander, 106 Ark. 462, 154 S.W. 212, 214. That case cites 10 Cyc. 392 (now 14 C.J. 550) to the effect that such stock is somewhat different from common stock, in that the express or "implied promise of the company to issue such stock, and of the subscriber to pay for it, *** are concurrent and dependent, and that an action by the company on such a subscription cannot be maintained until it has issued or tendered the stock." No such question was involved in the Arkansas case, because in it the company issued and tendered the certificate before filing suit. But Cyc., supra, and C.J., supra, also cite St Paul R. R. Co. v. Robbins, 23 Minn. 439. That is the only citation for the statement in the text. That case does not undertake to draw any distinction between common and preferred stock. But it shows that its argument does not apply to those subscribers who became such prior to and for the purpose of effecting the organization. Whereas, in the case of Stern v. Mayer, supra, the same court, in respect to stock subscriptions, following earlier Minnesota cases, observes that "in an action upon a stock subscription, which does not by its terms require the execution and delivery of the...