Nelson v. Hubbard

• Decision Date: 27 July 1892
• Citation: 96 Ala. 238,11 So. 428
• Parties: NELSON ET AL. v. HUBBARD. ADAMS COTTON MILLS ET AL. v. DIMMICK ET AL.
• Court: Alabama Supreme Court

11 So. 428

96 Ala. 238

NELSON ET AL. v. HUBBARD.

ADAMS COTTON MILLS ET AL. v. DIMMICK ET AL.

Supreme Court of Alabama

July 27, 1892

Appeal from city court of Montgomery; THOMAS M. ARRINGTON, Judge.

Petition by O. O. Nelson and others against S.D. Hubbard for the dissolution of the Adams Cotton Mills, a corporation. The same having been dissolved, a bill was filed by J. W. Dimmick and others, trustees under a mortgage given by the corporation against it, for the foreclosure of such mortgage and the execution of the trusts therein contained. The defendant corporation interposed a demurrer based on the ground that the issuance of the bonds was unauthorized, and also on what it urged as its seventeenth ground of demurrer that "it is not alleged that the board of directors had any authority to pass the resolution alleged to have been passed by them in reference to said bonds placed with the First National Bank," which seventeenth ground of demurrer alone was sustained. The petitioners for the dissolution of the corporation moved to dismiss the bill filed by the trustees, on the ground that the corporation having been dissolved, could not be sued, and that the claim should be contested upon the appointment of a receiver. Said motion was overruled. From the various rulings of the court the Adams Cotton Mills, the trustees, and the petitioners for dissolution respectively appeal. Reversed.

Watts & Son, for appellants.

Tompkins & Troy and Brickell, Semple & Gunter, for appellees.

WALKER J.

Provision is made in this state for the voluntary dissolution of any private corporation, organized under the general law, at the instance of a majority of the stockholders, owning three fourths of the stock. The existence of the corporation may be terminated through the term for which it was chartered has not expired, though there is no ground for vacating its charter or forfeiting its franchises, whether it is solvent or insolvent, and whether it has been successful or unsuccessful in the business for the prosecution of which it was organized. The law makes it one of the terms of the agreement which binds the stockholders together as a body corporate that the association may be disbanded and the business stopped and wound up whenever a majority of the stockholders, owning three fourths of the stock, choose to do so, and take the steps prescribed by the statute for the accomplishment of this result. We copy from the Code the sections containing the provisions on this subject: "1683, (2054.) Petition for dissolution. Whenever a majority of the stockholders of any private corporation, owning three fourths of the stock, wish to dissolve the corporation, they may do so in the following manner: They shall file a petition in the chancery court of the division in which the corporation is located, or has its principal place of business, setting forth the names of all the stockholders and their residences, the amount of stock owned by each stockholder, as nearly as practicable all the property, real and personal, of the corporation, and stating that it is the wish of the petitioners to dissolve the corporation. 1684, (2055) Notice by register. Upon the filing of such petition, the register shall give notice by subp na to all the stockholders not joining in the petition to appear within thirty days after service and contest the same; and, if any stockholder residing out of the state does not join in the petition, he shall be made a party by advertisement in the manner non-resident defendants are made parties, and he has thirty days after the perfecting of such notice to answer and contest the petition. 1685, (2056.) When dissolution decreed. If, at a regular term of the chancery court after the cause is at issue, it be made to appear to the chancellor that a majority of the stockholders wish to dissolve the corporation, proof being made as in chancery cases, the chancellor shall decree the corporation dissolved. 1686, (2057, 2059.) Receiver appointed-His duties. Upon decree of dissolution, the chancellor shall appoint a receiver of all the property and assets of the corporation. The chancellor shall direct the receiver to collect, by suit or otherwise, all the debts due the corporation, and sell property, real or personal, belonging to the corporation, and how he shall make title thereto to the purchaser. The chancellor may, in his discretion, authorize the receiver to proceed, without suit, to sell any or all of the debts and assets of the corporation at public sale for cash, or on such terms as in his judgment the interest of the parties may require. 1687, (2058.) How selected-Bond. The person nominated by the majority of the stockholders must be appointed receiver, if they can agree; but, if they fail to agree for ten days after the decree of the dissolution, the chancellor, in term time or vacation, or the register in his absence, must appoint such receiver, requiring proper bond and sureties for the performances of his duties. 1688, (2060, 2061.) Receiver pays debts-Contested claims. In the performance of his duties under the decree, the receiver shall pay the debts of the corporation in full or ratably, as the funds realized may permit. If any claim is contested, it must be filed by the claimant in the court, and the genuineness thereof ascertained as in other contested claims in chancery. The residue, after the debts and costs are paid, shall be divided among the stockholders according to the amount of stock owned by each. 1689, (2062.) Appeal. Any party dissatisfied with the decree of dissolution may appeal, giving bond and sureties, as prescribed by the chancellor or register."

A majority of the stockholders, owning more than three fourths of the stock, in the domestic corporation known as "Adams Cotton Mills," filed their petition on the equity side of the city court of Montgomery for the dissolution of that corporation, under the statute above quoted. A single stockholder, who did not join in the petition, was the only party defendant thereto. The proceeding was conducted in strict conformity with the provisions of the statute, and on the 5th day of January, 1892, a decree was made dissolving the corporation. On the 8th day of January, 1892, W. B. Tanner, who had been nominated by a majority of the stockholders, was appointed receiver; but, it appearing to the court that said Tanner had a lease on the property of the dissolved corporation, it was provided in the decree appointing him receiver that he should not act as receiver or be responsible as such until he should file in the court an instrument in writing, surrendering all rights as such lessee, and until he should give bond as provided for in the decree. On the 13th day of January, 1892, eight days after the date of the decree dissolving the corporation, the trustees in a mortgage or deed of trust alleged to have been made by the corporation on the 1st day of May, 1889, filed their independent original bill of complaint on the equity side of the same court for the execution of the trusts of that instrument and for its foreclosure. The corporation itself and its stockholders were named as parties defendant to this bill. The petitioners in the dissolution proceeding and the same persons as defendants to the original bill filed by the trustees made a motion in each of those causes to dismiss the bill filed by the trustees as an independent bill of complaint, that said bill of complaint be treated as a claim filed in the dissolution proceeding, and that an order be made that the receiver, when appointed in the dissolution proceeding, should examine into the claim and contest the same, if he should see proper to do so. These motions were overruled, and the trustees were permitted to proceed with their suit as an independent cause. This action is assigned as error. In support of this assignment, it is contended that after the dissolution of the corporation claims against it cannot be enforced by suit against the corporation, but, if contested, must be filed by the claimant in the dissolution proceeding. A review of the ruling on the motions above mentioned involves a consideration of the effect of the decree of dissolution, and a determination of the proper mode of enforcing claims against the dissolved corporation.

The dissolution of a corporation implies its utter extinction and obliteration as a body capable of suing or being sued, or in whose favor obligations exist or upon which liabilities are imposed. For all legal purposes the dissolution is the death of the corporation; thereafter it is a mere nonentity. The effect at common law was that its real estate remaining unsold reverted to the original grantor, or his heirs, its personal estate went to the crown, or to the state in this country, and the debts due to and from it were totally extinguished. Paschall v. Whittsitt, 11 Ala. 472; Saltmarsh v. Bank, 14 Ala. 668. Such is the effect at law, where only legal rights or titles are recognized. But courts of equity regard a business corporation as holding the legal title to its property in trust for its stockholders and its creditors. Equity treats its property as appropriated and devoted to certain purposes, to which it is to be applied though the existence of the corporation itself is terminated, and legal remedies against it are extinguished. The rights of those who are beneficially interested in the property of the corporation survive and are enforced, though the artificial being in which the legal title is vested passes out of existence. It is plain, upon a consideration of the real nature and object of the corporate association, that its property is held and used in its business for the ultimate profit or advantage, not of the corporation itself, but of those who as...