Turner v. Cattleman's Trust Co.

• Decision Date: 05 November 1919
• Docket Number: (No. 95-2918.)
• Citation: 215 S.W. 831
• Parties: TURNER v. CATTLEMAN'S TRUST CO. OF FT. WORTH.
• Court: Texas Supreme Court

Page 831

215 S.W. 831

TURNER v. CATTLEMAN'S TRUST CO. OF FT. WORTH.

(No. 95-2918.)

Commission of Appeals of Texas, Section B.

November 5, 1919.

Error to Court of Civil Appeals of Second Supreme Judicial District.

Action by Cattleman's Trust Company of Ft. Worth against Robert Turner. Judgment for defendant reversed by Court of Civil Appeals (182 S. W. 438), and defendant brings error. Judgment of Court of Civil Appeals reversed, and judgment of trial court affirmed.

Madden, Trulove, Ryburn & Pipkin and W. H. Kimbrough, all of Amarillo (Kimbrough, Underwood & Jackson, of Amarillo, of counsel), for plaintiff in error.

A. H. Kirby, of Ft. Worth, for defendant in error.

SADLER, J.

For a complete statement of the case we refer to the opinion of the Court of Civil Appeals, 182 S. W. 438.

It appears from the findings of the appellate court that there is no material dispute with reference to the evidence. The opinion of that court, as we interpret it, practically is a holding that under the undisputed facts, as a matter of law, the original contract of subscription did not evidence the intention of the parties to be that the corporation should accept the notes of Turner in payment for stock and issue to him its stock upon the faith of the notes; also that the undisputed facts did not, as a matter of law, show that the corporation did accept the subscription of Turner and accompanying notes with the purpose of issuing therefor its stock and acceptance of the notes in payment. Nor did the facts in law evidence the issuance on the part of the corporation of the stock to Turner as a contemporaneous part of the original subscription and in consideration for the notes.

In order to a correct understanding of the matters involved in the question under discussion, it becomes proper to recur to the law governing subscriptions for stock and the relationship of shareholders and the corporation to each other.

The authorities are practically a unanimity in holding that the "capital stock of a corporation is the fund, property, or other means contributed, or agreed to be contributed, by the shareholders as the financial basis for the prosecution of the business of the corporation, such contribution being made either directly through stock subscription, or indirectly through the declaration of dividends.

"The term `capital' is used to designate that portion of the assets of a corporation, regardless of their source, which is utilized for the conduct of the corporate business and for the purposes of deriving therefrom the gains and profits." 7 R. C. L. 165; Wright v. Georgia R. & B. Co., 216 U. S. 420, 30 Sup. Ct. 242, 54 L. Ed. 544; Smith v. Dana, 77 Conn. 543, 60 Atl. 117, 69 L. R. A. 76, 107 Am. St. Rep. 51; Tradesman Publishing Co. v. Wheel Co., 95 Tenn. 634, 32 S. W. 1097, 31 L. R. A. 593, 49 Am. St. Rep. 943.

Different persons in different rights are the owners of the property of a corporation and the shares of stock therein.

The tangible property belongs to the corporation.

The shares of stock are the intangible interests in the corporate business owned by the individual shareholders. 7 R. C. L. 166; Ohio Life Insurance & Trust Co. v. Merchants' Insurance Co., 11 Humph. (Tenn.) 1, 53 Am. Dec. 742.

The stock of a corporation prior to issuance is the common property of the incorporators.

Upon the issuance of a certificate evidencing the definite interest in the common fund existing in the individual, the possession of the stock evidenced by the certificate does not pass from, but is retained by, the corporation. The certificate is simply the evidence in the hands of the subscriber on which he may be able to base an assertion of interest in the common fund. However, the title to the certificate may not carry with it title to the stock.

The stock remaining in the possession of the corporation may be subjected to the satisfaction of process by third parties seeking to appropriate it to the payment of the debts due by the shareholders. His possession of the certificate will not prevent, under appropriate orders, the title to the stock passing to his creditor. 7 R. C. L. 167; Ball v. Towle Manufacturing Co., 67 Ohio St. 306, 65 N. E. 1015, 93 Am. St. Rep. 682.

In order to bring into existence the relationship of stockholder to a corporation there must be some sort of contract in which the subscriber obtains the right to demand and exercise the privileges of a shareholder. 7 R. C. L. 182; Butler University v. Scoonover 114 Ind. 381, 16 N. E. 642, 5 Am. St. Rep. 627.

But the issuance of a certificate is not essential in order to create the relation of shareholder, which may arise by reason of the contract duly made, and to vest in the subscriber the privileges attendant upon the relationship of stockholder which he may exercise and enjoy with the consent of the company.

The certificate is not the stock, but is only evidence in the hands of the shareholder that the corporation recognizes him as owning an interest therein. The certificate is not necessary to the existence of the stock, nor to the transfer of it by the shareholder.

The stock, being in the possession of the corporation, is transferable only on its books upon presentation of proper evidence of a transfer of ownership. 7 R. C. L. 182; Pacific National Bank of Boston v. Eaton, 141 U. S. 227, 11 Sup. Ct. 984, 35 L. Ed. 702.

It seems to be clear that no lien existed under the common law in behalf of a corporation on the stock for debts due to it by shareholders. The creation of this lien by contract, however, appears not to be inhibited. 7 R. C. L. 177; Bankers' Trust Co. v. McCloy, 109 Ark. 160, 159 S. W. 205, 47 L. R. A. (N. S.) 333.

There are other general principles that should be recalled in the discussion of the questions presented in this case. There are certain rights, powers, and privileges that accrue to a stockholder in a corporation, the exercise of which are but manifestations of the intention on the part of the shareholder in reference to his attitude towards ownership of the stock, such as the right to attend stockholders' meetings and vote on matters under consideration by shareholders; the right to hold official position of trust in the corporation; and the right to receive dividends from the profits and gains made by the common fund. The exercise of these rights by the stockholder is a manifestation of his recognition of ownership of stock in the corporate enterprise.

So, also, on the part of the corporation. There are certain concessions which it makes to a shareholder that go to manifest its intentions. For instance, the acceptance of the subscription contract; the entry upon its stockbook of the subscriber as a shareholder; the permission accorded to him of attending shareholders' meetings and voting in matters relative to the management of the corporation—exercising directory judgment of his choice in the selection of agencies who may act for him and for the corporation in the management of its business; setting aside and paying over to him the proportionate shares of the profits and gains of the corporation to which he may be entitled by reason of his status as a stockholder.

All these matters are of importance in determining whether or not in the instant case the contract of subscription—which includes the proxy of the subscriber, the notes covering the subscription, and the collateral assignment —evidence the respective intentions of the parties with reference to the status of the subscriber in relation to the issuance of the stock. Ann. Cas. 1913C, 421; 7 R. C. L. 280, 324; Commonwealth v. Dalzell, 34 Am. St. Rep. 640; 7 R. C. L. 327; Royal Consolidated Mining Co. v. Royal Consolidated Mines Co., 137 Am. St. Rep. 165; In re Long Island Ry. Co., 32 Am. Dec. 429.

It seems to be the rule in some jurisdictions that, where a corporation has been organized, upon the acceptance of a stock subscription by it the relationship of stockholder is created. 7 R. C. L. 274; Blien v. Rand, 77 Minn. 110, 79 N. W. 606, 46 L. R. A. 618; note Ann. Cas. 1913C, 419; 1 Thompson Corporation (3d Ed.) § 551, p. 660; Railway Co. v. McCormick, 71 Am. Dec. 337; Kentucky Insurance Co. v. Jenks, 5 Ind. 96.

Where the name of a shareholder is made to appear upon the stockbook of a corporation as the owner therein, it becomes evidence of ownership. 7 R. C. L. 275.

This brings us to a consideration of the facts bearing upon the question of whether or not the stock involved in this litigation was issued.

It has been very earnestly insisted that the inhibition of the Constitution has in contemplation the issuance of the certificate evidencing the recognition of ownership of stock. We are inclined to the view that the constitutional prohibition is broad enough to cover, not only the certificate, but the actual recognition or the origin of the rights of a stockholder which accrue to the subscriber. Were we to hold that the Constitution in its prohibition is limited alone to the ministerial act of writing up and delivering the certificate of stock, the evident purpose of the Constitution would be destroyed. Its...