Davis Bros. v. Montgomery Furnace & Chemical Co.

COLEMAN, J. Appellants, having recovered a judgment against the defendant corporation, upon the return [129] of execution indorsed “No property found,” sued out writ qf garnishment against W. F. Joseph. The answer of garnishee, denying indebtedness, was contested, and upon the evidence to sustain, the contest the court directed the jury to find the issue in favor of the garnishee. This charge of the court is assigned as error. The recovery of the judgment, the issue of execution as above stated, and the corporate character of the defendant in execution is admitted. The evidence consists of the testimony of Woolf oik, secretary and treasurer of the defendant corporation, and Exhibits 1, 2, 3. Exhibit No. 3 is a contract or agreement signed by the “Montgomery Land and Improvement Company,” and the “Standard Charcoal Iron & Chemical Company,” and was made in promotion of the general purpose for which the defendant corporation was intended. The testimony of Wool-folk, in connection with Exhibits 1 and 2, show that the terms and stipulations contained in the agreement evidenced by Exhibit 3 substantially were accepted and ratified by the defendant corporation. A corporation after its organization, has the power to accept and ratify the'agreement and covenant of its promoters, made to effect and carry out the purposes of its organization, and, when accepted and ratified, the covenants are mutually binding.— Wood v. Whelen, 93 Ill. 155; Reichwald v. Hotel Co., 106 Ill. 439; 4 Amer. & Eng. Enc. Law, 202; Canal Co. v. Vallette, 21 How. 419; Moore & H. Hardware Co. v. Towers Hardware Co., 87 Ala. 206, 6 So. Rep. 41; Cook on Stocks, § 707, and note to text. It is contended that the obligation or subscription of Joseph w?.s in violation of Article XIV, § 6, of the constitution, and Code, § 1662 ; and under these provisions of the law, as construed in Williams v. Evans, 87 Ala. 726, 6 South. Rep. 702; Tutwiler v. Coal, etc. Co., 89 Ala. 399, 7 South. Rep. 398, the subscription is null and void. The word “ bonds,” as used in the constitution, is omitted from section 1662 of the Code, but -the same principles of law apply in either case. If the Montgomery Furnace & Chemical Company was organized with a capital stock of $400,000, each share of the par value of $100, whether of this amount the Montgomery Land & Improvement Company subscribed and received 100 shares or 300 shares, and the Standard Charcoal, Iron & Chemical Company subscribed for and received 3,900 [130] shares, or 3,691, and 9 shares were subscribed for by other parties in cash, is immaterial upon the question now considered. The evidence shows that all the capital stock of the defendant coiqjoration was subscribed for and paid up in full; that of the Montgomery Land & Improvement Company by a conveyance of property consisting .of 30 acres of land, and that of the Standard Charcoal, Iron & Chemical Company by the issue of a license to operate under the H. M. Pierce patents to the extent of 60,000 cords of wood per annum; and in consideration of these payments the certificates of stock were issued to them respectively. There is no evidence in the record to show or tending to show either the value of the 30 acres of land or of the Pierce patents, conveyed in payment of the stock; and in the absence of' all proof as to-the value of. the consideration, the court can not say the issue of the stock was fictitious, or m violation of the constitution or section 1662. The stock having been paid for in full, and lawfully issued to the subscribers, they had the right to sell or donate the same, and such sale or gift did not impose any liability upoh the grantee or donee. — Railroad v. Dow, 120 U. S. 299; 7 Sup. Ct. Rep. 482. “Where stock has been issued.lo a patentee for the use of his patent he may donate and return a part of this stock back to the corporation, to be sold at a reduced price for the benefit of the corporation, and the transaction will be upheld whether the stock was placed in the hands of a trustee or not.” — Cook on Stocks, §§ 42, 43, and note ; Otter v. Petroleum Co., 50 Barb. 247. To carry out the purposes for which the Montgomery Furnace & Chemical Company was organized it was necessary to raise a large amount of money, and to effect this it was agreed to “ negotiate by subscription, at par, one hundred and seventy-five thousand dollars of first-mortgage bonds,” “all of which subscriptions for bonds were to be paid for when called, .provided said calls do not exceed ten per cent, per month. The Standard Charcoal, Iron & Chemical Company, and the Montgomery Land & Improvement Company, of the shares of stock owned and held by them placed in the hands of a trustee some $200,000, “who was authorized and empowered to issue to each of the subscribers of the first-mortgage bonds above provided for a corresponding amount of stock.” The subscription contract of the [131] garnishee, by which he obligated himself to pay for and take one thousand dollars of first-mortgage bonds, provides “that the entire issue of bonds shall not exceed two hundred thousand dollars ; that'they were to be a first lien upon all the property, rights and franchises of the Montgomery Furnace & Chemical Company ; that, upon the payment of the entire amount of any subscription, an equal amount of fully paid-up capital stock shall be issued to the holder.” The subscriptions were to be paid in monthly instalments of 10 per cent. each. The stock intended for the subscribers to the bonds having been paid for in full by the original subscribers for the stock, and by them placed in the hands of a trustee for the benefit of the corporation, and to be paid over to the subscribers for the bonds when their subscriptions for bonds were paid in full, a failure to pay such subscription for the bonds did not make the subscriber for the bonds liable as for an unpaid subscription for stock. If the capital Stock of the company had not been paid for and issued, but remained in the corporation to be issued, and then had been issued as a bonus by the corporation to subscribers for the first-mortgage bonds, or if the bonds were to be or had been issued as a bonus by the corporation to subscribers for the capital stock, in either case, that issued as a bonus would be regarded as a fictitious issue, and-in violation of Article XIV, § 6, of the constitution, 87 Ala., 6 South. Rep., and 89 Ala., 7 South. Rep., supra. But where, as in this case, according to the evidence, the stock had been fully paid for, and issued, upon a sufficient and adequate consideration, to the subscribers, such holders had the right to return the stock to the company, or to a trustee for the benefit of the company, to be sold or donated, as might be directed by the owner of the stock, without contravening the constitution and laws of the State. — Christensen v. Eno, 106 N. Y. 97, 12 N. E. Rep. 648 ; Cook on Stocks, § 42, and note; Morrow v. Steel Co., (Tenn.) 10 S. W. Rep. 495. It follows from the foregoing principles that the garnishment suit cannot be maintained against Joseph by reason of any supposed statutory liability as a stockholder for any supposed balance - due upon subscription for stock. The sole question, then, is, did Joseph’s subscription for $1,000 of first-mortgage bonds create such an obliga [132] tion as -would give the Montgomery, Furnace and Chemical Company the right to coerce payment by a suit at law, and create an indebtedness subject to process of garnishment for any balance due upon his subscription for bonds. Prima facie, we hold the corporation had the power to issue the first-mortgage bonds. — Alabama Gold Life Ins. Co. v. Central A. & M. Ass’n., 54 Ala. 73; Canal Co. v. Vallette, 21 How. 414; England v. Dearborn, 141 Mass. 590, 6 N. E. Rep. 837; 4 Amer. & Eng. Enc. Law, 222, 236, 245. The evidence shows there had been three calls made in pursuance of the provisions of the subscription agreement for the bonds, and three payments made of 10 per cent., each, for the amount of his subscription, leaving a balance due from the garnishee, Joseph, of $700. The obligation to pay for the bonds and to issue the bonds and stock, when paid for, is mutually binding, and maybe enforced by either party.— Anson on Cont., *73, and note; 1 Parsons on Cont., *453; 1 Wharton on Cont., § 528, and note; 10 S. W. Rep. supra. The first instalment of 10 per cent, on the subscription was due within 30 days after organization of the company, and the remaining assessments" of 10 per cent, per month were payable thereafter upon calls or assessments to be made as the work progressed. The amounts to be paid on the several assessments are as fixed and as certain as if separate notes had been given for such assessments, or as if the liability was for subscriptions to stock payable in instalments. Such a fixed and definite liability may be reached and subjected to process of garnishment.—Ruse v. Bromberg, 88 Ala. 627, 7 So. Rep. 384. The garnishee may have a defense to the payment of his subscription for the bonds, but such defense, if any exist, is not disclosed in the record. The jury might have inferred from the evidence that there had been assessments and calls on Joseph for his unpaid subscription, consequently the affirmative charge ought not to have been given. Reversed and remanded. Clopton, J., not sitting.