Lanier Lumber Co. v. Rees

McCLELLAN, J. Robert Morrison, owning nine hundred of the one thousand shares of stock in, and being president of, the Morrison Lumber Company, subscribed in his own name and had issued to him individually three hundred and thirty-three shares, of the aggregate face value of $33,300, of the capital stock of the Lanier Lumber Company, and paid therefor with property belonging to the Morrison Lumber Company» These shares.it is averred, he held as trustee for said Morrison Lumber Company , and all alongr ecognized the beneficial ownership of said.company ; and before the filing of the present bill two hundred and twenty of these shares of stock were transferred on the books of the Lanier Lumber Company, and assigned by Robert Morrison to Frank Rees in payment of a debt the Morrison Lumber Company owed him, and the certificates for the remaining shares, one hundred and thirteen in number, weredelivered to the First National Bank of Chattanooga, and are now held by it, — though no transfer of them has ever been made on the books of the Lumber Company, — presumably as security for debts of either the Morrison Lumber Company or Robert Morrison, though the bill does not disclose for what purpose or in what supposed right these certificates are in the hands of the bank; and it is immaterial in the view we take of the case. While , all this stock was so held by, and all of it stood in the name of, Robert Morrison for the Morrison Lumber Company, that corporation became indebted to the Lanier Lumber Company in a large sum of money, and the present bill is filed by the latter company for the purpose of collecting its said debt. This is sought'to be done by having said shares of stock declared and decreed to be the property of the Morrison Lumber Company, the transfer of a part thereof to be set aside and avoided as fraudulent, and this being done, by a further decree declaring and enforcing by sale, &c., the lien which section 1674 of the Code gives to corporations on the interest of shareholders in its capital for the security and payment of debts due from the shareholders to the corporation. There is no averment in the bill that the Morrison Lumber Company was authorized by its charter or other [627] wise to subscribe for and hold or own stock in other corporations, but, to the contrary, it is virtually admitted that it had no such statutory power. And it is too well settled to require discussion that without such authority one corporation can not subscribe for, or invest its own capital in the shares of other corporations either directly, as by becoming'in its own name an incorporator of anew corporation, or indirectly by subscriptions in the names of persons acting as agents and holding as its trustees. And it is equally clear upon principle and authority that all such attempted subscriptions or contracts of subscription, are not voidable, but utterly void. — 1 Mor. or Corp., §§ 431, 433 ; 4 Amer. & Eng. Encyc. of Law, p. 249, n. 2; B. M. & F. Co. v. Harvey, 20 S. W. Rep. 427 ; Central R. R. Co. v. Pennsylvania R. R. Co., 31 N. J. Eq. 475 ; Commercial Fire Ins. Co. v. Board of Revenue, 99 Ala 1. It is, therefore, obvious, indeed counsel for appellant do not controvert, that the contract disclosed by the bill, considered as a contract by which the Morrison Lumber Co. became the beneficial subscriber to the stock of the Lanier Lumber Co., was and is wholly void and entirely inoperative to invest property in the said shares in the former company. But it is insisted that the contract was wholly executed by the payment of the subscribed value of the stock in the property of the Morrison Lumber Company, and the issuance of certificates of stock to Robert Morrison, in his individual name, but to be held by him as trustee for said company, and that on the familiar principles announced in the case of Long v. Ga. Pac. Railway Co., 91 Ala. 519, the stock should now be treated as the property of the Morrison Lumber Company, and subjected to complainant’s lien as such, notwithstanding, and without at all looking to, the illegal means by which it was acquired by that company. The infirmity of this position lies in its assumption, or the proposition underlying it, that the void contract of subscription had been fully executed to the investiture of the property in the Morrison Lumber Company. The averments and prayer of the bill demonstrate that this is not the case. The stock was subscribed for by Robert Morrison ; the name of the Morrison Lumber Co. nowhere appears- in that connection. The stock was issued to him individually and not to his company, and it stood on the books of the Lanier Lumber Company in his name and not in the . [628] name of the Morrison Lumber Company. As bis stock the Lanier Lumber Company has no lien on it, for be is not that company’s debtor. To get the title to the stock out of him and vest it in the debtor corporation so that it could be subjected to the lien against the debtor, or, in other words, to show any sort of ownership, technical or beneficial, in the debtor corporation, reliance would be had upon the void contract of subscription. That contract must be proved, as it has been alleged, and when proved there must be, as prayed in this bill, a decree of the court executing and directing or adjudging performance of it, before relief could be granted even were the contract a perfectly valid one; and relief can not be granted at all upon the contract as it is, because courts will not intervene to the enforcement of void contracts. As is said by counsel, complainant’s right to enforce a lien on this stock as the property of the Morrison Lumber Company, the legal title to the stock not being in that company, but in Robert Morrison, depends upon whether the Morrison Lumber Company has any rights it could enforce against Robert Morrison ; the complainant having only a lien upon such property interest in the stock as its debtor could assert and effectuate against Robert Morrison. And it being most clear that the debtor corporation could have no standing in any court to establish and secure, by judgment or decree against said Morrison, any interest in the stock, since to that end the court would have to find the existence, and decree the performance, of an illegal and utterly void contract, it follows that the complainant is equally, and for the same reason, without right to reach and subject this stock as the property of the Mori'ison Lumber Company. The relief prayed can not be granted without the establishment and execution of an illegal and void contract. It, therefore, can not be granted at all, because no court will decree the performance or grant relief depending upon proof of such a contract. The demurrers to the bill ydiich were addressed to the point we have discussed were properly sustained. This destroys the supposed equity of the bill, and the other questions presented by other assignments of demurrer need not be considered. The decree of the chancellor is affirmed.