Tutwiler v. Tuskaloosa Coal, Iron & Land Co.

89 Ala. 391 | Ala. | 1889

STONE, C. J.

On January 15, 1887, the Tuskaloosa Coal, Iron & Land Company was incorporated in Tuskaloosa county; under the general statute then in force providing for the incorporation of business corporations. — Code of 1876, Part Second, Tit. 1, ch. 1, art. 1, commencing with § 1803; Sess. Acts 1882-3, p. 5. On February 26, 1887, the act of the Alabama Legislature was approved, “to confirm the incorporation and organization of the Tuskaloosa Coal, Iron & Land Company, and to define and declare the powers of said company.” — Sess. Acts, 482. This act defines the powers, and declares the purposes of said corporation.

P. A. Tutwiler, complainant in the Chancery Court, and appellant here, became the original subscriber for ninety shares of the capital stock of said corporation, of the par value of one hundred dollars each; and during the month of March, 1887, pursuant to calls made, he paid thirty per cent, of his subscription, amounting to twenty-seven hundred dollars. Calls were subsequently made for the entire stock subscription, but Tutwiler made no further payment. Being put in apparent default by demand made for payment, the stock subscribed for by Tutwiler, together with that of many others in like condition, was,- by the corporation, advertised to be sold publicly for cash on March 13,1889, the proceeds to be applied to the unpaid balance of said stock subscription. This advertisement and proposed sale were had, and proposed to be had, under section 1674 of the Code of 1886. The power of sale contained in that section is not found in the law as it existed before that Code went into operation— December 25, 1887. When Tutwiler subscribed, the mode of enforcing payment of delinquent stock sirbscriptions to corporations, like the present one', will be found in section 1816, Code of 1876. The corporation was not proposing to sell under the older statute, but under the power conferred by the Code of 1886, § 1674, enacted after Tutwiler became a subscriber.

On March 13, 1889, the present bill was filed. . It has two objects, and prays relief as to each. I't first seeks to prevent a sale of the stock under section 1674 of the Code of 1886, under which it had been advertised to be sold. The position taken on which this relief is claimed, is, that the statute giving this remedy, having been enacted at a date subsequent to the contract by which complainant subscribed for his stock, can not be construed as retroactive, and that, hence, no valid sale can be made under the corporation’s advertisement. We are not considering the merit of this contention. If it has any merit, the grievance is personal and individual to the stockholder thus circumstanced, and no other stockholder has any interest in the matter of Tutwiler’s stock. A bill claiming such relief is a bill against the corporation, as the only necessary and proper party. The contention is between the stockholder and the corporation, and .any relief obtained will necessarily be against the corporation.

The other feature of the bill relates to an alleged purchase by the corporation of a large body of land from Friedman, in which it is charged that Friedman, who was a stockholder and director of the company, defrauded the corporation. Primarily, relief of this kind must be sought by the corporation as complainant, for it only in its corporate capacity is the legal sufferer. For such an injury, the stockholder, as such, has not prima facie any legal cause of action, because he has suffered no individual grievance. In one category, a stockholder, or any number of stockholders, may become actors, and file a bill for relief in his or their own names, namely, when the governing body, being thereto requested, refuses to institute proceedings to redress an alleged wrong to the corporation. — Tuskaloosa Manufacturing Co. v. Cox, 68 Ala. 71; M. & P. Line v. Waganer, 71 Ala. 581; Nathan v. Tompkins, 82 Ala. 487; Moses v. Tompkins, 84 Ala. 613; Dodge v. Woolsey, 18 How. (U. S.) 331; Hawes v. Oakland, 104 U. S. 450; 1 Mor. Corp. § 277. In such case, although the suit is by stockholders, the relief is, to all intents, in favor of the corporation, and against some outside party. To a suit thus brought, for the wrongs complained of in this case, Friedman was a necessary party defendant, being the person against whom relief, if any,’ would be granted. The corporation, it is true, was a necessary party; and refusing to appear as complainant, there was no recourse left but to make it a defendant. The several and variant reliefs prayed in the two features of the bill, if there be nothing in the question to be next considered, render the bill multifarious.—3 Brick. Dig. 388, §§ 338, 342, 343; Clay v. Gurley, 62 Ala. 14; Adams v. Jones, 68 Ala. 172; Seals v. Pheiffer, 77 Ala. 278.

It is contended for appellant, that the first feature of his bill — that in which he seeks to prevent the sale of his stock under the advertisement — is but a stepping-stone, or condition precedent to-his right to maintain the suit in its second^ feature; that only a stockholder can maintain such a bill, and unless he first succeeds in preventing a sale of his stock, or in having the sale, if made, set aside, he will be left without a standing in court, and his bill must fail on that account. The principle invoked is sound in a proper case. An equitable right — one which can be asserted in a court of equity — -generally carries with it all the powers that are necessary to make it effective. — Wedgeworth v. Wedgeworth, 84 Ala. 274. We will show, further on, that that principle can not be made to benefit this case. The demurrer for multifariousness need not be further considered, as the ruling on it did no harm.

The bill makes W. O. Jemison, president of the corporation, a party defendant. It makes no charge of misconduct against him. At least, it makes no charge of bad faith, or of conduct tilira vires, or of any thing else, with sufficient particularity to justify making him a party defendant; and it prays no relief against him. True, it is claimed here that he is made a party for purposes of discovery. That, if true, would be no sufficient ground for making him a party. Norwood v. M. & C. R. R. Co., 72 Ala. 563. But the bill* expressly dispenses with a sworn answer from him. It is of the essence of a bill for discovery that it require a sworn answer. A bill like the present one can in no sense be-classed as a bill for discovery. — Zelnicker v. Brigham, 74 Ala. 598; Watts v. Eufaula National Bank, 76 Ala. 474; 1 Pom. Eq. § 144. The demurrer by W. C. Jemison was rightly sustained.

We can not agree with counsel for appellant, as to the proper interpretation of section 1816 of the Code of 1876. That section first declared a lien upon the stock of the shareholder in a corporation, such as this, for all amounts which may be due upon the subscription for stock. If the statute had proceeded no further, the lien could have been enforced by bill in chancery, as other liens are.— Westmoreland v. Foster, 60 Ala. 448. But the statute proceeded further, and gave to the corporation the option of pursuing one of two courses. The one was, if there had been partial payment on the stock, to proceed, after giving certain notice pointed out by the statute, “to consolidate into as many par shares as the money paid by such defaulting subscriber will amount to, and issue to him a certificate therefor.” The other optional course, which the statute authorized, was, to “proceed to collect what may remain unpaid of the original subscription by suit.” Electing to pursue the latter course, the corporation could have maintained an ordinary suit at law for the collection of the money, or it could have maintained a suit in chancery for the enforcement of the lien. Cook on Stock and Stockholders, § 121. And this option, or right of election, was vested in the corporation, and in its exercise the stockholder had nb voice, or right of control. We have, then, the case before us of a contract entered into at a time when the law, as then in force, gave a lien, leaving the lienee to common remedies for its enforcement, and a change of the law after the making of the contract, providing another remedy, under which last statute the corporation is proceeding to make its lien available. Is this a legitimate function of legislation?

“Statutes which relate alone to the remedy, without' creating, enlarging, or destroying the right, operate generally on existing causes of action, as well as those which afterwards accrue.” — Coosa Riv. St. Boat Co. v. Barclay, 30 Ala. 120. “The legislature may alter, enlarge, modify, or confer a remedy for existing legal rights, without infringing any principle of the constitution.” — lb.

The case from which we have quotéd, seems to be precisely in point with the present one. And this doctrine is supported by the great current of authority. — Ala. Life Ins. & T. Co. v. Boykin, 38 Ala. 510; Fx parte Pollard, 40 Ala. 77; Ogden v. Saunders, 12 Wheat. 401; Cooley Cons. Lim. (5th Ed.), top pp. 348, 443-4.

The advertisement for the sale was dated March 2, 1889. Section 10 ef the Code of 1886, as amended by act approved February 28, 1889 — Sess. Acts, 104 — does not affect this question.

The bill, so far as it seeks to prevent, or to vacate the threatened sale of the stock, is without equity. This renders the question of multifariousness immaterial.

As we understand the argument of counsel, it seeks to make the alleged fraud in the sale and purchase of the Friedman land a vitiating factor in the very inception and organization of the corporation, and," on that account, to dissolve the corporation, hold the' perpetrators to personal account, and administer the assets of the attempted incorporation for the benefit of the sufferers.

If the projectors of a business corporation were by fraudulent or covinous pre-arrangement to get up a scheme and procure its incorporation, upon an agreement that property of one or more of its promoters should constitute the capital of the corporation in whole or in ‘ part, and at an appraisement palpably in excess of its value;-and if such scheme be so far consummated as to mislead and deceive strangers who purchase stock in ignorance of such pre-arrangement, and of such excessive valuation, we will not say such deluded stockholders would be without redress. Ñor will we say that stock issued to the seller of such overvalued property, as the consideration, or part consideration of its purchase, conforms to the letter or spirit of' the Constitution, Art. XIY, § 6, which declares, “No corporation shall issue stock or bonds except for money, labor done, or money or property actually received.” — Dispatch Co. v. Fitzpatrick, 83 Ala. 604; Williams v. Evans, 87 Ala. 725. And we will not say that a stranger who has been thus deluded in the purchase of stock and the payment of his money in ignorance of the fraud, may not file a bill and have the transaction cancelled, even if the disruption of the corporation itself be the consequence. Nor will we say, if such stockholder has paid money under such circumstances, the fact of the sale of his stock for unpaid calls will destroy his status as a complainant. And it would seem to follow that, in such case, no previous attempt need be made to obtain redress through the governing body of the corporation, if any relief can be obtained. Such suit would be an attack on the rightful existence of the corporation itself. These questions we do not and need not decide, for the bill makes no such case.

The bill in this case, as we have stated, was filed March 13, 1889. It does not state when the purchase from Friedman was made. The plain implication from the averments is, that the contract of purchase was entered into after the organization was organized, for it charges that Eriedman was a director when he made the sale. There could be no directors before incorporation, and the election of directors is one of the necessary steps taken in organization. The bill charges a very glaring fraud, but it charges it as perpetrated after incorporation, and after organization. Such fraud is, per se, no ground for dissolving the corporation. The vacation of such a transaction, for the fraud, is a pro-' ceeding by the corporation; or, if it, on proper request, refuse to take steps to procure a rescission of the contract, then by some one or more of the stockholders. Brought in either form, the suit is for the benefit of the corporation, as an existing artificial person, not for its dissolution. Only a stockholder or stockholders can maintain such a suit, the corporation refusing to sue; and to this end it was and is essential that Tutwiler maintain his status as a stockholder. Ceasing to be such, his suit, on the case made by his bill, must fail.

The rule is settled in this State, in accordance with the general doctrine on the subject, that before a stockholder, or any number of stockholders, can maintain a suit like the present one, every reasonable effort must be made to have suit instituted by the governing body of the corporation. The bill does not inform us how many directors constituted the board of the defendant corporation. The law permitted organization with not less than three, nor more than nine directors. If the averments of the bill be true, two of the directors, Eriedman and another, were concerned in the fraud, and benefitted by its perpetration, while, as the result of the transaction, Eriedman became the owner of one hundred and nine thousand dollars of the capital stock. The bill charges that complainant “has applied to the said company, through its president, to institute proper proceedings to set aside and annul said purchase, but it has failed and refused to do so.” Under the averments of the present bill, we hold a sufficient excuse is shown to authorize stockholders to institute the suit.

Eramed as the present bill is, to continue its prosecution, Tutwiler must continue to be a stockholder. If relief is obtained under it, that relief will be for the benefit of the corporation, and will in no sense dissolve it, or tend to do so. Should an amendment of the bill be attempted, it would be well to inquire if the proposed amendment would not seek relief so incompatible with any that could be obtained under the present bill, as to make it a new case,

There is no error in any of the rulings prejudicial to appellant, and the decretal ordér of the chancellor is affirmed.

Somerville, J., not sitting.