Case ID: sw_287/html/0902-02.html
Source: Caselaw Access Project
Author: {"author": "NICKELS, J. CURETON, O. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

C. D. HARTNETT CO. v. SHIRAH et al.
    (No. 834-4538.)
    (Commission of Appeals of Texas, Section A.
    Nov. 17, 1926.)
    1. Corporations <3=60 — Certificates of ownership in grocery store held not certificates of shares of corporate stock.
    Since “certificates of ownership” in chain grocery store purported to be only evidence that holders owned shares of ownership, and since they provided en masse for profits to holders, for “royalty,” and for other deductions, they were not certificates of' shares of corporate stock, rights given certificate owners being those denied to corporate stockholders, and rights reserved for corporation,being those denied by law.
    2. Joint-stock companies and business trusts <3=1 — Partnership <3=352 — Chain grocery store run by holders of certificates of ownership held general partnership or joint-stock association, and not limited partnership (Rev. St. 1925, arts. 6110-6132).
    Chain grocery store organized with those interested holding certificates of ownership which gave definite profit to members, provided for royalty, and other definite expenditures, held general partnership or joint-stock association in regard to creditors, and not limited partnership as provided by Rev. St. 1925, arts. 6110-6132.
    3. Joint-stock companies and business trusts <3=15(1) — That organizing corporation received royalty and percentage on business of chain grocery held not to release holders of ownership certificates in grocery from liability to its creditors.
    Eact, that, after corporation, duly licensed, entered into agreement with G. to organize one of chain of grocery stores, certificates of ownership being issued to defendants and others, investors in store, it received royalty and percentage on business done in store, held not to release defendants from liability to store creditors.
    Certified Questions from Court of Civil Appeals of Eleventh Supreme Judicial District.
    Action by the C. D. Hartnett Company against J. C. Shirah and others. Plaintiff perfected appeal to Court of Civil Appeals. On certified questions from that court.
    Questions answered.
    Preston Martin, of Weatherford, and W. P. Smith, of Mineral Wells, for appellant.
    Ritchie & Ranspot, of Mineral Wells, for appellees.
   Statement of the Case.

NICKELS, J.

Bynn Yann’s Company, Inc., is a Tennessee corporation chartered for the “purpose of purchasing the patent rights in the Bynn Yann’s Automatic Grocery gales System and manufacturing, owning, advertising, displaying, selling, and renting said sales system, and buying, disposing, and owning of such goods, wares, and merchandise as shall be necessary to carry on a general merchandise business in connection with the purposes aforesaid.” It will be noted that such merchandising (i. e., buying and selling of goods) as is included in the corporate object is merely incidental to the other purpose described. Nevertheless, in 1&20 (and prior to July 7th) it secured from the Secretary of State a permit for “the sale of goods, wares, and merchandise” in Texas. This permit, it will be noted, did not purport to allow operation of the “sales system,” etc., as a corporate enterprise.

July 7,1920, the corporation and R. L. 'Gulley executed a contract in words as follows:

“This contract made and entered into by and between Bynn Yann’s Co., Inc., party of the first part and R. B. Gulley, party of the second part witnesseth:
“Party of the first part agrees to employ party of the second part as local trustee, manager, who shall have charge of a Bynn Yann’s grocery store located as follow: Mineral Wells Texas or such other location as may be hereafter elected by Bynn Yann’s Co. Inc.
“Party of the first part further agrees that in consideration of one thousand fifty dollars paid by party of the second part it will and does hereby sell to party of the second part thirty— $85.09 certificates of ownership.
“Party of the first part further agrees to guarantee balance of the necessary funds with which to establish the store contemplated not to exceed a total of $8,000.00 or refund the amount paid by the party of the second part, which when done shall relieve it of all liability hereafter.
“Party of the first part agrees that party of the second part shall receive as his remuneration five per cent, of the gross sales of' said store, payable each week, and one half of the dividends declared by said store payable at the close of the quarter for his services and the services of employees under his charge.
“Party of the first part agrees that in event this contract should be canceled by party of the first part that party of the second part shall Be privileged to sell his interest and good will to any person acceptable to party of the first part. Party of the second part further agrees to abide by the terms set forth in a document printed, on reverse side of certificates of ownership and governing the management of said store. Party of the second part agrees to devote his entire time to the management of the store established in the territory assigned him, and to accept and abide by any rule, regulation, or order made by the Bynn Yann’s Go. Inc.
“Party of the first part reserves the right to terminate this .contract freed from all liability to party of the second part on giving notice in writing.”

Shortly thereafter the corporation issued to “some thirty-odd” persons (residing in Palo Einto county) “certificates of ownership.” Except for variation of date, name of the “owner,” and number of “shares,” each “certificate” reads thus:

"No. 57 Store. $8,000.00, Capital
“B. Y. S. (Be Wise).
“Shares, each, $35.00.
“Shares, 15.
“Certificate of Ownership in Bynn Yann’s Store
No. 821, Texas Division.
“This is to certify that Dan Circle is the owner of 15 shares of ownership in Bynn Yann’s Store No. 321 located at city of Mineral Wells, state Texas, and 'as such owner is entitled to his pro rata of the monthly dividends payable out, of the gross receipts of this store under the following terms and conditions:
“A. At the end of every calender month a sum equal to three per cent, of the gross sales of Bynn Yann’s Store No. 321 during each month shall be divided pro rata according to their holdings between all the owners of “certificates of ownership” of this store.
“B. Bynn Yann’s Co., Inc., shall receive as a royalty, on the Automatic Gravity Grocery Sales Fixtures, the patent on which is owned exclusively by them two per cent, of the gross sale of Bynn Yann’s Store No. 321.
“Bynn Yann’s Co., Inc., hereby agrees to deposit in trust one fourth of this royalty for the specific purpose of guaranteeing all shareholders against any financial loss on their original investment from any cause whatever.
“C. The state office of Bynn Yann’s Co., Inc., shall receive one per cent, of the gross receipts of Bynn Yann’s Store No. 321 in return for services rendered in connection with supervision of stores, purchasing for stores and attending to all matters in connection with the operation of the stores. Dallas, Texas, August 21 — 1920
“[Signed] Bynn Yann’s Company, Incorporated,
“By Frank B. Medearis, State Manager.”
“Bynn Yann’s Store No. 321” was thereupon opened at Mineral Wells under Gulley’s management. For its operation he bought and received goods from C. D. Hartnett Company, a Texas corporation, during the period intervening September .27, 1920, and March 17, 1924, and as a result a balance was due O. D. Hartnett Company on March 16, 1924.

For recovery on the debt O. D. Hartnett Company sued J. C. Shirah and other individuals, alleging they owed the debt because they “were jointly engaged in the mercantile business,” and were “conducting their said business as copartners under the partnership or firm name of ‘Bynn Yann Store,’ ” at Mineral Wells, and, as such, they had bought the goods and incurred the debt in question. It was further alleged that “said business as conducted by said defendants was unincorporated, but was a joint-stock company,” with a capital of “$7,000, and divided into 200 shares at $35 each, and each of the defendants were owners of shares of stock in said joint-stock company,” for which they had paid $35 per share. The “shares” thus referred to are the “shares” evidenced by the “certificates of ownership” issued by the corporation as above described.

Amongst the defenses interposed is one (sustained by the trial court) to the effect that “said shares of stock” were bought from the Tennessee corporation as corporate stock, that the “certificates of ownership” did represent corporate stock, that the defendants were therefore corporate stockholders, and not personally liable for the debt.

' O. D. Hartnett Company perfected its appeal to the honorable Court of Civil Appeals, Eleventh District, and that court has certified questions as follows:

“1. Did the contract as made and entered into by Bynn Yann’s Company, Inc., a corporation incorporated under the laws of Tennessee with a permit to do business in Texas; with R. L. Culley dated July 7, 19-20, whereby the business conducted at Mineral Wells, Tex., under the name of Bynn Yann Store No. 821, with a capital stock of $7,000, divided into shares of «$35 each, and certificates of ownership were issued and sold to appellees and others, create and make .such organization and business a co-partnership or joint-stock company?
“2. Does the fact that the Bynn Yann’s Company, Inc., a corporation, received a royalty and percentage on the business done in the Mineral Wells store by appellees and others who had bought certificates of ownership in said business relieve and release appellees from liability to the creditors of said business?”

Opinion.

The “certificates of ownership” were not certificates of shares of corporate stock for various reasons. In the first place, they do not have that purport; on the contrary, they declare themselves to be evidence merely that their holders own “shares of ownership in Bynn Yann’s Store No. 321 located at city (of) Mineral Wells,” Tex. In the second place, they declare the right of the holders (en masse) to receive, at the end of each month, a sum equal- to 3 per centum “of the gross sales of Bynn Yann’s Sto-re No. 321 during such month,” and the right of the corporation, as “royaity,” to take 2 per cent-um “of the gross sales” of that “store” and another 1 per centum for “services rendered in connection with supervision of stores, purchasing for stores and attending to all matters in connection with the operation of the stores.” Every right declared for the “certificate” owner is a right which the law denies to a corporate stockholder, and every right reserved for the corporation is one denied it by law. The whole scheme, if. viewed as creating a corporate stockholding relationship, ignores the rights of creditors and defeats the trust fund principle, for the stockholder is to receive dividends whether earned or not and the corporation is to receive- profits whether profit or loss be the local “store’s” portion. In saying this, of course, we merely take the words of the paper, for it does not exhibit means whereby the “gross sales” obligations declared are to be paid in event there is no prófit. Again: The record shows $10,000 divided into 100 shares of $100 par value each, to be the total authorized capital stock for the corporation, and that of this 60 shares had already been issued (and were outstanding) when the “certificates of ownership” (par value $35 per share, aggregate par value of $7,000) were issued. These things sufficiently demonstrate that the defendants are not stockholders of the corporation. One relationship (i. e., corporate) in which individuality is not the entity, and of which our law takes cognizance, is therefore eliminated.

There is, and can be, no claim of a limited partnership such as is permitted by the terms of chapter 1, tit. 105, R. S. 1925, nor did the enterprise belong to any one person.

It results that (as between the defendants and creditors) the concern at Mineral Wells is a general partnership or a joint-stock association, and whether one name for it would be more appropriate than the other is immaterial, for, on the case made, liability is identical.

We do not wish to be understood as implying that a corporation may lawfully become a partner or member of a joint-stock association, or that this corporation, itself, would not be liable to pursuing creditors. No such questions are in the case, and we do not pass upon the legal effect of the corporation’s violation of the law further than to sáy its delinquencies do not clothe its associates with immunity.

We recommend that the first question certified be answered “Yes,” and that the second be answered “No.”

CURETON, O. J.

The opinion of the Commission of Appeals answering certified questions is adopted, and ordered certified to the Court of Civil Appeals.