Court Opinion

ID: 6511634
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:22:53.765063+00
Date Added: 2024-06-11T15:54:53.877315
License: Public Domain

BRICKELL, C. J.
— The proposition underlying the bill, in its principal aspect, is, that the amount of the capital stock having been fixed and stated in the declaration of incorporation, when the company was formed, all of which had been subscribed for and taken, the company had not authority of law, at the time the subscriptions were made, and the promissory notes given, to enlarge the capital stock. The enlargement was of consequence ultra vires, the stock could not be lawfully issued, and the subscriptions and notes are void for the want of consideration. Originally, the statute under which the corporation was formed, restricted the capital stock of corporations of this class to a sum not exceeding two hundred thousand dollars. The restriction was removed by an act of the General Assembly, approved February 25th, 1871, and since, the corporators could, of their own option, fix the amount of the capital stock of the corporation they proposed to form. — Pamp. Acts, 1870-71, p. 18. A prior ■statute conferred upon corporations which had been formed, or which might thereafter be formed, not having a capital stock of two hundred thousand dollars, authority to increase the stock to that sum. The mode of making the increase was prescribed, and it was only in the event the mode was pursued, the increase was valid. — Pamph. Acts, 1869-70, p. 319. The case has been argued, as if the bill negatived an increase of the capital stock *341•of the company in pursuance of the provisions of this statute. When a corporation relies upon a grant of power from the legislature to do an act, it is as much restricted to tire mode prescribed by the statute for its exercise, as it is to the particular thing allowed to be done. — Ang. & Ames on Oorp. § 111. If 'in the mode prescribed by the statute the capital stock was not increased, the statute would furnish no authority for the increase, .and would not impart to the subscription and notes a validity or obligation not otherwise attaching to them.
It is apparent from an examination of the statutes, that the •creation of corporations, under general laws, rather than by special legislative enactment, was not intended to work any essential change in their nature or character. Whether deriving existence from a special law, or from incorporation under the general law, the'corporation is an artificial being of legislative creation, having no other powers or properties than such as the law confers, or which may be incidental to their very existence. The mode of incorporation the statutes have carefully prescribed. The persons proposing to be incorporated must file, and cause to be recorded in a designated public office, a declaration in writing, stating the name of the corporation, the objects for which it is formed, the amount of the capital stock, the number of shares into which it is divided, the names of the stockholders, and the number of shares each may hold. The office and the effect of the declaration the statutes do uot leave in doubt — when recorded, the persons signing it, and their successors become a body corporate by the name stated therein, and with the powers •conferred by law. It is an acceptance by the corporators, under the name designated, for the objects expressed, of 'the corporate powers and capacity the law confers, and a statement of the principal constituents of the corporation — the axnoxxnt of the •capital stock, the names of the stockholders, and the quantity of interest each has in the capital stock. There is no authority of law for introducing more into it, and if more be introduced, it is mere surplusage, not adding to, or detracting from the force of the declaration.
A controlling purpose, as we suppose, in authorizing or in ■compelling the creation of private corporations under general laws, is, to secure uniformity and equality of corporate powers, functions and privileges; that all corporations of the same class, ■formed for like purposes, should possess the same capacities and properties, and exercise and enjoy the same franchises and privileges. Unless it was intended to work a x-adical change in the nature and character of these artificial beings, the mere ci’eatioxxs of the law, and to subvert the whole theory which had prevailed in reference to them, it can not have'beexx contemplated that they should for themselves cx’eate power axxd privi*342leges by declaration or reservation, whether the declaration or reservation is expressed in the articles of incorporation, or in the constitution or by-laws ordained by the corporators for their government. Such declarations or reservations would soon become more liberal and diverse than was the liberality and diversity of the grants of corporate power by special legislative enactment, the evil it was intended to remove. Of every corporation formed under the general law, the law itself becomes the charter, defines and enumerates the powers which are to be exercised, the nature and extent of corporate franchises and privileges. The declaration of incorporation — the constitution and by-laws adopted for corporate government, do not form the charter, or define or enumerate the corporate powers. These are the acts of the corporators. The charter is the grant from the sovereign power of the State; and by that source only can be varied or enlarged. The expression in the declaration of incorporation, that it was the intention and privilege to increase the capital stock and number of shares whenever deemed proper and expedient, may have been intended merely to notify the original corporators and their successors that the intention existed. If intended for any other purpose, it was vain and nugatory; it did not authorize an increase of the capital at the mere will of the company, in such mode as it elected. The power must be found in the law from which corporate existence is derived, or must have been conferred by a subsequent law, the provisions of which were observed in the exercise of the power.
The statutes, in express terms, conferred on banking associations, road companies, and steamship companies, the power of increasing their capital stock. With the exception of the act of March 3, 1870, to which reference has been made, there was no statute applicable to all private corporations, expressly authorizing an increase of capital stock by the act of the corporation, until the statute of January 30, 1876, which now forms sections 2031-35 of the Code of 1876. The importance the General Assembly attached to such a change in the constitution of the corporation, is manifested by the care with which the mode of effecting it is prescribed. This statute was enacted subsequently to the making of these subscriptions, and it is obviously true, that this company never exercised or intended to exercise the power it confers.
The case, in this aspect,.resolves itself into the simple inquiry, whether the company had the implied power to take subscriptions for stock, after the capital stock, as expressed in the declaration of incorporation, had been subscribed for and taken j in other words, had it the power at its own option to enlarge the amount of its capital stock and the number of its shares. Corporations, by the common law, could exercise not only the. *343powers expressly granted to them, but such implied powers as were necessary and proper to carry into effect the express powers, and such incidental powers as pertained to the purposes for which they were created. The statute in reference to the implied or incidental powers of corporations is expressed in terms more limited. “In addition to the powers enumerated above, and to those expressly given in its charter, no. private corporation possesses, or can exercise any corporate powers except those necessary to the exercise of the powers thus given.’’ — Code of 1876, § 2021. Whether it was intended to limit, modify or qualify, or simply to enunciate the rule of the common law, is not a material inquiry; it is certain it was not intended to enlarge or to extend it. The implied or the incidental powers corporations may rightfully exercise, never have been extended to changes in the constitution or membership of the corporate body, or changes of the purposes for which, the corporation -was created. They have been confined to such powers as would enable the corporation to exercise properly its express powers. Changes of the capital stock of corporations of this character involve changes in organization, and a displacement of the power and influence the original stockholders, or their légitiinate successors are of right entitled to exercise in the election of officers, and in the general management of the corporate affairs and business. That corporations have not an implied power to effect such change — that it can be effected only by legislative sanction, seems to be settled. Green’s Brice’s Ultra Vires, 112; Thompson on Liability of Stockholders, § 115; Lathrop v. Kneeland, 46 Barb. 432; Mutual Life as Fire Ins. Co. v. McElway, 12 N. J. Eq. (1 Beasley), 133; N. Y. & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30; Railway Co. v. Allerton, 18 Wall. 233; Scovill v. Thayer, 105 U. S. 143. In this last case, the corporation, as in this case, was formed under a general' law, and of its own act, without legislative consent, attempted to increase its capital stock. The court said: “The attempt to increase the stock of the company beyond the limit fixed by its charter was ultra vires. The stock itself was, therefore, void. It conferred on the holders no rights, and subjected them to no liabilities.”
A subscription for the stock of a company is a contract, and, like other contracts, must be supported by a consideration. The consideration upon which it rests, is the right secured by it of membership in the corporation, and the interests accruing from membership. When these are not secured, and can not legally result from the subscription, it is wanting in consideration, as are notes or other obligations which may be given for its payment. — Scovill v. Thayer, supra.
The purpose of the subscribers to the declaration of incor*344poration seems to have been the organization of numerous similar corporations in other States, and in the Territories, which they termed departments, all of which were to be united, and of which the corporation here formed was to be the central, controlling power. There seems to have been but little, if any, comprehension, of the limited power and capacity of the corporation it was possible to form under the general laws of this State; and that when formed it would be strictly a 'domestic corporation, subject to all the restraints and regulations the State, in pursuance of its own policy, had imposed, or might thereafter impose. The prevailing idea seems to have been, that the corporators, by declaration and resolution, and by articles introduced into the constitution they adopted, could create the powers of the corporation, and transfer such powers to the numerous organizations it was intended to introduce into other States. The legal impracticability of the plan must soon have been developed ; but it is averred they obtained from the legislature of Mississippi the enactment of a statute in pursuance of it, a copy of which is exhibited with the original bill.
This act authorized the company to establish in that State one or more departments. .But no department could be established, until citizens of the State had subscribed for and paid, or secured to the satisfaction of the president and general board of directors, a capital stock of one hundred thousand dollars ; and the directors of each department were required to be citizens of the State. Upon the establishment of a department, it was declared, the corporation was to be regarded as a home company, and should be entitled to have and enjoy all the rights, privileges, immunities and exemptions of life insurance companies incorporated by the laws of Mississippi. Under this act a department "was organized, and it may perhaps be inferred from the averments'of the bill, that it was for the stock of the department, and not for the capital stock of the company in this State, the appellees were subscribers.
The. effect of this act was not merely to license, or to enable the corporation formed in this State to transact business and exercise its powers in Mississippi. It is of far wider operation, and creates a corporation having the same name, and like franchises, as the corporation formed in this State, whenever there was an organization in pursuance of its provisions, a domestic corporation, in the words of the act, a home company. A corporation can have no legal existence beyond the territorial boundaries of the sovereignty by which it is created — it must dwell in the place of its' creation, and can not emigrate to another sovereignty. — Ang. & Ames on Corp. § 104; Bank of Augusta v. Earle, 13 Peters, 519. In other sovereignties, upon such terms and conditions as the sovereign power may provide, *345it may transact business within the scope of its powers. And it is said, there is no legal difficulty in the creation of a single corporation by the concurrent action of two or more States, nor of the creation of a corporation by one State, having as one of its constituents a foreign corporation. — P. & W. R. R. Co. v. Maryland, 10 How. 376; Railroad Co. v. Harris, 12 Wall. 65; Bishop v. Brainerd, 28 Conn. 289. Whether only terms and conditions are prescribed, upon which a foreign corporation is permitted to exercise its faculties — whether there is concurrent action of two or more States in the creation of a single corporation, or whether a domestic corporation is created, is a question of legislative intent. All the books agree, 'that no particular form of words or expressions. is essential to the creation of a corporation. — Ang. & Ames on Cor. § 76; Thomas v. Bakin, 22 Wend. 69. If the legislative intention is manifested clearly, to clothe an association of persons with rights, privileges and powers, to be enjoyed and exercised by a collective name, and for designated purposes, and'in a corporate capacity, the association, by implication, is a corporation. — Ang. & Ames on Oor. §78. The department organized in Mississippi had its own constituents, differing essentially from the constituents of the corporation formed in this State; its own capital stock, and its own powers and capacities, and for it there was to be a governing body, who were to be citizens of that State. The intention to confer corporate privileges and capacity, not merely to license a foreign corporation to transact its business and exercise its powers within the State, is plainly designated. There may have been a purpose, that of the domestic corporation thus formed, the corporation of this State should be a constituent, and that some undefined relations should exist between the two corporations. o The purpose does not change the scope, operation and effect of the act. When there was an organization in pursuance of its provisions, a corporation existed, having its own capital, its own members, its own domicil, its own governing body; and its corporate powers were derived not from a foreign power, or by reference to the powers a foreign power may have conferred on a corporation of its creation, but were the rights, privileges, immunities, and exemptions of life insurance companies incorporated under the laws of Mississippi. I he act, when accepted, when there was an organization under its provisions, became a contract between the State and -the corporators. The contract was not with Alabama, but with Mississippi, and could not be rescinded or impaired, unless, by the law of the State, the power of rescission or alteration was reserved. The Constitution of this State reserved to the General Assembly the power of repealing, modifying, or altering at pleasure the general laws under which the corporation was *346formed in this State. If the power had been exercised, it can not be supposed the corporation existing under the law of Mississippi would have been affected. It is not necessary to pursue the argument. All that can be said, is, that a corporation was created in Mississippi, having the same name, and for the same purposes, as the corporation formed in this State; but the two were distinct legal entities, and the act of incorporation of each was confined in operation to the territorial limits of the sovereignty from which it proceeded. — Ang. & Ames on Corp. § 161.
The character of the assignment to Clark, or the purposes for which it was executed, are not shown by the bill. The averment is, that it was executed by the corporation formed in this State, and conveyed all of the books, papers, notes, assets and effects of the corporation. There is a further averment that Clark holds and claims the exclusive right to collect the notes made by the appellees for the payment of their subscriptions for stock. The case has been argued by counsel, as if it appeared that the assignment was a general assignment for the benefit of creditors, executed in consequence of the insolvency of the corporation. The power of the corporation to make such an assignment in the event of its insolvency, is a grave question, upon which it is not now necessary for us to express an opinion. Whatever may be the true character of the assignment, it was inoperative to pass property, rights of property, or choses in action, to which the assignor had not title. If it be true, the subscriptions of the appellees were for the stock of the Mississippi corporation, the notes of the appellees, unless they had been negotiated to the corporation in this State, did not pass by it. Clark, as the assignee under a general assignment for the benefit of creditors, succeeds only to the rights of the assignor — he is bound and affected by all the equities, and subject to all the defenses which would have affected the assignor. In no just sense is he a purchaser for value, or the representative of creditors. — Burrill on Assignments, 538; Walker v. Miller, 11 Ala. 1067.
In either of its aspects, the case, as presented, seems to us strictly of legal cognizance. The demands are legal, the subjects of suits at law, and whatever of defenses are disclosed are legal. To make these defenses available, no discovery is sought, nor is there a necessity for it. There has been in this court a rigid adherence to the principle, that when a court of law is competent to take cognizance of rights, and has power to proceed to a judgment affording complete justice and full protection to the parties, a court ox equity will not interfere. There can be no necessity for its interference, for its remedial ■ process and function. The interference would involve a con*347fusion of the jurisdictions of legal and equitable tribunals, and would deprive parties of the right of trial by jury. — Sadler v. Robinson, 2 Stew. 520; Knotts v. Tarver, 8 Ala. 743; Dickinson v. Lewis, 34 Ala. 643; Youngblood v. Youngblood, 54 Ala. 486.
A court of equity has jurisdiction to decree the rescission of written instruments, the delivery up and cancellation of deeds, of covenants, of bonds, bills, or notes. It was said by Ch. Kent, in Hamilton v. Cummings, 1 Johns. Ch. 523, the exercise of the jurisdiction should be regulated by a sound discretion, as the circumstances- of the individual case may dictate. A resort to the jurisdiction, to be sustained, must be expedient “either because the instrument is liable to abuse from its negotiable nature, or because the defense, not arising on its face, may be difficult or uncertain at law, or from some other special circumstances peculiar to the case.” The subscriptions for stock are not negotiable, nor, so far as appears from the bill, are the notes, given for their payment. If the notes were negotiable there was evidently no reason to apprehend their negotiation ; nor was there reason to apprehend a delay of suit until there was a loss of evidence to sustain the defense. The case, as shown by the bill, is wanting in any special circumstance rendering the preventive jurisdiction of a court of equity necessary. In any other case of con tracts.in writing, void for want of consideration, or which may have been induced by fraudulent representations, or which may be wrongfully claimed by a party having. possession of them, there would be the same reason as in this case, for equitable interference. • It is better that in cases -of this kind, of simple executory contracts for the payment of money, in the absence of some special necessity for equitable interference, the parties, having purely legal defenses should be remitted to a court of law to assert them. — Ins. Co. v. Bailey, 13 Wall. 616.
The error of the chancery court is, in not sustaining the demurrer resting upon the objection, that the appellees had in a court of law a plain and adequate remedy..
Reversed and remanded.