Court Opinion

ID: 7362094
Source: CourtListenerOpinion
Date Created: 2022-07-27 23:48:00.98991+00
Date Added: 2024-06-11T16:20:40.203187
License: Public Domain

ANDERSON, J.
This bill was filed to cancel a contract for the sale of a mill outfit and certain timber rights, and after a delivery of the property by the complainants to the respondents, and seeks to have the contract declared void aib initio, because made in violation of section 1316 of the Code of 1896, or, if valid in its inception, that it be canceled upon the ground of fraud practiced upon complainants by the vendee, the Cranor Company. We do not think that a failure of the foreign corporation to comply with the constitutional' provisions and section 1316 is available to these complainants, as the contract has been fully performed by them by a delivery of the property sold. — Gamble v. Caldwell, 98 Ala. 577, 12 South. 424; Farrior v. New Eng. Mtg. Co., 88 Ala. 275, 7 South. 200; Kindred v. New Eng. Mtg. Co., 116 Ala. 192, 23 South. 56. Since the complainants are not entitled to relief upon this theory of the bill, it is needless to consider the action of the chancellor upon the demurrers proceeding upon this feature of the case.
We think the contract contemplated, not only the organization of a corporation, but that the respondent the Cranor Company would contribute something of value to the concern; that is, do more-than merely issue three-fourths of the stock to themselves, but that the same was to be paid for. Otherwise, we would have a case of one party furnishing all the capital and getting one-fourth of the stock, and the parties furnishing nothing getting *273three-fourths of the stock. The bill avers that the Cranor Company procured the complainants’ property without a valuable consideration thereof, and that the said company at the time had no intention to pay anything of value for the stock of the corporation, the organization of which was a. fraudulent scheme to get complainants’ property, and therefore contained equity. “The general rule is that the relation of the promoter to the corporation and its members is one of trust, and he must act in all tilings fairly anrl openly.” — Yale v. Wilcox (Conn.) 25 L. R. A. 90, and note. “Promoters ivho acquire property to be used by the corporation wholly at the cost of those who pay for their shares, and retain for themselves a majority of the stock, which cost them nothing, will be required to pay to the defrauded subscribers the damages caused by such action.” — Brewster v. Hatch, 122 N. Y. 349, 25 N. E. 505, 19 Am. St. Rep. 498.
As a rule the remedy of a defrauded subscriber is against the defrauding promoter, and not the corporation; but in the case at bar the respondent the Cranor Company and the complainants constitute the corporation, which seems to have been formed by the Cranor Company as an attempted literal compliance with their contract, and there are no intervening rights of other stockholders to be affected by a cancellation of the sale.. The evidence clearly shows tiiat the Cranor Company did not intend at the time of the execution of the contract to put anything of value into the new corporation, and that it was a scheme to get control and management of complainants’ property, and the chancellor properly granted tin* complainants relief. — Dean v. Oliver, 131 Ala. 634, 30 South. 865. The bill, avers that Jackson had full knowledge of complainants’ rights and equities when he bargained for the property, and the demurrers interposed by him were properly overruled.
The decree of the chancellor is affirmed.
Wbakluy, C. J., and Tyson and Simpson, JJ., concur.