Court Opinion

ID: 9833176
Source: CourtListenerOpinion
Date Created: 2023-09-01 22:30:45.693453+00
Date Added: 2024-06-11T07:44:00.388679
License: Public Domain

On Rehearing.
It is earnestly and ably argued by counsel for appellee that we erred, among other things, in ruling that appellee was not liable on the $1,250 note of which the bank at Edna was alleged to be a bona fide holder for value. The conclusion reached upon consideration of the case was that the sale of stock on a credit was void, and, being void, the fact that the contract evidencing the illegal act was a promissory note in the hands of a bona fide holder for value could impart no legality to the void transaction. In our opinion, we stated the rule only, and did not attempt to discuss the fundamental and underlying principles from which the rule was evolved. We will now briefly do so. The constitutional provision, popularly known as the stock and bond law, declares that “no corporation shall ■issue stock or bonds except for money paid, labor done or property actually received.” Article 12, § 6, Const. In furtherance of the constitutional provision, the Legislature enacted that any corporation, foreign or domestic, that violated the constitutional inhibition should, upon proof thereof in a court of competent jurisdiction, forfeit its charter, permit, or license as the case may be, as well as all rights and franchises conferred or permitted by the laws of the state. Article 1146, Vernon’s Say les’ Stats. Thus the issuance of corporate stock save as directed is declared illegal, and hence void, and the offending corporation is denied further right to transact business in the state, and all rights and franchises acquired under its permit forfeited. Such laws are not uncommon, and well-settled rules of construction have followed their enactment.
[4] One of the rules is that, when an act has been prohibited by the fundamental law or by statute, it is material to ascertain what the Legislature had in view when the law was enacted, whether the collection of revenue or the protection of the public from fraud in contracts or the promotion of some object of public policy. If for the latter two purposes, all contracts in violation of the statute, whatever character they may assume, are void. And in seeking the meaning of the lawgiver it is also material to inquire whether the penalty is imposed once for all on infraction of the statute, or whether it is a recurring penalty repeated as often as the statute is violated. If a recurring penalty, the intention of the lawgiver was to prohibit the doing of the thing denounced, and its accomplishment in any manner is void. Benj. Sales (Bennett 1899), § 538.
[5] The foregoing is nearly literally the text which we have cited, and presents quite clearly the correct rule for determining the issues in the instant case. The first inquiry *776then, is: Was the purpose of the law to raise revenue or to protect the public from fraudulent contracts or the promotion of some object of public policy? Clearly the purpose was not revenue, since no revenue results from the imposition of forfeiture. That the other two objects were the purpose sought we think quite as clear. The public policy sought to be promoted was the protection of the citizens of the state against the issue and sale of stock in private corporations, save for money paid, labor done, or property actually received, and the purpose thereby attained, as said in McCarthy v. Texas Loan Co., 142 S. W. 96, was to protect creditors and prevent irresponsible persons from creating corporations of unlimited capital stock without assets of substantial value, and to insure to corporate investors the right which they have to assume that the corporation’s actual capital, in money or money’s worth, is equal to the capital stock which it purports to have. It being then the purpose of the law to protect the citizens of the state against the results of unlimited issue of stock in corporations and consequent financial loss, the doing of the prohibited act, however accomplished, is void. Broadly speaking, any contract founded upon an act which is forbidden by the Constitution or statutes of the lawmaking power, or which cannot be enforced because in violation of the Constitution or statute, is void, and cannot be enforced. It was said in Deutschmann’s Case, cited in our original opinion, that:
Such a contract was “plainly and unquestionably in violation of the Constitution of tiie state, and, being in violation of tiie Constitution, that agreement * * * was void,” and “cannot give a right of action for damages or for any other relief in the courts of this state.”
Tn consonance with the declaration of our Supreme Court just quoted it is said:
“Tiie general rule is that any act which is forbidden either by the common or statutory law. whether it is malum in se or merely malum prohibitum, whether indictable or only subject to a penalty or forfeiture or however otherwise prohibited by statute or the common law, cannot be tiie foundation of a valid contract. A fortiori the agreement is illegal and unenforceable if it contravenes the Constitution. Accordingly a promissory note the consideration whereof is bills of credit, issued in contravention of a constitutional prohibition, is void.” S R. C. L. 951.
By the same authority (and by all authority we have examined) it is declared:
“The protection which the law extends to an innocent holder who for value in the usual course of trade has received negotiable paper is of no avail when the statute in terms, or by unavoidable implication, has pronounced the instrument absolutely void.” 3 R. C. L. 1017; 1 Dan. Neg. Ins. § 197; Thompson v. Samuels (Sup.) 14 S. W. 143; Gilder v. Hearne, 79 Tex. 120, 14 S. W. 1031; State Bank of Chicago v. Holland, 103 Tex. 266, 126 S. W. 564.
While our Constitution and the statutes do not enact in express terms that a negotiable promissory note given in payment of stock or in evidence of the void transaction shall be void, yet that the acts do so by unavoidable and necessary implication seems beyond intelligent controversy. Can it be logically argued that, when the fundamental law declares a given act shall be void, by concealing it in legal form it takes on legality? We think not. If the sale of the stock was evidenced by a contract reciting the true consideration, none would deny that the same would be void ab initio. Then by mere change of the evidence of the unlawful transaction it surely cannot be made other than what it was from its inception. Such a construction would at one stroke hold as vain and useless tire clear intention and purpose of the Legislature, and declare as absurd an act intended as the climax of a much’discussed question of public policy, particularly when it is considered that under established commercial usages the sale of corporate stock would rarely, if ever, be evidenced save by negotiable promissory notes.
Appellee relies upon the case of State Bank of Chicago v. Holland, supra, as sustaining his claim that the note is not void. The effect of the holding in that case is to declare that the statutory provisions which bar foreign corporations from the courts of our state until they have a permit to transact business in the state does not render void an otherwise good consideration of a promissory note, and by analogy that another corporation, which is entitled to sue in our courts, which acquires such note, may maintain suit thereon. The decision in that case is determined, when carefully considered, by the rules announced by Mr. Benjamin, since the act there construed, while in some respects regulatory, is clearly a revenue or tax measure, as distinguished from acts to .prevent fraud in contracts or in furtherance of the public policy of the state.
While the case presents some difficulties, we conclude our original conclusion should stand as our judgment in the case.
Accordingly the motion for a rehearing is overruled.