Court Opinion

ID: 6511225
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:22:32.62981+00
Date Added: 2024-06-11T15:54:53.070577
License: Public Domain

BRICKELL, C. J.
The questions of law presented by the *131.assignment of errors, and by the argument of counsel, depend upon a few general principles, which we must regard as well settled.
It is not disputed, that the “Central Agricultural and Mechanical Association ” in fact existed as a corporation, acquiring property in that capacity, exercising powers, and transacting business essential to accomplish the objects and purposes of its creation, as expressed in the declaration intended as the articles of incorporation; nor can it be doubted, that it had the reputation of being a corporation in the rightful and lawful exercise of corporate powers. Having this existence and reputation, it is undisputed, that the appellants (with the exception of Weaver) became and were subscribers for its capital stock, paying their subscriptions, entitled to, or exercising all the rights and privileges to which they would have been entitled, or could have exercised, if there had been no defects in the proceedings preliminary to the organization of the association— if that organization had been in strict conformity to law, incapable of being questioned in any judicial proceeding.
The organization of the association, originally, was intended to have been effected under the general laws authorizing the formation of private corporations, which were of force on the 4th June, 1869. Under these laws, as a pre-requisite, or a condition precedent to rightful, complete, lawful incorporation, the application for incorporation must have been hied in the office of the secretary of State, and the signing thereof by the subscribers must have been acknowledged before an officer authorized to take the acknowledgment of deeds.—Pamph. Acts, 1868, p. 349; E. C. § 1156. In the words of the statute, it was only when these things were done, that the subscribers became a body corporate, with the powers conferred by the laws on private corporations. The purpose of these requisitions was, that there should be in the office of the secretary of State, the keeper of the State seal and public records, having authority to certify all such records, evidence of all incorporations under the laws of the State. The acknowledgment before a public officer, of the signing of the declaration, or application, as it is indifferently termed in the statute, afforded the best evidence of who were the original corporators or stockholders. . These requisitions, or conditions, were not observed in the original organization of the association; and it may be true, that rightful corporate existence could not have been maintained, if the State had intervened for usurpation of corporate authority. These requisitions, or conditions, were imposed by the State, in pursuance of its own policy, and for the benefit and protection, especially, of all dealing with the corporation. Imposed by the State, compliance with, or observance of them, the State could *132waive. The waiver was expressed, most emphatically, in the' subsequent statute declaring the existence of the association as-a corporation, approving and ratifying its organization, and amendatory of its charter. — Pamph. Acts, 1870-1, p. 243.
If it could be conceded, that individuals who have entered into contracts with a corporation, recognized its corporate existence, could avoid the liabilities they have voluntarily incurred, by a disputation of the legality, not of the fact of coi’porate organization and existence; all ground for contention is removed by this statute, obviously intended to remove it, f and to cure the defects in the actual organization. The power of the legislature is plenary, when not restrained by constitutional limitation, to enact laws operating retrospectively, if thereby the obligation of contracts is not impaired, or vested rights infringed,'modifying or changing the effect of past transactions, so that the intention of the parties to them may be fully accomplished. Defects or irregularities in judicial proceedings,, in the assessment of taxes, State and municipal, the failure of statutory powers, because not executed with the prescribed formalities, have all been cured by such • legislation, as have been irregularities in the organization of corporations, public and private. The rule, applicable in such cases, is thus stated by Judge Cooley: “If the thing wanting, or which failed to be done, and which constitutes the defect in the proceedings, is something the necessity for which the legislature might have dispensed with by prior statute, then it is not beyond the power of the legislature to dispense with it by subsequent statute. And if the irregularity consists in doing some act, or in the mode or manner of doing some act, which the legislature might have made immaterial by prior law, it is equally competent to make the same immaterial by a subsequent law.”—Cooley’s Const. Dim. (4th ed.) p. 463. Clearly, the requisitions not observed in the organization of the corporation, were statutory formalities prescribed by the legislature, and the power to prescribe involves the power to dispense with them .—Black River & Utica R. R. Co. v. Barnard, 31 Barbour, 258; Mitchell v. Deeds, 49 Ill. 416.
Nor is the statute offensive to the clause of the constitution of 1868, declaring that “ corporations may be formed under general laws, but shall not be created by special act, except for municipal purposes.” The statute does not form, or create a corporation. Before and at the time of its enactment, the corporation was formed, existed de faeto, having color of right. That existence it could have maintained, if the State acquiesced, —if the State did not intervene to oust it.—Lehman v. Warner, 61 Ala. 455; Cahall v. C. M. B. Association, Ib. 232.
But, can it be conceded, that the appellants can inquire into *133the legality of the existence of the corporation? We think it must be regarded as settled, that whoever contracts with a corporation, having a defacto existence, the reputation of a legal corporation, in the actual exercise of corporate powers and franchises, is estopped from denying the legality of the existence of the corporation, or inquiring into irregularities attendnig its formation, to defeat the contract, or to avoid the liability he has voluntarily and deliberately incurred.—Chubb v. Upton, 95 U. S. 666; Dutchess Man. Co. v. Davis, 14 Johns. 237; M. E. Church v. Pickett, 19 N. Y. 482; Mitchell v. Deeds, 49 Ill. 416; Cahall v. C. M. B. Association, supra. The principle is especially applicable to stockholders, seeking to avoid a liability to creditors of the corporation. Their own acts vitalized the corporation, gave it credit, invited and induced dealings with it; and it is true conservatism, and sound policy, promotive of right and equity, to seal their lips against contradiction and denial of that which they must be taken to have affirmed, to the injury of strangers who have trusted the affirmation. Lehman v. Warner, supra,; Chubb v. Upton, supra,; Eaton v. Aspinwall, 19 N. Y. 119 ; Upton v. Haonsborough, 3 Bissell, 417.
Another principle is well settled ; that when an association of persons is found in the exercise and user of corporate franchises, under color of legal organization, their existence as a corporation can not be inquired into collaterally. In a direct proceeding by the government, they may be ousted; but persons transacting business with them can not be heard to deny, or to assail, the legality of corporate existence.—Lehman v. Warner, supra; Duke v. Cahaba Nav. Co., 16 Ala. 372; Ang. & Ames Cor. § 94. If the State acquiesce in the usurpation, it is not for individuals to complain. The corporation exists defacto — is subject to all the liabilities, duties, and responsibilties of a corporation de fore. It would produce only disorder and confusion, embarrass and endanger the rights and interests of all dealing with the association, if the legality of its existence could be drawn in question, in every suit to which it was a party, or in which rights were involved springing out of its corporate existence. No judgment could be rendered, which would settle the question finally. But, when the government intervenes by an appropriate proceeding, the judgment is final and conclusive, putting an end to controversy. In no aspect of the case, were the irregularities in the original organization of the association proper matter of inquiry, nor grounds of defense for the appellants.
The statute, forming part of the general laws under which the association was organized, and of force when the contract was made with the appellee, declared: “ The stockholders' of any such corporation are liable for all debts due from it at the *134time of its dissolution, to the extent of their stock.” — Rev. Code, § 1860. "We shall not inquire, whether this statute is modified, or repealed, or whether its modification or repeal, as to this association, was intended by the clause of the second section of the curative statute to -which we have referred, touching the liability of stockholders. It is possible a field for the operation of that clause may be found, without bringing it in conflict with the statute. If that be not true, the clause is repugnant to, and violative of the second and third sections of the thirteenth article of the constitution of 1868, which fixed on each stockholder in a private corporation the liability the statute imposes — a liability for the debts of the corporation to the amount of liis stock.
The liability is contingent, — dependent on the dissolution of the corporation. That is the event rendering it capable of enforcement.—Smith v. Huekabee, 53 Ala. 191. It'was, perhaps, true at common law, that a corporation was capable of dissolution only by abuse or misuser of its franchises, and a consequent judicial forfeiture; by surrender, accepted of record; or by the death of all its members.—2 Kent, 378; Corporation of Colchester v. Seaber, 3 Burr. 1866. This doctrine,.it has often been said, can be of very limited application to the private corporations in this country, organized for commercial, or trading, or business purposes, which are but little more than special partnerships. In respect to these corporations, liability for the debts of • the corporation due at the time of dissolution being imposed on the membei’s, it has been repeatedly held, that a dissolution according to the modes of the common law is not intended. "Whenever there is a practical dissolution, so far as the rights and remedies of creditors are concerned — whenever the corporation becomes “ a nominal, inert body,” its property and funds gone, and it is reduced to insolvency, rendering legal remedies against it fruitless and unavailing — the liability of the stockholder or member becomes absolute, and the right and remedy of the creditors to enfore it accrues. —Thompson on Liability of Stockholders, § 267- In the leading case of Slee v. Bloom, 19 Johns. 477, the facts of wdiieh are not very dissimilar to the facts of this case, said Chief-Justice Spencer: “In point of good sense, this corporation was dissolved, within the meaning and intent of the act, as regards creditors, when it ceased to own any property, real or personal, and when it ceased, for such a space of time, from doing any one act manifesting an intention to resume their corporate functions. The end, being and design of the corporation, were completely determined ; and if even it had the capacity to re-organize, and re-invigorate itself, the case has happened, when, as relates t.o its creditors, it is dissolved.”
*135Tlie insolvency of the association is not a disputed fact. All its visible, tangible property bad been sold from it, under the mortgage to the appellee. It was without money; and if it had any assets, they consisted of unpaid subscriptions for its stock, which were not available; and if they had been, would not have relieved its embarrassment, or enabled it to resume operations. For all practical purposes, though it may have been possible for the association to re-organize and re-invigorate itself, as to creditors it was dissolved, within the meaning of the statute. Any other doctrine would be unreasonable, and would render the statute, and the liability it imposes, incapable of affording the creditor’s of corporations the benefit and security intended.
When Hooper proposed the transfer of his stock, the debt to the appellee had been contracted, and the association had become insolvent. To the transfer, the association refused assent, and on its books Hooper remained in the relation, and with the rights-of a stockholder. Without now discussing whether, under any circumstances, a stockholder may, by a transfer of his stock, relieve himself from liability to existing creditors, we are satisfied the facts do not show a bona fide transfer which can or ought to be supported against them. The solvency of the transferree is not shown, and the circumstances, which are not neutralized by opposing evidence, point strongly to the conclusion, that the purpose was to relieve Hooper from the liability incurred to existing creditors. As to them, the transfer must be esteemed void.—Allan v. M. R. R. Co., 11 Ala. 451; Thompson on Liability of Stockholders, § 215.
The remaining question, whether Weaver was a stockholder in the association, is one of fact, dependent on conflicting evidence, which .seems to have been very carefully considered and weighed by the chancellor. We incline to concurrence in his conclusion, that the fair preponderance of the evidence supports the claim that Weaver, through the agency of Sturdevant, subscribed for the stock of the corporation. Whether this be the just conclusion or not, it is certain it can not be affirmed that there is a decided preponderance of evidence against it; and, of consequence, under the settled practice, the decree can not be disturbed.—Rather v. Young, 56 Ala. 94.
Affirmed.