A patent right may constitute "property actually received" by a corporation and to the extent of its value form the basis of the right to issue stock and bonds therefor, under article 12, section 6, of the Constitution and the statutes in pursuance thereof. O'Bear-Nester Glass Co. v. Antiexplo Co., 101 Tex. 432, distinguished. 2. — Same — Incorporeal and Intangible Property — Liability for Corporate Debts.
Not a dollar's worth of assets, such as the law contemplates as the consideration for stock, had come to the company as the consideration of that for $30,000 issued to Walker. O'Bear-Nester Glass Co. v. Antiexplo Co., 101 Tex. 431 [ 101 Tex. 431]. The company had no property but the formula, no actual place of business, had done no considerable business, had not paid and has never paid any dividend.
Under the third class fall all cases where, by reason of the fact that it is contemplated by the agreement that notes or other property not specified in the Constitution shall be taken in payment for the stock, the contract is void ab initio. In this class may be mentioned Commonwealth Bonding Casualty Insurance Co. v. Hollifield, 184 S.W. 777; Crawford v. Davis, 188 S.W. 436; Prudential Life Insurance Co. v. Smyer, 183 S.W. 825; Mitchell v. Porter, 194 S.W. 981; Mason v. First National Bank, 156 S.W. 366; Sturdevant v. Falvey, 176 S.W. 908; San Antonio Irrigation Co. v. Deutschmann, 102 Tex. 201, 105 S.W. 486, 114 S.W. 1174; McCarthy v. Texas Loan Guaranty Co., 142 S.W. 96; Republic Trust Co. v. Taylor, 184 S.W. 772; O'Bear-Nester Glass Co. v. Antiexplo Co., 101 Tex. 431, 108 S.W. 967, 109 S.W. 931, 16 L.R.A. (N. S.) 520, 130 Am.St.Rep. 865. The uncontradicted evidence in this case brings it fairly within the last class.
It is argued that the note and deed in trust given for the stock constituted "property" within the meaning of the constitutional provision. On this question, that the note and deed in trust constituted property within the meaning of the constitutional provision, the following Texas authorities are cited for the purpose of enforcing the point: Cole v. Adams, 92 Tex. 171, 46 S.W. 790; O'Bear-Nester Glass Co. v. Antiexplo Co., 101 Tex. 432, 108 S.W. 967, 109 S.W. 931, 16 L.R.A. (N.S.) 520, 130 Am.St.Rep. 865; Aggs v. Shackelford Co., 85 Tex. 145, 19 S.W. 1085; Ft. Worth Imp. Dist. No. 1 v. City of Ft. Worth, 106 Tex. 148, 158 S.W. 164, 48 L.R.A. (N.S.) 994. The Supreme Court, in the case of Cole v. Adams, 92 Tex. 171, 46 S.W. 790, supra, held that an option contract and a construction contract constituted such property when transferred to the corporation for stock as not to be inhibited by the provision of the Constitution and could be lawfully accepted by the corporation in exchange for its stock.
An unpatented secret formula is not regarded as "property" within the meaning of some provisions of our Constitution, but the owner or inventor of such a secret has a qualified property right in it to the extent that he is entitled to maintain the secrecy of his invention, and to prevent its disclosure or use by one who obtained a knowledge of it through fraud or breach of contract with him. See O'Bear-Nester Glass Co. v. Antiexplo Co., 101 Tex. 431, 108 S.W. 967, 109 S.W. 931, 16 L.R.A., N.S., 520, 130 Am.St.Rep. 865; Glass v. Kottwitz, Tex.Civ.App., 297 S.W. 573 (wr. ref.). To hold appellees as necessary parties on this phase of the case, appellant must prove that they have an interest in the subject matter of the suit which would be affected by any decree completely adjudicating the rights of appellant and the Newmans, or that no effectual decree could be rendered without their joinder.
11 Fletcher, Corporations (Perm. Ed.) 5189; see Davenport v. Lines, 72 Conn. 118, 127, 128, 44 A. 17. However, so-called secret processes and formulas that are of no substantial value and later turn out to be worthless do not constitute "property" that can be accepted in payment for the issue of stock. Peerless Battery Mfg. Co. v. Hand, 109 Neb. 696, 698, 192 N.W. 228; O'Bear-Nester Glass Co. v. Antiexplo Co., 101 Tex. 431, 435, 108 S.W. 967; see Diamond State Brewery, Inc. v. De La Rigaudiere, 25 Del. Ch. 257, 264, 17 A.2d 313; 11 Fletcher, op. cit., 5189. This principle is especially applicable where the process is not patentable and may be used by anyone, or is already known to those in the particular trade in which it is used. Dean v. Baldwin, 99 Ill. App. 582, 588; Scully v. Automobile Finance Co., 11 Del. Ch. 355, 358, 101 A. 908; Webster v. Webster Refining Co., 36 Okla. 168, 170, 128 P. 261; see National Tube Works Co. v. Gilfillan, 46 Hun 248, 252 (N.Y.).
Nor can the prospective profits of the new company be capitalized by their theoretical enhancement of the value of the convenience of the old stock and plans. Holcombe v. Trenton Co., supra. As to the insufficiency of the plans as a consideration, see Webster v. Webster Ref. Co., 36 Okl. 168, 128 Pac. 261, 47 L.R.A. (N.S.) 697; O'Bear-Nester Glass Co. v. Antiexplo Co., 101 Tex. 431, 108 S.W. 967, 109 S.W. 931, 16 L.R.A. (N.S.) 520, 130 Am. St. Rep. 865. See also Camden v. Stuart, 144 U.S. 104, 12 Sup. Ct. 585, 36 L. Ed. 363.
— The note and deed of trust constituted "property" within the meaning of the constitutional and statutory provisions prohibiting a corporation from issuing stock except for money paid, labor done or property actually received. Cole v. Adams, 92 Tex. 171; O'Bear-Nester Glass Co. v. Antiexplo Co., 101 Tex. 432; Aggs v. Shackleford County, 85 Tex. 145; Ft. Worth Imp. Dist. No. 1 v. City of Ft. Worth, 158 S.W. 164; 6 Words and Phrases, 5694; 32 Cyc., 647. The constitutional and statutory provisions in question will not be construed to forbid the acceptance by the corporation of securities in which it must immediately reinvest its funds.
The note and deed of trust constituted "property" within the meaning of the constitutional and statutory provisions prohibiting a corporation from issuing stock except for money paid, labor done or property actually received. Cole v. Adams, 92 Tex. 171; O'Bear-Nester Glass Co. v. Antiexplo. Co., 101 Tex. 432 [ 101 Tex. 432]; Aggs v. Shackelford County, 85 Tex. 145 [ 85 Tex. 145]; Ft. Worth Imp. Dist. No. 1 v. City of Ft. Worth, 158 S.W. 164; 6 Words and Phrases, 5694; 32 Cyc., 647. Subsequent creditors presumed to trust corporation on faith of capital stock and subscriptions thereto.
2 Am. Eng. Ency. of Law, 272; Horne v. Chatham Co., 64 Tex. 39; Carver v. Peck, 131 Mass. 292; Stephens v. Cady, 14 How. (U.S.), 528; Chisholm v. Forney, 21 N.W. 665. In the case of O'Bear-Nester Glass Co. v. Antiexplo. Co., 101 Tex. 432, the Supreme Court of this State held that the purpose of the Constitution is to protect those who deal with corporations and that the words "money paid" means full value, and "labor done" means labor worth the par value of the stock, and the property received must be property that can be subjected to debts. As the Supreme Court has held that the property referred to must be property which may be subjected to the payment of the debts of the corporation, this construction necessarily excludes patent rights from being used to capitalize corporations.