Opinion
8 Div. 303.
April 7, 1921. Rehearing Denied May 19, 1921.
Appeal from Circuit Court, Limestone County; O. Kyle, Judge.
Wood Pritchard, of Birmingham, and Sanders Sanders, of Athens, for appellant.
The stock herein referred to is the common stock; the preferred stock having been before this court in 17 Ala. App. 76, 81 So. 854, and 82 So. 893. The status implies insolvency, the existence of creditors, and demands due and unsatisfied. 185 Ala. 41, 64 So. 293; 81 Neb. 750, 116 N.W. 781, 17 L.R.A. (N.S.) 350; 66 Neb. 312, 92 N.W. 911. The subscription is valid as to the subscription, although it may be void as to the manner of payment. Section 3467, Code 1907; section 234, Const. 1901; 173 Ala. 398, 56 So. 235; 126 Mo. App. 116, 103 S.W. 975; 96 Ark. 1, 130 S.W. 585, 30 L.R.A. (N.S.) 694, Ann. Cas. 1912B, 488. The agreement set up in the pleas is a fraud on the rights of creditors. Section 3480, Code 1907; 152 Ala. 440, 44 So. 575; 167 Mo. App. 305, 149 S.W. 1156. The assets are a trust fund for the payment of creditors. Sections 3467, 3468, and 3509, Code 1907; 201 Ala. 130, 77 So. 554, L.R.A. 1918C, 839. Plea F should have been stricken. Section 5322, Code 1907; 127 Ala. 52, 28 So. 376.
W. R. Walker, of Athens, for appellee.
The contract was void. Section 234, Const. 1901; section 3467, Code 1907; 190 Ala. 388, 67 So. 510; 89 So. 24; 200 Ala. 364. Notice to the officers was notice to the bank. 199 Ala. 659, 75 So. 310. Between the stockholders and the corporation, the corporation can recover only what the stockholder agreed to pay. 143 Ala. 572, 42 So. 64, 5 Ann. Cas. 665. Notes given for fictitious or illegally issued stock can be enforced by the corporation. 109 Ala. 196, 19 So. 522; 87 Ala. 725, 6 So. 702, 6 L.R.A. 218; 190 Ala. 388, 67 So. 510; 93 Ala. 364, 9 So. 217; 101 Ala. 127, 8 So. 496; 123 Ala. 538, 26 So. 232. The trustee had no higher rights than the corporation, whose representative he was.
The original plaintiff in this cause was the Citizens' Loan Savings Company, a corporation, and the declaration was upon a promissory note executed by defendant, appellee, and made payable to plaintiff. Afterwards the original plaintiff was adjudged a bankrupt, whereupon, and upon proper suggestion, the cause was revived in the name of appellant as trustee of the bankrupt estate of the corporation. Pleas (C, E, F, G, H, I, and K) were then filed by the defendant, alleging, to set forth their effect in brief, that the note in suit had been given for stock of the corporation with the understanding that it was to be paid for out of commissions to be earned by defendant by sales of the stock of the original plaintiff corporation, and not otherwise, and that the contract so evidenced was null and void, as being prohibited by section 234 of the Constitution, providing that —
"No corporation shall issue stocks or bonds except for money, labor done, or property actually received; and all fictitious increase of stock or indebtedness shall be void."
Demurrers to these pleas being overruled, substituted plaintiff suffered a nonsuit, reserving the questions so raised for the decision of this court. Code, § 3017. Rulings by which demurrers were sustained to several special replications (2, 3, 4, and 5) were in like manner reserved for review.
Substituted plaintiff, proceeding in the name and stead of original plaintiff, had no better right than original plaintiff. Our understanding of the brief filed for appellant is that the trustee bases his right to recover on the theory that he stands in the shoes of creditors of the bankrupt corporation, and that such creditors would be entitled to reach and subject to the satisfaction of their claims the indebtedness evidenced by the note without embarrassment from the condition upon which the parties to the note made its obligation to depend. Whatever creditors, or the trustee representing them, might do by way of a bill in equity, it is manifest, we think, that the trustee cannot maintain the action in this case, for the reason that the corporation itself could not maintain it.
In Nicrosi v. Irvine, 102 Ala. 648, 15 So. 429, 48 Am. St. Rep. 92, it was said, in effect by McClellan, J., speaking for the court, that it was not possible to conceive that the subscriber to corporate stock would be under a legal contractual obligation to pay money not contemplated by the only contract ever attempted or intended to be made between the parties, even though by reason of constitutional and statutory provisions limitations of liability contracted for were to be considered void at law. Such, in effect, was also the ruling of this court in the recent case of Midcontinental Life Ins. Co. v. Beasley, 202 Ala. 35, 79 So. 373. See, also, Vaughn v. Alabama Nat. Bank, 143 Ala. 572, 42 So. 64, 5 Ann. Cas. 665. And the ruling of the Supreme Court of the United States is that the trustee in bankruptcy is vested with no better right or title than the bankrupt had when the trustee's title accrued. York Mfg. Co. v. Cassell, 201 U.S. 344, 26 Sup. Ct. 481, 50 L.Ed. 782. It results from this law and the facts alleged in the several pleas that the note in question did not at the time of this action evidence a liability to the corporation, and hence that its trustee in bankruptcy cannot maintain this action. In re Huffman-Huffman-Salvar Roofing Paint Co. (D.C.) 234 Fed. 798, where Grubb, District Judge, reviews our cases and makes a clear statement of the Alabama law on this subject.
The foregoing conclusions, going to the root of plaintiff's case, answer every assignment of error. It follows from what has been said that demurrers to the replications were properly sustained. They advanced nothing material in the way of reply. Nor was there error in overruling the motion to strike plea "F" as frivolous — a ruling not noted in our preliminary statement of the case. So far from being frivolous, the plea, under our view of the law, states a perfect defense. Nor was this plea objectionable by way of motion or demurrer on the ground that it stated the mere conclusion of the pleader. It stated an ultimate fact, viz., that the stock for which the note in suit was given was not issued for money, labor done, or property actually received, and from this fact the pleader, in agreement with the law, concluded that the note was void. It results that the judgment of the trial court was correct in all respects.
Affirmed.
ANDERSON, C. J., and GARDNER and MILLER, JJ., concur.