Lehman, Durr & Co. v. Warner

61 Ala. 455

Opinion

BRICKELL, C. J.

1. A garnishee can not take advantage of mere irregularities or defects rendering the judgment voidable at the election of the defendant, if within the time, and in the mode which the law prescribes, he pursues proper remedies to avoid it. If the judgment is not void, the garnishee will be protected from any further demand of the defendant if judgment is l'endered against him. There are irregularities in the commencement and prosecution of suits at law, which are available to the party who may be injured by them, only by pleas or objections interposed at particular stages of the suit; and which before judgment .are regarded as waived, ceasing to be impediments to its rendition, unless properly presented at the time and in the mode the law and the practico of the court may appoint. ■Of these is the misnomer of a party plaintiff or defendant, which is the matter of a plea in abatement, and which if not pleaded, is regarded as waived. When it becomes necessary to aver or plead the judgment, the real party, notwithstanding the mistaken name, may be connected with it by averment of his proper name. The plea in abatement of the want of correspondence between the name of the plaintiff in the garnishment and in the judgment was not well taken, and the demurrer to it properly sustained.

2. The garnishment is issued against the appellants as stockholders in the Alabama Savings Bank, and to subject so much as is due and unpaid on their subscription to the capital stock of the bank. The judgment was rendered on the uncontested answer of the appellants, and it can be sup ported only on the theory that an indebtedness is admitted, which the bank, if suing in its own name, could recover in an appropriate action. A garnishment is strictly a legal remedy, intended and adapted only to reach such legal demands, as the debtor could enforce ; and whatever defenses, (there being no question of fraud, or collusion as between the garnishee and the debtor), would be available against the latter, are available against the creditor, pursuing this remedy. Such defences the garnishee may interpose by answer, and their truth as matter of fact will be presumed unless the plaintiff in the writ contests them. Their sufficiency in law, the court determines in pronouncing judgment on the answer.

3. The answer of the appellants admits a subscription for twenty-five shares, of one hundred dollars, to the capital stock of the bank, made during the session of the General Assembly of 1872-73, and that other subscriptions were made by other persons, who were desirous of organizing the bank, and transacting business, under the act of 1864, incorporating it, (Pamph. Acts 1864, p. 116), which was reenacted and amended by an act approved February 12,1867, (Pamph. Acts-1866-67, p. 397), if they could procure from the General Assembly, an amendment of the charter in relation to the form and character of the certificates of deposit, the bank could issue. The subscriptions of stock were conditional, dependent on obtaining such amendment; but as it was believed that such amendment would be more easily obtained if the corporation was organized, an organization was effected, the appellants not actively participating in it, by the election of a board of directors, a president and cashier. The amendment was not obtained, and after the adjournment of the General Assembly, the appellants paid ten per cent, of their subscription of stock, taking a receipt in writing for the amount paid, expressing that it was ten per cent, of their stock, which purports to be the act of the bank, and is signed by its cashier. The bank commenced and continued business with the knowledge of the appellants, for some time after this payment, and without so far as is shown by the answer, any dissent or objection from them. While so in operation, the appellee made a deposit of money with the bank, for which the judgment on which the garnishment issued, was recovered. The minimum of the capital as fixed by the act of incorporation, was one hundred thousand dollars, and ten per cent, of it must have been paid in, before the bank could go into operation. The answer denies that there was <me hundred thousand dollars subscribed to its capital stock, or, that ten per cent, of it was paid before the organization, or prior to the commencement of business by it. It is also insisted that the organization which was had, and the exercise of corporate power by the bank, were in violation of the statute, which inhibits the organization of private corporations after the expiration of two years from the date of their incorporation. — Code of 1876, § 2025.

The matters of defense against the liability of the appellants thus presented, are directed against the legality, and not the fact of the existence of the corporation. All corporations, public or private, are created by law. The power which they exercise, the right to exist, is derived from legislative grant, either under the operation of general laws, or from special enactment. They may exist either defacto, or de jure. If they exercise corporate power — if they possess and enjoy corporate franchises, under color of right, as when there is a legislative grant under which these are claimed, there can be no doubt, that a private person cannot be heard to inquire into the legality of corporate existence. The corporation must of necessity be presumed to be rightfully in possession of the franchise, and rightfully to exercise the 'power, which the legislative grant confers. Individual right is not invaded, if the negative is true in fact, and there is usurpation. It is the State — the sovereign— whose rights are invaded, and whose authority is usurped. The individual could not create the corpoi’ation — could not grant, define, limit its powers; and no grant of these by the sovereign can lessen his rights. There can consequently be no cause of complaint by the citizen, and no right to inquire whether corporate existence is rightful — de jure, or merely colorable. There may be usurpation — all the conditions which the State may have imposed on its grant of authority, may have been violated. The usurpation is of the authority of the State — the violation of good faith, is of the faith due to the State, and not to any one-of the citizens of the State. The State may acquiesce in the usurpation, and may waive the breach of the conditions on which rightful corporate existence depends. Within its sovereign power rests the election of acquiescence, waiver, or disputation. The individual can not intervene and exercise this power, and conclude the State, as he could not have intervened, and concluded the State by the grant of corporate existence and power. The grant o*f the State — the sovereign — can be construed alone by the power from which it proceeds, and the sovei’eign alone- can determine whether there is usurpation, and not then, until those who claim the right have the opportunity of being heard. Of the right they are exercising, it would be as odious and unjust to dispossess them, as to disseize the liber homo of the common law of his freehold, without due process of law. There was a legislative charter of the Alabama Savings Bank — a color of right for the existence of such corporation ; and for the exercise of the powers the charter conferred. It may be conceded, the corporation could not rightfully exist, unless it was organized and commenced operations within two years from the date of the charter. The State imposed the limitation of time, and the State could waive it. There was an acquiescence by the State in the subsequent organization; and so long as the State acquiesced, individuals had no cause of complaint. There was neither loss nor gain to them. So it may have been a condition precedent to corporate existence, that the minimum of the capital stock, should have been subscribed, and ten per cent, thereof paid, before the corporation could exercise corporate power. The condition was imposed by the State, and the State could waive its performance. The waiver must be presumed, until the State intervenes. The corporation incurs all its liabilities, is estopped from disputing them, and without infringing on the rights of the State, an individual can not be heard to inquire into the rightfulness of corporate existence. It may be the public may sustain injury from the usurpation of corporate existence, but it must be presumed the sovereign jealous in the imposition of the conditions, will be as jealous in resuming the power granted only on the conditions which have not been performed. Hence, the rule stated in the text books, and recognized by repeated decisions of this court, that the legality of the existence of a corporation, or the question of a forfeiture of its charter, if it has once had a legal existence, will not be inquired into collaterally, as in suits by or against the corporation in which it has legal claims against an individual, or an individual may assert legal claims against it. — S. & T. R. R. v. Tipton, 5 Ala. 787; Duke v. Cahaba Navigation Co., 16 Ala. 272; Harris v. Nesbit, 24 Ala. 398; Marion Savings Bank v. Dunkin, 54 Ala. 471. In Sprowl v. Lawrence, 33 Ala. 690, the principle is stated with clearness: “ It is laid down as an established principle, that until the forfeiture of a charter is judicially decreed, neither the forfeiture nor the cause of it can be inquired into in another suit, nor can the existence of the incorporation be questioned incidentally or collaterally.” — Ang. & Ames, Corp. §§ 635, 636.

But upon another ground, the defences urged by the appellants can not be sustained. The fact of the existence of the corporation is undisputed, as is also the fact that the appellants contributed to its existence, organization, and transaction of business. The existence at first may have been intended as fictitious, though the design was to induce the General Assembly to believe it was real, and thereby invite favorable legislative consideration of the amendment of the charter. Whatever of objection could have been made, if any could have been made by the appellants to the validity of their subscription on this ground, they could waive; and they did waive, when subsequently they made a payment on their subscription, aiding to convert the fictitious into a real organization, setting the corporation into motion, and permitting it to exercise its corporate powers. The charter in express terms declares the capital stock shall be a fund pledged for the security of depositors. To this provision of the charter the appellants must be regarded as yielding assent, when they made the payment on their subscription for stock and acquiesced in the organization of the bank, and its transaction of business. The right of depositors had attached, the subscription became a security for them, and the appellants could not subsequently withdraw it to their prejudice ; nor to the prejudice of the corporation, through whom the right may be after judgment enforced by garnishment.

It is also too well settled now to be controverted that a party who contracts with a corporation, whether it be by a subscription for its stock, or by promissory note, bond, mortgage, or other form of contract, is estopped from denying the existence of the corporation. — Ang. & Ames Cor. § 636; 1 Redf. Rail. 66, and authorities cited; Eaton v. Aspinwall, 19 N. Y. 119. If the corporation had been successful — if profits had been realized from the transaction of its business, the appellants would have reaped a just share. The corporation would not have been permitted to deny the legality of its existence, and interpose such denial to bar the right of the appellants. The estoppel is reciprocal, and binds the appellants now that the burthens of the contract are to be borne.

It is often said that when a corporation sues, its corpoi’ate existence must be shown, if it is controverted. When the action is against one contracting with it in its corporate ca pacity, the contract furnishes the evidence. If the action is against a stranger, the user of the corporate power and franchise, and the color of right afforded by a legislative grant, is conclusive. There may be contracts made with a corporation, and made expressly dependent on the fact of the legality of its organization, and in an action to enforce such contracts, the burthen of proving a legal organization may rest on the corporation. This case is not of that character; nor is it of that class of cases in which the defense of ultra vires is involved. A corporation can not enforce or be made liable on a contract, it was without capacity to make, and if the contract is without the scope of its powers, neither party is estopped from asserting its invalidity.— City Council v. M. & M. R. R. Co. 31 Ala. 76; Marion Sav. Bk. v. Dunkinn, 54 Ala. 471. The extent of corporate power, is a very different question from the fact of corporate existence. In the one case, the extent of power affects only the corporation, and the individual contracting with it; and they alone have rights or interests involved. In the other, the State has the right, and the only right to inquire into the legality of corporate existence — to construe its own grant — to determine, if there is usurpation, whether it will acquiesce in it, or resume the power which has been usurped. The City Court did not err in rendering judgment against the appellants.

Affirmed.

Manning, J.

I desire not to be understood as expressing either assent to or dissent from some of the views and conclusions concerning mere usurpers of corporate franchises, presented and asserted in the opinion of the Chief-Justice. Some of them appear to me to be questionable. Perhaps, if I had leisure to consider the subject thoroughly, my conclusions might entirely coincide with his. I agree, however, that appellants have debarred themselves, according to their answer, from denying in this cause, the corporate existence of the body organized as the Alabama Savings Bank, set up by themselves and others, under the acts of the legislature passed to authorize the formation of such an institution, and from denying their membership therein, or liability as stockholders to the claim of appellee.

I therefore concur in the judgment of affirmance.

Stone, J., not sitting.