Birmingham Realty Co. v. Crossett , 210 Ala. 650 ( 1923 )

Since preparing the views expressed on the original hearing, the writer has found other cases which he thinks he should bring to the attention of the majority.

The case of Portsmouth Cotton Oil Refining Co. v. Fourth Nat. Bank of Montgomery (D.C.) 280 Fed. 879, was to the effect that a bank which organized a subsidiary corporation to handle property it owned, and which had no capital or property, except that supplied by the bank, was liable for damages sustained by a purchaser of property from the corporation, which paid the bank for the same, where the property was not as represented and warranted.

The case of Martin v. Development Co. of America, 240 Fed. 42, 153 C.C.A. 78, decided February 13, 1917, was before Chicago, Milwaukee St. Paul R. Co. v. Minn. Civic Com. Ass'n (October term, 1917), 247 U.S. 490, 501,38 Sup. Ct. 553, 62 L.Ed. 1229, 1237. The following expression of Mr. Justice Clarke in the latter case was in line with the announcement made by Mr. Chief Justice McClellan in Moore Handley Hdwe. Co. v. Towers Hdwe. Co., 87 Ala. 206, 6 So. 41, 13 Am. St. Rep. 23, and that contained in Christian Craft Gro. Co. v. Fruitdale Lbr. Co., 121 Ala. 340, 25 So. 566:

"Much emphasis is laid upon statements made in various decisions of this court that ownership alone of capital stock in one corporation by another does not create an identity of corporate interest between the two companies, or render the stockholding company the owner of the property of the other, or create the relation of principal and agent or representative between the two. * * *

"While the statements of the law thus relied upon are satisfactory in the connection in which they were used, they have been plainly and repeatedly held not applicable where stock ownership has been resorted to, not for the purpose of participating in the affairs of a corporation in the normal and usual manner, but for the purpose, as in this case, of controlling a subsidiary company so that it may be used as a mere agency or instrumentality of the owning company or companies. United States v. Lehigh Valley R. Co.,220 U.S. 257, 273, 55 L.Ed. 458, 463, 31 Sup. Ct. Rep. 387, and United States v. Delaware, L. W. R. Co., 238 U.S. 516,59 L.Ed. 1438, 35 Sup. Ct. Rep. 873. In such a case the courts will not permit themselves to be blinded or deceived by mere forms of law, but, regardless of fictions, will deal with the substance of the transaction involved as if the corporate agency did not exist and as the justice of the case may require."

The decision in United States v. Lehigh Valley R. Co.,220 U.S. 257, 273, 31 Sup. Ct. 387, 391, 55 L.Ed. 458, 463, was by Mr. Chief Justice White, who said:

"That the facts thus averred and the other allegations contained in the proposed amended bill tended to show an actual control by the railroad company over the property of the coal company and an actual interest in such property beyond the mere interest which the railroad company would have had as a holder of stock in the coal company is, we think, clear. The alleged facts, therefore, brought the railroad company, so far as its right to carry the product of the coal company is concerned, within the general prohibitions of the commodities clause, unless for some reason the right of the railroad company to carry such product was not within the operation of that clause. The argument is that the railroad company was so expected [excepted] because any control which is exerted or interest which it had in the product of the coal company resulted from its ownership of stock in that company, and would not have existed without such ownership. The error, however, lies in disregarding the fact that the allegations of the amended bill asserted the existence of a control by the railroad company over the coal corporation and its product, rendered possible, it is true, by the ownership of stock, but which was not the necessary result of a bona fide exercise of such ownership, and which could only have arisen through the use by the railroad of its stock ownership for the purpose of giving it, the railroad company, as a corporation, for its own corporate purposes, complete power over the affairs of the coal company, just as if the coal company were a mere department of the railroad. Indeed, such a situation could not have existed had the fact that the two corporations were separate and distinct legal entities been regarded in the administration of the affairs of the coal company."

In United States v. Delaware, L. W. R. Co., 238 U.S. 516,35 Sup. Ct. 873, 878, 59 L.Ed. 1438, 1443, it is said:

"But the decisions construing the statute recognize that one corporation can be an agent for another corporation, and that by means of stock ownership one of such companies may be converted into a mere agent or instrumentality of the other. United States v. Lehigh Valley R. Co., 220 U.S. 257, 273,55 L.Ed. 458. 463, 31 Sup. Ct. Rep. 387. And this use of one by the other — or this power of one over the other — does not depend upon control by virtue of the fact that stock therein is held by the railroad company or by its shareholders. For dominance of the coal company may be secured by a carrier (New York, N.H. H. R. Co. v. Interstate Commerce Commission,200 U.S. 363, 50 L.Ed. 515, 26 Sup. Ct. Rep. 272), not only by an express contract of agency, but by any contract which, in its practical operation, gives to the railroad company a control or an 'interest, direct or indirect,' in the coal sold, at the mouth of the mines."

Mr. Justice GARDNER agrees with the foregoing.