Story Case

George Sabel, living in Los Muertos, California, owned a laundry machinery company which a group of wealthy Chinamen desired to purchase. Sabel, however, did not wish his property to come into the control of these people. On April 1,1915, he made a contract to sell the plant to Howard Wheeler, who agreed in the contract never to convey the property to any persons of Mongolian race. On April 10, Sabel conveyed title to the Wheeler Laundry Machinery Corporation, intending thereby to carry out his contract with Wheeler. This company was organized on April 8.

Three days later, in conformity with a secret contract existing between Wheeler and the Chinamen, his corporation conveyed the entire plant to the Oriental-California Laundry Machinery Company, a corporation whose members consisted of these Chinamen.

Sabel, of course, was angry at this development and attempted to attack the title of the Oriental-California Company. It contended (1) that the original contract with Wheeler was not binding upon the Wheeler Laundry Machinery Corporation, a different person, and (2) though it were binding, there was no breach of contract, since the Oriental-California Company was a corporation organized under California laws, and not a person of the Mongolian Race. Are these contentions correct?

Ruling Court Case No. 1. Herring-Hall-Marvin Safe Co. Vs. Hall Safe Co., Volume 146 Federal Reporter, Page 37. (United States Circuit Court Of Appeals.)

Joseph L. Hall was the originator of a very successful business in safes, which had established a valuable reputation throughout the country as "Hall's Safes". After his death, his sons, Edward, William and Charles Hall were actually in charge of the corporation then carrying on this business under the name of Hall's Safe & Lock Company. Another corporation, named the Herring-Hall-Marvin Safe Company, bought out the business of the Hall Safe & Lock Company, taking a conveyance of all its "real estate and leasehold interests, tools and machinery, fixtures, merchandise, trade marks and good will," and also bought an agreement from that company that it would close up its affairs and be dissolved and would not in the future engage or continue in said business. This transaction was carried on in behalf of the Hall Safe & Lock Company by the sons of Joseph Hall, as directors and officers of that company, and as such officers, they signed the agreement. Later, they organized a third corporation, known as the Hall's Safe Company, which went into competition with Herring-Hall-Marvin Safe Company.

This proceeding was brought by the Herring-Hall-Marvin Safe Co. to enjoin and prohibit that competition, as a breach of the agreement. The defense of the Hall's Safe Company was that it was not in any way a party to the agreement not to compete, and that even the members of the new corporation were not parties to that agreement, although they had executed it for the former corporation.

The opinion of the Court, delivered by Judge Sev-erens, held not only that officers who execute a contract and sign it in behalf of the corporation are not bound thereby, but, further, that the obligation of the corporation does not attach to its members by virtue of their ownership of the corporation, or by virtue of the benefits which they receive from the contract. The Court said: "The contract which the Herring-Hall-Marvin Safe Co. had was with the corporation only, and not with its stockholders or officers. If a purchaser desired to make the officers and agents of the selling corporation subject to the stipulations of the company in the contract sale, it should have required their personal agreement to that effect. Counsel for complainant rely npon the case of State vs. Standard Oil Co., as authority for disregarding the form of corporate organization, but that case cannot be so widely applied. There are cases where, for special purposes, and in special circumstances, the Courts will fasten upon the stockholders a liability for the acts of the corporation. None of these impugns the general rule above stated, that in matters of contract the officers, agents and stockholders of a corporation are not bound personally by the contracts of the corporation."

It was, therefore, decided that no action could be maintained against the Hall brothers because of this contract of the corporation, and the Court refused to enjoin them from carrying on the competing business. Judgment was given for the defendants.

Ruling Court Case No. 2. Rohleder Vs. People's Pleasure Park Co., Inc., Et Al., Volume 109 Virginia Reports, Page 439

A large tract of land in Virginia was sub-divided and sold. All the deeds contained this clause: " The title to this land never to vest in a person, or persons, of African descent." The defendant, the People's Pleasure Park Company, purchased a part of this park, to be used as an amusement park.

The plaintiff, Rohleder, brought this suit, asking the Court to declare void the deed to the People's Pleasure Park Company, because it was a corporation whose stock was held entirely by colored people. The plaintiff maintained that this meant that the corporation was a "person of African descent," within the conditions in the deed. He further said that the amusement park was intended as a park for colored persons only, and asked the Court to forever restrain such a use of the property.

The opinion of the Court was delivered by Mr. Justice Cardwell. After a thorough investigation into the authorities upon this question, the Court held that the condition had not been violated because a corporation is a person of its own individuality and identity, and does not partake of the qualities of its members. The fact that every one of its members was a negro did not have the effect of making the artificial person, the People's Pleasure Park Company, a person of African descent. As the original deed had not been so drawn as to exclude ownership of this land by a corporation composed of negro stockholders, and it did not attempt to control the use to be made of the land, there was no basis for declaring void the deed to the corporation, or for enjoining it from conducting a negros' pleasure park.

The case was dismissed and judgment was given for the defendant.

Ruling Law. Story Case Answer

It was stated in a foregoing section that a corporation is an artificial person created by law. But we are well aware that a corporation is composed of stockholders who are natural persons. However, the law does not attribute to the corporation the personality and being of the natural persons who compose it. So far as its legal acts, conduct, and contracts are concerned, it is considered a distinct entity and its members are not individually liable upon its termination. This is illustrated by the Story Case. The laundry machinery corporation and Wheeler are each a separate entity. Likewise, the Oriental-California Company is a distinct person, created by the state, and could not be designated as an individual of Mongolian race, even though all of its members were Chinese.