Court Opinion

ID: 6514546
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:25:25.05343+00
Date Added: 2024-06-11T15:54:58.879847
License: Public Domain

STONE, C. J.,
Concurring. — In this case, the chancellor sustained the demurrer to the bill, and no amendment being offered, there was a decree declaring the bill contained no equity of which that court could entertain jurisdiction. From that interlocutory decree the present appeal is prosecuted. The demurrer admitted the truth of every material averment that is well pleaded. — Flewellen v. Crane, 58 Ala. 627. We will treat the material averments as admitted facts.
The Brierfield Coal & Iron Company was incorporated in 1882, with an authorized capital stock of seven hundred and fifty thousand dollars. The amount of stock actually issued and disposed of is not expressly shown. It is shown, however, that by a resolution of the board of directors, adopted soon after the organization, five hundred thousand dollars of the mortgage bonds of the company were issued, having thirty years to run, bearing six per cent, interest, and the interest to be paid in semi-annual installments. The payment of the interest and principal of these bonds was secured by a first mortgage, executed and recorded, conveying all the property of the corporation, real and personal. The mortgage created a trustee, and clothed him with authority to execute its powers and purposes. The bonds are not negotiable securities, according to the averments of the bill.
This issue of five hundred thousand dollars of coupon bonds was not intended for sale in the market as bonds. Stock in the company to the amount of four hundred and fifty thousand dollars was ordered to be sold, and was sold at par, with the agreement and understanding, that to every purchaser of nine hundred dollars of the capital stock, there should be delivered, and was delivered, one thousand dollars of the bonds, on no *321consideration other than the nine hundred dollars of stock, purchased and promised to be paid for. So, when the stock should be paid for in full, the subscribers, or owners of the-shares of the capital stock, would have received, for nine hundred dollars’ paid out, nine hundred dollars of the paid up capital stock of the company, and the corporation’s coupon bond for one thousand dollars.
To what extent calls were made for payment of this four •hundred.and fifty thousand dollars of stock, or any other stock taken in the company, was not known to the complainants, and is not shown in the. bill of Gay, Hardie & Co. It is averred, however, that the sum of five hundred thousand dollars of the subscriptions for stock remain unpaid. These bonds for five hundred thousand dollars were subscribed for by eight persons, in unequal amounts, who still claim to own the same, or the great bulk of it. The husband of one of these eight is named as trustee in the mortgage given for the security of the bonds.
Pursuant to authority and power expressed in the said first mortgage, the trustee, in July, 1887, obtained from the Brierfield Coal & Iron Company a further assurance for the security of said bonds, which described and conveyed to him, for such purpose, all the real and personal property of every description, owned by said corporation. In less than a month after obtaining this further assurance, to-wit, in August, 1887, the trustee, or assignee named in the mortgage, filed a bill in the Circuit Court of the United States, and made defendants to his bill the said Brierfield Coal & Iron Company, the said original stock and bond-holders, and certain named creditors of the corporation. The bill set forth the said five hundred thousand dollars of bonds as a debt of the corporation, and certain other alleged debts incurred in running the works of said Iron & Coal Company, for which Peters, the president of the corporation, had rendered himself or his property liable. According to the averments of the bill, a considerable part of the subscription of four hundred and fifty thousand dollars of stock has not been collected, and no excuse is rendered why this has not been done. The object of the bill was to have the effects of the corporation placed in trust, or in the hands of a receiver, and to have that trustee or receiver clothed with authority to borrow money, and to that end, to issue certificates of indebtedness. This, for the purpose of keeping the works of the corporation in operation, and to meet current expenses. There was no expressed wish or prayer to have the mortgage foreclosed and the property sold at that time; bue the averred object was to save the property by continuing tht *322works in operation, and thus paying the corporation’s debts. The bill and its prayer, however, were so framed, as that a foreclosure and sale could be effected under it.
The Circuit Court of the United States took jurisdiction of the case, placed the property in the hands of a trustee, or receiver, and authorized him to issue certificates of indebtedness, which were declared to be a first lien on the property and its earnings. Uuder this authority certificates of indebtedness were issued, to the extent of sixty-five thousand,dollars.
In 1889, the Circuit Court of the United States made a decree in said cause foreclosing said mortgage and further assurance, and ordering an account to be taken of said bonded and other named indebtedness of the corporation, and ordering a sale of its property and effects. Under this decree, the property was advertised to be sold, the sale to take place August 19, 1889. On that day the present bill was filed in the State Chancery Court, by a non-secured creditor of the Brierfield Coal & Iron Company.
The bill in the present case, filed by Gay, Hardie & Co., sets forth that during the years 1886 and 1887 the said Brier-field Coal & Iron Company became indebted to them for goods, wares and merchandise sold to said corporation, in the sum of near eleven thousand dollars of principal indebtedness. It charges that said alleged bonded indebtedness of five hundred thousand dollars was issued and incurred in direct contravention of the Constitution and statutes of the State of Alabama — that they were issued upon no consideration whatever, and are fraudulent. It charges further, that said suit by the trustee to foreclose said mortgage and further assurance was and is, by reason of the legal invalidity of the bonds, fraudulent, and instituted and prosecuted-with intent to delay, hinder and defraud the creditors of the corporation, and that the corporation is insolvent. The bill is so framed as that other creditors can come in and make themselves parties, and share in the fruits of the recovery. The prayer and purpose of the bill are to have the alleged bonded indebtedness annulled as fraudulent, and to have the effects of the corporation applied to its bona fide debts.
It will thus be seen that, before this suit was instituted, the Circuit Court of the United States, by virtue of the bill previously filed in that court by the trustee, had taken jurisdiction of the affairs of the corporation, and, through a receiver, or ^««¿-receiver of its own appointment, had taken control and possession of its entire effects; and that possession had not been relinquished by a final determination of the suit.
*323The present bill makes only two defendants, the Brieriield Coal & Iron Company, and the trustee in the mortgage, the complainant in the said suit in the Circuit Court of the United States. Each of these defendants demurred to the bill,.specifying several grounds of demurrer, but they are all reducible to a single proposition, namely: that the Circuit Court of the United States having acquired jurisdiction and possession of the effects of the corporation, no other court can, by any process at its command, interfere with that possession,or prevent or obstruct that court in the complete administration of the effects of the corporation.
Ours is a compound government. We have a Federal government, which, for certain specified purposes and to a certain extent, makes us one. The dominating aim of this union of States had two main objects : First, in all our relations, political and commercial, with other countries, we are a unit. Second, in those matters which pertain to the harmony, good neighborhood and equal civil rights of the citizens of the several States, out of which conflicts and collisions might arise, the General Government is clothed with all the power which the framers of our institutions deemed necessary to prevent such conflicts and collisions. But the powers of the Federal Government are the creatures of grant.
Each of the governments, Federal and State, has a judiciary, a necessary arm for the enforcement of delegated power and preservation of good order. And in the administration of justice, controversies may and do arise, in the adjustment of which the courts of the two governments have concurrent jurisdiction. Here we approach the danger line, and we should take our steps cautiously, lest we tread on forbidden ground. Properly administered, each tribunal can exercise all its rightful jurisdiction and grant all rightful relief to the suitors before it, without abridging the equal rights of other equally meritorious suitors before other tribunals, havingequal power. The difficulty lies in determining when, or from what arbiter the mandate can be authoritatively uttered, “thus far shalt thou go.”
That two material bodies can not occupy the same space at the same time, is an established law of physics. If this impossible feat be attempted, collision must be the result. So, when one court has acquired, and is in the exercise of jurisdiction over a subject-matter inter partes-, no other court of simply concurrent power can take jurisdiction of that same subject-matter between the same parties. And the rule is much more inflexible, when, under some, order or process of its own, the court first acquiring jurisdiction -has obtained *324possession of the res,'which is the subject of the suit. When this is the case, the thing is in the custody of the court, and until disposed of by final judgment or decree, that possession can not be interfered with by any other court of concurrent jurisdiction, whether its powers be invoked by a party to the first suit, or by a stranger to that litigation. This, it has been justly said, is not alone a duty of comity. It is an edict of necessity. Its non-observance would lead to all the conflict and confusion so well expressed by Justice Grier in Peck v. Jenness, 7 How. 612.
The exhaustive opinion of my brother Coleman in this case has rendered it not only unnecessary but improper that I should again collate the authorities. I fully concur with him in his statement of the rule, and the extent of it. The reason of the rule exists in the prevention of collisions between courts of concurrent jurisdiction. Neither the reason nor the rule finds any field of operation, when the proceedings in one' jurisdiction do not in any manner interfere with those in the other. And, in this connection, it is immaterial whether the two courts of concurrent jurisdiction derive their powers one from the Federal and the other from a State government, or both from the same government. The same rule and measure of non-interference apply in the one category as in the other.
Under the suit by the trustee in the United States court, all the property of the Brierfield Coal & Iron Company was placed in the hands of a trustee or receiver, to be administered for the purposes specified in the mortgage and further assurance. Until that court finishes the litigation there’pending, and relinquishes its possession of the property, no other court can disturb that possession, or interfere with the untrammelled adjudication of the issues raised in that suit. And the decision or decree rendered, or to be rendered in that suit, will bind all the parties to it, and their privies, unless it is reversed by a court having authority to revise its judgment. — Stout v. Lye, 103 U. S. 66. In other words, while the proceedings in that court are in fieri, and the corporation’s effects are in the hands of that court’s trustee or receiver, no other court of concurrent jurisdiction, and no suitor in such court, can disturb or interfere with such possession, or with that court’s untrammelled adjudication of the questions before it. The rule has no greater extent than this. — 2 Lead. Cases in Eq., part II, 1402.
As has been shown, the bill in the Circuit Court of the United States was filed'and is prosecuted by the trustee appointed in the mortgage and deed of further assurance executed *325bv the Brierfield Coal & Iron Company. Its ultimate object was and is to foreclose those conveyances, and with the proceeds to pay the gwim-receiver’s certificates, 'and the five hundred thousand dollars of bonds hereinbefore described. Only the corporation, the holders of those bonds, and certain creditors with whom some of those bonds have been deposited as security for money borrowed, are made parties to that bill. Gay, Hardie & Co. are neither made parties, nor is their claim mentioned in the bill. Not being defendants to that suit, they can not be heard in defense of it; and the law furnishes them no coercive means of having themselves made defendants.
■ The law arms the complainant with the supreme discretion and option of determining whom he will make parties defendant to his bill; and the only risk he incurs is, that if he omit a necessary party, he is liable to suffer in the decree he obtains. There is no process known to the law, by which a stranger to the record can procure himself to be made a defendant. — Renfro v. Goetter, 78 Ala. 311; Flournoy v. Harper, 81 Ala. 494; Ex parte Printup, 87 Ala. 148.
True, in the prayer of the bill is found this clause: “If any of the creditors of said Brierfield Coal & Iron Company, who are not made parties defendant to this bill, or any persons holding and asserting claims against the trust estate in the hands of orator, desire to have their rights determined in this honorable court, that they be permitted [to make] themselves parties defendant in this cause, on filing their petition therein, setting forth their said debts, demands and claims, and that said matters shall be heard and determined in this cause.” Under the authorities cited above, the practice here invited would have been patently irregular, and we know of no precedent for it. Moreover, it does not appear that Gay, Hardie & Co. had notice of said offer, or even of the filing of that bill, in time to avail themselves of it for any practical purpose in that suit. We will not comment further on that clause at this time.
Should it occur in the further progress of said suit in the Circuit Court of the United States, that the creditors of the Brierfield Coal & Iron Company are notified to come in, and propound and prove their claims, that would be no adequate remedy to Gay, Hardie & Co., if the averments of their bill be true. Under such notice, they would come in as claimants under that suit, and not as defendants, armed with the power to controvert the legality of the bonds and mortgage. They could claim only in subordination, not in antagonism to the purposes of that suit. Thus handicapped, their claim would be subordinated to the certificates of indebtedness which have *326been issued, and to the five hundred thousand dollars of bonds, already decreed by that court to have a paramount lien on all the property embraced in the mortgage and further assurance.
Gay, Hardie & Co. are simple-contract creditors, without a judgment, and without a lien. Their bill may be in part rested on section 3544 of the Code of 1886, which is in the following language: “A creditor without a lien may file a bill in chancery to discover, or to subject to the payment of his debt, any property which'has been fraudulently transferred or conveyed, .or attempted to be fraudulently transferred or conveyed by his debtor.” See the many rulings on that statute cited in the note.— Gibson v. Trowbridge Furniture Co., 93 Ala. 579; 9 So. Rep. 320. We say the bill rests in part on that statute, because its averments tend to make a case therein provided for, as we will hereafter show. See, also, M. & F. Railway Co. v. McKenzie, 85 Ala. 546; Lawson v. Warren, 89 Ala. 584; Martin v. Carter, 90 Ala. 96.
The charges of fraud and fraudulent purposes, as set forth in the present bill, may be briefly summarized as follows : First, the bonds for five hundred thousand dollars, and the mortgage given to secure their payment, were given upon no consideration, and in violation of Art. XIY, § 6 of the Constitution of Alabama. — Fitzpatrick v. Dispatch Pub. Co., 83 Ala. 604; Williams v. Evans, 7 Ala. 725. Second, a large amount of the stock subscription to the corporation remains unpaid, and it is not shown that the corporation has made, or is making any attempt to collect it; and no excuse is offered for the failure. The said bill in the Circuit Court of the United States, as represented in the present bill, admits this sum to be large. The bill in this case charges it is five hundred thousand dollars. Third, the said trustee’s bill, if correctly set forth, while it admits this large unpaid balance of stock subscription, seeks to sell the entire effects of the; corporation for the payment of illegal and worthless bonds and this, in a bill which has for its parties only those persons who are interested in their payment and collection. If the averments of the present bill be true — and on this hearing we must treat them as true — there is'not only no adversary interest presented in the suit by the trustee, but in the nature of things none could be regularly presented. A judgment thus obtained is collusive, and can have no binding effect on creditors who are not, and have no legitimate means of making themselves parties. Only parties and their privies in estate or blood are estopped from disputing the ascertained facts on which judgments of courts are founded. As to creditors who *327are strangers to the record, if fraudulent, they are of no avail. When they are made a fraudulent contrivance, or aid in hindering, delaying or obstructing creditors in the enforcement of their just demands, they acquire no additional force by the circumstance that, in form, they are the solemn judgments of a court. Nothing is simpler or easier of accomplishment than to reduce an unfounded or fraudulent claim to judgment, whén the ostensible antagonists concur in the desire to do so; and the court, or presiding judge, being ignorant of the secret intent, and acing only on the case shown in the pleadings, is without knowledge of the purpose intended. He is thus sometimes made the innocent instrument of a most atrocious fraud. Chancery sweeps away such contrivances as chaff before the wind. — 1 Black on Judgments, § 593, et seq.; Michaels v. Post, 21 Wall. 398; Eslava v. Eslava, 50 Ala. 32; Lee v. Lee, 55 Ala. 590; Dunklin v. Wilson, 64 Ala. 162; Dunklin v. Harvey, 56 Ala. 177; Humphreys v. Burleson, 72 Ala. 1; Met. Bank v. Durant, 22 N. J. Eq. 35; s. c , 24 N. J. Eq. 556; 3 Pom. Eq., §§ 919, 970; 1 Story’s Equity, § 252a et seq.; Johnson v. Waters, 111 U. S. 640, 674; Sawyer v. Hoag, 17 Wall. 610, 620.
As we have said, we are dealing with the case made by the averments of the bill. According to these averments,- the bonds were issued without any consideration, and in direct violation of the Constitution of this State. It is not shown, nor can it be presumed, that the corporate effects sold under the Circuit Court’s decree will bring a sum in excess of the amount of the quasi-receiver’s certificates and the bonded indebtedness. If they do not, the other creditors have nothing to look to for payment of their demands, unless they can successfully controvert the legality of the bonded indebtedness. No answers have been filed to the present bill, and we can not know what the defense may be. It would be worse than idle for us to speculate about it, and we will not attempt it. Let us charitably hope the grave charges made may prove unfounded. At this stage of the litigation we will not comment on the frauds that may be and sometimes are perpetrated through the seeming forms of law.
We have said that the Chancery Court must not, and can not interfere with the possession acquired by the Circuit Court of the United States, until that court finishes its work'and relinquishes its possession. What steps can be taken in the Chanceiy Court while the conditions remain as they are shown in the transcript before us? It is certainly true that no court will or can re«-train or intermeddle with another court of co-ordinate jurisdiction. It does, however, often in*328terfere with parties who are conducting litigation before another tribunal.
It would seem there can be no objection to taking testimony to establish the justness of complainants’ claim, and, if true as charged, the fraud of the corporation through its officers in placing or attempting to place its effects beyond the reach of its bona fide creditors. Nor does it appear that steps can not be taken to subject the unpaid subscriptions of stock in the corporation, if there be such, to the payment of the demand of complainants. It is not shown that the Circuit Court of the United States has taken any jurisdiction of this .subject, or has been asked to do so. In the averments and prayer of the bill, if correctly stated, it rather appears to have been given the go-by.— Glenn v. Semple, 80 Ala. 159, and authorities cited.
What recourse complainants can assert against the property of the corporation itself, or against its proceeds, after it shall have passed out of the possession of the Circuit Court of the United States, would seem to depend on the inquiry, whether it passes to the bondholders, or to strangers as purchasers. Possibly in the one case, if the averments of tne present bill be true, the property itself may continue subject, while in the other, only the proceeds could be reached. We make these suggestions without intending to commit ourselves absolutely to their correctness.
I concur in the reversal of the chancellor’s decree.