Court Opinion

ID: 6503224
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:15:45.979062+00
Date Added: 2024-06-11T15:54:39.967926
License: Public Domain

GOLDTHWAITE, J.
1. When the objection of multifariousness is well taken to a bill, it is probably the correct practice to allow the party to amend, or elect on which ground of equity he will proceed. [Marriott v. Givens, 8 Ala. Rep. 694.] If it is so, however, it does not follow that a decree of dismissal will be reversed because the election is not tendered by the court, instead of being asked by the party. Neither does it seem to be a necessary consequence of the right which defendants have, to object specially on account of multifariousness. [Welborn v. Tiller, 10 Ala. Rep. 305.] That the court is prevented from refusing of its own mere motion to entertain jurisdiction of a suit which is thus complicated, see Greenwood v. Churchill, 1 M. & K. 546.] We do not intend, however, now to discuss any of these questions, as in our judgment the bill in the present case is not multifarious. The object of the bill is to reach the equitable assets of the corporation in satisfaction of the complainants’ judgments at law. These assets, it seems, are supposed to be of two sorts — 1. Those arising from the right of the corporation to call in its unpaid stock; and 2. Those which may be produced by setting aside the alledged illegal conveyance. Now it is true, the stockholders, as individuals, have no concern with the allegations of fraud which affect the deed; but, supposing the unpaid subscriptions and the property conveyed to be assets of the company, the creditor has the right to pursue them as such, and is entitled to the aid of a court of equity to remove the obstructions which *448prevent him from doing so. In Brinkerhoff v. Brown, 6 John. Ch. 139, the object of the bill, as it is here, was to set aside conveyances as well as to compel payment from defaulting stockholders. It is true, the chancellor seems to rest his decision against the demurrer on the ground that all the defendants are charged with fraudulent practices, though in different degrees; but we do not think this is the foundation on which the right to join defendants rests. If it was, and the fraud was disproved at the hearing, the re would be difficulty in saying the entire suit should not be dismissed. Again, if the right rested on such a charge, the complainant might always avoid the objection by making that sufficiently broad. It is said by Judge Story, after a careful review of all the adjudications, that the principles to be deduced from them seem to be, that when there is a common liability in the defendants and a common interest in the plaintiffs, different claims to property, at least if the subjects are such as can without inconvenience be joined, may be united in one and the same suit. [Eq. Plead. 409, § 533.] Lord Eedesdale had previously said that when one general right is claimed against all the defendants, the court proceeds on the ground of preventing multiplicity of suits; and that if there are but few reported cases on the subject, it is because the practice is perfectly understood; and in bills by vicars, &c. claiming tithes against several defendants whose cases may be all distinct and their decrees different, the practice in England is constant. [Whally v. Dawson, 2 S. & Lef. 367.] The case of the Mayor of York v. Pilkington, 1 Atk. 282, is of this description ; and there a bill was sustained to quiet the plaintiff’s right to a fishery against several defendants having no privity between themselves. It will be seen the principle of this decision is quite different from that stated in Brinkerhoff v. Brown, and afterwards recognized in Fellows v. Fellows, 4 Cowen, 632, and extends the rule sufficiently far to cover this case. In creditors’ bills, it seems in New York to be the common course to make the debtors of the defendant parties. [Stafford v. Mott, 3 Paige, 100.] Indeed, when we consider the correllative rule, that all judgment creditors may join as complainants, on the ground that there is a common right against the same defendants, it seems entirely reasonable that *449any creditor should have the right against as many defendants as may be necessary to give a full remedy, when all of these defendants are alike chargeable to him. The analogy which there is between this case and a creditor’s bill, in which the debtors of a judgment debtor are proper parties must be apparent to every one, although it is possible such debtors would not be proper parties to a similar bill in our own courts, unless on account of some additional equity, for the reason that our statutes allow such to be garnisheed by process from the courts of law. Whether there are such additional equities here against the stockholders we shall presently consider, but what has already been said is sufficient to indicate our opinion that the bill should not have been dismissed on the grounds assumed by the chancellor.
2. We come now to consider what is the equity of the bill as against each class of the defendants. As to those stockholders who were in default in paying their subscriptions after the calls of the corporation, (if indeed the bill shows there were any such) it is certain these could be reached by the ordinary course of law as debtors to the corporation. [7 Ala. Rep. 51; 5 Ib. 403; Ib. 787.] And therefore as against such, it may be considered the bill will not lie, as no additional equitable circumstances are stated to give jurisdiction to the court.
3. As to stockholders on whom no calls had been made under the charter, (which we understand is the case intended to be presented by the bill) a different rule obtains. If the act of 1841 (Dig. 261, § 10) is to be construed as allowing garnishee process when the corporation itself has made no calls, it does not cover this case, for the bill was exhibited before that act was passed; and it is certain they were not liable to that process under the previous legislation, for the indebtedness was incomplete until a call was made pursuant to the charter. See cases last cited. Has then a court of equity the authority to reach subscriptions for stock to satisfy a creditor when there is a deficiency of legal assets, in the absence of any call by the corporation upon its stockholders ? That it has, is, we think, a clear position, as well on principle as authority. As the individual corporators are not them*450selves personally responsible for the contracts of the corporation, there is no responsibility any where, if the capital stock is not a fund answerable to the creditors, and it would seem to make no difference in the right, whether this capital stock or fund existed in property or equitable assets. Nor can it vary the right if the legislature, instead of requiring the stock to be paid in, has permitted the corporation to call for it as their necessities, or the convenience of stockholders' may require. In the latter case, the subscription is a debt which the corporation may call for, and if debts are contracted beyond the assets in hand, it would be most inequitable to neglect or refuse to make the call so as to discharge the debt. It is on this obvious principle that a court of equity assumes jurisdiction and compels the corporation and stockholder to do that which justice requires — that is, to discharge the debt to the extent that the capital stock remains in the hands of the stockholder. In Wood v. Dummer, 3 Mason, 308, individual stockholders were held liable where the capital of the corporation had been paid out to them even after its insolvency and dissolution. The equity of the creditor, as it seems to us, is equally strong where the stockholder has contracted to pay, but has never paid his portion of the capital stock. Hence, we conclude the creditor has the right to pursue a stockholder when there is a sufficiency of legal assets, although the corporation has made no calls.
4. It becomes necessary to ascertain further, whether the creditor has any rights against such stockholders as the company proceeded against, to forfeit their shares for non-payment of instalments, or against such as transferred their shares previous to the exhibition of the bill. We consider these positions together, because, ordinarily, they seem to be governed by the same general principles, where there is no special provision in the act of incorporation. In general, the subscription by the stockholder makes him a contractor with the corporation upon the terms prescribed by the act creating it, (3 Ala. Rep. 660; 5 Ib. 787); and it seems a necessary consequence that, where the rights of others are not affected, the contract may be modified or discharged by mutual consent. In the present instance, the act of incorporation expressly gives the corporation the power to forfeit the stock of *451delinquent subscribers, and although this is a privilege conferred on the corporation, and which they may waive if they will, and resort to their other remedies to call in the stock subscribed for, (5 Ala. Rep. 787), yet we think it admits of no reasonable doubt when the election is made bona fide and the forfeiture insisted on, that there is an end of .the contract.
5. The charter is silent as to the time and the mode and manner in which the stock may be transferred, yet we apprehend a stockholder at any time after subscription, could invest another with his rights in the company. That he can discharge himself from liability, either to the company or elsewhere by his own act, is by no means clear, and we incline strongly to the opinion, that it could not be done without the consent of the corporation. If, however, the corporation consents to discharge him from the contract and receive his transferee as a stockholder in his stead, we can perceive no valid objection to their doing so. Indeed, the whole matter seems to rest on the same principles as any other contract, where a different rule is not prescribed by or necessarily grows out of the charter. It can scarcely be supposed that equity would allow a debtor to voluntarily discharge his debtor to the prejudice of creditors; and it has been held a stockholder cannot avoid responsibility by a transfer to an insolvent person. [Marcy v. Clark, 17 Mass. 330.] It has also been held, that a fraudulent subscription in the name of minors would not avail the actual subscriber against the claims of a creditor. [Roman v. Fry, 5 J. J. M. 634.] If these positions are true, and we are satisfied they are so, it warrants the conclusion that a bona fide transfer, accepted and recognized by the corporation, will have the effect to discharge the original subscriber from future liability to the corporation or its creditors. The bona fides of the transfers asserted by the answers do not seem to be controverted by the complainants, and as they were made and accepted by the corporation previous to the exhibition of the complainants’ bill, in our judgment the latter have no claim against them.
6. Having ascertained the equities of the complainants against the stockholders of the corporation, we shall direct our attention to the trust deed. If this was an assignment *452for the benefit of creditors, it would scarcely admit of question that the preference given to the bonds would render the deed void, as creating a trust subject to the future nomination and appointment of the corporation. [Barnum v. Hampstead, 7 Paige, 568.] Such, however, is not the character of this deed, nor was that effect contemplated or intended, unless the bonds were actually disposed of and were not paid at maturity. The corporation do not stipulate that its creditors generally or specially shall have any rights whatever under this ■ deed, if the bonds remain in the hands of the company.
If a sale of the property conveyed, was necessary to meet the bonds, it was probably considered by the corporation as equivalent to a dissolution, and therefore the provision became necessary and proper, that the trustees should distribute the surplus pro rata, to all the creditors. In point of law, the trust deed was entirely inoperative until the bonds were actually issued, as until then, there was no debt to be secured, and if the right of any of the complainants to seize the estate of the corporation was complete by judgment and execution, before the bonds came to the possession of a bona fide holder, the deed of trust would not operate against this right. In our judgment, the validity of a conveyance of this description, rests on precisely the same principles as obtain when deeds are made which provide for the security of future advances, or for future liabilities.. In the case of the United States v. Hooe, 3 Cranch, 75, it is said with respect to the latter kind, to be frequent for a person who expects to become more indebted, to mortgage property to his creditor as a security for debts to be contracted, as well as for those which are already due, and that although such a deed may be used for improper purposes, yet such a provision is not positively inadmissible. The same doctrine is sustained by a numerous array of authorities in Barnum v. Robinson, 2 Johns. Ch. 283. It is obvious in every deed of this nature, that if the mortgagee, or cestui que trust could avail himself of its provisions, after another creditor had armed himself with a judgment or execution, it would be exceedingly dangerous, and courts would probably limit its effects to such debts or liabilities as were in existence at the time of the Creation of the judgment or execution lien; but when the *453debt or liability is created at a time when the grantor is not incapacitated from making a new conveyance as a security, no such danger can be apprehended. At such a time he could give a new security, and there is no reason why he should not provide, that one already given shall have the same effect. It is also obvious, when a deed is executed as a security for a future debt, that it is inoperative as a conveyance until the debt is created, and is indeed only a conveyance to uses to be subsequently declared by the grantor. The time when these bonds came to the hands of bona fide holders, is not set out distinctly in the answers, though we think the fair inference is, the defendants are to be understood as asserting they were issued before the complainant’s obtained their judgments. The proof is also indistinct, except as to such of them as were sold to meet the indebtedness to Rogers, Ketchum & Grosvenor, which was the 10th December, ’39, but the inference is strong, that those sold for cash, were sold previous to that time. This inference becomes much stronger, from the circumstance that a witness was examined, who, from his connection with the company, must have known when the bonds were sold, but whom, the complainants did not require to explain the doubtful matter. We think then, the defendants have sufficiently made out, that this deed was executed as a security for the bonds, and that these were in the hands of bona fide holders, at least to a sufficient amount to sustain the deed, previous to any lien acquired by the complainants. In this aspect the deed stands as a security, given to secure debts payable at a future day, and although the possession of the grantor is stipulated for until that day, this circumstance has no tendency to hinder or delay creditors, as they could at any time after their judgments have compelled the trustees to close the trusts within the principles stated in Dubose v. Dubose, 7 Ala. Rep. 235, and Pope v. Wilson, Ib. 690. In our judgment, the deed on its face is valid, and operative when connected with the fact, that the bonds, or any of them, were held bona fide previous to the time when the complainants obtained judgment.
7. It is as well here as elsewhere, to express our opinion, that the circumstances of the case do not create the presumption of fraud in fact. It may be, and doubtless is true, the cor*454poration was unable to meet its engagements — that it was in point of fact insolvent — but this did not take away its capacity to prefer either its old creditors or to give a valid security to new ones. It appears the effort was to get a portion of the road in working order, and prima fade expenditures for this purpose could have no bad effect on the rights of existing creditors. It appears also, that the entire sum received for the bonds was appropriated to the completion of the road, and that those which were issued on other contracts, were in payment for machinery, or to engineers, for a similar purpose. We are not warranted in declaring, either, that the corporation, or its new creditors, acted with bad faith, or that the intention existed in either, to hinder or delay other creditors. The previous decisions of this court last referred to, are conclusive to show, that the deed itself was no impediment in the way of other creditors seeking to close the trust, and that the courts would have enforced their rights to the residuum, which was all they were entitled to.
8. The two last conclusions dispose of many of the positions assumed by the complainants, but there yet remain others which require an answer. It is urged, the directors have no power by the charter to mortgage or charge the property of the company, except for money borrowed, and consequently that the present sale will be set aside because bonds were issued for debts created in a different way. It is true, that by a special section of the charter, the president and directors are empowered “ to borrow money to carry into effect the objects of the charter, to issue certificates or other evidence of such loans, and to pledge the property of the company for the payment of such loans.” We do not think it important to inquire whether this section authorizes a pledge of the franchise, in common with the other property of the company, because, if it does not, there is nothing to induce the supposition that the legislature intended to take away the general power of the corporation to create liens for any other purpose. In our judgment, the general powers of the corporation extended to the creation of a lien on all its property, without reference to the mode of creating the debt, and it is not unlikely the section referred to was intended to confer the power to hypothecate the franchise also.
*4559. Another point in the case is, that the mortgage is void because it was not recorded in proper time. If the object was, to set aside the deed on this ground, we think it should have been set out in the bill, in order that the defendants might reply the fact of notice, as it only is to creditors without notice that the statute avoids an unrecorded deed of trust. [Dig. 256, § 5.]
10. The allegation that the sale was made for an inadequate price, does not seem sustained by the testimony, but if it was, a grave question would arise, whether any court would feel authorized to act on such grounds, when the parties complaining of it do not come at the arliest period, and even then, whether the biddings will be opened without the offer to bid a greater sum. The same remarks, in a great degree, apply to the objection that the sale was in gross. There is no evidence of fraud in the sale, or that the property would have commanded a greater sum if sold in separate lots.
11. We shall purposely omit to consider the act incorporating the Montgomery and West Point Rail Road Company or rather changing to that the name of the former corporation, because the facts involved in this case seem to have no connection with that act. The circumstance that the purchasers under the trust deed have thought proper to surrender their purchase to the new or changed corporation is not a fact charged in the bill, nor does it by itself make out the charge that the property was purchased for that or for the old corporation.
The conclusion affecting this cause, to be drawn from the principles thus ascertained, is, that the bills were improperly dismissed on the ground of multifariousness — that at the hearing, the original bill should have been retained, and an account taken of what was due from the stockholders, in conformity with the rules now declared, and that the amended and supplemental bills, so far as these seek to charge the trustees, the purchasers under them, and the Montgomery and West Point Rail Road Company, should be dismissed.
Decree reversed and remanded, for proceedings in conformity with this opinion.