Anderson v. Bullock County Bank , 122 Ala. 275 ( 1898 )

McCLELLAN, C. J.

— Appellants as simple contract creditors of the Bullock County Manufacturing Company, a private corporation, filed their bill for the purpose of having cancelled and annulled mortgages exe- . cuted to secure the bonds of said corporation, and to hold certain of its officers, president, secretary, and a director, individually responsible for assets of the corporation, alleged to have been appropriated by them to debts due them individually, and also one of the bondholders for the proceeds of assets applied to the payment of the individual debt of the president of said corporation, and also a debt due him from the corporation. Neither of the debts due complainants accrued prior to the year 1896. The first eleven paragraphs of the bill deal principally with the bonds and mortgages executed by the corporation. The respondent debtor corporation was incorporated on the 7th of November, 1889, with an authorised capital stock of $25,000, of which $21,800 was paid up, and no more of the stock it seems' was ever subscribed for or issued. On the same date, by resolution of a majority of the stockholders, authority was given to issue forty bonds, each of the face value of $500, aggregating $20,000, to mature and become due in five years. Only thirty-six of the bonds were issued, all of which were taken by S. J. Foster, the president of the corporation, he paying in cash therefor the sum of $16,500. It is averred in the bill that the bonds Avere Avorth their face value, and it is charged that the statutory requirements as to notice for the issuing of bonds and making mortgage, were not complied with. The pleader concludes from this statement of facts with the averment that the bonds and mortgage Avere usurious and void.

It has been often decided that subdivision 7 of section 1256 of the Code of 1896 (1664 of the Code of 1886), was intended for the protection of the stockholders, and if there was no complaint on their part, the failure to observe its provisions was not available to creditors.— Nelson v. Hubbard, 96 Ala. 238; Barrett v. Pollak, 108 Ala. 390; Ala. Iron Co. v. McKeever, 112 Ala. 134.

The mere fact that the president of the corporation with the consent of the hoard and stockholders, purchased bonds of the corporation of the value of eighteen thousand dollars for sixteen thousand and five hundred dollars alone furnished no ground of complaint to creditors, whose debts were not contracted for nearly six years afterwards, either on the ground of usury or fraud. Prom all that is said in the bill, our conclusion is, that so far as complainants are concerned, the issue of the bonds referred to and the execution of the mortgage to secure them, was done in good faith and are valid. The bill then proceeds, to set out a transaction or “deal” between the said S. J. Poster and J. A. Paulk, which occurred in the year 1895. It avers that the said Poster owned the stock originally issued to him, and seventeen thousand dollars of said bonds (one thousand of the eighteen thousand having been retired); that J. A. Paulk owned a large quantity of the stock of the Bullock County Bank, a private corporation, and that they agreed to exchange the one for the other; that is, that S. J. Poster would transfer his bonds and stock of the Bullock County Manufacturing Company to J. A. Paulk, and in exchange therefor the said Paulk would transfer his bank stock to said Poster. As the bonds were past due, it was agreed that Poster should procure the issue of new bonds, to run for ten years. At the time of the agreement between Foster and Paulk, the bill avers that Paulk was indebted largely to one Bernheimer and to one Sessions, to secure which he had deposited with them as collateral a large part of the bank stock owned by him, and in order to carry out his agreement with Poster, it was agreed and understood that the said Bernheimer and the said Sessions should release the bank stock thus held as collateral, and to receive from J. A. Paulk the new bonds of the Bullock County Manufacturing Company when transferred to him by Poster in lieu of the bank stock. At a meeting of - the stockholders of the Bullock County Manufacturing Company held on the 22d of May, 1895, a resolution was adopted, authorizing the issue of thirty-four bonds, each for five hundred dollars, aggregating seventeen thousand dollars, bearing eight per cent with interest coupons attached, payable semi-annually, to be secured by mortgage on all the assets owned or to be acquired, and it is stated in the resolution, that the purpose of this issue of bonds was to retire and cancel the old outstanding bonds, which were then past due and unpaid. The new bonds for five hundred dollars each were issued, and the mortgage to secure them executed, which was duly acknowledged and recorded. Each of these bonds on its face purports to be one of a series of forty, each of five hundred dollars, aggregating the sum of twenty thousand dollars, and in the mortgage to secure them it was stated, that the bonds were issued to'purchase new machinery, lots, etc. to carry on the business of the corporation. Complainants do not aver that more than thirty-four bonds, aggregating seventeen thousand dollars, were issued, and it is fairly inferred from their pleading that thirty-four bonds were issued and delivered to S. J. Foster, the owner'of all the outstanding old bonds, and that the old bonds were surrendered in lieu of them. The bill further shows that S. J. Foster endorsed said bonds without recourse, and that they were delivered and his stock transferred to J. A. Paulk as agreed upon, and that J. A. Paulk delivered thirteen thousand of them to Bernheimer and two thousand to Sessions, and the bank stock held as collateral was delivered to Foster, thus carrying out the agreement between the said Foster and J. A. Paulk. So far, we discover nothing unusual or fraudulent in the transaction between S. J. Foster and J. A. Paulk, and J. A. Paulk and Bernheimer and Sessions. It seems to be a mere contract between the parties for the exchange of property and the substitution of one collateral for another. But complainants insist that as the resolution of the stockholders of the Bullock County Manufacturing Company authorized the issue of only thirty-four bonds of five hundred dollars each, aggregating seventeen thousand dollars, and as the new bonds on their face show that they were a series of forty bonds, aggregating twenty thousand dollars, and as the mortgage executed to secure them, purports to secure forty bonds aggregating twenty thousand dollars, it is manifest that there is a simulated, fictitious debt secured, which stamps both bonds and mortgage with fraud, and vitiates them as valid claims, and further, that the bonds were issued without authority. The bonds and mortgage bear date May 22d, 1895; the mortgage seems to have been drily filed for record. Neither the bonds nor mortgage are void upon their face. Complainants did not become creditors until almost a year subsequent to the issue of the bonds and the execution and record of the mortgage. They were chargeable with notice of the existence of the bonds and mortgage. It does not appear that there were creditors then, other than the holders of the bonds and coupons, and they were owned and held by a stockholder and director of the corporation, who favored the resolution at the stockholders meeting and signed the bonds. Neither the corporation nor the bondholders, nor owners of the stock, raise any objection to their validity. Probably the stockholders may have cause to complain, but in the absence of actual fraud —a conclusion not authorized by the facts stated — the complainants cannot complain. If we were to concede the invalidity of the new bonds and mortgage to secure them, we do not see how complainants are to be benefitted in this phase of the case. As stated, the corporation was indebted to S. J. Foster in the sum of seventeen thousand dollars evidenced by the old bonds, and which are secured by the first mortgage. Unless this debt was satisfied and can-celled by the new bonds, it remains in force, and must be satisfied from the proceeds of the assets of the corporation debtor covered by the first mortgage, in preference to complainants’ claims. We do not find that complainants are entitled to any relief from the averments thus far considered.

The complainants further aver that after’ J. A. Paulk acquired the bonds and stock from S. J. Foster, at a meeting of the stockholders held in June, 1895, he, the said Paulk, was elected president and his son secretary, and that he continued as its president, exercising a controlling influence in its management.

Paragraphs twelve and thirteen of the bill are quite lengthy, consisting of many disconnected statements, which seem to have no special relations to each other, and we are not sure that we fully apprehend the purpose and scope intended by them all. We are of the opinion that the main purpose of these paragraphs was to assail the validity of a decree which had been rendered by the chancery court, foreclosing the mortgage for the benefit of the bondholders, and also to hold the president, J. A. Paulk, and secretary and treasurer J. L. Paulk, and certain creditors of the corporation, trustees in invitum, for the proceeds of the property of the corporation, applied to the payment of claims due them, by which they were preferred to other creditors. The bona fides of these claims is not assailed. The complaint is, that such preferences are unauthorized and illegal. The mortgage provides that in default of the payment of the taxes due from the corporation for six months, or in default of the payment of the coupons, the whole of the bonds shall mature and become due, and upon request of the bondholders owning one-fourth of the entire amount, the trustee shall proceed to foreclose the mortgage. The bill for the foreclosure avers default for more than six months, and that there -were past due over fifteen hundred dollars of unpaid interest coupons, that the corporation has become insolvent, and that the officers of the corporation had ceased to give it any attention, and that the property wa.s wasting for want of care, and that all the bondholders had united in demanding the foreclosure of the mortgage. The foreclosure decree is dated June 12th, 1897, and complainants’ bill was filed July 19th, 1897. It avers the insolvency of the corporation, that i ts officers had ceased to give it any attention, and that its property was being wasted for want of attention, and it prays for the sale of the same property decreed to be sold by the foreclosure suit. No reason is assigned why the property will not sell for as much under the foreclosure decree, as under a decree in the present proceeding, and the foreclosure decree provides that the register shall not receive a less bid than seventeen thous- and dollars. It is clear from complainants’ bill, that there is a valid debt, evidenced by bonds issued by the corporation debtor, secured by mortgage, amounting to seventeen thousand dollars, which is entitled to preference' over complainants’ claims, and it is not shown that the assets are worth more than seventeen thousand dollars. The averments of the bill of complainants fall far short of showing, that the proceedings in the chancery court were fraudulent and collusive. This- decree is defective and insufficient in that the decree does not ascertain and adjudge an indebtedness, and ascertain the amount. It is probable that the decree should be amended nunc pro tunc, so as to authorize a sale of the property.

Tbe bill is also without equity in its attack upon transfers of property by the corporation to and in payment of debts held by its directors and officers. — Corey v. Wadsworth et al., 118 Ala. 488. The assignments of demurrer going to this part of the bill were well taken; and the motion to dismiss the bill for Avant of equity should have been granted. But as this appeal is by the complainants beloAV and only the court’s rulings in sustaining certain assignments of demurrer are assigned as error, and these rulings are without error, the decree must be affirmed.

Affirmed.

(The foregoing opinion, AV'itb the exception of the last paragraph, Aims prepared by former Justice C-olbman.)