56 So. 235 | Ala. | 1911
The bill in this case is by the judgment creditors, to subject equitable assets of an insolvent corporation to the payment of their judgments, after the return of execution, “No property found.” The particular assets sought to be subjected are debts or dioses in action alleged to be due the insolvent corporation from its original stockholders, for their unpaid subscriptions to its capital stock. The equity of the bill for this purpose has once been doubted (if not denied) by this court; but we take it that it has now been settled affirmatively.
This suit, in one form or another, has been many times before this court. For its history, and a full statement of the facts and the law of the case, we refer to the reports of former decisions of this court in this particular case. See Hall v. Henderson, 134 Ala. 455, 32 South. 840, 63 L. R. A. 673; Ib., 126 Ala. 449, 28
Since the last appeal in this case, it appears that some of the respondents have compromised their liabilities. The bill was dismissed as to these, but retained against the other three respondents, to-wit, O. C. Wiley, Wiley & Murphree, and J. M. Henderson & Co.
The claim against each of these three respondents is for unpaid subscriptions to the capital stock of the insolvent judgment-debtor corporation, the Alabama Terminal and Improvement Company. These respondents admit subscriptions for stock in the corporation as alleged, and admit original liability to the corporation as for such stock, but set up, as defenses, that the liability had been satisfied and discharged before the filing of the bill.
They also set up the defense — heretofore urged before this court — that a court of equity, at the suit of creditors, is without jurisdiction to pursue and condemn choses in action of an insolvent corporation, such as are sought to be subjected in this snit, which are withheld from the creditors, provided they are so withheld, “without fraud”; that is, in the absence of active fraud, equity is without jurisdiction. This question has been much and ably discussed in former opinions of this court and in briefs of counsel, to be found in the former reports of this case.
We are now inclined to the opinion, and hold, that the jurisdiction of equity to subject choses in action to the payment of a judgment, after the return of execution, “No property found,” is founded upon the necessity for supplying a remedy, where that of the common law is inadequate, and therefore that inadequacy of a legal remedy, and not fraud vel non, is the better test of equity jurisdiction in such cases. — Public Works v. Columbia College, 17 Wall. 530, 21 L. Ed. 687; Watson v. Sutherland, 5 Wall. 4, 18 L. Ed. 580; Scott v. Neely, 140 U. S. 106, 11 Sup. Ct. 712, 35 L. Ed. 538; McConihay v. Wright, 121 U. S. 220, 7 Sup. Ct. 940, 30 L. Ed. 932; 1 Pom. Eq. § § 294, 295, 297; 1 Bates, Fed. Pro. § 188; Brown v. Bates, 10 Ala. 432; Spader v. Davis, 5 Johns. Ch. (N. Y.) 280; Hadden v. Spader, 20 Johns. (N. Y.) 554; 1 Story, Eq. Jur. § 53.
The complainants’ demand against the insolvent corporation being founded upon a judgment, and the insolvent corporation’s claim against the other respondents, sought to be subjected, being founded upon subscriptions to capital stock of the corporation, and the amount of this subscription and the original liability therefor being undisputed, and the equity of the hill,
The special defenses to the bill set up by these respondent stockholders are, first, that they had paid their subscriptions and thus discharged their liabilities; second, that they had sold their stock to third parties, who had assumed the original liability of the respondents, and who were accepted by the corporation as debtors in lieu of the respondents, and that the transferees of the stock had paid the debts or discharged the liability; third, they, or some of them (O. C. Wiley and Wiley & Murphree), set up res judicata, in that they were sued as garnishees by complainants, and were discharged after contest and trial on the merits. Either of these defenses, if well and sufficiently pleaded and established, is good. We will first treat the cases of O. C. Wiley and Wiley & Murphree, as to the defenses of res judicata; they being the only ones who set up this defense.
The ancient doctrine announced by Coke, that estoppels were odious, is not now regarded as correct; and it is certainly not so, when applied to estoppels, by • judgment, such as that attempted to be set up' in this case. There should be an end to, as well as a right of, litigation. A plea of res judicata, or estoppel by judgment, to be sufficient, must be well pleaded. The true rule in such cases, both as to the sufficiency of the pleadings and of the proof, has been thus quoted and stated by this court: “In the opinion of the Judges, given in the Duchess of Kingston’s Case, 2 Smith’s Lead. Cas. 609 (573), is the following language, given as the result of the numerous decisions relative to judg
The rule has been thus stated by the Supreme Court of the United States: “To render the judgment conclusive, it must appear by the record of the prior suit, that the particular matter sought to be concluded was necessarily tried or determined — that is, that the verdict
Unless otherwise provided by statute or rule of practice of courts, such as rule 28, chancery practice (Civ. Code 1907, p. 1537), one requisite to the sufficiency of such pleas and the proof thereof is that the former judgment, set up as an estoppel or res judicata, must have been decided or rendered upon the merits of the case involved in the second suit.
The plea of res judicata interposed in this case would have met the requirements as above quoted, and would have been sufficient if the records which were made exhibits and parts thereof had supported the conclusion of the pleader; but if it be said that it averred facts, and not conclusions, then the plea was inconsistent in its averments, and was not proven. It averred that the answer of respondents was contested, as provided by law, and that the case was tried and determined on its merits, in favor of the garnishees, the respondents here; but unfortunately it made the record of that garnishment proceeding a part of the plea, and the record was inconsistent with the other averments of the plea.
The burden of proof was, of course, upon these respondents to prove this special plea as alleged. In this, we are of the opinion they failed. While they' proved that a judgment was rendered in the former suit in favor of the garnishess, and in the very one which was made a part of the plea, they did not prove that the case was heard or tried upon the merits involved in this suit, nor even upon the merits of the other action — that in which it was rendered. The record as to this matter shows that, after the answer of the garnishees and the
This shows affirmatively that the judgment was rendered on the ex parte motion of the garnishees, and without an issue of contest having been made up, though proper affidavit for contest had been filed by plaintiffs; that there was not in fact any judgment rendered on the merits, though a judgment of dismissal or nonsuit, as it were, was rendered against the plaintiffs. This judgment does not show or tend to show that they were not then indebted to the defendant corporation. Their answer was the only evidence tending to show this, and it of course was not conclusive upon the plaintiffs; they had the right to contest this answer, and had made the affidavit necessary to contest it, and until there was a contest of the answer, and a judgment thereon, the indebtedness vel non of the garnishees to the corporation, nor the right of plaintiffs (if such they had) to subject the assets to their claim against the corporation, was not determined. A judgment in favor of the garnishee
The judgment in a law court, discharging the garnishees, attempted to be set up as res judicata to this suit in equity, to be efficacious to such end, must of necessity be a judgment upon the merits of the issue involved in this suit — that is, the garnishees’ indebtedness or liability to the defendant — which could be enforced in this suit but for that judgment. That the debt or demand sought to be recovered in the two suits is the same, and that the parties are the same, is not alone sufficient. A debt or demand might be reached in this suit that could not and should not have been reached in the former. The plaintiffs might have failed in the former action in a law court, for the very reason that the particular demand sought to be enforced was an equitable, and not a legal, one. It may be that the judgment in the law court was in favor of the garnishees merely because the plaintiff should have proceeded, as he has done in this suit, in a court of equity, in which event, of course, the former judgment is not res judicata.
This very condition is pointed out by this court in the case of Teague et al. v. Le Grand, 85 Ala. 494, 495, 5 South. 287, 7 Am. St. Rep. 64, which, like this, was an action to subject the unpaid subscriptions of stockholders to the claims of the creditors of the insolvent corporation; and Stone, C. J., in that case, said: “Garnishment, such as was resorted to in this case, is purely a legal remedy, a species of statutory attachment. When invoked for the purpose of condemning credits, or legal liabilities due to the defendant in the attachment, it is
One of the tests as to the sufficiency of a plea of res judicata is, Does the plea show that the identical matter in controversy in the second suit was determined and concluded by the former judgment between the same parties? It is the matter involved in the second, not that involved in the first, which must be concluded by the first judgment. The identity of the parties and of' the subject-matter in the two suits is always necessary but this alone is not sufficient. Nor is the fact that the judgment pleaded was final, and was on the merits of the case in which it was rendered, sufficient; it must have been on the merits of the case in which it is interposed as a. bar. The particular issue or matter of controversy involved in the second suit must or should have been determined and concluded in the first.
A plaintiff may have a good cause of action, and may sue in the wrong court, or bring the wrong action, and in either case he will necessarily fail; but the judgment against him in either case will be no bar to a proper
Let us put the concrete case which is involved in this suit: These respondents subscribed for capital stock in the corporation, the Alabama Terminal and Improvement Company; they had paid a part of the subscription as it was called; the corporation became insolvent; it was sued in a law court by complainants as its creditors; judgment was obtained, and respondents were garnished, but answered, “Not indebted to the corporation.” This answer was contested, and plaintiff failed, because no call for the unpaid balance of the subscription had been made upon respondents; this would be no bar to this present suit, because chancery could make the call. — Teague et al. v. Le Grand, 85 Ala. 493, 5 South. 287, 7 Am. St. Rep. 64.
But the pleas in any of these cases would be sufficient, if it was or could be shown that any matter necessary to a recovery in the second suit had been., finally con-
Nothing that is said in this opinion is intended to deny the proposition that judgments in garnishment proceedings may not be as conclusive upon the parties thereto as are any other judgments; but we have only attempted to show that they, like all other judgments, are only conclusive as to the matters which were, or should have been, adjudicated thereby.
The plea of res judicata in this case was evasive or inconsistent in its averments. While it alleges, among other things, that the judgment set up as res judicata duly and legally discharged the garnishees and forever relieved them from all liability for and on account of their subscriptions to the capital stock of the Alabama Terminal and Improvement Company, and that the judgment was a final one upon the merits of the controversy, and in favor of the garnishees and against the complainants (who were plaintiffs in the former suit), which, if true, would be res judicata and a bar to this suit, yet the plea also alleges that all this will more fully appear by the records and the proceedings had in the garnishment proceeding, which are made exhibits to and a part of the plea; and on an inspection of the exhibits and records referred to it does not “more fully appear,” as alleged, that that judgment is res judicata or a bar to this suit, but the contrary fully appears. To state it differently, that judgment did not relieve the garnishees from all liability for and on account of their subscription to the capital stock of the insolvent company, and the judgment was not rendered on the merits, but was rendered on the ex parte motion of the gar
It is true that this identical plea ivas heretofore held sufficient by this court, in this particular case (134 Ala. 510, 32 South. 840, 63 L. R. A. 673). The error, however, in the first, opinion, in one or more respects, was pointed out in a later opinion in the same case (143 Ala. 845, 39 South. 285 [2 L. R. A. (N. S.) 130]), by the same learned justice who wrote the first, in which last case he spoke as follows: “It is insisted for appelless that the decree on the motion to suppress depositions, and on the plea of Wiley and others, should not have been made below, inasmuch as the bill was dismissed. This may be so. We need not decide that; nor indeed definitely and absolutely whether those decrees were correct. It is likely, however that the decree on the motion to suppress was right; and that the decree on the sufficiency of said plea, wherein the chancellor followed the opinion of this court on the former appeal, which seems now to have proceeded on the mistaken notion that there was a contest of the answers in garnishment alleged in the plea, was erroneous.”
However, the decision in the first case was not expressly overruled in this later decision quoted, and the first decision was subsequently followed, and probably extended, in the cases of Montgomery Iron Works v. Roman, 147 Ala. 441, 41 South. 811; Roman v. Montgomery Iron Works, 156 Ala. 606, 47 South. 136, 19 L. R. A. (N. S.) 604, 130 Am. St. Rep. 106, and Montgomery Iron Works v. Capital,, etc., Co., 154 Ala. 663, 664, 44 South. 1044, and it follows, and we now conclude, that upon this point all of these cases were wrong and should be overruled.
The other and last defense we hold was made out. It is in substance that the respondents were not indebted nor liable to the insolvent corporation, the Alabama Terminal and Improvement Company, for any unpaid subscriptions for the shares of capital stock of such corporation issued by it to such respondents, for the reason that while the corporation was solvent these respondents, as such stockholders, in good faith sold their stock at par to other parties or stockholders, who were perfectly solvent, and who, as part of the consideration of such sale, assumed the liability of these respondents to the company, for the balance due on their subscriptions, and that the corporation, with full knowledge of all the facts, accepted the purchasers, in lieu of these respondents, as the owners of such shares of stock, and agreed to look to such purchasers for the balance due, and thereby released these respondents from all liability.
■It is true that, in so far as this defense was specially pleaded, it was also alleged that the transferees of this stock had paid to the corporation such balances due as for the original subscriptions for such stock. It is also true that the proof failed as to this allegation as to a part of the respondents, in so far as- it was necessary to discharge the transferees from liability to the creditors of the corporation, but not in so far as it was nec
While the proof shows that the balance due was paid, by the transferees, or was not paid in such way or manner as to' discharge the liability of the transferees to the creditors, in that it appears that the payment, or a large part thereof, was made with the assets of the corporation; or the stock was in turn resold to the corporation, in payment of this subscription, which was of course, a fraud upon the creditors of the corporation, even if the corporation procured or assented to it. In other words, as against the creditors of the corporation, it could not lawfully purchase the shares of its own stock, nor could it discharge the liability of its stockholders, as for unpaid subscriptions, by paying such debts for the stockholders with the assets of the corporation.
It is the function of a corporation to purchase and sell its property, but not its stock, unless so authorized; and certainly not, if the effect is to defraud its creditors. It is said that corporations have no souls, but it has never been said that they can perform miracles.
Stock in a corporation is only evidence of the right of the holder or OAvner to share in the proceeds of the corporation’s property.' So a share of stock only typifies an aliquot part of the corporation’s property, or the right to share in its proceeds, to that extent, when distributed according to law and equity. If stock of a corporation is paid, that which is paid, together with its proceeds, becomes the property and assets of the corporation. If not paid, the liability of the stockholder to pay forms the property of the corporation. The latter kind can be, and is intended to be, transformed into the former; but the corporation as an entity owns both, and hence can purchase neither, unless so authorized.
This last condition was evidently conceded by the complainants to be necessary to a recovery, and hence it was averred, in the bill as last amended, as to each of the respondents. The averment as to O. C. Wiley in this respect is as follows: “As your orators are informed and believe, and on such information and belief state the fact to be, the defendant Oliver O. Wiley asserts that he sold and transferred his stock in the said Alabama Terminal and Improvement Company to the defendant said Sarportas, the said defendant promising and agreeing to pay to said company his (said defendant Wiley’s) subscription therefor and the promises in' writing he had made for the payment thereof. Your orators aver that if said sale and transfer were made, it was with the intent to defraud said corporation, and to hinder, delay, and defraud the creditors thereof. The
There were averments of fraud as to each of the respondents, varying in details, but in substance the same. These averments were evidently made in the amended bill, either in anticipation of, or in reply to, the defense of a transfer of the stock by the respondents, and release of them from liability for such unpaid subscriptions. In respect to these various allegations of fraud, we think the proof fails as to all of these respondents who are appellees here, whatever it may be said to show as to other respondents, not now parties to this appeal.
The facts of the case as to the sale of the stock by each of the three respondents O. C. Wiley, Wiley & Murphree and J. M. Henderson & Co. as shown by this jecord, are practically without dispute, and are as follows :
O. C. Wiley, individually, subscribed for 95 shares of the capital stock of the Alabama Terminal and Improvement Company, and gave his conditional note therefor for $9,500, and Wiley & Murphree, a copartnership, subscribed for 120 shares, and gave their conditional note for the same for $12,000. Wiley & Murphree sold their 120 shares of stock to A. C. Suportas on June 80, 1890, and O. C. Wiley sold his 95 shares of
J. M. Henderson & Co., in the month of January, 1890, agreed to sell and did sell to J. C. Henderson $5,000 of the stock subscribed by them to said company, and J. C. Henderson executed and delivered to them his written obligation, by which, in consideration of $5,000 of the stock so subscribed by these defendants, which was to be issued to him, he agreed to pay or satisfy $5,000 of their said subscription. Said company was immediately notified of said sale of said stock to said J. C. Henderson, and his promise made to these defendants to pay the amount of $5,000, and J. W. Woolf oik, as president of the said company, with authority to bind said company in the premises, agreed to look to and to hold the said J. C. Henderson bound and liable for said sum, and to discharge and release J. M. Henderson & Co., from all liability on account of the same, and executed and delivered an agreement in writing to said J. C. Henderson, to issue to him $5,000 of the stock subscribed by these defendants, upon the payment of that amount of said stock subscription.
There is no direct evidence whatever to show that the first transfer was not in good faith, so far as these respondents were concerned. And there are no facts or circumstances from which it could he reasonably inferred that they acted in bad faith in the matter. In fact, they all tend to show the contrary, in that, at this time and for some time thereafter, the corporation and all the parties to the contract were perfectly solvent, and all had almost unlimited credit, and were apparently prosperous, so far as the evidence shows.
At that time neither these complainants nor their assignors were creditors of the Alabama Terminal and Improvement Company. This company did not open up an account with the Farley National Bank until October 12, 1890. So these complainants are subsequent creditors, and not existing ones as to these transactions; and hence the sales are not void as to them, unless tainted with actual intent to hinder, delay, or defraud them or other subsequent creditors. This court has spoken and quoted as follows on this subject: “A subsequent creditor cannot complain of a disposition of its property by a corporation, unless such disposition was made with intent to hinder, delay, or defraud subsequent creditors, and actually had that operation and effect.- — Graham v. La Crosse & M. R. Co., 102 U. S. 148, 26 L. Ed. 106; Porter v. Pittsburgh Bessemer Steel Co., 120 U. S. 649, 7 Sup. Ct. 1206, 30 L. Ed. 830; Dickson v. McLarney, 97 Ala. 388, 12 South. 398; Rollins v.
We repeat that there is no evidence in this record to show any such fraudulent intent on the part of any of these respondents at the time these transfers were made. It is difficult to see how, at this time and under the conditions then existing, any one could have had such intent. There is certainly no direct proof to show that there was then any attempt or any intention to defraud any one. The reasonable inference, from all the known or shown facts at that time, is that these transfers could not and would not injure or defraud any one. True, as it subsequently turned out, the bank or these complainants were injured and defrauded; but it was not these transactions which so injured or defrauded them, nor were they alone capable of so doing; it was subsequent transactions, with which these respondents had nothing to do, and could not have fore-fended, had they tried, that caused losses to complainants. Of course, as we have before said, if these transfers were a part of the scheme of the corporation, or its officers or stockholders, to defraud the creditors of the corporation, and these respondents were parties to it, or in their transfers they thereby aided or abetted others to so subsequently defraud the creditors, then they would be liable in this action, as claimed by the appellees. But there is no proof to show this, and the burden of proof as to such matters is upon the complainants; hence they fail in this feature of the case.
It is also argued by appellants that, as there was no transfer of the stock in question entered upon the books of the corporation, as provided by the statute (Code 1896, §§ 1261-1263), the transfer was for that reason void, and the transferrors remained bound; that is, that such, registration was necessary to respondents’ release from liability to the creditors of the corporation. This we do not understand to be the law on this subject. This court has often decided the question as follows: “These statutes do not render the transfer void for a failure to comply therewith, except as to the class therein contemplated. This court has often held that a
Shares of stock in a private corporation, in this state, are personal property, and may be sold and transferred as other personal property, though no certificates for the stock have been issued or registered. — See Code sections, supra, and cases there cited, and also Henderson v. Mayfield Woolen Mills, 153 Ala. 625, 45 South. 211.
It is likewise insisted by the appellants that the transfers of stock in question, with the assumption of the unpaid subscriptions by the transferees thereof and the release of the transferrors from liability, were inoperative or ineffective to this end, because the transactions in question were not first authorized at a regular meeting of the hoard of directors of the corporation; that the president of the corporation had no authority to assent to such transactions, unless he was first specifically authorized to do so by the board of directors. If the abstract proposition of law' involved in this argu
It is alleged in the bill as last amended “that the said Alabama Teminal and Improvement Company left the entire management of its affairs to J. W. Woolfolk, its president, and that he conducted all its affairs;” and this averment is supported by the proof, and it is shown that he assented to all the transactions in question, and approved them after they were consummated; and they were afterwards duly ratified by the corporation. A corporation can subsequently ratify whatever it could in the first instance have lawfully authorized. But here the pleadings and proof taken together show both authorization and ratification by the corporation. The directors of the corporation, SO' far as the creditors are concerned, had a right to leave to Woolfolk, as the president, the entire management and discretion as to these transactions in question. The officers of a corporation are trustees for the stockholders, but not for the creditors of the corporation. Force v. Age-Herald Co., 136 Ala. 278, 33 South. 866; O’Bear Co. v. Volfer, 106 Ala. 205, 17 South. 525, 28 L. R. A. 707, 54 Am. St. Rep. 31.
It is insisted by appellants that the respondents J. M. and J. C. Henderson testified differently on their last examinations from what they did on their first, and that for this reason we should disregard all of their testimony showing good faith in this matter, certainly so far as the date of the sale of stock by J. M. Henderson & Co. to J. C. Henderson is concerned. It is a sufficient answer to this argument to say that it affirmatively appears from this record that all of the testimony of these two witnesses, on the two separate examinations complained of, is not set out. Hence we cannot know what that difference was, or that it was, as is argued. ■ There is no reason shown by the record why we
It is argued that on the first examination, in 1895, they did not know the exact date of the sale of the stock; that they knew nothing more definite than that it was several months prior to December 13, 1890; and that on the last examination, 12 years thereafter, they say pat and positively that it was in January, ,1890. If this were shown by the record, we would not think it alone a sufficient reason to conclude that they have sworn falsely on either examination, and there is no other reason assigned why they should be disbelieved. They might not, on the first examination, have rendered accurately the dates, and have subsequently refreshed their memories by referring to some memoranda or writing which fixed the date exactly, and enabled them thereafter to remember it. Moreover, we find a plea (Record, pp. 17, 18) which was sworn to by J. M. Henderson, on the 21st day of April, 1894, alleging that the transaction was had in the month of January, 1890— the exact date fixed by both the witnesses on their last examinations.
It is also insisted that appellees had no right to reexamine J. M. and J. C. Henderson as witnesses, and that the last depositions of these witnesses, should have been suppressed. If the re-examination was had without first obtaining an order of the court to that effect, it was matter which could be waived, and the record shows that it was waived by an agreement of counsel, and by the fact that appellants cross-examined the witnesses without objection. If the trial court could have suppressed the depositions because taken without a special order of the court for that purpose, it was discretionary with the trial judge to do so or not, as he thought the rights of the parties would be best sub-
The pleadings and proof in this case bring it squarely within the principles of law decided by this court a number of times, which are as follows: A stockholder of a solvent corporation is discharged from liability to the corporation as for the unpaid subscription on his stock by a bona fide transfer of such stock to a solvent transferee, if done with the consent of the corporation, or if it subsequently, with full knowledge of all the facts, assents to or ratifies the transaction. The transferee or purchaser in such case is thereby subrogated to all of the rights and powers, and subjected to all of the duties and liabilities, of the original stockholders. Cook on Corporations (5th Ed.) §§ 255, 256 and 258; 3 Thomp. on Corp. p. 1804; Henderson v. Mayfield, 153 Ala. 625, 45 South. 211; Allen v. Montgomery, 11 Ala. 437.
It is, however, insisted by appellants that this doctrine is only applicable as to future calls for stock, and has no application as to amounts past due as for previous calls. This is ordinarily true, and is not at all different from the doctrine stated above; in fact, it is the application of the same doctrine which is applied without any special agreement between the parties at the time of the transfer and sale, as to the respective rights, duties and liabilities of the transferror and transferee as to the unpaid subscriptions. This much is implied from the transfer and sale of the shares, in the absence of an express agreement as to such rights and liabilities. Appellants rely upon the case of Webster v. Upton, 91 U. S. 65, 23 L. Ed. 384, in support of their argument, in attempting to distinguish this case from the general rule, upon the ground that calls had been made for the full amount of the subscriptions before the transfers.
It follows from what is said above that none of the respondent appellees were shown to be liable to the Alabama Terminal and Improvement Company, nor to the complainants, at the time of the filing of this bill, nor thereafter, and that the bill was properly dismissed.
Affirmed.