106 Ala. 205 | Ala. | 1894
— The present bill is filed by Volfer & Co. and others, as judgment creditors of the O’Bear Jewelry Co., a corporation. Said corporation, R. D. Johnston, The Alabama National Bank, G. S. O’Bear, Jr., W. G. O’Bear, F. C. O’Bear and W. B. Copeland
The theory upon which complainants seek relief is thus set forth in the bill: “Complainants are advised that the entire assets of said corporation constitute a trust fund for creditors, and that all persons who in any wise knowingly participate in the unlawful appropriation of said trust fund or any part thereof will be required in equity to restore the same. That the subscribers to said capital stock will be compelled to pay the differences between their respective subscriptions and the actual, reasonable value of the property transferred by them in pretended payment thereof. And that such subscribers as have made no payment or transfer of property will be required full payment to make. That said confession of judgment will be held a part and parcel of said general assignment and said Alabama National Bank will be required to pay the sum received by it in payment thereof, as aforesaid, for tlie benefit of creditors, and that said bank will be further required to account for the pi’oceeds of the insurance policies received by it as aforesaid, and to restore so much thereof as said bank paid to the individuals composing said corporation or for their use.”
The prayer is that a receiver of the property and effects
The Alabama National Bank demurred to the bill, and among other grounds assigned the following :
1. There is a misjoinder of parties defendant to said bill of complaint in this that this defendant alleged to be a preferred creditor is improperly joined as a defendant with stockholders of the O’Bear Jewelry Company, who are charged with not having legally paid up their subscriptions to the capital stock of the O’Bear Jewelry Company.
2. The said bill of complaint is multifarious in that complainants seek in the same suit to have an accounting of the trust created by the alleged deed of assignment made by the O’Bear Jewelry Company, and to collect unpaid subscriptions of the shareholders of the O’Bear Jewelry Company alleged to be fraudulently withheld.
3. The said bill of complaint is multifarious in that it joins with the claims against the shareholders of the O’Bear Jewelry Company for unpaid subscriptions, claims against this defendant for money alleged to have been improperly paid to this defendant to satisfy a judgment confessed alleged to be part of a general assignment made to R. D. Johnston, for the creditors of said O’Bear Jewelry Company, and money alleged to have been fraudulently received from insurance and fraudulently paid to the individual stockholders of the O’Bear Jewelry Company.
5. The said bill of complaint is further multifarious in that it seeks a settlement of a trust, and also to set aside a fraudulent disposition of the property of the O’Bear Jewelry Company.
7. This defendant demurs to Sec. 28 of said bill of complaint, for that it is therein alleged that the assets of said O’Bear Jewelry Company constituted a trust fund for the benefit of all creditors alike, when in law the O’Bear Jewelry Company could legally prefer a creditor.
And W. B. Copeland separately demurred to the bill assigning the following, among other, grounds :
1. There is a misjoindor of parties defendant to the said bill, said Copeland being made defendant with others for the result of transactions with which the said bill does not show he was connected or any way responsible .
2. The bill is multifarious as to him, because he is by the bill brought in to defend on various matters with a large portion of which the bill does not show he had any knowledge, participation or connection.
4. There is no equity in the bill, because the bill brings in parties as defendants in regard to matters with which they are not connected, and the relief sought is not the same against all of the defendants.
The chancellor overruled these, as well as all other, assignments of demurrer, and from his decree in that behalf this appeal is prosecuted.
As we have seen, it is expressly averred in the bill itself that the theory upon which alone complainants seek relief is that the assets of the O’Bear Jeweliy corporation constitute a trust fund or estate, that said corporation was the trustee thereof, and the complainants and the other creditors were the cestuis que trust thereof, and that the chancery court, by virtue of its general jurisdiction over trust estates, was competent to take charge of this fund upon the invocation of such cestuis que trust, restore and protect it by collecting moneys belonging to it from all sources, however diverse, and dissociated
The respondents by their demurrers insist that said assets do not constitute a trust fund in the sense necessary to the maintenance of the bill, exhibited, as it is, against parties who have nothing, and are not chargeable with any wrong, in common, but whose acts, claims and attitudes in respect of and toward the corporation are entirely distinct and independent; and hence they say thát the bill is multifarious. And in the arguments submitted in this court the decree below is attempted to be supported solely and expressly upon this theory of the' spoliation of a trust estate. So that the main, if not only, question. presented on this appeal is whether the assets of an insolvent corporation constitute a trust fund for its creditors in the proper and essential meaning of those terms.
/This whole idea, that the property of insolvent corporations is. held by them in trust for creditors — is a trust estate in their hands — and to be administered by chancery as such, originated in a dictum of Judge Story in Wood v. Dummer, 3 Mason, 308. It had no existence at common law, and has none to this day in the law of England ; but is distinctly a creation of some courts in this country, and known in jurisdictions where it obtains as the “American doctrine. ” This court has quite recently adopted it, and held in the cases of Corey v. Wadsworth, 99 Ala. 68, Goodyear Rubber Co. v. Scott & Co., 96 Ala. 439, and Gibson v. Trowbridge Furniture Co., Ib. 357, that the assets of an insolvent corporation is impressed with a trust in the hands of the company, in favor of its creditors first, and then in favor of its stockholders. The present writer dissented from the opinion and conclusion of the court in each of those cases. To his mind, there is nothing clearer in principle than the proposition that .the property of a corporation, solvent or insolvent, bears identically the same relation to the creditors of such corporation as the property of an individual or copartnership, solvent or insolvent, sustains to the creditors of the individual or partnership; and is or is not to be impressed with a trust character upon the same circumstances and under the same conditions in the first case as iti the latter twoy ' Within the limits of its char
But apart from this consideration, which indeed was not in my mind when I felt constrained to dissent in the first of the cases on the question decided by this court, viz., Corey v. Wadsworth, 99 Ala. 68, I can not, upon well settled and elementary general principles and definitions, see my way to an acceptance of this so-called doctrine. All trusts are of two kinds : expressed and implied. It is, of course, nowhere pretended the relations between ■an insolvent corporation and its creditors constitute an express trust. All implied trusts are of two kinds : resulting and constructive. “Resulting trusts,” says Mr. Pomeroy, “arise where the legal estate is disposed of or acquired, not fraudulently or in violation of any fiduciary duty, but the intent in theory of equity appears or is inferred or assumed from the terms of the disposition, or from the accompanying facts and circumstances, that the
./All constructive trusts are of three kinds, or arise from 'one or the other of three conditions of fact: first, trusts arising from actual fraud ; second, trusts which arise from constructive fraud; and, third, trusts that arise from some equitable principle independent of the existence of fraud. — 10 Am. & Eng. Encyc. of Law, p. 60. As there is no fraud, actual or constructive, involved in the naked fact that a corporation is insolvent — has creditors which it is without assets to pay in full — and this fact is the base for all the superstructure of this doctrine of trust for its creditors, it cannot be conceived, and, I suppose, has never been contended, that such trust is referable to either the first or second heads of constructive trusts. And it is the conclusion of so high an authority as Mr Pomeroy, tha(t the third classification of constructive trusts stated above has no existence dissociated from actual and constructive fraud. It is his opinion, “that all instances of constructive trusts properly so called may be referred to what equity denominates fraud, either actual or constructive, as an essential element, and as their final source. Even in that single class where equity proceeds upon the maxim that an intention to fulfill an obligation should be imputed, and assumes that the purchaser intended to act in pursuance of his fiduciary duty., the notion of fraud is not involved, simply because it is not absolutely necessary under the circumstances ; the existence of the tru st might in all cases of this class be referred to construct
But if we adopt the view first stated above, that constructive trusts may añse by force of some equitable principle independent of the . existence of .fraud, actual or constructive, and which seems also to be the opinion of Mr. Perry (1 Perry on Trusts, § 168) , the same conclusion is equally inevitable. Eliminating the element of fraud from the consideration, there still remains as an essential predicate for the existence of a trust by construction of law, some unconscientious conduct on the part of the person to be held as trustee-in invitum, or some unconscionable result through means or under circumstances which bring the . transaction within some recognized title of equity jurisprudence, as, for instance, where a tenant in common buys in an outstanding term for his own benefit, he is'trustee for his co-tenant, and where a conveyance has been made through ignorance, accident or mistake, the grantee will be the trustee in a constructive trust for che grantor. Thus, wherever one is placed in such relation to another that he becomes interested with or for him in property or business, he is prohibited from acquiring rights in that property or business antagonistic to the person with whom he is associated, as, for illustration, if one partner, or other person occupying a fiduciary relation, renew a lease theretofore held by the partnership, or by the person renewing and another in confidential relation to him, in his own name and with his own funds, he will be a trustee for his associate by construction of law. And so, where by acci
But in all these cases, in all cases of constructive trusts where it is said by some authorities chancery proceeds without regard to fraud, relief is granted upon some acknowledged ground of equitable jurisdiction, and administered by holding the wrongdoer to account as a trustee. There must be a confidential relation and unconscientious conduct on the part of one party to, and in abuse of, that relation, or there must be some ignorance, accident, mistake, or the like, against the unconscionable consequences of which equity will on general prinei-. pies grant relief, else there can be no constructive trust.
That the relation of debtor and creditor is not of a confidential character, there can of course, be no doubt. ’Tis absurd to say that the creation of that relation involves aught of accident, mistake or ignorance. j Thstt a debtor has property of his creditor which in equity and good conscience belongs to the creditor, because the debt contracted in its sale has not been paid, there is no warrant for saying. Equally unwarranted is the idea that in equity all the property of a debtor who has become insolvent belongs to the creditor, and is held by thedebtor in trust for him. And this idea of oiunership in the cesfati que trust underlies the whole doctrine of trusts of every description. In all trusts the legal title is in one, the equitable ownership in another. A mere debt against one who has property, whether solvent or insolvent, is not ownership, nor is a right to charge a fund, or a lien upon it, the beneficial ownership of it. Confessedly the property and assets of a solvent corporation do not constitute a trust fund for its creditors. Can it be possible that the mere passing of a corporation from a state of solvency to a state of insolvency, amounts to a declaration of an express trust for creditors, or to a resulting trust upon the theory that title to the assets of the concern should have been made to the creditors? Or is it conceivable that this mutation from the one condition to the other does violence to a confidential relation which never existed, and hence is a constructive trust? Or that this mere change of inherent conditions is the vestiture in the corporation through the igno
Not only are the rights of individual, partnership and corporation creditors the same against their insolvent debtors’ estates, and each different in the same way from the rights of cestuis que trust, but the remedies of a corporation creditor, in the absence of a statute, are precisely those of a creditor of an individual or partnership. The remedy of each class of creditors may upon a given state of facts be in equity; but when this is so, it is not because of any supposed trust, but upon some recognized ground of equity jurisprudence, as where the debtor has fraudulently transferred his or its property, and chancery is invoked to set aside the transfer and subject the property. And when chancery has thus assumed jurisdiction, it will administer the estate for the equal benefit of all creditors before it, and to that end the court becomes a sort of trustee sub modo, in the administration of the property,, but not with any reference to the character of the estate, as being held in trust or otherwise, before and at the time jurisdiction attached.
Not all the publicists and courts in this country, nor the ablest of them, countenance this so-called American doctrine. Mr. Pomeroy expressly repudiates it. He says: "In applying this principle [of constructive trusts] , care should be taken to distinguish between actual trusts and those relations which are only trusts by
And the highest and ablest court in the land, the Supreme Court of the United States, has quite recently gone
“A party may deal with a corporation in respect to its property in the same manner as with an individual owner, and with no greater danger of being held to have received into his possession jwoperty burdened with a trust or lien. The officers of a corporation act in a fidu
The Supreme Court, of Minnesota, in an able opinion by Mitchell, Justice, also repudiates this idea that the property of an insolvent corporation is a trust fund,. Of it it has this to say : “This ‘trust-fund’ doctrine, commonly called the ‘American doctrine,’ has given rise to much confusion of ideas as to its real meaning', and much conflict of decision in its application. To such an extent has this been the case that many have questioned the accuracy of the phrase, as well as doubted the necessity or expediency of inventing any such doctrine. While a convenient phrase to express a certain general idea, it is not sufficiently precise or accurate to constitute a safe foundation upon which to build a system of legal rules. The doctrine was invented by Justice Story in Wood ¶. Dimmer, 3 Mason, 308, which called for no such invention, the fact in that case being that a bank divided up two-thirds of its capital among its stockholders without providing funds sufficient to pay its outstanding bill-holders. Upon old and familiar principles, this was a fraud on creditors. Evidently all that the eminent jurist meant by the doctrine was that corporate property must be first appropriated to the payment of the debts of the company before there can be any distribution of it among stockholders — a proposition that is sound, upon the plainest principles of common honesty.. In Fogg v. Blair, 133 U. S. 534, 541, it is said that this is all the doctrine means. The expression used in Wood v. Dummer, 3 Mason, 308, has, however, been taken up as a new discovery, which furnished
The SupremACourt of Michigan is equally pronounced against this “trust fund” doctrine, and in support of the right of a corporation, solvent or insolvent, to hold and deal with its property precisely as if it were an individual. That court, in an opinion by Montgomery, J., says : ‘ ‘Nor is it the law of this State that, as soon as a c.orpotion becomes insolvent, the directors of the corporation become trustees for all the creditors alike, in such sense as to prevent their giving valid security' by way of preference to one of the stockholders or directors. Wo are aware that the decisions in the various States are not uniform as to the question, and that a number of very eminent text-writers have deprecated a state of the law which admits of such preferences. But, to adopt the language of Dillon, J., in Buell v. Buckingham, 16 Iowa, 284, this condition of the law ‘may constitute a good legislative reason for giving pro rata to outside creditors, but the legislature must furnish the remedy.’ In the case referred to it was held that being an officer of the corporation did not deprive Buell of the right to enter into competition with the other creditors, and run a race of diligence with them. See, also, Hallam v. Hotel Co., 56 Iowa. 179, 9 N. W. Rep. 111; Garrett v. Plow Co., (Iowa,) 29 N. W. Rep. 395; Smith v. Skeary, 47 Conn. 54; Catlin v. Bank, 6 Conn. 233 ; Banking Co. v. Claghorn, 1 Speer Eq. 545 ; Bank v. Whittle, 78 Va. 739 Leavitt v. Mining Co., 3 Utah, 265, 1 Pac.
Inline with this view, Judge Caldwell,' in Gould v. L. R. & C. Ry. Co., 52 Fed. Rep. 683, said: “Itis undoubtedly true that the property of a corporation is, in one sense, a trust fund for the payment of its debts ; but this rule means no more than that the property of a corporation cannot be distributed among its stockholders; or applied to any purpose foreign to the legitimate business of the corporation, until its debts are paid. The rule, so far as it relates to the payment of debts, is satisfied whenever the property of the corporation is applied to the payment of any of its bona fide debts.”
Z'Other authorities might bo collated on the question under consideration and in support of the view I have taken of it; but the foregoing will suffice, it is thought, for the purposes of this opinion. ' Upon them and by the force of the ■ elementary principles of trust estates, I am impelled to the conclusion that the property of an insolvent corporation is not a trust fund or estate accurately speaking, or in any sense other than that when
In preparing the foregoing opinion, the writer assumed to express his individual views only because of decisions of this court referred to above which take a different view as to the assets of an insolvent corporation being a trust fund. This opinion has now, however, been concurred in by my associates,, and stands as the opinion of the court. The cases of Corey v. Wadsworth, 99 Ala. 68 ; Goodyear Rubber Co. v. Scott & Co., 96 Ala. 439, and Gibson v. Trowbridge Furniture Co., 96 Ala. 357, supra, in so far as they are inconsistent with the views and conclusion we now express, are overruled.
The decree overruling the demurrers for multifafiousness is reversed, and a decree will be here entered sustaining said assignments of demurrer.
Reversed, rendered and remanded.
— In the case of Corey v. Wadsworth, 99 Ala. 68, the facts were that Corey, a director and the president of the Building Supply Company, a corporation, became with other officers, bound as guarantor of a.debt of six thousand dollars due from the corporation to the Exchange Bank ; that the corporation became insolvent, and under these circumstances, the corporation sold and conveyed to Corey a large amount of its assets, exceeding in value the amount of the debt due the Exchange Bank, in consideration that Corey would pay the.
The case of Goodyear Rubber Co. v. Geo. D. Scott Co., 96 Ala. 439, though published earlier, in fact was rendered subsequent to that of Corey v. Wadsworth, supra, decided but one question, and that was “that the transfer by a director and managing officer of an insolvent corporation, without authority of the board Of directors, of all its property, in consideration of a debt of the corporation for which he was liable as guarantor or indorser, or joint maker of a note given therefor, is invalid as to other creditors, beingin effect a preference of himself.” I do not understand the case at bar to combat the soundness of the rule declared in this case. In the opinion of the Goodyear Rubber Co. Case, page 442, it is said : “Wo did not, however; go to the length of holding [in the case of Corey v. Wadsworth] that directors of an insolvent corporation are so completely hampered by the trust relation they sustain, as to disable them from paying or securing some creditors in preference to and at the expense of others to whom the corporation is. indebted. *
I do not understand the case at bar to overrule any principle of law decided in either of the foregoing cases, which were necessary to a decision of those cases, but that these cases are overruled only so far as the opinion stated that the assets of a corporation became a trust fund for the benefit of creditors, and were placed beyond the power of' disposition or control of the governing board, whenever and as soon as the corporation became insolvent, and that insolvency of the corporation alone gave a court of equity jurisdiction to administer the assets as trust property. Such statements were dicta, and do not express the opinion of the-court.