77 So. 31 | Ala. | 1917
Appellant corporation obtained a judgment against the Farmers' Guano Company, another corporation, and on this judgment the plaintiff instituted garnishment suits against several alleged debtors of the defendant corporation. Pending these garnishment suits in the circuit court of Henry county, a bill was filed in the chancery court of Henry county to wind up the business and distribute the assets of the defendant corporation under and by virtue of section 3512 of the Code; alleging that it was then insolvent, and had ceased to be a going concern, and sought to have the assets declared a trust fund, for the benefit of all the creditors of the insolvent corporation. To this end a receiver was appointed to take charge of the assets, and, in order to do complete justice and equity, the prosecution of the garnishment suits by appellant on its judgment against several alleged debtors of the defendant corporation, were sought to be enjoined. A demurrer by the appellant to the original bill was interposed, and was sustained by the chancellor, on the ground that the bill did not allege that the defendant corporation was insolvent when appellant obtained its judgment and when the garnishment proceedings were instituted. The bill was thereafter amended by alleging insolvency at and before the time of obtaining judgment and the issuing of garnishments; and to the amended bill the chancellor overruled the appellant's demurrer, holding that the bill for injunction against the prosecution of these garnishment suits contained equity, and that the injunction should issue as prayed. From this decree on demurrer appellant prosecutes this appeal.
The chancellor relied upon the decision of this court in the case of Gay-Hardie Co. v. Strickland,
The writ "is not ex debito justitiæ for any injury threatened or done to the estate or rights of a person; but the granting [of] it must always rest in sound discretion, governed by the nature of the case." Enfield Toll Bridge Co. v. Connecticut River Co.,
In granting or withholding the writ the court weighs the conveniences and inconveniences in the first instance, and when very great injury will result to an unoffending party by the stern fiat "Thou shalt," or "Thou shalt not," often leaves parties to their remedies at law. Chambers v. Iron Co.,
A creditor of a corporation is not, as a matter of law, chargeable with notice of the insolvency of the corporation with which he deals. The managing officers of a corporation, who as such become creditors of a corporation, might be so charged with such notice; but not so as to general creditors. It is true that section 3509 of our Code provides that:
"The assets of insolvent corporations constitute a trust fund for the payment of the creditors of such corporations, which may be marshaled and administered in courts of equity in this state."
We are not, however, of the opinion that the mere fact that a corporation becomes insolvent, that is, unable at the particular time to promptly pay its debts, eo instante all of its assets are withdrawn from the management and control of the corporation, and are no longer subject to execution or attachment by its creditors, and that no liens can thereafter be acquired on any of its property, which will be prior or paramount to the claims of all other creditors, if the assets are thereafter marshaled and distributed among the creditors as the statute authorizes.
The insolvency of the corporation merely authorizes the marshaling of the assets by a court of equity, and if parties with knowledge of the facts, after the corporation has become insolvent and its assets become a trust fund, attempt to acquire a preference or priority of liens upon the funds, the court would then intervene, to prevent such parties from thus acquiring such preference, or prior liens; but the same rule would not apply to a creditor or purchaser of the property who had no knowledge or notice of the fact of insolvency, or that the funds or property purchased or subjected to his debt were trust property. If such creditor or purchaser *660 has no knowledge or notice of insolvency, or of the fact that a trust was impressed upon the property, his rights acquired by a bona fide purchase by virtue of an attachment or garnishment as to the property, would be paramount to any rights of the other creditors of the corporation, although, as a matter of fact, it was insolvent when the sale was made or attachment levied. To destroy the rights of such bona fide purchasers, or lienholders, they must have knowledge, or be chargeable with notice of the trust character of the property of the corporation with which they are dealing. There must be an intent or attempt to acquire a preference or priority as to trust property, before a court of equity will annul or set aside sales, or attachment proceedings, had in good faith, and without knowledge or notice of such trust relations. The judicial and legislative history of the statute in question is, in short, as follows:
"The statute was only intended to settle what had theretofore been a disputed question as to the common law of this state upon that subject. The question was, however, settled in the case of O'Bear Jewelry Co. v. Volfer Co.,
"In the case of Goodyear Rubber Co. v. Scott,
"Chief Justice Stone, in Corey v. Wadsworth, tersely expressed the true rule as follows: 'At what stage of a corporation's affairs must it be pronounced insolvent, so as to bring it within the principle we have declared? It is not enough that its assets are insufficient to meet all its liabilities, if it be still prosecuting its line of business, with the prospect and expectation of continuing to do so — in other words, if it be, in good faith, what is sometimes called a "going" business or establishment. Many successful corporate enterprises, it is believed, have passed through crises, when their property and effects, if brought to present sale, would not have discharged all their liabilities in full. We feel safe in declaring that when a corporation's assets are insufficient for the payment of its debts, and it has ceased to do business, or has taken, or is in the act of taking, a step which will practically incapacitate it for conducting the corporate enterprise with reasonable prospect of success, or its embarrassments are such that early suspension and failure must ensue, then such corporation must be pronounced insolvent.' " City Bank Trust Co. v. Leonard, supra.
It does therefore seem probable that the intent of the Legislature in enacting the statute in question was to restore the law of this state as it was declared by this court to be for 50 years before the decision in the O'Bear Case, which overruled all former decisions on the subject. We are of this opinion because the court in the O'Bear Case said of the trust fund doctrine that it is equitable and righteous, but that it requires a statute to make it law, and that the Legislature ought probably to so provide; and the Legislature did soon thereafter so provide, and the language of the statute is practically if not literally taken from the language of the court in some of the decisions which were overruled by the O'Bear Case.
"In this case it was said: '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, Fed. Cas. No. 17,944. 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 is 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,
We are, therefore, of the opinion that the statute should be construed in the light of these decisions, and this history of its origin, and should be given the effect and application which was given to the doctrine before *661 the decision in the O'Bear Case, which has overruled many former decisions on the subject.
So construing the statute, the allegations of this bill, as amended, are not sufficient to authorize the injunction, and the demurrer on this ground should have been sustained.
Reversed, rendered, and remanded.
ANDERSON, C. J., and SOMERVILLE and THOMAS, JJ., concur.