Barrett & Co. v. Pollak Co.

HEAD, J. In Pollak Co. etal v. Muscogee Manufacturing Company, at the present term, we practically settled the'controlling questions presented by these appeals. In that case the purpose, in one phase of the bill, was to have three specified attachments, and the levies thereof, upon goods of Poliak Company, a corporation, alleged to have been invited and procured by the debtor itself, and certain pledges of choses in action made by the debtor to two of those attaching creditors, declared parts of a general assignment executed by a debtor shortly after-wards ; and in another phase to have the attached property administered as a trust fund for the benefit of •creditors — the trust character arising, as contended, from the insolvency of the debtor corporation. Like that, the present bill, which is filed by a creditor of the same corporation, in one of its phases, seeks to have the property of the corporation distributed to all its creditors, as a trust fund of the same character; and, in another phase, unlike the other bill, seeks to annul both the attachments and the assignment, as fraudulent and void, and have the property administered by a receiver of the court’s appointment. The pledges of choses in action are sought to be iuvalidated for nonconformity, by the corporation, to the provisions of subdivision 7 of section 1664 of the Code of 1886, requiring a certain consent of stockholders, manifested in a prescribed way, to authorize a pledge of its property by a corporation. There are, in the amendments to the bill, many averments of fraud and collusion on the part of the assignors, the assignees, the sheriff, and the attaching creditors, all of whom are parties to the bill; but they all relate to the administration of the property subsequent to the levies of the attachments, and the execution of the assignment. They are acts of spoliation and maladministration, committed by these persons, which it would [396] be within the province of a court of equity to redress, at the suit of a creditor who establishes by his bill and proof an equity to have the court take charge of the administration of these trustees, or to set aside the trust entirely, by reason of fraud in its creation, or other vitiating circumstances annulling it; or, affirming the validity of the trust, to set the assignee aside for unfitness or maladministration subsequent to their creation. We have seen that the complainants’ standing in court, if they have any, rests upon the averments that the attachments and assignment, in respect of the property levied upon or assigned, are vitiated by fraud; or that the property was a trust fund for creditors which rendered the attachments and assignment ineffectual to impair the rights of complainants ; and as to the choses in action pledged, that the pledges are invalid by reason of nonconformity to the statute aforesaid. If there is no equity in either of these alleged grounds of relief, the court will not take cognizance of the alleged acts of maladministration occurring subsequent to the creation of the trusts, for the reason that the complainants have not by their bill • given themselves a standing in court, by which they can invoke the exercise of that jurisdiction. Repudiating the trusts, and failing to sustain that position, they must need go out of court. As to the trust character of the property of the corporation, by reason of its insolvency, we settled that question, in an exhaustive and unanswerable opinion by Justice McClellan, in O’Bear Jewelry Co. v. Volfer, 106 Ala. 205 ; qnd followed that case in Pollak Co. v. Muscogee Mfg. Co., supra, repudiating the trust fund doctrine. There are some explanations contained in the separate opinion of Justice Coleman, in the O’Bear case, which were not passed upon by the other members of the court. As to the pledges of choses in action, the statute relied upon (sub-div. 7, section 1664, Code of 1886) was enacted for the protection of stockholders, and a creditor cannot invoke it. — Nelson v. Hubbard, 96 Ala. 238, and cases therein cited at page 253, particularly; Beecher v. Marquette Rolling Mill Co., 45 Mich. 103, which we quoted and approved. There is no equity, therefore, in this ground of relief. [397] In the Muscogee Mfg. Co. case, supra, we ruled, upon substantially the same averments of facts in reference thereto, as are averred in the present bill, that the issuance and levies of the attachments were mere forms resorted to by the attaching creditors and the debtor, for the purpose of giving to those creditors, unlawful preferences of security over the general creditors who were to be provided for by the contemplated general assignment, which was executed a few minutes afterwards ; and that they were and must be treated as parts of the general assignment. That being their effect, the statute (Code of 1886, § 1737), merely annuls the preferences, preserving the validity of the assignment as a trust for all the creditors ;■ and it makes no difference that the preference was attempted to be created with an actually fraudulent intent. — Holt v. Bancroft, 30 Ala. 193 ; Danner v. Brewer, 69 Ala. 191 ; Rochester v. Armour, 92 Ala. 433, and Preston v. Spaulding, 120 Ill. 208 (10 N. E. Rep. 903) therein quoted and approved. It is by the mandate of the statute, that the unlawful preference is to be merged, so to speak, in the assignment. Suppose the preference had been attempted, to be created' by the terms of the assignment itself, it is manifest, no extent of actually fraudulent intention inciting its creation, would, in view of the statute, annul the entire assignment. The only purpose of the parties was to create a preference. In the very nature of fraud, that purpose was necessarily fraudulent, actually or constructively, for the reason that it designed to violate the law, to the injury of the general creditors. The validity of the assignment not being assailed for any other cause, it results, that there is.no equity in any of the grounds of relief set forth in the bill. In discussing the validioy of the general assignment in respect of the charge of fraud, we do not overlook the fact that the last amendment filed alleges that said Ignatius Poliak (who under the averments of the bill was, essentially the corporation itself) not only did the acts of conversión and maladministration after the assignment was executed, which are charged against him and others in the bill, with- the - fraudulent intent and purpose of re-acquiring ownership and possession of the goods in the manner he is alleged to have acquired the same, but. that he, the said Poliak, also procured the issuance and [398] levy of the attachments, and executed the general assignment to Pelzer and Roman, with the same fraudulent intent and purpose; and we think it can not be doubted, that this allegation, admitted to be true, would have stamped both the attachments and general assignment as fraudulent and void, and given the bill equity for the relief it seeks, if it had been further averred, that the assignees, at the time they accepted the assignment, or the general creditors, provided for by the assignment, knew of, or participated in, that fraudulent intent. But, it is the rule in this State, that the secret fraudulent intent of the assignor in making a general assignment for creditors, unknown to the assignee at the time they accept the trust, and to the creditors, does not authorize one of the creditors to set aside the assignment for fraud. Truss v. Davidson, 90 Ala. 359. This is the way we understand the averments of the bill. The motions to dismiss the bill for want of equity ought to have been sustained. We deem it unnecessary to consider the rulings of the court upon the demurrers to the bill; for whether well or illy, taken, there was no harmful error in sustaining them, since the bill ought to have been dismissed for want of equity. As we can not say, however, that the bill may not be amended so as to give it equity for the relief it seeks, and give the complainants a standing in court, to have the said alleged subsequent acts of maladministration investigated and corrected, we remark that we do not consider the bill, if so amended, multifarious; nor is it necessary that it be sworn to. The decree, on the appeal of complainants, will be affirmed; and on the appeal of respondents, will be reversed and a decree here rendered dismissing the bill for want of equity, unless within thirty days it shall be so amended as to give it equity, with power in the chancery, court, or chancellor in vacation, to extend the time, on sufficient showing. The cause will be re-mánd'ed. Reversed, rendered and remanded.