McCaleb v. Goodwin

COLEMAN, J. — In October, 1890, the.Mobile & Spring Hill Railroad-Company issued'its bonds, each of the face value of one thousand dollars, to the amount of one hundred thousand dollars, and executed a deed of trust to the Fidelity Trust and Safety Vault Company upon all its assets and property, to secure the payment of the bonds. The respondents, Goodwin & Swift, became the owners of ninety-two of these bonds, being the entire amount disposed of by the Mobile & Spring Hill Railroad Company. This mortgage was foreclosed by a decree of the chancery court, and the property sold in January, 1893, at which sale Goodwin & Swift became the purchasers. The sale was duly confirmed, and the purchasers put in possession of the property. On the 15th of August, 1887, the Mobile Street Railway company, being then the owner of all the stock of the Mobile & Spring Hill Railroad Company, consisting of one thousand shares, executed a mortgage or deed of trust to the Fidelity Trust and Safety Vault Company, upon all its property to secure its bonded indebtedness. Its stock in the Mobile & Spring Hill Railroad Company was included and conveyed in the deed of trust. The deed of trust of the Mobile- Street Railway Company expressly provided that “the legal'title to the stock is not to be transferred to the trustee, except in case of default in the payment of said bonds and- coupons as hereinafter provided, and until said default the voting power of said stock is to remain with those who appear upon the books of said Mobile & Spring Hill Railroad Company as the legal holders thereof,” &c. By a decree of the Federal court, rendered in 1893, the mortgage or trust-deed of [621] the Mobile Street Railway Company was foreclosed and all its property sold, including the stock in the Mobile Spring Hill Railroad Company. The complainant, Me- - Caleb, acquired title to the stock .under and by virtue of the foreclosure sale. As the owner and holder of all the-stock in the Mobile & Spring Hill Railroad Company, he filed the present-bill, by which he seeks a rescission and cancellation’ of the bonds issued’ by the Mobile .& Spring • Hill Railroad Company and the deed of trust- executed to secure them-, and to set aside and annul the decree of’ foreclosure and sale of the property by virtue of the decree . The validity of the bonds and trust deed is assailed. upon several grounds. The pleadings and evidence, with all reasonable satisfaction, justify the following conclusions: That the bonds, of the- Mobile & Spring Hill Railroad Company,, and the deed of trust to secure them, were authorized and directed to be issued and executed by virtue of the vote of the very stock subsequently purchased and now owned by complainant and upon which his bill is founded. As has been stated, all this stock belonged-to the Mobile Street Railway Company. It stood on the books, of the Mobile &' Spring Hill Railroad Company in other names, but the fact is uncontroverted that it belonged to and was voted as directed by the Mobile Street Railway Company. . It is not materially controverted, that these bonds were turned over to the Mobile Street Railway. Company as collateral security to a debt past due from the Mobile & Spring Hill Railroad Company to the stockholders of the Mobile Street Railway Company, and were used by it. For the argument it is conceded, that the'Mobile Street Railway Company used its ownership’ of the stock in directing the issue of the bonds and the execution of the deed of. trust- wholly for its own purposes and benefit, and thereby greatly impaired the value of the stock. If all this be true, upon what equitable doctrine will’ the stockholder, who thus used his power to reduce the value of his own stock in one corporation in order to promote.the interest of, and benefit,. another corporation, be allowed, after reaping the advantages from the bonds and deed of trust virtually executed by him, to assail the validity of his own acts, to the injury and loss of the purchasers from him of these bonds? ■ We have, not the case of -a minority stockholder [622] seeking relief against a majority of the stockholders, or against the corporation itself dominated by a majority of stockholders to the wrong and injury of the minority; but the case is that of all the stockholders, seeking relief against their own acts, after reaping a benefit from them. There can be no justice or equity in such a claim. The appellant contends, however, that when he purchased the stock at the foreclosure sale, he acquired it, freed from all such disabilities and infirmities, and attempts to support this claim in the following way. At the time the stock was used by direction of the Mobile Street Railway Company, for the purpose of having the bonds of the Mobile & Spring Hill Railroad Company issued, the stock had been pledged by the Mobile Street Railway Company for the benefit of its own bondholders, and that it had no authority to impair by its own wrongful action the security conveyed in the deed of trust. As the bondholders were interested in the value of the stock, and as the debtor could not lawfülly impair the security as against the bondholders, the complainant by his purchase of the stock became “a privy in estate” with the bondholders, and succeeded to their- interest in the stock. There is no connection between the premise and conclusion of the argument. In equity the mortgagor was the absolute owner of the stock except as against the mortgagee, and the absolute owner against him, except as to the security for the debt. If the security for the .debt had remained ample to satisfy the debt, the bondholders could have had no grounds of complaint; or if the mortgagor had made good to tlie bondholders the damages, if any were wrongfully inflicted, there would be no cause Of action. The bondholders might have enjoined the commission of the wrong, or probably, if the wrong was committed against their consent, and there had been no waiver of the right, they might have maintained an action for damages for the impairment of their security. This right grows out of their relation as the owners of the debt secured. It does not exist independent of the debt, but only as a security for the debt. By his purchase of the stock, the complainant acquired no interest in the secured debt. He purchased the stock and obtained a perfect title to it. No one questions his absolute ownership of the stock, and he obtained everything that he intended to purchase.— Webber v. Ramsey, 43 Am. St. [623] Rep. 429 and note ; Knoll v. New York, Chicago &c. R. Co., 1 L. R. A. 366 and note ; Betz v. Verner, 7 L. R. A. 630 and note; Gibson v. R. & D. R. R. Co., 2 L. R. A. 467. If there had been a disposition by sale or mortgage of the stock by the debtor mortgagor, which was fraudulent and void as against the creditor mortgagee, affecting the title thei-eto, the authorities cited by appellant, ■would be pertinent in a suit against the fraudulent grantee. This principle does not arise under the facts of this case. Assuming that the ownership of all the stock of a corporation by a single individual does not work' a dissolution of the corporation, can it be said, in the absence of extraordinary and urgent emergency, that the stockholder is relieved from applying to the corporation to institute all legal proceedings in a matter affecting the corporation as an entity? , . There are many interesting questions discussed in the' written argument of counsel, but the principles of law declared by us as applicable to the case, render it unnecessary to discuss them. ■ . . The Chief Justice and Associate Justice Haralson concur in this conclusion.