Keystone National Bank v. Palos Coal & Coke Co.

43 So. 570, 150 Ala. 245, 1907 Ala. LEXIS 376

• Court: Supreme Court of Alabama
• Decided: April 9, 1907
• Status: Published

Opinion

DOWDELL, J.

The present bill :is not one by a stockholder seeking to' redress' corporate wrongs, and hence the demurrer going to this supposed phase of the bill is inapt, and the principle- stated in Johnson v. National Building & Loan Association, 125 Ala. 481, 28 South. 2, 82 Am. St. Rep. 259, and the numerous other cases cited in brief of counsel, is without application.

The bill is exhibited by the complainant the Keystone National Bank, “on behalf of itself and all other bona fide bondholders and creditors of the Palos Coal & Coke Company who may come in and share in the expenses and benefits of this litigation,” and therefore purports on its face to be a general creditors’ bill. According to the averments and prayer for relief, the bill has a twofold purpose; the first being the “annulment” of certain mortgage bonds held and claimed by the respondents D. M.- Drennen, H. A. Drennen, P. M. Drennen, and W. M. Drennen, and, second, for the ascertainment of the amount of the outstanding valid mortgage-bonds, and the amount of indebtedness of the respondent Palos Coal & Coke Company to the general creditors, and the priority of creditors, and for the sale of property for the payment of such indebtedness. Among other things, the bill avers the ownership by the complainant the Keystone Bank of 7 of the mortgage bonds, of the par value of $1,000 each, aggregating $7,-000, and for which, it paid $7,000, and default by the Palos Coal & Coke Company in the payment of the interest on the same, and avers an indebtedness to unsecured creditors at large of $20,000, alleging also the involvency of the respondent léalos Coal & Coke Company. Although the Keystone National Bank is sole party complainant of record as the bll at present stands, yet as exhibited, inviting all other bo-nai fide holders of mortgage bonds, as well as common creditors, to join in the bill, it presents two classes of- creditors as to whom, different principles may apply. For this reason the bill is defective.

It is not shown whether the- general creditors are--subsequent or prior creditors do the issue-' of the bonds. A general creditor, as well as a bond creditor, may attack the illegality of issue of bonds secured by mortgage on corporate property (3 Cook bn Corporations (5th Ed.) §§ 766a, 848); and having a common grievance to be remedied, and with like relief, namely, the “annulment” of the illegal issue, no reason appears why the two classes of creditors, to that end and in a proper case, may not join in the same bill.

While the bill prays specifically for the “annulment” of certain bonds held by the respondents, the relief sought in this respect is inappropriate to the facts stated in the bill. The bond issue was for corporate purposes and benefits, and was made under corporate authority, and it is not pretended, in so far as shoAvn by the facts stated in the bill, that there Asms any illegality in the issue of the bonds. The facts stated tend to sIioav, not an illegal issue, but rather .an illegal disposition of the bonds after the same had béen legally issued. If the bonds were “hypothecated” Avithout consideration, and in this manner parted with and disposed of, this Avould be a corporate Avrong. The remedy, ih- such a case,’ it would seem, would not be the “annulment” of the bonds, but a restoration of the bonds to the rightful custodian, and the relief should be sought' and had in the name of the corporation.

The sole complainant- here is a. secured bond creditor, and the bill does not deny that the property mortgaged is amply sufficient to secure the Avhole of the bond issue. The mortgage provides in terms Avhen and under what conditions a foreclosure may be had for the benefit of the bondholders. The bill AArholly fails in averments necessary to authorize a court of equity to proceed to a -decree of foreclosure of themortgage. But it is insisted in argument by counsel for complainant that a foreclosure of the mortgage is not the object and purpose of the bill. If this be conceded, we are unable to see how the complainant can proceed. The bill prays for a sale of the property embraced in the mortgage for the payment of the debts of the corporation defendant due complainant and other creditors. The validity of the mortgage is not questioned. The legal title to the property is in the trustee named in the mortgage. It is difficult to understand hoAv, under the averments of the bill, the relief prayed can be had without a foreclosur of the mortgage.

..The hill is defective, and subject to . a number of grounds specified in' the demurrer, and- the decree of the chancellor sustaining the demurrer must be affirmed.

Affirmed:'

Tyson/ C. J.,. and Anderson and MoCleLdan^ .JJ., concur. '• ' :