Birmingham Trust & Savings Co. v. Marx

• Decision Date: 17 January 1935
• Docket Number: 6 Div. 633.
• Citation: 230 Ala. 68,159 So. 483
• Parties: BIRMINGHAM TRUST & SAVINGS CO. v. MARX.
• Court: Alabama Supreme Court

159 So. 483

230 Ala. 68

BIRMINGHAM TRUST & SAVINGS CO. v. MARX.

6 Div. 633.

Supreme Court of Alabama

January 17, 1935

Rehearing Denied Feb. 21, 1935.

Appeal from Circuit Court, Jefferson County; J. Russell McElroy Judge.

Bill to declare conveyance a general assignment by V. Hugo Marx, as trustee, against the Birmingham Trust & Savings Company. From a decree for complainant, respondent appeals.

Reversed and rendered.

Smyer Smyer & Bainbridge, of Birmingham, for appellant.

Cabaniss & Johnston and Jos. F. Johnston, all of Birmingham, for appellee.

BROWN Justice.

The bill in this case was filed by the appellee, V. Hugo Marx, as the trustee named in a deed of trust executed by Plosser-Knecht Flour & Grain Company, Inc., a domestic corporation, on certain real estate and the fixtures hereto consisting of machinery and equipment, to secure the payment of certain bonds issued by said corporation and sold and delivered to sundry persons and corporations, named in the bill, against the appellant, Birmingham Trust & Savings Company, a corporation, and said Plosser-Knecht Flour & Grain Company, Inc., to have a subsequent mortgage executed by said Plosser-Knecht Flour & Grain Company, Inc., to appellant covering the real estate embraced in the deed of trust, and other real estate, and a transfer made by separate writing of all choses in action, and tangible personal property executed by said Flour & Grain Company to appellant, to secure an existing indebtedness due by it to appellant, declared a general assignment under the provisions of section 8040 of the Code 1923, for the benefit of all of the creditors of said Flour & Grain Company.

There was a demurrer to the bill questioning its equity and sufficiency on numerous grounds, which was overruled, followed by answer of the appellant, a decree pro confesso against the Flour & Grain Company, and proof taken by depositions.

On submission for final decree on the pleadings, and the proof noted by the register, the court entered a final decree declaring that "the transfer, conveyance and mortgage executed by respondent Plosser-Knecht Flour & Grain Company, Inc., to respondent Birmingham Trust and Savings Company on July 12, 1930, was an assignment of substantially all of the property of the said Plosser-Knecht Flour & Grain Company, Inc., as security for a prior debt owing by said Plosser-Knecht Flour Company, Inc., to the transferee, respondent Birmingham Trust and Savings Company, and, as such, inured to the benefit of all the creditors of said Plosser-Knecht Flour & Grain Company, Inc., equally"; that the respondent Birmingham Trust & Savings Company and the bondholders named in the bill were and are all of the creditors of said Flour & Grain Company, and entitled to share ratably in the proceeds of the tangible property, real and personal, transferred by said conveyances to the respondent Trust Company, and the proceeds of the choses in action, collected by the Trust & Savings Company, and entered a money decree in favor of the complainant, allegedly the representative of the bondholders, for 60.21 per cent. of the said proceeds, ascertaining the amount to be $5,869.49, and ordering the sale of the real estate located in Colbert county, by the Trust & Savings Company, as trustee, and taxing the costs against "respondent."

The appeal is from the final decree, and the questions presented for decision, by the assignments of error and argued in brief, are: (1) The right of the complainant, V. Hugo Marx, as trustee, to maintain the bill; (2) the sufficiency of the proof as showing that the assignment and mortgage embraced all or substantially all the property of the debtor; and (3) the applicability of the statute (section 8040) to choses in action, where the transfer is not intended by the parties thereto to operate as a general assignment for the benefit of the creditors.

We state briefly the facts alleged in the bill, and established by the proof pertinent to the stated questions:

On April 1, 1927, the Plosser-Knecht Flour & Grain Company, Inc., which in the further progress of this opinion will be referred to as the Flour & Grain Company, being desirous of borrowing money to rehabilitate and extend its plant, issued seventy bonds for $1,000 each, maturing at different dates, and bearing 6 1/4 per cent. interest per annum; and contemporaneously therewith executed to the complainant, V. Hugo Marx, as trustee, a mortgage or deed of trust, conveying to him the real estate upon which its plant was then situated, the machinery and fixtures therein, estimated to be worth upward of $140,000, and such other machinery and fixtures as might be placed therein and affixed to the real estate and the improvements contemplated to the plant. The bonds were delivered to the trustee to be negotiated, and were sold and passed into the hands of the holders named in the bill, but not made parties thereto.

The deed of trust conferred on the trustee broad powers, including the power of accelerating the due date of the bonds in case of default, the right to demand the possession and control of the property covered by the deed of trust, the power of foreclosure by sale of the property in case of default, to pay the legitimate expenses of the foreclosure, deduct the same from the proceeds of the sale, and distribute the balance ratably to the bondholders.

Following the grant of these general powers, section 10 of the trust deed further stipulates: "All remedies on the bonds, the coupons, or hereunder, are vested exclusively in the trustee for the equal benefit of all bondholders, unless the trustee refuses or neglects to act within a reasonable time after written request, accompanied by indemnity satisfactory to the trustee, by the holders of twenty-five per cent of the then outstanding bonds. Except as above, no bondholder or coupon holder shall have any right to institute any action at law or in equity hereon or on the bonds or their coupons, and then only for the equal benefit of all bondholders."

The Flour & Grain Company paid three of said bonds, maturing on April 1st, 1930, and the interest on all of said bonds, reducing the indebtedness to $67,000. Thereafter it defaulted in the payment of some of said bonds, and the complainant as trustee, exercising the option to accelerate the maturity of said indebtedness, gave the Flour & Grain Company notice that he had declared the entire indebtedness due, and demanded possession of the property covered by the trust deed, and its possession was delivered to him. He thereupon foreclosed under the power of sale, bid in the property at and for the sum of $25,000, deducted from this amount the expenses incident to the sale, and credited the remainder on the mortgage debt, leaving a balance of $48,100.82 due and unpaid.

The bill avers that: " The owners and holders of said unpaid bonds, whose names are hereinafter set forth, have delivered them to complainant as their trustee with authority to bring this suit in their behalf and for their benefit. The names of such owners and holders are as follows, the principal amount of bonds held by each being set opposite to their names respectively." This averment is followed by the names of the several owners and holders, twenty-four in number, with the respective amounts due each. There is nothing in the averments of the bill or the proof going to show that the complainant as trustee has either the legal or equitable title to said bonds and the indebtedness represented thereby.

The answer of the defendant Trust & Savings Company admits the execution of the mortgage to it by the Flour & Grain Company; that the same is a junior mortgage as to the property covered by the trust deed. It also admits the assignment of all the choses in action held by the Flour & Grain Company, except an indebtedness due from its president, Knecht, in the amount of about $7,500. There was evidence going to show that Knecht owned nothing aside from property exempt from the payment of said debt.

There can be no doubt that a debtor may make a general assignment for the benefit of his creditors and, by appropriate conveyance to that end, pass to a trustee the title to all property he may own, both real and personal, tangible and intangible, whether it be leviable under execution or not. This is an incident to the right of ownership, and what is said further in the course of this opinion is not to be taken as impinging this principle of law. Such a trust so created is clearly governed by the first clause of section 8040 of the Code, that "every general assignment made by a debtor * * * enure[s] to the benefit of all the creditors of the grantor equally." Wilson & Co. v. Phillips et al., 221 Ala. 603, 130 So. 219.

The mortgage and assignment involved in the case at bar were not executed and...