Ensley Mortgage & Loan Co. v. Chadwick

• Decision Date: 21 May 1931
• Docket Number: 6 Div. 898.
• Parties: ENSLEY MORTGAGE & LOAN CO. v. CHADWICK ET AL.
• Court: Alabama Supreme Court

136 So. 821

223 Ala. 468

ENSLEY MORTGAGE & LOAN CO. v. CHADWICK ET AL.

6 Div. 898.

Supreme Court of Alabama

May 21, 1931

Rehearing Granted June 27, 1931.

Further Rehearing Denied Oct. 22, 1931.

Appeal from Circuit Court, Jefferson County; Wm. M. Walker, Judge.

Bill to establish and enforce a lien upon corporate stock by the Ensley Mortgage & Loan Company against R. E. Chadwick, the Bank of Ensley, and Dent F. Green, as Superintendent of Banks of the State of Alabama, in charge of liquidating said bank. From a decree sustaining a demurrer to the bill and dismissing it, complainant appeals. On rehearing.

Reversed and remanded on rehearing.

BOULDIN and GARDNER, JJ., dissenting.

Lee C Bradley, Jr., L. B. Bewley, and Bradley, Baldwin, All &amp White, all of Birmingham, for appellant.

Coleman Coleman, Spain & Stewart and H. H. Grooms, all of Birmingham amici curiæ.

H. L. Anderton, of Birmingham, for appellees.

ANDERSON, C.J.

I think that the opinion of Justice BOULDIN reads into section 7000 of the Code of 1923 an unwarranted exception in favor of banks. The opinion concedes that the complainant corporation was a creditor of the Ensley Bank, being a depositor, and that the Ensley Bank owned some of the stock in said complainant corporation, and section 7000 of the Code gives the complainant corporation a lien on said stock so owned by the Ensley Bank for any debt or liability incurred by it to the complainant corporation.

In the case of Lanier Lumber Co. v. Rees, 103 Ala. 622, 16 So. 637, 49 Am. St. Rep. 57, the lien was denied for the reason that the corporations there involved could not, under the law then existing, own stock in another corporation, but, under section 6365, the Ensley Bank was authorized to own the stock as well as under section 7015, subdivision 10. Since the bank had the authority to purchase or own the stock in the complainant corporation, it acquired and owned the same subject to the same conditions as would apply to any other owner of said stock, and I find nothing in the statutes giving it a special privilege or immunity.

I think the present bill of complaint to enforce the lien of the complainant corporation contains equity, and that the rehearing should be granted and the decree of the circuit court should be reversed, and in this Justices SAYRE, THOMAS, BROWN, and FOSTER concur.

Rehearing granted, judgment of affirmance set aside and reversed and remanded.

SAYRE, THOMAS, BROWN, and FOSTER, JJ., concur.

GARDNER and BOULDIN, JJ., dissent.

BOULDIN J. (dissenting).

The case may be briefly stated thus: An ordinary banking corporation in course of business becomes the equitable owner of stock in another corporation. This corporation becomes a depositor in the bank. The bank fails and is taken over for liquidation by the banking department. Has the corporation a lien on the stock held by the bank, under Code, § 7000, enforceable in equity as security for the amount of its deposit in the bank at the time of failure?

Section 7000 of the Code provides: "All such corporations have a lien on the shares of its stockholders, for any debt or liability incurred to it by a stockholder, before a notice of a transfer or levy on such shares."

The remaining portion of the section provides a summary remedy by sale of the stock. This remedy is cumulative. The general equity jurisdiction to enforce liens may be invoked. Crawford v. Twin City Oil Co., 216 Ala. 216, 113 So. 61; Rowe v. Bank of New Brockton, 207 Ala. 384, 92 So. 643.

This statute, aimed at affording security to the corporation like unto that theretofore accomplished through charters and by-laws, has been given a liberal construction to accomplish its purpose.

Accordingly, being a law-made lien, any person acquiring corporate stock by transfer from a stockholder is chargeable with notice of the lien thereon in favor of the corporation to secure any indebtedness of the transferor. Crawford v. Twin City Oil Co., supra; Mobile Towing & Wrecking Co. v. First National Bank, 201 Ala. 419, 78 So. 797.

The lien extends to "any debt or liability" incurred by the stockholder before notice to the corporation of a transfer. It is not limited to unpaid subscriptions. The inclusive terms of the statute as written are given effect. First National Bank v. Huntsville Bank & Trust Co., 213 Ala. 236, 104 So. 760; Mobile Mutual Ins. Co. v. Cullom, 49 Ala. 562; Birmingham Trust & Savings Co. v. East Lake Land Co., 101 Ala. 304, 13 So. 72.

In the case last cited, it was said (101 Ala. 308, 13 So. 72, 73): "It is a sound policy of law to give a liberal and generous construction to this statute, to the end that a corporation may enjoy that just and equitable right of set off, accorded to natural persons, of not being required to pay its creditor-the stockholder-before he accounts for his debts to the corporation."

In line with the favored policy thus announced, such lien attaches to stock in the hands of an equitable owner, as, for example, the transferee of the record stockholder, with notice thereof to the corporation, although the legal title has not passed for want of a transfer on the books of the corporation as per statute. Planters' & Merchants' Mut. Ins. Co. v. Selma Savings Bank, 63 Ala. 585.

The bill in the instant case avers the bank is the owner of the stock in complainant corporation, but no transfer has been registered on its books. The bank is therefore, to be regarded as the equitable owner of such stock, and within the rule of the Selma Bank Case to that extent.

But the Selma Bank Case involved the lien of the bank on its own stock as security for the debt of its stockholder to the bank. It does not deal with the question here presented, the assertion of such lien by a depositor of a bank as security for its deposit, creating, in effect, a class of secured depositors, working a preference over all other depositors in case of insolvency of the bank.

At common law no lien of a corporation on stock to secure the indebtedness of its stockholder was recognized at law nor in equity.

For the protection of corporations it became a general custom to confer in their charters express power to provide for such lien through its by-laws. Birmingham Trust & Savings Co. v. Louisiana National Bank, 99 Ala. 379, 13 So. 112, 20 L. R. A. 600; Mobile Mut. Ins. Co. v. Cullom, 49 Ala. 558; Cunningham v. Alabama Life Ins. & Trust Co., 4 Ala. 652.

The lien of Code, § 7000, is statutory. It appeared first in the Code of 1886 as section 1674.

Its construction was presented in Lanier Lumber Co. v. Rees, 103 Ala. 622, 16 So. 637, 49 Am. St. Rep. 57, wherein one corporation sought to enforce the lien against another corporation as as stockholder and debtor to complainant corporation. This court declared: "There is no averment in the bill that the Morrison Lumber Company was authorized by its charter or otherwise to subscribe for and hold or own stock in other corporations, but, to the contrary, it is virtually admitted that it had no such statutory power. And it is too well settled to require discussion that without such authority one corporation cannot subscribe for, or invest its own capital in, the shares of other corporations, either directly, as by becoming in its own name an incorporator of a new corporation, or indirectly, by subscriptions in the names of persons acting as agents, and holding as its trustees. And it is equally clear, upon principle and authority, that all such attempted subscriptions or contracts of subscription are not voidable, but utterly void. 1 Mor. Corp. §§ 431, 433; 4 Am. & Eng. Enc. Law, p. 249, note 2; B. M. & F. Co. v. Harvey, 92 Tenn. 115, 20 S.W. 427 [18 L. R. A. 252, 36 Am. St. Rep. 71]; Central R. R. Co. v. Pennsylvania R. R. Co., 31 N. J. Eq. 475; Commercial Fire Ins. Co. v. Board of Revenue, 99 Ala. 1 [14 So. 490, 42 Am. St. Rep. 17]." 103 Ala. 626, 627, 16 So. 637, 638, 49 Am. St. Rep. 57.

To same effect is McAlester...