Ft. Payne Bank v. Alabama Sanitarium

• Decision Date: 18 May 1894
• Citation: 15 So. 618,103 Ala. 358
• Parties: FT. PAYNE BANK v. ALABAMA SANITARIUM ET AL.
• Court: Alabama Supreme Court

15 So. 618

103 Ala. 358

FT. PAYNE BANK v. ALABAMA SANITARIUM ET AL.

Supreme Court of Alabama

May 18, 1894

Appeal from chancery court, De Kalb county; S. K. McSpadden, Judge.

Bill by the Ft. Payne Bank against the Alabama Sanitarium and others. There was a judgment dismissing the bill, and complainant appeals. Reversed.

The bill in this case was filed by the Ft. Payne Bank, on September 28, 1892, against the Alabama Sanitarium, the Ft Payne Educational Association, E. W. Godfrey, as trustee, C O. Godfrey, and 18 other defendants. The bill was filed by the complainant as a nonsecured creditor of the Alabama Sanitarium, it being alleged in said bill that it was the owner of the note for $6,672.95, which had been given by the Alabama Sanitarium to the Bank of Ft. Payne, and had been subsequently transferred to the complainant. The validity of the note sued on, and complainant's ownership of it, are fully established by the evidence in the cause. Its original consideration, as shown, was money loaned by the Bank of Ft Payne to the Alabama Sanitarium, renewed, from time to time until, on March 31, 1891, this note was given for the debt and accrued interest. The Bank of Ft. Payne pledged this, and other obligations due to it, to the First National Bank of Chattanooga, Tenn., as collateral security for a loan by said bank to it, of about $12,000, and these collaterals, on default of the payment of said loan by said borrowing bank were sold by the Chattanooga bank, and C. O. Godfrey became the purchaser of them, and afterwards this and other notes so purchased by him were transferred to the complainant-the Ft. Payne Bank-a different corporation from the Bank of Ft. Payne. The evidence also shows that said C. O. Godfrey was, at the time he purchased said note, and the others at said sale, a director in the plaintiff corporation, and it tends to show he purchased said notes for the complainant.

Referring to such further facts as are necessary for an understanding of the case, it appears that the Alabama Sanitarium was chartered under the laws of this state, on the 20th of March, 1889, with C. O. Godfrey, A. S. Loventhal, and E. W. Godfrey as incorporators; that the capital stock was $40,000, and was all subscribed by these three incorporators, and C. O. Godfrey was selected president, and E. W. Godfrey, secretary of the company; and, it is not made to appear, what other persons besides these three, except the president and cashier, of the Bank of Ft. Payne, ever became stockholders in said company, or that there was ever any change in the incumbency of the offices.

The evidence shows, that the original note for the money borrowed, for which the one in suit was a renewal, was indorsed by C. O. Godfrey and A. S. Loventhal, but the one in suit does not bear their indorsement. It is not shown with certainty, how their names as indorsers on the notes disappeared. But the evidence does show, that there were negotiations between the lending bank and C. O. Godfrey, for their release, by his giving collateral security by way of a mortgage on town lots, and the transfer to the bank of notes of other parties which were secured by liens on land. Whether this negotiation was ever perfected or not, is not disclosed, further than that such security for said note was given and the names of said indorsers no longer appear on the note. The evidence also tends to show, in this connection, that the collaterals given by said Godfrey to secure said note, were, at the time, deemed ample for the purpose. It is an admitted fact, that on the 24th of June, 1890, the Ft. Payne Educational Association was incorporated, under the general incorporation laws of the state, with nine persons as incorporators, whose names are given, no one of whom was an incorporator or stockholder, so far as is shown, in the Alabama Sanitarium, except C. O. Godfrey. He was an incorporator and stockholder in the sanitarium and an incorporator of the educational association. It does not appear, that there were any stock holders in the association. It was shown, that a meeting of the stockholders of the sanitarium was held at Ft. Payne, on the 16th day of August, 1890, at which meeting a resolution was passed to the effect, that whereas the educational association, a corporation duly organized under the laws of Alabama, had proposed to purchased the hotel, land and entire property of the sanitarium, and to issue bonds for the sum of $30,000 on said property, due and payable in five years after date, bearing interest at the rate of 6 per cent, per annum, and offered in payment of said property, $25,000 of said bonds, it was unanimously resolved that said proposition be, and it was accepted, and that said bonds should be accepted in full payment for all of said property; and the president and secretary were authorized and instructed to execute a warranty deed to said property to said educational association. The following resolution was also adopted at that meeting: "That the board of directors be instructed to issue a dividend of said bonds, when same be received, and they be authorized to wind up the affairs of the company." The minutes of this meeting fail to show, and it does not elsewhere appear in evidence, who the stockholders composing this meeting, and who the officers-president, secretary and directors-of the corporation, were. It is not disputed that the sanitarium, acting under this resolution, did, on the 23d of January, 1891, execute and deliver its deed of conveyance of said property-which was all it owned-to the educational association. On the 18th day of August, 1890, at a meeting of all the trustees of said association, it was resolved and voted, to issue a series of bonds from 1 to 300, both inclusive, for $100 each, amounting in the aggregate to $30,000, payable September 1, 1895, at the First National Bank of Ft. Payne, in the city of Ft. Payne, Ala., to bear interest at the rate of 6 per cent. per annum, payable semiannually, on the 1st days of March and September, each year, which bonds were to be devoted solely to the payment for the academy buildings-the sanitarium property-and the needs and purposes of the school. On the 27th of January, 1891, said educational association executed its deed of trust, in accordance with said resolution, to the First National Bank of Ft. Payne, as trustee, to secure the issue of the bonds of the corporation as provided in said resolutions, and delivered to the sanitarium $25,000 of said bonds in full payment for said property, retaining $5,000 of the issue. This deed was filed for record in the office of the probate court of De Kalb county, on the 30th January, 1891. The complainant bank was not organized and did not commence business, until July, 1892, nearly 2 years after the sanitarium, at a meeting of its stockholders, resolved to sell its property, wind up the corporation, and divide the proceeds of the sale among the stockholders, and about 19 months after the educational association purchased said property, and paid for it in the issue of its bonds. The First National Bank of Ft. Payne, the original trustee in the deed, resigned, and E. W. Godfrey was duly appointed trustee in its place. Default having been made in the payment of the interest on the bonds, E. W. Godfrey, as trustee, proceeding under and according to the terms of the deed, advertised said property for sale, on the 4th day of October, 1892.

The prayer of the bill is, (1) for an injunction against the sale of said property by said Godfrey; (2) that a receiver be appointed, to take charge of the property; (3) that on final hearing of the cause, said deed of the sanitarium to the association be canceled and set aside as voluntary and fraudulent as to complainant and other creditors of the sanitarium, and that the property therein described be subjected to the payment of complainant's debt; (4) that the issue of said bonds be canceled and held fraudulent and void; and (5) for general relief. As grounds for relief thus prayed for the bill makes the following specific charges: (1) That the recited consideration of $25,000, contained in the deed of the sanitarium to the association, was false and fictitious, that there was, in fact, no consideration paid and the transfer of the property was wholly without consideration. (2) That the trustees of the association were the owners of stock in the sanitarium, and the transfer of the property was, in fact, to the same parties who owned stock in the sanitarium; and they knew the condition of the affairs of the sanitarium and knew of the indebtedness to the bank of Ft. Payne, and knew and were fully advised of all the facts in relation to the transfer. (3) That the bonds were issued by the association and were delivered to the owners of the stock in the sanitarium, and that all the defendants to the bill, except the sanitarium, and the association, were owners of the bonds of said association, and were owners of the stock of the sanitarium; and said bonds were issued and delivered to the present holders of the bonds, in lieu of stock in the sanitarium, this being the only consideration of said bonds. (4) That said issue of bonds was fraudulent, unlawful and unauthorized; that the transfer of all of the...