Green v. Stone

• Decision Date: 23 December 1920
• Docket Number: 6 Div. 89,89-A.
• Parties: GREEN v STONE. STONE v GREEN.
• Court: Alabama Supreme Court

87 So. 862

205 Ala. 381

GREEN v STONE. STONE v GREEN.

6 Div. 89, 89-A.

Supreme Court of Alabama

December 23, 1920

Rehearing Denied Feb. 19, 1921.

Anderson C.J., and McClellan, J., dissenting.

Appeal from Circuit Court, Jefferson County; Hugh A. Locke, Judge.

Bill by Kinzea Stone, filed originally against A. E. Walker Superintendent of Banks, and afterwards amended as against D F. Green, as Superintendent, to rescind and cancel a contract of subscription for stock in the Jefferson County Bank, whose affairs were then being administered by the Superintendent of Banks. From a decree granting relief, the Superintendent of Banks appeals, and complainant files cross-appeal. Affirmed in part, and in part reversed and remanded.

For the facts, see former report 201 Ala. 130, 77 So. 554, L. R. A 1918C, 839.

Coleman & Coleman, Spain & Fisk, of Birmingham, for appellant.

James A. Mitchell, of Birmingham, for appellee.

THOMAS, J.

The first appeal in this cause, styled Stone v. Walker, is found in 201 Ala. 130, 77 So. 554, L. R. A. 1918C, 839, and note of other authorities.

The equity of the bill was tested by demurrer, and the questions of law now raised were fully considered by the court on the original hearing and on the application for rehearing. After mature deliberation, these questions were decided, it is true, by a divided court, the majority of which, as now constituted, favoring the equity of the bill. In the opinion many cases are cited and reviewed, as well as the doctrine of the various courts and text-writers on the subject. Some of the questions, or kindred questions, were discussed in Wright v. Hix, 203 Ala. 425, 83 So. 341. In the latter case a majority of the court did not adopt the opinion of the writer, believing that the questions discussed were not necessary to a decision of the case in hand. Some of the questions discussed in the minority opinion in Wright v. Hix are not dicta in the instant case, and are in accord with the majority opinion on the former appeal of this case. However this may be, many authorities on the subject before us are there collected.

On former appeal, after reviewing the authorities on the subject, it was decided that the insolvency of the corporation would not defeat the right of a defrauded stockholder to rescind on the ground of fraud in the procurement of his subscription, if without culpable negligence on his part such stockholder had failed to learn of the fraud before insolvency of the corporation; and that a bill to rescind for such fraud would lie against a receiver of such insolvent corporation or against an assignee thereof, if not a bona fide purchaser. That is, if a contract of subscription to the capital stock of a corporation was rescinded by a stockholder, defrauded in its procurement, he became a creditor of the corporation to the amount of moneys which he had paid to the corporation by reason of the fraud, and his claim would become a charge against the corporation, subject to any paramount claims of creditors who may have thereafter dealt with the corporation, relying upon the subscription of the complainant for stock in the corporation. After the complainant had become a stockholder in such bank and while he was held out as such stockholder and before his rescission for fraud, the depositors in the bank or, as for that, any other of the creditors, would be preferred creditors whose claims were paramount and should be preferred to that of complainant; unless such depositors or creditors had knowledge of or were chargeable with notice of the fraud perpetrated on complainant by the promotors of the corporation that resulted in the procurement of his subscription to its capital stock. If such depositors or creditors had no knowledge, or were not chargeable with notice, of the fraud in the procurement of complainant's said subscription, the claims of such depositors or creditors were paramount to that of the defrauded stockholder. Of the class of depositor-creditors, due notice was taken in the decree that protected their equities. However, it should be said further that any creditor who dealt with the bank, relying upon the complainant's subscription to the stock of the corporation as being a part of its capital stock prior to disaffirmance, and who had no knowledge or notice of the fraud causing complainant to subscribe for the capital stock, prior to the creation of his indebtedness, shall be preferred to the claim of the complainant.

The lower court seems to have ruled on the trial in accordance with the holding of the former appeal as to the equities of the bill. The proof, if not without dispute, overwhelmingly shows that the material equities of the bill were established and that complainant was entitled to the relief prayed.

The decree of the circuit court, in equity, ordering that the claim of complainant shall be "paid along with the other general creditors of the said bank, subject to the priority of the claims of the depositors as aforesaid," failed to safeguard the paramount claims of subsequent creditors of the bank, if such there be, who, as we have indicated, should be given priority over complainant, and in this it was in error.

It follows that, to the extent indicated, the decree of the circuit court, in equity, is reversed on main appeal; in other respects the decree is affirmed.

Affirmed in part; in part reversed, and remanded.

SAYRE, SOMERVILLE, and GARDNER, JJ., concur.

ANDERSON, C.J., and McCLELLAN, J., dissent.

BROWN, J., not sitting.

On Rehearing.

THOMAS J.

The cross-appellant (appellee) claims interest only upon condition that there are funds enough to pay the "principal and interest in full on all claims against the estate of the Jefferson County Bank." As a general rule, "if, as the result of good fortune or good management, the estate proves sufficient to discharge the claims in full, interest as well as principal should be paid," and this is not stopped by the appointment of a receiver; that is that interest upon contracts which provide for interest does not stop running when the property passes into the hands of the court. Spring Coal Co. v. Keech, 239 F. 48, 152 C. C. A. 98, L. R. A. 1917D, 1152, and notes. When the estate is insolvent, it is immaterial to the creditor whether the dividend is calculated on the basis of the principal alone or the principal and interest combined, if claims of like dignity are so computed.

In Central Trust Co. v. Condon, 67 F. 84, 98, 14 C. C. A. 314, 328, Judge Taft said:

"This is not a case where the distribution is to be made pro rata between the lienholders and the bondholders, in which case, of course, interest is not to be calculated upon the claims after the time of the sequestration of the property for sale and distribution, so long as the claims cannot be paid in full."

In the distribution of the proceeds of a common security between liens of different priorities, interest is not stopped on the amount of the superior lien until it is satisfied. "As between the bondholders and the lienholders, the lienholders are entitled to interest to the day of payment." Chemical National Bank v. Armstrong, 59 F. 372, 8 C. C. A. 155, 28 L. R. A. 231, 239; Armstrong v. Am. Exch. Nat. Bank, 133 U.S. 433, 470, 10 S.Ct. 450, 33 L.Ed. 747. Where interest is reserved in the contract, or is implied by the nature of the promise, it becomes a part of the debt and recoverable as of right; but when it is given as damages it is often matter of discretion. Redfield v. Y. I. Co., 110 U.S. 174, 3 S.Ct. 570, 28 L.Ed. 109; Richmond & Irvine Constr. Co. v. Richmond, etc., Co., 68 F. 105, 15 C. C. A. 289, 34 L. R. A. 625.

In First National Bank of Houston v. Ewing, 103 F. 168 190, 43 C. C, A. 150, after referring to the case of Thomas v. Western Car Co., infra, the general rule announced by the Supreme Court was declared "applicable to cases where the fund is to be...