Hall & Farley v. Alabama Terminal & Improvement Co.

• Citation: 56 So. 235,173 Ala. 398
• Parties: HALL & FARLEY v. ALABAMA TERMINAL & IMPROVEMENT CO. ET AL.
• Decision Date: 29 June 1911
• Court: Supreme Court of Alabama

56 So. 235

173 Ala. 398

HALL & FARLEY v. ALABAMA TERMINAL & IMPROVEMENT CO. ET AL.

Supreme Court of Alabama

June 29, 1911

Appeal from City Court of Montgomery; A. D. Sayre, Judge.

Action by Hall & Farley as trustees, etc., against the Alabama Terminal & Improvement Company and others. Judgment for defendants, and plaintiffs appeal. Affirmed.

Gunter & Gunter and J. M. Chilton, for appellants.

R. L Harmon, for appellees.

MAYFIELD J.

The bill in this case is by the judgment creditors, to subject equitable assets of an insolvent corporation to the payment of their judgments, after the return of execution, "No property found." The particular assets sought to be subjected are debts or choses in action alleged to be due the insolvent corporation from its original stockholders, for their unpaid subscriptions to its capital stock. The equity of the bill for this purpose has once been doubted (if not denied) by this court; but we take it that it has now been settled affirmatively.

This suit, in one form or another, has been many times before this court. For its history, and a full statement of the facts and the law of the case, we refer to the reports of former decisions of this court in this particular case. See Hall v. Henderson, 134 Ala. 455, 32 So. 840, 63 L. R. A. 673; Id., 126 Ala. 449, 28 So. 531, 61 L. R. A. 621, 85 Am. St Rep. 53; Hall v. Alabama Terminal & Imp. Co., 104 Ala. 577, 16 So. 439, 53 Am. St. Rep. 87; Id., 143 Ala. 464 39 So. 285, 2 L. R. A. (N. S.) 130; Id., 152 Ala. 262, 44 So. 592. The last decision above referred to settled the questions as to the propriety of the various amendments to the bill, and that they did not constitute a departure from the original.

Since the last appeal in this case, it appears that some of the respondents have compromised their liabilities. The bill was dismissed as to these, but retained against the other three respondents, to wit, O. C. Wiley, Wiley & Murphree, and J. M. Henderson & Co.

The claim against each of these three respondents is for unpaid subscriptions to the capital stock of the insolvent judgment-debtor corporation, the Alabama Terminal & Improvement Company. These respondents admit subscriptions for stock in the corporation as alleged, and admit original liability to the corporation as for such stock, but set up, as defenses, that the liability had been satisfied and discharged before the filing of the bill.

They also set up the defense--heretofore urged before this court--that a court of equity, at the suit of creditors, is without jurisdiction to pursue and condemn choses in action of an insolvent corporation, such as are sought to be subjected in this suit, which are withheld from the creditors, provided they are so withheld, "without fraud"; that is, in the absence of active fraud, equity is without jurisdiction. This question has been much and ably discussed in former opinions of this court and in briefs of counsel, to be found in the former reports of this case.

The law as contended for by respondents was announced in the case of Donovan v. Finn, Hopkins, Ch. (N. Y.) 59, 14 Am. Dec. 531, and probably by a dictum of Lord Thurlow, in Dundas v. Dutins, 1 Ves. Jr. 196. And this court was at first inclined to follow these cases to the extent contended for by respondents. But, after extended and mature consideration of this question, we are inclined to recede from the position first taken by this court on the question, and now hold that fraud in the transfer or in the withholding of the assets from the creditors is not necessary to equity jurisdiction in cases like this.

We are now inclined to the opinion, and hold, that the jurisdiction of equity to subject choses in action to the payment of a judgment, after the return of execution, "No property found," is founded upon the necessity for supplying a remedy, where that of the common law is inadequate, and therefore that inadequacy of a legal remedy, and not fraud vel non, is the better test of equity jurisdiction in such cases. Public Works v. Columbia College, 17 Wall. 530, 21 L.Ed. 687; Watson v. Sutherland, 5 Wall. 74, 18 L.Ed. 580; Scott v. Neely, 140 U.S. 106, 11 S.Ct. 712, 35 L.Ed. 358; McConihay v. Wright, 121 U.S. 202, 7 S.Ct. 940, 30 L.Ed. 932; 1 Pom. Eq. §§ 294, 295, 297; 1 Bates, Fed. Pro. § 188; Brown v. Bates, 10 Ala. 432; Spader v. Davis, 5 Johns. Ch. (N. Y.) 280; Hadden v. Spader, 20 Johns. (N. Y.) 554; 1 Story, Eq. Jur. § 53.

The complainants' demand against the insolvent corporation being founded upon a judgment, and the insolvent corporation's claim against the other respondents, sought to be subjected, being founded upon subscriptions to capital stock of the corporation, and the amount of this subscription and the original liability therefor being undisputed, and the equity of the bill, and the questions as to pleadings and departure, being settled in favor of complainants, there remains for decision only the liability of these particular respondents as for their subscriptions at the time of the filing of the bill.

The special defenses to the bill set up by these respondent stockholders are, first, that they had paid their subscriptions and thus discharged their liabilities; second, that they had sold their stock to third parties, who had assumed the original liability of the respondents, and who were accepted by the corporation as debtors in lieu of the respondents, and that the transferees of the stock had paid the debts or discharged the liability; third, they, or some of them (O. C. Wiley and Wiley & Murphree), set up res judicata, in that they were sued as garnishees by complainants, and were discharged after contest and trial on the merits. Either of these defenses, if well and sufficiently pleaded and established, is good. We will first treat the cases of O. C. Wiley and Wiley & Murphree, as to the defenses of res judicata; they being the only ones who set up this defense.

The ancient doctrine announced by Coke, that estoppels were odious, is not now regarded as correct; and it is certainly not so, when applied to estoppels by judgment, such as that attempted to be set up in this case. There should be an end to, as well as a right of, litigation. A plea of res judicata, or estoppel by judgment, to be sufficient, must be well pleaded. The true rule in such cases, both as to the sufficiency of the pleadings and of the proof, has been thus quoted and stated by this court: "In the opinion of the Judges, given in the Duchess of Kingston's Case, 2 Smith's Lead. Cas. 609 (573), is the following language, given as the result of the numerous decisions relative to judgments being given in evidence in civil suits: 'That the judgment of a court of concurrent jurisdiction, directly upon the point, is, as a plea, a bar, or as evidence conclusive, between the same parties, upon the same matter, directly in question in another court.' It cannot be overlooked that this language lays down a strict rule; yet it is supported alike by reason and authority. The parties must be the same, the subject-matter the same, the point must be directly in question, and the judgment must be rendered on that point. Any of these ingredients wanting, the defense fails. The sentence quoted above has been adopted, both by text-writers and judicial tribunals, and has come to be recognized as a judicial axiom. McCravey v. Remson, 19 Ala. 430, 54 Am. Dec. 194; Miller v. Jones, 29 Ala. 174; 1 Greenl. Ev. §§ 528, 529; Freem. on Judgments, § 258. In Chamberlain v. Gaillard, 26 Ala. 504, this court said: 'The rule is that judgments are final and conclusive between the parties, when rendered on a verdict on the merits, not only as to the facts actually litigated and decided, but that they are equally as conclusive upon all the facts which were necessarily involved in the issue; and, although the particular matter is not necessarily involved in the issue, yet, if the issue is broad enough to cover it, and it actually arose, and was determined, it may then be connected with the record by evidence aliunde. * * * In the plea we are considering, however, there is no allegation that the question of ownership entered into the issue of the former action.' " Gilbreath v. Jones, 66 Ala. 132, 133.

The rule has been thus stated by the Supreme Court of the United States: "To render the judgment conclusive, it must appear by the record of the prior suit, that the particular matter sought to be concluded was necessarily tried or determined--that is, that the verdict in the suit could not have been rendered without deciding that matter; or it must be shown by extrinsic evidence, consistent with the record, that the judgment necessarily involved the consideration and determination of the matter."

Unless otherwise provided by statute or rule of practice of courts, such as rule 28, chancery practice (Civ. Code 1907, p. 1537), one requisite to the sufficiency of such pleas and the proof thereof is that the former judgment, set up as an estoppel or res judicata, must have been decided or rendered upon the merits of the case involved in the second suit.

The plea of res judicata interposed in this case would have met the requirements as above quoted, and would have been sufficient if the records which were made exhibits and parts thereof had supported the conclusion of the pleader; but if it be said that it averred facts, and not conclusions, then the plea was inconsistent in its averments, and was not proven. It averred that the answer of respondents was contested, as provided by law, and that the case was tried and determined on its merits, in favor of the garnishees, the respondents here; but unfortunately it made the record of that garnishment proceeding a part of the plea, and the record was inconsistent with the other...