Kelly v. Browning , 113 Ala. 420 ( 1896 )

COLEMAN, J.

The appellees, Browning and others, filed their bill in the chancery court, and upon a demurrer being sustained, filed an amended bill, as a substitute for the original bill. The amended bill was subsequently amended, to which the respondents demurred, assigning several grounds of demurrer. The court overruled the demurrer to the amended bill as amended, and from this ruling overruling the demurrer, the respondents appeal and assign the same as error.

In its present condition the bill shows that in and prior to the year 1886 the East & West Railroad Company, a corporation, incorporated under the laws of Alabama, had issued seventeen hundred and fifty first mortgage bonds, of one thousand dollars each, secured by a first mortgage on all the property of said corporation, and of these, complainants were the owners of nine hundred and sixty-six, and that the respondents, or Eugene Kelly, owned a large proportion of the remainder of said bonds. The bill shows that complainants* were the owners of 6,000 shares of the stock of said railroad corporation. In 1888 one James W. Schley, a judgment creditor of said railroad corporation, .filed a bill in equity in the United States Circuit Court for the Southern Division of the Northern District of Alabama, in which he sought to set aside and annul the said mortgage bonds, and to subject the railroad property to the satisfaction of his judgment. A receiver was appointed, who took charge of said railroad pending this controversy. Under these circumstances, the complainants and respondents entered into the following agreement:

“This agreement made the 11th day of May, one thousand, eight hundred and eighty-eight, by and between Edward F. Browning and J. Hull Browning, of the City of New York, and Amos G-. W.est, of Cedar-town, in the State of Georgia, parties of the first part, and John Byrne and Eugene Kelly, of the said City of New York, parties of the second part,

“Witnesseth whereas, the parties of the first part are the owners and holders of $966,000 at par value of the consolidated bonds of the East & West Bailroad Com-isan}'' of Alabama, and a majority of the shares of the capital stock of said railroad company.

“Now, therefore, in consideration of the mutual covenants and agreements hereinafter stated and the payments to be made upon the conditions hereinafter specified, the said parties have agreed and do hereby agree each with the other as follows, that is to say :

‘•'First. The parties of the first part hereby agree to sell, alien and release, and do hereby sell, alien and release unto the parties of the second part all their right, title and interest in and to the said $966,000 at par value of said consolidated bonds and the coupons thereto attached, and all of said shares of said capital stock held by them, being not less than six thousand shares, and hereby agree to deliver the same to the parties of the second part upon the terms, in accordance with the provisions, and in the manner hereinafter specified.

‘ ‘Second. The parties of the second part hereby agree to endeavor to. obtain the reorganization of said railroad company, and to cause said railroad corn pan y, or its bonds to he known as first mortgage bonds in lieu of said consolidated bonds, upon such plan of reorganization as may be in their opinion most expedient and proper, and to save harmless the parties of the first part from all assessments, costs, charges and expenses whatever in connection with such reorganization, or any proceedings, actions or suits at law or in equity with reference to the said bonds or stock, or any portion thereof, except as hereinafter provided; and upon the completion of said reorganization, and as soon as the said railroad, its property and franchises, are in the full possession and control of said, railroad company which may be formed under and for tire purpose of carrying out such plan of reorganization, and upon the discontinuance of any and all proceedings, actions or suits at law or in equity which may be now pending, or which may be hereafter instituted, with reference to said property or said bonds or stock, or any portion thereof, and as soon as the securities and stock to be issued under such plan of reorganization shall be_ ready for delivery, the parties of the second, part sbñTT pav and deliver, or .cause to be paid and delivered, jo the parties of the first part for the said — con soli dated “bonds and stofik" hereby sold securities to-bo-issued under such plan of reorganization as follows :

“1. In case the total amounts of said new bonds to be issued under such plan of reorganization shall be one million, five hundred thousand dollars five per cent, first mortgage bonds, then the parties of the first part are to receive and tlie parties of the second part are to pay and deliver, or cause to be paid and delivered, to the parties of the first part $416,000 at par value of said new bonds, and $600,000 at par value of preferred stock out of $700,000 at par value of preferred stock to be issued under such plan of reorganization.

“2. In case the total amount of said new bonds to be issued under such plan of reorganization, shall be one million, two hundred thousand dollars five per cent, first mortgage bonds, then the parties of the first part are to receive and the parties of the second part are to pay and deliver, or cause to be paid and delivered, to said parties of the first part $333,000 at par value of said new bonds, and $683,200 at par value of preferred stock to be issued under such plan of reorganization. It being generally understood that the several aggregate amounts of issues of new bonds hereinafter mentioned are upon the basis of a narrow-gauge railroad, as the said railroad is now operated ; that said new bonds shall not exceed the rate of $12,500 per mile of narrow-gauge road, and that in case the gauge shall be widened to the standard gauge, the aggregate amount of said new bonds to be issued may be increased not to exceed the rate of $2,500 per mile.

‘ ‘It is also further mutually understood that in case that said preferred stock cannot be legally issued, or shall not be issued under said plan of reorganization, then the parties of the second part shall pay to the parties of the first part in lieu of said preferred stock so to be paid to them, as hereinafter provided, such securities other than first mortgage bonds as may be issued under such plan of reorganization, to be paid in such amounts as may be determined by arbitration in the manner hereinafter provided.

“Third. In case any portion of said $966,000 at par value of said consolidated bonds hereby sold to the parties of the second part by the parties of the first part, not exceeding $550,000 at par value, shall be adjudged invalid by any court of last resort- having jurisdiction thereof, then-the parties of the first part shall be entitled to receive only such proportion of said preferred stock, to be paid and delivered to them as hereinbefore provided, as the proportion of said amount of $550,000 at par value of said bonds adjudged by such court to be valid shall bear to tlie total amount of such preferred stock so to be paid and delivered to said parties of the first part. And in case any portion of the remainder of said $966,000 at par value of said consolidated bonds, being $416,000 at par value, shall be adjudged invalid by such court, then the parties of the first part shall be entitled to receive only such proportion of such new bonds, to be received by them as hereinbefore provided, as the proportion of such consolidated bonds adjudged by such court to be valid shall bear to the total amount of new bonds so to be received by the parties of the first part.

“Fourth. It is mutually agreed by and between the parties hereto that all costs, expenses or counsel fees incurred in or by reason of any litigation that might arise with reference to the subject matter of this agreement, other than or in addition to the costs, expenses and counsel fees which the court may direct to be paid, or which may be paid out of the proceeds of the sale of said railroad, in case a sale thereof be had, or which may be paid by said railroad company, shall be divided between the parties hereto in proportion to the value of their holdings, respectively, upon the payment and delivery of their securities to be paid and delivered by the said parties of the second part to said parties of the first part as hereinbefore provided.

“Fifth. It is mutually agreed by and between the said parties, that immediately upon the execution of this agreement the parties of the first part shall deliver to the American Loan & Trust Company, of New York City, the securities and stock hereinbefore mentioned, and hereby sold by them, to be held by said trust company as trustee, for the purposes of this agreement.

“Sixth. That the parties of the first part hereby agree that whenever the parties of the second part shall so request they will place the parties of the second part in control of the Board of Directors of said railroad company, by causing the resignation of the several directors controlled by them and the election to such vacancies, as they severally occur, of persons to be designated by the parties of the first part.

“Seventh. In case any dispute shall arise between the parties hereto, in ■ reference to the construction or effect of any portion of this agreement, or anything connected witli the subject matter thereof, the same shall be settled and adjusted by arbitration, of whom each of the parties hereto shall select one, and in case of any disagreement of said arbitrators so chosen, the arbitrators shall have the power to select a third, and the decision of any two of' said arbitrators shall be final, conclusive and binding upon the said parties.

‘ ‘In witness whereof the parties hereto have set their hands and seals the day and year first above written. .

“B. F. Browning, (L. S.)

“J. Hull Browning, (L. S.)

“Amos West, (L. S.)

“By J. Hull Browning, his Attorney in fact.

“John Byrne, (L. S.)

“Eugene Kelly, (L. S.)”

“Witness :

Frank Sullivan Smith.”

The bill avers that in pursuance of said agreement, and to be used in conformity thereto, complainants delivered to The American Loan & Trust Company the said nine hundred and sixty-six consolidated mortgage bonds and six thousand shares of stock, subject to the control of said respondents and which were availed of by them and subsequently, by Eugene Kelly, one of the respondents, with the acquiescence of his co-respondent Byrne, for his individual and separate benefit “as hereinafter set forth.” The bill shows that The American Loan & Trust Company, at the direction of the respondents, filed a bill in equity for the foreclosure of the mortgage made to secure said consolidated bonds, and that the suit of Schley, said judgment creditor, and also a suit of Grant Brothers, were consolidated with the foreclosure suit, and that at the hearing, the bills of complaint of said Schley and of Grant Brothers were dismissed, that the mortgage bonds were declared and held-to be valid, and a decree of foreclosure and sale of the property rendered.

The bill shows that at the reference held in the foreclosure suit, the respondents claimed and proved up their ownership of said bonds, which_ had been transferred to The American Loan & Trust Company as provided in said agreement.

The bill further shows that pending the foreclosure suit-, the respondents procured an order of the court, to the effect that the receiver should issue receiver’s certificates to the amount of six hundred and fifty thousand dollars, which should be a lien, and have priority of all other liens, upon all the property of said railroad corporation, the proceeds thereof to he used in repairing and operating said railroad, and in widening the gauge as provided in said .agreement; and it -is averred, that respondent’s procured the order for issuing said receiver’s certificates to be so framed that the receiver should first obtain the consent of the owners of said bonds, and that the. owners of said bonds, in the proportion in which they held them, should have the privilege of first taking said certificates. The bill avers that under these provisions in the order authorizing the issue of said receiver’s certificates, the respondent Kelly, with the acquiescence of his co-respondent Byrne, proved up the ownership of said nine hundred and sixty-six bonds, as well as other bonds owned by himself, and thereby obtained the issue to him of six hundred and twenty thousand dollars of said certificates. The bill further shows that at the instance and request of said respondents, the decree of foreclosure and sale of the property provided “that the proceeds of the sale, after deducting certain cost and charges, be applied first to the payment of interest accrued, and afterwards to the payment of the principal of said receiver’s certificates,” and that the remainder of the purchase money, after the payment of a specified amount in cash, might be made in said consolidated bonds at the option of the purchaser. The bill avers that the respondent Kelly bid off the property for himself, took the title in his own name, and now has possession and claims the property as his own.

The pleader concludes from the facts stated, that Kelly by reason of his holding and control of said 966 consolidated bonds, and the framing of the order for receiver’s certificates, and the decree of foreclosure, which gave to the bondholders an advantage over all competition, was enabled to purchase, and avers as a fact that he did purchase, the railroad property at much less than its real value, and after having acquired the property at much less than its value by using the consolidated bonds transferred by complainants, refuses to carry out the agreement and repudiares and refuses to recognize complainants’ rights. The bill shows that the parties are nonresidents, that the railroad corporation was a domestic corporation, that its property conveyed by the mortgage to secure the bonds consisted largely of real estate, situated in the chancery district in which the bill was filed, that this property was included in the decree of foreclosure and purchased by the said Kelly and in part at least is the subject of the suit. It avers, as a conclusion from the facts, that the agreement was to be performed in Alabama.

We have not undertaken at present to state in detail all the averments of the bill, but only so much as we deem necessary for the consideration of those grounds of, demurrer directed against the maintenance of the suit. Other averments will be considered hereafter in connection with the causes of demurrer assigned against certain features of the bill.

Appellants contend, that as the bill shows that all the parties are non-residents, there are no averments of fact, which give jurisdiction. Section 3414, subdiv. 2 of the Code of 1886, reads as follows : “Against non-residents, when the object of the suit concerns an estate of, lien or charge upon lands, or the disposition thereof, or any interest in, title to or incumbrance on personal property within this State, or where the cause of action arose, or the act on which the suit is founded, was to have been performed in this State.” Section 3421 of the Code provides that “in case of non-residents [the bill must be filed] in the district where the subject of the suit, or any portion of the same, is, when the cause of action arose, or the act on which the suit is founded was to be performed ; or if the real estate be the subject matter of the suit, whether it be the exclusive subject matter of the suit or not, then in the district where the same or a material portion thereof, is situated.” If the other averments of the bill are such as to show that complainant is entitled to equitable relief, those relative to the jurisdictional facts required by the statute, in cases of non-residents, are sufficiently pleaded.

■Appellants further contend that the agreement of the parties of May 11th, 1888, did not impose any absolute obligation to effect a reorganization as therein provided, but that they only obligated themselves ‘ ‘to endeavor to obtain the reorganization of said railroad company,” and tliat the court is without power to enforce specific performance of such reorganization. We need not decide this question. It seems evident that if the facts averred in the bill are true, and which the demurrer admits to be true, there is nothing to prevent the respondents from performing their undertaking and effect-i ing a reorganization according to the terms of their agreement. The voluntary refusal of respondents to^ carry out their agreement, cannot avail to their benefit and to the injury of complainants without fault on the part of the complainants. Were it impossible to reorganize the corporation, this would not authorize the respondents to usé the funds of complainants, as the bill avers they were used, in the purchase of property freed from all equitable right of complainants. The bill avers that under and by virtue of the agreement, the appellants acquired from complainants the control and in effect the legal ownership of a majority of the consolidated bonds of the railroad corporation and shares of stock, to be used by them for certain purposes, specified in the agreement. The bill shows that respondents did make use of the bonds to procure a decree of forclosure and sale of the property. That they were used to obtain an advantage in the acquisition of receiver’s certificates— that the decree of foreclosure and sale of the property gave to the holders of the bonds such an advantage as to shut out all competition and bidding, and that Eugene Kelly, with the acquiescence of Byrne, availed himself of these advantages, by the use of the bonds obtained under the agreement from complainants, to purchase the property at a price greatly less than its real value. It is fairly inferable that without the control of the bonds, he could not have purchased the property on such terms. The bill and the agreement show, that it was contemplated by the parties that respondents might purchase the property to effect a reorganization of the corporation. We are satisfied that if the averments of the bill be sustained by the evidence, that complainants have an equitable interest in the property purchased by Kelly, and that without regard to the bonafides of his intention in. procuring the issue of receiver’s certificates, or the decree of foreclosure of sale, or the purchase of the property. If these steps were taken by him and property purchased in good faith to carry out the agreement, and he refuses now to perform it, in a court of equity he holds the property in trust for the complainants to the extent of their proportionate interest. If these proceedings were taken apparently in good faith with the secret purpose on his part to defraud complainants, it will avail him nothing. Having succeeded in purchasing the railroad and taking the title to himself under his agreement with complainants, acting in the capacity of agent or trustee and by the use of their- property, he is in equity a trustee. The bill is not rendered multifarious for the reason that it may aver these acts of respondents to have been done in furtherance of the agreement or with a fraudulent intent. It does not seek to set aside the transfer of the bonds, nor the decree of foreclosure, nor the purchase by Kelly. Its purpose is to have a trust declared upon the property in favor of complainants, to the extent of their interest. A bill is not necessarily multifarious, which is one aspect, shows an express trust arising from contract, and in another, a purely resulting trust, and in another, the use of the assets of a cestui que trust by a trustee in payment of property to which he took title in his own name, although the rights of the party whose money was used are not subject in all1 respects to the same principles of law. In either case, the object of the bill may be single, the subject matter the same, and appropriate prayer for relief to the several aspects would be inconsistent. We think these principles have been settled in the following cases: Preston v. McMillan, 58 Ala. 84; Foley v. Leva, 101 Ala. 395; Houston v. Farris, 93 Ala. 587; Winston v. Mitchell, 92 Ala. 555; Tilford v. Torrey, 53 Ala. 120; Ellison v. Moses, 95 Ala. 221, 227; Whaley v. Whaley, 71 Ala. 159; Parker v. Jones, 67 Ala. 234; Lehman v. Lewis, 62 Ala. 129.

In one aspect of the bill, complainants show the purchase of the railroad by Eugene Kelly in pursuance of the agreement and their right to a proportionate share, and ask that they be decreed such interest in the property. In the other aspect, complainants show, that respondents appropriated the trust property with a fraudulent purpose, in this, that instead of using it as provided in the trust for the benefit of complainants, respondents purchased the railroad property for themselves, or Kelly did for himself, Byrne consenting thereto, using the funds of complainants in making the purchase. In the latter aspect, we have the case of a cestui que trust, pursuing his money into specific property and praying for a sale for his reimbursement. The case of Winston v. Mitchell, 93 Ala. 555, supra, is strictly applicable. By the original bill, the complainant averred that-the purchase of the property was made with her ■funds and for her, and prayed that the property be decreed to her. By the amended bill, (amended to meet the evidence under the statute), she averred that the trustee used her money in payment of the property, and prayed that it be declared subject to a trust and sold for her reimbursément. The very objection raised in this case was urged in that case. If the amendment was allowable, it is very clear, that the bill of complaint could have been framed originally in both aspects. The present case is not like that considered in Ellison v. Moses, 95 Ala. 22, supra, where the money could- not be traced, and complainant’s remedy was only in a court of law for breach of contract. We attach no importance to the use of the terms in the agreement with reference to the words “sell, alien and release.” Construed as an entirety, the agreement leaves no room to doubt the extent and purpose of the sale and transfer of the bonds, and of the trust thereby created.

We are of the opinion that under the averments of the bill, the respondent Byrne is a proper party to the complaint. He was a party to the agreement, and became a trustee or agent for complainant under its provisions. It is averred that the proceeding for the foreclosure of the mortgage was instituted by the respondents, that they proved up their ownership of the bonds, and that Kelly purchased the property with the acquiescence'of Byrne. If after answer filed., or the taking of the evidence, it appears that he has no interest in the litigation, the hill can be amended by striking out the name at the proper time. On the demurrer we are of opinion, under the averments, he was properly made a party respondent.

We are of the opinion that the averments of the bill are insufficient to deprive the receiver’s certificates of the priority given to them by the order and decree of the court, and hold that Kelly, who became the purchaser, may assert a prior lien. True the bill avers in substance that he continued to acquire and use these certificates for his personal advantage, but the bill fails to show that the proceeds were not used bona fide in operating the road and widening its gauge and in enhancing its value. These receiver’s certificates were issued and invested with a prior lien, with the consent of the bondholders. The case is this : The complainants and respondents owning the first consolidated bonds and mortgage, entered into an agreement for the acquisition of the railroad, and its reorganization upon certain terms. To accomplish this purpose, proceedings for the foreclosure of the mortgage at the instance of the bondholders were instituted, and this proceeding was within the contemplation of the agreement for the reorganization. Pending the foreclosure proceedings, with the consent of the bondholders for the x>reservation of the property, and the enhancement of its value, the receiver’s certificates were ordered and made a prior lien. The rights of complainants and respondents as bondholders and parties to the agreement for reorganization were those of second mortgagees. As agent or trustee, the respondents or Kelly paid off the first lien. In discharging the prior incumbrance (the receiver’s certificates) Kelly was benefited individually, to the extent of his interest in the second lien (that is, the bond mortgage) , and complainants were benefitted to the extent of their interest. Under these circumstances the equitable rights of the parties are, that complainants must reimburse Eugene Kelly to the extent of their propor-tiohate interest, and Kelly must be charged with his proportionate share. The complainants submit themselves to the court and offer to do equity. Their interest in the property is chargeable with this equity, and as complainants offer to do equity and submit themselves to .the court, the bill is not objectionable in this respect.

The amended bill was filed as a substitute for the original bill. As to subsequent amendments, the amended bill was the only bill, and was referred to as the original bill. It is evident that this was the intention of the pleader, and so understood by the court. The criticisms in this respect are not tenable. There may be some inapt expressions employed in the frame of the bill, but taking it as a whole, and considering its purpose and the averments of facts, we are of opinion that there was no error in overruling each demurrer.

Affirmed.