Opinion
6 Div. 996.
October 8, 1942.
Appeal from Circuit Court, Jefferson County; Gardner Goodwyn, Judge.
Suit in equity by Maud Buck Welch, individually and as administratrix of the estate of W. S. Welch, deceased, against J. L. Welch and others to construe a trust deed. From a decree overruling a demurrer to the bill as amended, respondents appeal.
Affirmed.
The instrument exhibited with the bill is as follows:
"Know All Men by These Presents, That whereas, the stockholders and the Board of Directors of the within named and undersigned Bessemer Home Building Loan Association desire to dispose of the assets of and to dissolve said corporation and to that end the said Board of Directors and the said stockholders have heretofore at legal meetings of said Board of Directors, and of the said stockholders, respectively, called and in meeting assembled for that special purpose, duly and legally passed resolutions authorizing and directing the President and Assistant Secretary of said corporation to forthwith proceed in the name and on behalf of said corporation to set over, assign, transfer and convey unto the grantees herein, as herein provided, all of the assets of said corporation, including all real, personal and mixed property, as well as any and all other things of value owned by or to which said corporation may be entitled to the end that said corporation may be dissolved and its affairs wound up by such Trustees and its assets distributed to the stockholders as their interest may appear in lieu of the affairs of said corporation being wound up by the directors.
"Now, therefore, in consideration of the foregoing, and the further consideration of One ($1.00) Dollar, inhand paid to said Bessemer Home Building Loan Association by George E. Rutledge and W. S. Welch, as Trustees, the receipt whereof is hereby acknowledged, the said Bessemer Home Building Loan Association, a corporation, by George E. Rutledge, its President, and G. R. Davies, its assistant secretary, who are hereunto by both the Board of Directors and the stockholders of said corporation duly, legally and fully authorized, does hereby set over, assign, transfer, grant, bargain, sell, convey and deliver unto the said George E. Rutledge and W. S. Welch, as Trustees, the following described real estate, personal and mixed property, to-wit: (Description of property omitted)
"To Have and to Hold the above described premises and property unto the said George E. Rutledge and W. S. Welch, as Trustees, and their successors in office, and assigns forever, in trust, however, for the use and benefit of G. R. Davies, Thos. T. Huey, Joe F. Lewis, W. S. Welch, Lee Moody, John C. Perry, George E. Rutledge and D. E. Wilson, together with the following powers, rights, immunities and privileges as such Trustees. (a) To take possession of and hold, repair, conserve, and protect said premises and property, and collect and conserve the income therefrom; (b) To assess and pay the taxes and pay all assessments on said property and premises and when legally imposed thereon; (c) To from time to time rent, lease and sell on lease sale contract, or otherwise, as the Trustees may elect, and convey any part or parts, or all of said property, and premises, and to collect such rents, payments on lease, or purchase price thereof; (d) To appoint agents, attorneys-in-fact, whenever by said Trustees deemed to be necessary, giving and granting unto such agents, and attorneys-in-fact power to do any act that said Trustees are authorized to do hereunder; (e) In the event of the death, incompetency or disability of said Trustees, or either of them, the beneficiaries under this trust may, by paper in writing, duly executed by all of them, or by a majority in interest of them, appoint a Trustee, or Trustees, in lieu of the Trustee or Trustees herein named, such written instrument, appointing such trustee or trustees, as the case may be, to be recorded in the office or offices of the judge or Judges of Probate of the County or Counties wherein papers affecting the title to land embraced herein may be required by law to be recorded; (f) Said Trustees are hereby authorized and empowered to from time to time deduct from any funds in their hands, realized from said Trust estate a reasonable amount to compensate the Trustees for administering said Trust; (g) The said Trustees are authorized and empowered to employ an attorney or attorneys to represent them in legal matters pertaining to said Trust estate and to pay such attorney or attorneys out of any funds of the trust estate in their hands reasonable fees for services rendered with respect thereto; (h) Said Trustees are authorized and empowered to improve any of the properties or premises belonging to said trust estate if and when, in their opinion it is to the best interest of said trust estate so to do, using therefor any funds of the trust estate in the hands of such trustees; (i) Said Trustees are hereby given full power and authority to sell any or all of said property from time to time, and as such trustees to execute conveyance thereto to the purchasers of such property: (j) As Moneys are realized from said premises and property by way of collections of rents and on leases and sales or other incomes from said trust estate, the said Trustees are hereby directed and required to keep an accurate account thereof, and after deducting the necessary expenses of administering the trust and payment of the carrying charges of said property; to distribute the same to said beneficiaries of said trust estate in proportion to their respective interests therein, as evidenced by the stock they respectively hold in said Bessemer Home Building Loan Association, each of said beneficiaries shall own an interest in said trust estate proportionate to the stock held by him in the grantor; (k) The said Trustees are hereby directed and required before distributing any of the assets of said trust to the beneficiaries to pay in full the indebtedness secured by that certain mortgage executed by the said Bessemer Home Building Loan Association to First National Bank at Bessemer, the indebtedness secured by that certain mortgage executed by the Bessemer Home Building Loan Association to W. S. Welch, said two mortgages constituting liens on the respective properties described in them superior and prior to all other liens and claims against said properties except the lien for taxes and municipal assessments; (1) The said Trustees shall not be held liable for any act of theirs with respect to said trust unless such act constitutes gross negligence or willful misconduct on the part of the trustees; (m) The said Trustees are hereby authorized and empowered to refinance both or either of the mortgages executed by the said Bessemer Home Building Loan Association, one to First National Bank at Bessemer and the other to W. S. Welch, and to this end to execute and thereby bind the said trust estate to all such papers and documents as to said trustees may appear to be just and proper, said refinancing to embrace either the whole of the indebtednesses in said mortgages or any part thereof, any obligation appearing to be assumed in the execution of any papers or documents with respect to such refinancing shall bind said trust estate and be the obligation or obligations thereof; (n) The said Trustees, as such, assume as a part of the consideration for this conveyance and trust agreement the indebtedness secured by the said mortgage of the grantor herein, to said First National Bank at Bessemer, and the indebtedness secured by the said mortgage of the grantor herein to said W. S. Welch, the said Trustees, as such, hereby obligating themselves to pay the said indebtedness out of said trust estate, and this obligation fully binding said trust so to do; (o) This trust is to be wound up, said property disposed of and the proceeds disbursed and distributed to the beneficiaries within five years from the date hereof. (p) The said Trustees do not assume any personal liability hereunder, and especially by the assumption by the Trustees of the said mortgage indebtedness to the First National Bank at Bessemer, and mortgage indebtedness to said W. S. Welch, the said assumption being in their official capacity only, and placing no personal liability on the individual trustees whatsoever. (q) In renting, leasing, selling, repairing and otherwise dealing with and handling said property, and administering said trust estate, and carrying out this trust agreement, the trustees shall have and they are given full power and authority as to fixing the price to be paid in case of sales, rents to be paid in case of renting the property, and the conditions of all contracts, leases and deeds with respect thereto, in all cases the Trustees using and acting upon their own best judgment, the trustees being hereby given full power and authority to deal with any and all of said property in such respects as if they were the full owners thereof, including the authority to exchange from time to time, any or all of said property for other property, if and when, in their judgment it is to best interest of the trust estate so to do, and to execute rental and lease contracts, and lease sale contracts and deeds of conveyance, contracts for repairs, and all other contracts and agreements with respect to said property that may be necessary or deemed expedient to carry to full consummation any contract or deal made or entered into by the trustees with respect to any of said property, it being the purpose to vest said trustees with full authority to deal with and handle such property as if the owners thereof, all such contracts and dealings, however, to be in the names of the trustees, as such."
Hugh A. Locke, of Birmingham, for appellants.
When a corporation is dissolved its real estate vests in its stockholders, subject to rights of creditors. 14a C.J. 1153, § 3808; Nelson v. Hubbard, 96 Ala. 238, 11 So. 428, 17 L.R.A. 375. Equitable conversion of real estate to personalty will not be declared by a court of equity, unless by clear and unequivocal language such conversion is expressly ordered or is necessarily imperative by implication. 3 Pom.Eq.Jur., 3d Ed., 2304. The liquidation of the corporation is under the trust deed, and the statute is without application to this case.
Huey, Welch Stone, of Bessemer, for appellee.
A stockholder's interest in a corporation, which is evidenced by shares of stock that constitute personal property and whose relationship to the capital stock of the corporation is that of cestui que trust, is not changed by the dissolution of the corporation. Code 1923, § 6994; Code 1940, Tit. 10, § 30; 13 Am.Jur. 464, 465, §§ 410, 413; 18 C.J.S. 618, 1148, §§ 193(7), 477; Holcomb v. Forsyth, 216 Ala. 486, 113 So. 516; Ala. Code 1928, 1936 Supp. § 7111 (35); Gen.Acts 1931, p. 233; Code 1923, § 7069; Code 1940, Tit. 10, § 110; Cohen v. Pavlik, 235 Ala. 289, 178 So. 435; Hawkins v. Pure Oil Co., 232 Ala. 660, 169 So. 307; Rayburn v. Guntersville R. Co., 228 Ala. 662, 154 So. 812, 93 A.L.R. 1055; 19 C.J. 1487, 1490, §§ 1728, 1730. The doctrine of equitable conversion is applicable when land is directed by a deed of trust to be converted into money for a particular purpose. First Nat. Bank v. Cash, 220 Ala. 319, 125 So. 28; Flomerfelt v. Siglin, 155 Ala. 633, 47 So. 106, 130 Am.St.Rep. 67; Bromberg v. Bates, 112 Ala. 363, 20 So. 786; Tait v. Dante, C.C.A.Md., 78 F.2d 303; 19 C.J. 16, § 857; 18 C.J.S. 11, § 51; Collins v. Combs, 160 Ky. 325, 169 S.W. 721; 19 Am.Jur. 6, § 6.
Honorable W. S. Welch, of Bessemer, died intestate July 15, 1940. He left surviving his wife, Maud Buck Welch. His next of kin, and heirs at law, are collateral relatives.
A question arose between the widow and next of kin as to who should take certain property left by the decedent. The inquiry turns on whether the property is realty or personalty. If realty, it descended to the next of kin, subject to the widow's dower; if personalty, the widow took the whole under our statutes.
To determine this issue, Mrs. Welch, individually and as administratrix of the estate of decedent, filed her bill in equity. The appeal is from a decree overruling a demurrer to the bill as amended.
The property in question grew out of Mr. Welch's ownership of stock in Bessemer Home Building Loan Association, organized under the laws of Alabama.
In 1937, the stockholders, desiring to discontinue the business, dissolve the corporation, wind up its affairs, and make distribution of its assets, caused all withdrawal stock of the corporation to be taken up and cancelled. To this end the association in April, 1937, borrowed $20,000, $11,000 from First National Bank of Bessemer, and $9,000 from Mr. Welch, both loans secured by mortgages on the properties of the association.
Withdrawal stock out of the way, left 500 shares of common or permanent stock of $50 each, of which Mr. Welch owned 331 shares.
Thereupon, on July 23, 1937, the corporation executed a deed of conveyance to George E. Rutledge and W. S. Welch, as trustees, both stockholders, a copy of which is exhibited to the bill. This document, omitting descriptions of properties, appears in the report of the case.
For present purposes we observe:
The instrument discloses a purpose on the part of the stockholders, eight in number, to dissolve the corporation, have its affairs wound up, and assets distributed by trustees of their own selection, in lieu of the directors, made trustees under our statute [Title 10, § 110, Code of 1940]; provided for appointment of a successor in case of the death of one of the trustees; defined, clarified, probably enlarged the powers and discretion of the trustees, as compared with the powers of statutory trustees; by apt words of conveyance, passed title to the grantees, as trustees, with power to hold, repair, improve, rent and collect income therefrom; to sell by lease sale contract or otherwise, and execute all contracts and conveyances as trustees; the purpose being to vest the trustees with full authority to deal with and handle the properties as if the owners thereof.
Touching disposal of proceeds, c., the deed required the trustees to first pay off and discharge the mortgage indebtedness above mentioned.
We quote Par. (j): "As moneys are realized from said premises and property by way of collections of rents and on leases and sales or other incomes from said trust estate, the said Trustees are hereby directed and required to keep an accurate account thereof, and after deducting the necessary expenses of administering the trust and the payment of the carrying charges of said property, to distribute the same to said beneficiaries of said trust estate in proportion to their respective interests therein, as evidenced by the stock they respectively hold in said Bessemer Home Building Loan Association, each of said beneficiaries shall own an interest in said trust estate proportionate to the stock held by him in the grantor."
And Par. (o): "This trust is to be wound up, said property disposed of and the proceeds disbursed or distributed to the beneficiaries within five years from the date hereof."
It may be noted this is the same period a corporation dissolved, other than by judicial decree, continues to exist as a body corporate for purposes of maintaining or defending suits, disposing of its properties and making distribution by the directors, as trustees. Title 10, § 110, Code of 1940.
Mr. Rutledge and Mr. Welch accepted the trust and proceeded to execute the same. The property conveyed consisted of some 36 parcels of real estate, numbered and described in the deed and some 10 real estate mortgages held by the Association.
During the lifetime of Mr. Welch the mortgage held by First National Bank of Bessemer was paid off, and after his death, but before the filing of the bill, the mortgage held by him was paid off.
The bill, in Section 4, sets out by numbers certain parcels of property sold and conveyed by the trustees during the lifetime of Mr. Welch, and not a part of the trust estate at the time of his death, certain parcels which had been sold under lease sale contracts during his lifetime and still a part of the trust estate, and a third list of parcels which had not been sold at the time of his death.
On this state of facts, was the beneficial interest of Mr. Welch in the trust estate personalty passing to his surviving wife upon his death or was the same or any portion thereof real estate passing to his next of kin?
Without debate his interest as a stockholder in the corporation while a going concern before dissolution was personal property. The ownership of real estate was in the corporation as a legal entity. The stockholder's interest, represented by his shares of stock, subject to prior claims of creditors, was in the nature of a chose in action. Title 10, § 30, Code of 1940; 18 C.J.S., Corporations, § 194(2) (4), pp. 622, 623.
The deed of trust, made in contemplation of dissolution, indeed as part of the dissolution proceedings, contains no terms indicating an intent that the interests of the beneficiaries shall be other than those of stockholders upon dissolution by unanimous resolution of the stockholders, resulting in the status defined by Title 10, § 110, Code of 1940. The primary purpose was to pass title to trustees of their own selection in lieu of statutory trustees, for the purpose of winding up the affairs of the corporation, realizing on the assets, paying debts, and making distribution among the beneficiaries as per their holdings of stock. As before suggested a wider discretion seems to have been given the trustees to the end of attaining the best results in the particular situation.
Paragraph j, supra, clearly looks to no dividend pending the execution of the trust, save from monies accumulated by the trustees in course of administering their trust. Mr. Welch died pending such administration, his place as trustee to be filled as stipulated, and further administration to proceed as if he still lived.
Paragraph o, we think, contemplates a final dividend of the "proceeds," just as partial dividends under (j). The trustees could not execute their trust as contemplated by conveying the real estate to stockholders, as beneficial owners and tenants in common. Unless by their own consent stockholders were not required to accept such conveyance in kind, but could take steps to have the trust executed in full. Equity does not permit a trust to fail for want of a trustee. We are not now thinking of the doctrine of equitable conversion, set up as a further ground for relief by complainant. We are thinking of "j" and "o" as part of the trust deed, importing a purpose to continue the status of stockholders in a dissolved corporation, rather than a grant of land, as such, to beneficial owners.
We conclude the trustees named in the deed of trust in lieu of directors, occupied the same status in relation to this property, to the dissolved corporation, and to the stockholders, as directors would have occupied had no trust deed been executed, and a dissolution had by unanimous action of the stockholders under Title 10, § 104, Code of 1940. This status is defined by Title 10, § 110, Code of 1940, which we quote: "Corporations whose charters expire by limitation and which are dissolved by forfeiture or by any other cause, except by judicial decree, exist as bodies corporate for the term of five years after such dissolution, for the purpose of prosecuting or defending suits, settling their business, disposing of their property, and dividing their capital stock, but not for the purpose of continuing their business; and the directors shall be trustees thereof with full power to settle their affairs, collect their debts, sell and convey the property and divide the moneys and other property among the stockholders, after paying its debts; and may act under the by-laws of the corporation, prescribe the terms and conditions of the sales of the property of the corporation, sue for and recover the debts and property of the dissolved corporation, in the corporate name; and are jointly and severally liable to its creditors and stockholders to the extent of the property which may come into their hands. On application to the circuit court or other court at the principal place of business of the corporation, such trustees may be continued for such length of time beyond such five years as may be necessary for the purpose of this section set forth."
This statute comes without change from the Act of 1903, a general revision of our laws on corporations. Acts of 1903, p. 310, § 53, p. 340.
Nelson v. Hubbard, 96 Ala. 238, 11 So. 428, 17 L.R.A. 375, dealt with a similar, but less inclusive, statute, quoted on pages 245, 246 of the opinion in 96 Ala., 11 So. 428, 17 L.R.A. 375. That case held the statute extending the life of a dissolved corporation, did not include dissolution by judicial decree. This holding was written into the present statute. The case discloses the common law concept of a corporation, and disposition of its properties on dissolution, obsolete and not recognized as the law of modern business corporations.
Dealing with our present statute, a corporation dissolved, other than by judicial decree, exists as a body corporate for statutory period for the purposes named in the statutes. The directors are vested with title in the corporate properties, as trustees, with designated powers.
There is ample authority for the view that a dissolution which puts an end to corporate existence in toto works a change in the property interests of stockholders and they become tenants in common of the property in proportion to their holdings of stock, subject to prior demands of creditors. 13 Am.Jur. pp. 1197, 1198, § 1352.
But under statutes like ours the corporation still exists, save as to continuance in corporate business, the relation of stockholders to the corporate property still persists, the title being in the trustees designated by statute to wind up its affairs and make distribution to the stockholders, after payment of debts. Hawkins, Probate Judge, v. Pure Oil Co., 232 Ala. 660, 169, So. 307; Rayburn v. Guntersville Realty Co., 228 Ala. 662, 154 So. 812, 93 A.L.R. 1055; Cohen v. Pavlik, 235 Ala. 289, 178 So. 435; 13 Am.Jur. p. 1201 et seq. §§ 1357-1359, §§ 1363-1365; 19 C.J.S., Corporations, § 1743, p. 1507 et seq.
Affirmed.
GARDNER, C. J., and FOSTER and LIVINGSTON, JJ., concur.