252 Mo. 102 | Mo. | 1913
This is an equitable proceeding to divest title to certain real property out of defend■ant-s and vest it in plaintiff " as trustee in bankruptcy of the Hagey Stove Company, a corporation, and for judgment against defendants in the sum of $32,000 of $50,000 in cash claimed to have been taken from the treasury of the corporation by the defendants. Upon a trial in the circuit court a judgment was rendered in favor of the plaintiff, from which defendants appeal.
Pleadings. The petition alleges the adjudication of the ITagey Stove Company as a bankrupt in the United States District Court for the Eastern Division <of the Eastern Judicial District of Missouri, in February, 1908, and the subsequent election of plaintiff as 'trustee of said estate, and that he qualified and has since been acting as such. That the Hagey Stove -Company was organized under the laws of the. State of Illinois in December, 1890, but has always had its plant or place of business in the city of St. Louis in the State of Missouri; that the capital stock of said -company is $100,000, and that same was issued as fully paid and non-assessable. That, at the time, as hereinafter alleged, of the withdrawal of part of the -capital stock by defendants, they were the owners of ■all the shares of said stock, composed its board of directors, were its only officers and had and exercised -exclusive control and management of its affairs.
That at the time of the incorporation of said Hagey Htove Company the statutes of Illinois contained provisions forbidding the payment of dividends out' of capital stock, and forbidding the decrease'of the capital stock of any corporation without notice to the shareholders and after the assent of two-thirds of ail
That prior to November, 1905, said corporation purchased certain real estate in the city of St. Louis, Missouri, for $17,000, which is described "as per municipal subdivisions.
That in November, 1905, the total assets of the corporation which represented its capital stock of $100,000 was invested in real estate valued at not exceeding $30,000; cash, $50,000; machinery, manufacturing products, raw material, office fixtures, patents and trade marks, aggregate value, $38,000.
That said corporation could not under the laws of either Illinois or Missouri distribute assets among its shareholders in excess of $18,000.
That defendants with a view of taking over or distributing among themselves, individually, the assets of said corporation, conveyed said real estate to one Robert M. Nichols, who thereupon conveyed the same to one of the defendants, Henry Given Hagey, who now holds same in trust for himself and the other two defendants; that defendants, thereupon, divided between them the $50,000 in cash and appropriated same to their own use. Thereafter the total remaining assets of said corporation were $38,000, and the actual capital stock had been reduced to said sum. That no other manner was pursued to reduce the capital stock. That said corporation was permitted to and did continue in business thereafter until its adjudication in bankruptcy under the original articles of incorporation with the representation that it had a full paid capital of $100,000; and in the course of its business, subsequent to the aforesaid transactions by defendants, said corporation incurred and now owes
That all of said creditors have duly proven their claims against said bankrupt estate. That plaintiff is obligated to pay all claims and demands against said estate so far as he is able to do; that he has converted into cash all of the assets of said estate save those herein sued for, and has paid ont of the fund collected a dividend of ten per centum of the demands allowed; that there remains a balance in his hands of $4740.80, insufficient to pay said demands in full,, without deducting costs and expenses of administration. Then follows a specific allegation as to the costs and expenses necessary for plaintiff as trustee to pay in the process of administering the estate, not necessary to be given here; this is followed by the prayer which we give in its own words: “Wherefore, the plaintiff prays that title to the aforedescribed real property be divested out of the defendants and vested in the plaintiff as trustee of said bankrupt estate* and that the plaintiff have judgment against the defendants for thirty-two thousand dollars of the fifty thousand dollars of’the money of said corporation, by them taken as aforesaid, without prejudice, however,, to the rights of said defendants to claim in said bankruptcy court any surplus of said property or fund after discharging the obligations of said estate and the expenses of the adminstration thereof; or, in the alternative that the plaintiff be awarded judgment, against the defendants for the amount of money and the value of the property by them taken out of the assets of said corporation in diminution of the capital stock thereof, and that said judgment be made a lien and charge upon the real property aforesaid, likewise
Defendants’ answer is substantially as follows:
That if there is a cause of action stated in the petition plaintiff has an adequate and complete remedy at law for the redress of all of his grievances.
That plaintiff was not nor is he now the assignee of the owner of the real estate described in the petition or the alleged or claimed cause of action stated therein, nor has he ever as trustee of said bankrupt corporation acquired any interest in the premises described in the petition or any right or title thereto, or any right or title either in law or equity to contest or set aside as such trustee in bankruptcy the alleged or claimed transaction or transactions between defendants and said corporation.
Defendants admit the incorporation of the Hagey Stove Company in Illinois, and that it had its place of business in the city of St. Louis, Missouri, where it at all times did business after its organization; that it has been adjudicated a bankrupt as alleged and that plaintiff is its trustee regularly elected and duly qualified, and that this action was brought by plaintiff as trustee under the authority of the referee in bankruptcy; that the capital stock of said corporation was
Following this is a general denial of each and every other allegation in said petition.
Defendants further say that on or about November 1, 1905, said corporation was possessed of money, property, goods, chattels and effects of the reasonable estimate and value of $118,000; that on or about said date Henry Given Hagey owned 598 shares, Thomas J. Hagey owned two shares, and Forest Hagey owned 400 shares of the capital stock of said corporation, which was its entire capital stock; that on said date the three Hageys named composed the board of directors of said corporation; that on or about said date, said shareholders and directors as aforesaid resolved to sell the property of said corporation and distribute the proceeds among the shareholders of same in the proportion in which they held its capital stock; that on said date said corporation owed no debts, except its liability upon its stock to its shareholders.
Pursuant to said resolution and on or about the 20th and 23rd days of November, 1905, said directors and shareholders met at the home office of the company in the city of East St. Louis, Illinois, and by agreement held a meeting as hereinafter stated; that on said date and at said meeting the corporation by and through its board of directors passed a resolution to sell all of its stock in trade, merchandise, plant, machinery and appliances, together with the real estate described in plaintiff’s petition, and divide the proceeds of the sale, together with the cash on hand, accounts and bills receivable, among the shareholders of the corporation then holding and owning its capital stock; that said resolution was passed by the board of directors and was approved by all of the
That pursuant to the authority given by said resolution said corporation sold to O. E. Eobinson and John Morton the merchandise, machinery, and plant of said corporation, excepting, however, the lots of ground and the buildings or buildings upon which the plant was located for the sum of $37,079.01, and in payment therefor these defendants toot the individual notes of said Eobinson and Morton for said purchase price; that said Eobinson and Morton thereupon conveyed the said merchandise, machinery and plant, together with other property of the claimed value of $100,000, to ■ the said corporation, to-wit, the Hagey Stove Company, or invested it with the title thereto and inventoried or scheduled said property and other property upon the boohs of said corporation as of the value of $100,000, and said corporation proceeded, under the management of said Eobinson and Morton, to operate said plant with the merchandise and machinery and other property purchased from these defendants as hereinafter stated, of all which the parties dealing with said corporation had or could by inquiry or investigation have had notice.
That as a means of delivering possession of said merchandise, machinery and plant, as above described, to the said .0. E. Eobinson and John Morton, defendants as such shareholders assigned and delivered to the said Eobinson and Morton all of the certificates of the capital stock of the said corporation, and thereupon these defendants on said November 20, 1905,
That all of the creditors of such corporation who have proved their claims against said bankrupt estate and are represented by the plaintiff herein as trustee, became such creditors long after November 20, 1905,. and long after these defendants had ceased to have any connection as officers, agents, directors or shareholders of said corporation, and that the said creditors became such while the said corporation was being conducted under the management and direction of said O. E. Robinson, John Morton and one John K. Robinson, 2nd, and while they were officers, directors and owners of the stock of said corporation and directing its affairs and business; that if plaintiff ever acquired any right to question the transaction
That after the adoption of said resolution authorizing a sale of the assets, merchandise and property of said corporation and a division of the proceeds among themselves as such shareholders, on said November 20, 1905, the officers, directors and all of the shareholders of the said corporation, by agreement, held a meeting at the office of said corporation at the city of East St. Louis, Illinois, and adopted a resolution directing the president of said corporation to convey the real estate described in the petition to Robert M.- Nichols, which resolution was approved by the board of directors and all of the shareholders. That on said date said real estate was conveyed to Robert M. Nichols for the express consideration of $18,000 and was subsequently conveyed by him to Henry Given Hagey, one of these defendants; that both of said conveyances were on the 23rd day of November, 1905, recorded in the recorder’s office in the city of St. Louis and State of Missouri, and said resolution was spread upon the records of said corporation, and said minutes and records and deeds so recorded became and were notice to all persons having business with said corporation, particularly creditors who became such after the date of said conveyance.
That the property described in the petition was in truth and fact the property of these defendants and was by them in September, 1903, bought from the then owner and paid for out of the individual funds of these defendants, and was by their mutual consent and for their use and benefit conveyed to said corpor
To this answer the plaintiff filed a general denial.
Decree. Upon a hearing in the circuit court of the city of St. Louis it was adjudged and decreed that the plaintiff as trustee in bankruptcy of the said corporation have and recover from the defendants the sum of $25,855.97, with interest from date at the rate of six per cent per annum, together with all costs. It was further ordered, adjudged and decreed that the judgment and decree above rendered be and constitute a lien in behalf of the plaintiff upon the real estate described in the petition; and that this judgment and decree be enforced by special execution against said property, as well as by general execution against the property of the defendants aforesaid and each of them. Prom this decree defendants, after complying with the formal procedure necessary thereto, appealed to this court.
There is little controversy between the parties as to the material facts. The Hagey Stove Company was organized under the laws of the State of Illinois in December, 1890, for the manufacture and sale of stoves. It was incorporated for the sum of $100,000, each share being of the par value of $100 fully paid up and non-assessable. Its incorporators were the three defendants, Henry Given Hagey, Forest Hagey, and Thomas J. Hagey. Others were named in the articles of incorporation, but their shares were soon thereafter transferred to defendants, who were in fact the real inco'rporators. The company commenced business in the city of St. Louis, Missouri, soon after its organization in. the year 1890, and continued there
A few days after the consummation of the sale of the property, the defendant Henry Given Hagey, to whom the accounts of the company had been transferred, sold same to 0. E. Robinson and took his notes in payment therefor.
Prom November 20, 1905, the date of the sale of the machinery, manufactured product, raw material, etc., to Robinson and Morton, and the transfer of the shares of stock to them, until February 8, 1908, they owned and operated the business and controlled the affairs of the corporation; at the last named date bankruptcy proceedings were instituted in the Eastern Division of the Eastern Judicial District of Missouri, at St. Louis, against the Hagey Stove Company; it was adjudged a bankrupt, and the plaintiff was appointed and qualified as trustee thereof.
All of the claims proved up against the bankrupt estate were for debts incurred by' Robinson and Morton for the company long after the transfer of the shares of stock to them and while they were in control and managing the affairs of said company. It is to
The question at issue, therefore, sharply defined, is this: Are directors who constitute the sole share•holders of a solvent, going corporation which has no liabilities, authorized to divide the greater portion of its, assets among themselves and sell the remainder, consisting of a manufacturing plant and its machinery, manufactured and unmanufactured product, to others, accompanied by a transfer to the latter of the entire shares of stock of the corporation, free from any liability for debts contracted by the corporation long after the distribution of its assets, the sale of its plant, and the transfer of its shares of stock?
Various questions as to the authority of the trustee and regularity of this proceeding in other respects are presented pro and con by industrious and learned counsel, which will receive consideration as their importance seems to warrant.
I. Sections 70a and 70e of the National Bankrupt Law, 1898 (30 Stat. at L. 565), define the powers -of a trustee in bankruptcy; under section 70a he is
The rule announced by the cases on this subject, whether cited by respondents or appellants, is that the power of the trustee in' avoiding transfers made by the bankrupt is limited to the powers of the creditors of such bankrupt, or, as was said by Lamm, P. J., in Blake v. Meadows, supra, “Whatever complaint creditors might have made in the absence of bankruptcy, the trustee may make in their behalf.” But what complaints may creditors make? Prefatory to a discussion of this question, it is pertinent to say that a trustee in bankruptcy suing under the provisions of section 70e of the Bankrupt Act must, if suit is brought in a-State court, bring himself within the limits of the pleading and proof prescribed by the statutes and decisions of the State where the suit is brought. [Kraver v. Abrahams (U. S. Dist. Ct., E. Dist. Pa.), 29 Am. Bk. R. 365; Westall v. Avery (C. C.A.), 22 Am. Bk. R. 673; Halbert v. Pranke, 11 Am. Bk. R. 620; Mueller v. Bruss, 8 Am. Bk. R. 442, 112 Wis. 406; In re Gray, 3 Am. Bk. R. 647; 2 Moore Fr. Con., sec. 19, p. 1205.]
It is a general rule that creditors before obtaining judgments have no such claims or liens upon the property of their debtors as will authorize them to complain of the disposition of the debtor’s property, for the very good reason that they may never obtain judgments, and if they do not they cannot be injured by any disposition of the property which the debtors may make. [Humphreys v. Milling Co., 98 Mo. 542; Crim v. Walker, 79 Mo. 335; Fisher v. Tallman, 74 Mo. 39; Mullen v. Hewitt, 103 Mo. 639.]
The fact that the debtor is a corporation does not affect the application of the rule. If no obstacle prevents a judgment in a suit at law by the creditor against the debtor for the amount of the creditor’s claim, a creditor’s bill to reach the property conveyed or disposed of by the debtor cannot be maintained. [Ready v. Smith, 170 Mo. 163.]
In the case of the Atlas Nat’l Bank v. Packing Co., 138 Mo. 1. c. 94, the court held that as the plaintiff had ho lien upon the property of the Packing Company, the latter had the same right to sell or mortgage it as a private person; and the same steps necessary to be pursued by a creditor in order to reach property conveyed or disposed of by the corporation with the intent to defraud its creditors must be pursued by the creditor against the corporation, and before such creditors can in' either case maintain a creditor’s bill they must show that they have exhausted all remedies at law.
In Parker v. Roberts, 116 Mo. 1. c. 662, this court said: “The rule is well settled elsewhere. ‘The creditors of a party defrauded have no right, even though
In Davidson v. Dockery, 179 Mo. 687, it is said that a mere general creditor who has not reduced his claim to judgment and does not show that he has nO' adequate remedy at law, cannot challenge a deed made by the debtor to others as being in fraud of the right of his creditors. Only judgment creditors and those who have a legal or equitable lien on the property, and under the statutes of this State creditors who have commenced attachment suits against property, can maintain an action to set aside a fraudulent conveyance, and they can do so only when they allege and prove that they have no adequate remedy at law.
While it is not necessary in all cases that a creditor’s demand shall be first put in judgment, it is essential for him to make out a case which shows that he has no adequate remedy at law. [Humphreys v. Atl. Mill. Co., 98 Mo. 542; 2 Moore, Remedies Creditors, sec. 23, p. 760.]
In Mullen v. Hewitt, 103 Mo. 639, 650, this court held that it was a general rule that a creditor, before obtaining judgment and execution, has no certain claim upon the property of his debtor and has no concern with conveyances of any kind affecting the latter’s property for the reason that if the creditor has not established his claim and may never do so, he cannot be injured by any disposition of the debtor’s property; that before resorting to chancery, a creditor must first exhaust his legal remedies, whatever they may be.
In Mellier v. Bartlett, 106 Mo. 1. c. 390, this court was asked to review and overrule Mullen v. Hewitt,
In Gabbert v. Gas & Traction Co., 140 Mo. App. 6. (Syl. 1, 2 and 4), the St. Louis Court of Appeals has held: “Ordinarily a creditor is not entitled to avail himself of the equity powers of the court to set aside conveyances made by the corporation and place its affairs in the hands of a receiver. Neither the insolvency of a corporation nor the execution of an illegal trust deed gives a mere creditor a lien on the property of the- corporation; nor do they charge it with a direct trust. ... In order for a creditor to reach the property of a corporation which has been conveyed in fraud of creditors, he must show that he has exhausted his remedy at law, or that he has no adequate remedy at law/’
The most comprehensive reason for' the rules prescribed in the foregoing cases regulating the right of’ creditors to sue to set aside transfers is that courts of equity "are not tribunals for the collection of debts. [Taylor v. Bowker, 111 U. S. 110, 28 L. Ed. 368;. Howe v. Whitney, 66 Me. 17; Fleming v. Grafton, 54 Miss. 79.] A further reason, as has been said by one of our Courts of Appeals, is that “a court of equity can only interfere with the general and inherent right, of the debtor to dispose of his property at the instance of bona-fide creditors, and it cannot be asserted with certainty that anyone is an actual and subsisting creditor, until a judgment has been obtained on his claim. ’ ’ [Kankakee Woolen Mill Co. v. Kampe, 38 Mo. App. 229, 1. c. 234.]
The proof of claims before a bankruptcy court being in all respects similar to that before a State court in an insolvency proceeding, and the effect being the same, namely, the finding in each instance of the amounts due claimants, the conclusion seems inevitable that claimants before a bankruptcy court upon proof of their claims become thereby judgment creditors.
Without discussing the question as to the status of claimants who have proved their claims, the Supreme Court of Nebraska held in Hood v. Blair State
Individually, we have never been impressed with the soundness of this classification as applied to creditors; if proof of claims renders claimants judgment creditors, then each claim proved thereupon becomes a, judgment, and it follows that there will be as many judgments as there are claims proved, plus the final adjudication or determination of the entire matter. That these orders of a court, for they are nothing more, in the course of the administration of the! estate, are entitled to all the force, effect and conclusive attributes of a judgment rendered after a formal hearing of the entire matter in controversy, is, to say-the least, speeding the arrow of judicial interpretation with a lax bow string; judgment creditors, as we understand the terms, are those who have established their claims at law after a formal hearing in a proper tribunal, which hearing is a final determination of the matter submitted; but in view of the phalanx of authorities from our own courts, to the contrary, We may presume too much, and despite our individual convictions we must content ourselves with, “thus saith the court.”
IY. Yiewed from the vantage ground, therefore, that claimants who have proved their claims in a bank-
It will not suffice to say that an action of this character may be brought either in law or in equity as concurrent remedies, as it appears to have been held by the Kansas City Court of Appeals in Gill v. Ely-Norris Safe Co., 170 Mo. App. 478. If the trustee is-entitled to an action at law, he must exhaust it, and having done so his right to proceed further is by a creditor’s bill; it is elementary that a creditor’s bill is essentially a proceeding in equity by which the creditor, or. in this instance the trustee, seeks to satisfy his debt out of some equitable estate of the debtor which is not liable to levy and sale under execution at law or out of some property which has by the debtor been put beyond the reach of ordinary process.
. As a general proposition, the basis of jurisdiction of a court of equity in a creditor’s bill is not confined to the exhaustion of legal remedies; the latter, it is true, is a condition precedent to the exercise of equitable jurisdiction (Imp. Co. v. Jones, 143 Mo. 1. c. 278.), but, in addition, there must be present some element of jurisdiction clearly set forth in the pleading peculiar to courts of equity for which equitable relief is applicable.. [Board of Public Works v. Columbia College, 84 U. S. 521.]
In Implement Co. v. Jones, 143 Mo. 1. c. 278, this court said: “Defendants contend that the petition states no cause, of action, in that it does not allege the insolvency of either of the judgment debtors, that any effort was made to collect the judgments by execution, or that the plaintiff has no remedy at law. It may be conceded that ‘one seeking aid in a court of equity must, as a general rule, first exhaust his remedies at law.’ . . . Under this well established rule the petition in the case in hand states no cause of action, for it does not show that plaintiff had exhausted its remedies at law.” The rule is uniform that in a proceeding by a creditor he must allege and show that he has no adequate remedy at law, because, if he has, the aid of a court of equity is unnecessary and will be denied.
When it is said, therefore, that a creditor must show that he has no adequate remedy at law before he can be heard in equity to attack a fraudulent conveyance only a fundamental rule in equity is announced and that which applies to all sorts of creditors. [Davidson v. Dockery, supra.]
The proceeding in the concrete case must of necessity be based upon the theory, although it is not pleaded, that the transfer sought to be set aside or
Prom all of the foregoing in regard to the requisites of a creditor’s bill, we are of the opinion that the plaintiff’s petition does not state a canse of action.
Y. Bnt waiving the conclusion as to the sufficiency of the petition for the time being, are the facts
It is alleged in plaintiff’s petition that after the sale of the manufacturing plant to Robinson and Morton for $38,000, and the transfer of the shares of stock to them by defendants that “said corporation was permitted to, and did, continue in business thereafter, and until the filing of the petition for adjudication of bankruptcy aforesaid, under the original articles of incorporation containing the representation that it was possessed of a full paid capital of one hundred thousand dollars; and in the course of which business,
VI. It is conceded that the capital stock was fully paid up at the time of the organization and during
The origin of the trust fund doctrine is to be found In Wood v. Dummer, 3 Mason, 308, Fed. Case No. 17944, in which Justice Stoey held that the capital stuck of a corporation constituted a trust fund for the payment of its debts. The occasion of the ruling was to compel shareholders who had divided' three-fourths of the capital stock of a corporation among them
Justice Brewer in Hollins v. Brierfield Co., supra, said that while a corporation remains solvent it holds its property in the same manner as a natural person, free from the touch of the creditor who has acquired no lien, and free from the stockholder; although he has an equitable interest in it, he-has no legal title to its property; that when the corporation becomes insolvent its assets are placed in a condition of trust, first for the creditors and then for the stockholders; that this trust is rather in the administration after a court of equity has taken possession than a trust attaching to the corporate property for the direct benefit of either creditor or stockholder.
Justice Gray, in Wabash, St. L. & Pac. Railway Co. v. Ham, 114 U. S. 587, 594, said: ‘£ The property of a corporation is doubtless a trust fund for the payment of its debts, in the sense that when the corporation is lawfully dissolved and all its business wound up, or.when it is insolvent, all its creditors are entitled in equity to have their debts paid out of the corporate property before any distribution thereof among the stockholders. It is also true, in the case of a corporation, as in that of a natural person, that any conveyance of property of the debtor, without authority of law, and in favor of existing creditors, is' void as against them.”
Judge Thayer in N. H. Sav. Bank v. Richey, 121 Fed. (C. C. A.) 956, 1. c. 959, said: “No such relation as that cf trustee and cestui que trust exists between a corporation and its general creditors. So long as a corporation is solvent, and remains in control of its property and assets, it may deal therewith and dispose of the same like an individual, subject only to such limitations upon its powers as may have been imposed by its charter. The general creditors of it corporation are not, like the beneficiaries in trust, the equitable owners of the corporate property, nor have they any greater interest therein than the creditors of natural persons have in the property of their debtors. ■ Creditors of both kinds are entitled to insist that their debtors shall not make a voluntary or otherwise, fraudulent conveyance of their property; but beyond this, in the absence of an express lien created by con
Judge Lurton in Lawrence v. Greenup, 38 C. C. A. 546, 97 Fed. 906, in which it was sought by a receiver to recover a dividend declared out of the capital stock of a corporation, said: “The claim of the receiver is based upon the theory that a dividend paid out of capital stock was wrongfully paid out and received, and that the liability to repay such dividend constitutes an asset of the bank, which can be recovered in a suit at law. . . . When the dividend complained of was declared and paid, the bank had ceased its ‘banking operations.’ It had gone into voluntary liquidation for the express purpose of returning its capital to its shareholders, after paying its debts. . . . The suit can only be predicated upon the proposition that the capital of the bank was a trust fund for the payment of debts, and that any part of the trust fund so paid out in the way of dividends to the stockholders can be recovered back in an action at law of this kind, for the purpose of paying the debts of the bank. . . . Under the decisions of the courts of the United States, there is no solid foundation for the contention that the capital of a corporation which is solvent is a ‘trust fund’ upon which there is any lien for the payment of corporate debts. The capital of a solvent corporation is as much the absolute property of the corporation as is the property of an individual. Neither a corporation nor an individual can so exercise the power of disposition over that which is possessed as to fraudulently
Judge Adams* in American Exchange Nat. Bank v. Ward, 111 Fed. 782, said: “Notwithstanding a contrariety of opinion on the subject, it is now, we think, established by persuasive and controlling authority that the insolvency of a corporation does not ipso facto transform its assets into a trust fund for the equal benefit of its creditors. This conclusion is reached in a number of decisions by the Supreme Court of Missouri, in which State the transactions involved in this suit occurred.”
Of like import are Cole v. Millerton Iron Co., 133 N. Y. 164, 28 Am. St. 615; Great Western M. & M. Co. v. Harris, 128 Fed. 321; Fogg v. Blair, 133 U. S. 1. c. 541; Hollins v. Brierfield Coal & Iron Co., 150 U. S. 371; Nat’l Bank v. Dovetail B. & G. Co., 143 Ind.
Precedents are only valuable in so far as they announce definite rules for guidance in future similar cases. There seems to be no contrariety of opinion in regard to the conditions under which the trust fund theory may properly be applied to the capital stock of corporations. The foregoing well considered decisions of our own and other courts of last resort, clearly announce the principle that the property of a corporation is never impressed with a trust until it becomes insolvent; that until this event happens, no general creditor has any lien which may be enforced against the corporate property no matter when his debt was contracted; and in the absence of a lien, the right of disposition of the corporate property, which we will discuss hereafter, exists untrammeled..
VII. Free from the impress of a trust or lien, as is the property of a solvent business corporation, its
A certain class of corporations are excepted from the rule authorizing them to sell their assets, the exception and the rule being clearly stated in an early Massachusetts case as follows: ‘ ‘ Corporations established for objects gwsi-public, such as railway, canal and turnpike corporations, to which the right of eminent domain and other large privileges are granted
The St. Louis Court of Appeals, speaking through Goode, J., in Jorndt v. Hub & Spoke Co., 112 Mo. App. 1. c. 344, said: “When there are no stockholders except the directors and officers, the latter may, if they wish, give away an asset by unanimous consent, and the gift will be good, unless the rights of creditors are impaired. All the stockholders of a corporation may consent to an appropriation of an asset by an official if the appropriation would not be detrimental to creditors.” The rule announced in the singular number in this case would be equally true if stated in the plural in reference to the assets.
Justice Sheldon of the Supreme Court of Illinois in Reichwald v. Hotel Co., 106 Ill. 439, said: “But it is claimed that the board of directors did not have the power to dispose of all its property, and thus destroy the corporation. The effect of this transfer of all the hotel property no doubt was to terminate the business of the corporation; but that was not the necessary effect. It is entirely clear, upon the authorities, that the disposal of all of the property of a corporation has not the effect to end or dissolve the cor
Judge Haight in a New York Court of Appeals case of Holmes & Griggs Mfg. Co. v. Holmes & Wessell Metal Co., 127 N. Y. 252, said: '“The plaintiff had the right, with the consent of its stockholders, to sell its plant and retire from business; and it appears from the evidence in this case that the consent of all the stockholders was given to the sale that was made. - . . Inasmuch as this was done with the consent of all of the stockholders, it being the act of a private corporation, not in any manner harming the public, we see no reason for condemning its title to the stock so obtained.” And the rule is clearly stated in the 7 Am. & Eng. Ency. Law, p. 734, as follows: “And by the weight of authority, both in England and in the United States, a strictly private commercial corporation, owing no particular duties to the public, may, with the consent of all the shareholders, and in the absence of express or implied restrictions in its charter, or prejudice to the. rights of creditors, transfer all of its property to another corporation or person, If the latter is capable of taking. And it may do so, even though the effect may be to render it incapable of further carrying on its business.”
In the late case of Mooreshead v. United Rys. Co., 203 Mo. 121, this court speaking through Geaves, J., said that where there is no bar in the statute or corporate articles, a solvent corporation may dispose of its assets as it may deem to its advantage, the same as a natural person. We find no variance from or exceptions to this rule or right of corporations under the conditions stated, either in texts, treatises or adjudicated cases. Without further burdening this opinion with quotations it may be said generally that the following cases affirmatively announce the unrestricted
Not only do solvent corporations without liabilities have the unrestricted right with the approval of their shareholders, to dispose of their assets, but they may also sell and transfer their charters or corporate franchises and vest same in others. The sale and transfer in such cases is, in legal effect, but a surrender or abandonment of the old charter by the corporation and a grant de novo of the charter to the transferees or purchasers. [State ex rel. v. Sherman et al., 22 Ohio St. 411; 1 Wilgus on Corporations, p. 1082.] The right of disposition of either assets or franchises of a corporation, is, as to their effect, to be measured by the following rules: 1st, the character of the sale and transfer is to be determined by the circumstances existing at the time it took place (McCole v. Loehr, 79 Ind. 430); 2nd, if a grantor remains solvent after the sale and transfer of its assets, and has sufficient property left to pay all of its then existing debts, its conveyance cannot be regarded as a fraud upon creditors (Kain v. Larkin, 131 N. Y. 300, 307); 3rd, one assailing a transfer assumes the burden of showing that it was made in bad faith and that it left the grantor without ample property to pay its then existing debts. [Nevers v. Hack, 138 Ind. 260; Holden v. Burnham, 63 N. Y. 74; Pence v. Croan, 51 Ind. 336.]
IX. The trustee represents in this proceeding only subsequent creditors, i. e., those who extended
X. The authorities cited by respondent and relied upon by the trial court to sustain the decree ren-
The solvency of the corporation and its freedom from debt at the time of the transaction complained of by plaintiff, preclude the application of the trust fund theory and render the plea of a fraud upon creditors, who did not exist, impossible; these are facts ample to distinguish the case at bar from unpaid stock subscription cases and to authorize the application of different rules of construction in determining defendant’s freedom from liability in the matter at issue.
In view of the foregoing conclusions the judgment of the trial court should be reversed and the suit dismissed. It is so ordered.