270 P. 642 | Mont. | 1928
Lead Opinion
On October 5, 1923, Seal executed to Mary Seal, his wife, a promissory note for $5,000 due October 5, 1925, and to secure the payment thereof executed to her a mortgage covering his cattle, horses, hogs, farming implements and his interest in a beet crop grown upon what is known as the McCuistion place, upon which the Seals lived.
The attorney wrote Seal with respect to the matter again on January 18, 1924, but Seal did not pay any attention to it.
On December 15, 1923, Seal executed to his wife a bill of sale wherein he purported to sell and assign to her an undivided two-fifths interest in all his personal property. On February 6, 1924, the plaintiff commenced suit upon the note, and summons was served on Seal on March 10, 1924; on April 21, 1924, his default was entered for want of appearance and judgment was rendered against him for the sum of $2,528.45.
Five days after the service of summons upon him the defendant Seal, together with his wife, and Howard Dillon, his employee, executed articles of incorporation of the C.V. Seal Company. The stated objects and purposes of the corporation were to raise, buy and sell livestock of all kinds and to engage in a general farming and agricultural business. The place of business was given as Finch, Rosebud county, Montana. The directors for the first three months were C.V. Seal, Mary Seal and Howard Dillon. The capital stock was given as $30,000, divided into 1,200 shares of the par value of $25 each, and it was stated that the amount of the capital stock actually subscribed was as follows: C.V. Seal, 40 shares; Mary Seal, 160 shares; S.W. Seal, 200 shares, and Howard Dillon, 1 share. The record indicates that the defendant, referred to hereafter simply as Seal, immediately turned over all of his property to the corporation. Mortgages which the defendant Seal had executed to the First National Bank of Forsyth in due time were paid by the corporation from a sale of a portion of the property which Seal *53 had turned over to the corporation, or new mortgages were executed to the bank in lieu thereof.
Executions upon the judgment were issued July 14, October 10, and December 6, 1924.
The execution of July 14 was directed to the sheriff of Yellowstone county and in pursuance thereof the sheriff attempted to garnishee money due Seal from the Great Western Sugar Company for the year 1923 on account of sugar beets grown and delivered by Seal to the sugar company. It was determined eventually that $177.42 was due Seal from the sugar company, although the C.V. Seal Company claimed the money, but it was applied upon the judgment.
The execution of October 10 was directed to the sheriff of Treasure county. On October 11 the writ was served upon the defendants Seal and Mary Seal individually and as president and secretary, respectively, of the C.V. Seal Company and also upon Howard Dillon, one of the directors of the company. The sheriff levied upon and attached all the right, title and interest of defendant Seal in and to all debts and money due him by the C.V. Seal Company "and all property in the possession of or under the control of the said C.V. Seal Company," and all stock and shares of stock of the C.V. Seal Company, owned by Seal, and all dividends declared or to be declared to be paid to Seal "and any money to which he may be entitled by reason of his ownership of the capital stock of the said C.V. Seal Company"; and all persons were notified not to transfer or remove the property or any part thereof until released according to law. Mary Seal made a statement in writing, in response to the writ, that the C.V. Seal Company did not owe Seal any money; that it did not have in its possession or under its control any property belonging to him; that he was the owner of four shares of the capital stock of the company but there were no dividends due or to be paid thereon; that the four shares had a par value of $25 each. Whereupon the sheriff returned the execution unpaid and unsatisfied. *54
The execution of December 6, directed to the sheriff of Rosebud county, was returned nulla bona.
On the second day of February, 1926, the plaintiff commenced this action as a creditor's bill. The plaintiff alleged the fact that he had obtained judgment against the defendant Seal; that at the time of the commencement of the action upon which the judgment was predicated Seal was engaged in farming and raising livestock on what is known as the McCuistion place; that he was the owner of horses, farming equipment and machinery, cattle, hogs and the like, of the value of $10,000; that Seal, Mary Seal and Howard Dillon had incorporated the C.V. Seal Company, hereafter referred to as the company; that upon its organization Seal sold to the company all his personal property, which is described in some detail, intending thereby to sell and convey to the company all his "property, holdings and interest," thereby to transmute all of his interest therein, which was the whole thereof to the company; and that the company "ever since the sale aforesaid" has claimed, and now claims, to be the owner of said property, and claimed to be the owner thereof at the time of the commencement of this action, and claims that Seal is not the owner of the property or any part thereof, and that the only interest he has therein is four shares of the capital stock of the company; that the sale was made to hinder, delay and defraud the plaintiff, a creditor of Seal; that at the time of the organization of the company Seal was insolvent and was an unwilling debtor, and that the purpose and motive of the organization of the company was to enable him to place his property beyond the reach of his creditors, and particularly the plaintiff, so that the same could not be reached by the ordinary process of law, nor by execution issued on any judgment obtained by the plaintiff, which the other incorporators well knew, and the three agreed and confederated together to incorporate the company with that end in view; that the sale of the property in the manner aforesaid to the company did obstruct and "now obstructs the *55 enforcement of the judgment aforesaid, in that said property cannot be reached by execution upon said judgment, and the sale of said property to the said defendant company, in the manner herein alleged, prevents the sale of said property in satisfaction of said judgment"; that an additional reason for the creation and organization of the company was to enable Seal to continue his business of farming and growing sugar-beets for the Great Western Sugar Company under contract, in the name of the company, and thus to place the earnings and profits of Seal's farming beyond the reach of his creditors and beyond the reach of the ordinary process of law, and to enable him to sell and dispose of the hogs and cattle in the name of the company which would receive the proceeds thereof for the use and benefit of Seal as fully and completely as he had done before the creation of the corporation.
Further allegations set forth that the business and affairs of the company were managed and directed by Seal as he had directed his own business before the organization of the company; there was no change; it is alleged that the company is a creative entity in name only, its entire business and affairs being owned, controlled and directed by Seal, and that the sale of the property to the company was and is fraudulent and fictitious, made without a delivery of the property to the purchaser and without an actual and continued change, or any change, of possession, and without consideration; that none of the capital stock of the company issued to Mary Seal, Silas W. Seal and Howard Dillon was paid for in cash or property or other consideration; that Seal was the sole and only owner of all the property so sold as aforesaid and he is in truth and in fact the owner thereof, although the company claims to be the owner of the livestock, farm equipment and other personal property described. The complaint then recites the issuance of the different executions and the result, or lack of result, therefrom. It then recites dealings with the property which Seal had in form turned over to the company, *56 and alleges that the company holds the proceeds, or some of the proceeds, thereof. It also contains allegations respecting the receipts of money by the company for Seal from the Great Western Sugar Company and charges that unless the court directs the Great Western Sugar Company to pay into court money due or to become due the company as bonuses under the contract for growing sugar-beets for the year 1924, the money will be paid to the company and pass beyond the reach of process of the court and the money will be applied to the use and benefit of Seal and thus the plaintiff will be hindered and delayed, cheated and defrauded.
The complaint prays that the purported sale of all property by Seal to the company be set aside and held for naught; that the corporation be held to be an involuntary trustee of the property and the proceeds from sale of any thereof; that the company be directed to pay into court such proceeds, and that the same be applied to the satisfaction of plaintiff's judgment against Seal; that the defendants (except Seal) be decreed to be involuntary trustees of the capital stock of the company; that the sugar company be directed to pay into court any money due or to become due the company, as bonus or otherwise, for the beet crop of 1924, to abide the judgment of the court, and for general relief.
After a general demurrer to the complaint was overruled the defendants C.V. Seal Company, Mary Seal, Howard Dillon and Clarence V. Seal answered the complaint. They admitted the execution of the note to French and that Seal did not make any payment on the note except the sum of $105; admitted that plaintiff instituted the suit mentioned in the complaint but denied all other allegations respecting it.
The defendants denied all allegations of fraud or fraudulent intent; denied that any additional money, as a bonus for beets, will be paid Seal by the sugar company; denied that Seal sold to the company all of his personal property, including his livestock, farm equipment, implements and machinery, and alleged that "the said property was not, in truth *57 and in fact, owned by the said Clarence V. Seal, but that all of the property sold to the said corporation, including all of the wagons, harness, farm implements, farm equipment, implements of husbandry and livestock now owned by the said C.V. Seal Company" was owned, at the time of the sale thereof to said corporation, by the defendants Silas W. Seal, Mary Seal and Clarence V. Seal jointly, and that the said Clarence V. Seal was acting as the manager of the business and property jointly owned by them; that the property was sold by the defendants to the company at the price of $10,000 and that the defendants took the number of shares of the capital stock subscribed for by them in payment of the proportion of the purchase price due them for their respective interests in the property; admitted that the company "now claims to be the owner of so much of said property as remains in its possession, and the defendants allege that said company is now, and has been ever since the date it purchased the same the lawful owner and holder of said property, and all thereof"; alleged that Seal is not the owner of the property or any part thereof and asserted that his only interest in it consisted of the ownership of four shares of the capital stock of the company. A reply, denying all affirmative matter of the answer, was filed.
The cause came on for trial before the court sitting with a jury. At the close of plaintiff's case the defendants moved the court to discharge the jury and to make findings of fact and conclusions of law in favor of the defendants. The court overruled the motion. The defendants did not offer any testimony. The court submitted three special findings to the jury. In answer to the first the jury found there was not any bona fide sale by Seal to either his wife, or his father, of any interest in his property prior to the incorporation of the company. In answer to the second the jury said that the personal property which had been owned and possessed by Seal prior to the incorporation of the company was sold to the corporation for the purpose of delaying and defrauding the creditors *58 of Seal. In answer to the third the jury said that at the time of the incorporation of the company there was not any change in the management or method of the business and property theretofore owned and possessed by Seal. The court adopted the findings of the jury and made others in favor of the plaintiff. In short, the court, in specific findings, found the allegations of plaintiff's complaint to be true, and entered a decree declaring that the transfer of the property by Seal to the company was fraudulent and was made for the purpose of hindering, delaying, cheating and defrauding the creditors of Seal and particularly the plaintiff; adjudged that the sale and transfer be set aside, and declared the company to be an involuntary trustee of the property mentioned and described in plaintiff's complaint for the benefit of the plaintiff. The defendants appealed from the judgment. The sole assignment of error is that the evidence is insufficient to support the judgment.
At the outset we have in mind the well-known rule that this[1] court will not overturn the findings of the trial court unless the evidence clearly preponderates against them. (Warren
v. Senecal,
The court's findings to the effect that the corporation was created by Seal, his wife, and his hired man to enable Seal to put his property beyond the reach of his creditors, and that his transfer of his property to the company was without consideration, are fully sustained by the evidence.
"Every transfer of property * * * with intent to delay or defraud any creditor or other person of his demands, is void against all creditors of the debtor, * * *." (Sec. 8603, Rev. Codes 1921.)
The court was justified in asserting in its decree that the[2, 3] sale of the property to the company was fraudulent and was made for the purpose of hindering, delaying and *59 defrauding the creditors of Seal and particularly the plaintiff. That this is so the record fully affirms. Seal, his wife, and Dillon were residents of Montana. S.W. Seal was a resident of Illinois and was never in Montana except several years ago when his son, Clarence V. Seal, was ill. S.W. Seal testified by deposition. He said he was not interested in business with his son. At first, in his testimony, he said he did not know the corporation known as the C.V. Seal Company. He did not know it had been organized but his son had told him about it. He did not know how many shares he had and could not tell what consideration he had given for them. He did not remember that he had any conversation or correspondence with his son about the organization of the company. He said he had furnished his son $1,800, after the son had come to Montana, but this the son had repaid two years after the loan was made. He had never purchased an interest in his son's Montana property — "only what he gave me in the company"; he did not know when he became a stockholder in the company. In December, 1923, the son visited him in Illinois; the son then was not owing him any money and they did not discuss financial matters. He did not know his son was going to organize a corporation; he did not know his son was selling him a half interest in it; he did not know how much stock was issued to him. He then said that the stock was issued to him on "Clarence V. Seal's schooling," but he "did not know the amount." Such qualifications as he made with respect to the foregoing testimony did not tend to clarify it nor materially to weaken its force against the defendants.
We refrain from discussing in detail the testimony of Mary Seal, the wife. It is sufficient to say that the court and the jury, upon considering it, were warranted in making the finding that there was not any bona fide sale made by Seal to his wife of any interest in the property prior to the incorporation of the company; and that the court was justified in finding that she aided and abetted her husband in his attempts *60 to place his property beyond the reach of his creditors. Her testimony, as it appears in the record, would warrant that conclusion. When we take into consideration the fact that the jury and the court had the advantage of seeing her upon the stand, of observing her demeanor, of hearing her voice and seeing her countenance while testifying, even greater weight is to be given to their findings.
This court and other courts have said on many occasions that a[4] court cannot scrutinize too closely the relation between husband and wife with respect to business dealings between them where creditors are concerned. (Keller v. Flanagan,
The defendants argue that because plaintiff alleged that the[5-7] sale of the property was not accompanied by a delivery thereof to the purchaser, nor followed by an actual and continued change of possession, but remained in the possession and under the control of Seal, the plaintiff had an adequate remedy at law and is precluded from relief in equity. But these allegations must be read in connection with other allegations in the complaint, and, as we have seen, the plaintiff also alleged that Seal sold all his property to the company, and that the company claims to be the owner thereof. And the company vigorously asserts that it does own all of Seal's property — or so much thereof as remains. Let it be conceded that plaintiff's complaint is inconsistent in some respects. The defendants did not attack it by motion or special demurrer. The rule is that if a complaint states a cause of *61
action upon any theory it is not vulnerable to a general demurrer, nor subject to attack after judgment upon technical grounds. (Hamilton v. Hamilton,
The allegations of the complaint may be reconciled upon the theory that, while Seal in form did sell and deliver the property to the corporation, which he himself created, the transaction was fraudulent, a mere sham, to enable him to escape the payment of his debts. Nevertheless the company had title to the property. It made income tax returns, and in all outward respects functioned as a corporation. It wore the habiliments and held itself out to the world as a corporation. It was the coat which Seal wore to conceal his assets that he might hinder, delay and defraud his creditors.
The same may be said of the court's findings on this feature of the case. While the court found that there had not been any delivery, nor any actual and continued change of possession, of the property, and Seal continued in the possession thereof, this was upon the theory that the corporation was a mere sham of Seal's creation; but the court found that there had been a sale and transfer, which it declared fraudulent; and the court found that the company had sold property transferred to it by Seal, for which it received money "and now has the possession and control of the same"; and the court specifically decreed "that said sale and transfer be and the same is hereby set aside."
A creditor can avoid the act or obligation of his debtor for fraud where the fraud obstructs the enforcement, by legal process, of his right to take the property affected by the transfer or obligation. (Sec. 8605, Rev. Codes 1921.) Manifestly, in view of what precedes, the court was justified in declaring that the sale and transfer of the property to the *62
company, and the company's attitude with respect thereto, obstructed the enforcement by legal process of plaintiff's right to take the property. This is too clear for argument. Efforts to satisfy plaintiff's judgment by means of writs of execution had failed. Supplemental proceedings in aid of the executions, in view of the return made by Mary Seal, would have been unavailing. (Johnson v. Lundeen,
Defendants assert that plaintiff cannot recover for the reason that he did not have a specific lien upon, nor show a special interest in, the property when he commenced this action, andWilson v. Harris,
The court found (finding of fact No. 24) that the Great Western Sugar Company has deposited with the clerk of the district court $2,082.33 due the C.V. Seal Company under contract for the growing of sugar-beets, which the plaintiff is entitled to have applied on his judgment. There is not any evidence in the record to sustain this finding and it must be set aside, and the decree modified accordingly. If, however, the finding states the fact, upon application of the plaintiff the court may enter the necessary order to subject any money within its power to the satisfaction of plaintiff's judgment.
The cause is remanded to the district court of Treasure county with direction to modify its decree by eliminating therefrom finding of fact No. 24. When so modified the judgment will stand affirmed. The plaintiff, respondent here, shall recover his costs upon this appeal.
The opinion in this cause, promulgated April 26, 1928, upon which a rehearing was granted, is ordered withdrawn from the files and this opinion substituted in lieu thereof.
ASSOCIATE JUSTICES STARK, MATTHEWS and GALEN concur.
Dissenting Opinion
I dissent. In my opinion, plaintiff had a plain, speedy, adequate and complete remedy at law. Until he had exhausted that he had no standing in a court of equity (Wilson v. Harris,
According to the allegations and the findings above referred to, supported by evidence, for months after rendition of plaintiff's judgment and for weeks after issuance of execution writs all of the property was in the possession and under the control of Seal, as owner, and I see no justification for plaintiff in not having all of the property attached or levied upon, instead of foregoing that opportunity and seeking the *65
aid of equity. As to speed, the former course would have been speedier than the one herein pursued. That it was a plain remedy is shown by the statutes and the decisions of this court I have cited. Of course, he was not required to pursue that remedy unless it was as adequate and complete, effective and efficient, as a suit in equity (Bullard v. Zimmerman,
"The extraordinary and peculiar powers of equity cannot be successfully invoked by those who have failed to first avail of whatever procedure the law affords." (Wilson v. Harris, supra.) "Before coming into equity, he must exhaust his legal remedy." (Wyman v. Jensen, supra.) "After the exhaustion of legal remedies, the extraordinary jurisdiction of chancery may be invoked." (Westheimer v. Goodkind, supra.) In Wilson v.Harris, supra, this court speaks deprecatingly of the "strong temptation" to creditors aggrieved by transfers of property by debtors, which arouse suspicion, to invoke the powers of equity, before exhausting their remedies at law. Of the appeal to equity, the opinion says: "The proceeding is not very expensive, involves no great responsibility or risk and is not infrequently resorted to when unnecessary." It says, further, appeals by creditors to equity should not be encouraged unless a case is "strictly within the well established principles which determine the creditor's right to resort to equity." It is not every case of fraudulent transfer of property in which equity will interfere. A creditor, to avail himself of equity powers, must first do certain things, *66 if possible, or show he could not do them, and put himself in a position to invoke equity.
The majority opinion refers to the fact that the answer denies the allegations of the complaint hereinbefore mentioned. It does, but the trial court found that the allegations were true. Plaintiff made them and, in my opinion, he is bound by them and upon appeal may not be allowed to repudiate them and take an opposite and inconsistent stand. (Waite v. Shoemaker Co.,
Counsel for plaintiff cite and rely upon the cases of Wheeler Motter Merc. Co. v. Moon,
So far as the record in this case may disclose a disposition or any attempt to defraud, I have no sympathy with any such disposition or attempt but, upon plaintiff's theory of the case, I am convinced from the allegations of the complaint, the evidence and the findings of the trial court that there was no transfer of property to set aside and that there was at all times in Seal's possession personal property subject to the judgment and subject to manual seizure, which plaintiff easily could have had attached or levied upon, and that he had therein a plain, speedy and adequate remedy at law, proximately certain, which he should have used before resorting to equity and, failing so to do, he had no right to resort to equity. Indeed, as said inWilson v. Harris, supra, until such remedy be used and exhausted, equity has no jurisdiction, for, as there said "equity may act in those matters only in which no remedy is afforded in the ordinary course of law or in which the remedy at law is deficient." *68 Moreover, so far as the record discloses, much of the property may still be in Seal's possession and subject to execution levy."
Rehearing denied October 1, 1928.
