184 P. 536 | Utah | 1919
The substance of plaintiff’s amended and supplemental complaint is that in 1906 he sold and conveyed the Mammoth Reservoir system, with buildings and personal property, to the Utah Irrigation & Power Company for $20,000, on which a partial payment of $500 was made; that on July 22, 1907, the Irrigated Lands Company, one of the above defendants, was incorporated under the laws of Utah, and took over tho property of the Utah Irrigation & Power Company, and assumed the debts of the latter company, including plaintiff’s claim; that in January, 1910, the Irrigated Lands Company made and delivered to plaintiff its promissory notes, secured by shares of stock in the Price River Irrigation Company and the Abraham Irrigation Company; that said notes were not paid when due; that plaintiff obtained judgment, sold' the collateral which he had received with the notes for the sum of $4,890, and that in one case the deficiency judgment amounted to $13,910.90 and in the other the judgment was for $882.82; that executions were issued and were returned wholly unsatisfied. i
Plaintiff further alleges that on the 4th day of January, 1910, John Y. Smith, Yan D. Spaulding, Thomas Austin, George A. Smith, Thomas Webb, Charles Tyng, William D. Livingston, David Morgan, Albert Smith, and Frank Nelsen constituted the entire board of directors and managing officers of said Irrigated Lands Company, and owned and'controlled substantially the entire outstanding capital stock of said corporation; that at the same time the said John Y. Smith, George A. Smith, Thomas Austin, William D. Livingston, Albert Smith, Frank Nelsen, and David Morgan constituted the entire board of directors and managing- officers and agents of the Price River Irrigation Company, and were the owners and holders of substantially all of its capital stock; that between the 1st day of August, 1909, and the 12th day of January, 1911, all of the defendants to this suit, contriving and intending to defraud the plaintiff of his claim against the Irrigated Lands Company, and with intent to hinder, delay, and
A motion was made by defendants to strike the amended and supplemental complaint from the files because additional causes of action were set forth. The motion
A demurrer was interposed on the ground that several causes of action had been improperly united and mingled together, and that the causes of action were not sepa rately
Issues were joined by answers of defendants, and at the close of the trial the case was dismissed as to all defendants except Irrigated Lands Company, Price River Irrigation Company, Thomas Austin, George A. -Smith, Albert Smith and John Y. Smith, who, with the exception of the Irrigated Lands Company, are the appellants here. All issues were found in favor of plaintiff. The court’s conclusions of law were, in part:
“1. That the attempted transfer to the defendant thp Price River Irrigation Company of the property and assets of the Irrigated Lands Company, under date of January 12, 1911, was fraudulent and void, and the taking of said property by the Price River Irrigation Company was a wrongful appropriation and conversion of said property as against the plaintiff herein; and that as against said plaintiff said property is and should be adjudged and decreed to be the property of the Irrigated Lands Company, and subject to plaintiff’s judgments.
“2. That the plaintiff is entitled to have applied the /property so attempted to be transferred and so converted, and the pro*177 ceeds thereof, to the satisfaction of his said judgments, here-inbefore set forth, recovered against the said Irrigated Lands Company; and to have and recover from said property, and the proceeds thereof, the sum of said judgments, together with interest to this date, aggregating the sum of $18,812.80, and also interest hereinafter accruing until paid, together with his costs of suit.
“3. That a special master should be appointed to take over and sell so much of the real and personal property so wrongfully appropriated by the Price River Irrigation Company as may be required to pay plaintiffs claim, together with interest, costs of sale, special master’s fees, and the costs of this suit.
“4. That in the event the proceeds of said sale are insufficient to pay the costs and expenses herein, and plaintiffs said claim in full, the plaintiff is entitled to a personal judgment for such deficiency as may remain against the Price River Irrigation Company, John Y. Smith, Thomas Austin, and George A. Smith, to the extent that the property so converted has been sold, mortgaged, or depreciated in value through the acts of the said defendant corporation, and while in its hands, which loss, dissipation, and depreciation of assets exceed the plaintiffs said judgments, and execution against said defendants should issue therefor.”
Ninety alleged errors are assigned. Tbe record is voluminous. We have read the testimony as it appears in both the abstract and the transcript. Except to refer to some of the more important of the essential facts, it is neither practicable nor necessary to review the evidence. That all the property of the Irrigated Lands Company was.transferred to the Price River Irrigation Company, who refused to pay plaintiff the amount due him, is undisputed. In fact, when the last remnant of the Irrigated Lands Company’s assets was transferred to the Price River Irrigation Companj'-, it was expressly stipulated between the two corporations that the Price River Irrigation Company did not assume or agree to pay any of the obligations or indebtedness of the Irrigated Lands Company. It is also conceded that the Price River Irrigation Company never had any property save that received from the Irrigated Lands Company. The management of one corporation may organize another and transfer its property to the new corporation, but if it does so, even with the consent of
To understand conclusion No. 4 it, is necessary to consider the evidence upon'which it is based.
In August, 1908, the Irrigated Lands Company transferred the Mammoth Reservoir and other property to the Price River Irrigation Company, a corporation that had been organized by the management of the Irrigated Lands Company. The capital stock of the Price River Irrigation Company was $500,000, divided into 20,000 shares of the par value of $25 per share. Its capital stock was paid by acceptance of the property conveyed to it by the Irrigated Lands .Company. With the exception of one share in the name of each of the incorporators, the stock of the Price River Irrigation Company was placed in the hands of a trustee for the benefit of the Irrigated Lands Company. It is claimed by appellants that the company was organized for the purpose of distributing water among farmers to whom the Price River shares were to be sold. Nothing appears in the record that effectually contradicts this claim. Instead of being a scheme to defraud, as claimed by plaintiff, it seems that it was, under the circumstances at that time, a sensible and businesslike plan, and perhaps as practical as any that could have been devised. When the conveyance of 1908 was made the Irrigated Lands Company agreed to complete the reservoir, and when the balance of the property was conveyed the alleged consideration for the transfer was the release by the Price River Irrigation Company of the other company’s promise to complete the res
The court’s conclusion of law No. 5, and the last, is as follows:
“That each of the defendants John T. Smith, Thomas Austin, George A. Smith, and Albert Smith is a trustee ex maleficio of the 600 shares of stock of the Price River Irrigation Company received by the several defendants, from Wm. D. Livingston, trustee, and charged with a trust in favor of the plaintiff for payment therefrom of the debt due plaintiff hereinbefore stated. In the event that plaintiff’s claim is not recovered in full from the sale of the property of the Irrigated Lands Company wrongfully taken over by the defendant corporation, or by execution against the defendants Price River Irrigation Company, John Y. Smith, Thomas Austin and George A. Smith, then, upon the coming in of the report of the special master showing the deficiency, the defendants should account for the trust stock so received by them, and turn over to the said special master the amount remaining in their hands; and upon said accounting, in so far as said stock has been disposed of by said several defendants, the said defendants*180 should each severally be charged with the stock disposed of by him at the value of forty dollars per share, and upon, such accounting (to the extent only required to pay the balance of plaintiff’s said claim), a personal judgment should be entered against the said several defendants respectively, for the stock disposed of.”
On September 1, 1908, the Irrigated Lands Company made its fifteen separate promissory notes, each in the sum of $10,-000. . The payment of these notes Avas guaranteed by fifteen men who thereafter became the incorporators of the Price River Irrigation Company and who were stockholders of the Irrigated Lands Company. In July, 1908, a contract was entered into between the Irrigated Lands Company and the Irrigation Investments Company, by which the latter was to sell water rights in the Price River Irrigation Company for a price that would net the Irrigated Lands Company thirty-three dollars per acre. August 1, 1908, an agreement was executed between the proposed guarantors of fifteen promissory notes of $10,000 each, to be issued and disposed of by the Irrigated Lands Company, providing that the personal liability among themselves should be $10,000 each, or one-fifteenth of the total liability. October 24, 1908, the same date on which the Mammoth Reservoir and other property Avas transferred to the Price River Irrigation Company by the Irrigated Lands Company, a so-called trust agreement Avas executed by the two corporations. This trust agreement provided inter alia that 14,000 shares of stock should be sold in accordance Avith a certain contract between the Irrigated Lands Company and the Irrigation Investments Company, and that the trustee should see that' the proceeds of sales of the water stock or rights would be applied as follows: First, in pajunent of the debts and obligations of the Irrigated Lands Company incurred for and in connection Avith the construction of said project, including reservoir and main canals, other than a loan of $100,000 from the state of Utah; second, in payment of any bonuses alloAved and agreed upon by the first party to be paid to those who aided in securing financial aid to the first party; and, third, to turn over any remaining proceeds to the Irrigated Lands Company.
It is contended by plaintiff that by the express terms of
“First, in payment of the debts and obligations of the Irrigated Lands Company incurred for and in connection with the construction of said project, including reservoir and main canals (other than a loan of $100,000 from the state of Utah).”
It is found that the plaintiff had sold to the Irrigated Lands Company, not only the reservoir, but it is found by the court that the debt to plaintiff' was incurred in connection with the construction of the Mammoth project, including the Mammoth Reservoir and main canal, the construction work already performed thereon, buildings which were to be used for construction purposes, cement, construction machinery and reservoir site, and water rights for water wdth which said reservoir was to be filled. The qualifying words, “other than a loan of $100,000 from the state of Utah, ’ ’ clearly imply that the state was the only creditor to be excluded from participation in the proceeds to be derived from the stock placed for sale with the trustee. The trustee was given power to sell this stock in accordance with the provision of the sales contract with the Irrigation Investments Company, and he ivas given the power to sell at a price that would net the Irrigated Lands Company thirty-three dollars per share. The trustee contract was abrogated in February, 1909. At that time the board of directors of the Irrigated Lands Company authorized its manager to open and establish agencies for the sale of lands and water rights in the Price project, and to fix the price and terms of sale as he might deem for the best interests of the company;
it is well settled in this jurisdiction that directors are prohibited from preferring debts due to themselves when a corporation is insolvent. Mercantile Co. v. Mt. Pleasant Co-op., 12 Utah, 213, 42 Pac. 869. When the notes referred to became due all of the individual defendants were given stock for the money paid out by them for the corporation. That was in the fall of 1909. Defendant George A. Smith received 600 shares of stock in consideration of $10,000 paid by him for the company, but at that time George A. Smith was not a director of the Irrigated Lands Company, and hence had a
The record shows that John Y. Smith was at.all times a director of both corporations, and that he received 600 shares of stock in payment of his claim against the Irrigated Lands Company. The court found that Albert Smith received 600 shares of stock. Mr. Albert Smith did not pay as guarantor, but purchased three notes of $10,000 each on September 21, 1908, paying therefor $20,000. Mr. Smith testified:
“I was one of the original signers of the fifteen $10,000.00 notes, and the contract of August, 1908, signed hy the fifteen guarantors. I purchased three of those notes September 21, 1908. I paid for them by check. Defendants' Exhibit 4 is one of the checks with which I purchased those notes. I issued another check for the same amount as that. I do not have that check. I have the stub from which I took it. I issued both checks at the same time, each for $10,000, one of them I can’t find. For those two checks I received three notes. When those notes became due I made an effort to collect them. I never did collect them, because the Irrigated Lands Company I suppose didn’t have any money to pay me. They offered me 1,800 shares of water stock in October*184 or November, 1909, if I recollect right. I didn’t take it until I was forced to. I preferred the money in preference to the water stock. I finally took the water stock. I didn’t make any investigation at that time to find out the value of the water stock. I didn’t think there was any value on it. If there was it was a fictitious value. I simply had to take the water stock when they told me it was all they could give me. I took it for the money I paid. I took my chances of getting something out of it. I placed my stock on the market. Sold 300 shares at $11, practically sixty days after I got it. I think I have 250 or 275 shares in my name now.”
When Mr. Smith bought the three $10,000 notes he was not a director, and if the corporation was willing to make the unusually liberal discount of $10,000 we fail to perceive
The question here arises whether the Irrigated Lands Company was insolvent or in imminent danger of insolvency in 1909. John Y. Smith, a director of both corporations from the dates of incorporation and continuing as a director thereafter, testified that the Irrigated Lands Company was insolvent when it conveyed the Mammoth Reservoir to the Price River Irrigation Company, and that it was insolvent fropi October 24, 1908. According to his testimony the Irrigated Lands Company was a venture in high finance, and was little more than a wild speculation, with assets that were at all •times dubious. In its answer to plaintiff’s amended complaint the Price River Irrigation Company alleges that on January 28, 1910, the Irrigated Lands Company was
The district court is therefore ordered to permit plaintiff, if he so desires, to amend his supplemental complaint, and permit the parties to offer further testimony on the, issue of insolvency of the Irrigated Lands Company in 1908, and 1909, and if the corporation is found to have been insolvent or in imminent danger of insolvency in 1909 the court is further directed to find that the following directors took water shares or stock belonging to the Irrigated Lands Company for money due them at a time when they had no right to be preferred creditors, tó wit, John Y. Smith, 600 shares: Thomas Austin, 600 shares; and Albert Smith. 1,800' shares. As to George A. Smith the judgment is reversed. As to John Y. Smith, Thomas Austin, and Albert Smith it is re-, versed, with directions to proceed further in the case as above indicated, if plaintiff desires to amend his complaint. In all other respects judgment affirmed. All costs to be taxed against Price River Irrigation Company.
