141 P. 849 | Mont. | 1914
delivered the opinion of the court.
Suit in equity by the' Pittsmont Copper Company (hereinafter called the plaintiff) against John K. O’Rourke, as sheriff of Silver Bow county, and one Alfred Forsell, to enjoin the sale of certain real property consisting of mines in operation, smelting and concentrating plants and other appurtenances thereto, in execution of a judgment obtained by Forsell against the Pittsburgh and Montana Copper Company (hereinafter called the Montana company), to have said judgment declared not to be a lien upon such px'operty, and to have the levy of execution thereunder declared null and void. The complaint was filed February 10, 1911, and its material allegations are: That the plaintiff is a West Virginia corporation and the owner of the property'in question; that on October 30, 1909, Alfred Forsell obtained a judgment for $18,000 damages against the Montana company for personal injuries; that on January 21, 1911, he caused execution upon said judgment to issue commanding O’Rourke, as sheriff, to levy upon and sell all the right, title and interest which the Montana company had in the property on the date of the judgment; that O’Rourke has levied upon and advertised said property for sale, and, unless restrained, will sell the same under said execution, in compliance with the precept and instructions of Forsell; that on October 30, 1909, the Montana company had no right, title or interest in the property or any part thereof, but that the plaintiff then was, and for some time prior thereto had been and still is, the record owner of said property and seised in fee thereof: that the sale thereof under said execution will create a cloud upon the title of the plaintiff, to its great and irreparable injury.
Separate answers were filed. The answer of O’Rourke practically admits all the allegations of the complaint except those relating to ownership and possession of the premises sought to be sold. That of Forsell consists of two parts, viz.: The joinder of issue and a further answer which is also denominated a counterclaim. The joinder of issue is substantially the same as in the answer of O’Rourke, coupled with an admission “that
A demurrer to the separate answer of Forsell was interposed and overruled. The plaintiff then replied, setting forth its version of the circumstances under which it acquired the property of the Montana company, denying that such acquisition or the transactions leading up to it were in pursuance of any plan or scheme of reorganization, or that there was any fraud therein, or that the purpose or effect thereof was to permit the stockholders of the Montana company to retain an interest or participate in the property so acquired; and it was specifically alleged that the foreclosure occurred solely because of the inability of said company to pay the interest due on June 1, 1909,
Upon the trial, which was to the court sitting without a jury, the plaintiff presented a formal objection to the introduction of any evidence under the affirmative allegations of Forsell’s answer, which was overruled; later, and at the close of the evidence on the part of defendants, plaintiff moved “to dismiss the alleged cause of action set up in the affirmative matter” of For-sell’s answer, and this met a similar fate. Findings and conclusion of law were made and filed, and upon them a decree was entered granting to plaintiff all the relief demanded in its complaint, besides forbidding the defendants from asserting any right, title or interest in or to the property in question, or any thereof. In due course defendants presented their motion for new trial, which was granted; and this appeal is by the plaintiff from the order granting a new trial.
Four errors are assigned, which impugn the order appealed from on two grounds: (a) That Forsell’s “further answer and counterclaim” had no place in the suit; and (b) that the evidence does not authorize the defendants to prevail or the plaintiff to be denied the relief asked for by it.
(a) The entire argument on the part of plaintiff, so far as the
Passing, then, to the allegations of fact, it will suffice here to
The answer states an equitable defense; but, unless there is a defect of parties, it has other and larger consequences. In a suit in equity the mere pleading of an equitable defense, as
There remains the question of parties. The demurrer and the
(b) We premise our discussion of the case upon the evidence
The Montana company was incorporated under the laws of West Virginia in July, 1902, for the purpose of mining and
In the meantime, as the result of the panic of 1907, the Montana company became financially embarrrassed, and three persons, to-wit, J. W. Friend, D. C. Noble, and Hay Walker, Jr., appear upon the scene as a creditors’ committee, considering its affairs. How the committee came into being, and when their activities began, are not revealed; but on December 2, 1907, we find them proposing a plan of reorganization, so designated by the committee, the salient features of which were: To procure
The committee set about their work, and on March 26, 1908, made a proposal to the plaintiff in effect the same as set forth ■in the plan of reorganization above referred'to, and containing the following provision: “It is the understanding that your company will set aside 300,000 shares of the full paid, nonassessable, common capital stock of your company, of the par value of $5 each, to be issued to the stockholders of the Pittsburg & Montana Copper Company in exchange, share for share, for the outstanding capital stock of said Pittsburg & Montana Copper Company. The undersigned will turn over to your company for exchange, upon the terms aforesaid, all the shares of the common capital stock of said Pittsburg & Montana Copper Company deposited or hereafter to be deposited with us for such purpose.” The proposal of the committee was on March 27, 1908, accepted by the unanimous vote of the five stockholders of plaintiff convened for that purpose, and its directors were commanded to do all things necessary to make the acceptance effectual. Thereupon, by separate resolutions, the stockholders of the plaintiff authorized the increase of its capital stock from $1,000 to $11,000,000, divided into 2,200,000 shares at the par value of $5 each, of which $1,000,000 should be preferred; authorized the issuance of $2,500,000 six per cent bonds; approved the form and execution of a collateral trust agreement relative to said bonds; directed the issuance of its negotiable notes to the amount of $2,061,009.92; authorized the acquisition of the shares of stock in the Montana company by the issuance of plaintiff’s common stock on the basis of share for share — all “as provided in the proposition” of the committee. These resolutions were complied with in all respects by, the directors and officers of the plaintiff, including the execution of the collateral
By June 1, 1908, the plaintiff had acquired or contracted for all the bonds of the Mlontana company, to the face amount of $2,216,000; had acquired unsecured notes of the Montana company to the face amount of $1,084,360.07; had acquired the' greater portion of the 264,810 shares of the Montana company stock, which ultimately came into the plaintiff’s hands — all as contemplated in the plan and proceedings above mentioned. On July 1, 1908, Mr. Reed became president of the plaintiff, and from this time on the plaintiff and the Montana company possessed the same executive officers, to-wit: J. H. Reed, president; R. T. Rossell, secretary. According to the testimony of these gentlemen, an earnest effort was made during this period and up to June, 1909, with the aid of funds amounting to $188,-550.92, procured by the committee through the sale of plaintiff’s scries A bonds, to keep the Montana company afloat, to restore it to the status of a profitable concern, and to avoid foreclosure, but in April, 1909, it became apparent that these efforts would be vain. The Montana company had no funds with which to pay the interest and installment of principal due June 1, 1909, upon its bónds, and for this reason was compelled to default,
We have thus detailed, with unnecessary elaboration perhaps, the steps leading up to plaintiff’s acquisition of the property in question, in order that the statement might furnish its own commentary. It is suggested, however, that the evidence does not establish, but negatives, the existence of any special intent to exclude or defraud Forsell. So much may be granted, and yet the plaintiff is in no wise aided; what was done was intended, and its effect was to exclude Forsell and amounts to a fraud in law upon him. Counsel dispute this and deny that it avails Forsell, if true. They say that there was no scheme of
The same authority in a later case said: “Assuming that foreclosure proceedings may be carried on to some extent at least in the interests and for the benefit of both mortgagee and mortgagor (that is, bondholder and stockholder), we observe that no such proceedings can be rightfully carried to consummation, which recognize and preserve any interest in the stockholders, without also recognizing and preserving the interests, not merely of the mortgagee, but of every creditor of the corporation. In other words, if the bondholder wishes to foreclose
Again: “Corporations, insolvent or financially embarrassed, often find it necessary to scale their debts and readjust stock issues with an agreement to conduct the same business with the same property under a reorganization. This may be done in pursuance of a private contract between bondholders and stockholders. And though the corporate property is thereby transferred to a new company, having the same shareholders, the transaction would be binding between the parties. But of course such a transfer by stockholders from themselves to themselves cannot defeat the claim of a nonassenting creditor. As against him the sale is void in equity, regardless of the motive with which it was made. For if such contract reorganization was consummated in good faith and in ignorance of the existence of the creditor, yet, when he appeared and established his debt, the subordinate interest of the old stockholders would still be subject to his claim in the hands of the reorganized company. * * * There is no difference in principle if the contract of reorganization, instead of being effectuated by private sale, is consummated by a master’s deed under a consent decree.” (Northern Pac. Ry. Co. v. Boyd, supra.) To the same effect, see Central Imp. Co. v. Cambria Steel Co., 201 Fed. 811, 120 C. C. A. 121; Farmers’ Loan & Trust Co. v. Missouri I. & N. Ry. Co. (C. C.), 21 Fed. 264; Northern Pac. Ry. Co. v. Boyd,
The'application of these decisions to the case at bar is vigorously challenged. It is said of the Boyd Case particularly that it rests upon the trust fund theory, tenable enough in that case because the property was in the hands of a receiver when made the subject of reorganization, but untenable here because the property was not in that situation. The Boyd decision does not postulate the receivership as a factor in the conclusion reached. It determines broadly that, as between stockholders and creditors, the former cannot be preferred by any arrangement whatever, and we see nothing in it to conflict with the case of Ames & Frost v. Heslet, 19 Mont. 188, 61 Am. St. Rep. 496, 47 Pac. 805, in which the trust fund theory is criticised so far as preferences among creditors is concerned. Our view is succinctly expressed by the supreme court of Iowa in Luedecke v. Des Moines Cabinet Co., 140 Iowa, 223, 32 L. R. A. (n. s.) 616, 118 N. W. 456: “We do not recognize the trust fund doctrine to the extent that it has obtained in some of the courts, but are of opinion that corporate creditors are entitled in equity 'to the payment of their, debts before any distribution of corporate property is made among the stockholders, and recognize the right of a creditor of a. corporation to follow its assets or property into the hands of anyone who is not a good faith holder in the ordinary course of business.” Moreover, the property in question was .in the custody of the law when it was acquired by the plaintiff, and such acquisition was part of the plan previously agreed upon under which the stockholders who assented were to retain an interest in it. We do not question the validity of the decree of foreclosure, but we look behind it and the mere order of events, and we discern clearly that the proper place of the entire transaction is under the rule announced in the eases cited above.
It is quite true that not all — only thirteenth-fifteenths — of the old stockholders of the Montana company exchanged their
It is insisted, however, that, assuming fraud in law to have been established-, it is of no avail to the defendants because For-sell’s answer pleads actual fraud, and because, when the evi
"We have carefully considered such other questions as have been raised either directly or incidentally, and we are satisfied from the whole record that the decree, as originally entered, was unjustified. The court was therefore correct in granting the new trial, and the order appealed from is affirmed.
Affirmed.