Ready v. Smith
70 S.W. 484
Mo.
1902
Check Treatment
GANTT, J.

The sufficiency of the petition in stating a cause of action presents the question for decision in this court.

Upon the trial the defendants objected to the introduction of any evidence under the pleadings for the reason that the petition did not state facts sufficient to constitute a causе of action. The objection was sustained and plaintiffs took a nonsuit with leave to move to set the same aside. They afterwards filed said motion and it was overruled, and exceptions saved, and plaintiffs in due time perfected their appeal.

The petition in substance charges that in 1882 a corporation was organized under the statutes of this State governing manufacturing and business corpora-*169lions, with a capital stock of $10,000, the purpose of which was to purchase a tract of land of fifty-four acres lying adjacent to the city of Sedalia, twenty acres of which was to he donаted to an educational corporation to he organized, to he used hy the last-named corporation to establish and maintain a university; that this latter corporation was organized under the statutes of this State pertaining to benevolent, religious and educational associations, аnd was called the Sedalia University Company. This company established- a school and maintained the same until 1886 when, it proving a failure, the school was abandoned and the land corporation repossessed itself of the' twenty acres of land, In the meantime the school or university compаny had become indebted to its teachers for salaries which were unpaid when this action was begun. The land company had in fact never conveyed the twenty acres to the university company, although it had placed it in possession thereof, During its struggle for existence the university company prоcured the land company to borrow $5,000 for its use, and for this purpose the land company placed a mortgage on the entire 54 acres to secure the $5,000, borrowed from the Missouri Trust Company. It was mutually agreed that if said university company should fail or neglect to pay two successive installments of said interest on said loan as evidenced by coupons, or should fail to pay the taxes or insurance or fail to pay said $5,000 at the maturity of said note, then said university company waived and forfeited all right to have said twenty acres of land conveyed to it. P. H. Sangree was the trustee named in the deed of trust to secure said loan. The university company defaulted in the payment of said loan -and thereupon the defendants, D. H. Smith and others, bought said note of the Missouri Trust Company and took an assignment to themselves. They afterwards caused the trustee to sell and at the sale March 6, 1889, Ira Hinsdale bоught in the twenty acres of land for the use and benefit of said Smith, for $6,900.

The bill then charges that said Smith was one of the *170directors of said university company; that he was also an employee of the Missouri, Kansas & Texas Railway Company; that said company in 1888 was placed in the hands of two receivers; Cross and Eddy; that Cross and Smith were cousins and intimate friends; thаt a hospital was needed for said company and it was necessary-to procure land and buildings for the same and that said Smith “became and was aware” that all or a part of the twenty acres could he sold to the receivers for that purpose, hut that before said receivers could so purchase they would have to apply to the court appointing them for power so to do. ‘ ‘ All of which it was his duty under the circumstances to have taken advantage of and made use of for and in behalf of said Sedalia University and its creditors and those interested therein. All of which he failed to do. ’ ’ That after purchasing said lands said Smith and Hinsdale began negotiations for the sale of said twenty acres to said receivers. That the same resulted in a sale to them' of seven and five-hundredths acres, with the buildings thereon, for $9,000, on the 17th of May 1889; that thus said Smith realized $2,100 more than he gave for said twenty acres and said Hinsdale still holds the twelve and ninety-five one-hundredths acres of the same not sold to said receivers.

The prayer of the bill is that Smith may be compelled to pay over to. plaintiffs the difference, $2,100, ‍​‌​‌‌‌‌​​‌‌​​​‌‌​​​​​‌​‌​​​​​​​​‌​​​​‌‌​​​‌‌‌​‌​‍with interest thereon, and that the remainder of the land be sold to satisfy plaintiff’s judgment.

I. It will be noted in the outsеt that plaintiffs are mere general creditors of the Sedalia University Company and have not reduced their claims to a judgment. It is a general rule that a creditor before obtaining judgment has no such claim or lien upon the property of his debtor as will authorize him to complain of the dispositiоn of the debtor’s property, for the very good reason that he may never obtain a judgment, and if he does not, he can not be injured by any disposition of the property which the debtor may make. [Humphreys v. Milling Co., 98 Mo. 548; Crim v. Walker, 79 Mo. 335; Fisher v. Tallman, 74 Mo. 39; Mullen v. Hewitt, 103 Mo. 639.]

*171Nor is this rule affected by tbe fact that tbe debtor, as in tbis case, is a corporation.

In the Atlas National Bank v. Packing Company, 138 Mo. l.c. 94, Burgess, J., speaking for this court said: ‘‘As tbe plaintiff bad no lien upon its property, tbe packing company bas tbe same right to sell or mortgage its property as a private person; and tbe same steps necessary to be pursued by a creditor in order to reach property conveyed or disposed of by tbe latter with tbe intent to defraud creditors, must be pursued by tbe creditor against tbe corporation, and before such creditors can in either case maintain a creditor’s bill be must show that be bas exhausted all remedy at law, and tbis tbe petition in tbis case does not do.”

Tbe doctrine announced in Shickle v. Watts, 94 Mo. 410, and Reyburn v. Mitchell, 106 Mo. 365, and similar cases, that where a creditor of a foreign corporation bas pursued and exhausted bis remedy in tbe courts of tbe legal domicile of tbe corporation, and discovers, in another State, those who. are indebted to tbe corporation for unpaid balances on their stock subscriptions, be may proceed against such stockholders in equity in tbe latter State, in nowise conflicts with tbe general rule already stated. Neither are those cases applicable to a state of facts such as we have in this record.

Here tbe corporation and tbe creditors were residents of Pettis county, and tbe exceptional facts and conditions which form tbe basis of a proceeding in equity by a creditor without first obtaining a judgment at law are absent from tbe case. No obstacle existed to prevent a suit at law by plaintiffs against tbе university company for tbe amount of their respective salaries.

Tbe contention that tbe university company was dissolved and that therefore an action at law could not have been maintained against it, we think, is untenable. Nothing appears on tbe ‍​‌​‌‌‌‌​​‌‌​​​‌‌​​​​​‌​‌​​​​​​​​‌​​​​‌‌​​​‌‌‌​‌​‍face of tbe bill' to show such a dissolution beyond tbe allegation that tbe company bad proved to be a failure and was insolvent. It was ruled in Oxley Stave Co. v. Butler county, 121 Mo. 641, *172after a careful consideration of the authorities, that the mere insolvency of .the company and its inability to carry out the purposes of its incorporation wоuld not ipso facto work a dissolution. [Hill v. Fogg, 41 Mo. 563; Bank v. Robidoux, 57 Mo. 446; Hotel Co. v. Sauer, 65 Mo. 279; Buell v. Buckingham & Co., 16 Iowa loc. cit. 296, and cases cited.]

Plaintiffs, then, not being judgment creditors and not having exhausted their legal remedies, 'are in no condition to question the right of the defendants to purchase the note of the land company, and to purchase the property mortgaged by that company to secure said note.

II. But there is another equally cogent reason why these plaintiffs, who are mere general creditors of the university company, have no standing in a court of equity. While alleging that Smith was one of the directors of said company when he acquired the twenty acres, it nowhere avers that he was the sole director nor that the other directors and the corporation were under his control or influence, nor any reason why the remainder of thé directors could not ratify and confirm said sale. On the contrary it quite conclusively appears that there were other directors, and if there were not the warrants which plaintiffs allege were issued to them as evidences of indebtedness by said university company are and were not binding thereon. There is no allegation that plaintiffs made any application to the board of directors, or to said directors as trustees of said university corporation, which they assume was dissolved, to require said Smith to account to said company for the moneys which they charge equitably belong to it. No corporate action was sought, and no request that suit be brought. Obviously the wrong, if any, primarily was to the university company, and the board of directors of the company were the parties entitled to represent said corporation. [Loomis v. Railroad, 165 Mo. 469.] The gravamen of the complaint is that it was Smith’s duty to communicate his information to said board, and their duty to require him to account.

*173Clearly no such, duty was imposed on it (if in fact there was no hoard), and if there was no board, he was not a member of it. If there was a board of directors, representing the corporation, the/ could ratify Smith’s, action in the premises, and in the absence of fraud and collusion with Smith to cheat their company, their conduct in ratifying the sale would be conclusive. There is no allegation of fraudulent conduct on their part.

It appears elsewhere in the petition that the interest on the note given by the land company was unpaid, and by the terms of their contract with the land company, the university company had forfeited all right to the property and had no money or credit to redeem the land from sale. Who in the circumstances must judge whether they would involve their company in litigation save the directors? The bare fact that Smith was one of the directors and joined with others in purchasing the note of the land company and afterwards purchased the property at a рublic sale by the disinterested trustee in the deed of trust would not render his purchase fraudulent. At most it was voidable only. It was said by Judge Dillou in Buell v. Buckingham & Co., 16 Iowa 1. c. 293: “It [a purchase by an agent or trustee] is made subject to the right of the principal or beneficiary,, in a reasonable time, to say he is not satisfied with it. It is valid in equity as well as in law, unless the parties interested ‍​‌​‌‌‌‌​​‌‌​​​‌‌​​​​​‌​‌​​​​​​​​‌​​​​‌‌​​​‌‌‌​‌​‍repudiate it or complain of it, but when the principal or parties interested do not complain, a mere stranger can not make the objection.” And the report of that case shows that the complainant in that case was a mere general creditor.

In Twin-Lick Oil Company v. Marbury, 91 U. S. 590, the Supreme Court of the United States, in a case much resembling this, on this point, says: “If it be conceded that the contract by which the defendant became the creditor of the company was valid, we see no principle on which the subsequent purchase under the deed of trust is not equally so. The defendant was not here both seller and buyer. A trustee was interposed who. made the sale, and who had the usual power necessary *174to see that "the sale was fairly conducted, and who in this respect was the trustee of the corporation, and must be supposed to have been selected by it for the exercise of this power. The defendant was at liberty to bid, subject to those rules of fairness which we have already conceded belong to his peculiar position; for, if he could not bid, he would have been deprived of the only means which his contract gave him of making his debt оut of the security on which he had loaned the money. We think the sale was a fair one. The company was hopelessly involved beside the debt to the defendant. The well was exhausted, to all appearance. The machinery was of little use for any other purpose, and would not pay trаnsportation. Most of the stockholders who now promote this suit refuse to pay assessments on their shares to aid the company. Nothing was left to the defendant but to buy it in, as no one would bid the amount of his debt.”

And to the same effect is Olcott v. Railroad, 27 N. Y. 567, in which it was said: “The defendants here (the creditors) are not competent to make that election. The mortgagor is the party most directly interested in the question, and the validity of the sale can not be impeached without its consent, or at least without giving it an opportunity to be heard. ’ ’ [Davoue v. Farming, 2 Johns. Ch. 267-8, and other cases cited.] In this case neither the university company which is the alleged debtor and equitable mortgagor, nor its directors or trustees are made parties.

III. As the purchase of the twenty acres at most was only voidable by the university company in a reasonable time, we come now to the consideration whether plaintiffs, granting they had a standing in a court of equity, have not lost it by their laches. The bill on its face discloses that Smith purchased on March 6, 1889, and sold to the receivers in May, 1889. This action was commenced in January, 1891. All the parties resided in Sedalia. The sale was 'public and the deeds of record. There is no allegation that any of *175these facts were suppressed or conceаled ‍​‌​‌‌‌‌​​‌‌​​​‌‌​​​​​‌​‌​​​​​​​​‌​​​​‌‌​​​‌‌‌​‌​‍by Smith or any other person.

Did they commence this suit in a reasonable time?

This court in Kitchen v. Railroad, 69 Mo. 268, announced the doctrine “that delay under these circumstances is obnoxious to the equitable principle, which requires that an option to set aside such transactions as the one complained of must be exercised within a reasonable time when new rights and еquities have intervened,” quoting with approval from Graham v. Railroad, 2 McNaugh. & Gordon 156, in which a shareholder had remained passive for eighteen months, the remark of the chancellor that “by not coming earlier they have precluded themselves from asking for the exercise of the extraordinary jurisdiсtion of the court.” We think the requisite diligence is not shown in this bill.

IV. But finally. The conclusive answer to this bill is that the fraud of which plaintiffs complain is not that of their debtor, the university company, but of Smith in buying that company’s property while a director thereof.

In Parker v. Roberts, 116 Mo. 662, this court said: “The rule is well settled that ‘the creditors of the party defrauded have no right, even though the fraud has the effect to diminish the means of paying them, to look into such fraud and unravel it. It is for him and him alone to do so, and if he chooses to acquiesce in the fraud or suffers himself to be concluded of his right to investigate or undo it, his creditors must be content to abide by the lеgal rights remaining in him. ’ ”

And such is the weight of judicial opinion. See: Johnson v. Bennett, 39 Barb. 237; Garretson v. Kane, 27 N. J. L. 211; Bump on Fraudulent Conveyances, 18; Priest v. White, 89 Mo. 610; Graham v. Railroad 102, U. S. 148; Globe Co. v. Thacher, 87 Ala. 458; O’Conner Co. v. Coosa Co., 95 Ala. 614; Whitney v. Kelly, 94 Cal. 146. And the rule obtains with respect to corporations ‍​‌​‌‌‌‌​​‌‌​​​‌‌​​​​​‌​‌​​​​​​​​‌​​​​‌‌​​​‌‌‌​‌​‍as well as individuals. [Graham v. Railroad, 102 U. S. 148; Priest v. White, 89 Mo. 616.]

A most interesting and novel contention made by *176defendants is that plaintiffs can not bring this snit in their own names, bnt that it can only be done by the Attorney-General under section 1407, Revised Statutes 1899, and in the manner therein designated, but inasmuch as in our opinion the circuit court correctly held the plaintiffs had no standing in a court of equity on their bill, and as our time is too much engrossed to permit an examination of questions not deemed essential to the disposition of causes, we express no opinion of that proposition.

The judgment of the circuit court must be and is affirmed.

Sherwood, P. J. and Burgess J., concur.