244 F. 672 | 9th Cir. | 1917
In December, 1915, the appellee, Paine, as trustee of the Kake Trading & Packing Company (to be called Trading Company), a corporation voluntarily adjudged a bankrupt On April 9, 1915, brought suit in the United States Court in Oregon against Kendall, Gordon, Sanborn, Kake Packing Company, and San-born-Cutting Company for an accounting by the Sanborn-Cutting Company of its conduct of the business of the Kake Packing Company, a corporation (to be called the Packing Company), since May, 1914, for restitution of the assets of the Packing Company, and for an account of 125 shares of stock of the Packing Company belonging to the Trading Company, and for judgment against Kendall, Gordon, and Sanborn-Cutting Company and each of them for $12,500, and for other relief. On the same day Paine, as trustee, brought suit in Alaska against the Kake Packing Company and appellant herein, Sanborn-Cutting Company. In the Alaska case the trustee prayed that the conveyance of the assets be held void, and that the Cutting Company account and make restitution to the Packing Company, or that, if restitution could not be had, the property be held by the Cutting Company subject to the debts of the Packing Company to be disposed of to pay the unpaid debts of the Packing Company, including a judgment theretofore recovered by the trustee against the Packing Company, or that the Cutting Company be required to pay the unpaid debts of the Packing Company, including the judgment recovered by the trustee and for judgment against the Cutting Company for $10,S23.14, with interest, and for further relief. By stipulation the Alaska and Oregon suits were consolidated and tried on the merits before the United States District Court in Oregon. Decree was awarded Paine, as trustee, and against this appellant, Sanborn-Cutting Company, for $6,687.87, with interest, without costs to either party. Order of dismissal was made as to Sanborn, Kendall, and Gordon. Sanborn-Cutting Company appeals.
The Oregon suit is brought by the trustee of the Trading Company, bankrupt, for and on behalf of the trustee and all stockholders of the Packing Company similarly situated who may wish to join and for the benefit of the Packing Company. The substance of the complaint is that the Trading Company on April 9, 1915, doing .business in Alaska, was not able to pay the just claims of its creditors; that the Kake Packing Company and the Sanborii-Cutting Company were Oregon corporations doing business in Alaska; that one Ernest Kirberger was president, manager, and trustee of the Trading Company, bankrupt, and owner of the majority of stock thereof; that the corporation owned property valuable for use in the salmon industry, and about February, 1912, together with Sanborn and Gordon, Kirberger organized the Kake Packing Company to pack fish and food products in Oregon and Alaska; that the Packing Company had a capita) stock
It is also alleged that thereafter the Packing Company owed the Trading Company $4,000 arising out of transactions between the two corporations, but that in furtherance of the scheme agreed upon between Sanborn, Gordon, and Kendall and Kirberger the Packing Company paid the $4,000 to Kirberger, who in turn at once paid the money hack to the Packing Company and received 40 additional shares of stock in the Packing Company.
The trustee alleges that this transaction was made without any authority on Kirberger’s part; that the 40 shares became the property of the Trading Company and rightfully belonged to the trustee.
It is charged that about January, 1914, Kendall and Sanborn, with a view to defraud the Trading Company and its creditors of 125 shares of stock in the Packing Company and to defraud the creditors of the Trading Companjr, conspired to obtain 125 shares of stock from Ernest Kirberger, in whose name the stock then stood, and that they induced Kirberger to transfer to Kendall and Sanborn the 125 shares in the Packing Company owned by the Trading Company for $1, a grossly inadequate consideration; that Sanborn, Kendall and Kirberger then well knew that such assignment would unlawfully defraud the Trading Company and its creditors and delay them in collecting their demands, the Trading Company then being known to be insolvent. It is charged that to carry out the scheme Sanborn and Kendall caused a meeting of the stockholders of the Packing Company to be held about -May 11, 1914; that Sanborn and Gordon constituted a majority of the directors of the Packing Company, and in connection with Kendall and Frank Sanborn and Fulton, in violation of the rights of the minority stockholders and of the Trading Company, and in connection with Kendall, caused all the assets of the Packing Company to be sold and conveyed to the Sanborn-Cutting Company, appellant herein; that Sanborn and Kendall constituted a majority of the board of directors of the Sanborn-Cutting Company purchasing company; that the sale operated as a fraud against the Trading Company; that Kirberger
Sanborn-Cutting Company denied all allegations of fraud, admitted the transfer to it of the assets of the Packing Company, but said that the transfer was for a valuable consideration; that the sale was made at the request of Kirberger, who voted the stock in his name; and that, after the assignment of the assets to the Sanborn-Cutting Company in May, 1914, the latter company took possession of the property, and has no ownership in 125 shares of the Packing Company. By)replication the trustee denied all affirmative allegations, and pleaded that the assignment was invalid and wrongful. In the Alaska suit the trustee sued for himself as trustee and other creditors of the Packing Company similarly situated, tie pleaded that in August, 1915, in Alaska, as trustee, he recovered judgment against the Packing Company for $10,333.31, with interest; that execution upon the judgment was returned unsatisfied; that about May 12, 1914, the Packing Company, then controlled by the Sanborn-Cutting Company, with intent to defraud the creditors of the Packing Company, and particularly the Trading Company, by bill of sale conveyed all its assets in Alaska to the Sanborn-Cutting Company; that such transfer was not in good faith, but made with notice and in pursuit of a conspiracy to defraud the Trading Company out of its debt against the Packing Company; that the Packing Company was controlled by the Sanborn-Cutting Company, and that the property conveyed should be held subject to the payment of the debts of the Packing Company; that there are many unpaid creditors of the Trading Company, bankrupt; and that they have been delayed and hindered in the collection of their debts by reason of the transfer. The Sanborn-Cutting Company denied all fraud and pleaded purchase in good faith, and that the consideration for the purchase was that it should pay the debts of tire Packing Company, excepting a claim of the Trading Company amounting to $8,582.21, and that such an arrangement was agreed to by the Trading Company, which corporation had assigned its claim to Sanborn and Kendall; that the property transferred to the Sanborn-Cutting Company was not worth more than $60,000, but that the latter company agreed to take the property and pay all the debts which were represented at the time to be $76,621.01, exclusive of the claim of the Trading Company; and that the Trading Company induced the San-born-Cutting Company to take all the assets of the Packing.Company, the main inducement being cancellation of the claim of the Trading-
In the quite voluminous record these matters are specially important. At the time of the transactions under investigation Ernest Kirberger owned 24,998 shares out of 25,000 shares of the Trading Company, and was president, manager and trustee thereof. When the Packing Company was organized by Kendall, Sanborn, and Kirberger on February 19, 1912, with a capital of $50,000 divided into 500 shares of the par value of 8100 each, Sanborn and Kendall each subscribed for 85 sliares, F. H. Sanborn, son of G. W. Sanborn, subscribed for 10 shares, and Ernest Kirberger for 125 shares, and A. C. Kirberger for 60 shares. Kirberger was president and manager. E. Kirberger testified that property which the Trading Company by resolution of February 29, 1912, authorized him by bill of sale to convey to the Packing Company to the amount of $7,500 represented purchase of 85 shares in the Packing Company, and that he intended to buy 40 shares for himself and to pay for them in cash, but he explained that the total 125 shares standing in the name of Ernest Kirberger were all paid for with the assets of the Trading Company, a.nd the lower court so- found. The property transferred was personalty and realty. No authority was given by the Trading Company to Kirberger to purchase the additional 40 shares for which he subscribed. Kirberger expected to get some money from his sister and to pay for these 40 shares in that way, but this plan was not carried out. He testified that the Packing Company owed the Trading Company $4,000 for merchandise, and to pay this $4,000 the Packing Company sent its check, and he (Kirber-ger) in turn indorsed the check back to the Packing Company in payment of the 40 shares just referred to. Gordon and Sanborn knew that this account of the Trading Company was used by Kirberger to buy the 40 shares of stock, and Kirberger testifies that in 1912 and 1913 he operated under direct instructions of Kendall and Sanborn.
On May 11, 1914, after some preliminary talks the Kake Packing Company stockholders had a meeting to consider the transfer of all its property to1 the Sanborn-Cutting Company, and the Packing Company made a bill of sale of its entire assets to the Sanborn-Cutting Company for a recited consideration of $72,621.01. No money changed .hands in this transaction, the transfer being represented by book entries. The resolution of sale named the sum of $72,621.01 liabilities
In Cook on Corporations the author cites many cases sustaining his text to the effect that a single stockholder cannot make a contract for and in the name of the corporation which shall have any binding force or validity except by subsequent ratification or adoption by the corporation in tho regular manner, and, further, that although one person owns a majority of the stock or all of it, or all but two shares, he does not in consequence thereof acquire the right to act for the corporation or as the corporation independently of the directors. Cook on Cor
“It is quite true that the property of a private corporation is not charged by law with any direct trust or specific lien -in favor of general creditors; and such a corporation, so long as it is in the active exercise of its functions, may, if not restrained by its charter or by statute, exercise as full dominion and .control over its property, having due regard to the objects of its creation, as an individual may exercise over his property. 'But when it becomes insolvent, and has no purpose of continuing business, the power to sell, dispose of, and transfer its estate is not altogether without limitation. '* * * It is, we think, the result of the cases that when a private corporation is dissolved or becomes insolvent, and determines to discontinue the prosecution of business, its property is thereafter affected by an equitable lien or trust for the benefit of creditors. The duty in such cases of preserving it for creditors rests upon the directors or officers to whom has been committed the authority to control and manage its affairs. Although such directors and officers are not technical trustees, they hold, in respect of the property under their control, a fiduciary relation to creditors; alfid necessarily, in the disposition of the property of an insolvent corporation, all creditors' are equal in right unless preference or priority has been legally given by statute or by the act of the corporation to particular creditors. » * * In our judgment, when a corporation becomes insolvent and intends not to prosecute its business, or does not expect to make further effort to accomplish the objects of its creation, its manhging officers or directors come under a duty to distribute its property or its proceeds ratably among all creditors, having regard, of course, to valid liens or charges previously placed upon it. Their duty is ‘to act up to the end or design’ for which the corporation was created (1 Bl.*681 Comm. 480). and when they can no longer do so their function is to hold or distribute the property in their hands for the equal benefit of those entitled to it. Because of the existence of this duty in respect to a common fund in their hands to be administered, the law will not permit them, although creditors, to obtain any peculiar.advantage for themselves to the prejudice of othei creditors. This rule is imperatively demanded by the principle that one who has the possession and control of property for the benefit of others — and surely an insolvent corporation, which has ceased to do business, holds its property for the benefit of creditors — may not dispose of it for his own special advantage to the injury of any of those for whom it is held.”
This opinion of Justice Harlan is referred to and the case distinguished on its facts in Sanford Tool Co. v. Howe, Brown & Co., 157 U. S. 312, 15 Sup. Ct. 621, 39 L. Ed. 713. See, also, Jones on Insolvent and Failing Corporations, pp. 103, 104, 205; Williams v. Commercial National Bank, 49 Or. 498, 90 Pac. 1012, 91 Pac. 443, 11 L. R. A. (N. S.) 857; Marshall on Private Corporations, pp. 1054, 1055; Montgomery v. Phillips, 53 N. J. Eq. 203, 31 Atl. 622; Corey v. Wadsworth, 99 Ala. 68, 11 South. 350, 23 L. R. A. 618, 42 Am. St. Rep. 29; Idaho-Oregon Light & Power Co. v. Bank of Chicago, 224 Fed. 39-45, 139 C. C. A. 503.
The District Court awarded judgment to the trustees against the Sanborn-Cutting Company for $6,688.87, that sum being 66% per cent, of $10,333.31, the amount of the debt of the Trading Company, with interest thereon at 6 per cent, per annum from May 12, 1914.
These views dispose of the principal points in the case. The District Court found from the evidence that the value of the property transferred was about $60,000, that the liabilities, including that to the Trading Company, amounted to $90,000, and that, if the property had been applied to the payment of the debts of the Packing Company, 66% per cent, would have been paid. This finding we approve.
■ Our conclusions are that the District Court was right in its decree that the'assignment by Ernest Kirberger to Kendall and Sanborn of the account of $8,582.21 due the Trading Company from the Packing Company was null and void, and that the appellant corporation received' the property transferred to it by the Packing Company subject to the indebtedness amounting to $10,333.31 owing by the Packing Company to the Trading Company, and received the assets and property as the trustee for the benefit of the creditors of the Packing Company, and that the trustee succeeded to the rights of the Trading Company as a creditor of the Packing Company, and we affirm the decree that the trustee recover from the Sanborn-Cutting Company $6,688.87, together with interest from May 12, 1914, and also costs.
In allowing interest on the sum awarded from May 12, 1914, the court correctly regarded the $6,688.87 as money due upon the settlement of a matured account. Sargent v. American Bank & Trust Co., 80 Or. 38, 154 Pac. 759, 156 Pac. 431.
Affirmed.