37 Kan. 183 | Kan. | 1887
Opinion by
The questions in this case arise on the defendant’s (Sweet’s) demurrer to the petition, which the court below sustained. The plaintiff, assigning this ruling as error, brings the case here.
The material statements in the petition are as follows:
First — The Plaintiff’s Demands: (1) That he is an unsatisfied bona fide creditor of the Topeka Rolling-Mill Company, who sues for himself and all other bona fide unsatisfied creditors of said company; (2) that on the 12th day of May, 1874, the said company made its promissory note to the plaintiff for the sum of $5,000, with interest at 12 per cent, per annum from date (said note maturing in eight months), in consideration of so much money advanced by him for the company; that on the 24th day of September following, the company executed a mortgage to secure this note on the real estate and mills of said company; (3) that on the 11th day of December, 1874, he recovered against said company judgments before a justice of the peace, aggregating $852.85, and $31.50 costs; (4) that on the 30th day of December, 1874, judgments were recovered against the company in his favor, amounting to $171.10; and that proper abstracts of these judgments were duly filed in the office of the clerk of the district court of
Second — The Rolling-Mill Company: (1) That said Topeka Rolling-Mill Company is a corporation, and was duly incorporated under the laws of the state of Kansas, on the 31st day of December, 1873, for the purpose of rolling and manufacturing railroad and merchants’ iron, and carrying on the general business of manufacturing iron castings, etc., at Topeka, Kansas; (2) that at its original organization, Timothy B. Sweet, Reuben D. Coldren and E. L. Derby became, and have ever since continued to be, the board of directors of said company; that Timothy B. Sweet became, and has continued to be, vice president and treasurer thereof, Reuben D. Coldren its president, and E. L. Derby its secretary — no election for directors or officers ever having been called or held since its original organization, and the said Timothy B. Sweet has during all this time been its chief and controlling officer; (3) that, immediately upon the organization of said company, it purchased from the Topeka Iron and Steel Company a tract of real estate in the city of Topeka, upon which rolling-mills had been partially erected, and it at once com
Third — The First-Mortgage Bonds: (1) That immediately after the organization of the Topeka Boiling-Mill Company, it issued and sold to the Shawnee County Bank its first-mGrtgage bonds to the amount of $60,000 in bonds of $1,000 each, dated the 1st day of January, 1874, payable five years after date, with semi-annual interest coupons attached, secured by a first mortgage on the real estate and mills of the company; (2) that said bank was to pay $58,000 therefor, in payments as follows: $10,000 cash at date; $10,000 February 1st, 1874; $10,000 March 1st; and $8,000 April 1st, 1874, in cash; the remaining $20,000 thereof to be paid in paid-up stock of the Topeka Iron and Steel Company, from which the Topeka Boiling-Mill Company had purchased its real estate and a partially completed mill; (3) that said bonds were to be placed in escrow in the hands of George F. Parmelee, who was the cashier of the Shawnee County Bank, and were to be delivered by him to said bank as fast as they were paid for; (4) that the bonds were issued and delivered in escrow, and said mortgage was made and recorded; that the bank paid the first $10,000 payment and about $600 additional, and then refused to further perform its contract of purchase, and thereupon eleven of said bonds were delivered to said bank in full satisfaction of the $10,000 it had paid; (5) that twenty-nine of said bonds were surrendered to Sweet, Coldren and Derby for said company; (6) that Arthur C. Huidekoper was the president of the Shawnee County Bank during this time, and he wrongfully obtained
Fourth — The Second Mortgage: (1) That on the 25th day of September, 1874, the Topeka Boiling-Mill Company executed to Timothy B. Sweet a second mortgage on all of its real estate and mills to secure payment to Sweet of a large sum of money claimed to be due Sweet from the company, and to secure him as surety and indorser for the company, and that this mortgage was recorded the same day it was executed; (2) that on the 19th day of October, 1874, Sweet and Coldren entered into a written agreement, by the terms of which the thirteen mortgage bonds were to be turned over to Sweet, and Sweet assigned to Coldren an interest in said mortgage, and the proceeds of the mills were first to be applied to the reduction of the indebtedness of the company to Sweet, until the amount should be reduced to a sum equal to that of the indebtedness of the company to Coldren, and then Coldren and Sweet should hold the mortgage equally.
Fifth — The Huidekoper Suit: (1) That on the 21st day of December, 1874, Arthur C. Huidekoper, claiming to be rightful owner and holder of said thirty-one bonds, commenced his action in the Shawnee county district court against the company, Sweet and others, alleging the insolvency of the
Sixth — A Secret Agreement: (1) That while said action was pending, to wit, in the month of July, 1875, the said Huidekoper and said Sweet met and mutually agreed not to controvert each other’s claims set up in said action, but to act together for their mutual benefit secretly, while pretending to controvert each other’s claims, and keep up the semblance in said action of adversary proceedings between them, and mutually labor to defeat all other claims set up or to be set up in said action; (2) that thereupon the said Sweet bought up divers judgments against said company at sums greatly less than the amounts due thereon, and in his answer set them up at their full value against the company, instead of giving said company the benefit of the discounts thereon obtained by him; he, the said Sweet, having then in his hands, as treasurer as aforesaid,
Seventh — A Second Secret Agreement: (1) That on the 30th day of August, 1876, the said Huidekoper, Royal M. Bassett, for the Birmingham iron foundry, and said Sweet, entered into an agreement in writing, by which they agreed with each other not to contest each other’s claims, but to have judgment obtained upon them as soon as possible, and that each one of them should share equally in whatever decree might be rendered in favor of either of them in said action; and, if they should succeed in buying in said mills and real estate at the sale under such decree, each therein should own in his own right one-third interest therein, (a copy of the agreement is attached and made a part of the petition;) (2) that, in pursuance of said agreement, each of said parties instructed his attorneys to act secretly in concert with the attorneys of each of the other parties, while remaining apparently adverse, so that such agreement might not be known to, or suspected by, the plaintiff, or any other of the bona fide creditors who were defendants in said action; and in pursuance thereof, said action was thereafter, on the 21st day of September, 1876, brought to trial, and was tried by the attorneys of said parties as if the said Sweet, Huidekoper, and the Birmingham iron foundry were hostile to each other, by. which means said plaintiff was deceived, as were also all the other bona fide creditors who were defendants in said action, and believed that an honest trial and contest was being carried on by the parties apparently the most interested therein; (3) that said agreement was by said Sweet and the other parties thereto fully understood to include the agreement on the part of Sweet that no defense should be made by or for the said rolling-mill company against the said claims of Sweet, Huidekoper, or the Birmingham iron foundry, and that no obstacle should by or for said company be thrown in the way of the consummation of said agreement.
Eigkhth — The Plaintiff in Error a Party Defendant: (1) That
Ninth — The Decree in the Huidekoper Suit: (1) That said trial resulted in a decree by the court, which decreed that the Birmingham iron foundry recover $37,596, and that its de
Tenth — The Sale of the Rolling-Mills: (1) That said premises and mills were appraised at the sum of $90,000, and were sold by the sheriff of Shawnee county, under said decree so procured, for the sum of $60,000, to said Sweet, Bassett, and Huidekoper, and said sale was confirmed, and said premises deeded to them by said sheriff without other payment thereof than mere credit on the amount of said decree.
Eleventh — Money in the Hands of the Receiver: (1) That at the termination of said proceedings a large amount of money, to wit, the sum of $10,000 or more, was in the hands of said receiver’, to be paid over by him as the court should direct, and the said Sweet, Huidekoper, and Bassett, for the Birmingham iron foundry, under the said secret agreement, by consent obtained an order of the court for said fund to be paid over to said Birmingham iron foundry, to reimburse it for pretended costs and expenses paid out by it, and said fund was paid over by said receiver, and equally divided betwee
Twelfth — Assets of the Mill Company: (1) That said premises and mills were the sole and entire assets and property of said Rolling-Mill Company, and said company has not since had any property or assets whatever; (2) that said premises and mills were of the actual value of $200,000, and the good-will of the business of said company was well worth $25,000; (3) that the said mills and premises were afterward sold and conveyed by said parties to the Union Pacific Railroad Company, which purchased in good faith, as the plaintiff is informed and believes.
Thirteenth — Discovery by Plaintiff in Error: (1) that none of said doings or fraudulent acts or schemes or agreements, hereinbefore set forth or alleged, were discovered by said plaintiff until within less than two years next before the filing of this petition; (2) that neither the plaintiff, nor any of the bona fide creditors who were parties to said action, received any sum whatever, but their several demands remain still unpaid, both principal and interest.
Fourteenth — Receipts of Sweet: (1) That Sweet in fact received one-third of the amount due the Birmingham iron foundry, one-third found due said Huidekoper, the whole of the amount found due A. H. Hentig, A. W. Strong, and the Citizens’ Bank, on said Coldren’s bonds, and one-third of the amount received by the Birmingham iron foundry from said receiver, which amounts, even had said amount due him been just and valid, and said proceedings bona fide, as they purported to be, should have been credited on the amount found due the said Sweet, and the benefit thus given to the said rolling-mill company and its creditors; but the said Sweet claims and pretends that the whole amount so found due him is still due, and has issued executions thereon from time to time; (2) that in a certain action now pending in this court by the said plaintiff against said Sweet, to enforce payment upon plaintiff’s demands of the individual liability of said Sweet as a stockholder in said rolling-mill company, being action
Fifteenth — Judgment for Plaintiff in Error: (1) That there was adjudged to be due to said plaintiff on his six several judgments the sum of $1,184.80, and on his note the sum $6,400, and as matured interest on the said bond held by him, the sum of $256.80; (2) that an execution on plaintiff's judgment was duly issued on the 19th day of May, 1881, and duly returned by the sheriff of Shawnee county, wholly unsatisfied for want of any property, real or personal, of said rolling-mill company whereon to levy; all of which fully appears by the records of said court, therein still remaining; (3) that the whole of said plaintiff's demands, with interest, remains unpaid and unsatisfied.
Sixteenth — Sweet's Receipts: (1) That, after said sale, Sweet, under execution, caused all the machinery and fixtures to be sold; and a portion thereof was sold to third parties for the sum of about $1,000, which the said Sweet received and still retains, and the remainder thereof was bought in by said Sweet, aud has since been resold by him at a large profit; (2) that there is now in the hands of said Sweet, as treasurer of said company aud as trustee for the creditors of said company, including the plaintiff, derived from the income and proceeds of said mills, and for which he ought to account with said company and its creditors, including the plaintiff, a large sum of money, to wit, the sum of over $100,000, which he unjustly and fraudulently refuses to apply to the payment of said creditors.
These statements, extracted from the body of a long petition, present in chronological order all the material facts alleged, and also the prayer for the relief which the plaintiff in error thinks he is entitled to. The record also contains many exhibits, and among them exhibit “A,” a contract between the Shawnee County Bank and the Topeka Rolling-Mill Company, for the purchase and sale of the first mortgage bonds of the company; exhibit “B,” a contract between Coldren and Sweet as to money advanced, and liabilities incurred by them, on behalf of the rolling-mill company, and as to the
The defendant in error, Timothy B. Sweet, assigned the following causes for demurrer: (1) The plaintiff has no legal capacity to sue; (2) there is a defect of parties plaintiff; (3) there is a defect of parties defendant; (4) several causes of action are improperly joined; (5) the petition does not state facts sufficient to constitute a cause of action.
On the argument of the cause in this court, the most of the assigned causes have been abandoned, or at least they are not referred to. in the brief of counsel for the defendant in error, but their contention is: First, That the action should not be maintained because the plaintiff in error has been guilty of such negligence and laches as to deprive him of the interposition of the court in this behalf; in other word's, his action is barred by the statutes of limitation; second, that all matters and things asserted in the petition against Sweet have been adjudicated against the plaintiff in error, as appears by the petition in a suit to which he Was a party.
The contention of the defendant in error amounts to the assertion that the petition shows on its face that the supposed cause of action is not only barred, but it also recites a former adjudication against the claim of the plaintiff in error, and
The petition charges very many transactions of Sweet, as the agent of the company, with its business affairs, as fraudu
There are many other allegations, but these are among the principal ones. It is true that many of them are stated in the most general terms, and some of them partake more of the nature of legal conclusions than of specific allegations of facts. There is no reason why we should discuss at length all these allegations; for it practically makes no difference how many causes of action may be stated, or how many attempts there have been to state causes of action. The question is: Hoes the petition state one cause of action against the defendant in error, Timothy B. Sweet ? If it does, then we have reached the end of our inquiry.
Having determined that this suit is in the nature of a creditor’s bill, seeking to make the defendant in error, Timothy B. Sweet, as an officer and a director of the mill company, and heuce by operation of law a trustee for the creditors and stockholders of said mill company, responsible for his management of the business of said company, and that all acts of his as such officer about the business management and litigation resulted to the benefit of the creditors, and not to his individual benefit, and that he must account for all the property, moneys and revenues that came into his hands by virtue of
But,'before proceeding to this, it will be well to state that very many things set up in this petition, and alleged to have occurred prior to the filing of the petition in the case of Huidekoper v. The Rolling-Mill Company, T. B. Sweet, this plaintiff in error, and others, we must regard as finally disposed of by the decree in that case. It must be recollected that the plaintiff in error was a party to that action; that he had a large sum of money involved in its determination; that many of the acts now charged against Sweet as fraudulent had occurred long before the commencement of that suit, and at a time when the plaintiff in error must have had a somewhat active business relation to the company — advancing it money, and indorsing its notes, under such circumstances as would imply an understanding as to what was going on around him; or, at least, would put a prudent man on inquiry, and cause him to follow an ordinary dictate of business prudence — to investigate the condition of affairs. He alleges that the knowledge of many, if not all, of these acts of Sweet which are nowr chai’ged as fraudulent, did not come to him until after the rendition of the decree in that action; but he ought to have shown some sufficient reason why he did not sooner discover them, or that, with the exercise of reasonable care and diligence, he could not have sooner discovered them; because it has been held, in a great many cases, that reasonable opportunities for discovering frauds practiced under such circumstances, are equivalent to knowledge in a certain class of cases, and to notice in another class of cases. Over seven years .had elapsed since the rendition of the decree in that case before this action W'as commenced. Some of the acts of Sweet, now complained of as being fraudulent as against the plaintiff in error, occurred almost two years before the decree in the Huidekoper case. "With the opportunities of the plaintiff in error to acquire knowledge of these transactions, and with a large pecuniary
There is another thing that may as well be said now: We can take no notice of the allegations affecting Huidekoper, Coldren, and Derby, as they are not parties to this action, and their rights were adjudicated and declared in the previous litigation.
Eeducing to the most compact forms the material facts bearing upon the inquiry we are making, so as to be easily understood, they are as follows: The Topeka Boiling-Mill Company began business about the 15th day of April, 1874. The defendant in error, Timothy B. Sweet, was its vice president and treasurer — its chief and controlling officer. The mills were
It is alleged that while this suit was pending, and prior to the trial, the defendant in error, Sweet, the plaintiff Huidekoper, and the Birmingham iron foundry, a defendant in the
It is alleged that the contract made between Huidekoper, the Birmingham iron foundry, and Sweet, was made with the intent, as far as Sweet was concerned, to cheat, wrong, and defraud the stockholders and creditors of the mill company; that, at the time said contract was made, Sweet, as treasurer, had in his hands a large sum of money belonging to the company ; that he used this money to buy up claims against the company at a large discount, and then set them up in his answer against the company at their full face value, instead of giving the company the benefit of the large discount obtained by him; that Sweet had a sum of money, as treasurer of said company, at that time sufficient to pay off all the demands against the rolling-mill company, except those of Huidekoper and the Birmingham iron foundry, and that instead of using it for that purpose, he used the funds of the company to buy up claims in his own name, and for his own individual benefit.
It will be recollected that the agreement between the Birmingham iron foundry, Huidekoper, and Sweet, was made on
The questions arising in this case as to the liability of Sweet, as an officer of the mill company, to its stockholders and creditors for the resulting profit of his use of the company funds, are determined by the court in that case. The petition states sufficient in this behalf to constitute a cause of action against Sweet; so that, if, on the trial that is to follow, these averments are supported by evidence, he should be compelled to account to the creditors of the mill company , . 7, ^ for such part of the proceeds of his receipts from the sale of the property, and the money he received from the receiver, as the facts will justify. We hold that in this case the petition states a cause of action against Sweet, as above suggested, and this is sufficient for the purpose in view. The defendant in error took the risk of the admission of certain recited facts that results from the filing of the demurrer. We have treated these admissions as the averments of the petition justify. What the real facts are will be apparent when the case is tried on full proof.
We express no opinion, further than to say that the petition does state a cause of action, and it is therefore recommended that the ruling of the district court be reversed, and the cause remanded, with instructions to overrule the demurrer.
By the Court: It is so ordered.