Case Name: THOMAS WARREN, Respondent, v. HENRY MAYER et al., Appellants
Court: St. Louis Court of Appeals
Jurisdiction: Missouri
Decision Date: 1912-02-06
Citations: 163 Mo. App. 451
Docket Number: 
Parties: THOMAS WARREN, Respondent, v. HENRY MAYER et al., Appellants.
Judges: Nortoni and Caulfield, JJ., concur.
Reporter: Missouri Appeal Reports
Volume: 163
Pages: 451–464

Head Matter:
THOMAS WARREN, Respondent, v. HENRY MAYER et al., Appellants.
St. Louis Court of Appeals.
Argued and Submitted January 10, 1912.
Opinion Filed February 6, 1912.
1. APPELLATE PRACTICE: Abstract in Equity Case: Failure to Set Out Ail the Evidence. In an equity case, the failure of the appellant to set out all the evidence in the abstract of the record filed in the appellate court is ground for a dismissal of the appeal or an affirmance of the judgment; but the omission of immaterial evidence not affecting the result will not result in such action being taken.
2. CORPORATIONS: Preference of Creditors: Insolvent and Dissolved Corporations. The rule that a corporation, even though in failing circumstances may prefer one creditor over another applies only to a going concern, and does not apply to a dissolved or insolvent corporation which is winding up its affairs and has gone, or is about to go, out of business.
3. -: -: -: Liability of Stockholders Receiving Preference: Facts Stated. A payment of the proceeds of the assets of a corporation was made to stockholders, either for the purpose of paying a dividend previously declared, or by virtue of their stockholdings. The payment was authorized by three directors, two of whom received the benefit thereof, and was made in the process of winding up the corporation, which was insolvent. A créditor of the corporation, on an account due before the sale of the assets, obtained a judgment against the corporation. Held, that the two directors receiving payment of the proceeds were liable to the judgment creditor.
4. -: -: Unlawful Preference: Liability of Stockholders or Creditors Receiving. Where an unlawful preferential payment to a creditor is made by an insolvent corporation in the process of liquidation, the excess of the amount over what the creditor will receive under an equal pro rata distribution among all the creditors is recoverable for the benefit of the other creditors; but where, under such circumstances, a payment of corporate assets is made to a stockholder, he is liable to creditors for the whole sum received.
Appeal from St. Louis City Circuit Court. — Eon. George G. Hitchcock, Judge.
Aeetbmed-.
Julius T. Muench for appellants.
(1) A dividend, properly declared, becomes, from tbe time of its declaration, an enforcible claim against tbe company, whether or not a specific fund is set aside out of which to pay it. McLaran v. Mill Co., 117 Mo. App. 40'; Wheeler v. Sleigh Co., 39 Fed. 347; Beers v. Spring Co., 42 Conn. 17; Hill v. Newichawanick, 8 Hun (N. Y.) 459; Hopper v. Sage, 112 N. Y. 530; Bright v. Lord, 51 Ind. 272; Terry v. Lock Co., 47 'Conn. 141; Hunt v. O’Shea, 69 N. H. 6001; 2 Thompson •on Priv. Corp., sec. 2134; 9 Am. & Eng. Ency. Law (2 .Ed.), 689-690'. (2) Dividends may be declared on un<collected accounts, supposed to be good, even though the corporation may be in debt. Slayden v. Coal Co., 25 Mo. App. 439. (3) A person or a corporation has the right to prefer one creditor over another. Crow v. Beardsley, 68 Mo. 435; Shelley v. Boothe, 73 Mo. 74; Dougherty v. Cooper, 77 Mo. 528; Foster v. Planing Mill Co., 92 Mo. 79; Hargadine v. Henderson, 97 Mo. 375; Bank v. Bank, 136 H. S. 223; May v. Tenney, 148 U. S. 60; 2 Moravetz on P'riv. Corp., sec. 786.’ (4) The Statute of Limitations does not extinguish a cause of action; it merely bars the remedy. Even then it must be specially pleaded. Gross v. Watts, 206 Mo. 397; Morgan v. Railroad, 51 Mo, App. 523; Bader v. Levee District, 110 Mo. App. 599; Stevenson v. Smith, 189 Mo. 447. (5) The transfer of the assets of the A. B. Mayer Manufacturing Company to the Mayer Fertilizer & Junk Company was made for'an adequate- and reasonable consideration. Warren v. Fert. & Junk Co., 145 Mo. App. 558. '
George B. Webster for respondent.
(1) In equity cases where the appellant fails to present the entire evidence in his transcript or abstract in lieu thereof, this court will not review the chancellor’s findings of fact. Mason v. Smith, 124 Mo. App. 596; McKinney v. Northcutt, 114 Mo. App. 146; Yancy v. Jones, 153 Mo. App. 206; Mitchell v. Mitchell, 191 Mo. 475'. (2) The respondent does, not dispute the appellants’ first proposition of law contained in their brief, to the effect that a dividend when declared is an enforcible claim against the corporation declaring it, but adopts it, and applies it to the evidence in this case that the dividend which was the basis of the A. B. Mayer claim was declared more than twenty years before. That claim was therefore barred and could not have been considered a valid debt of the old company as against creditors. Ball v. Peper C. P. Co., 141 Mo. App. 26. (3) While it is generally true that a person or corporation, even while insolvent, may in good faith prefer one creditor over another, yet when a corporation is hopelessly insolvent and can not go on with its business, and these facts are known to its officers and directors, then no attempted preference to them will be upheld. W, M. Co. v. Nampe, 38 Mo. App. 229 ,- Shields v. Hobart, 172 Mo. 491; Roan v. "Winn, 93 Mo. 503; State ex rel. v. Brock-man, 39 Mo. App. 137. (4) The payment of the Mayer claim for dividends was a mere gift of the company’s assets to the Mayer estate. Herman v. Britton, 88 Mo. 549; Gill v. Bales, 72 Mo. 424; Sladen v. Coal Co., 25 Mo. App. 439; Beyer v. Trust Co., 63 Mo. App. 525; Tube Works v. Ring Co., 118 Mo. 365. All persons receiving gifts from insolvent corporations are held to account to creditors for whatever they have so received. Roan v. Winn, 93 Mo. 503; Beyer v. Trust Co., 63 Mo. App. 525. (5) The dividend declared so many years before was never a valid obligation of that corporation. R. S. 1879, sec. 931; Shields v. Hobart, 172 Mo. 516; Slayden v. Coal Co., 25 Mo. App. 439.

Opinion:
REYNOLDS, P. J.
This is a suit, filed to the October term, 1907, of the circuit court of the city of St. Louis, against Henry Mayer, Morris Mayer and Frederick Mayer, as stockholders, officers and directors of the A. B. Mayer Manufacturing Company, for an accounting and to recover from them as individuals the amount of a judgment, together with costs and interest, in favor of plaintiff and against the A. B. Mayer Manufacturing Company. The petition, after averring the incorporation of the A. B. Mayer Manufacturing Company, and that it entered upon its business as a manufacturing corporation, avers that thereafter, on the 12th of April, 1897, that company became justly indebted to the plaintiff, on which indebtedness plaintiff, on the date last mentioned, brought action against the company; that afterwards, on the 12th of June, 1902, plaintiff recovered his judgment against the company in the sum of $765' for his debt and $157.55 for his costs in the suit expended and that that judgment thereafter remained and still is unpaid. It is further averred that afterwards and on the 25th of July, 1902, the A. B. Mayer Manufacturing Company, by action of its board of directors, was duly dissolved; that at the time of the institution of the suit in which he recovered his judgment, namely, the 12th of April, 1897, the A. B. Mayer Manufacturing Company owned and was possessed of property and assets of great value, to-wit, of the value of $100,000, with which property and assets it was then carrying on business and was possessed of a large trade, but that while plaintiff's action was pending and in (March), 1901, the defendants, then being officers, directors and stockholders of the A. B. Mayer Manufacturing Company, caused all of the property and assets of the A. B. Mayer Manufacturing Company to be distributed among the stockholders of that company including these defendants and that no provision was made for the payment of the debts of the company. It is further charged that at the time the assets and property of the company passed into the hands of defendants, those assets were a trust fund for the payment of all debts and liabilities of the A. B. Mayer Manufacturing Company and when received and taken by defendants were charged with such liability, and that the defendants have appropriated to their own use those assets of the value before stated. Plaintiff demands and prays for an accounting of the assets received by defendants from the A. B. Mayer Manufacturing Company; that their value be found; that interest be computed upon his judgment and the aggregate amount of his debt, interest and costs due thereon to the date of the decree be ascertained, and that the defendants be decreed to pay the same to plaintiff with interest to the date of the decree and all costs of the proceeding. Defendants answered by general denial.
The cause came on for hearing before the court as a cause in equity and resulted in a judgment for plaintiff against the defendants Henry and Morris Mayer for $1367.37, apportioned equally between them, tbat is, to be satisfied by tbe payment of $683.68 by each, tbe court finding in favor of tbe defendant Frederick 0. Mayer and rendering its decree accordingly. A motion for a new trial .having been filed, overruled and exceptions saved, tbe cause lias been duly appealed to this court by tbe defendants Henry and Morris Mayer.
Counsel for respondent complains tbat tbe abstract prepared by tbe counsel for appellants does not set out all tbe evidence in tbe case and supplements it by wbat, as we understand, is tbe omitted part. Examining tbat we cannot say tbat it is of sufficient materiality or importance to bave affected tbe result, one way or tbe other, and as we are satisfied we bave practically all tbe testimony before us, we decline to dismiss tbe appeal, or affirm, as we might do, for reason of an incomplete setting out of all tbe evidence in tbe case, it being a suit in equity.
All tbe facts leading up to tbe transfer of tbe assets of tbe A. B. Mayer Manufacturing Company to tbe Mayer Fertilizer & Junk Company are so fully set out in Warren v. Mayer Fertilizer & Junk Co., 145 Mo. App. 558, 122 S. W. 1087, and were-substantially in evidence in tbe trial of this case, so tbat we do not consider it necessary to repeat them, referring to tbe report of tbat case for those facts. Accepting wbat was held in tbat case as to tbe bona fides of tbe transaction as between tbe two* companies, and tbat tbe remedy, if any, was against tbe officers, directors and stockholders of tbe A. B. Mayer Manufacturing Company, plaintiff brought this suit.
In rendering judgment tbe learned. trial court handed down a memorandum giving bis view of tbe case. Reciting tbe facts substantially as in the for-, mer case, and taking up tbe dealings with tbe fund of $12,000, tbe proceeds of tbe sale, by tbe executrix of tbe A. B. Mayer estate, to whom tbe court found tbat it was turned over by the A. B. Mayer Manufacturing Company, the learned trial judge finds that these proceeds were subject to distribution among the stockholders, only after the payment of the company's debts, and would pay twenty-four dollars per share if so distributed among the stockholders on the outstanding stock of that company; that at the time this $12,000 was received by the A. B. Mayer Manufacturing Company there were two claims against it, namely (1) that of A. B. Mayer for dividends, "which the company never had the means to pay," according to the minutes of the directors ' meeting of February 9, 1901, and which minutes were signed by these defendants; (2) the claim of this plaintiff which was then in litigation and subsequently became a judgment on June 11,1902. The learned trial judge then proceeds: "In this situation the $12,000 above mentioned was applied on account of the (dividend) claim of A. B. Mayer, at least it would so appear from the order of distribution in the final settlement of the estate of A. B. Mayer, although it is not at all clear from other evidence in the case whether this was really done or whether it was paid on account of the respective holdings of stock. The stockholders were all in the same family and it made little difference to them whether they received the money as stockholders, or as legatees under the will of A. B. Mayer, if the money was applied to the payment of his claim. If the claim was paid, then the stock would be worthless, and if the claim was worthless, then the stock would have some value. If the $12,000 was applied in payment of the claim and such claim should subsequently be held valid, then any other creditor of the company should have to go unpaid. If, on the other hand, the $12,000 was distributed according to the holdings of the several shareholders, such stockholders would be liable pro rata for the amount they so received to any creditor of the company. It was to the interest of the stockholders for it to appear that the $12,000 was applied on the claim of A. B. Mayer rather than on the stock and doubtless they knew it at the time. The $12,000 — part of the proceeds from the sale of the assets of the A. B. Mayer Manufacturing Company — was accordingly paid to the executrix of the estate of A. B. Mayer, who applied it on the stock dividend claim, making the stock in the company held by the estate apparently worthless. Part of this $12,000 was subsequently paid to two of these defendants, Henry and Morris Mayer, as legatees under the will of A. B. Mayer, each receiving $1086.29." The court further finds that in applying this $12,000 on account of the claim of A. B. Mayer the defendants were not guilty of actual fraud, as plaintiff was not then a judgment creditor of the company and might never become so, ' ' and in that event there would be no one to question the payment on the claim of A. B. Mayer. If, however, plaintiff should become a (judgment) creditor of the company, he could raise the question of the validity of such payment as against him. ' ' The court then states that the question before it is, plaintiff having recovered his judgment (on an account due him before the sale of the assets), whether he is entitled to recover against these defendants, stockholders and directors of the A. B. Mayer Manufacturing Company when the transaction occurred, "on the theory that the money received by them and the other stockholders should have been first applied or reserved by the company for the payment of his claim. In the opinion, of the court the plaintiff is entitled to recover and it is immaterial whether the $12,000 was paid on account of the claim of A. B. Mayer, as would appear from the final settlement in said estate in the probate court, or whether the said $12,000' was distributed according to the stock held by the several stockholders, as much of the evidence tends to show. If the former is true, plaintiff is entitled to recover because plaintiff's claim is based u on a judgment against the company while the claim of A. B. Mayer which was paid was for dividends 'which the company never had the means to pay,' according to these defendants, who were directors of the company — in other words, the claim of A. B. Mayer is not a valid one as against this plaintiff, in the opinion of the court. If the latter is true, then plaintiff is entitled to recover under the well-known rule of law that the assets of a company on distribution are held by stockholders subject to the claims of creditors." Finding that the amount and value of the assets sold and so turned over to the executrix was $12,000', that of this, Henry and Morris Mayer had received respectively $1086.29.and Frederick Mayer had received nothing, the court rendered judgment as before stated.
Counsel for appellants make five points for reversal. First, that a dividend,, properly declared, becomes, from the time of its declaration, an enforcible claim against the,company, whether or not a specific fund is set aside out of which to pay it. Second, dividends may be declared on uncollected accounts, supposed to be good, even though the corporation may be in debt. Third, a person or corporation has the .right to prefer one creditor over another. Fourth, the Statute of Limitations does not extinguish a cause of action; it merely bars the remedy. Even then it must be specially pleaded. Fifth, and finally, the transfer of the assets of the A. B. Mayer Manufacturing Company to the Mayer Fertilizer & Junk Company was made for an adequate and reasonable consideration, citing in support of this last proposition Warren v. Mayer Fertilizer & Junk Co., supra. This last proposition is not disputed.
Answering the contention of counsel for appellants, that the payment of the $12,000 by the A. B. Mayer Manufacturing Company to A. B. Mayer's executrix, had been made on account of a dividend declared some twenty years prior to the dissolution of '.the A. B. Mayer Manufacturing Company, counsel for respondent invoked the Statute of Limitations as against that debt and also claimed that at the time the dividend was declared the A. B. Mayer Manufacturing Company was insolvent and not in position to declare a dividend. In the view we take of the case it is not necessary to consider or determine either of these points, nor the contention of counsel for appellants as to them and we express no opinion on either.
We agree with the learned trial court in holding that, speaking generally, it is immaterial whether the $12,000 was turned over by the A. B. Mayer Manufacturing Company to the estate of A. B. Mayer, who had died before the dissolution of the company, in payment of the amount due him on account of the alleged dividend, or was turned over to that estate on account of the stockholdings of A. B. Mayer in the company. In either event and on either theory the two defendants, appellants here, received out of that fund the respective amounts found by the trial court, and in either event it was an unlawful preference or payment under the facts in evidence as to the then situation of the A. B. Mayer Manufacturing Company. Whether the fund of which they received part, came from the payment to the Mayer estate on account of its stock-holdings or on account of its position as a creditor to whom the alleged dividend was paid, these appellants received the benefit of the payment. At the time appellants voted to turn over this $12,000, they constituted a majority of the directors in the A. B. Mayer Manufacturing Company; they used their official positions for their own benefit, and when, as directors, they assented to the turning over of the whole fund realized on the sale of all the assets to the Mayer estate, they were acting in their own interests.
We may concede that the transfer of all of its assets by the A. B. Mayer Manufacturing Company to the Mayer Fertilizer & Junk Compaliy, was made for an adequate and reasonable consideration. We may also concede that a person or a corporation, even if in failing circumstances financially, has the right to prefer one creditor over another. This is the settled law of this state, as see Union Bank of Chicago v. Kansas City Bank, 136 U. S. 223, l. c. 234, and eases there cited; also, Foster v. Mullanphy Planing Mill Co., 92 Mo. 79, l. c. 87. But the law is clear and well settled, not only in this state but elsewhere, that while that rule applies in cases of a going concern, it does not apply to a dissolved, an insolvent corporation, to a corporation winding upi its affairs and about to go, or gone, out of business, as was the case here. Counsel for appellants relies, in support of his proposition, among other authorities, on Foster v. Mullanphy Planing Mill Co., supra. In that case, at page 87, it is held that a corporation, "within the scope of the purposes for which it was incorporated," may do any act in furtherance of those purposes which an individual in similar circumstances might do, and although insolvent, may prefer some creditors to others, even though such creditors are among the directors of the corporation, for it is said, ' ' that the insolvency does not per se abrogate its power to continue the management of its assets, but that it may continue in its due course of business, so long as there is a fair and honest prospect of redeeming its fortunes, and may pay off debts in regular course of business, though a part of the creditors are thereby deprived of their security. [2 Morawetz on Priv. Corp. (2 Ed.), sec. 786, and cases cited.] " This applies the rule to a person or corporation continuing in business; making the shifts and provisions ordinarily necessary for one in an embarrassed financial condition to continue in and keep up its business, to go on. In the case at bar the A. B. Mayer Manufacturing Company was not only insolvent but was not making this preferential payment in the usual course of its business as a going concern. It made it in view of its entire cessation of business, in view of going entirely out of business. Hence the rule announced in the cases referred to, of the right of an insolvent corporation to make preferences among its creditors, does not here apply.
In the case of Shields v. Hobart, 172 Mo. 491, 72 S. W. 669, our Supreme Court (l. c. 517) distinctly recognizes the broad doctrine announced by Mr. Justice Story in Wood v. Dummer, 3 Mason 308, l. c. 311, that on the dissolution of a corporation the assets of a corporation in the hands of its directors constitute a trust fund which may be followed by the creditors into the hands of any persons having notice of the trust attaching to it. "If the capital stock is a trust fund," says Mr. Justice Story in that case (1. c. 312), "then it may. be followed by the creditors into the hands of any persons, having notice of the trust attaching to it. As to the stockholders themselves, there can be no pretense to say, that, 'both in law and fact, they are not affected with the most ample notice.' " That is the rule followed elsewhere. Notice being applicable to stockholders, it is, if possible, more so to directors. While the application of this rule to a going concern has been denied, it has always been followed by our courts in cases of dissolved corporations, of corporations out of, or about to go out of, business. [See Roan v. Winn, 93 Mo. 503, l. c. 510, 4 S. W. 736; Kankakee Woolen Mill Co. v. Kampe, 38 Mo. App. 229, l. c. 232-234; State ex rel. Moll v. Brockman, 39 Mo. App. 131.]
Mr. Morawetz, in his treatise on the Law of Priwate Corporations (2 Ed.), par. 787, and following, an-.nounces as settled law that a corporation which has woluntarily ceased to carry on business, or whose right "to use the corporate fund for business purposes has expired, continues to hold its assets subject to the equitable claims of its creditors, and while the legal ownership of the assets of a corporation is not al tered by the company's insolvency and the regular agents of the company still have the power to represent it and manage its property for all legal purposes, tbe equitable interests of tbe shareholders and creditors are altered by the insolvency, "and the directors or managing agents who originally stood in- a fiduciary relation to the company, become placed in a fiduciary relation to its creditors. The powers of management vested in the directors of an insolvent corporation which has ceased to carry on business, are solely powers to manage the assets in trust for its creditors and for their benefit." It is further stated by this same author in the same section, that "Directors of an insolvent corporation who have claims against the company as creditors must share ratably with the other creditors in a distribution of the company's assets. They cannot secure to themselves any advantage or preference over other creditors, by using their powers as directors for that purpose. These powers are held by them in trust for all the creditors, and cannot be used for their own benefit."
Careful reading of the cases cited by the learned counsel for appellants and claimed by him to be contrary to this rule, fails to support that counsel's contention. They are eases in which the preference was made "in the ordinary course of business," so far as the corporations are concerned. The case of Shields v. Hobart, supra, is distinctly placed on this ground and is the last and hence the controlling decision. Applying this rule, whether this payment of all the proceeds of the assets of the A. B. Mayer Manufacturing Company was made in settlement of the claim of A.- B. Mayer on the dividend before then declared, or whether it was paid by virtue of his stockholdings in the company, in either event it was paid by the order and on the authority of all three of the directors, these two who received the benefit of the payment being a majority of the board; the payment not made in the or dinary course of business of tbe company but made in winding up tbe affairs and business of a concededly insolvent company and at tbe close or contemplated close of its corporate existence. Under this state of facts we bave no question whatever as to tbe correctness of tbe conclusion arrived at by tbe learned trial judge in this case.
We are not unmindful of a distinction that does exist between a preferential payment to a creditor and payment or distribution of tbe fund among tbe stockholders. In tbe latter case tbe whole payment may be recovered; in tbe former only tbe excess of tbe amount over what would bave been an equal pro rata distribution among all creditors bolding enforcible claims. No point was made in tbe trial court and none is made here as to this judgment being excessive as against appellants if they received tbe money as creditors, and we do not consider or pass upon it. Moreover, tbe learned trial court found as a fact that tbe evidence tended to show that it was paid to tbe executrix as on account of tbe stock, and not as on account' of tbe dividend claim, in which case tbe defendants, as stockholders, were liable for tbe whole sum received by them.
Tbe judgment of tbe circuit court is affirmed.
Nortoni and Caulfield, JJ., concur.