Court Opinion

ID: 7989070
Source: CourtListenerOpinion
Date Created: 2022-09-09 01:28:53.767237+00
Date Added: 2024-06-11T16:35:17.833363
License: Public Domain

CalhooN, I.,
delivered the opinion of the court.
The bill of appellee Brame, as trustee of the bankrupt estate of one Shia, charges that in December, 1901, Shia was insolvent, and, being so, sold his mercantile stock to what was then a mere partnership styled Holloway & McRaney, and was adjudged bankrupt in the February following, the sale being less than four months before the adjudication; that this sale was upon a conspiracy between him and them to defraud his creditors; that he delivered to them $10,000 worth of goods for a nominal sum, which goods he had bought on credit, which credit he got by exaggerating his rating as a merchant, in which they collusively joined; and the prayer is for discovery, and that Holloway & McRaney be charged as trustees ex maleficio for the value of the goods. An amended bill sets up further that on the day of the alleged fraudulent sale, December 18,1901, Holloway & McRaney were organizing themselves into a corporation, which was completed December 31, 1901, and that Shia owed the firm, and the transfer of the goods was a performance denounced by the bankrupt act; that the corporation was simply a merger of the firm; that its incorporators were the same people, that it got all the firm property, and assumed all the firm debts; and the *340prayer is for discovery and for decree bolding tbe corporation liable for any debt paid tbe firm as a preference, and charging it with tbe value of tbe goods so fraudulently conveyed. Tbe defendant corporation filed a general denial of tbe charge of fraud, without particular answer to particularized charges, and then filed to tbe whole bill a general demurrer on the grounds detailed: (1) That tbe bill shows that it is not a proper party; (2) that it fails to show that tbe members of tbe old firm are insolvent; (3) because tbe bill shows that tbe acts complained of were those of a solvent partnership, etc. This demurrer was very properly overruled. Tbe answer admits that on December 18, 1901, tbe date of tbe transfer of tbe goods, Shia did owe tbe partnership, but says it was only to tbe amount of $236.32; denies knowledge of Shia?s insolvency, but admits that be paid this debt with goods, which it says was at reasonable valuation, this being true as to other goods then bought of him to the amount, they say, of $604.40; and admits that tbe corporation assumed the debts of tbe firm; and it pleads “in bar” that tbe members of tbe firm, all solvent, are not made parties. Tbe answer denies fraud, and declines to make discovery. Evidence was beard, and on it the chancellor decreed the sale fraudulent, and on the case made this court will not disturb bis conclusion. Mr. Shia seems to have been lost in tbe mix-up. ITe is not beard from. Tbe morning after the night of tbe sale be disappeared from the usual scene of bis operations and customary haunts. It was shown that tbe corporation, styled Holloway & MeRaney Co., was composed of only the identical persons who composed the partnership of Holloway & MeRaney, with tbe same interest of each, and with no other change of name or place of business than the addition of tbe word company to tbe partnership name; and that tbe only apparent change ever made was that sixteen days after* tbe incorporation stock was taken, and a new system of books opened. On these new books tbe assets of tbe firm were charged up to tbe corporation, which simply kept possession of them, including the unsold part of the goods tbe firm had got *341from Sbia. Tbe decree is against tbe corporation for the amount of tbe value of tbe goods.
As against then existing creditors, represented by tbe trustee of Shia’s estate in bankruptcy, no title passed by tbe fraudulent transaction between bim and tbe firm, botb being mala fide., and tbe liability of Sbia to tbe extent of tbe value of tbe goods delivered is enforceable in equity against tbe firm receiving them, and against tbe corporation, composed only of the same persons, taking tbe assets with full knowledge and assuming tbe liabilities of tbe firm. Vicksburg v. Citizen's Telephone Co., 79 Miss., 341; s. c., 30 South., 725 ; s. c., 89 Am. St. Rep., 656 — a milder case than this. Sbia was liable to bis creditors. The firm who fraudulently got bis goods became liable to bis creditors for their value; and tbe corporation, composed of tbe members of the firm only, which took tbe goods of tbe firm without consideration and with full notice, is also liable. If tbe contention of counsel were to prevail, in a case like this, that tbe court should have credited on the value of tbe goods.tbe account of tbe firm against Sbia for which it took goods, and tbe cash it paid bim at a very inadequate valuation, it would be a legal condonation of a gross fraud designed by botb parties to enable Sbia to- cheat bis creditors. In fact, these were tbe very incentives to tbe accom-; plisbment of tbe fraud, and without which it would not have been perpetrated. Neither law nor reason assents to the contention. Neither so encourages actual fraud. Botb denounce it. There is nothing, as we think, in tbe contention that tbe members of tbe firm of Holloway & McHaney were tbe parties, to be sued, on the ground that tbe other creditors might sue tbe firm, and not tbe corporation, about tbe same thing, and that tbe firm then could not set up tbe recovery for tbe corporation. It could set it up. Brame, Jr., has recovered as trustee for all tbe creditors of Sbia, tbe value of all bis goods which went from bim to tbe firm and from tbe firm to tbe corporation, and none of tbe creditors can get from either tbe value of the goods any more.

Affirmed.