Court Opinion

ID: 8265412
Source: CourtListenerOpinion
Date Created: 2022-10-16 16:00:36.745767+00
Date Added: 2024-06-11T16:43:19.919291
License: Public Domain

GOODE, J.
(after stating the facts). — In the joinder of parties defendant and allegations and varieties of relief prayed, the petition appears to be multifarious and an objection on that score was lodged against it, but only in the answers. We think of but one contingency in which Taylor would have been a proper co-defendant with the officers of the Monticello Company to a bill charging said officers with having wasted and misappropriated the assets of the company. That contingency was a confederacy of the officers to misappropriate its assets and the execution of the deed of trust to Taylor to further the scheme, which he acceded to with knowledge of the fraudulent purpose. Unless there was a transaction of that character, Taylor had no connection with any unlawful diversion of the assets by his co-defendants, but such a diversion raised an independent *530case against them to which he ought not to be a party. The record contains no word of proof of any conspiracy between Taylor and the other defendants to make away with the assets of the company, or hinder or defraud any of its creditors; not a word to prove any illegal act or purpose to which Taylor was a party. His connection with whatever occurred was confined to the trusteeship in the deed of trust executed by. the company on February 20, 1908, which instrument transferred all the assets of the company for the benefit of all its creditors, and instead of creating preferences, declared if the hundred or more creditors enumerated were not all, the deed should enure as well to the benefit of those omitted. The company had the right to transfer its assets in that manner and for the stated purpose, instead of resorting to a general assignment. We understand counsel for plaintiff to contend the corporation, if insolvent, could not dispose of its property by a deed of trust to Taylor which would put it out of business, because its assets, in the event of insolvency, became a'trust fund for the benefit of its creditors, and a court of equity should administer the assets for their benefit and appoint a receiver to take over the property and collect those not in possession, including liabilities on unpaid shares of stock; that the court should settle priorities and claims among creditors; distribute the assets among them according to their priorities and the amounts of their demands, and wind up the company. We do not assent to that proposition as one applicable to every instance, regardless of whether the company had attempted to dispose of its property to pay its debts and of whether or not there was fraud in the disposition made by the corporation. We hold a failing company, acting in good faith, may itself provide for the distribution of its assets or their proceeds among its creditors, by conveying them to a trustee and conferring on him the power to collect and sell assets and distribute the proceeds. In some measure the assets of an insol*531vent corporation, which is not able to continue in business, are treated as a trust fund for the benefit of creditors, and the right of the company to dispose of them is abridged on the theory that, if the company can no longer pursue the ends it was created for, the law may lay hold of its property to distribute it among creditors as they are entitled. But we do not understand that if this policy of the law will be attained as well by a disposition of the property made by the company itself, the courts will insist, nevertheless, on taking charge. Whether administration by an assignee or trustee appointed by the company will be interfered with, will depend on the facts, and chiefly on the presence of good or bad faith. The courts have considered mainly the validity of preferences in transfers of property by companies to pay debts and have upheld the right to prefer creditors in good faith; and certainly if there is such a right, then a bona fide transfer of assets to pay all creditors pro rata is valid. [Larrabee v. Franklin Blank, 114 Mo. 592, 21 S. W. 747; Alberger v. Bank, 123 Mo. 313, 27 S. W. 657; Lyons-Thomas Hdw. Co. v. Stove Co., 22 L. R. A. 802.] The cases cited by counsel for plaintiff where such conveyances were set aside and a court of equity took charge of the assets and wound up the company, contained elements of fraud which vitiated the conveyances made by the companies; the fact of fraud consisting of an unlawful preference of the officers of the company as creditors or some other disposition of the assets incompatible with just distribution, [Kankakee Mill Co. v. Kampe, 38 Mo. App. 239; Merchants Bank v. Const. Co., 53 Fed. 314; Doe v. Transportation Co., 64 Fed. 928.] In certain cases plaintiff invokes, the courts upheld the instrument by which the company disposed of its assets and merely settled by decree some question between creditors as to their respective demands against part of the assets. [White v. Land Co., 49 Mo. App. 450; Burnham v. Smith, 82 Mo. App. 35.] Just here it is proper to say the creditors in the *532deed of trust to Taylor would be necessary parties in a suit to set aside tbe conveyance; or, at least, enough of them fairly to represent the others would be necessary. Plaintiff alleged it filed its bill for the benefit of all creditors who might wish to come in and take advantage of the relief granted, but the evidence fails to show any creditor but him has objected to the deed of trust. We will remark further, before passing the case as regards Taylor, that as soon as he took possession as trustee under the deed of trust to him, the mortgagees in prior incumbrances on the property supplanted his possession under said deed, but arranged with him to hold possession for them; conduct which is far from suggesting want of confidence in him; much less that he was in a scheme to defraud creditors in the interest of Mr. and Mrs. Boogher and Prank White, by making away with assets; for all that went into his bands under the third incumbrance were sold from him under the prior incumbrances. It seems he' collected some accounts and maybe got in about $1000 which might go to the creditors mentioned in the conveyance to him. The only way in which he could assist a fraudulent enterprise would be by omitting to collect assets; but that he had done this or anything else that was wrong, or was under the domination of his co-defendants, the officers of the Monticello Company, there is no proof. The terms of the conveyance are broad enough to empower him to sue for what was owing on unpaid shares, and, presumably, in the absence of proof to the contrary, he will sue if he should. [Lionberger v. Bank, 10 Mo. App. 499.] We perceive no ground in the present record for removing Taylor from his trusteeship, or for the court to appoint a receiver of what little assets have come into his hands.
Looking at other allegations of the bill, we find Elizabeth and John H. Boogher and Prank White, officers of the Monticello Company, charged with having converted $100,000 of its assets between October 23,1907, *533and the date the petition was filed, March 3, 1908. The averment is that after the first date said defendants unlawfully converted said amount of the property and assets of the Monticello Company to their own uses and hid, concealed and, disposed of said assets. We believe the only evidence relied on as proof of the charge was the statement furnished to a Mercantile Agency by Frank White, October 23,1907. The assets shown in the statement were machinery, and fixtures in the hotel valued at $68,000, the leasehold at $60,000, the good will of the business $10,000, merchandise $5000 and bills receivable $5000, which items composed $148,000 of the $150,000 of assets. The machinery and fixtures, the leasehold and the good will, were lost to the company by the foreclosure of the first two chattel deeds of trust, and leaving out of view the purchase of the furniture by Mrs. White at the sale under said incumbrances, which will be dealt with infra, it will not be contended defendants converted to their own use any of the machinery, furniture, fixtures, leasehold or good will. The merchandise, bills receivable and $2000 cash on hand at the date of the statement, could have been appropriated, but there is no evidence to prove any part of either item was, and it is not contended there is evidence of that tendency. The accusation that. defendants made away with $100,000 worth of assets, vanishes on scrutiny.
It is alleged in the petition Mr. and Mrs. Boogher and Frank White aided and abetted foreclosures of the mortgages in order to acquire control of the property for themselves; but this charge also is unsupported. After Mrs. Boogher acquired part of the stock of the, company and took charge of the hotel, she improved and added largely to the furniture in the rooms and painted and decorated the interior of the hotel at her own expense, thereby becoming a creditor of the company for a considerable sum. The evidence shows clearly the failure of the company was due, in part, to the *534financial panic which was coincident with her management, hut mainly to the insistence of creditors, whose debts had accumulated under prior management, that they be paid, and their refusal to wait until she conld put the hotel on a paying basis and discharge the company’s liabilities.
Complaint is made that Mrs. Boogher purchased the furniture at sales under the first and second deeds of trust and afterwards sold it at a profit, which she retained instead of turning it in to the company or to Taylor the trustee. The purchases were made at sales at public vendue to the highest bidder and we doubt if the law is against Mrs. Boogher’s buying for herself under those circumstances; especially when the company had ceased to be a going concern and the officers were no longer managing its business affairs. However, we decide nothing on this point, because it is not in the case. The petition contains no averment regarding the matter, which, indeed, transpired subsequent to the filing of this suit.
We have found no clear evidence that unpaid shares of stock were outstanding, whereon the liability of the stockholders should be enforced. We do not say there is no such liability, but merely that it was not proved, and, in truth, no- great stress is laid upon that phase of the case.
The validity of the retirement of preferred shares to the amount of $35,000 in January, 1908, and just before Mrs. Boogher acquired her interest, looks dubious. The preferred shares constituted a liability of the company, and the company had a right to retire them in a {prescribed way, which involved a reduction of the amount of the capital stock. The present record leaves in obscurity the circumstances of the surrender of said shares. We cannot ascertain whether they had been issued by the company to individuals or were treasury stock; or, if they had been issued, whether the holders had paid for them. As shown in the statement, supra, *535the plan provided for the retirement of the preferred shares was to create a sinking fund through a series of years to take them up. This arrangement was altered by reason of the prosperity of the company during the World’s Fair period of 1904, as the officers of the company believed the profits of said year would suffice to retire the shares and that the welfare of the company would be advanced by retiring them at once. The shares appear to have been entrusted to the Germania Trust Company, to be surrendered by it when enough money to pay them was deposited and after proper steps had been taken to reduce the capital stock of the hotel company. As far as we can discern from the evidence, this step was not taken, and we know not why the shares passed from the custody of the Germania Company. The only positive testimony on the subject of their retirement was that of Mr. Boogher, who said the company made $35,000 during the World’s Fair which was used to pay old debts, and in consideration of the old debts having been paid, he, as “holder of all the preferred stock certificates, closed the matter and the preferred stock was simply cancelled.” That explanation of the transaction is not clear, though we do not mean to intimate it suggests illegality, but merely that it does not explain the affair so as to render it intelligible to a person unfamiliar with the facts. Plaintiff seems to complain that cash of the company was used to retire the shares, which constituted a diversion of the company’s assets. We can think of no condition that would make it right for the company to pay the holders of the shares their face value out of the company’s money until the capital stock had been reduced. But there is no proof such a course was pursued. Boogher’s testimony indicates he held the shares for himself or in some trust capacity — strictly considered, that he held them as owner — and because the debts of the company to the face value of the shares had been paid out of the company’s earnings, he surrendered the shares for can*536cellation. Tlie transaction is puzzling; but it was not shown the assets of the company were applied to pay for the shares. On the' contrary, BooghePs testimony went to prove the company’s cash was used to pay its debts, and for some reason, he was willing to cancel them after the company’s debts were paid. But this fact is to be noted: The cancellation did not occur until January, 1908. We decide nothing whatever about the legality of that transaction, but simply say there is no evidence in this record of a misappropriation of the company’s assets in connection with it.
In conclusion we wish to say that not only is the petition rambling and multifarious, but the little evidence adduced is vague and fragmentary, and really leaves the gist of the case, to-wit, the retirement of the bulk of the preferred shares, incomprehensible. It is clear, however, that no ground was shown for removing the trustee or appointing a receiver. If Mr. Boogher, or any one else, received something for the preferred shares, and ought to account for what was received, a proceeding would lie against such person in the name of the proper plaintiff.
The judgment is affirmed.
All concur.