Court Opinion

ID: 6519871
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:30:05.401869+00
Date Added: 2024-06-11T15:55:07.265062
License: Public Domain

DOWDELL, J.
The appeal is taken from the decree of the chancellor sustaining the demurrer of the individual respondents to the bill as amended. The bill is filed by a creditor of the respondent, the “Herald Company,” a corporation, and as originally filed it charged the individual respondents with appropriating and using the assests of the Herald Company to satisfy their individual liability on a subscription made by them for their own benefit to the capital stock of the “Age-Herald! Company,” another corporation. It also averred the insolvency of the Herald Company, and the allegations of the appropriation and usé of its assets by the individual respondents f0r their own benefit were tantamount to a charge of the conversion of the property of the insolvent corporation. The gravamen of the aver-ments of the bill, was a wrongful disposition or a misappropriation of the assets of an insolvent corporation, which were subject to the claims of creditors, and with a purpose of hindering, delaying or defrauding, such creditors in the collection of their claims. If done with the intent to hinder or delay creditors, that would constitute a fraud on the rights of creditors. Fraud, therefore, was essential to make out a case.
'The amendment to the bill, in so far as it relates to (•he case against the individual respondents, Walker and others, abandons all charge of fraud against them, either actual or constructive, as to creditors in the transaction complained of, and rests the case on the ground, that the transfer of the property of ‘the “Herald Company,” and the subscription for stock in the “Age-Herald Company,” which was paid with the property so transferred for the benefit of the former company and its stockholders, was ultra vires of the Herald Company, and predicates the liability of the individual respondents on their participation in this ultra vires act, on the theory, that it constituted a breach of trust.
The theory of the original bill is, that a creditor has a right in equity to follow into the hands of one, who in fraud of his rights has misappropriated assets subject to the payment of his debts, such assets, and if they have *277been disposed of to fix a liability upon such person, and hold him to an accounting; while the amended bill seeks to fasten a liability on the individual respondents, solely on the grounds as alleged, that they acting as agents for the Herald Company had participated in a corporate act, which was ultra vires of the corporation, and this without any averment or charge that these respondents individually in any way profited by the act. The principle which gave the original bill equity as against the individual respondents, is wholly distinct from the theory of the bill as amended, and in this we think there was a clear departure made by the amendment from the original cause of action so far as the same relates to the individual respondents.
The more important question, however, is, does the bill as amended contain equity as against the individual respondents? The complainant is a creditor of the corporation. The charge is, that the individual respondents as directors or agents participated in an ultra vires act of the corporation. There is no pretense of fraud, nor is it charged that they individually received any benefit whatever from the act. So far as appears, the stock of the “Age-Herald Co.” which was issued for tire property of the Herald Co. and transferred to the Herald Co. was of equal, or greater value than the property of the Herald Co. for which it was issued. The bill shows, that the respondents subscribed for and acquired the stock in a fiduciary capacity, as agents or trustees of the Herald Co. or its stockholders acting in pursuance of a resolution of the stockholders of the Herald Co. The bill further shows, that the stock went into the treasury of the Herald Co., that it was transferred by these respondents to the president of the Herald Co. and it is entirely consistent with the allegations of the bill, that it was there used for legitimate corporate purposes. It is not pretended that the individual respondents diverted one share of this stock from such legitimate corporate purposes, or that any of them ever got a single share for his own benefit. Therefore, the bill as amended cannot be maintained on the theory that the complainant has the right to follow assets of the Herald Co. fraudulently di*278verted from the payment of its debts into the hands of the individual respondents, for it fails to show that any of such assets were received by them. The bill fails to charge the individual respondents with diverting corporate assets to their own use, or with wasting them ip fraud of creditors, for as stated above, it does not appear, but that the stock of the Age-Herald Co.' which was taken in lieu of the Herald Company’s property, and which went into the treasury of the Herald Co. was of greater value than the property so taken. The only charge then of the bill as amended is that the individual respondents in taking the stock subscription for and on behalf of the Herald Co. entered into a contract that was ultra vire.s-of the corporation. A. creditor cannot attack a corporate transaction on the ground that it is ultra vires merelv, where no fraud is charged. This right is confined to the corporation itself, or where i.t refuses to act, to the stockholder, or in a proper case to the State. The only ground on which a creditor may assail a corporate transaction, in equity, is that its intent or effect is to fraudulently divert or destroy the corporate assets, which are snipe* + to the payment of corporate debts. An act may be ultra vires of the corporation, and as such, assailable by the corporation or its members, and still have the effect of increasing corporate assets. Directors, agents, and officers of a corporation are trustees for its stockholders, but not for its creditors, and this whether the corporation is solvent or insolvent. — O’Bear Jewelry Co. v. Volfer, 106 Ala. 205. Creditors can only hold them responsible by showing them to be trustees m invilum, by having acquired by fraud assets which should have paid corporate debts. In the case of O’Conner Mining Co. v. Coosa Furnace Company, 95 Ala. 618, it was said: “The directors of a corporation, in the transaction of its business, and the disposition of its property, do not stand in any such relation to its general creditors,, as they occupy to the corporation itself, and its stockholders. They are not the agents of such creditors nor can they usually be regarded as trustees acting in their behalf. The creditors are not entitled to disaffirm a transfer of *279tbe property of the corporation made by its directors or other agents, merely because tbe corporation itself or its stockholders could have done so. When a disposition of the property of a corporation is assailed by its creditors, they are not clothed with the right of the corporation or of its stockholders, to set aside the transaction regardless of its fairness or unfairness on the ground that it Avas entered into by representatives of the corporation Avho had put themselves in a relation antagonistic to the interests of their principal. The right of the creditor to impeach the transaction depends on its fraudulent character. The question in such case is, Avas the transaction Avhich Avas complained of entered into with the intent to hinder, delay or defraud creditors? Was the property fraudulently transferred or conveyed?”
The doctrine that a mere corporate creditor cannot hold an officer or agent of a corporation responsible for a mere negligent or ultra vires act, as distinguished from a fraudulent transfer or misapplication of corporate assets from the payment of corporate debts finds support in the folloAving authorities: 17 Am. & Eng. Eiicaa Luav (1st ed.), p. 111: Cook on Corporations, § 735, p. 1.599; Ib. § 672.
From AAhat we have said aboAre it folloAvs that, in our opinion, the chancellor committed no error in sustaining the demurrer; and his decree will be affirmed.