Court Opinion

ID: 8811621
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:05:00.771249+00
Date Added: 2024-06-11T17:04:18.801142
License: Public Domain

HOOK, Circuit Judge.
This suit in equity was brought by the United States in the United States District Court for the Eastern District of Missouri, against the Waters-Pierce Oil Company, a Missouri corporation, and certain of its stockholders, to recover the amount of a judgment obtained against that company in the United States District Court for the Western District of Louisiana. The government was given a decree against three of the stockholders, and they appealed-
The facts, briefly stated, are these: In January, 1907, the Waters-Pierce Oil Company was indicted in the court in Louisiana for receiving rebates on interstate shipments contrary to the Elkins Act (Act Feb. 19, 1903, c. 708, 32 Slat. 847 [Comp. St. §§ 8597-8599]). In July, 1913, the Waters-Pierce Oil Company sold and conveyed all its property and assets to the Pierce Oil Corporation, organized under the lawrs of Virginia, for $5,000,000 in money and $10,500,000 of the common stock of the latter. The vendee assumed all the vendor’s “debts, liabilities and obligations.” The money and shares of stock wrere lodged with trustees, who distributed them ratably among the stockholders of the Waters-Pierce Oil Company, including the three appellants, and that company thereupon ceased business. In March, 1914, the case in Louisiana was tried, with the result that the Waters-Pierce Oil Company was convicted and fined $14,000. The offense under the Elkins Act was punishable by a fine only. In March, 1915, the judgment was affirmed by the Filth Circuit Court of Appeals. 137 C. C. A. 293, 222 Fed. 69. Ati execution was issued to the marshal of the Louisiana district and returned nulla bona in August, 1915. This suit was begun in February, 1916. In March, 1917, another execution was issued on the judgment in Louisiana, but directed to the marshal for the Eastern district of Missouri. See Rev. St. § 986 (3 U. S. Comp. Stat. 1916, § 1632). This execution was also returned nulla bona; and in August of that year the government filed an amend*516ed complaint, setting forth tire facts regarding the second execution. The decree against the three appellants was not in excess of the amounts of money they received in the distribution of the proceeds of the sale. The controlling questions in the case are whether a judgment imposing a fine in a criminal prosecution by the United States may support a creditors’ bill in aid of an execution that has proved fruitless, and, if so, whether the appellants can be held liable, to the extent of their distributive shares of the funds, for the judgment against their corporation under the circumstances of this case.
[ 1 ] It is contended by the appellants that the relation of debtor and creditor is essential to a proceeding in equity in aid of an execution at law, that a liability to a fine for a penal offense does not give rise to the relation, and that the character of the judgment is determined by that of the liability upon which it is founded. The term “debt” has a variety of meanings, not a settled or invariable one-It takes color from its surroundings. Whether the duty to pay a sum of money is or is not a debt depends upon the particular sense in which it is used.
[3] In a broad sense a debt may signify any duty to respond to another in money, labor, or service. It may even mean a moral or honorary obligation, unenforceable by legal action. United States v. Realty Co., 163 U. S. 427, 440, 16 Sup. Ct. 1120, 41 L. Ed. 215. When used restrictively, it may mean, without more, an obligation founded on contract to pay a definite or certain sum of money. There is much nice learning upon the subject, some of it of a historical character, but it need not be reviewed here. It is provided by an act'of Congress that a judgment imposing a fine for an offense against the laws of the United States “may be enforced by execution against the property of the defendant in like manner as judgments in civil cases are enforced.” Rev. St. § 1041 (3 U. S. Comp. Stat. 1916, § 1705).
[4] We think the provision of the statute is broad enough to embrace those pro'cesses and proceedings in aid of or supplemental to an execution that are customary in civil cases., A poor offender may escape a fine by faking the oath of poverty; but we do not think it was the intention to relieve one able to pay because his property is incorporeal or equitable in character, or one who, for the purpose of defeating the judgment, removes his tangibles beyond the reach of an ordinary writ of execution. As employed in the statute, “execution” signifies generally the means for enforcing the judgments of courts in civil cases.
[2] Upon the other question the government contends that the Waters-Pierce Oil Company rendered itself insolvent by the sale of all its property and the distribution of the proceeds among its stockholders, that upon the insolvency of a corporation its property becomes a trust fund for its creditors, and that in the’ case at bar the proceeds in the hands of the stockholders are substituted for the property and may be followed in a suit to enforce the trust. The Supreme Court has many times declared that the property of an insolvent corporation is held in trust for the benefit of its creditors. *517There is some question about the precise nature of the trust and when it arises. It has been said;
“It is rather a trust in the administration of the assets after possession by a court of equity than a trust attaching to the property, as such, for the direct benefit of either creditor or stockholder.” Hollins v. Brierfield Coal & Iron Co., 150 U. S. 371, 14 Sup. Ct. 127, 37 L. Ed. 1113.
Again, the trust has been held to arise at the moment of insolvency. McDonald, Receiver, v. Williams, 174 U. S. 397, 404, 19 Sup. Ct. 743, 43 L. Ed. 1022. However this may be, the nearest approach to the case at bar in its facts is Swan Land & Cattle Co. v. Frank, 148 U. S. 603, 13 Sup. Ct. 691, 37 L. Ed. 577. There the plaintiff had an unliquidated claim for damages against three corporations, which sold substantially all their property, distributed the proceeds and remaining assets among their stockholders, and quit business. There was, as here, no contention that otherwise than by the sale and the distribution of proceeds and assets the corporations were or became insolvent. The suit was against a part of the stockholders. The court said;
“The theory of the bill is that the assets of the vendor corporations, which have been distributed to and received by the defendants as stockholders, constitute a trust fund for the payment of all debts and demands against the companies, and may therefore he followed in the hands of, and recovered from, such .stockholders, to the extent necessary to discharge valid claims against the corporations from which they were received. The funds sought to be reached are undoubtedly applicable, under proper proceedings against all necessary parties, to the payment, so far as may be needed, of outstanding indebtedness against the corporations which distributed the same; but the difficulty here is that the complainant has not adopted the requisite and necessary procedure to subject said funds thereto. It has no judgment against the corporations by which it was defrauded, nor are such corporations made parties defendant to the suit of brought before the court.”
The bill was ordered dismissed without prejudice, because plaintiff’s claim had not been reduced to judgment, and the debtor corporations had not been made parties. Neither of the reasons which stood in the way of relief in that case are present in the case at bar. Here the government has a judgment on which execution has been returned unsatisfied, and the Waters-Pierce .Oil Company, the judgment debtor, is a party defendant. . The case cited seems persuasive, if not decisive, of the liability of the appellants.
The assumption by the vendee company of the debts, liabilities, and obligations of the Waters-Pierce Oil Company does not relieve the stockholders who have received the proceeds of the sale of the assets of their corporation from responsibility to a creditor. Though it may be said that ati action against the vendee might be maintained upon the ground of a contract between two persons for the benefit of a third, the remedy is not exclusive in the absence of novation when one of the contracting parties is the primary debtor. The assumption by the vendee company is rather for the assurance and benefit of the Waters-Pierce Oil Company and its stockholders. What we have said of the liability of stockholders in a evse like that at bar must not be understood as applying to a case of consolidation of cor*518porations by authority of law, nor to the reorganization of the affairs of an insolvent corporation according to the settled principles of equity.
The decree is affirmed.