Court Opinion

ID: 6515711
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:26:26.833272+00
Date Added: 2024-06-11T15:55:01.064897
License: Public Domain

HARALSON, J.
1. On the foregoing statement of the pleading and evidence in this cause, it is insisted that the conveyance of the Sanitarium to the Association was without any consideration, voluntary and void. So far as this branch of the contention goes, it must be said, that a corporation has the same right to dispose of its property for cash or on credit, as any natural person has, and a promise to pay, in either case, constitutes a valuable consideration to uphold a deed. — Bump on Fraud. Convey., 225. Unaffected by other questions in the case, the transaction between the Sanitarium and the Association was no more than the ordinary sale by one person to another of his property on a credit, for which the purchaser executed his notes to the vendor, with a deed of trust or mortgage on the property sold, to secure the payment of the purchase money.
*3682. It is alleged, however, as we have seen in the statement of the case, that the parties, whose names are given, who were the trustees of the Association, were the owners of the stock in the Sanitarium, and knew of the indebtedness of that corporation to the Bank of Fort Payne; that the bonds were issued and delivered to the owners of said stock, and that the present owners of the bonds were the owners of said stock. These allegations, so specifically denied in the answers, have not been proved, nor attempted to be proved, by complainant, but have been, to a large extent, at least, disproved by defendants.
A. S. Loventhal and E. W. Godfrey, individually, two of the three original incorporators of, and stockholders in, the Sanitarium, and E. B. Cook, alleged to have been a stockholder, it is noticeable, have not been made parties. As for 0! O. Godfrey, it appears he was a stockholder in the Sanitarium, and a trustee in the Association, and he is the only party in the case who is shown, definitely, to fall within the sweeping averments of the bill. But, the proof is not satisfactory to show, that he acted with any actual fraudulent design. It was manifestly greatly to the interest of the stockholders of the Sanitarium to dispose of their property. It was idle and had failed for the purposes for which it was intended, and liable to great depreciation. Said Godfrey seemed to make ample provision, at the time, to secure the debt, which was the only one the corporation owed, by giving collaterals to the bank, and the course the bank authorities pursued indicates they regarded said debt as protected. He and the stockholders of the Sanitarium acted openly in what they proposed to do in the sale of the property; they held a meeting of the stockholders and agreed to accept the proposition of the Association for the purchase, ordered the sale to be made, and passed a resolution to distribute among the stockholders the bonds to be given for the purchase, and wind up the corporation. The president of the bank that held this debt at the time and its cashier were both stockholders in the Sanitarium ; they each knew of what was being done, as it appears, and. each received his share of the bonds. The cashier deposes, that the bank did not forbid the sale, but silently acquiesced, and gave no notice of its debts to, and made no demand *369on, the Association for it. The deeds were put upon record, disclosing the whole transaction, and in the life time of the bank, for 18 months or more afterwards, these proceedings were not questioned. The trustees of the Association, outside of O.O. Godfrey, appear to have had no interest to subserve in committing a fraud, or other purpose, except to buy the property, by the issuance of the bonds of the purchasing corporation, for the purposes of establishing educational advantages for the children of Fort Payne. And, as to said C. O. Godfrey, as before stated, it is not clear that he was actuated by any bad design. Without reference, however, to any good purposes of the two corporations or its officers, if it were a fact that the parties in the Sanitarium as stockholders sold the property for these bonds, and divided them among themselves, leaving this debt of the complainant unprovided for, it would be a legal fraud on the complainant. No principle is better settled, and more equitable, than that the assets of a corporation are a trust fund for the payment of its debts, vested in the hands of trustees to be preserved by them to secure the creditors of the corporation. As the result of an examination of the authorities on the subject, we can not do better than adopt what Mr. Morawetz has compiled. After stating that if a corporation should become insolvent after having distributed a portion of its capital among its shareholders, or otherwise transferred it without value, its creditors, whose equitable claims had attached before the distribution or transfer, would be entitled to follow the capital, and apply it in payment of their claims, he says : “The same rule applies if a corporation, without providing for its creditors, should transfer its property to another corporation, unless the latter is a purchaser for value ; the corporation receiving the transfer would, in that case, be liable to the unpaid creditors, to the extent of the property received without value. It would be immaterial whether the corporation receiving the property was a stranger to the transferring company, or a new corporation formed by the shareholders of the transferring company to supersede the latter in business, or a corporation formed as the result of a consolidation. In either event, the unpaid creditors would be entitled to set aside the transfer, so far as it was a fraud on their rights. If the corporation was *370controlled by the same persons as the company executing it, or if the real parties in interest in both companies were substantially the same, the burden of showing that the transfer was made in good faith, for value, would fall on those asserting its validity against unpaid creditors.” Shareholders, says Mr. Cook, "are bound to take notice of the true character and condition of the capital stock, and they can not escape liability on account of their ignorance. If a dividend has been paid out of the capital stock, the stockholders are conclusively presumed to have' known it, and are liable to an action for a repayment. They can not claim to hold the position of innocent bona fide holders.” — 2 Morawetz on Corp., §§ 790, 791; Angel & Ames on Corp., §§ 599-604; 1 Cook on Stocks & Stockholders , § 548 ; M. & W. P. R. R. Co. v. Branch, 59 Ala. 139; Smith v. Huckabee, 53 Ala. 191; Bank of St. Mary’s v. St. John P. & Co., 25 Ala. 56‘6 ; Jones v. A. M. & A. Co., 38 Ark. 27; Wood v. Dummer, 3 Mason 308; Finn v. Brown, 142 U. S. 56.
3. On the evidence before us, we do not feel authorized to hold, that this deed should be set aside, as being without consideration, fraudulent and void. There is too much averred and too little proved. To authorize relief in such a case, there should.be closer agreement between the allegations and proof. The bill, however, should not have been dismissed. Besides the prayer for special relief, there was added the one for general relief, under which, if it were shown that any of the defendants, being stockholders of the Sanitarium, received a dividend in the bonds of the Association, they were liable to.be held to account, ratably, to the extent of their holdings, if necessary, for the debt of complainant. Decrees pro confesso were rendered against nine who Were alleged to be in this category, and the bill should not have been dismissed as to them.
4. We have, at considerable length, and much particularity reviewed the facts as they will be reported, and stated the principles of law governing this case, with the view, that on another trial, the bill may be so framed as to parties, and with fuller and more, definite proofs, corresponding with the averments, the court below may make a final disposition of it.
The decree dissolving the injunction is not disturbed ; but should the complainant amend its bill and desire *371another injunction against the sale by the trustee, and present a case authorizing it, it can make application therefor and it will be granted.
5. The case was not at issue, and the very unsatisfactory proofs taken by deposition, without an agreement to obviate it, will have to be retaken; but this error is not available on appeal to complainant, through whose fault the error was committed. — Vaughan v. Smith, 69 Ala. 92.
Reversed and remanded.