Court Opinion

ID: 6896978
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:50:52.500087+00
Date Added: 2024-06-11T16:06:02.112882
License: Public Domain

On the Merits.
Opinion by
Mr. Chief Justice Bean.
In behalf of plaintiff it is contended that the two lots in Bean’s Addition were purchased by the defendant Minott and deeded to his wife for the purpose of hindering, delaying, and defrauding creditors, but it appears that the purchase was made before any of the debts involved in this suit were contracted, and, there being no evidence to show that Minott had the property deeded to his wife for the purpose of hindering, delaying, or defrauding his subsequent creditors, the decree of the court below in that respect must be affirmed.
3. It is contended in behalf of the hardware company that the complaint in this suit is insufficient because it does not allege the name of the court in which plaintiff’s said action was brought, nor that tho indebtedness upon which it is based was due and payable, but this objection comes too late after judgment. No such question was made in the court below. The allegation of the complaint is, in substance, that on the twenty-second day of October, eighteen hundred and ninety-two, the plaintiff commenced an action against the defendant Minott to recover the sum of three thousand eight hundred and eighty-four dollars and sixty-two cents, interest, costs, and disbursements, and caused the entire stock of hardware, tools, implements, stoves, tinware, iron, steel, merchandise, and personal property of every description, transferred by the defendant Minott to the hardware company, to be duly attached by the sheriff of Coos County. This ah *346legation of the complaint was denied by the answer, and the judgment roll in the action was admitted in evidence without objection, and it is now too late to raise the question as to the sufficiency of the complaint in this respect.
4. It is also contended that plaintiff had no standing to institute a suit of this character until his action in which the attachment was issued ripened into a judgment, and an execution thereon was returned unsatisfied. On the question as to whether a creditor must reduce his claims to judgment before he can maintain a creditor’s bill to reach assets of his debtor which have been transferred for the purpose of defrauding creditors, the authorities are not harmonious, but in this state it may be regarded as settled that a lien by attachment is sufficient for that purpose: Dawson v. Sims, 14 Or. 561 (13 Pac. 506). But the suit is not grounded alone upon an attachment lien, but also upon the Baker and Hamilton judgment, assigned to plaintiff, upon which an execution was issued and returned unsatisfied, and under all the authorities this is sufficient to enable plaintiff to maintain the suit.
5. It is next claimed that the complaint fails to allege that the hardware company knew of or participated in Minott’s fraudulent scheme, but this contention is equally without merit. The complaint avers that Minott formed the corporation for the purpose and with the intent of hindering, delaying, and defrauding his creditors, and that ever since its formation he has had full charge and management of its business, and has used it for the purpose of enabling him to carry on his business, and to cheat and defraud his creditors, and that at all times since its organiza*347tion it has fraudulently transacted business and purchased goods in its own name, but for the use and benefit of Minott, and in furtherance of his fraudulent scheme, and that the stockholders “were fully-aware of the objects and purposes for which the same was formed, and for which its powers were exercised.” In other words, the effect of the allegations is that Minott was the corporation and the corporation was Minott, and that it was organized and used by him as a means of hindering and delaying his creditors. Under such circumstances a court of equity will look through and beyond the legal forms in which the transaction was clothed, and, if its real object and purpose was to hinder and delay creditors, will declare the sale and transfer void as to them, and no rule of law which regards a corporation as an artificial person, separate and independent of its shareholders, can stand in the way of such a result. It is next claimed that this suit can not be maintained because the complaint and evidence shows that the corporation was regularly and legally organized, and that Minott received in exchange for his goods their value in stock of the corporation, and, therefore, it is argued, had as much property subject to execution and sale by his creditors after as before the transfer. But the conclusion is inevitable from the evidence that the corporation was organized by Minott as a means of hindering and delaying pressing creditors in the collection of their claims, and therefore the transfer by him of the stock of goods to it was void as to creditors, and they are entitled to be protected against such a scheme by a court of equity. Under the proofs in this case it is apparent that Minott was in fact the.corporation and the corporation was Minott. He caused it to be formed, was the president, general manager, and treasurer, and owned practically all the *348subscribed stock at the time the pretended transfer was made. He made the contract therefor between himself as an individual and the corporation, acting for both parties, and conducted the business practically the same after as before the incorporation, using the proceeds for his own benefit. Under these circumstances, although the corporation was organized in due form of law and has a valid corporate existence, the legal rules which regard it as an entity distinct from the real parties in interest, and its stock as property subject to sale under execution, must go down in this attempt to consummate a fraud by legal forms. Equity is not bound by the rules of law in this respect, when such rules will permit fraud to triumph. “In equity,” says Mr. Morawetz, “the conception of the corporate entity is used merely as a formula for working out the rights and equities of the real parties in interest; while at law this figurative conception takes the shape of a dogma, and is often applied rigorously without regard to its true purpose and meaning. In equity the relationship between the shareholders is recognized whenever this becomes necessary to the attainment of justice”; Morawetz on Corporations, § 227; Chicago and Grand Trunk Railway Company v. Miller, 51 N. W. 982; Des Moines Gas Company v. West, 50 Iowa, 16; Booth v. Bunce, 33 N. Y. 139.
The contention is also made that at the time of the formation of the corporation and the transfer by Minott of his stock in the concern to his wife about a month later, he was justly indebted to her in about the sum of ten thousand dollars, and that such transfer was made' in good faith in payment thereof. If this be true, it is not apparent how it can benefit the hardware company on this appeal. Mrs. Minott has not appealed, and the only question between the hardware *349company and the plaintiff is the validity of the sale and transfer by Minott of his stock of hardware to the corporation. If this sale was valid and made in good faith the plaintiff must fail in this suit without regard to the disposition Minott may have made of his stock in the corporation. But, on the other hand, if it was made, as we think the evidence clearly shows it to have been, for the purpose of hindering and delaying creditors, then it is void as to them, and no subsequent disposition by Minott of his stock or interest in the . corporation could give validity to the transaction. The existence of the corporation or the ownership of the stock can in no way be affected by the result of this suit. Whatever the result, the corporation survives, and Mrs. Minott will have the stock she claims to have purchased from her husband. Its value, it is true, will be largely reduced if not practically destroyed, but this result comes, not because of the want of good faith in the sale and purchase of the stock by her from her husband, but on account of a previous fraudulent transaction between the corporation itself and Minott. Under these circumstances we do not regard it important to determine whether Minott was or was not indebted to his wife at the time he transferred the stock in* the hardware company to her, because we regard the transaction by which the hardware company claims to have become the owner of the stock of merchandise owned by Minott at the time he contracted the debts upon which this proceeding is based as having been consummated for the purpose of hindering, delaying, and defrauding creditors, and must be declared void as to them.
The only remaining question in this case is one of priority between the plaintiff and defendants Hextar, May and Company, and B. M. Osborne and Company. *350Borne question is made as to the execution of the writs of attachment in the actions brought by these defendants against Minott, but there seems to have been a substantial compliance with the statute in attaching the property under said writs, and in our opinion the order of distribution made by the court below ought not to be disturbed. It follows that the decree must be affirmed, and it is so ordered. Affirmed.