Court Opinion

ID: 7173569
Source: CourtListenerOpinion
Date Created: 2022-07-24 16:29:00.176677+00
Date Added: 2024-06-11T16:15:48.889257
License: Public Domain

On Rehearing.
By the WHOLE COURT.
O’NIELL, C. J.
This is a suit to cancel a judgment as having been paid. The judgment was rendered in favor of one W. Turner Bailey against the Louisiana & Northwest Railroad Company and the Athens Lumber Company, in solido, for $3,500, and was affirmed by this court in January, 1912. Two months later the Chicago Lumber & Coal Company, defendant in this suit, being a stockholder and creditor of the Athens Lumber Company, bought the judgment from Bailey, to prevent execution against the Athens Lumber Company, and took an assignment in the name of Ered D. Whiting. Several months later the sawmill of the Athens Lumber Company was destroyed by fire. Nearly a year after the Chicago Lumber & Coal Company had bought the Bailey judgment, and nearly two years after the judgment had been affirmed, the stockholders of the Athens Lumber Company voted to liquidate the corporation. The stockholders’ meeting was preceded by a publication of the call for the meeting for the purpose of liquidating, published in a newspaper in the parish where the Athens Lumber Company had its domicile and principal business, where the Bailey judgment had been rendered, and where the chief counsel for the railroad company then resided.
The liquidators converted the assets of the Athens Lumber Company into cash, amounting to approximately $15,000, and disbursed the proceeds. They paid the labor pay rolls, approximately $2,500, and the current bills, approximately $5,000, and turned over the balance, approximately $7,500, to the Chicago Lumber & Coal Company. That left the Chicago Lumber & Coal Company a creditor of the Athens Lumber Company for approximately $70,000, besides the amount of the Bailey judgment.
Plaintiff contends that the Athens Lumber Company was a “subsidiary” of the Chicago Lumber & Coal Company, and that the buying of the ■ judgment by the latter was a “fraudulent simulation,” and had the effect of paying and extinguishing the debt. The district court so held, and the defendant Chicago Lumber. & Coal Company has appealed.
The judgment which the Chicago Lumber & Coal Company bought from Bailey was given for personal injuries suffered by him by being run down by a train • operated by the Athens Lumber Company on the tracks of the railroad company while Bailey was operating a hand ear as section foreman in the employ of the railroad company. In defending the suit, the railroad company claimed that under the contract between it and the lumber company for the operation of the lumber company’s trains on the railroad company’s tracks the lumber company was liable as an indemnitor to the railroad company for any damages that the latter might have to pay. But in affirming the judgment in favor of Bailey this court merely reserved to the railroad company whatever rights the latter had against the Athens Lumber Company. See Bailey v. Louisiana & Northwest Railroad Co. et al., 129 La. 1029, 57 South. 325. Thereafter the railroad company sued the Athens Lumber Company to have it decreed that the judgment in favor of Bailey had been paid by the Athens Lumber Company, and that the payment had extinguished the debt entirely, because of the alleged *31contract of indemnity. The allegation that the judgment had been paid by the Athens Lumber Company had reference to the transaction now in contest, by which the Chicago Lumber & Coal Company bought the judgment in the name of Fred D, Whiting. In the suit referred to, the district court gave judgment for the railroad company against the Athens Lumber Company for $57 court costs, but rejected the demand for cancellation of the judgment. On appeal, this court affirmed the judgment. In the course of the opinion it was said that by the terms of the contract between the railroad company and the Athens Lumber Company, inasmuch as the train that caused the accident had authority from the railroad company’s trainmaster to be out on the track, the question whether it was the lumber company or the railroad company that was liable primarily, or' as principal obligor, depended upon which one of them was more at fault than the other; and it, was held that the railroad company had no right to have that question decided until the railroad company had actually paid the judgment. See Louisiana & N. W. Railroad Co. v. Athens Lumber Co., 134 La. 788, 64 South. 714, L. R. A. 1915B, 856. With regard to the railroad company’s allegation that the judgment had been paid by the Athens Lumber Company, the court said:
“It is contended by plaintiff that this judgment has been paid. The contention is not sufficiently sustained. Plaintiff has not been subrogated to any of the rights of parties. If the judgment has been paid by the Athens Lumber Company, it will simplify the issues very much. If it has been assigned and is now held by a third person, as contended by the lumber company, it is not possible legally -to order that the judgment is satisfied and that the judicial mortgage must be canceled. That can only be done contradictorily with all parties concerned.”
This case is therefore a repetition of the suit of the railroad company against the Athens Lumber Company, with the proper parties before the court.
Opinion.
The Athens Lumber Company was a “subsidiary” corporation, only in the sense that a majority of its capital stock — about 77 per cent. — was held by the Chicago Lumber & Coal Company. The latter owned 650 of the S40 shares of the Athens Company’s stock. Of the remaining 190 shares 50 shares were owned by a man who had no connection with or interest in the Chicago Lumber & Coal Company, and 140 shares were owned by one who owned about $600 out of the total of approximately $4,000,000 of the common stock of the Chicago Lumber & Coal Company.
The fact that the Chicago Company owned the controlling stock in the Athens Company did not destroy the identity of the latter as a distinct legal entity. Some of the best authors on the subject go so far as to maintain that it makes no difference in principle if the one corporation owns all of the capital stock of the other. See 1 Fletcher on Corporations, § 22, and the decisions cited. The doctrine was recognized by this court in Mercer v. Natchez Ball & Shreveport Railway Co., 141 La. 539, 75 South. 234, viz:
“The fact that the lumber company and the railway company are interlocking corporations, engaged in a common enterprise, owned and controlled by the same stockholders, and managed by the same individuals, does not make them one corporation with two names.”
The principle had been recognized in the Matter of John D. Belton, 47 La. Ann. 1614, 18 South. 642, in the ruling that the fact that all of the shares of stock in a corppration, after it was created, were owned by a less number of stockholders .than the law required as a condition for the organization of such a corporation, did not destroy the corporation as a legal entity.
A stockholder who becomes also a creditor • of the corporation has the same *33rights that its other creditors have; and, if he pays a debt of the corporation, in excess of his liability as a stockholder, he has the same rights and remedies for recovering the amount that any other creditor would have. Fletcher on Corporations, p. 6852; Guerney v. Moore, 131 Mo. 650, 32 S. W. 1132; La Salle Street Trust & Savings Bank v. Topeka Milling Co., 101 Kan. 446, 167 Pac. 1036, L. R. A. 1918A, 574; Blalock v. Kernersville Mfg. Co., 110 N. C. 99, 14 S. E. 501; 7 R. C. L. 306.
The fact 'that the assignment of the judgment was taken in the name of Fred D. Whiting, instead of being taken in the name of the Chicago .Lumber & Coal Company, is a matter of no consequence. Such transactions are often made in the name of an agent acting for an undisclosed principal; and there is nothing intrinsically wrong in the agent’s acting as if for himself. Frank Goebel, treasurer of the defendanf company, testified that the only reason for taking the assignment in Whiting’s name was that the company desired to be not known in the transaction. That was not at all contradictory of the statement of R. W. Fullerton, secretary of the company, that the purpose in buying the judgment was to prevent an attachment — ■ meaning a seizure — of the Athens Lumber Company’s property, which was not sufficient to pay the debt then due to the Chicago Lumber & Coal Company. The witness Fullerton was not asked why the judgment was bought in Whiting’s name. The witness was merely explaining why the Bailey judgment was bought by the Chicago Lumber & Coal Company.
In Viguerie v. Hall, 107 La. 767, 31 South. 1019, this court considered and discussed at great length the question whether it was essentially wrong for the .purchaser of a chose in action — even of a litigious right— to disguise the transaction as a purchase in the name of a third person, interposed for the purpose; and, the ruling was that the disguising of such a transaction was neither wrong nor invalid per se. Chief Justice Nicholls, for the court, said:
“It is no unusual occurrence for parties to place their property and rights in the name and under the control of others, without any consideration whatever, and without the intention of ownership being actually transferred. Such acts are permissible, and cannot be gainsaid, unless they carry injury to some one. A simulation is not necessarily a fraud. It is only so when injury to third persons is intended. Gravier’s Curator v. Carraby’s Ex’r, 17 La. 118, 36 Am. Dec. 608. Our court has held that simulated transfers may be for a lawful purpose — as, for instance, to enable the transferee to bring suit; to raise money, etc. See Emswiler v. Burham, 6 La. Ann. 710; Dosson v. Bieller, 10 La. Ann. 570; Stewart v. Newton, 12 La. Ann. 622. Parties opposing such acts must allege and show wherein they are aggrieved thereby. Hen. La. Dig. 180. This doctrine finds expression in repeated adjudications of this court in matters of bills and notes, under a syllabus to the effect that the ‘holder of negotiable paper, indorsed in blank, may sue, though only agent, in his own name, or he may sue as holding the legal title for the use of the real owner. Defendant has no right to inquire whether plaintiff, in whom the legal title appears to be vested, be an agent of the real owner, unless by a fictitious assignment it be attempted to deprive him of substantial grounds of defense which he may have against the true owner.’ ”
The liquidation, of the affairs of the Athens Lumber Company was conducted openly and above board. The attorney for the railroad company knew that the liquidation was going on. The railroad company could have asked for a judicial liquidation, or a receivership, if the railroad company had desired that the holder of the Bailey judgment should receive his pro rata of the funds to be distributed by the liquidators of the Athens Lumber Company. Even if the railroad company or its attorney did not know that the Bailey judgment had been assigned to Whiting, or bought by the Chicago Lumber & Coal Company, the railroad company and *36its attorneys did know that the judgment remained outstanding and uncaneeled. And the railroad company was not put to any disadvantage whatever by the Chicago Lumber & Coal Company’s buying the judgment— or by the assignment in the name of Whiting. There is no reason to believe that Bailey would not have issued execution against the railroad company if somebody had not promptly bought the -judgment.
The point on which this case turns in favor of the defendant is that the railroad company was nob injured by the Chicago Lumber & Coal Company’s buying the Bailey judgment, or by the assignment of the judgment to Whiting. The Athens Lumber Company was insolvent. But the situation in that respect was not made worse for the railroad company by the Chicago Lumber & Coal Company’s buying the judgment — or by its being assigned to Whiting. This case is governed by the rules which govern the action by a creditor to annul a transaction made between his debtor and a third person in fraud of the creditor’s rights. Rev. Civ. Code, arts. 1968-1994. The creditor, in such case, has no right or cause of action unless the transaction complained of is both fraudulent and injurious to him. Article 1978 declares:
“No contract shall be avoided by this action but such as are made in fraud of creditors, and such as, if carried into execution, would have the effect of defrauding them. If made in good faith, it cannot be annulled, although it prove injurious to the creditors; and although made in bad faith, it cannot be rescinded, unless it operate to their injury.”
Even if the Athens Lumber Company had been adjudged to be under obligation to indemnify the railroad company for the railroad company’s liability under the Bailey judgment, the railroad company would be in no better position than that of a creditor of the Athens Lumber Company. In that position the railroad company would have no right to complain of the transfer or assignment of the Bailey judgment, without a showing that the transfer or assignment deprived the railroad company of some right or advantage.
The judgment appealed from is annulled, and the plaintiff’s demand is rejected, and its suit is dismissed at its cost.
ROGERS, LAND, and LECHE, JJ., dissent.
THOMPSON, J., recused.