Spencer v. Read

• Decision Date: 07 September 1914
• Docket Number: 4100.
• Citation: 217 F. 508
• Parties: SPENCER v. READ et al.
• Court: U.S. Court of Appeals — Eighth Circuit

217 F. 508

SPENCER v. READ et al.

No. 4100.

United States Court of Appeals, Eighth Circuit.

September 7, 1914

This action was commenced December 29, 1911, in the United States District Court for the Southern District of Iowa, by the plaintiff, a citizen of Illinois, as trustee in bankruptcy of the Swanson Manufacturing Company, an Illinois corporation against the defendants, Elbert A. Read, E. H. Mitchell, and Earl Sheets, citizens of the state of Iowa, to recover of said defendants $72,346.68, as the value of certain property alleged to have been wrongfully and fraudulently taken by them from the assets of said corporation in January, 1911. The trial resulted in a directed verdict and judgment for the defendants at the close of plaintiff's testimony, and the plaintiff brings error. The parties will be referred to as they were designated in the court below, the plaintiff in error as plaintiff, and the defendants in error as defendants.

D. W Higbee, of Creston, Iowa (Lester H. Strawn, of Ottowa, Ill on the brief), for plaintiff in error.

W. E. Mitchell, of Sidney, Iowa (Tinley, Mitchell & Pryor, of Council Bluffs, Iowa, and Ferguson & Barnes, of Shenandoah, on the brief), for defendants in error.

Before SANBORN and CARLAND, Circuit Judges, and REED, District Judge.

REED District Judge (after stating the facts as above).

The petition is quite lengthy, but alleges in substance that the plaintiff is the duly appointed trustee in bankruptcy of the Swanson Manufacturing Company, a corporation organized in November, 1910, under the laws of Illinois, for the manufacture of farm implements, located at the city of Marseilles, in that state, which corporation was adjudged bankrupt by the United States District Court for the Northern District of Illinois July 25, 1911, and the plaintiff duly appointed by that court as trustee in bankruptcy of its estate, and authorized to prosecute this action; that Herman S. Swanson (who is named in the petition as one of the defendants, but has not been served with summons and has not appeared in the action) was the principal owner of the stock of that corporation, owning $244,470 of its capital stock of $250,000; that Swanson, prior to the organization of said corporation, was the principal owner of the stock, and manager of the Swanson Manufacturing Company, a corporation organized under the laws of Iowa for the manufacture of farm implements, and located at Shenandoah, in Page county, that state (these corporations, being of the same name, will for convenience be referred to as the Iowa corporation and the Illinois corporation, respectively); that the Iowa corporation had become largely indebted to various parties in or near Shenandoah, Iowa, including the defendants Elbert A. Read, E. H. Mitchell, and Earl Sheets; that many citizens of the city of Marseilles, Ill., and others were desirous that the Illinois corporation should be permanently located at that city, and, for the purpose of encouraging such location, agreed to take at their face value a large amount of the bonds of said corporation, provided it should have, in addition to its property in Marseilles, $50,000 in cash, paid in as part of its capital stock; that the officers of said corporation had represented to said citizens that one John Hoss, a resident of Moline, Ill., was about to take stock in said corporation and to pay in cash the sum of $50,000 therefor, to be and remain a part of the capital stock of such corporation; that some time in January, 1911, said citizens of Marseilles and others had collected and paid into the First National Bank of that city about $40,000, to be used in paying for bonds to be issued by the Illinois corporation to be secured by a trust deed upon its property; that said John Hoss failed to pay in said sum of $50,000 for stock of said corporation, and for that reason the citizens of Marseilles and others declined to accept and pay for the bonds of said corporation; that the defendants, well knowing the premises, combined together to defraud and injure the said citizens of Marseilles and other creditors of said Illinois corporation, and agreed that they would obtain the said investment in the bonds of said corporation by citizens of Marseilles and others, and thereafter wrongfully and unlawfully deprive said corporation of its capital and property and cause said corporation to become bankrupt; that, in pursuance of said conspiracy, the directors of said corporation secretly, fraudulently, and without notice to their creditors passed a resolution that said Illinois corporation should assume the indebtedness of the Iowa corporation, which said assumption of indebtedness was wholly without consideration and made solely for the purpose of robbing, cheating, and defrauding the creditors of the said Illinois corporation; that the defendants, in further pursuance of said conspiracy, deposited money to the amount of $25,000 to the credit of said Illinois corporation, falsely pretending that the same was paid in by said John Hoss according to the original representations made by the officers and directors of said corporation; that thereupon the said citizens of Marseilles and other creditors of said Illinois corporation purchased the bonds of said company and paid into said company the sum of $54,500, believing that said money would be used in the general business of said Illinois corporation; that said John Hoss wholly failed to pay in said sum of $50,000 for stock in said corporation, and the defendants then and there falsely misrepresented to the creditors of said corporation that he had so paid in said sum; that the defendant Elbert A. Read, in pursuance of said conspiracy, paid in the sum of $25,000, falsely pretending that the same came from the said John Hoss, and so informed the said citizens of Marseilles and other creditors, for the purpose of inducing them to buy said bonds, for the purpose of wrongfully obtaining money for the purchase of the bonds of said Illinois corporation; that the said Elbert A. Read and other defendants, with the consent and connivance of said Herman S. Swanson, and in pursuance of the conspiracy aforesaid, immediately and wrongfully took away said sum of $25,000 on January 27, 1911, and said sum was not in fact added to the capital and property of said corporation, but was wrongfully and fraudulently withdrawn from the capital and assets of said corporation by the defendants on said January 27, 1911, in pursuance of said conspiracy; that on the same day the defendants fraudulently took from the capital and assets of said corporation the further sum of $41,610.49 out of the moneys paid in for the bonds of said corporation, in pursuance of said conspiracy, for the pretended purpose of paying debts of the Iowa corporation, in which the defendants were personally interested; that afterwards, on January 31, 1911, said defendants, in pursuance of said conspiracy, wrongfully and fraudulently withdrew from the capital of the Illinois corporation the further sum of $5,736.19; that, by reason of and in pursuance of said conspiracy, said defendants have wrongfully, unlawfully, secretly, and without consideration taken from the capital and assets of said Illinois corporation the total sum of $72,346.68, for which sum judgment is asked against the defendants.

The answer of the defendants Elbert A. Read, E. H. Mitchell, and Earl Sheets is also quite lengthy. It will be best understood by stating briefly the ultimate facts alleged, without following the order thereof. As amended, it admits that the Swanson Manufacturing Company of Illinois was organized under the laws of that state in November, 1910, by Herman S Swanson and certain citizens of Illinois; that it was adjudged bankrupt and the plaintiff duly appointed its trustee in bankruptcy in July, 1911, as alleged in the petition; that said Herman S. Swanson was, prior to its organization, a stockholder in and manager of the Swanson Manufacturing Company, a corporation organized under the laws of Iowa, and located at Shenandoah, in that state; and alleges that it was engaged in the manufacture and sale of farm implements and other implements and machinery at that place; that its capital stock was $65,000, $35,000 of which was preferred and $30,000 common stock; that the defendant Sheets owned 2 shares of the preferred stock, and the defendant Mitchell 40 shares, and the defendant Read held 5 shares of the preferred stock for another party; that other than this they had no interest in said corporation and were not and are not creditors thereof; that said Herman S. Swanson was president and manager of said corporation, and some time in the fall of 1910, at a meeting of its board of directors, informed said corporation that he desired to change its location to Marseilles, Ill., if an adjustment of its affairs at Shenandoah could be satisfactorily arranged; that subsequently the said Swanson, together with citizens of Marseilles, Ill., organized the Illinois corporation under the laws of that state; that at a legal meeting of the stockholders of the Iowa corporation, consisting of more than a majority thereof, these defendants were appointed by its stockholders a committee to adjust its affairs with the Illinois corporation; that, prior and subsequent to the organization of the Illinois corporation, it was contemplated that that corporation would purchase the property, real and personal, of the Iowa corporation; that after its organization, and for the purpose of accomplishing that purpose, the stockholders and directors of the Illinois corporation authorized and empowered said Herman S. Swanson (who was one of said officers) to negotiate for and purchase from the Iowa corporation all of its said property for the Illinois...