National Tube Works Company v. Ring Refrigerating and Ice Machine Company

• Citation: 22 S.W. 947,118 Mo. 365
• Parties: National Tube Works Company, Appellant, v. Ring Refrigerating and Ice Machine Company
• Decision Date: 04 December 1893
• Court: United States State Supreme Court of Missouri

22 S.W. 947

118 Mo. 365

National Tube Works Company, Appellant, v. Ring Refrigerating and Ice Machine Company

Supreme Court of Missouri

December 4, 1893

Appeal from St. Louis City Circuit Court. -- Hon. Jas. E. Withrow Judge.

Reversed and remanded.

G. A Madill and Seneca N. Taylor for appellant.

(1) The deed of trust of defendant to Tracy was in its nature a voluntary conveyance, because half of the entire amount it was given to secure was for the individual debt of John Ring the president of the defendant company. The defendant at the time was in embarrassed circumstances, and was immediately afterwards unable to meet its maturing obligations. These things being so, made the deed of trust a fraudulent conveyance within the meaning of the statutes. Lionberger v. Baker, 88 Mo. 450; Potter v. McDowell, 31 Mo. 62; Patton v. Casey, 57 Mo. 118; Payne v. Slanton, 59 Mo. 158; Greenwood v. Burns, 50 Mo. 52; Sumner v. Summers, 54 Mo. 340; Wheeler & Wilson v. Givan, 65 Mo. 93; 2 Morawetz on Private Corporations, 789, 792; Hawkins v. Altson, 4 Ired. Eq. (N. C.) 145. (2) Mr. Tracy, being a director of the defendant and holding the note of John Ring for money loaned to Ring, had no right to surrender that note, and have issued to himself the note of the defendant for the same and take a deed of trust on defendant's property to secure such note, the defendant at the time being hopelessly insolvent. Wheeler & Wilson v. Givan, 65 Mo. 93; Greenwood v. Burns, 50 Mo. 52; 2 Morawetz on Corporations, 789, 792; Bank v. Douglas, 1 McCrary, 86; Cook on Stock and Stockholders and Corporation Law, sec. 661; Beach v. Miller, 14 N.E. 698; Heywood v. Lumber Co., 64 Wis. 639; Manufacturing Co. v. Importing Co., 30 F. 885; Adams v. Milling Co., 35 F. 435; Lippincot v. Carriage Co., 25 F. 577; Chouteau v. Allen, 70 Mo. 338; Wilbur v. Lynd, 49 Cal. 290; Lingle v. Ins. Co., 45 Mo. 109; Hopkins' appeal, 90 Pa. St. 69. (3) The defendant being insolvent at the time it gave this deed of trust to Mr. Tracy in payment of a debt owing by Ring to Tracy, committed an act of fraud. It was a fraudulent conveyance within the meaning of the law. Woodson v. Pool, 19 Mo. 340; 2 Morawetz on Private Corporations, 789, 792. The capital of a corporation constitutes a trust fund charged primarily with the payment of the corporate debts. This being so the directors have no right to appropriate it to themselves by a fraudulent novation. Eppright v. Nickerson, 78 Mo. 490; Webster v. Upton, 91 U.S. 65; Railroad v. Filter, 60 Pa. St. 124. (4) Where part of the consideration for a deed of trust is fraudulent the entire conveyance is void, as to creditors. State ex rel. v. Robertson, 102 Mo. 410; Kuykendall v. McDonald, 15 Mo. 420; McNichols v. Rubbleman, 13 Mo.App. 515; State ex rel. v. Distilling Co., 20 Mo.App. 26; Hanna v. Finley, 33 Mo.App. 645; Clark v. Lee, 44 N.W. 260; Wallash v. Wylie, 28 Kan. 138; Butts v. Peacock, 23 Wis. 359; Brasher v. Jamison, 13 S.W. 809; Wallis v. Adoue, 13 S.W. 63; King v. Hubble, 42 Mich. 599; Wait on Fraudulent Conveyances, 228; Freybe v. Tiernan, 13 S.W. 370. (5) The deed of trust given by defendant on its real estate to Tracy was in the nature of a voluntary conveyance, therefore, without regard to the motive the defendant had in giving it, the law fixes the character of the transaction as fraudulent, and supports the allegation of the affidavit for the attachment, viz: "That the defendant has fraudulently conveyed and assigned its property and effects so as to hinder and delay its creditors." Bank v. Price, 41 Mo.App. 294; Douglas v. Cissna, 17 Mo.App. 44; Cooper v. Standley, 40 Mo.App. 138; Reed v. Pellitese, 28 Mo. 173; Potter v. McDowell, 31 Mo. 62; Lionberger v. Baker, 88 Mo. 62. (6) A creditor cannot, in addition to securing his own debt, take a conveyance of an unreasonable amount of his debtor's property, where the latter is in embarrassed circumstances, so as to enable the debtor to hinder and delay other creditors. To do this is a fraud. Much more is it a fraud when done by a director of a corporation. McNichols v. Rubbleman, 13 Mo.App. 515; Potter v. McDowell, 31 Mo. 62; Thompson v. Drug Co., 50 N.W. 50. (7) When the debtor, as in the case at bar, conveys its land in fraud of creditors, the creditor may institute its suit to set aside the fraudulent deed and subject the land to the payment of the debt, by first ascertaining the interest of the debtor therein; or, it may attach and sell the land under execution, before the ascertainment of the debtor's interest, and then set aside the fraudulent conveyance. Lionberger v. Baker, 88 Mo. 455; Tall v. Safer, 75 Mo. 460; Ryland v. Callison, 54 Mo. 513; Bobb v. Woodward, 50 Mo. 95. (8) The true rule for appellate courts to follow is: Whenever error intervenes a presumption of prejudice arises, and, unless the record shows, beyond a doubt, that no prejudice resulted, there must be a reversal. Clark v. Fairley, 30 Mo.App. 335; Deery v. Cray, 5 Wall. 807; Smiths v. Shoemaker, 17 Wall. 630; Railroad v. O'Brien, 119 U.S. 99; Gilmer v. Higley, 110 U.S. 47; Potter v. Railroad, 46 Iowa 399; Stafford v. Oskaloosa, 57 Iowa 748; Reynolds v. Keokuk, 34 N.W. 167; Gillett v. Corum, 5 Kan. 608; Hall v. Jenness, 6 Kan. 364; Thompson on Charging the Jury, sec. 130; State v. Sims, 68 Mo. 305; McDonald v. Sims, 82 Mo. 538; Suttie v. Aloe, 39 Mo.App. 38; Duke v. Railroad, 99 Mo. 347. It is reversible error to give conflicting instructions, because it is impossible to tell which the jury followed. Thompson on Charging the Jury, p. 97, sec. 69; Frederick v. Allgaier, 88 Mo. 598, 603; State v. McNally, 87 Mo. 644; State v. Simmons, 68 Mo. 305.

Frank K. Ryan and C. H. Krum for respondent.

(1) First point made by appellant, that deed of trust to Tracy was a voluntary conveyance, supported neither by facts, nor authorities cited. First. Sole ground of contention is, that half of the debt the deed was given to secure was the individual debt of Ring. This was merely a question of fact and was found adversely to appellant. Second. Authorities cited have no application. Lionberger v. Baker, 88 Mo. 450, deed to daughter; Potter v. McDowell, 31 Mo. 62, deed in trust for wife; Patton v. Casey, 57 Id. 118, holds not necessary to show actual intent to defraud; Payne v. Stanton, 59 Id. 158, voluntary conveyance void as to existing creditors; Greenwood v. Burns, 50 Id. 52, holds that agent cannot receive payment in satisfaction of his own debt; Sumner v. Summers, 54 Id. 340, deed held void, because part consideration was compounding felony; Wheeler, etc., v. Givan, 65 Id. 93, imagination of man cannot conjecture application; 2 Morawetz, 789 and 792, no application whatever to the point; Hawkins v. Altson, 4 Ired. Eq. 145, merely reiterates familiar principles as to a purely voluntary conveyance. Contention of appellant upon this point as far-fetched as that below of "jugglery in the books" and of concealment of assets by a resort to "double credits." (2) Second point, without merit, that "Tracy, being a director of the defendant and holding the note of John Ring for money loaned to Ring, had no right to surrender that note and have issued to himself the note of the defendant for the same and take a deed of trust on defendant's property to secure such note, the defendant at the time being hopelessly insolvent. First. Point based upon two assertions. (a) That the money was loaned to Ring. (b) That respondent was insolvent. Both assertions untrue, and so found by jury. Money loaned went to corporation. Respondent was solvent and would be going concern to-day but for levy of attachment. Second. Authorities cited have no application: Wheeler, etc., v. Givan, Greenwood v. Burns, Morawetz on Corporations, all noticed under first point; Union Bank v. Douglas, 1 McCrary, 86, merely holds that assets of corporation are trust fund; Beach v. Miller, 14 N.E. 698, holds that officers of corporation cannot make wholesale distribution of assets among themselves; no one contends that they can; Mfg. Co. v. Imp. Co., 30 F. 885, no such case; Heywood v. Lumber Co., Adams v. Milling Co., Chouteau v. Allen, Hopkins' appeal, Lingle v. Insurance Co., seem to have been put in for "padding," after the fashion of some law-book makers; Wilbur v. Lynd, 49 Cal. 290, asserts a proposition which is not the law, and Lippincott v. Carriage Co., 25 F. 577, is a citation favorable to the respondent. Idle to cite cases where the point decided either has no application, or the general doctrine is one which nobody disputes. Legerdemain evidently not confined to "books of defendant." "Jugglery," not lost art with appellant. (3) Third point a legal curiosity. "The defendant being insolvent at the time it gave this deed of trust to Mr. Tracy in payment of a debt owing by Ring to Tracy, committed an act of fraud. It was a fraudulent conveyance within the meaning of the law." This is the third repetition of the same assertion. (4) No occasion to reply to fourth and fifth points of appellant. In so far as they are not merely repetitions of assertions already noticed, they state propositions which no one disputes and which furnish no aid in the present case. (5) The sixth point of appellant involves two propositions. First, that the articles of association constituted a false representation, because the patents were taken at two high a valuation by the respondent; and, secondly, that Tracy obtained security too great in amount when the mortgage on the patent was given to him. Answer to this, obvious. (a) Issue whether valuation of patent was made in good faith as the basis of capitalization of respondent, or merely for purposes of fraud, submitted to jury by court, and jury found for respondent. (b) Theory of value as to capitalization by no means same as to basis of mortgage. Firs...