Hall v. Goodnight

• Decision Date: 01 December 1896
• Parties: HALL et al. v. GOODNIGHT, Sheriff.
• Court: Missouri Supreme Court

37 S.W. 916

138 Mo. 576

HALL et al. v. GOODNIGHT, Sheriff.

Supreme Court of Missouri, Division No. 1.

December 1, 1896.

CORPORATION — PAYMENT OF DEBT OF OFFICER OWNING ENTIRE CAPITAL STOCK — RIGHTS OF CREDITORS — ATTACHMENT — REPLEVIN FROM OFFICER — STIPULATION — PRACTICE.

1. The owner of lands and a stock of merchandise organized a corporation to which he transferred the property, becoming, in consideration thereof, the beneficial owner of all its capital stock. At the time he owed a note, given for the interest of a former partner in the merchandise. Held that, as against creditors of the corporation, a transfer of a portion of its property in payment of such note at a time when it was insolvent was fraudulent.

2. Where property owned by a corporation was purchased by a partnership, through one of the partners, acting for it, and paid for by the surrender of a note held by such partner against an officer of the corporation individually, the purchasers are chargeable with knowledge that the transfer of the property may have been in fraud of creditors of the corporation, though they had no knowledge of its insolvency.

3. Where property is fraudulently conveyed, it is subject to attachment by creditors, under Rev. St. 1889, § 521, giving the right of attachment in case of a fraudulent and voidable sale of property by a debtor.

4. In replevin against a sheriff, where it was stipulated by counsel that defendant held the property under various writs of attachment for sums aggregating an amount stated, and the parties proceeded to try the issues involving the respective rights of the plaintiffs and the attachment plaintiffs, the stipulation will be construed as admitting that the writs of attachment were regularly issued, and plaintiffs cannot urge on appeal as a ground for reversal that proper foundation for the attachment levies was not shown.

5. A plaintiff in replevin who established his right to recover an undivided interest only in the property replevied cannot complain that judgment was rendered in his favor for such interest and against him for the remaining interest; the error, if any, being in his favor.

Appeal from circuit court, Jasper county; W. M. Robinson, Judge.

Action in replevin by H. C. Hall and W. A. Terry, as partners, against George Goodnight, sheriff of Barry county. From the judgment, plaintiffs appeal. Affirmed.

Geo. Hubbert, J. A. Rice, and H. C. Pepper, for appellants. Sebree & Tatlow, Cloud & Davis, and Mr. Rathbun, for respondent.

BARCLAY, J.

The plaintiffs are Messrs. Hall & Terry. The defendant is Mr. Goodnight, as sheriff of Barry county. The action is a statutory replevin for a large amount of merchandise. Defendant had possession of the property under levies of various attachment writs against the Chamberlain Mercantile & Land Company, which we shall call the "Company," for the purposes of this hearing. The plaintiffs got the goods May 18, 1892, under an order of delivery in this action, in the usual way, upon a petition claiming title. The defendant justified his claim to possession by the attachment writs, which he described in his answer. The eight writs were issued in actions brought by various creditors of the company to the amount of $7,560. The value of the property seized by defendant May 16, 1892, under the writs was alleged by him also to be $7,560. (The plaintiffs, in their statement of claim, had alleged the value of the goods sought to be recovered by them at $6,500.) Defendant further demanded by his answer return of the property. To the answer plaintiffs replied by general denial. The cause was tried with the aid of a jury, and resulted in a finding for defendant for a proportional part of the goods, and that his interest in said goods was of the value of $4,294. It was stipulated at the trial that the property was worth $7,560 when the action was brought, and that the total claims of the attaching creditors were $7,526.28. Plaintiffs appealed, after taking the necessary steps.

The plaintiffs' case was rested upon a purchase of the goods by Hall & Terry from the company. The defense of the sheriff was that the said purchase was fraudulent as to the creditors whose attachments he represented. From the statement by the learned counsel for plaintiffs in this court we gather these facts: The stock of merchandise in question, before plaintiffs' purchase, belonged to the company, which had been carrying on business at two stores, one at Exeter and the other at Cassville, in Barry county. The contents of the Exeter store are the subject of the pending action. Plaintiffs purchased the disputed property May 2, 1892, for the total invoice cost price of the goods, amounting to $8,100. They paid that sum thus: checks and cash to the amount of $3,806, and the balance ($4,294) by surrendering an old note made by Mr. C. W. Chamberlain, president of the company, which note Mr. Terry, one of the plaintiff firm, owned at that time. The history of the note is, in brief, this: Mr. Terry and Mr. Chamberlain had been in former years partners in the Exeter store, but upon dissolution of the firm, in March, 1880, Mr. C. had given a note in payment for Mr. T.'s interest in the stock, Mr. C. continuing the business. The debt thus created was represented by a renewal note, which was the one surrendered at the purchase of the goods by Hall & Terry. The note was dated July 1, 1883, for $3,500, with 10 per cent. interest from date. It was payable to the order of Mr. Terry, and signed by Mr. Chamberlain. A number of interest payments were indorsed thereon down to December 18, 1891. When Hall & Terry bought the Exeter store of the Chamberlain Company in May, 1892, Mr. Chamberlain, the president, acted on behalf of the company in the transaction. The company at that time was really insolvent, having less than half of sufficient assets to pay its debts, though it was still a going concern. Mr. Chamberlain testified that he then hoped to tide over the embarrassments of the company, and to maintain its business. The company did in fact continue operations for a short time, — several weeks. The money received by it from Hall & Terry went into the usual channels, and was disbursed with other funds to the total amount of $13,000 to various creditors, before the attachments that brought on this litigation. After Mr. Chamberlain bought Mr. Terry's interest in the Exeter store, the former prosecuted the business for awhile as Chamberlain Bros. but in 1889 he organized the company that made the disputed sale to plaintiffs. The plaintiffs have mentioned certain other facts which they deem important touching the company so formed: Mr. Chamberlain was the sole beneficial owner of the capital stock of the company, and gave the original note to Terry as purchase money for the stock of goods at Exeter, which was the basis of his business for a time before (as well as after) the incorporation of the concern under the laws of Missouri for his own benefit. He kept up the company's organization by making his clerks and employés nominal stockholders of a share each, and from time to time (through the years, from its date) paid interest on the debt out of the proceeds of that same stock. He intended the note should be satisfied out of the assets of the concern, and Terry was consulted (as one having an equitable interest in the matter) about the incorporation at the time, and consented to that move. Chamberlain controlled the whole business. There was a by-law of the company giving him full power of management. The other holders of stock always obeyed his wishes and approved his acts in all things, and did so expressly as to the making of the sale to Hall & Terry in dispute here.

Instructions were given by the court, some of which are questioned; but it will not be necessary to mention them more particularly in view of the rules of law which we think control the result upon the facts which plaintiffs concede to exist.

1. That a corporation may execute an honest preference in favor of one creditor, to the exclusion of others, seems to be fairly well established now by a number of decisions in the supreme court, of which we cite a few: Foster v. Mill Co. (1887) 92 Mo. 87, 4 S. W. 260; Meyer v. Chair Co. (1895) 130 Mo. 189, 32 S. W. 300; Schufeldt v. Smith (1895) 131 Mo. 280, 31 S. W. 1039.

2. But it is also well established that when a corporation has reached a point where its assets are insufficient to satisfy its corporate debts, a managing officer thereof cannot lawfully pay his private debt from the assets, as against the rights of existing creditors of the company who complain. As to them, such a transaction is...