Ashworth v. Hagan Estates Inc

• Decision Date: 19 September 1935
• Citation: 181 S.E. 381
• Parties: ASHWORTH. v. HAGAN ESTATES, Inc.,et al.
• Court: Virginia Supreme Court

181 S.E. 381

ASHWORTH.

v.HAGAN ESTATES, Inc., et al.

Supreme Court of Appeals of Virginia.

Sept. 19, 1935.

^*

Appeal from Corporation Court of Bristol.

Bill by J. S. Ashworth against the Ha-gan Estates, Incorporated, and others.

From the decree, the complainant appeals.

Reversed.

Argued before CAMPBELL, C. J., and HOLT, GREGORY, BROWNING, and EGGLESTON, JJ.

William A. Stuart, of Abingdon, for appellant.

Bradley Roberts and R. L. Pennington, both of Bristol, for appellees.

HOLT, Justice.

J. S. Ashworth filed his bill to the First January rules, 1930, of the circuit court of Scott county. In it he set out the facts that he is a creditor of the Hagan Trustee Syndicate, and that said syndicate on the 19th day of April, 1928, made a voluntary conveyance of all of its property to the Hagan Estates, Inc., the effect of which it is claimed was to hinder, delay, and defraud him and other creditors of this Trustee Syndicate. On April 26, 1930, he filed an amended bill in which he made the Clinch River Coal Company, Inc., lessee of the Hagan Estates, Inc., a party. Preference is claimed under Code, § 5186, as amended by Acts 1926, c. 524.

This suit for satisfactory reasons was afterwards transferred to the corporation court for the city of Bristol. That court on October 12, 1933, entered this decree:

"These causes were heretofore heard on the merits on the pleadings, issues and depositions as set out in the agreed decree entered herein under date of September 15, 1933, and the court having now maturely considered the same is of opinion that the deed of the Hagan Trustee Syndicate to the Hagan Estates, Incorporated, dated April 19, 1928, and attacked herein by complainant, J. S. Ashworth, in his original and amended bills, is neither fraudulent or voluntary as to said complainant's claim, and doth so adjudge, order, and decree.

"The court is further of opinion under the proof and under the admissions of the Hagan Estates, Incorporated, that the alleged judgment of J. S. Ashworth against the Hagan Trustee Syndicate for $6,000 with interest from October 7, 1929, rendered February 10, 1930, as the result of an agreement shown in evidence, should be treated as a common claim against the property of the Hagan Estates, Incorporated, and that the commissioners taking the account herein should be governed ac cordingly, and doth so adjudge, order, and decree."

The Hagan Trustee Syndicate was created by "an agreement and declaration of trust" of date December 1, 1920. Charles F. Hagan, Patrick Hagan, Eugenia Hagan Curran, and Rosalie B. Hagan were the owners of twenty-five or thirty thousand acres of land lying in Scott, Wise, and Dickinson counties, valuable for its coal and timber, and estimated to be worth something more than a half million dollars. Under said declaration of trust these owners together with Robert L. Pennington were named as constituting the first board of trustees. This board was given power to care for, manage, lease, dispose of, etc., the property which they took for the benefit of their cestuis que trust, free however from personal liability on the part of themselves or those beneficially interested, this under these provisions of said declaration:

"The trustees shall have no power to bind the beneficiaries personally or to call upon them for the payment of any sum of money or any assessment whatever. All persons or corporations extending credit, contracting with, or having any claim against the trustees shall look only to the funds and property of the trust for the payment of any such contract or claim or for the payment of any debt, damage, judgment or decree, or of any money that may otherwise become due or payable to them from the trustees so that neither the trustees, beneficiaries, nor officers, present or future, shall be personally liable therefor."

Trusts of this kind are not common in Virginia. Although they are elsewhere in more general use and in many states are regulated by statute. These syndicates are not trusts in any narrow sense, but are devices adopted for the conduct of general business, and at times those things may lawfully be done which no prudent trustee would venture to do. Trustees take the place of directors, while those beneficially interested may be likened to stockholders, although this analogy is by no means perfect. Their object, "apparently, was to obtain for the associates most of the advantages belonging to corporations, without the authority of any legislative act, and with freedom from the restrictions and regulations imposed by law upon corporations, " Hussey v. Arnold (1904) 185 Mass. 202, 70 N. E. 87.

See, also, Cook on Corporations (6th Ed.) § 622h.

This syndicate by deed of date April 19, 1928, conveyed its entire holdings to the Hagan Estates, Inc. The consideration therefor was "the sum of Ten ($10.-00) dollars and other good and valuable consideration, paid and to be paid by said party of the first part to said party of the second part, receipt of which is hereby acknowledged." The conveyance itself was one with covenants of general warranty.

On May 1, 1928, the corporation, which had acquired all of the rights of the syndicate, leased its coal land underlying Powell Mountain in the counties of Scott and Wise, to the Clinch River Coal Company, Inc. The lessee was not successful and that lease appears to have been forfeited or abandoned.

Mr. Ashworth had been counsel for the syndicate, and it was then indebted to him for his services, his claim being for something over $9,000, and on it he brought an action in the circuit court of Washington county.

In September, 1928, the corporation brought suit in the circuit court of Scott county, in which it set out the difficulties under which it had labored and asked that receivers be appointed for the purpose of protecting and preserving its property, that all creditors of the syndicate and of the corporation be enjoined and prohibited from instituting and procuring judgment on their claims, and that they be required to file them before a Master Commissioner appointed for that purpose.

On September 15, 1928, Charles F. Hagan, Robert L. Pennington, and Robert W. Kelly were appointed receivers, both for the syndicate and for the corporation. Creditors of these concerns were enjoined from instituting or prosecuting suits against them, and a commissioner was appointed to make report of their indebtedness. Some time later this suit was dismissed possibly for want of jurisdiction.

Prior to dismissal, however, Ashworth and other creditors of the syndicate on November 7, 1928, filed their petition for involuntary bankruptcy in the United States District Court for the Western District of Virginia. This bankruptcy proceeding was by consent dismissed on December 12, 1929.

There is some controversy as to the terms on which it was done. With Mr. Stant's deposition is filed this agreement:

"It is agreed this October 7th, 1929, between R. L. Pennington and D. T. Stant attorneys for The Hagan Trustee Syndicate and Wm. A. Stuart attorney for J. S. Ashworth, that the pending involuntary bankruptcy proceeding under the style of The Hagan Trustee Syndicate, alleged bankrupt, J. S. Ashworth will join in moving the court to dismiss the said proceeding. It is further agreed that the amount owing to said Ashworth by said The Hagan Trustee Syndicate is $6000.00 with interest from the 7th day of October 1929. Said The Hagan Trustee Syndicate will as speedily as may be cause a friendly receivership suit to be instituted in the Circuit Court of Scott County and will petition therein for the appointment of receivers for the property of said The Hagan Trustee Syndicate. Upon the appointment of such receivers said Ashworth shall take agreed judgment for the above amount in the present action pending in the Circuit Court of Washington County, Virginia, and may thereafter file his claim for said amount in such receivership proceeding and said claim shall not be contested.

"All the above agreement is in compromise of said present bankruptcy proceeding, and shall be void unless said proceeding is dismissed as above contemplated.

"R. L. Pennington, "Donald T. Stant, "W. A. Stuart."

Plaintiff claims that he made certain objections to this compromise agreement when it was submitted to him and that it reads in final form thus:

"It is further agreed, this October 7th, 1929, between R. L. Pennington, and D. T. Stant, Attorneys for The Hagan Trustee Syndicate and for The Hagan Estates, Incorporated, and Wm. A. Stuart, Attorney for J. S. Ashworth, that in the pending involuntary bankruptcy proceeding under the style of The Hagan Trustee Syndicate, alleged bankrupt, J. S. Ashworth will join in moving the Court to-dismiss the said proceeding. It is further agreed that the amount owing to said Ashworth by said The Hagan Trustee Syndicate is Six Thousand Dollars ($6,000.00) with interest from the 7th day of Oct. 1929. Said The Hagan Trustee Syndicate will, as speedily as may be, and within thirty days from the date of such dismissal of said bankruptcy proceeding, cause a receivership suit to be instituted in the Circuit Court of Scott County, to which suit The Hagan Estates, Incorporated, shall be a party, and said Court shall be petitioned therein for the appointment of a receiver or receivers for the property of said The Hagan Trustee Syndicate and said The Hagan Estates, Incorporated, and said The Hagan Estates, Incorporated, shall file a pleading therein acknowledging that it holds all the property heretofore conveyed to it by said The Hagan Trustee Syndicate as a trustee for the creditors of said The Hagan Trustee Syndicate, as heretofore acknowledged by said The Hagan Estates, Incorporated, in its bill filed in the Circuit Court of Scott County in the receivership suit heretofore pending in said court under the style of The Hagan Estates, Incorporated, v. The Hagan Trustee Syndicate, et al. Upon the institution of such receivership suit, said Ashworth may...