Associated Fruit Co. v. Idaho-Oregon Fruit Growers' Ass'n

• Decision Date: 25 April 1927
• Docket Number: 4507
• Citation: 44 Idaho 200,256 P. 99
• Court: Idaho Supreme Court
• Parties: ASSOCIATED FRUIT COMPANY, a Corporation, Respondent, v. IDAHO-OREGON FRUIT GROWERS' ASSOCIATION, a Corporation, Defendant, and FRUITLAND FRUIT ASSOCIATION, GEM FRUIT UNION, H. C. PRIOR, Trustee, E. T. HYDE, Trustee, and PAYETTE FRUIT DISTRIBUTORS, Garnishees and Appellants

256 P. 99

44 Idaho 200

ASSOCIATED FRUIT COMPANY, a Corporation, Respondent, v. IDAHO-OREGON FRUIT GROWERS' ASSOCIATION, a Corporation, Defendant, and FRUITLAND FRUIT ASSOCIATION, GEM FRUIT UNION, H. C. PRIOR, Trustee, E. T. HYDE, Trustee, and PAYETTE FRUIT DISTRIBUTORS, Garnishees and Appellants

No. 4507

Supreme Court of Idaho

April 25, 1927

AGRICULTURE - CO-OPERATIVE NONPROFIT ASSOCIATIONS - DISTRIBUTION OF PROFITS-LIQUIDATION OF CLAIMS - FRAUDULENT TRANSFER OF STOCK-GARNISHMENT PROCEEDINGS.

1. Profits earned by co-operative nonprofit association, though belonging to members thereof and not to association itself are subject to claims of such association's creditors and until such claims are liquidated there may not be a distribution of profits to the members.

2. Transfer of stock purchased by co-operative nonprofit association to its members pending action against it for breach of contract held in law to amount to fraud on creditors, though liability was contingent until claim was reduced to judgment, and notwithstanding C. S., sec. 5435 providing that question of fraudulent intent be deemed question of fact, and not of law.

3. Under C. S., sec. 6792, directing that issue in garnishment proceedings shall be tried as ordinary issues, transfer of stock by co-operative nonprofit association to its members could be attacked in garnishment proceedings against members on ground of fraud, since purpose of such section was that all issues should be adjudicated in proceeding incident to main action, to avoid a multiplicity of suits.

APPEAL from the District Court of the Third Judicial District, for Ada County. Hon. Raymond L. Givens, Judge.

Action on contract. Judgment for plaintiff. Issues formed and trial had after execution issued by way of garnishment. Judgment for plaintiff. Garnishees appeal. Judgment affirmed.

Judgment affirmed. Costs to respondent.

A. L. Freehafer and J. P. Pope, for Appellant.

No person or corporation is bound to hold for creditors what in good morals does not belong to him but to another. ( Cottrill v. Smith, 63 Iowa 181, 18 N.W. 865; Fairhurst v. Lewis, 23 Ark. 435; J. M. Robinson Norton Co. v. Stalcup, 58 Ind.App. 370, 106 N.E. 395; Rohrabacher v. Walsh, 170 Mich. 59, 135 N.W. 907; Gallman v. Perrie, 47 Miss. 131; Stone v. Stitt, 62 Tex. Civ. App. 492, 132 S.W. 862; Moog v. Farley, 79 Ala. 246; Blake v. Meadows, 225 Mo. 1, 123 S.W. 868, 30 L. R. A., N. S., 1; Martin v. Remington, 100 Wis. 540, 69 Am. St. 941, 76 N.W. 614; Bailey v. Wood, 211 Mass. 37, Ann. Cas. 1913A, 950, 97 N.E. 902; VanSickle v. Wells Fargo Co., 105 F. 16.)

The question of fraudulent intent is one of fact and not of law; nor can any transfer or charge be adjudged fraudulent solely on the ground that it was not made for a valuable consideration. (C. S., sec. 5435.)

Property which has been alienated prior to judgment and which has passed into the hands of the transferee is not leviable under execution against the seller, and if the creditor desires to attack the transaction on the ground of fraud the proper mode of procedure is by creditor's bill. (Preston-Parton Mill Co. v. Dexter Horton & Co., 22 Wash. 236, 79 Am. St. 928, 60 P. 412; Doster v. Manistee National Bank, 67 Ark. 325, 77 Am. St. 116, 55 S.W. 137, 48 L. R. A. 334.)

J. H. Helman and Sullivan & Sullivan, for Respondent.

A corporation or an association cannot close its business and distribute its assets to its stockholders or members to the prejudice of its creditors, as its assets constitute a trust fund for the payment of its debts and obligations. (Jones on Insolvent and Failing Corporations, secs. 109, 194, 234, 244, 248; McIver v. Young Hardware Co., 144 N.C. 478, 119 Am. St. 970, 57 S.E. 169; Beach v. Miller, 130 Ill. 162, 17 Am. St. 291, 22 N.E. 464; Fogg v. Blair, 133 U.S. 534, 10 S.Ct. 338, 33 L.Ed. 721; 8 Fletcher, Cyc. of Corps., secs. 5027, 5050, 5056; 6 Fletcher, Cyc. of Corps. , sec. 3655; C. S., sec. 4715; Weil v. Defenbach, 31 Idaho 258, 170 P. 103; Coppinger v. Lewiston Terminal Co., 34 Idaho 598, 203 P. 1068; Stoltz v. Scott, 23 Idaho 104, 129 P. 340; Wilson v. Baker Clothing Co., 25 Idaho 378, 137 P. 896, 50 L. R. A., N. S., 239.)

If it be found, as contended by appellants, that said seventy-eight shares of stock prior to their distribution to the local organizations were held in trust for the local organizations, then under the interlocking organizations here shown it was nevertheless subject to execution herein. (11 C. J. 374; 5 R. C. L. 379; 23 A. L. R. 887, 893, 923; 42 L. R. A. 1144.)

T. BAILEY LEE, J. Wm. E. Lee, C. J., and Taylor, J., concur.

OPINION

T. BAILEY LEE, J.

On June 4, 1921, the Idaho-Oregon Fruit Growers' Association, a corporation, entered into a contract with plaintiff whereby it agreed to sell plaintiff, Associated Fruit Company, a corporation, fifty carloads of apples at an agreed price. Defendant refused to carry out the contract. Plaintiff brought suit for the breach, securing a judgment for damages in the sum of $ 8,000; and thereafter attached on execution seventy-eight shares of stock of the New Plymouth Storage Company, in the hands of the above-named garnishees, claiming that such shares belonged to the defendant. After service of notice and interrogatories, the garnishees answered declaring that they had no shares of stock or other property of the defendant in their possession. Plaintiff filed separate denials to their answers specifically alleging that the distribution and transfer of the seventy-eight shares of stock of the New Plymouth Storage Company, Ltd., by the defendant was made for the purpose of defrauding the plaintiff from realizing anything on a breach of the contract in question in the main suit; that the defendant had requested a cancelation thereof, and the plaintiff had refused to allow it to be canceled; that thereupon the defendant repudiated said contract by resolution, and at the same meeting of the board of directors an order was entered for the distribution of said seventy-eight shares of stock among its locals; that defendant distributed and transferred said stock accordingly, without any consideration; and that thereafter defendant proceeded to close up its business and dispose of all of its assets, which consisted of but little besides said stock; that said shares of stock belonged to and were the property of said defendant, and not said locals; that a distribution thereof to its locals was illegal and void, and did not in any way affect the rights of the creditors of the said defendant in following said assets; that the same constituted a trust fund for the payment of the debts and obligations of said defendants; and that they could not be legally or lawfully divided up or distributed until the creditors had been fully paid.

The garnishees replied, admitting that certain shares of said stock had been transferred to them by the defendant without any payment therefor, and that said defendant closed out its business at Payette, and that defendant was insolvent. But each garnishee denied that said distribution of stock was to defraud plaintiff, and specifically pleaded that the garnishees were the legal and absolute owners of the shares of stock in question, by reason of the fact that the defendant had purchased the same with funds which the garnishees claimed were held and regarded as trust funds for the local associations or fruit growers.

It was stipulated that the proceedings on the six attachments might be joined and tried as one. Trial was had upon the issues, resulting in a judgment for plaintiff. The garnishees appealed.

The court found and concluded, among other things, that the stock in question had been purchased with funds accumulated, in excess of expenditures, by defendant company during the period from its organization in 1913 until April, 1920, and became an asset of said company to be held in trust for its creditors; that at the time of the transfer and distribution of said stock to the garnishees, the plaintiff was a creditor of said defendant, and "that the act of the defendant in having said 78 shares of stock distributed and transferred to said garnishees, as aforesaid, prior to paying its creditors, was prejudicial to the rights of said plaintiff and resulted in preventing plaintiff from...