Atlas National Bank v. John Moran Packing Company

• Decision Date: 10 March 1897
• Parties: Atlas National Bank, Plaintiff in Error, v. John Moran Packing Company et al
• Court: Missouri Supreme Court

39 S.W. 71

138 Mo. 59

Atlas National Bank, Plaintiff in Error, v. John Moran Packing Company et al

Supreme Court of Missouri, Second Division

March 10, 1897

Error to Buchanan Circuit Court. -- Hon. A. M. Woodson, Judge.

Affirmed.

Johnson Rusk & Stringfellow for plaintiff in error.

(1) When the assets of a corporation become impressed with the character of a trust fund for the benefit of its creditors they should be administered for the equal benefit of all of its creditors, and a simple contract creditor of such corporation may maintain an action in equity, with respect to the administration of such assets. Such assets can not be reached by attachment or other legal remedy. Foster v Mullanphy Planing Mill Co., 92 Mo. 90; Kankakee Woolen Mill Co. v. Kampe, 38 Mo.App. 229; White v. University, etc., 49 Mo.App. 450; Doe v. Northwestern Coal and Transportation Company, 64 F. 928; Consolidated Tank Line Co. v. K. C. Varnish Co., 45 F. 7; Howe v. Sanford Fork and Tool Co., 44 F. 231; Sutton v. Hutchinson, 63 F. 496; Bosworth v. Bank, 64 F. 615; Case v. Beauregard, 101 U.S. 688; Talley v. Curtain, 54 F. 43; 3 Pomeroy, Equity Juris., page 363; 20 Am. and Eng. Ency. of Law, 48; 2 Morawetz on Private Corporations, secs. 789, 795, 796, 797, and 798, and cases cited, note 4, under sec. 796; Kennedy v. Creswell, 101 U.S. 641; Hagan v. Walker, 14 How. (U.S.) 29; Board of Public Works v. Columbia College, 17 Wall. 521, 532. (2) Where the managing officers of a corporation control its board of directors, and also control a majority of its stock, and such officers, in fraud of the rights of its creditors, misappropriate its assets to their own use, and thereby render the corporation insolvent, the assets of such corporation become a trust fund to be administered for the benefit of all of its creditors. Doe v. Northwestern Coal and Transportation Co., 64 F. 928; Foster v. Mullanphy Planing Mill Co., 92 Mo. 90; Alberger v. National Bank, 123 Mo. 313; LaGrange Butter Tub Co. v. National Bank, 122 Mo. 154; Suddath v. Gallagher, 126 Mo. 393; Schufeldt v. Smith, 131 Mo. 280; Hill v. Rich Hill Coal Co., 119 Mo. 9; Hollins v. Brierfield, etc., 150 U.S. 371; 2 Morawetz on Private Corp., secs. 789-795, 796, 797, and 798; Angle v. Railway, 151 U.S. 1; Mann v. Appel, 31 F. 378; Pomeroy, Eq. Jurisprudence, secs. 155 and 1053; Perry on Trusts, secs. 245, 265, and 288. (3) Persons who, conspiring with the officers of a corporation, fraudulently receive its assets, become with respect to its creditors, trustees ex maleficio, holding the property so fraudulently received by them, for the benefit of the creditors of such corporation. Doe v. Northwestern Coal and Transportation Co., 64 F. 928; Angle v. Railway, 151 U.S. 1; Pomeroy, Eq. Jurisprudence, secs. 155 and 1053; Perry on Trusts, secs. 245, 265, and 288.

Brown & Pratt for defendants in error.

(1) This is an evident attempt on the part of a creditor whose demand is not yet due, to evade the dangers of the attachment laws of the state, which give him a complete remedy at law, subject to the liability to respond in damages inflicted by an unjust accusation of fraud. This can not be done. The creditor must first establish his claim at law. He can not be heard to charge fraud on his debtor until it is first ascertained that he is a creditor. Crim v. Walker, 79 Mo 335. He must exhaust his legal remedies before proceeding in equity. Humphreys v. Atlantic Milling Co., 98 Mo. 542; Mullen v. Hewitt, 103 Mo. 639; Hollins v. Brierfield Coal and Iron Co., 150 U.S. 371. All the cases above cited are to the effect that a general creditor will not be permitted to attack an alleged fraudulent conveyance of his debtor; he must first obtain a judgment at law. The case of Humphreys v. Atlantic Milling Company, supra, completely covers the one at bar. That was a suit by a general creditor of an insolvent corporation to set aside an alleged fraudulent transfer of property. It was held that the general rule that a creditor, before he can maintain a creditor's bill, must show that he has exhausted all remedies at law, was applicable, because in that case, if the allegations of fraud were true, the corporation could be attached and its property in the hands of others could be garnished. (2) The plaintiff's brief admits the general rule that a creditor's bill can not be maintained by a general creditor against one in the jurisdiction of the court, but undertakes to evade its force by the assertion of the principle that the property of an insolvent corporation constitutes a trust fund for the benefit of its creditors. Its position is fully answered by the case of Humphreys v. Atlantic Milling Company, cited above. There is nothing in the principle applicable to this case. (3) Property fraudulently transferred by an insolvent debtor, whether it be a person or corporation, constitutes a trust fund for the payment of debts, and the holders of such property are trustees ex maleficio for the benefit of creditors. The corporation and individual debtor stand upon the same footing in this respect. Graham v. Railroad, 102 U.S. 148; Railway Company v. Ham, 114 U.S. 587; Fogg v. Blair, 133 U.S. 534, 534; Hollins v. Brierfield Coal and Iron Co., 150 U.S. 371; Schufeldt v. Smith, 131 Mo. 280; Alberger v. Bank, 123 Mo. 313.

Burgess, J. Gantt, P. J., and Sherwood, J., concur.

OPINION

Burgess, J.

This action was begun in the circuit court of Buchanan county on the fifteenth day of March, 1895, by the Atlas National Bank, a national bank then doing business in the city of Chicago, as plaintiff, against John Moran Packing Company, John Moran, State National Bank, Charles B. France, John Donovan, Jr., and the St. Joseph Stock Yards and Terminal Company, as defendants.

Omitting the caption, the petition is as follows:

"Plaintiff for cause of action, states that at all times hereinafter mentioned it has been, and now is, a corporation doing business as a national bank under, and by virtue of, the laws of the United States governing national banks, and, as such, conducting a banking business in the city of Chicago, Cook county, Illinois.

"That the said State National Bank at all times herein mentioned has been, and is, a corporation doing a banking business in the city of St. Joseph, Buchanan county, Missouri, and organized under the laws of the United States governing national banks.

"That the Saint Joseph Stock Yards & Terminal Company has been, and is, a corporation organized and created under, and by virtue of, the laws of the state of Missouri.

"That the John Moran Packing Company is a corporation organized and created under, and by virtue of, the laws of the state of Illinois, and, as such, was incorporated on or about the day of October, 1894. That the capital stock of said John Moran Packing Company is, and was, one hundred and fifty ($ 150,000) thousand dollars, all of which was subscribed and paid in full at the time of the incorporation of said company. That the corporators and stockholders of said company were, and are, John Moran, W. T. Nash, C. E. Linaker, P. Fogarty, and C. W. Taylor; and said company has had no other stockholders at any of the times herein mentioned. That all of the capital stock of said company was at the time of its incorporation really paid in and owned by John Moran, but for the purpose of complying with the legal formalities required by the law in incorporating such companies, John Moran gave the said W. T. Nash twenty-five thousand ($ 25,000) dollars of the capital stock of said company, to the said P. Fogarty, five thousand ($ 5,000) dollars, to the said C. W. Taylor, fifteen thousand ($ 15,000) dollars.

"That the articles of incorporation of said company provided that its affairs and business should be controlled and managed by a board of five directors, which said board has at all times since the incorporation thereof been composed of the said John Moran, Thomas Nash, C. E. Linaker, P. Fogarty, and C. W. Taylor; and the officers of said company have at all times been, and are, as follows: John Moran, president; W. T. Nash, vice-president; C. W. Taylor, secretary, and P. Fogarty, treasurer. That said company was incorporated for the sole purpose of slaughtering, packing, and selling hogs and cattle, and its business operations were conducted at the said city of St. Joseph and in the city of Chicago. The main office of said company was, by the provisions of its articles of incorporation, located in the said city of Chicago. That the capital stock of said company was paid in by the transfer to said company, by the said John Moran, of the following described property:

"The packing plant and ten acres of land, upon which the same is situated, is located in or near the town site of St. George, an addition to the city of St. Joseph, which said packing plant was, as hereinafter more fully set forth, conveyed by warranty deed by the St. Joseph Stock Yards & Terminal Company to the said John Moran, and conveyed by warranty deed by the said John Moran to the said John Moran Packing Company, said packing plant being free and clear of any liens and incumbrances at the time of above said transfers. The premises used as a packing plant located in said city of Chicago, and owned by the said John Moran, and operated by him in the conduct of his packing business, which said plant was conveyed by warranty deed, executed by said John Moran, to the said John Moran Packing Company.

"Certain premises known as the up-town market and described as lot number twelve (12), in block number (14), in O'Donnahughe's addition to the city of Saint Joseph which said real estate was conveyed by warranty deed by said John Moran to the said John Moran Packing Company. A large quantity of pork, the product of the two...