Badders Clothing Co. v. Burnham-Munger-Root Dry Goods Co.

• Decision Date: 03 December 1915
• Docket Number: 4293,139.,4292
• Citation: 228 F. 470
• Parties: BADDERS CLOTHING CO. v. BURNHAM-MUNGER-ROOT DRY GOODS CO. et al. (two cases). [1] BADDERS CLOTHING CO. et al. v. SAME.
• Court: U.S. Court of Appeals — Eighth Circuit

228 F. 470

BADDERS CLOTHING CO. v. BURNHAM-MUNGER-ROOT DRY GOODS CO. et al. (two cases). ^[1]

BADDERS CLOTHING CO. et al. v. SAME.

Nos. 4292, 4293, 139.

United States Court of Appeals, Eighth Circuit.

December 3, 1915

[Copyrighted Material Omitted]

D. R Hite, of Kansas City, Kan., and James H. Harkless, of Kansas City, Mo., for plaintiff in error, appellant, and petitioners.

A. L Quant and Edwin A. Krauthoff, both of Topeka, Kan. (W. S. McClintock, of Topeka, Kan., on the brief), for defendants in error, appellees, and respondents.

Before SANBORN and HOOK, Circuit Judges, and AMIDON, District Judge.

HOOK Circuit Judge.

No. 4292 is a writ of error to review the proceedings at a trial by jury, resulting in a verdict and an adjudication of bankruptcy against the Badders Clothing Company, a Kansas corporation. No. 4293 is an appeal from certain orders in the bankruptcy proceedings, and No. 139 original is a petition to revise in matter of law.

The rulings of the trial court in allowing amendment of the petition in bankruptcy and in requiring the bankrupt to proceed to trial were within its reasonable discretion. The defect in the verification of the petition, if any, was waived by the answer. Statements in the answer that the petition does not conform to the Bankruptcy Act, and that the facts alleged do not confer jurisdiction nor entitle petitioners to relief, are too general to challenge the verification. Objection is made that the jury was not summoned as required by the laws of Kansas. If there is anything of importance in this, the references to the record do not disclose it. The jury appears to have been secured according to Judicial Code, Secs. 279, 280 (Act March 3, 1911, c. 231, 36 Stat. 1165 (Comp. St. 1913, Secs. 1256, 1257)). In response to a question by counsel touching his qualifications, Juror Brewer said he would act on his own judgment of the value of real property, instead of upon what others would say. But in reply to a question by the court he said he would take the evidence of the witnesses as to the facts. The court overruled a challenge for cause. This was not error. Pearson v. Rocky Mountain Fuel Co., 219 F. 496, 135 C.C.A. 208; Reynolds v. United States, 98 U.S. 145, 25 L.Ed. 244.

The petition charged the commission of six acts of bankruptcy. The first five were preferential payments to creditors when insolvent. The sixth was that the bankrupt conveyed, transferred, concealed, and removed, and permitted to be concealed and removed, a large portion of its property with intent to hinder, delay, and defraud its creditors, with averments of details. Since the adjudication may be sustained by a proper charge in the petition and adequate proof at the trial of any one of them, it is enough to say the petition was sufficient as to the sixth, and the proof of it was clear and convincing. By its answer the bankrupt denied insolvency. Solvency when the petition was filed was a complete defense to the sixth charge, but the burden of proving it was on the bankrupt. Bankruptcy Act (Act July 1, 1898, c. 541, Sec. 3c; 30 Stat. 546 (Comp. St. 1913, Sec. 9587 The jury also found against it on that issue and we think)). the evidence sustained the finding.

Counsel contend that under the laws of Kansas where the bankrupt was incorporated and domiciled, and the decisions of the courts, the acts charged against it, if true, were ultra vires and void, were not corporate acts, and therefore would not constitute ground for adjudication in bankruptcy. They say:

'A corporation can do and assent to the doing by its officers of only those things which are within the corporate power, while an individual may do anything he pleases. * * * An individual may divert his property in any manner that he pleases, by giving it away, or by selling it for an unlawful consideration, or by concealing it, or doing anything else with it that he pleases. Not so with a corporation. It can do no act prohibited by the terms of its charter or the general law. If the general law prohibits corporations from diverting their assets or property from a use which by the terms of their charter they are authorized to make of it, any attempt on the part of those in charge of the corporate affairs to divert such assets is ultra vires and absolutely void. Indeed it is not an act of the corporation.'

This is a revival of an ancient fiction long since discarded. It is equivalent to saying a corporation can do no wrong. But a corporation may be held for a felony by engaging in a conspiracy (Joplin Mercantile Co. v. United States, 213 F. 926, 131 C.C.A. 160); assault and battery with a deadly weapon (Railway v. Harris, 122 U.S. 597, 7 Sup.Ct. 1286, 30 L.Ed. 1146); libel (Railroad v. Quigley, 21 How. 202, 16 L.Ed. 73); fraud and deceit, assault and battery, malicious prosecution, nuisance and libel (National Bank v. Graham, 100 U.S. 699, 25 L.Ed. 750); fraud in reports to revenue collector (Salt Lake City v. Hollister, 118 U.S. 256, 6 Sup.Ct. 1055, 30 L.Ed. 176); fraud and deceit (Butler v. Watkins, 13 Wall. 457, 20 L.Ed. 629); boycotting (Hartnett v. Plumbers' Supply Ass'n, 169 Mass. 229, 47 N.E. 1002, 38 L.R.A. 194); false representation (Dorsey Machine Co. v. McCaffrey, 139 Ind. 545, 38 N.E. 208, 47 Am.St.Rep. 290); false imprisonment (Wachsmuth v. Nat. Bank, 96 Mich. 426, 56 N.W. 9, 21 L.R.A. 278); conspiracy by a bank through its president with a merchant to defraud those selling goods to the latter (Johnston Fife Hat Co. v. National Bank, 4 Okl. 17, 44 P. 192). There are many other apposite cases. It would be quite strange to find that a corporation could not commit the wrong involved in the charge before us. The words of the Bankruptcy Act are broad enough to include the corporation here. See sections 1 (19), 3a (1), 4b.

While upon this subject we may refer to complaints of the admission of testimony of acts of George S. Badders claimed to have been for his personal benefit, and therefore not attributable to his corporation. Badders was the president of and dominated the company. He exercised unrestrained control over its affairs. If the power of restraint was elsewhere, it does not appear to have been exercised. Neither the directors nor other stockholders, if there were any with substantial holdings, interfered. He was practically the corporation in the conduct of its business. The evidence shows a plan and purpose to defraud its creditors which were in course of accomplishment when arrested by the bankruptcy proceedings. Its stock of goods was being sold, in some instances at a sacrifice, and the proceeds taken by Badders and used in such ways as to put them beyond the reach of corporate creditors. If a corporation engages in a plan to hinder and defraud its creditors by concealing or transferring its property, the proof is primarily found in the conduct of its officers in authority, and where part of the plan is their individual enrichment at the expense of the creditors, the distinction between official and personal acts should not be drawn too nicely. The ultimate disposition of the corporate property or its proceeds, however made, may be the very effective act which was intended to hinder or defraud the creditors. Having ventured upon the wrongful course, it may even act through agents who have no official relation to it. We are not now speaking of contracts ultra vires. Nor does it follow that every wrongful act of an officer is the act of his corporation. ...