Bowman v. Anderson

• Decision Date: 31 May 1916
• Parties: FRANK L. BOWMAN, Receiver of FRATERNAL HOME, v. WILLIAM W. ANDERSON et al., Appellants
• Court: Missouri Supreme Court

186 S.W. 1012

268 Mo. 1

FRANK L. BOWMAN, Receiver of FRATERNAL HOME, v. WILLIAM W. ANDERSON et al., Appellants

Supreme Court of Missouri, Second Division

May 31, 1916

Appeal fro Buchanan Circuit Court. -- Hon. W. K. Amick, Judge.

Reversed and remanded (with directions).

Ed. E Yates, W. M. Williams and Perry S. Rader for appellants.

(1) This case cannot be adjudged by the rule of ultra vires without disregarding the principles of justice. That rule does not afford a reasonable guide by which to determine the rights of the parties hereto. "The doctrine of a want of power to contract cannot be invoked to aid a party to perpetrate wrong and injustice." (a) It is of the gravest doubt whether the transfer of the assets and business of the Fraternal Home to the Kansas City Life was an ultra vires act. The association had no stockholders; it had no capital stock; it was organized for the purpose of providing insurance for the beneficiaries of members (their widows husbands and children); the funds were transferred for the purpose of paying mortuary claims that had already accrued or might accrue within the next thirty days, before members had had opportunity to accept the contract of reinsurance; every such mortuary claim was paid by the Kansas City Life, and at the time suit was brought there were no unpaid mortuary claims or other debts. The Fraternal Home was insolvent; its primary purpose was to provide insurance for its members; its insolvency made it impossible for it of itself to further fulfill that purpose; it could fulfill it only by entering into a contract of reinsurance with some solvent company; and fifty-seven per cent, or 3769 out of 6610, of its then members accepted and ratified the transfer contract; and the funds transferred were used for the very purpose for which they would have been used had there been no transfer. The doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail where it would defeat the ends of justice or work a legal wrong. Railroad v. McCarthy, 96 U.S. 267; Cass Co. v Ins. Co., 188 Mo. 16; Bank v. Trust Co., 187 Mo. 526; Louis v. Am. S. & L. Assn., 98 Wis. 224. Though the directors transfer all the assets of a corporation to a trustee for the payment of its debts, and thereby work its political death, if it was done in good faith and with due regard to the interest of all the stockholders, the act will not be held to be invalid or actionable. I Moritz on Private Corporations (2 Ed.), sec. 513; Ringue v. Biscoe, 13 Ark. 575; Hat Block Co. v. Machine Co., 90 N.Y. 613; DeCamp v. Alwood, 52 Ind. 468; Arms Co. v. Barlow, 63 N.Y. 70; 29 Am. & Eng. Ency. Law, p. 48, par. 5; Hutchinson v. Green, 91 Mo. 375; Paper Co. v. Ptg. Co., 144 Mo. 335; Descombes v. Wood, 91 Mo. 204; Sherman v. Harbin, 124 Iowa 646. (b) Before plaintiff can recover he must show a concurrence of a legal wrong and of damages resulting therefrom. In the present case, it must not only be shown that the transfer of the assets of the Fraternal Home to the Kansas City Life was an ultra vires act, and a misappropriation of its funds; but that the Home sustained a loss thereby and therefrom. Rex v. Commissioners, 8 B. & Co. 335, 15 E. C. L. 237; 8 Am. & Eng. Ency. Law, p. 560; North Vernon v. Voegler, 103 Ind. 319; Wittich v. Bank, 20 Fla. 849. The transfer of the assets of the Fraternal Home to the Kansas City Life resulted in no loss to the Home or any of its members. The money was used for the very purposes for which it would have been used had there been no transfer to pay the thirteen claims named in the contract, the Bookmiller claim and the Cox claim. The company was insolvent, and even if the transfer had not been made no mortuary claims could have been paid after a few months more of dying existence. All mortuary claims that had accrued before the 2841 dissenting members abandoned the Fraternal Home have been paid. The 3769 members are not complaining. (c) Even if the transfer was ultra vires, and resulted in the political death of the Fraternal Home, the directors are not liable. They profited not a cent by the transfer. They made the transfer in good faith; it was a wise arrangement, and resulted in a real advantage to the 3769 who accepted it, and no harm to these who did not. The transfer contemplated that the debts would be paid, and they were paid. At the time the transfer was made none of the 2841 dissenting members had any valid claim against the Home, mature, inchoate or potential. If they had sued for the money then in the hands of the Fraternal Home, no part of it could have been returned to them, then or at any time prior to the decree of dissolution in November, 1908, because it had not been raised for them, but to pay mortuary claims -- the purpose for which it was used. Sherman v. Harbin, 124 Iowa 646; 4 Sutherland on Damages (3 Ed.), sec. 1141; 3 Cook on Corporations (7 Ed.), p. 2374, sec. 702; Farr v. Bank, 87 Wis. 223; 28 Am. & Eng. Ency. Law, p. 736; State v. Kelley, 78 Kan. 44; Tripp v. Grouner, 60 Ill. 417. (2) A right may exist to pursue the property where an ultra vires contract is made by directors, and yet the directors may not be liable for damages for an honest but mistaken exercise of their best judgment. Watt's Appeal, 78 Pa. St. 370; Hodges v. Screw Co., 1 R. I. 312; Spering's Appeal, 71 Pa. St. 24; Williams v. McDonald, 37 N.J.Eq. 409; 3 Cook on Corporations (7 Ed.), p. 2374; 4 Sutherland on Damages (3 Ed.), sec. 1141; Farr v. Bank, 87 Wis. 223. (3) The Kansas City Life Insurance Company was solvent and amply able to carry out its contracts. There would have been no difficulty in pursuing the property if plaintiff desired to avoid the contract on the ground that it was ultra vires. 3 Cook on Corporations (7 Ed.), p. 2374. (4) The referee's conclusion of law that there could be no recovery for the $ 12,750 turned over by the Fraternal Home to the Kansas City Life Insurance Company and actually used by the latter to pay death claims then existing against the Fraternal Home, which the referee finds as a fact had been properly approved, was correct. This money was owing by the Fraternal Home to the claimants. The corporation was not injured by the act of defendants in paying claims through the Kansas City Life Insurance Company instead of directly to the claimants. 4 Sutherland on Damages (3 Ed.), sec. 1141; State v. Kelly, 78 Kan. 44; Valle's Heirs v. Fleming's Heirs, 29 Mo. 157; Turner v. Johnson, 95 Mo. 451; 8 Am. & Eng. Ency. Law, p. 560; Tripp v. Grouner, 60 Ill. 417. (5) The referee erred in recommending and the court erred in awarding, judgment against defendants for the amount paid in the Bookmiller claim. The liability of the Fraternal Home was not dependent upon the approval of the claim by the board of directors. Such a rule would prohibit the payment of a death claim if the board rejected it, although the courts might find it to be valid. (6) The court erred in rendering judgment for the amount of the Cox claim. If the Fraternal Home repudiated the transfer to and contract with the Kansas City Life Insurance Company, it should remain bound upon its own contract with Cox and the payment operated for its benefit. (7) There are no outstanding debts or claims of any kind against the Fraternal Home. The suit by the receiver can only inure to the benefit of the members of the beneficiary association, of whom there were 6610 at the time of the transfer. Of these members 3769 ratified the contract and accepted the provisions made for them, and thereby received the benefit of their full proportion of the assigned assets. They cannot now be heard to assert any right or claim to said funds. They have in legal effect received their part. Plaintiff cannot recover for them what they could not collect for themselves. Insurance Commissioner v. Provident Aid Society, 89 Me. 413.

D. E. Adams and W. M. Fitch for respondent.

(1) The title to all property of the Fraternal Home vested in the plaintiff as receiver thereof immediately upon his appointment and qualification as such; it then became and was his right and duty to sue for and recover all of the property, money and assets belonging to it or wrongfully converted or diverted by its officers or others. Sec. 1407 R. S. 1899; Sec. 3444, R. S. 1909; 29 Cyc. 54; Maynard v. Bond, 67 Mo. 315; State ex rel. v. Reynolds, 209 Mo. 161, 173; Wehrs v. Sullivan, 217 Mo. 167; Bank v. Hill, 148 Mo. 380; Stone v. Rotman, 183 Mo. 552. (2) The defendants as officers of the Fraternal Home (and now their intestates) had no power or authority to transfer its assets to the Kansas City Life Insurance Company, or to terminate the business of the Fraternal Home under the facts of this case; their acts in so doing were ultra vires and void. Feld v. Inv. Co., 123 Mo. 603; Thompson v. Greeley, 107 Mo. 590; Heineman v. Marshall, 117 Mo.App. 546; Knapp v. Golden Cross, 118 S.W. 390; Clark v. Brown, 108 S.W. 421; Allison v. Fire Ins.Co., 81 Neb. 494; Fire Ins. Co. v. Schwaelder, 44 A. (N. J. E.) 769; Grand Lodge K. P. v. Germania Lodge, 56 N.J.Eq. 63; Lodge v. Verein, 56 N. J. E. 78; Trans. Co. v. Car Co., 139 U.S. 24; Huber v. Martin, 105 N.W. 1031; Sauerhering v. Reping, 119 N.W. 184; Star v. Bankers' Union, 81 Neb. 377; Allison v. Fidelity Mut. Co., 81 Neb. 494; Temp. Mut. Ben. Assn. v. Home Fr. Soc., 197 Pa. 38; Schwartzwaelder v. Ins. Co., 59 N. J. E. 589; Park College v. Atty.-Gen., 228 Mo. 514; 10 Cyc. 1146; 1 Thomp. Corp., sec. 315. (3) The defendants are jointly and personally liable for the property, funds and assets of the Fraternal Home which they, as the members of the board of directors and as the supreme officers of the Fraternal Home, assigned and delivered to the Kansas City Life Insurance Company. 10 Cyc. 801 (17-c), and note; 21 Am....