Bradley v. Williams

• Decision Date: 25 March 1947
• Citation: 304 Ky. 724,202 S.W.2d 149
• Parties: BRADLEY et al. v. WILLIAMS.
• Court: Kentucky Court of Appeals

202 S.W.2d 149

304 Ky. 724

BRADLEY et al. v. WILLIAMS.

Court of Appeals of Kentucky

March 25, 1947

Rehearing Denied June 10, 1947.

Appeal from Circuit Court, Carter County; R. C. Littleton, Judge.

Suit by E. Paul Williams, salvage agent or trustee of certain creditors of S. M. Bradley, an adjudged bankrupt, against Clara Anita (Mrs. S. M.) Bradley and others for cancellation of a lease and to determine stock ownership. The plaintiff dismissed his cause of action so far as it sought cancellation of the lease. From a judgment declaring a complete ownership of the stock to be in the plaintiff, the named defendant and another defendant appeal.

Judgment affirmed.

Theobald & Theobald, of Grayson, and Wilson Harbison, Kessinger, Lisle & Bush, of Lexington, for appellants.

Dysard & Dysard and Howard Van Antwerp, both of Ashland, for appellee.

SILER Justice.

Certain creditors of S. M. Bradley, an adjudged bankrupt, filed this suit by their salvage agent or trustee, E. Paul Williams, the appellee, in which they, after first asserting their total ownership of all stock in a corporation known as Soldier Clay and Asphalt Company, sought a cancellation of that company's lease made to its lessee upon its property.

Subsequent pleadings brought into this suit S. M. Bradley himself, Clara Anita (Mrs. S. M.) Bradley and their son, S. M. Bradley, Jr. the latter two being the present appellants, and all these three joined issue with appellee on the question of the legal ownership of the stock of this same company by denying such ownership as to appellee and by asserting such ownership as to themselves.

Appellants' general demurrer to appellee's petition was overruled and thereafter upon submission of the whole case for a final judgment, appellee elected to dismiss his cause of action so far as it sought cancellation of the lease in question. Whereupon, the chancellor proceeded to adjudicate only one question directly affecting appellants and appellee, that question being the one relating to the corporate stock ownership of these parties in this company, and judgment having been rendered declaring a complete ownership of this company's stock to be in appellee, Mrs. Bradley and her son then perfected this appeal.

Appellants now contend, in main substance, that the chancellor's judgment should be reversed because he erred (1) in overruling their general demurrer to appellee's petition and (2) in rendering judgment on the question of this corporate stock ownership after a dismissal of appellee's main cause of action seeking lease cancellation and (3) in adjudging that any valid, legal sale to appellee for the corporate stock in question arose out of S. M. Bradley's bankruptcy proceedings and (4) in adjudging, under all the evidence produced, that the corporate stock ownership in question is now completely vested in appellee.

Since the ultimate issue of this case turned out to be simply a question of the ownership of Soldier Clay and Asphalt Company, we shall strive to set out only such facts as relate to that particular question.

Soldier Clay and Asphalt Company was organized in 1914. Its capital structure consisted of 550 shares of common stock. The stock certificates were issued, as of January 26, 1915, to S. M. Bradley, who was elected president of the company, and to three other original stockholders. S. M. Bradley, according to his own testimony, eventually bought out the other stockholders and thus became owner of all 550 shares of stock. Transfer of this complete ownership to S. M. Bradley was accomplished by delivery of all stock certificates to him, all of which were, sooner or later, endorsed in blank on the reverse sides by the original holders. But no new stock certificate was issued to S. M. Bradley.

Now S. M. Bradley was, at one time, somewhat of a tycoon, a man of extensive interests and affairs. In this record, he was called 'senator' by counsel and therefore we assume that he held title to that office sometime and somewhere. He was president of Morehead State Bank until it closed its doors in 1928. He was treasurer of Morehead State Normal School until an audit disclosed a substantial shortage of his accounts with that institution. He was a real estate man, timber dealer, trader, business leader in the encircling activities of his operative enterprises. We have not been given the explanatory keynote of the collapse of his financial domain. But, in any event, his bank closed and then followed almost immediately a claim for $194,000 against him and his surety companies by reason of his school fund shortage.

Accordingly, upon the initiative of his surety companies, which began closing in upon him and his assets, he and Mrs. Bradley jointly made a voluntary agreement of property assignment. This assignment was drawn in writing, was dated November 22, 1928, was made to H. R. Dysard as a trustee for the surety companies and other creditors, was based upon a definite purpose of paying all claims in full. A schedule of assets accompanied this assignment and listed a total valuation of all the Bradley property, both real and personal, in a sum of more than half a million dollars. According to this valuation, S. M. Bradley was in a state of happy solvency and all clouds of creditors' concern were totally unjustified in the fair weather status of his financial condition of 1928. There appear to have been set forth among the listed assets of this assignment schedule certain clay and asphalt deposits located at Soldier, Kentucky, which is the identical location of the physical property of this same Soldier Clay and Asphalt Company. These clay and asphalt deposits were valued at $140,000 in the schedule. In completing his voluntary assignment, S. M. Bradley addressed and signed a letter from himself to Soldier Clay and Asphalt Company. And in this letter he indicated, although in a rather indefinite way, that he himself owned all shares of stock in this company. H. R. Dysard testified, in substance, that S. M. Bradley represented that he in fact owned individually all the stock of this company at the time of this voluntary assignment.

This assignment arrangement dragged along in a manner which was tedious, unsatisfactory, painfully unremunerative to the Bradley creditors until 1935. Liquidation of assets was slow. Payments to creditors were small. Consequently, a federal court receivership of the Bradley properties replaced, in 1935, the previous, voluntary assignment of 1928. W. H. Dysard became court receiver in place of the 1928 assignment trustee, H. R. Dysard. Presumably, all things else were unchanged. The debtor, the creditors, the assets, the debts, the purpose at hand all remained unchanged.

Doubtless this federal court receivership likewise proved to be unsatisfactory to some interests, maybe to the creditors, likely to the debtor, perhaps mutually to them all, because bankruptcy proceedings followed in 1937. And as a net, legal result, all the S. M. Bradley property ownership, whatever and wherever it was, then became vested in his trustee in bankruptcy. His debts became, as they were proven and filed, claims in bankruptcy. Their total amount was nearly $180,000. The final bankruptcy payment to creditors was equivalent to 4% on their claims. The federal court receiver, W. H. Dysard, became the official trustee in bankruptcy. The bankrupt was eventually discharged in bankruptcy court in 1939 and the estate of the bankrupt was finally closed up in 1940.

Along in the process of closing up the bankrupt estate, such creditors as chose to do so organized a salvage plan, financed it with their bankruptcy dividends, elected a salvage agent or trustee in the person of E. Paul Williams, this appellee. Thereupon, the bankruptcy trustee conducted a sale of all the bankrupt's interest in Soldier Clay and Asphalt Company. This sale was made at public auction, at which S. M. Bradley himself bid $5, at which appellee bid $6. This sale of the bankrupt's interest in Soldier Clay and Asphalt Company at $6 to appellee was duly confirmed on July 13, 1940, and appellee received a bill of sale from the bankruptcy trustee on July 17, 1940.

But long before these later developments, it appears that S. M Bradley had, in 1924, begun an indebtedness to a bank in Huntington, West Virginia, in the approximate, original amount of $40,000. And in order to secure payment of that debt he had pledged practically all outstanding stock of Soldier Clay and Asphalt Company. The stock had accordingly remained in pledge to that bank through all those years until April 8, 1937. Therefore, because of previous pledge to creditors, the Soldier Clay and Asphalt Company stock was never manually delivered to the 1928 assignment trustee nor to the 1935 court receiver nor to the 1937 bankruptcy trustee nor to the 1940 salvage trustee. But, on the date of April 8, 1937, which was 32 days after the bankruptcy adjudication, two of S. M. Bradley's friends, T. P. Bradley and C. M. Grimes, took over the Huntington bank indebtedness and its pledged security consisting of most of the outstanding stock of Soldier Clay and Asphalt Company. And so, in the closing up processes of the bankrupt estate, the bankruptcy court, on September 23, 1940, made a further order which purported to release all rights then outstanding against whatever...