Butler v. Harrison Land & Mining Co.

• Decision Date: 08 June 1897
• Citation: 139 Mo. 467,41 S.W. 234
• Court: Missouri Supreme Court
• Parties: BUTLER v. HARRISON LAND & MINING CO.

41 S.W. 234

139 Mo. 467

BUTLER v. HARRISON LAND & MINING CO.

Supreme Court of Missouri, Division No. 1.

June 8, 1897.

INSOLVENT CORPORATIONS — TRANSFER TO DIRECTORS — ACTIONS.

1. A transfer by an insolvent corporation of its property to its directors in payment of corporate debts to them is, in the absence of fraud, valid as to other general creditors.

2. The remedy of a general creditor against an invalid preferential transfer by an insolvent debtor is by creditors' bill, not by execution sale of the property as that of the debtor and suit to vacate the transfer, as such relief would merely give plaintiff a like preference.

Appeal from circuit court, Crawford county.

Action by T. T. Butler against the Harrison Land & Mining Company. There was judgment for plaintiff, and defendant appeals. Reversed.

A. U. Farrow and T. A. Post, for appellant. L. B. Woodside, for appellee.

ROBINSON, J.

By this action plaintiff seeks to have set aside and canceled certain deeds to about 12,000 acres of land in Dent county, made by the Nova Scotia Iron Company, a corporation, to certain of its directors, and by them afterwards conveyed to the defendant, the Harrison Land & Mining Company. Plaintiff, as an after-execution creditor of the Nova Scotia Iron Company, sold the land as the property of the Nova Scotia Iron Company, and became the purchaser thereof. The petition in substance charges that the deed to the Dent county land from the Nova Scotia Iron Company was made to Messrs. Lackland, Harrison, and Howard, directors and stockholders of said corporation, for the purpose of hindering, delaying, and defrauding the plaintiff in the collection of his debt against said company; that the corporation, and all the officers thereof, knew of plaintiff's claim; that the corporation made, and the directors accepted, the deeds to said land for the purpose of delaying and defeating plaintiff in the collection thereof; that said Lackland, Harrison, and Howard, the grantees in the first-named deed, were also the sole directors and stockholders of the Harrison Land & Mining Company, the defendant herein; that they caused to be conveyed to said corporation the lands so formerly conveyed to themselves in furtherance of their design to defeat the plaintiff in the collection of his claim; that said defendant took said lands with full notice of the fraudulent transfer from the Nova Scotia Iron Company to said Lackland, Harrison, and Howard, and with full notice of plaintiff's claim; that plaintiff, as a creditor of the Nova Scotia Iron Company, after the conveyance above set out, obtained a judgment against said company, had execution issue, and caused a levy to be made upon said lands as the property of the Nova Scotia Iron Company, and had same sold, and at said sale became the purchaser thereof. Then follows the prayer that the court set aside and cancel the deeds made by the Nova Scotia Iron Company to said Lackland. Harrison, and Howard, and to also set aside and cause the deeds made by Lackland. Harrison, and Howard to the Harrison Land & Mining Company, and for such other judgment and decree as may to the court seem just and proper in the premises. Then followed a second count in ejectment for the possession of the lands. The defendant filed a general denial to the allegations of plaintiff's petition, with the further allegation on its part that "any and all conveyances made by the Nova Scotia Iron Company to Bufor J. Lackland, John W. Harrison, and Thomas Howard, or either of them, and any conveyances made by said Lackland, Harrison, and Howard, or either of them, to the Harrison Land & Mining Company, were not fraudulent in fact or law, but were made in settlement of the bona fide indebtedness; that the land thereby conveyed was worth far less than the amount of indebtedness in settlement of which said lands were conveyed." Upon the testimony, under the issues as thus made up, the court found "that Lackland, Harrison, and Howard, being directors of the Nova Scotia Iron Company, took all of the assets of said corporation in payment of their own claims, with full knowledge of plaintiff's claim, and that the same in equity should be charged with the payment of plaintiff's judgment, and that the said Harrison Land & Mining Company, through its said stockholders and directors, R. J. Lackland, Thomas Howard, and John W. Harrison, took the deed to said real estate with full knowledge of plaintiff's claim, and that the said real estate in the hands of the said Harrison Land & Mining Company should in equity be charged with the payment of plaintiff's judgment; that the said transfer from Nova Scotia Iron Company to said Harrison, Lackland, and Howard, was not fraudulent, but yet was against the rights of said plaintiff to the extent that he is entitled to have said land in the hands of defendant charged with the payment of said judgment." It was therefore decreed that plaintiff's sheriff's deed be set aside and canceled, that plaintiff recover of defendant the sum of $2,164.45, and judgment therefor was declared a lien and charge upon the lands described; and it was decreed that the real estate described be sold to satisfy this judgment.

Without going into the testimony in detail, it will be sufficient to say that the Nova Scotia Iron Company was organized as a corporation under the laws of this state for the purpose of smelting and manufacturing pig iron; that Lackland, Harrison, and Howard were the directors and sole stockholders of the company; that the company began operations in Dent county by erecting smelters and furnaces, building a branch railroad, buying up a large tract of mineral land, and doing all other acts and things necessary to carry on and keep in operation a large plant for the manufacture of pig iron; that the furnace went into blast in 1881, and continued in operation until 1885, when, by reason of the failure to produce further ore from its mines, and for various causes, the company ceased operations, at the time owing to its directors, Lackland, Harrison, and Howard, $100,000 or more. The indebtedness of the company, with the exception of that of plaintiff and a few small current bills, was all owing to these directors for money advanced by them from time to time to keep the enterprise going. There was also testimony tending to show that the company did not know of plaintiff's claim until just a short time before suit was begun on it in 1889, four years after the company had ceased active business. After the furnace had remained idle for about four years, and the directors found that it was impracticable to carry on the enterprise longer in Dent county, it was determined to close up business in that county, and to abandon the Nova Scotia works and to start a new furnace at Paducah, Ky. A company was accordingly incorporated at that place by Lackland, Harrison, and Howard, as sole stockholders and directors, and the furnace building and machinery of the Nova Scotia Company, in Dent county, was, by resolution of the board of directors adopted in February, 1889, sold to the Paducah Company, and the Nova Scotia Company was credited with $60,000 on its indebtedness to Lackland, Harrison, and Howard, in the proportion of $30,000, $21,000, and $9,000. To further satisfy its indebtedness, the company, pursuant to said resolution, made two deeds, conveying to the same creditors, and in the same undivided interests, at a valuation of $2 per acre, its lands in Dent and Reynolds counties; and Lackland, Harrison, and Howard in turn conveyed the lands to the Harrison Land & Mining Company, a corporation organized by Lackland, Harrison, and Howard, for the purpose of holding the property, as a matter of convenience, in consequence of the fact that Harrison had minor children, and in order to facilitate sales in cases of death. The Riverside Railway and engine, and other property of the Nova Scotia Iron Company, were also...