Coleman v. Hagey

• Citation: 158 S.W. 829,252 Mo. 102
• Parties: FRANK B. COLEMAN, Trustee in Bankruptcy of Estate of HAGEY STOVE COMPANY, v. HENRY GIVEN HAGEY et al., Appellants
• Decision Date: 09 July 1913
• Court: United States State Supreme Court of Missouri

158 S.W. 829

252 Mo. 102

FRANK B. COLEMAN, Trustee in Bankruptcy of Estate of HAGEY STOVE COMPANY, v. HENRY GIVEN HAGEY et al., Appellants

Supreme Court of Missouri, Second Division

July 9, 1913

Appeal from St. Louis City Circuit Court. -- Hon. Hugo Muench Judge.

Reversed.

R. M Nichols for appellants.

(1) Fraud, actual or constructive, is a necessary element to give the trustee in bankruptcy a right of action. The title which passes to the trustee is limited to such property as might have been recovered by creditors in whose right the trustee takes under the law of the State and as may be recovered by him under section 70e of the Bankrupt Act. Blake v Meadows, 225 Mo. 27; Jardt v. Hub & Spoke Co., 112 Mo.App. 344; Henneman v. Marshall, 117 Mo.App. 546; Parker v. Roberts, 116 Mo. 662; Read v. Smith, 170 Mo. 175; Hood v. Bank, 91 N.W. 705; Warren v. Moody, 122 U.S. 132; Adams v. Collier, 122 U.S. 382; Bank v. Rogers, 67 F. 146, 53 F. 776; Laughlin v. Calumet & Chi. O. & D. Co., 65 F. 441; Brown v. Brabb, 67 Mich. 22; Annis v. Butterfield, 99 Me. 181; Clelland v. Anderson, 66 Neb. 252; Thompson v. Fairbanks, 196 U.S. 516; Bush v. Export Storage Co., 136 F. 918; Loveland on Bankruptcy (3 Ed.), sec. 158; Blatchford v. Whitmore, 122 F. 359; In re Mullen, 111 F. 413. (2) There being no fraud alleged or proven, and from the facts as proven no fraud could be inferred, whether the distribution among the stock holders be held in satisfaction of stock liability or a voluntary conveyance, subsequent creditors cannot complain, and the trustee cannot and does not represent them. Fehlig v. Busch, 165 Mo. 144; Kruger v. Vorhauer, 164 Mo. 156; Johnson v. Murphy, 180 Mo. 597; McMunigal v. Aylor, 204 Mo. 19; Bank v. Thornborrow, 109 Mo.App. 643; Kinealy v. Macklin, 89 Mo. 433; Adams v. Collier, 122 U.S. 382; Warren v. Moody, 122 U.S. 132; Heineman v. Marshall, 117 Mo.App. 546; 2 Morawetz on Corporations, sec. 800; Graham v. Railroad, 102 U.S. 148; Coe v. Railroad, 52 F. 534; Trust Co. v. Railroad, 82 F. 656; Porter v. Steel Co., 120 U.S. 673; Hamilton v. Menominee Falls Q. Co., 106 Wis. 360; Wilson v. Stephens, 129 Ala. 634; Daily News Co. v. Siegel, 212 Ill. 617; Smith v. Gaylord, 47 Conn. 380; Eckhart v. Mfg. Co., 236 Ill. 134; Lawrence v. Greenup, 38 C. C. A. 549; Schreyer v. Scott, 134 U.S. 405. (3) The real estate and assets in question was not "capital stock;" it was assets of the corporation. When withdrawn the corporation was a "going concern;" it had no debts; there being no insolvency and no fraud the assets were in no sense a trust fund. Hagerman v. Railroad, 202 Mo. 264; Butler v. Harrison, 139 Mo. 467; Bank v. Packing Co., 138 Mo. 59; Schufeldt v. Smith, 131 Mo. 280; Milling Co. v. Comm. Co., 128 Mo. 473; Barrie v. United Ry. Co., 125 Mo.App. 97; Donald v. Williams, 174 U.S. 397; Hollins v. Bergfeld, C. & L. Co., 150 U.S. 371; Lawrence v. Greenup, 97 F. 909; Bank v. Richey, 121 F. 956; Bank v. Ward, 111 F. 782; Bank v. Dovetail, 143 Ind. 550; Hospes v. Mfg. Co., 48 Minn. 174; Jewelry Co. v. Valfer, 106 Ala. 205; Worthen v. Griffith, 59 Ark. 552; Hamilton v. Menominee F. Q. Co., 106 Wis. 460; Fogg v. Blair, 133 U.S. 541. (4) The transaction, so far as concerns this controversy, was a purchase by the corporation of all of its capital stock, for which the corporation conveyed the real estate and cash to the Hageys. The merchandise and plant were sold to the Robinsons for $ 38,000. The Hagey Stove Company, being an Illinois corporation, owning no debts, could purchase its capital stock and subsequent creditors could not complain. Eggmann v. Blanke, 40 Mo.App. 318; Chetlain v. Ins. Co., 86 Ill. 220; Railroad v. President, 84 Ill. 145; Clapp v. Peterson, 104 Ill. 26; Life Ins. Co. v. Swigert, 135 Ill. 150; Bank v. Watch Co., 191 Ill. 128; Marvin v. Anderson, 111 Wis. 387; Shoemaker v. Lumber Co., 97 Wis. 585; Burns v. Burns, 132 F. 485. (5) The directors, who were all the stockholders, had the undoubted authority to withdraw or to sell all of the property of the corporation pursuant to the resolution of November 23, 1905. Jorndt v. Hub & Spoke Co., 112 Mo.App. 344; Richwald v. Hotel Co., 106 Ill. 439; 2 Morawetz on Priv. Corporations, sec. 1004; Moore v. Whitcomb, 48 Mo. 543; 10 Cyc. 1138, 1296; Morisette v. Howard, 62 Kan. 463; Mfg. Co. v. Holmes Mch. Co., 127 N.Y. 252; Ditch Co. v. Zellerbach, 37 Cal. 543; Warfield v. Canning Co., 72 Iowa 666; Tredwell v. Salisbury, 7 Gray (Mass.), 393; 7 Am. & Eng. Ency. Law, 734; Lauman v. Railroad, 30 Pa. St. 442; Phillips v. Steam Engine Co., 21 R. I. 303; Traier v. Prospecting Co., 124 Iowa 107; Smith v. Railroad, 24 Ky. 2040; Bank v. Richey, 121 F. 956. (6) Under the averments of the petition and admissions in the answer there was left in the hands of the corporation property of the value of $ 38,000 after the withdrawal of the property in question and at a time when the corporation had no debts. It is permissible for either a person or a corporation to withdraw, by voluntary conveyance, a reasonable proportion of its property from its business. Welch v. Mann, 193 Mo. 304; Johnson v. Murphy, 180 Mo. 597; McMunigal v. Aylor, 204 Mo. 19; Jorndt v. Hub & Spoke Co., 112 Mo.App. 344; Warren v. Moody, 122 U.S. 132; Adams v. Collier, 122 U.S. 382; Bank v. Rodgers, 67 F. 146; Schreyer v. Scott, 134 U.S. 405. (7) No one could give credit to the bankrupt on the strength of its owning the property in question, because there was a change of ownership; the recorded deed of November, 1905, followed by possession as tenant was notice of the change of ownership. Hudson v. Cahoon, 193 Mo. 547; Bonney v. Taylor, 90 Mo. 63; Henebery v. Johnson, 95 Ill.App. 537; Graham v. Railroad, 102 U.S. 148; Schreyer v. Scott, 134 U.S. 405; Bank v. Frey, 3 Neb. 83; Marvin v. Anderson, 111 Wis. 387. (8) The corporation was operated by the Robinsons after the withdrawal of the property in question, as having a capital stock of $ 100,000; in the sense of the law this was not a false representation; the representation was not made by the Hageys. Webb v. Rockefeller, 195 Mo. 63; Priest v. White, 89 Mo. 609; Patterson v. Franklin, 176 Pa. St. 612; Hindman v. Bank, 112 F. 931. (9) The testimony conclusively shows that the Hageys purchased the real estate conveyed by the corporation to H. Given Hagey indirectly and paid the purchase price thereof out of their own funds, taking the title to the same in the name of the Hagey Stove Company. This transaction created a resulting trust, which arises in favor of the defendants as such purchasers and may be shown by parol. Condit v. Maxwell, 142 Mo. 666; Butler v. Carpenter, 163 Mo. 606; Hillman v. Allen, 145 Mo. 603; Weiss v. Heitkamp, 127 Mo. 23.

Block & Sullivan for respondent.

(1) The evidence to establish a resulting trust must be so clear, strong and convincing as to banish reasonable doubt. Smith v. Smith, 201 Mo. 574; Bunel v. Nestor, 203 Mo. 465; Derry v. Fielder, 216 Mo. 192. (2) On questions of fact, this court defers to the finding of the chancellor. Craemer v. Bivert, 214 Mo. 479; Huffman v. Huffman, 217 Mo. 191; Jones v. Thomas, 218 Mo. 540. (3) Shareholders of a corporation owe the duty to subsequent creditors to pay in the capital. Van Cleve v. Berkey, 143 Mo. 109; Meyer v. Milling Co., 192 Mo. 188. (4) If shareholders withdraw assets in impairment of capital, subsequent creditors may compel its return. Banking Co. v. Mfg. Co., 168 Mo. 645; Shields v. Hobart, 172 Mo. 516; Davis v. Building Co., 241 Mo. 260; Martin v. Zellerbach, 38 Cal. 307; Williams v. Boyce, 38 N.J.Eq. 364; Mills v. Hendershot, 70 N.J.Eq. 258; Clark v. Machine Co., 151 Mich. 421; Elsworth v. Lyons, 181 F. 61; Crandall v. Lincoln, 52 Conn. 73; Baldwin v. Wolff, 74 A. 948; Trust Co. v. Mfg. Co., 75 A. 92; Union Trust Co. v. Amery, 120 P. 540; In re Assurance Co., L. R. 10 Ch. Div. 118; 2 Morawetz On Private Corp. (2 Ed.), secs. 801, 824. (5) Creditors have the right to extend credit to a corporation on the faith of the fact that its actual capital is equal to its nominal capital. Van Cleve v. Berkey, 143 Mo. 136; Meyer v. Mining Co., 192 Mo. 188; Trust Co. v. McMillan, 188 Mo. 567; Scott v. Abbott, 160 F. 580; Palmer v. Bank, 72 Minn. 266. (6) In cases of this nature, the Illinois court recognizes the trust fund theory. Olmstead v. Vance Co., 196 Ill. 241. (7) A corporation cannot purchase its own shares, to the impairment of its capital stock. Banking Co. v. Mfg. Co., 168 Mo. 645; Mfg. Co. v. Hulbert, 24 Mo.App. 343; St. Louis Co. v. Hill, 72 Mo.App. 148; Olmstead v. Vance Co., 196 Ill. 236. (8) Under section 70e of the present Bankrupt Act, a trustee may avoid any transfer which any creditor might have avoided. Warehousing Co. v. Hand, 206 U.S. 418; Bush v. Storage Co., 136 F. 921; Blake v. Meadows, 225 Mo. 26; Mfg. Co. v. Mortgage Co., 152 Mo.App. 406; Hanson v. Blake & Co., 155 F. 349; In re Mullen, 101 F. 415; Bank v. Trustee, 172 F. 178; Trust Co. v. Fisher, 67 N.J.Eq. 602; Crane v. Brewer, 68 A. (N.J.) 80; Trust Co. v. Amery, 120 P. 540; Baldwin v. Wolff, 74 A. 948; Mill Co. v. Scale Co., 145 Wis. 77; Thomas v. Roddy, 107 N.Y.S. 476; Hood v. Bank, 91 N.W. 705. (9) And the trustee may maintain the action, notwithstanding there are no creditors with judgments. Hood v. Bank, 91 N.W. 705; Beasley v. Coggins, 48 Fla. 215; Sheldon v. Parker, 66 Neb. 610; Skelton v. Codrington, 185 N.Y. 87; Thomas v. Roddy, 107 N.Y.S. 476; Riker v. Gwynne, 116 N.Y.S. 10. (10) The complaint with respect to interest in the decree on items of expenses, if it had any foundation, was not so preserved below as to be reviewable here. State ex rel. v. Woods, 234 Mo. 25; Maplegreen Co. v. Trust Co., 237 Mo. 364; Anderson v. Caldwell, 242 Mo. 201.

WALKER, J. Brown, P. J., and Faris, J., concur.

OPINION

WALKER, J.

This is an equitable...