Conway v. Smith Mercantile Co.

• Decision Date: 12 December 1896
• Citation: 46 P. 1084,6 Wyo. 468
• Parties: CONWAY ET AL. v. SMITH MERCANTILE CO. ET AL
• Court: Wyoming Supreme Court

46 P. 1084

6 Wyo. 468

CONWAY ET AL. v. SMITH MERCANTILE CO. ET AL

Supreme Court of Wyoming

December 12, 1896

Commenced in District Court July 17, 1893.

ERROR to the District Court for the County of Natrona, HON. J. W BLAKE, Judge.

George M. Conway and W. H. Nickerbocker, copartners doing business as Conway and Nickerbocker, and several other parties, as creditors of the Smith Mercantile Company, brought this action in the nature of a creditor's bill to reach certain alleged assets of the company consisting mainly of an alleged indebtedness to it from John B. Okie for stock in the company, goods purchased from it, and notes given to it; and the value of the stock of goods transferred to him by the company when insolvent. John B. Okie, C. H. King & Co. Frederick W. Okie, and several creditors not joining as plaintiffs, were made defendants jointly with the company.

The opinion states the material facts; and the contention of the respective parties concerning them is given somewhat fully in the abstract of the briefs of counsel, which renders a further reference thereto, in this place, unnecessary.

Judgment was rendered against the plaintiffs, and they prosecuted error.

Judgment Affirmed.

C. C Wright and Allen G. Fisher, for plaintiffs in error.

Under the evidence Mr. Okie should have been held to be liable to the creditors of the defunct corporation, and the evidence is so overwhelmingly against Mr. Okie that it will be the duty of this court upon the examination of the evidence to reverse the findings of fact. Mr. Okie is liable to the creditors of the corporation for the unpaid balance on his notes upon either one of four theories. (a) That he is a debtor of the company to the amount unpaid upon his notes, the notes having been given in payment of his stock. (b) If the notes were not given in payment of capital stock, then they would at least amount to a subscription for stock, and he would be liable for any unpaid subscription, --and that whether the notes were given for accommodation or not, he was in fact a subscriber to the stock even though the subscription was oral only. (c) That having given these notes, whether as accommodation or not, and having allowed the company through its officers to purchase goods on the credit of these notes (although the notes were not in fact manually hypothecated), he is now estopped to deny the validity of the notes, or his liability thereunder so far as relates to the creditors who sold goods upon the strength of these notes. (d) Even had the notes been given just as testified to by Mr. Okie, still they are not accommodation notes in any such sense that he was at liberty to withdraw the notes from the company, having been by his own testimony supported by a valuable consideration.

The plaintiffs also contend that the sale of the stock of goods and fixtures was fraudulent as to the creditors of the company on four grounds: (a) Because of actual fraud participated in by Mr. Okie. (b) Because the goods were of a value grossly in excess of the actual consideration, and (c) Because it is constructive fraud on the plaintiffs in error to allow an insolvent corporation to prefer one creditor before another, especially when the preferred creditor stands in the relation to the company in which Mr. Okie did, being in fact under any view of the testimony, the largest stockholder and the actual director and manager of the corporation, and because such preference was not only in the interest of Mr. Okie, but was for the benefit of both Shaffner and Smith, the President and Secretary of the corporation. (d) That the sale of the stock of goods, and the transfer of the accounts of the company in effect amount to a voluntary assignment of all the property of the company, and that the same not having been made in accordance with the provisions of the Wyoming statute, are fraudulent and void; and further, that whether the sale of the goods and the assignment of the accounts were one transaction or not, the assignment of the accounts being made within 30 days after the sale, renders the sale void.

As to what constitutes insolvency, see Con'd T. L. Co. v. K. C. V. Co., 45 F. 7; Conover v. Hull, 10 Wash. 673; Pub. Co. v. K. C. W. Co., 32 S.W. 1097; 38 N.E. 1007. An insolvent corporation can not prefer a creditor. (Wood v. Drumoner, 3 Mason; Waite on Insolvent Corp., Secs. 654, 162; 5 Thomp. on Corp., Ch. 146; Hdw. Co. v. Stove Co., 88 Tex. 100, 143; Mfg. Co. v. Hutchinson, 63 F. 496; Smith v. Hopkins, 10 Wash. 77; Conover v. Hull, id., 673; Pub. Co. v. Wheel Co., 32 S.W. 1096; Orr & L. S. Co. v. Thompson, 35 S.W. 473; Moore, etc., Carriage Co. v. Imp. Co., id., 387; Nott, etc., Mfg. Co. v. Story etc. Co., 44 P. 157; Noble Merc. Co. v. Fowler, 39 id., 727; Ryan v. Ry. Co., 21 Kan. 398; Adams & W. Co. v. Deyette, 65 N.W. 471 (S. D.); 29 N.W. 214; Ingwersen v. Edgecomb, 42 Neb. , 740; 45 F. 7; Farmers' L. & T. Co., v. Car Co., 45 F. 527; Kerstetter's Appeal, 149 Pa. 149; Howard v. Lincoln L. Co., 64 Wis. 639; Thompson v. Huron L. Co., 4 Wash., 600; Rouse v. Bank, 46 O. St., 496; Tillson v. Downing, 45 Neb. 549.)

In the case at bar the preference was made in behalf of the directors of the company, as they derived a substantial benefit from the transfer to Okie. The rule is that an insolvent corporation can not prefer its directors or managing officers. (Olney v. Land Co., 16 R.I. 597; Hays v. Bank, 51 Kan. 535; Lippincott v. Shaw, etc., Co., 25 F. 575; Gottlieb v. Miller, 154 Ill. 44; O'Bear, etc., Co. v. Foler, 17 So. 525; Montgomery v. Phillips, 31 A. 622; Collins v. Brierfield Coal Co., 150 U.S. 371; Richards v. Ins. Co., 43 N.H. 263; 136 U.S. 237; 1 McCrary, 90; 23 N.Y. 521; 5 Saw., 403; 13 F. 802; 26 id., 572.

Under the statute of Wyoming, it is contended that when a corporation transfers all of its property it is not an act of the furtherance of its business, and such an act is beyond the power of the directors. (1 Harr. Ch., 106, 111; Rollins v. Clay, 32 Me. 132; 33 Barb. 578; Morawetz on Corp., Sec. 513.)

Burke & Fowler, for defendant in error, John B. Okie.

There is no question but that many of the creditors of the Smith Mercantile Co. have been grossly wronged, but none of them so greatly as Mr. Okie, and to him can not be rightfully attributed any wrongful act or intent as against the other creditors. The condition precedent to the bringing a creditor's bill is that there is no property answerable for the debt excepting such as must be reached by the bill, yet in this case there are accounts amounting to more than $ 5,000 of the Mercantile Co. in the hands of the attorneys who are pressing this suit.

The notes executed by Okie were accommodation notes. The stock book contradicts the claim that he ever owned more than the thirty-three shares, and Smith and Shaffner in June, 1893, signed and filed with the county clerk a certificate showing the full payment of the capital stock, and stating that $ 6,700 had been subscribed by them, and $ 3,300 by Okie. All the testimony respecting the sale of the stock of goods goes to establish the good faith of Mr. Okie. He paid a full consideration. He paid more than he had agreed to--not less than $ 4,317. The payment of his debt to the company for goods previously purchased, by a check upon the bank, was an honest, straightforward business transaction, which constituted payment as truly as if the money itself had been passed. The company received a proper credit for it at the bank, to which it was indebted upon an overdraft. There was no attempt to show that the money was not standing to Okie's credit when he drew and delivered the check. It was accepted at the bank.

Few if any of the creditors in this action are in a position to sustain a suit of this character. They should be judgment creditors. (Fein v. Fein, 3 Wyo., 164; 5 Thomp. on Corp., Sec. 6560; Beardsley v. Foster, 36 N.Y. 574; Streight v. Junk, 59 F. 331; Dawson v. Sims, 13 P. 507; 150 U.S. 371; Weber v. Weber, 63 N.W. 757; Kittle v. R. Co., 65 F. 859.) Real estate can not be reached upon execution from a justice of the peace. In this case the claims of the plaintiff are founded upon a judgment of a justice of the peace, certified to the district court on the day it was rendered. This was without authority of law. (R. S. Sec. 2724.) Holders of void judgments are not judgment creditors. (Epstein v. Ferst, 17 So. 414.)

An insolvent corporation may prefer its creditors the same as an individual, and no good reason has been given for the contrary theory. (Angell & Ames on Corp., Sec. 191; 1 Beach on Pri. Corp., Sec. 358; Waite on Ins't. Corp., Sec. 654; Morawetz on Corp., Secs. 340, 581, 582; Cook on Stockholders, etc., Sec. 661; Brown v. G. R., etc., Co., 58 F. 386; Bank v. Lumber Co., 90 Mich. 345; Klosterman v. Mason, etc., Co., 8 Wash., 281; Rice v. Adler, etc., Co., 71 F. 151; Fogg v. Blair, 112 U.S. 534; Sanford F. & T. Co. v. Howe, etc., Co., 15 S.Ct. R., 621; Moyer v. Chair Co., 32 S.W. 300; O'Bear Jew'l. Co. v. Volfer, 17 So. 528; Barret v. Pollock Co., 18 So. 619; Worthen v. Griffith, 28 S.W. 236; Ford v. Hill (Wis.), 66 N.W. 116; White, etc., Co. v. Pettes Imp. Co., 30 F. 364; Johnson Co. v. Miller, 34 A. 316; Sells v. Rosedale, etc., Co., 17 So. 838; Schufeldt v. Smith, 29 L. R. A., 830; Catlin v. Bank, 6 Conn. 233; Peterson v. Brabrook Co., 150 Ill. 290; Lake Shore B. Co. v. Fuller, 110 Pa. 156; Mfg. Co. v. Watch Co., 23 A. 1003; Co. Court v. Ry. Co., 35 F. 167; Allis v. Jones, 45 F. 148; Wearne v. France, 3 Wyo. 273.

Where it clearly appears that the bill of exceptions does not contain all the evidence, although it purports to do so, the court will not examine that which it does contain in order to determine the correctness of the judgment, (Thompson Tr Sec., 2784; ...