Cooper v. Mississippi Land Co., 45217

• Decision Date: 03 March 1969
• Docket Number: No. 45217,45217
• Citation: 220 So.2d 302
• Parties: Carle COOPER and Edgar O. Robinson v. MISSISSIPPI LAND COMPANY, Inc., Ray M. Stewart, Argie T. Stewart, Willie C.Ryan and George J. Ryan, Individually, and Gulf National Bank of Gulfport.
• Court: Mississippi Supreme Court

Page 302

220 So.2d 302

Carle COOPER and Edgar O. Robinson v. MISSISSIPPI LAND COMPANY, Inc., Ray M. Stewart, Argie T Stewart, Willie C.Ryan and George J. Ryan Individually, and Gulf National Bank of Gulfport.

No. 45217.

Supreme Court of Mississippi.

March 3, 1969.

Robert H. Weaver, Watkins, Pyle, Edwards & Ludlam, Jackson, Stanley Munsey, Picayune, for appellants.

Williams & Williams, Poplarville, Mize, Thompson & Mize, Gulfport, for appellees.

ETHRIDGE, Chief Justice.

Carle Cooper and Edgar O. Robinson, complainant-appellants, brought this suit in the Chancery Court of Pearl River County against the defendant-appellees, Mississippi Land Company, Inc.; the officers, directors and stockholders of that corporation, Ray M. Stewart, Argie T. Stewart, Willie C. Ryan and George J. Ryan; and the Gulf National Bank of Gulfport. Its purpose was to set aside a conveyance of corporate land, allegedly in fraud of creditors, to these officers, directors and stockholders; to obtain a money judgment against the company in favor of complainants; to declare void a deed of trust on the land executed by the grantees in favor of Gulf National Bank; and for other relief. It was averred that the Bank was not a bona fide purchaser for value, and therefore was not entitled to priority over the rights of complainants. The chancery court dismissed the bill of complaint.

We hold that the deed to the directors of the corporation is void. Officers, directors and stockholders of an insolvent corporation, or one rendered insolvent by conveyance to them, cannot prefer themselves in payment of pre-existing debts and thus deprive creditors of their claims against the corporation. The decree of the chancery court is reversed, and judgment is rendered here setting aside the deed, giving a judgment for complainants against the corporation in the amount of their notes, adjudicating a lien in their favor superior to the Bank as to property not covered by the Bank's prior mortgage, and remanding the case to the trial court.

I.

Cooper and Robinson are real estate brokers in the City of Picayune. After negotiations instituted by Cooper for the purchase of approximately 300 acres of land north of Picayune, Mrs. Nellie W. Stem, in August 1962, sold Cooper, for $5000, an option to purchase the land. The option was taken in the name of Cooper for the benefit of four persons, George J. Ryan, his wife, Willie C. Ryan, Robinson and Cooper, each of whom contributed one-fourth of the option price, or $1,250. In October 1962, the Mississippi Land Company, Inc., was chartered for the purpose of receiving the option to buy the Stem property and to develop it into a residential subdivision. Seven thousand seven hundred shares of stock, with a par value of $1.00 each, were issued and paid for, with each of the four parties owning 1,925 shares. The four stockholders constituted the board of direectors, with Cooper serving as president, Mrs. Ryan vice president, Robinson secretary, and George Ryan treasurer.

On March 6, 1963, the company exercised the Cooper option and entered into a purchase contract with Mrs. Stem. The company was obligated to pay a total price for the 300 acres of $146,664, payable over a fifteen-year period. Mrs. Stem was obligated to release the land from the contract and convey it to the company upon payment of a stipulated amount, which ranged from $1220.20 to $1527.75 per acre, depending upon its location. The company was obligated to pay for and have released at least ten acres per year over the fifteen-year period, and to make its payments for the release of the various tracts before March 6 of each year. In the event the company failed to make any annual payment, the seller would be entitled to possession of all land not previously paid for and conveyed and the contract would be terminated.

When the Stem contract was executed, the company tendered $45,000 toward the purchase price, and Mrs. Stem released twenty acres which were used by the company for development of Woodland Heights Subdivision, Part 1. In May 1964, the company paid for and Mrs. Stem released another ten acres. Development of this subdivision progressed until June 6, 1964, when the subdivision improvements, consisting of sewer lines, gas lines, streets and related work, were completed and paid for in full, with the cost of development of Part 1 being approximately $136,000. By August of 1965, approximately eighty-three of ninety-three lots had been sold at prices ranging from $2500 to $3000. On March 6, 1965, the company paid for an additional ten acres, which were released by Mrs. Stem.

In the summer of 1965 dissension and disputes developed among the officers and directors of the corporation, with Mr. and Mrs. Ryan constituting one faction, and on the other side, Cooper and Robinson. The two factions began negotiating with one another for the purpose of buying or selling their respective interests in the company. After several proposed agreements were considered, it was decided to employ a disinterested attorney, Ray M. Stewart, to draft a contract by which the corporation would purchase the one-half interest of the faction agreeing to sell. Stewart prepared the final form of the agreement, in which there was left blank the names of the two parties who would sell their stock interest and the amount of the consideration to be paid by the corporation for the one-half interest. Thereafter, Mr. and Mrs. Ryan on the one hand, and Cooper and Robinson on the other sat down together and began to bid on the price which the corporation would pay for a one-half interest. Bidding began with a nominal figure, and continued to rise, with each faction wanting the corporation to purchase the stock interest of the other.

The Ryans offered to Cooper and Robinson, as a part of the consideration, a corporate note in the amount of $151,050. This was accepted, and a contract to sell their stock was executed by Cooper and Robinson and the corporation on July 30, 1965. The corporation agreed to purchase their fifty percent interest in the outstanding capital stock of the company for a total consideration of $185,000, with $34,950 payable in cash and a corporate note for $151,050. The note was to be paid on or before five years from date, but the buyer, Mississippi Land Company, Inc., would make an annual payment of not less than $6,400 on the note. The note would be secured by a deed of trust on the Stem contract.

When the contract for the corporation to purchase the stock was made, Robinson was president, Mrs. Ryan vice-president, Cooper secretary, and George Ryan treasurer. After the sale of their stock, Cooper and Robinson resigned as officers and directors. On August 12, 1965, the company sold the stock purchased from Cooper and Robinson to Louise O. Stewart, who received 1,284 shares and to Argie T. Stewart, who received 2,566 shares. Mrs. Stewart is the wife of Ray Stewart, who prepared the contract of sale. The minutes of that day reflect that Argie T. Stewart and Mrs. Louise Stewart were elected as directors, and the following became corporate officers: George Ryan, president; Argie T. Stewart, vice president; Mrs. Louise Stewart, secretary, and Mrs. Ryan, treasurer. Also on August 12, 1965, the company executed two promissory notes in the principal amount of $75,525 each, one to Cooper and one to Robinson, pursuant to the terms of the contract to buy their stock. These notes were secured by a deed of trust, executed by the company in favor of Cooper and Robinson, encumbering the Stem contract and the lands which had not been released to the company. An addendum to the deed of trust contained an agreement by the company to make the annual payment for the release of ten acres to Mrs. Stem by January 6 of each year, beginning in 1966, and to give notice to Cooper and Robinson that payment had been made. Failure to give such notice constituted a default, entitling Cooper and Robinson to foreclose the deed of trust.

In the summer of 1965, the company began development of twenty acres of land which had been released from the Stem contract. This subdivision, consisting of forty-eight lots, became Woodland Heights, Part 2 the cost for development of which was $59,183.

On September 22, 1965, the company borrowed $130,000 from the Gulf National Bank of Gulfport, evidenced by a promissory note which was secured by a deed of trust encumbering the 20.3 acres developed as Woodland Heights Subdivision, Part 2. Argie and Ray Stewart negotiated for this loan on behalf of the corporation, and at the time it was made, a balance sheet of the company, dated August 31, 1965, was submitted to J. M. Smallwood, Executive Vice President of Gulf National Bank. This statement reflected a figure of $147,200 for the purchase of treasury stock at a price in excess of par value, a deficit for retained earnings of $3,977.94, and the notes payable to Cooper and Robinson in the amount of $75,525 each.

On January 6, 1966, the company secured the release of an additional ten acres under the Stem contract for $30,000, and at the same time the company paid Cooper and Robinson $3,200 each, in accord with the contract to buy their stock.

On December 9, 1966, Mississippi Land Company, Inc., conveyed all of its property to Argie T. Stewart, Ray M. Stewart, Willie C. Ryan and George J. Ryan. This consisted of ten lots in Woodland Heights Subdivision Part 1, thirty-eight lots in Woodland Heights Subdivision Part 2, and ten acres of undeveloped land released from the Stem contract. This land was conveyed to the stockholders, who were also officers and directors, in proportion to the number of shares held, with the exception of Ray M. Stewart, who acquired in proportion to his wife's interest. The consideration for this deed of the company's property was the assumption by the individual grantees of a balance of $57,401.87, which was owed on the original $130,000 debt to the Bank, and the cancellation of...