Gaskins v. Bonfils

• Decision Date: 22 October 1935
• Docket Number: No. 1226,1227.,1226
• Citation: 79 F.2d 352
• Parties: GASKINS et al. v. BONFILS et al. BONFILS et al. v. GASKINS et al.
• Court: U.S. Court of Appeals — Tenth Circuit

79 F.2d 352 (1935)

GASKINS et al. v. BONFILS et al.

BONFILS et al. v. GASKINS et al.

Nos. 1226, 1227.

Circuit Court of Appeals, Tenth Circuit.

September 11, 1935.

Rehearing Denied October 22, 1935.

Paul Barnett and John G. Madden, both of Kansas City, Mo. (Watson, Ess, Groner, Barnett & Whittaker, I. N. Watson, R. R. Brewster, T. J. Madden, Harry R. Freeman, and Harry G. Kyle, all of Kansas City, Mo., and Joel E. Stone, of Denver, Colo., on the brief), for appellants and reverse.

Henry L. Jost and Lester G. Seacat, both of Kansas City, Mo. (Robert L. Stearns, of Denver, Colo., on the brief), for appellees and reverse.

Before PHILLIPS, McDERMOTT, and BRATTON, Circuit Judges.

BRATTON, Circuit Judge.

This is a proceeding in equity in which two judgment creditors of a dissolved corporation assert and seek to enforce rights resulting from the distribution of the assets of the corporation as liquidating dividends.

The Post Printing & Publishing Company was incorporated under the laws of Missouri in 1917, with an authorized capital stock of $100,000 divided into 1,000 shares of the par value of $100 each. It printed and published the Kansas City Post, a newspaper of wide circulation. The name of the corporation was changed in 1922 to Star Printing & Publishing Company. J. Ogden Armour owned one-half of the stock, and F. G. Bonfils and H. H. Tammen owned one-fourth each. The stock owned by Armour was issued to Bonfils and Tammen as trustees, but they indorsed it in blank and delivered it to Armour. Bonfils transferred his stock to Boma Investment Company, a corporation which he caused to be organized under the laws of Colorado as his personal holding company and in which he and the immediate members of his family owned all of the stock to effect a more equitable method of paying his income taxes and to simplify the management of his properties in case of his death. The transfer was made without consideration, and in November, 1918, a substitute certificate issued directly to the corporation which it thereafter held in trust for Bonfils.

On May 17, 1922, the Star Printing & Publishing Company sold all of its assets and good will, except cash on hand, money on deposit in the post office at Kansas City, government bonds, and accounts receivable to Walter S. Dickey for $1,250,000, payable in this manner: $250,000 in cash and four notes of $250,000 each due June 1, 1923, 1924, 1925, and 1926, respectively. The notes were paid in due course, and the money thus received, together with the sum realized from the remaining assets, amounted in the aggregate to $1,873,034.11.

After paying certain notes, accrued salaries, and income taxes, the remainder of the money was distributed to the stockholders as liquidating dividends. The sum thus paid to Boma Investment Company was $157,387.74, the last payment being made on June 4, 1926. Bonfils was a director and president of the corporation. He directed the sale of the assets and the distribution of the money, and all of it was removed outside the state. After the distribution was made, the corporation owned no assets, conducted no business, and subsequently forfeited its charter.

Florence Gaskins filed a suit against the corporation in the circuit court of Jackson county, Mo., during the year 1918 to recover damages for libelous matter published in the paper. That suit was dismissed and a new one was instituted in the United States Court for the Western District of Missouri in April, 1920. Judgment for plaintiff in the sum of $32,500 was rendered in that case on December 15, 1926. No appeal was taken and it became final. The court costs incurred in the case amounted to $37. Frank C. Seested filed a suit against the corporation in the circuit court of Jackson county in November, 1921, to recover damages for libelous matter published in the paper, and judgment for $200,000 was rendered in his favor on November 18, 1926. The judgment was affirmed by the Supreme Court of the state on condition that a remittitur of $75,000 be filed. Seested v. Post Printing & Pub. Co., 326 Mo. 559, 31 S.W.(2d) 1045. That was done and the judgment of $125,000 became final from the date of its original entry. The court costs incurred in the case were $67.15. Both judgments bear interest at 6 per cent. per annum. An execution was issued upon each of them and returned nulla bona.

Plaintiff Gaskins instituted this action in the court below in the nature of a creditor's bill against Bonfils, Boma Investment Company, Dome Investment Company, F. G. Bonfils Foundation for the Benefit of Mankind, and the Post Printing & Publishing Company, a Colorado corporation, to impress a trust upon the funds distributed to Bonfils and under his direction paid to Boma Investment Company. She sought in addition to establish his liability for breach of trust as a director in causing distribution of the other funds to Armour and Tammen as liquidating dividends. Seested intervened. Bonfils died pending the suit and the executors of his will were made parties. Virtually all of the allegations contained in the bill were denied, and it was alleged by way of cross-bill that although plaintiff and intervener had no meritorious cause of action, they had instituted suits in Missouri and in Colorado; that they had inspired the receiver of the dissolved corporation to file a similar one in Missouri; that they had caused numerous writs of attachment to issue; and that they had otherwise vexed and harrassed the defendants for the sole purpose of compelling payment of their judgments. An injunction was sought to restrain the further prosecution of such pending suits, the institution of new ones, and the continuation of the harrassment.

The trial court dismissed the bill as to the defendants Dome Investment Company, F. G. Bonfils Foundation for the Benefit of Mankind, and the Post Printing & Publishing Company of Colorado; established a trust in favor of plaintiff and intervener against the executors and Boma Investment Company for the $157,387.74 received as a liquidating dividend, in the order of $32,492.32 to Gaskins and $124,895.42 to Seested; denied interest upon such trust fund; and determined that there was no liability for breach of trust in Bonfils directing payment of the liquidating dividends to Armour and Tammen.

Plaintiff and intervener appealed from those provisions in the decree denying interest and denying recovery for breach of trust in payment of the dividends to the other stockholders. The executors and Boma Investment Company perfected a cross-appeal from that part establishing and enforcing the trust.

The respective claims of plaintiff and intervener were being asserted and separate suits for their enforcement were pending at the time the corporation sold its assets and ceased the promotion of its business. The corporation and Bonfils had full knowledge of that fact. The money received from the sale became subject to an equitable lien in the nature of a trust for the payment of the corporate debts. The rights of creditors to it were superior to those of stockholders. The directors held it in trust for that purpose and its distribution among its stockholders as a liquidating dividend did not free it of that trust. Creditors of a dissolved corporation may follow distributed assets into the hands of stockholders and require them to respond each to the extent of the value of his distributive share. A judgment creditor's bill for that purpose is in effect an equitable execution. Curran v. Arkansas, 15 How. 304, 14 L. Ed. 705; Pierce v. United States, 255 U. S. 398, 41 S. Ct. 365, 65 L. Ed. 697; United States v. Garbutt (C. C. A.) 35 F. (2d) 924; Sutton Manufacturing Co. v. Hutchinson (C. C. A.) 63 F. 496; McWilliams v. Excelsior Coal Co. (C. C. A.) 298 F. 884; Updike v. United States (C. C. A.) 8 F.(2d) 913; Hatch v. Morosco Holding Co. (C. C. A.) 50 F.(2d) 138; Singer v. Hutchinson, 183 Ill. 606, 56 N. E. 388, 75 Am. St. Rep. 133; Brewer v. Michigan Salt Ass'n, 58 Mich. 351, 25 N. W. 374; State v. Circuit Court, 184 Wis. 301, 199 N. W. 213; Martin v. City of Lexington, 183 Ky. 714, 210 S. W. 483.

The trial court determined that the extent of the recovery to which plaintiff and intervener were entitled was limited to the dividend paid to Bonfils and Boma Investment Company without interest added. The action in disallowing interest is challenged. The sum of $157,387.74 was paid them in cash. The last payment was made more than nine years ago. The fund was then and at all times since has been subject to a trust for the payment of the debts of the corporation, including the claims subsequently reduced to judgment and asserted here. Despite the fact that it was impressed with a trust for that purpose, they received it, commingled it with other funds, and have used it in their business ever since. They had only a secondary right to it in the first place and have retained it in the face of the prolonged and vigorous effort of plaintiff and intervener to enforce their superior right to it, that is payment of their judgments out of it. Had the distribution been made in property, any increment would have become a part of the trust estate. In like manner, profits earned upon money thus distributed become a part of the trust fund. The record is silent in respect to the profit which the trust fund has returned. Neither party offered evidence upon that question. In the absence of proof, a court of equity may assume that the fund earned an increment equal to interest computed at the legal rate and require the trustee to respond accordingly. That is in harmony with the wholesome rule of universal recognition that a fiduciary cannot harvest any personal gain from the trust beyond his lawful compensation. Any other doctrine would permit a trustee to withhold trust funds upon sheer pretext and profit by their use in his private business until compelled to surrender them. It would lure a fiduciary to faithless conduct and...