Hamilton v. Menominee Falls Quarry Co.

• Decision Date: 02 February 1900
• Citation: 81 N.W. 876,106 Wis. 352
• Parties: HAMILTON v. MENOMINEE FALLS QUARRY CO. (SMITH ET AL., INTERVENERS).
• Court: Wisconsin Supreme Court

106 Wis. 352

81 N.W. 876

HAMILTON

v.MENOMINEE FALLS QUARRY CO. (SMITH ET AL., INTERVENERS).

Supreme Court of Wisconsin.

Feb. 2, 1900.

Appeal from circuit court, Racine county; Frank M. Fish, Judge.

Actions by A. K. Hamilton against the Menominee Falls Quarry Company. From a judgment in favor of plaintiffs, and from an order denying petitions of Winfield Smith and Henry Herman for right to interplead, interveners and defendant corporation appeal. Judgment against the corporation reversed. Order denying interpleader affirmed.

This is an action in equity, brought by the plaintiff, as assignee under a voluntary assignment of the Hadfield Company, an insolvent corporation, against the Menominee Falls Stone Company and the Menominee Falls Quarry Company, both of which are corporations, to set aside the conveyance of a stone-quarry property, made by the Hadfield company to the Menominee Falls Stone Company, as well as a second conveyance of the same property, made by the stone company to the quarry company; both of said conveyances being alleged to be fraudulent and void as to the creditors of the Hadfield Company. There were many facts which were undisputed in the case, and such essential facts are, in substance, as follows: The Hadfield Company was incorporated December 1, 1886, at Waukesha, Wis., by Joseph, Abraham, and George A. Hadfield, who were and remained its sole and equal stockholders and directors. It succeeded to the property and business formerly carried on by the Hadfields in partnership, and had a nominal capital of $200,000, which was paid by the transfer to it of all the partnership property of the Hadfields, then comprising a large and valuable stone quarry at Waukesha, together with the personal property and choses in action. Afterwards, and prior to March, 1890, the Hadfield Company acquired about 150 acres of land, upon which there was another valuable stone quarry, at Menominee Falls, which is the property in litigation here. In order to develop said property, the Hadfields organized a railroad corporation, with a nominal capital stock of $100,000, and built a private railroad, 12 miles long, from the quarry to a station called “Granville” upon the St. Paul Railway, and spent more than $100,000 building said road, and mortgaged the property for that sum to pay the construction expenses. In March, 1890, the Hadfields organized the stone-quarry corporation with an authorized capital stock of $100,000, of which they were and continued to be the sole stockholders and directors, and caused a conveyance of the Menominee Falls land and quarry to be made by the Hadfield Company to this new corporation. No consideration was paid to the Hadfield Company for this property, but the consideration named in the deed was $35,000, of which $14,500 consisted of mortgages on the property assumed by the stone company, and the remaining $20,500 was charged to the Hadfields individually on the books of the Hadfield Company, January 1, 1891, and stock in the new corporation to the amount of $20,500 was issued to the Hadfields. The Menominee Falls quarry was opened, worked, and improved during the season of 1890, all of its output being billed to and marketed and proceeds received by the Hadfield Company, which also paid the operating expenses, and the books of the Hadfield Company showed a profit made by the stone company January 1, 1891, of $18,007.31, of which $5,000 was expended in buildings and improvements to the quarry and $13,007.31 was credited upon the books of the Hadfield Company to the Hadfields upon their indebtedness for the stock of the stone company. The Hadfield Company had a branch office in Milwaukee, and conducted a lime, stone, and coal business there at a loss until the season of 1890 and 1891, when it went more heavily into the coal business in Milwaukee, and lost large amounts of money therein, amounting to over $120,000 in one season, according to its books. It also conducted its large stone and lime business at Waukesha in the usual manner, in which business there appears always to have been profit. On the 14th of December, 1891, the Hadfield Company, being then insolvent in a large amount, made a voluntary assignment for the benefit of its creditors to one Townsend, who resigned his trust March 16, 1892, and was succeeded by the plaintiff. The property in litigation was not included in the schedule of assets of the Hadfield Company made under section 1697, Rev. St., nor was any claim to said property made by the assignee prior to the commencement of this suit, November 1, 1894. Early in the year 1892 negotiations commenced between Joseph and A. H. Hadfield upon the one side and Henry Herman, Winfield Smith and Samuel Rosendale on the other, for the sale of one-half of the property of the Menominee quarries and of the private railroad, which negotiations resulted, February 2, 1892, in a written agreement by which Herman, Smith, and Rosendale agreed to buy one-half of all the property or stock of the stone company and of the railway company for $50,000 (subject to the existing debts of $100,000 upon the railway and $9,500 upon the stone quarry). The Hadfields guarantied that such property would make a clear profit of $15,000 a year. This agreement was afterwards modified so that a new corporation should be formed with an authorized capital stock of $100,000, of which the two Hadfields were to take one half, and Herman, Smith, and Rosendale were to take the other half, and all of the property of the stone company and the railroad company should be transferred to the new corporation. This new corporation was called the Menominee Falls Quarry Company, and is the appellant here, and it was incorporated March 5, 1892, pursuant to the agreement. Herman, Smith, and Rosendale paid $50,000 in cash into the treasury of the new corporation, and Joseph and A. H. Hadfield each gave a check for $25,000. All of the property of the stone company and the railway company was transferred to the quarry company, and the Hadfields took the money paid in, as well as their own checks, they being then the sole stockholders of the stone company and the railway company. The Hadfields became directors of the new corporation with Herman, Smith, and Rosendale, and the new corporation took possession of the Menominee Falls quarry and the railroad, and operated them from that time until November 1, 1894, when this action was commenced. The court did not find that the Hadfield Company conveyed the Menominee Falls quarry to the stone company in March, 1890, with intent to defraud its creditors, either present or prospective, but did find that on the 26th of March, 1890, the liabilities of the Hadfield Company, including its liability upon stock to its stockholders, exceeded its available assets by over $250,000, and that it was then hopelessly insolvent; that said transfer to the stone company was in fact a transfer of corporate property, without consideration, by directors to themselves, made while the company was insolvent, and hence was void as to creditors of the Hadfield Company; that certain of the present creditors were such on the 26th of March, 1890, and that present creditors to the amount of $127,000 are creditors whose property was sold by the Hadfield Company, and the proceeds used to pay debts of the Hadfield Company which existed March 26, 1890; that the quarry company was not an innocent purchaser for value of the property in litigation, for the reason that the Hadfields, who became directors of the quarry company, had actual knowledge of all the facts, and because Herman, Smith, and Rosendale had knowledge of such facts as should have put them upon inquiry, which inquiry, if made, would have resulted in their learning the actual facts; that both transfers were void as to the plaintiff and the creditors of the Hadfield Company, and that the plaintiff was entitled to an accounting with both the stone company and the quarry company for all profits received from the property and business. After the filing of the trial judge's opinion, but before the formal findings were signed, both Smith and Herman made separate applications to be interpleaded as defendants in the action, for the purpose of protecting their individual rights, claiming to have made large advances to the quarry company, and that they were entitled to be protected as creditors of the quarry company in the judgment. These applications were denied, and an interlocutory judgment entered, holding the transfers void, and ordering an accounting pursuant to the findings. From this judgment the quarry company appeals, and Smith and Herman appeal separately from the orders denying their petitions for intervention.

Quarles, Spence & Quarles, Samuel Rosendale, and Charles E. Monroe, for appellants.

Winkler, Flanders, Smith, Bottum & Vilas and Van Dyke, Van Dyke & Carter, for respondents.

WINSLOW, J. (after stating the facts).

As will be seen from the foregoing statement of facts, the trial court did not find actual fraudulent intent on the part of the Hadfields or the Hadfield Company to defraud either existing or prospective creditors of the company in conveying the Menominee quarries to the stone company, although such intent to defraud was charged in the complaint, but the court found, in effect, that the Hadfield Company was hopelessly insolvent in March, 1890, when the transfer was made; that the transfer was a transfer, without consideration, by directors of an insolvent corporation to themselves, and was hence void, as matter of law, as to the plaintiff and all creditors of the Hadfield Company; and that the quarry company took the property with notice, both actual and constructive, of the facts constituting the fraud, and hence that both of the conveyances attacked should be set aside. These are the facts, then, upon which the judgment is to be sustained, if sustained at all, namely: That the Hadfield Company was insolvent;...