Henderson v. Adams

• Decision Date: 07 March 1897
• Docket Number: 771
• Citation: 48 P. 398,15 Utah 30
• Court: Utah Supreme Court
• Parties: HIRAM H. HENDERSON ET AL., APPELLANTS, v. LOUIS B. ADAMS ET AL., RESPONDENTS

48 P. 398

15 Utah 30

HIRAM H. HENDERSON ET AL., APPELLANTS, v. LOUIS B. ADAMS ET AL., RESPONDENTS

No. 771

Supreme Court of Utah

March 7, 1897

Appeal from the Second district court, Weber county. Hon. C. H Hart, Judge.

Action by Hiram H. Henderson and George H. Burgitt as administrators of the estate of Edward A. Reed against Louis B. Adams and others, asking that a certain trust deed be set aside, that a receiver be appointed, that defendants account for all property received by them, and that the receiver be directed to sell the property received by him or so much as may be necessary to pay a judgment held by plaintiffs against Louis B. Adams et al. Judgment for defendants. Plaintiffs appeal.

The court below found that on March 27, 1890, defendant Louis B Adams and one Watson Schilling contracted a debt to Edward A Reed, which the plaintiffs, as his administrators, on June 30, 1892, commenced a suit to recover, and in which they obtained a judgment on July 21, 1894, for $ 3,520, and that on August 31, 1893, Adams was indebted to the Utah National Bank of Ogden in the sum of $ 24,602.37, for which the bank held as security 40 shares of its stock, owned by him; that he was also indebted to Wells, Fargo & Co. in the sum of $ 10,000, as security for which that company held stock issued by the same bank of the value of $ 8,250; and that he was indebted to John E. Dooly in the sum of $ 10,000, for which he held as security stock in the same bank of the value of $ 6,000. The court further found that Mr. Dooly was the president of the Utah National Bank, and agent of Wells Fargo & Co.; that the indebtedness to the bank was due, and Adams wanted further time, and proposed to give real and personal property as security, estimated to be worth $ 60,000, though of less market value; that he wished it sold in parcels from time to time, thinking more could be realized for it in that way; that Adams and Dooly took legal advice, and were informed that a corporation could be formed to which the property might be transferred, and that the stock issued could be transferred to the bank as security; that the method suggested was agreed to, and, to accomplish it, Adams associated with him William F. Adams, Edward M. Allison, Louisa M. Adams, and Sarah Walker, who united with the owner and debtor, Louis B. Adams, in a deed conveying the property to George B. Brastow in trust for the corporation, to be named the Adams Nursery Company. It further appears from the findings that on the same day the corporation was formed for the purposes, as alleged in its articles, of conducting the business of a nursery, and selling, leasing, exchanging, improving, mortgaging, and acquiring real estate within the county of Weber, in the state of Utah; that its capital stock was $ 100,000, divided into 1,000 shares of $ 100 each, of which 994 shares were issued to Louis B. Adams and 1 share to each of the other incorporators; that Adams on the next day assigned 900 of the shares to the bank as a pledge and security for the debt due from him, and the remaining 94 shares to Wells, Fargo & Co. and John E. Dooly, as security for the debts due them. The court further found that the entire transaction was made in good faith, without any intent to hinder, delay, or defraud creditors, and for the sole purpose of securing the just debts of said Adams to said creditors. The first proviso of section 2268, 2 Comp. Laws Utah, is as follows: "Provided, that where the amount of the capital stock of any corporation which may be formed under the provisions of this act consists of the aggregate valuation of property, for the working, development, management, use, sale or exchange, of which such corporation shall be formed, no actual subscription in money to the capital stock of such corporation shall be necessary; but each owner of such property shall be deemed to have subscribed such an amount to the capital stock of such corporation as under the bylaws will represent the fair estimated cash value of so much of said property, the title to which he may, by deed of trust, convey, or may have conveyed, or vested in such corporation; such subscription to be deemed to have been paid in upon the execution and delivery to such corporation of such conveyance or deed of trust."

Affirmed.

Richards & Macmillan and H. H. Henderson, for appellants.

"Insolvency means a general inability to answer pecuniary engagements, and it does not follow that he is not insolvent because he may ultimately have a surplus after winding up his affairs." Bank v. Sprague, 21 N. J. Eq. 538; Sugden on Vendors, 668; Bayly v. Scofield, 1 Maule & S. 338; Hall v. Swift, 4 Bingham, N. C. 381; James v. Scott, 98 Am. Dec. 328.

According to finding 18, Louis B. Adams had full control of all the property, and though a corporation had been formed, which was a cestui que trust, there had never been a meeting of the board of directors or of the stockholders. Where the consequences of one's acts are to hinder, or delay creditors, the law will presume that he intended his acts to produce such results. Bank v. Barker, 12 Utah 13; Snyder v. Free, 21 S.W. 847; Belden v. Seymour, 8 Conn. 304; Houston v. Blackman, 66 Ala. 559; Goodspeed v. Fuller, 46 Me. 141; Lawson v. Funk, 108 Ill. 502; Maigley v. Hauer, 7 Johns 341; Grout v. Townsend, 2 Hill 554; Coleman v. Burr, 93 N.Y. 17; 8 Am. & Eng. Enc. of Law, p. 753.

And we contend that even if the property had been transferred to the corporation itself the same rule would apply. Bank v. Sprague, 21 N. J. Eq. 539-540.

Where a corporation issues stock for property, it is not a bona fide purchaser of that property. 2 Cook, on Stock and Stockholders, sec. 670; Rogers v. N.Y. & T. L. Co., 134 N.Y. 211.

"A creditor of an insolvent person may treat as void a conveyance of all his property to a corporation in exchange for its shares of stock; he may file a bill to set aside the conveyance and he may pursue the assets in the hands of the transferee." Bank v. Sprague, 21 N.Y. Eq. 538; Terhune v. Skinner, 19 At. Rep. 377; Williams v. Colby, 6 N.Y.S. 463; Cole v. Mullarton Iron Co, 13 N.Y.S. 851; Cole v. Merc. Trust Co., 30 N.E. 847; McVicker v. Amer. Opera Co., 40 F. 861; Gardner v. Keogh Mfg. Co., 18 N.Y.S. 391; Bank v. Hamilton, 34 N. J. Eq. 158; Ladd v. Wiggin, 69 Am. Dec. 551.

Bennett, Harkness, Howat & Bradley, E. M. Allison, J. N. Kimball, for respondents.

The effect of preferences by a debtor to a creditor is usually to delay other creditors and oftentimes deprives payment to them, but the effect of the transaction does not render it fraudulent unless there be a motive of the parties to it to hinder and delay the other creditors. David v. Schwartz, 155 U.S. 631; Jones v. Meyer, 63 N.W. 773; Eversman v. Clements, 40 F. 575; Noise v. Sanger, 27 S.W. 1022; Parlin, etc., Co. v. Spencer, 33 P. 362; Samuel v. Kittinger, 33 P. 509; Turner v. Iowa National Bank, 26 P. 256; First National Bank v. Ridenour, 27 P. 150.

ZANE, C. J., delivered the opinion of the court. BARTCH and MINER, JJ., concur.

OPINION

ZANE, C. J.

On August 31, 1893, the defendant Louis B. Adams owed the Utah National Bank of Ogden $ 24,602.37, then due. The bank was willing to grant him further time for its payment, if he would give additional security. Adams executed a deed conveying certain real estate, estimated to be worth $ 60,000, and transferred some personal property, to one George Brastow in trust for the Adams Nursery Company, a corporation to be organized the next day to carry on the nursery and real-estate business in Weber county, Utah. It was also agreed by Adams and the bank that such real estate and personal property should be paid for by issuing the stock of the nursery company to Adams, and that he should pledge the same to the bank to secure his indebtedness to it. It appears that the stock was so issued to Adams and pledged to the bank, and that the trustee has not conveyed or transferred the property so deeded to him to the nursery company. In view of the fact that the trustee has not conveyed the land described in the trust deed to him to the Adams Nursery Company, counsel for plaintiffs insist that the legal title thereto is still in the trustee, while counsel for the defendants contend that, in view of the nature of the trust, the law passed the title to the Adams Nursery Company as soon as its organization was perfected. To a clear understanding of the question, it is necessary to refer to the statute of uses, and to its effect upon uses and trusts and the mode of transferring the legal title to lands. The most ancient method of conveying land known to the common law is described by the term "feoffment," according to which the language used in making the transfer was attended with corporeal possession. The intention to transfer the title was expressed by appropriate physical acts as well as by appropriate words. Mere words, whether spoken or written, were not sufficient. The acts attending the preparation, signing, acknowledging, and delivery of a deed sufficient since the adoption of the statute of uses were not enough. The ceremony is known as "livery of seisin," and is described in the second book of Blackstone's Commentaries (page 315). During the existence of that system of conveyance, uses and trust were introduced to evade the statutes of mortmain, and became almost universal. A use may be defined as "the right in one person to take the profits of land of which another has the legal title and possession, with the duty of defending it and making estates thereof as directed by the 'cestui que use.'" Prior to the statutes of uses, the terms "use" and "trust" were used without any accurate distinction between them. The introduction of uses, and the development and application of...