Holley v. Iron Mountain Co.

• Decision Date: 21 June 1933
• Docket Number: 30876
• Citation: 62 S.W.2d 740,332 Mo. 1243
• Parties: William Holley v. Iron Mountain Company, a Corporation, and Missouri Ore Company, a Corporation, Appellants
• Court: Missouri Supreme Court

62 S.W.2d 740

332 Mo. 1243

William Holley v. Iron Mountain Company, a Corporation, and Missouri Ore Company, a Corporation, Appellants

No. 30876

Supreme Court of Missouri

June 21, 1933

Appeal from St. Francois Circuit Court; Hon. I. N Threlkeld, Special Judge.

Affirmed.

Polk & Williams for appellant.

Where one corporation transfers its property to another, for valuable consideration, the purchasing corporation, when acting in good faith, does not become responsible for the debts of the selling corporation, even though the latter is insolvent. Russe & Burgess v. Miesner Lumber & Mfg Co., 243 S.W. 353; Evans v. Unity Inv. Co., 196 S.W. 51; Warren v. Mayer Fertilizer & Junk Co., 122 S.W. 1091, 145 Mo.App. 558; Graham Pub. Co. v. Sheridan Pub. Co., 172 Mo.App. 500; Schufeldt v. Smith, 131 Mo. 288; Alberger v. Natl. Bank of Commerce, 123 Mo. 321; Foster v. Mullanphy Planing Mill Co., 92 Mo. 79; Missouri Lead Co. v. Reinhard, 114 Mo. 232; Drovers & Mechanics' Natl. Bank v. First Natl Bank, 260 F. 15; Austin Co. v. Smith Co., 138 Ga. 656; Cashman v. Hitchcock, 293 F. 962; Davis v. Hemming, 39 A. L. R. 140; Hageman v. Railroad Co., 100 S.W. 1085; Ry. Co. v. Guest, 85 Ky. 619; Justin v. Cattlesburg Timber Co., 168 S.W. 831; Warfield, Howell Co. v. Marshall Canning Co., 72 Iowa 666; Smith v. Henry Knight & Son, 277 S.W. 290; Racine Engine & Mach. Co. v. Confectioners Mchy. Co., 234 F. 879; Overstreet v. Citizens Bank, 72 P. 379; L. R. Chamber of Commerce v. Reliable Furn. Co., 211 S.W. 371; Atkinson v. Western Development Co., 150 P. 360.

C. O. Inman, Hyman G. Stein and Dubinsky & Duggan for respondent.

(1) The Iron Mountain Company having transferred to Missouri Ore Company its mining property, and Missouri Ore Company having issued to Iron Mountain Company as sole consideration for such property 5,000 shares of its own stock, it (Missouri Ore Company) is liable for the debts of Iron Mountain Company, and is liable to plaintiff for the amount of his judgment against Iron Mountain Company -- and this is true irrespective of the existence or absence of fraud. Goodwin & Jean v. Am. Railway Express Co., 220 Mo.App. 695, 294 S.W. 101; Peters v. Am. Railway Express Co., 256 S.W. 100; Ingram v. Prairie-Block Coal Co., 319 Mo. 644, 5 S.W.2d 413; Sweeney v. Mining Co., 194 Mo.App. 140; Johnson v. United Rys. Co., 247 Mo. 326, 152 S.W. 362; Barrie v. United Rys. Co., 138 Mo.App. 557, 119 S.W. 1020; Johnson v. United Rys. Co., 281 Mo. 90, 219 S.W. 38; Berthold v. Holladay-Klotz Land & Lumber Co., 91 Mo.App. 233; Kinsella v. Marquette-Easton Finance Corporation, 28 S.W.2d 427. (2) Appellant's claim that such transaction was one of necessity, is without merit inasmuch as no provision was made for the payment of plaintiff's claim. Johnson v. United Rys. Co., 247 Mo. 326, 152 S.W. 371.

OPINION

Gantt, J.

Plaintiff while in the employe of Iron Mountain Company, a Missouri corporation, sustained injuries. He filed suit against the company and recovered judgment for $ 23,750, as damages for said injuries. He then caused executions to be issued on said judgment, which were returned nulla bona.

This action is a creditor's suit against the Iron Mountain Company and Missouri Ore Company, to which the Iron Mountain Company transferred the major portion of its assets.

In substance the petition charged that the transfer was fraudulent, that it was without consideration and that the Missouri Ore Company was a mere continuation of the Iron Mountain Company. The answer of the Iron Mountain Company denied the charge of fraud and recited at length the facts which led to the transfer of the Iron Mountain Company's assets to the Missouri Ore Company. The answer of the Missouri Ore Company was a general denial. Judgment was for plaintiff and against both defendants for $ 23,750, with interest. Both defendants appealed, but the Iron Mountain Company later abandoned its appeal.

There is no evidence tending to show that the transfer of the assets was fraudulent. And there is no evidence tending to show that any creditor, including the stockholders and directors of the Iron Mountain Company, was unlawfully preferred as such creditor. The only question is whether the transfer of the assets was for an adequate consideration, or was the Missouri Ore Company a mere continuation of the Iron Mountain Company and the transfer without consideration.

The Iron Mountain Company was organized in 1920 and purchased 16,000 acres of land in Iron and St. Francois Counties, Missouri. It undertook to operate an iron mine, sell timber, and farm about 3,000 acres of the land. The plant was completed in July, 1923. It sold all of its ore to the St. Louis Coke & Iron Company at Granite City, Illinois. In September, 1924, a receiver was appointed for the St. Louis Coke & Iron Company, which caused the Iron Mountain Company to discontinue the operation of its mine. In December, 1925, the St. Louis Coke & Iron Company resumed operations. In April, 1926, said company contracted with the Iron Mountain Company to purchase all of its ore for a period of three years. It was further agreed in said contract that the St. Louis Coke & Iron Company could within a period of four years purchase at a price named the "mining tract" of the Iron Mountain Company consisting of 1,100 acres, with the mineral rights under all the land belonging to said company. The evidence tends to show large deposits of ore under the land. Even so, the Iron Mountain Company continued to have financial difficulties, and in May, 1926, transferred the major portion of its assets to the Iron Mountain Mining Company, a Delaware corporation organized for that purpose. The transfer was an effort to overcome the financial difficulties of the Iron Mountain Company. The Iron Mountain Mining Company operated for two months and defaulted in the payment of interest. It then reconveyed the properties to the Iron Mountain Company.

At this time the owner of notes amounting to $ 225,000, secured by first mortgages on the property of the Iron Mountain Company, notified the company that the notes must be paid when due. In this situation the directors of the Iron Mountain Company began negotiations with the M. A. Hanna Company of Cleveland, Ohio, in an effort to relieve the financial difficulties of the Iron Mountain Company. At first said directors insisted that the Iron Mountain Company should retain a two-thirds interest in the business, offering the Hanna Company a one-third interest. Finally, it was agreed that the Hanna Company could have a controlling interest. As a result of the negotiations the Hanna Company and the Iron Mountain Company entered into a contract, the substance of which follows:

It provided that the Hanna Company would cause to be organized under the laws of Delaware a corporation (designated new company), with a capital stock of 5,000 shares of no par value; that upon its organization the Iron Mountain Company (designated ore company) would transfer the major portion of its assets, including its mining property, to the new company; that in consideration of such transfer the new company would issue to the ore company or its nominee said 5,000 shares of stock, being the total authorized capital stock of the new company.

It further provided that upon the transfer of said property the new company would execute a mortgage on the property to secure bonds in the principal sum of $ 500,000, consisting of Series "A" bonds for $ 225,000 and Series "B" bonds for $ 275,000; that the Hanna Company would pay the notes for $ 225,000 secured by a first mortgage and the new company would issue Series "A" bonds at par to the Hanna Company in amounts equal to the sums paid by the Hanna Company in payment of said notes as they became due.

It further provided that upon the organization of the new company the Hanna Company would immediately advance $ 50,000 to the new company for exploration and development purposes within twelve months from the date of advancement; that the Hanna Company would from time to time make further advancements for said purposes not to exceed $ 225,000 as in the judgment of the Hanna Company might be necessary; that...