Hutchinson v. Green
| Decision Date | 15 November 1886 |
| Citation | 1 S.W. 853,91 Mo. 367 |
| Parties | Hutchinson et al., Appellants, v. Green et al |
| Court | Missouri Supreme Court |
Appeal from St. Louis Court of Appeals.
Affirmed.
Broadhead & Haeussler, E. T. Allen and Given Campbell for appellants.
(1) The directors of a corporation have not the power to make an assignment of its property for the benefit of creditors without the consent, or against the will, of its stockholders. City of St. Louis v. St. Louis Gas Light Co., 70 Mo. 98; Eppright v. Nickerson, 78 Mo 482; Field on Corporations, sect. 151; Buford v. Keokuk N. L. Pkt. Co., 3 Mo.App. 159; S. C., 69 Mo. 611. (2) If the board of directors had the power, without a vote of the stockholders, to make an assignment of the property of the corporation for the benefit of creditors, the action of the board in this case was fraudulent and void. "No point is better established than that a person having a power, must execute it bona fide for the end designed, otherwise it is corrupt and void." 1 White and Tudor's Lead. Cas. in Eq. (4 Am. Ed.) 573, at page 577. The controlling purpose of the four directors, who voted for the assignment, while representing less than one-tenth of the stock of the company was to prevent the incoming board, who should represent the great majority of the stock, from controlling the affairs of the corporation. Such purpose made the assignment void. Mahony Min. Co. v. Bennett, 5 Sawyer, 141; Railroad v. Railroad, 50 N.H. 175; Farwell v. Houghton Copper Works, 8 F. 66. (3) Even if there was no complicity on the part of defendant, Green, the assignee, in the fraud of Gray, Ward, Griffith, and Hill, still, if damages resulted to the corporation from the fraudulent assignment, judgment for such damages should have been entered against them, though the petition might have been dismissed as against Green. R. S., secs. 948, 949, 950. (4) Green, the assignee, knew of the frauds of his co-defendants; or, acting blindly in an important business affair, so acquiesced in their fraud as to be equally liable with them for the damages which the corporation sustained by reason of the assignment. Messrs. Madill & Taussig, Green's attorneys, were also the attorneys of Gray, Ward, Griffith, and Hill. Their knowledge of the fraudulent purpose of Gray, Ward, Griffith, and Hill, in making the assignment is imputable to Green. Rogers v. Palmer, 102 U.S. 263. (5) Whether Green, the assignee, knew of the fraudulent purpose of his co-defendants in making the assignment, is, in one view of the case, immaterial. The assignment, at the time this suit was brought, was inchoate only. There had not been a delivery of the property to the assignee. At the date of the assignment, the property of the corporation was not in its possession, or subject to its control, but was in charge of a receiver of the court, and such parts of it as had not been sold by the receiver to pay his expenses, or under orders of the court to satisfy lien claims, still remained in charge of the receiver, when this suit was brought. (6) The testimony shows that, at the date of the assignment, the corporation owned property worth from fifty to one hundred thousand dollars more than its total liabilities. Two days before the assignment, Green, as auctioneer, sold seventy-five hundred and ten shares of its stock at eight dollars per share. This indicated a value of assets of (7510x8) $ 60,080, at least, over all liabilities. Such excess of assets thus brought home to the knowledge of Green is: (a) Conclusive proof of the fraudulent purpose of the directors. (b) Conclusive proof of Green's complicity in their fraud; and (c) A starting point for estimating the damages to the corporation by reason of the assignment. (7) The damages resulting to the corporation by reason of the assignment are measured by the difference between the value of the assets at the time the assignment was made and the value now, less the amount in the hands of the receiver, and less the amount of debts canceled by sale of property under the deeds of trust and attachments. (8) The plaintiffs, as stockholders, can maintain this suit for the benefit of the corporation. (a) Defect of parties, or of the legal capacity of parties plaintiff to sue, must be taken advantage of, if at all, by demurrer or answer. R. S., secs. 3515, 3519; Horstkotte v. Meiner, 50 Mo. 159; Dunn v. Railroad, 68 Mo. 268. There was no demurrer, and no such objection was made in the answers filed by the defendants. (b) The corporation asked leave, with consent of plaintiffs, to be substituted as plaintiff in this cause. The defendants objected, and the court sustained the objection. Plaintiffs excepted to this action of the court. For this reason defendants, Gray, Ward, Griffith, Hill, and Green, are estopped to claim incapacity in plaintiffs to maintain this suit, on the ground that the corporation should have instituted and prosecuted it. (c) Under the circumstances of this case, it was the clear right of these plaintiffs to institute and prosecute this case. The existing board of directors, while admitting that the defendants had committed a fraud upon the corporation in making the assignment, and caused it great loss, neglected and refused to bring a suit to redress the wrong. This clearly brings the case within the rule laid down in Dodge v. Woolsey, 18 Howard, 331. (d) In this state the capacity of a stock holder to sue, in such a case as this, is given by express provision of the statutes. R. S., secs. 948 and 950; see second and sixth clauses of sec. 948.
James Taussig, C. S. Taussig and G. A. Madill for respondents.
(1) The plaintiffs, as stockholders, cannot maintain this action in their own name, even though they had shown, which they failed to do, that the corporation refused to bring the suit. Hawes v. Oakland, 104 U.S. 450; McDougall v. Gardener, L. R. 1 Ch. Div. 21; Morawetz on Corp., secs. 384, 385, 394, 395; Woolsey v. Dodge, 18 Harr. 341; Hamilton v. Desjardin Canal Co., 1 Grant's Chancery & App. Rep. [Upper Canada] 27; McMurray v. Railroad, 22 Grant's Chancery Rep. [Upper Canada] 476, at p. 503; Dannemeyer v. Coleman, 8 Sawyer, 51; Foss v. Harbottle, 2 Hare, 461, 495; Boston v. Brewer, 104 Mass. 378, 386. (2) The corporation had the power to make a general assignment for the benefit of all its creditors. Ang. & Ames on Corp. [11 Ed.] p. 168, sec. 187; Town v. Bank, 2 Doug. [Mich.] 530; Burrill on Assignments [4 Ed.] sec. 64; Hill on Trustees [Am. Ed.] 73; Shultz v. Sutter, 3 Mo.App. 137; Shockley v. Fisher, 75 Mo. 498; Lionberger v. Bank, 10 Mo.App. 499; DeRuyter v. Trustees, 3 Barb. Ch. R. 119. And such assignment could be made by the board of directors without the consent of the stockholders. Buell v. Buckingham, 16 Ia. 284; Ex parte Conway, 4 Ark. 302, 354; Montgomery v. Bank, 1 S. & M. Ch. R. 684; Shultz v. Sutter, 3 Mo.App. 137; DeCamp v. Alward, 52 Ind. 468-473; Sargent v. Webster, 13 Metc. [Mass.] 497; Union Bank of Tennessee v. Allicott, 6 Gill & Johns. 363-371; Dana v. Bank, 5 Watts & Serg. 223; Pope v. Brandon, 2 Stew. [Ala.] 401; Ardisco Oil Co. v. North American Oil Co., 66 Pa. 375. And such an assignment may be made by a bare quorum of the board. Burrill on Assign. [4 Ed.] sec. 64; Buell v. Buckingham, 16 Ia. 284; Sargent v. Webster, 13 Metc. 497. And is valid though the stockholder objects. Montgomery v. Bank, 1 S. & M. Ch. Rep. 632; Ex parte Conway, 4 Ark. 302, p. 355. It is only to such sales of property as are pronounced ultra vires by the law, that the stockholder can object (e. g., the case of Abbot v. American Hard Rubber Company, 33 Barb. 578, which the court, at page 584, is especially careful to distinguish from an assignment for the benefit of creditors). The distinction between a case which presents an act ultra vires and void, and a case which presents an act clearly within the powers of the board of directors (e. g., as a general assignment for the benefit of creditors), is clearly presented in the case at bar, and they differ "toto coelo." Sheldon Hat Blocking Co. v. Eickmeyer Hat Blocking Co., 56 How. Pr. Rep. 70; S. C., 90 N.Y. 607, where the court, for the purposes of the decision in that tribunal, concedes, but refuses to hold, the act complained of to be ultra vires. (3) A corporation, or person, who cannot meet its, or his, liabilities as they mature is insolvent, although he may have assets in excess of his liabilities. Swan v. Robinson, 5 F. 287, 294; Merch. Nat'l Bank v. Cook, 95 U.S. 342, 346; Wagner v. Hall, 16 Wall. 584, 601; Dutcher v. Wright, 94 U.S. 553; Buchanan v. Smith, 16 Wall. 277, 303; Bump on Fraud. Convey. 364, 365. Even a solvent debtor may make an assignment for the benefit of his creditors. Ogden v. Peters, 21 N.Y. 24; Ex parte Conway, 4 Ark. 371; Bump Fraud. Convey. 362. (4) To render an assignment invalid on the ground of fraud the assignee must be a party to the fraud. Seymour v. Wilson, 19 N.Y. 417; Purson v. Tom, 1 Tex. 577; Bump on Fraud. Convey. [3 Ed.] 360-362. (5) If the assignment in this case were to be treated as void, then, as no title passed to the assignee, and he has never, in fact, had, or interfered with, the possession of any of the property of the corporation, no damages were proven, and none can be recovered against any of the defendants in this case.
OPINION
This case is an outgrowth of Ward v. Davidson, 89 Mo 445, 1 S.W. 846. By the decree rendered in that case, certain directors of the Keokuk Northern Line Packet Company were removed from office. Thereafter, and at a special election held on the seventeenth of November, 1880, pursuant to the order of the circuit court, four directors were elected to fill the unexpired term of the removed directors. There had been a disagreement of long standing between the...
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