Johnson v. United Railways Company

• Decision Date: 16 February 1920
• Parties: JAMES B. JOHNSON v. UNITED RAILWAYS COMPANY et al., Appellants
• Court: Missouri Supreme Court

219 S.W. 38

281 Mo. 90

JAMES B. JOHNSON v. UNITED RAILWAYS COMPANY et al., Appellants

Supreme Court of Missouri

February 16, 1920

Appeal from St. Louis City Circuit Court. -- Hon. George H. Shields Judge.

Affirmed.

H. S Priest for appellants.

(1) There is no suggestion in the petition of fraud by inference as a result of a practical common directory of the two companies, or their want of contractual capacity as between themselves, and if there was, this would not be sufficient. The two companies would not lose their respective corporate individualities by such fact nor their capacity to contract with each other. R. S. 1909, sec. 3316, par. 7; Peterson v. Railway Co., 205 U.S. 364; Bank v. Big Muddy Iron Co., 97 Mo. 38; Kitchen v. Railway Co., 69 Mo 224; Noyes Intercorporate Relations, sec. 299; Warfield v. Marshall Co., 72 Iowa 666; Pullman v. Railway Co., 115 U.S. 587; Mooreshead v. Railway Co., 203 Mo. 121. It is at most a circumstance -- like relationship between natural persons -- which, coupled with other facts, might or might not show fraud. State v. Oil Cos., 194 Mo. 155. (2) In order for plaintiff to recover, it devolved upon him to show that, but for the sale and tranfer, he could have resorted to the property sold and conveyed for the payment of his debt. Burns v. Bangert, 92 Mo. 167; Simon v. Smith, 180 Mo. 464. (3) Plaintiff is not entitled to recover because he has neither shown that appellant Railways Company agreed to assume the liabilities of Transit Company, or that it took the assets of Transit Company without any or adequate consideration. Benesch v. Ins. Co., 72 N.E. 674; Baker v. Harpster, 22 P. 415; Ferschild v. Vedder, 49 N.E. 151; Goodfellow Shoe Co. v. Prickett, 84 Mo.App. 94; Alexander v. Williams, 14 Mo.App. 13; Kitchen v. Ry., 69 Mo. 224.

John A. Gilliam for respondent.

(1) Under the doctrine of stare decisis, when a matter has been thoroughly argued and decided, that decision becomes the law of the case, and if the losing party continues to litigate it should be taxed with ten per cent damages, and respondent asks that it be inflicted in this case. (2) The assets of a corporation are impressed with a trust in favor of creditors and no distribution can be made among shareholders until all debts and liabilities have been satisfied. South Bend Toy Mfg. Co. v. Ins. Co., 4 S.D. 173, 178-179; 2 Morawetz on Corp. 790; Berry v. Rood, 168 Mo. 316. (3) When the directory and principal officers of two corporations are substantially identical all transactions between them are prima-facie fraudulent as against the rights of creditors. Barrie v. United Railways Co., 125 Mo.App. 120; Noyes on Intercorporate Relations, sec. 124, pp. 194, 195; Alexander v. Williams, 14 Mo.App. 27; Kitchen v. Railway Co., 69 Mo. 251, 254, 261; Sweeney v. Sugar Co., 30 W.Va. 443; Ins. Co. v. Trans. Co., 13 F. 578; Railroad v. Evans, 66 F. 810; Couse v. Powder Co., 33 A. 297; Bank v. Alabama Sanitarium 103 Ala. 358, 369; Montgomery Web Co. v. Dienelt, 133 Pa. St. 585; Bank v. Judah, 8 Conn. 145; Coningham's Appeal, 57 Pa. St. 474; Chouteau v. Allen, 70 Mo. 338. (4) After insolvency the directors sustain a fiduciary relation to creditors and are bound to exercise the the utmost good faith, and upon the least appearance of unfairness, their transactions will be set aside. Hutchinson v. Sutton Mfg. Co., 57 F. 998; Bear River Orchard Co. v. Hanley, 15 Utah 514; Thompson on Corporation (1 Ed.), sec. 4009 to 4016, 4022, 4079, 4080; Woodstock Inv. Co. v. Richmond, 129 U.S. 661. (5) When one corporation owns a controlling interest in another corporation and both are under one control and the officers and directors of both are substantially identical, all transactions as between them constitute a constructive fraud as against the rights of creditors and as to them are void. They cannot sell property to themselves at a valuation fixed by themselves. Farnum L. & T. Co. v. N. Y. Ry. Co., 150 N.Y. 430; Mason v. Pewabic Min. Co., 133 U.S. 50; United Gold and Platinum Co. v. Smith, 90 N.Y.S. 199; Montgomery Traction Co. v. Harmon, 140 Ala. 505. (6) When one corporation acquires all the assets of another corporation, issues its stock in exchange for the stock of the old company, and the old company ceases to be a going concern and the new company continues the business, the new company receives the assets of the old company burdened by its liabilities. Such arrangement has the effect of distributing assets of the old company among its stockholders to the exclusion of creditors. This cannot be done. The new company will by operation of law be held to have assumed and agreed to pay the debts of its vendor, including a judgment subsequently recovered against it in an action for negligence which was pending at the time of the transfer. Berthold & Jennings v. Holliday-Klotz Lumber Co., 91 Mo.App. 233; Camden Interstate Ry. Co. v. Lee, 84 S.W. 332; Grenell v. Gas Co., 112 Mich. 70; U. S. Capsule Co. v. Isaacs, 55 N.E. 836; Wilson v. Aeolian Co., 72 N.Y.S. 150, 64 A.D. 337, 170 N.Y. 618; Indianapolis R. R. Co. v. Jones, 29 Ind. 465; Thompson v. Abbott, 61 Mo. 176; Railroad v. Ashling, 160 Ill. 373; Dodson v. Railroad, 77 Md. 489; 10 Cyc. 303-308; Thompson on Corporations (1. Ed.), secs. 405, 8231, 8240-41; Cook on Corporations (7 Ed.), sec. 897; Eaus' Admr. v. Bank, 79 Mo. 182; Suddath v. Gallagher, 126 Mo. 393. (7) And in such case the new company holds the property received from the absorbed company with notice of any trust attaching to it in favor of creditors and cannot claim the rights of a bona-fide purchaser without notice. The Key City, 14 Wall (81 U.S.) 661. (8) Defendant's admission of knowledge of the financial conditions of the Transit Company renders it liable to creditors for all assets it acquired without consideration on without an adequate consideration. Under the circumstances in this case such conveyance is absolutely void. Sloan v. Torry, 78 Mo. 623; Kurtz v. Troll, 175 Mo. 506; 20 Cyc. pp. 508 to 510. And a conveyance of all of one's property while a suit is pending against him is a badge of fraud. That the action is in tort makes no difference. McCollum v. Crain, 101 Mo.App. 522. (9) The proof shows the identity of directors of Transit Company and United Railways Company, the control of both companies by Brown Brothers & Co., the receipt by both the directors and stockholders of the Transit Company of two shares of the United Railways Company for each of their five shares of the Transit Company stock, and a contract by Brown Bros. & Co. Syndicate with the other two companies in which Brown Bros. & Co. Syndicate were the simple conduit to transfer the United Railways stock to the Transit stockholders, and the Transit stockholder's stock to the treasury of the United Railways Company, and the participation of Brown Bros. & Co., the directors of the two companies, and substantially all the stockholders of the Transit Company in both the purchase and sale of the Transit Company's property, every step being actually and constructively fraudulent as to creditors. Jones v. Williams, 139 Mo. 1; Noyes on Intercorporate Relations, sec. 123, note, p. 241; Hospes v. Northwestern Mfg. Co., 48 Minn. 174; United Gold & Platinum Co. v. Smith, 90 N.Y.S. 199; Montgomery Traction Co. v. Harmon, 140 Ala. 505; Camden Interstate Ry. Co. v. Lee, 84 S.W. 332; Railroad Co. v. Howard, 74 U.S. (7 Wall.) 392; Union Natl. Bank v. Douglass, 1 McCrary's Rep. 86; Gwynn v. Butler, 17 Colo. 114; Bosher v. Worrill, 57 Ga. 235; Snyder v. Free, 114 Mo. 360; Cook on Corporations (5 Ed.), sec. 671, note 1, p. 1566; Vance v. McNabb Co., 92 Tenn. 47; Chattanooga Railroad v. Evans, 66 F. 809; Fort Payne Bank v. Alabama Sanitarium, 103 Ala. 358; Montgomery Web. Co. v. Diewelt, 133 Pa. St. 585; Couse v. Columbia Co., 33 A. 297; Singer v. Hutchinson, 183 Ill. 606; Vicksburg Co. v. Citizens' Tel. Co., 79 Miss. 341; San Francisco Railroad v. Bee, 48 Cal. 398; Wilson v. Aeolian Co., 64 A.D. 337; Metcalf v. Arnold, 110 Ala. 180; Buell v. Rope, 6 A.D. 113; Twin Lock Oil Co. v. Marbury, 91 U.S. 587; Sawyer v. Hoag, 17 Wall. 610; Louisville Trust Co. v. Louisville Ry. Co., 174 U.S. 674; Gratz v. Reed, 4 B. Mon. (Ky.) 195; Hurd v. New York Laundry Co., 167 N.Y. 94; Gillett v. Bate, 86 N.Y. 93; 20 Cyc. 449, note 19; Benne v. Schnecko, 100 Mo. 250; Seger v. Thomas, 107 Mo. 635.

CRAMER, Special Judge. Williamson, J., concurs in separate opinion, in which Walker, C. J., and Williams, J., concur; Blair, J., dissents; Graves, J., dissents in separate opinion, in which Woodson, J., concurs; Goode, J., not sitting.

OPINION

In Banc

CRAMER Special Judge.

Plaintiff brings this suit in equity against the United Railways Company of St. Louis and the Transit Company of St. Louis as assignee of certain judgments for personal injuries recovered by various parties against the Transit Company while it was operating the street car lines in the City of St. Louis under a lease from the United Railways Company.

The ground on which he seeks to hold the United Railways Company liable appears from the following allegations of the petition:

"Plaintiff further states that on or about the 31st day of October 1904, the entire property and assets of the said St. Louis Transit Company, including all the improvements and betterments made by it, were transferred to the said United Railways Company of St. Louis, which immediately assumed control and is now in possession thereof, both said companies being at the time of said transfer under one and the same management.

"And plaintiff further states that the object and purpose of said United Railways Company of St. Louis was to absorb said St Louis Transit Company, by acquiring its assets and succeeding to its business, and to hinder, delay and defraud the...