Macbeth v. Banfield

• Decision Date: 28 November 1904
• Citation: 45 Or. 553,78 P. 693
• Parties: MACBETH v. BANFIELD et al.
• Court: Oregon Supreme Court

78 P. 693

45 Or. 553

MACBETH v. BANFIELD et al.

Supreme Court of Oregon

November 28, 1904

Appeal from Circuit Court, Multnomah County; Alfred F. Sears, Jr. Judge.

Action by William Macbeth, trustee of the Kaupisch Creamery Company a corporation, bankrupt, against M.C. Banfield and others. From a judgment for plaintiff, defendant Banfield appeals. Affirmed.

Prior to January 27, 1899, Julius C. Kaupisch and H.W. Kaupisch were engaged in the creamery business under the firm name of the Kaupisch Creamery. On that date they transferred and set over to M.C. Banfield and Thomas Rand an undivided one-half interest in the business, for the stipulated consideration of $5,000. One thousand dollars of this amount was at once applied on invoices for butter previously shipped to the firm from the East. On the following day a corporation was organized as the Kaupisch Creamery Company, with a capital stock of $30,000, divided into 1,200 shares, at $25, each, to which corporation the Kaupisch Creamery, the partnership concern, transferred by bill of sale all of its plant, stock machinery, good will, etc., for the designated sum of $16,000, and also paid into its treasury $4,000 in cash, all in consideration that the board of directors of the Kaupisch Creamery Company should issue 800 shares of its capital stock, fully paid up, as follows: To Julius C. Kaupisch, 4 shares; H.W. Kaupisch, 196 shares; H.M. Kaupisch, 4 shares M.M. Kaupisch, 196 shares; M.C. Banfield, 200 shares; and Thomas Rand, 200 shares--who were subscribers therefor. This was agreed to by unanimous vote of the board, and the stock was subsequently issued accordingly, and accepted by the parties named, thus closing the transaction. But two additional shares were subscribed for, which were fully paid up. The corporation, after engaging in business for six months or thereabouts, became insolvent; and the plaintiff was appointed trustee in bankruptcy, and now brings this suit for the benefit of the creditors, to require the above stockholders to respond for any balance of their stock that might be deemed unpaid, to the amount of the unpaid indebtedness of the concern. The plaintiff prevailed in the trial court, and this appeal is by Banfield alone.

Wm. T. Muir, for appellant.

George W. Joseph, for respondent.

WOLVERTON, J. (after stating the facts).

The gist of the controversy is that as to the creditors the stock was fraudulently issued as fully paid up, when in reality less than half of its par value has been so paid.

The conclusions of fact are not difficult of ascertainment. The Kaupisch Creamery owned certain property and merchandise which it had acquired in the course of five months' engagement in the creamery business; and, it being desirous of enlarging its business and placing its management in the hands of a corporation, Banfield and Rand purchased a half interest therein, so that nominally, and for the time being, they became partners with the Kaupisches. For the purpose of ascertaining the value of the property of the partnership, an inventory was taken, which showed a valuation of $4,700. It was then agreed between all the parties concerned, with the view of making Banfield and Rand equal in the investment with the Kaupisches, that they should contribute or pay into the concern the sum of $5,000, which they did. That $1,000 was used by the Kaupisches to pay certain indebtedness of the company for butter consignments from the East can have no special bearing in the case. It does not lessen the amount of Banfield and Rand's contribution to the business, which was designed to make them equal with the Kaupisches; the contribution of the Kaupisches being the property formerly belonging to the Kaupisch Creamery, under which name they were engaged as partners. A bill of sale was given at the time by the Kaupisch Creamery and the Kaupisches to Banfield and Rand, describing the property set over as "an undivided one-half interest in and to all of the plant, stock, book accounts and good will of said business." There appears to have been no stipulation that it should be free from incumbrance, or that the concern was free from debt, but only that it was agreed that the Kaupisches, as partners, should, for the consideration of $5,000 to be paid into the concern, sell and transfer to Banfield and Rand an undivided half interest in the business; the effect being that Banfield and Rand were taken into the company as equal partners with the Kaupisches, the company being still obligated to pay the indebtedness of the concern. This seems to us to have been the exact status of the parties after the sale of the one-half interest in the business of the Kaupisch Creamery to Banfield and Rand, and prior to the completion of the organization of the Kaupisch Creamery Company, and the transfer to it of the property of the Kaupisch Creamery. On the completion of the organization, all of the property described as "all of the plant, stock, machinery and good will of the said business," was transferred to the corporation by bill of sale regularly executed by the Kaupisch Creamery, the Kaupisches, and Banfield and Rand, The consideration named as the inducement for this transfer is $16,000, besides which the Kaupisch Creamery paid over and turned into the treasury of the Kaupisch Creamery Company the sum of $4,000. These sums, aggregating $20,000, constituted the consideration for the issuance of 800 paid-up shares of the capital stock of the corporation to the several parties named in the statement above; they having formerly subscribed for the same. Thus the corporation became invested with the property of the Kaupisch Creamery, and thus it is that the stockholders named acquired their stock, so that the transactions clearly indicate what the exact consideration was which the subscribers paid for their stock. It will be noted that the bill of sale by the Kaupisch Creamery to Banfield and Rand describes the property designated for transfer in precisely the same language as the bill of sale to the corporation, with the exception that the words "book accounts" are included in the former; both containing the words "good will of said business." Evidently, therefore, that particular species of property was in the minds of the parties while agreeing upon and consummating both transactions, and was especially made the subject of transfer in each case. In the former, the good will, together with the other property of the Kaupisch Creamery, was considered the equivalent of $5,000 in value, and nothing more, for that sum is what Banfield and Rand paid into the concern in order that they might become one-half owners in the whole. There was some indebtedness of the concern, but this, from the result of the transaction, was to be shared by all the parties, and was in fact paid out of the business, so that here we have the estimate of the parties concerned as to the value of the good will. When, however, these parties transferred the identical property to the corporation, which was practically organized by themselves, they fixed a valuation of $16,000 as its worth to the company; exceeding by more than three times the value placed upon it in the first transfer, although the two transfers were made in point of time with but a single day intervening. Further than this, the Kaupisch subscribers to the capital stock and Banfield and Rand on January 27th, the day of the transfer of one-half interest in the property of the Kaupisch Creamery to Banfield and Rand, entered into a written agreement whereby the Kaupisches, on the one part, agreed to take 400 shares of the capital stock of the Kaupisch Creamery Company, and to pay therefor $2,000 in cash, and the remainder, or $8,000, in the plant, stock, and good will of the creamery business, and Banfield and Rand, on the other part, agreed to take a like number of shares, and to pay therefor in like manner as the Kaupisches were to pay for their stock; and it was further agreed between the parties so designated and subscribing that they should not sell to any outside party, and that, in case either of them desired to sell, the other should have the option to purchase, at $12.50 per share; stipulating as liquidated damages in case of a breach of the condition the rate of $12.50 per share for each and every share so otherwise sold. Banfield and J.C. Kaupisch, testifying in the case, however, gave it as their honest conviction that the plant, stock, and good will of the partnership were fully worth the valuation placed upon them by this agreement, namely, $16,000, and that the board of directors received them, together with the $4,000 cash, in entire good faith, in payment for said stock. But speaking further of this last-mentioned agreement, and in explanation of its purpose, Kaupisch says: "Well, if one wanted to drop out, we only paid $5,000. That was just among ourselves. If he had $10,000 worth of stock, and only paid $5,000 for it, then may be he could force the other to ask $10,000 for it." Further on the following inquiries were made, and answers elicited: "Q. You paid in $4,000 into the corporation? A. $5,000. I believe the books show the corporation got the benefit of $4,000 in cash. *** Q. You were paying for $10,000 worth of stock with $5,000? A. That was the proposition. Q. You paid $12.50 a share for your stock, was it not? You paid just half? A. Yes, sir; that would be $12.50. Q. But if anybody else came in afterwards and subscribed for stock, you were going to charge them $25 a share? A. That was the idea." This theory of the transaction is borne out by Dey, who was desirous at one time of procuring some of

the stock, but refused to purchase because he could not obtain it on the same basis at which the parties had procured theirs, namely, at the ...