Nedry v. Vaile

• Decision Date: 27 October 1913
• Citation: 160 S.W. 880,109 Ark. 584
• Parties: NEDRY v. VAILE
• Court: Arkansas Supreme Court

160 S.W. 880

109 Ark. 584

NEDRY v. VAILE

Supreme Court of Arkansas

October 27, 1913

Appeal from Sebastian Chancery Court, Fort Smith District; J. V Bourland, Chancellor; affirmed.

STATEMENT BY THE COURT.

This is an appeal by plaintiffs from a decree of the chancery court in defendants' favor in an action brought by Annie Nedry and John B. Nedry against John Vaile, John W. Vaile and Walton Vaile, to compel them to pay the claims of plaintiffs as creditors of the Fort Smith Automobile & Supply Company, a corporation, whose assets defendants are alleged to have absorbed. The complaint seeks to set aside certain conveyances made by the corporation to the defendants as a fraud upon the creditors of the company.

The Fort Smith Automobile & Supply Company was organized in 1907 with an authorized capital stock of fifteen thousand dollars with eleven thousand dollars paid up. Subsequently, in the same year, the defendant, John Vaile, bought the stock of Sam McCloud and A. M. Sicard, in said company, amounting to six thousand dollars, and paid therefor the sum of $ 1.15 on each dollar's worth thereof. At the same time, the defendant Vaile, agreed with Jim Kelley, Frank Blocker and Gus Bohmer the remaining stockholders of the company, that if they would remain in the company, he would guarantee to pay them, at any time in the future, par for their stock with 6 per cent interest. The defendant, Vaile, assigned to his sons, John W Vaile, and Walton Vaile, defendants in this action, one share of stock each, in order that they might become directors in said company. John Vaile was then elected president of the company, Walton Vaile vice president, and John W. Vaile secretary. In October, 1909, the defendant, John Vaile, ascertained that the company was insolvent, and, pursuant to the agreement made with Bohmer, Kelley and Blocker in 1907, he purchased their stock at the price which had been agreed upon. The First National Bank of Fort Smith, of which John Vaile was also a director, was the principal creditor of the company. On the 9th day of June, 1909, said bank loaned to said automobile company $ 9,936.33, and took its note therefor. Again, on July 6, 1909, the bank loaned to the company $ 2,122.15, and took its note therefor. On July 12, 1909, the bank loaned the company $ 2,625.25, and took its note therefor. Again, on July 20, 1909, the bank loaned the company $ 2,695.75, and took its note therefor. John Vaile became surety on all these notes. The total amount of this indebtedness on the 1st day of November, 1909, was $ 13,802.07. This money was borrowed from the bank principally for the purpose of paying for automobiles purchased by the company. On November 1, 1909, said automobile company owed other commercial debts, amounting, in the aggregate, to $ 3,082.43, and to Gus Bohmer, for labor and salary, the sum of $ 316.21, and to John Vaile, for money borrowed from him to meet the payrolls, the sum of $ 932.71, making a total indebtedness due at the time of $ 18,133.42. At this date, the company had the following assets: Lot 9, in block 2, Elmwood place; and lot 3, in block 9, Fitzgerald Addition to the city of Fort Smith, Ark.; and also a lot of tools, supplies and automobiles in stock. For the purpose of paying the commercial debts of the company, its board of directors, by resolution in November, 1909, transferred these assets to John Vaile for the aggregate sum of $ 17,659.55. A deed was made to him to the lots above described, and the consideration therefor was $ 12,000. He paid $ 4,000 for the automobiles on hand, and $ 1,659.55 for the tools and other supplies in stock, and a bill of sale therefor was executed to him. Vaile sold lot 3 in block 9, Fitzgerald Addition to the city of Fort Smith, to one Woodson for the sum of $ 10,000. He sold the tools, etc., for the sum of $ 1,546.31, and the automobiles for $ 3,950. From the book accounts, he collected $ 163.24, making the total sum realized from the assets sold, $ 15,659.55. He paid out on the debts of the company listed above, the sum of $ 17,659.55. This included $ 458.84 of the debt owed John Vaile, himself, by the company. The market value of the lot in Elmwood Place, according to the testimony, is $ 200. On the 15th day of February, 1910, the said company filed its annual statement, as required by law, signed by its president and attested by its secretary, in which it stated that it had no assets and owed no debts. On the 29th day of June, 1911, it filed with the county clerk and Secretary of State, the certificate required by law for the surrender of its charter. On August 19, 1908, the plaintiffs brought suit against said automobile company to recover damages for personal injuries which they alleged they had sustained by reason of the negligence of the servants of said company. On June 30, 1910, plaintiffs obtained judgment against the company in the circuit court in favor of Annie Nedry for $ 5,000, and in favor of John B. Nedry, in the sum of $ 20. An appeal was taken to the Supreme Court by said automobile company, but no supersedeas bond was given. The judgment was affirmed by the Supreme Court on the 30th of October, 1911. See Fort Smith Automobile & Supply Co. v. Nedry, 100 Ark. 485. On the 29th day of June, 1911, executions were issued on said judgment and returned unsatisfied on August 9, 1911, because the officer was unable to find anything to levy on. The present suit was instituted on the 23d day of November, 1911.

John Vaile was placed on the stand by the plaintiffs, and, after testifying that notes were given to the First National Bank to pay drafts drawn for Ford cars by the factory, there also appears in his testimony the following: "That there was no credits on the back of either of the notes given for the Ford cars in June and July, 1909, and he did not know what became of the cars, or what became of the money after they were sold." John Vaile also became a witness for the defendants, and testified that he bought the stock of Bohmer and others, as stated above, in pursuance of the agreement he had made with them in 1907; and in this he is corroborated by Bohmer and the other two stockholders. He further stated that in October, 1909, numerous claims were in the hands of attorneys, who were pressing the company for payment. That he made an inventory of the assets of the company, and found them to be as listed above. That a resolution was passed by the stockholders of the company authorizing the company to convey to him all the assets listed above for the price stated above, in order that he might pay the commercial debts of the company, and that the assets were devoted to that purpose, and that he lost $ 2,000 by the transaction because he was unable to sell the lot in the Fitzgerald Addition for more than $ 10,000, and that this amount was the fair market value of said property. He also stated that he sold the automobiles and supplies, on hand for their fair market value, and that $ 200 was the fair market value of the lot in Elmwood Place. That he paid all the debts of the company, except the claims of the plaintiffs in this action, and he said that was not regarded by the company as a debt or liability due by it, and that when he took over the assets of the company, he did not agree to pay it. At the time he took over the assets of the company, the claim had not been reduced to judgment.

Other facts will be stated or referred to in the opinion. The chancellor found that the price paid by said Vaile for the lots, tools and automobiles purchased by him from the company was their fair market value at the time, and that the sale was made in good faith, and was free from fraud. The complaint of the plaintiffs was dismissed for want of equity.

Decree affirmed.

J. F. O'Melia and Ben Cravens, for appellants.

1. The assets of a corporation are a trust fund for the payment of its debts, and may be followed into the hands of any person acquiring them with notice of the trust. An officer and director of the corporation is presumed to know its pecuniary condition and his purchase of the assets will not be bona fide and without notice of the trust. 8 Pet. 281; 15 How. 308; 22 Id. 387; 7 Wall. 299; 7 Id. 392; 11 Id. 96; 16 Id. 390; 17 Id. 610; 91 U.S. 60; Id. 47; 101 U.S. 205; 103 U.S. 498; 38 Ark. 17.

2. The purchase of the assets of an incorporated company by a director thereof is voidable at the instance of a party in interest. 91 U.S. 587; 23 Ark. 622; Kirby's Dig., § 949.

Jurisdiction obtained by a court of all the parties and the subject-matter remains and is binding until reversed. 5 Ark. 424; 8 Ark. 318.

3. Corporations, whether private or public, are liable for their torts, and for the tortious acts of their servants while engaged in the company's business, in the same manner that individuals under like circumstances would be liable. 26 Am. & Eng. Enc. of L. 75; 100 U.S. 697, 100 Ark. 485.

4. If there was a preference made it was in secret, and there was no point of time, so far as outsiders were concerned, from which to measure the ninety days.

Appellants were in a legal sense such creditors of the Fort Smith Automobile & Supply Company at the time it disposed of its assets as to entitle them to participate in a pro rata distribution of the assets. 143 N.Y. 398; 2 Root (Conn.) 261; 2 Day (Conn.) 70; 37 N.J.L. 300; 81 Ill. 186, 25 Am. Rep. 276; 6 Ill. 397, 41 Am. Dec. 190; 83 Ind. 157; 62 N.E. 100; 51 O. St. 462-468, 38 N.E. 881; 25 Utah 379, 71 P. 873-878; 107 F. 311-317; 63 Ark. 244. Appellants are not barred for failing to institute suit within ninety days after the company had transferred its assets. 63 Ark. 244; 67 Ark. 11.

Winchester & Martin, for appellees.

1. Directors may contract with the corporation just as any one else may do,...