Nelson v. Jones

• Decision Date: 06 March 1924
• Citation: 224 P. 435,38 Idaho 664
• Parties: L. A. NELSON, Respondent, v. HENRY JONES, Appellant, and MODERN PACKING COMPANY, a Corporation, and HENRY JONES, PERRY JONES, JOHN F. HANSEN and W. P. GUTHRIE, as Trustees, Defendants
• Court: Idaho Supreme Court

224 P. 435

38 Idaho 664

L. A. NELSON, Respondent, v. HENRY JONES, Appellant, and MODERN PACKING COMPANY, a Corporation, and HENRY JONES, PERRY JONES, JOHN F. HANSEN and W. P. GUTHRIE, as Trustees, Defendants

Supreme Court of Idaho

March 6, 1924

PLEADING AND PRACTICE-TWO OR MORE CAUSES OF ACTION JOINED IN SINGLE COUNT - WHEN DEEMED WAIVED - CORPORATIONS - WHEN ACTION MAY BE CONTINUED AGAINST DIRECTORS AS TRUSTEES-CORPORATE ASSETS - WHEN OFFICERS INDIVIDUALLY LIABLE TO CREDITORS.

1. Where a complaint states two causes of action in a single count, and no objection to such complaint is made in the court below until after judgment is entered upon both causes of action, the misjoinder will be deemed to have been waived.

2. When a corporation is insolvent and becomes defunct for a failure to pay the annual license taxes, an action pending against it may, under C. S., sec. 4790, be continued against the directors as trustees.

3. The directors and officers of a corporation hold its funds in trust, and any attempt on their part to divert the use of such funds to their personal profit or interest is a violation of the trust imposed by virtue of their office.

4. Where an officer of a corporation caused it to mortgage all of its property to himself to discharge an obligation which it owed him, and foreclosed the mortgage and purchased the property, such transaction is in legal effect an unlawful conversion of the corporate property, and he becomes liable to account for the value of the same to any creditor who has been injured thereby.

5. Where the president and general manager of a corporation converts all of its assets to his own use, in an action by a creditor for its value it is not necessary to allege or prove that it was done fraudulently or collusively, such facts and circumstances make the transaction fraudulent and void in law.

APPEAL from the District Court of the Eleventh Judicial District for Twin Falls County. Hon. Wm. A. Babcock, Judge.

Action to recover on a note against the Modern Packing Company, a corporation, and its directors as trustees, and against Henry Jones in his individual capacity. From judgment for plaintiff against Jones, he appeals. Modified and affirmed.

Cause remanded, with instructions. Costs to respondent.

E. A Walters, R. P. Parry and W. P. Guthrie, for Appellant.

In the absence of collusion or fraud an insolvent corporation is not prevented from preferring certain creditors. (Wilson v Baker Clothing Co., 25 Idaho 378, 137 P. 896; Marshall on Corporations, sec. 780; Capital Lumber Co. v. Saunders, 26 Idaho 408, 143 P. 1178; Pettengill v. Blackman, 30 Idaho 241, 164 P. 358; 27 C. J. 613, 631; 8 Fletcher, Cyc. of Corporations, sec. 5074; 7 R. C. L. 257.)

In the absence of collusion or fraud, it is entirely legal for a corporation to prefer as a creditor one who is a stockholder therein or an officer thereof. (7 R. C. L. 758, 760; Sanford Fork & Tool Co. v. Howe, Brown & Co., 157 U.S. 312, 15 S.Ct. 621, 39 L.Ed. 713; Sutton Mfg. Co. v. Hutchinson, 63 F. 496, 11 C. C. A. 320; 8 Fletcher, Cyc. of Corporations, sec. 5144; Thompson on Corporations, sec. 6176; In re Lake Chelan Land Co., 257 F. 497, 5 A. L. R. 560; Harle-Haas Drug Co. v. Rogers Drug Co., 19 Wyo. 35, Ann. Cas. 1913E, 181, and note 113 P. 791; American Exchange Nat. Bank v. Ward, 111 F. 782, 55 L. R. A. 356, 49 C. C. A. 611.)

The mere fact that a preference results from the acts complained of is not proof of fraud. (Wilson v. Baker Clothing Co., supra; Capital Lumber Co. v. Saunders, supra; Pettengill v. Blackman, supra; Bates v. Papesh, 30 Idaho 529, 166 P. 270.)

The findings of fact must be sufficient to sustain the conclusions of law and if fraudulent intent is not found the transfer will not be set aside. (27 C. J., p. 846, sec. 805.)

E. M. Wolfe and C. Wilkins, for Respondent.

A director of an insolvent corporation cannot take advantage of his position to obtain a preference to himself. (Sawyer v. Hoag, 84 U.S. 610, 21 L.Ed. 731; Lyons-Thomas Hardware Co. v. Perry Stove Mfg. Co., 86 Tex. 143, 24 S.W. 16, 22 L. R. A. 802, and notes; Adams v. Kehlor Mill Co., 35 F. 433; Ryan v. Leavenworth etc. Ry. Co., 21 Kan. 365.)

A creditor may bring a personal action against an offending director of an insolvent corporation who takes an illegal preference to himself and through that illegal preference takes the property and converts it to his own use so that the specific property cannot be followed. (C. S., sec. 4715; Chadwick v. Holm, 31 Idaho 252, 170 P. 87; Union Coal Co. v. Woolly (Okl.), 154 P. 62; Nix v. Miller, 26 Colo. 203, 57 P. 1084; Darcy v. Brooklyn & New York Ferry Co., 196 N.Y. 99, 134 Am. St. 827, 89 N.E. 461, 26 L. R. A., N. S., 267.)

A director who seeks to obtain an unjust and unlawful preference will be held to account for the value of the entire property wrongfully appropriated by him. (Watrous v. Hilliard, 38 Colo. 255, 88 P. 186.)

WILLIAM A. LEE, J. McCarthy, C. J., and Budge and Wm. E. Lee, JJ., concur.

OPINION

WILLIAM A. LEE, J.

--The amended complaint in this action states two causes of action in a single count, but no objection to this misjoinder appears to have been taken by any of the defendants.

One cause of action is against the Modern Packing Company, a domestic corporation, and appellant Henry Jones, Perry Jones, John F. Hansen and W. P. Guthrie, in their official capacity as trustees of the defendant company. The corporation became defunct for a failure to pay the annual license taxes, and the directors were made parties defendant as provided by C. S., sec. 4790. This cause of action is upon the promissory note set forth in the complaint, executed by defendant corporation to the respondent Nelson, June 10, 1916, in the principal sum of $ 2,221.75.

The other cause of action is against appellant Henry Jones, in his individual capacity, and is based upon the averments that while he was president, director and general manager of this corporation, and knowing it to be insolvent, as such official, with its secretary, executed to himself a promissory note for $ 5,177.65, on February 11, 1918, due in six months, and a chattel mortgage to secure the same upon all of the then remaining property of the company, consisting of its furniture, fixtures and the retail butcher shop in Twin Falls; that in July, 1918, following the execution of this note and mortgage, appellant caused the mortgage to be foreclosed by affidavit, and said property to be sold to himself at such sale for $ 6,618.36, and his note and mortgage against the company to be fully satisfied. This cause of action is against appellant individually. It is based upon the execution of this note and mortgage to himself, and the subsequent sale of all the property of this insolvent and defunct corporation under the foreclosure proceedings, upon the ground that such proceedings were unlawful and void against respondent, a creditor of the corporation.

Prior to the execution of this note and mortgage a fire had destroyed the company's packing-house, and appellant had taken a mortgage upon all its real estate, in consideration of his having paid an indebtedness to a creditor of the company, apparently equal in amount to the value of this real estate. About the validity of this transaction no question is raised in this action.

The cause was tried by the court with a jury, which made special findings of fact upon interrogatories submitted, wherein it found that the company was insolvent at the time appellant took this note and chattel mortgage; that the appellant, with the other officers who had control of the company's affairs at the time of the execution of this instrument, knew that it was insolvent; and the jury found the value of the property included in the chattel mortgage given by appellant to be $ 1,000.

The court adopted the findings of the jury, and made additional findings to the effect that the company was a domestic corporation, with its principal place of business at Twin Falls, Idaho; that it forfeited its right to do business in December, 1918, for a failure to pay the license tax to the state; that at the time of such forfeiture, appellant, Perry Jones, John F. Hansen and W. P. Guthrie were its directors; that on June 10, 1916, it executed the note and mortgage sued on in this action to respondent, no part of which had been paid; that on February 11, 1918, this company, through its said officers, executed to and delivered to appellant a chattel mortgage on all of its personal property; and that appellant thereafter foreclosed said mortgage by affidavit and sale, and thereby appropriated all of the company's personal property to his own use. The court also finds that $ 150 is a reasonable attorney's fee in this action.

As a conclusion of law from such findings, the court holds that respondent is entitled to judgment against the company, the appellant, Perry Jones, John F. Hansen, and W. P. Guthrie, as trustees, for the principal sum of $ 3,423.46, and that appellant is personally liable to respondent, and respondent is entitled to judgment against him, for $ 1,000, the value of such personal property, together with interest, costs and $ 150 attorney's fees, making a total of $ 1,420 for which judgment was entered against appellant.

From this personal judgment against him appellant appeals...