Passow & Sons v. Wetherbee

• Decision Date: 20 August 1917
• Docket Number: 3047
• Citation: 167 P. 350,50 Utah 243
• Parties: PASSOW & SONS v. WETHERBEE et al
• Court: Utah Supreme Court

167 P. 350

50 Utah 243

PASSOW & SONS v. WETHERBEE et al

No. 3047

Supreme Court of Utah

August 20, 1917

Appeal from District Court, Third District; Hon. F. C. Loofbourow Judge.

Action by Passow & Sons against W. L. Wetherbee and others.

Judgment for plaintiff against defendant named. Defendant appeals.

AFFIRMED with costs.

Hurd &amp Hurd for appellant.

R. W Young & Son and Harry J. Robinson for respondents.

CORFMAN, J. FRICK, C. J., and McCARTY, THURMAN, and GIDEON, JJ., concur.

OPINION

CORFMAN, J.

This was an action brought by plaintiff in the district court of Salt Lake county to determine the rights of a creditor of a defunct corporation. The complaint, in substance, alleges the corporate existence of the plaintiff and the defendant Utah State National Bank, hereinafter designated bank; that the defendant W. L. Wetherbee Company, hereinafter called company, was organized as a corporation, but on the 3d day of April, 1911, its charter was forfeited by reason of nonpayment of the annual corporation tax; that thereupon it ceased to have any power or authority to continue business, and that it thereupon became and is still insolvent; that on the 25th day of November, 1913, the plaintiff recovered a judgment against the defendant company for the sum of $ 669.60 interest and costs; that thereafter, on or about October 3, 1914, an execution was issued on the judgment and the sum of $ 50 obtained thereon and applied as part payment of the judgment; that the balance of plaintiff's judgment remains unsatisfied; that the defendant W. L. Wetherbee was the general manager and, as such, had sole charge and control of the property and assets of the defendant W. L. Wetherbee Company; that the assets consisted of personal property of various kinds, including a stock in trade; that the defendant W. L. Wetherbee on October 2, 1912, assumed, without legal authority, and with the purpose of hindering and delaying creditors, particularly the plaintiff, to mortgage, substantially, all the assets of the defendant W. L. Wetherbee Company to the defendant bank, and thereafter, on November 28, 1914, the bank obtained a judgment and decree of foreclosure of the mortgage, the mortgaged property was sold, bought in by the bank and resold by it to the defendant W. L. Wetherbee, who claims to be the owner thereof to the exclusion of the plaintiff and other creditors; that the foreclosure and sale by the bank was illegal and void, and in fraud of the rights of the plaintiff and other creditors of the defendant company. Plaintiff prayed for an accounting of the assets of the defendant company and for judgment therefor against all the defendants, receivership, attorneys' fees and costs of suit in behalf of itself and all other creditors coming in and joining in the action, and for general relief.

The separate answer of the defendant bank admits its corporate existence and the incorporation of the W. L. Wetherbee Company, and affirmatively alleges that the mortgage given by the company was in the exercise of its lawful powers and for a valuable consideration; that the mortgage was legally foreclosed, the property purchased by the bank at the foreclosure sale and subsequently resold to the defendant W. L. Wetherbee, on a title retaining note; that Wetherbee failed to pay for the same; that the property was recovered from Wetherbee and portions thereof resold. The other allegations of the complaint are denied. Plaintiff, in reply, denied all the affirmative allegations of the answer.

Briefly stated, the facts proven at the trial were as follows: The defendant company was incorporated under the laws of Utah in January, 1910. Failing to pay the annual corporation tax its charter was declared forfeited April 3, 1911, pursuant to statute. The defendant W. L. Wetherbee was its president and general manager authorized, as such, under its by-laws, to transact the general business affairs of the company. April 12, 1911, one day after the charter of the company had been forfeited, a meeting of creditors of the company was held and it was arranged that the company should go into liquidation. Time for payment of the company debts was extended and a note and chattel mortgage given for $ 6,000 on all the assets to the Utah Association of Credit Men, as trustee for the creditors. Payments were made by the company to the Utah Association of Credit Men reducing the mortgaged indebtedness to $ 3,390.70, when the note and mortgage was assigned by the Utah Association of Credit Men to the defendant bank for a consideration of $ 2,048.28. Subsequently this mortgage was renewed by the company with the bank by the giving of a new note and mortgage, under which foreclosure proceedings were had and the mortgaged property purchased by the bank at foreclosure sale. Thereafter the bank sold the property to the defendant W. L. Wetherbee, on a title retaining note which was not paid, whereupon the property was repossessed by the bank and by it sold to a third party, the bank sustaining some financial loss in the transactions. The indebtedness of the company with the plaintiff was contracted for goods, wares, and merchandise between October 1, and November 30, 1910, for which a judgment was had and obtained against the company in November, 1913. In October, 1914, execution was issued and $ 50 was recovered by the sheriff of Salt Lake county and applied on the plaintiff's judgment. The evidence also shows that the plaintiff did not take any part in the previous transactions of the company with its creditors, the Utah Association of Credit Men and the bank. Upon trial to the court a money judgment was rendered in plaintiff's favor against the defendant W. L. Wetherbee, as prayed for, and denied as to the defendant bank. Plaintiff appeals.

Numerous errors are assigned. However, counsel for plaintiff, in his brief, presents but one question for determination by this court, and, as said by him:

"The sole question presented upon this appeal is whether or not defendant W. L. Wetherbee Company, after having become insolvent, and after the forfeiture of its franchise, could assign or otherwise convey its property to a single creditor, either for itself or for the benefit of itself and other creditors, to the exclusion of the rights of the plaintiff and the other creditors to participate in the distribution of the assets of the said involvement and defunct corporation."

This question presents the effect of Laws Utah 1909, c. 106, section 5, relating to the forfeiture of the charter of such defaulting corporation and winding up the business thereof. After providing in said chapter for the method of the forfeiture of defaulting corporations it is, by section 5 thereof, further provided:

"The Governor, for at least ten days prior to the first Monday in April following [March]...