Ready v. Smith

• Decision Date: 18 November 1902
• Citation: 70 S.W. 484,170 Mo. 163
• Parties: READY et al. v. SMITH et al.
• Court: Missouri Supreme Court

70 S.W. 484

170 Mo. 163

READY et al. v. SMITH et al.

Supreme Court of Missouri, Division No. 2.

November 18, 1902.

CORPORATIONS — INSOLVENCY — DISSOLUTION — RIGHTS OF SIMPLE CREDITORS — MORTGAGES — PURCHASE BY DIRECTOR — EFFECT — PROFITS BY DIRECTOR — RATIFICATION BY CORPORATION — PLEADING — LACHES — PARTIES.

1. A simple-contract creditor of a corporation, not having reduced his claim to judgment, is not entitled to maintain a suit against a director to recover alleged equitable assets in his hands.

2. Mere insolvency of a corporation, which renders it impossible for it to continue its business, does not, ipso facto, work a dissolution thereof.

3. Where there was no allegation in a creditors' bill against a director of a corporation to recover a profit made by such director through a purchase of certain property, of which the corporation was equitable mortgagor, under foreclosure, that the director's action was not ratified by the board of directors, or that there was any fraud in the acts of the board, or that the transaction was collusive, the bill was insufficient; the wrong, if any, in the first instance, being against the corporation.

4. Where a corporation, in order to procure money, induced a land company, which had agreed to convey certain land to the corporation, to mortgage the land to secure the loan, and defendant joined with others in purchasing the note securing the loan after the corporation had defaulted in its payments, and purchased the property at public sale by a disinterested trustee under foreclosure of the deed of trust, the mere fact that defendant was a director of the corporation did not render the purchase fraudulent.

5. Where a director of a corporation purchased a note and deed of trust securing the corporation's debt, and thereafter purchased the property on foreclosure, the corporation was a necessary party to a suit by creditors against such director to recover a profit made by him on the subsequent sale of the property to third parties.

6. Where a director of a corporation purchased property of which the corporation was the equitable mortgagor at foreclosure sale in March, 1889, and in May of the same year sold the property at a profit, an action by creditors to recover such profit as assets of the corporation, which was insolvent, not brought until January, 1891, was barred by laches; no facts being concealed, and all the parties residing in the same place.

7. Where a director of a corporation purchased property of which the corporation was the equitable mortgagor, and immediately sold the property at a profit, fraud, if any, in such purchase, was against the corporation, and not against its creditors, and they were not entitled to impeach the same.

Appeal from circuit court, Pettis county; Geo. F. Longan, Judge.

Action by George W. Ready and others against D. H. Smith and others. From a judgment of nonsuit on sustaining a demurrer to the petition, plaintiffs appeal. Affirmed.

Wm. S. Shirk, B. G. Wilkerson, and G. W. Barnett, for appellants. Geo. P. B. Jackson and Montgomery & Montgomery, for appellees.

GANTT, J.

The sufficiency of the petition in stating a cause of action presents the question for decision in this court. Upon the trial the defendants objected to the introduction of any evidence under the pleadings, for the reason that the petition did not state facts sufficient to constitute a cause of action. The objection was sustained, and plaintiffs took a nonsuit, with leave to move to set the same aside. They afterwards filed said motion, and it was overruled, and exceptions saved, and plaintiffs in due time perfected their appeal. The petition, in substance, charges that in 1882 a corporation was organized under the statutes of this state governing manufacturing and business corporations, with a capital stock of $10,000, the purpose of which was to purchase a tract of land of 54 acres lying adjacent to the city of Sedalia, 20 acres of which was to be donated to an educational corporation to be organized, to be used by the last-named corporation to establish and maintain a university; that this latter corporation was organized under the statutes of this state pertaining to benevolent, religious, and educational associations, and was called the Sedalia University Company. This company established a school and maintained the same until 1886, when it proving a failure, the school was abandoned, and the land corporation repossessed itself of the 20 acres of land. In the meantime the school or university company had become indebted to its teachers for salaries which were unpaid when this action was begun. The land company had in fact never conveyed the 20 acres to the university company, although it had placed it in possession thereof. During its struggle for existence the university company procured the land company to borrow $5,000 for its use, and for this purpose the land company placed a mortgage on the entire 54 acres to secure the $5,000 from the Missouri Trust Company. It was mutually agreed that if said university company should fail or neglect to pay two successive installments of said interest on said loan as evidenced by coupons, or should fail to pay the taxes or insurance, or fail to pay said $5,000 at the maturity of said note, then said university company waived and forfeited all right to have said 20 acres of land conveyed to it. P. H. Sangree was the trustee named in the deed of trust to secure said loan. The university company defaulted in the payment of said loan, and thereupon the defendant D. H. Smith and others bought said note of the Missouri Trust Company, and took an assignment to themselves. They afterwards caused the trustee to sell, and at the sale, March 6, 1889, Ira Hinsdale bought in the 20 acres of land, for the use and benefit of said Smith, for $6,900. The bill then charges that said Smith was one of the directors of said university company; that he was also an employé of the Missouri, Kansas & Texas Railway Company; that said company in 1888 was placed in the hands of two receivers, Cross and Eddy; that Cross and Smith were cousins and intimate friends; that a hospital was needed for said company, and it was necessary to procure land and buildings for the same, and that said Smith "became and was aware" that all or a part of the 20 acres could be sold to the receivers for that purpose, but that, before said receivers could so purchase, they would have to apply to the court appointing them for power so to do, "all of which it was his duty, under the circumstances, to have taken advantage of and made use of for and in behalf of said Sedalia University and its creditors, and those interested therein, all of which he failed to do"; that, after purchasing said lands, said Smith and Hinsdale began negotiations for the sale of said 20 acres to said receivers; that the same resulted in a sale to them of 7.05 acres, with the buildings thereon, for $9,000, on the 17th of May, 1889; that thus said Smith realized $2,100 more than he gave for said 20 acres, and said Hinsdale still holds the 12.95 acres of the same not sold to said receivers. The prayer of the bill is that Smith may be compelled to pay over to plaintiffs the difference, $2,100, with interest thereon, and that the remainder of the land be sold to satisfy plaintiffs' judgment.

1. It will be noted in the outset that plaintiffs are mere general creditors of the Sedalia University Company, and have not reduced their claims to a judgment. It is a general rule that a creditor, before obtaining judgment, has no such claim or lien upon the property of his debtor as will authorize him to complain of the disposition of the debtor's property, for the very good reason that he may never obtain a judgment, and, if he does not, he cannot be injured by any disposition of the property which the debtor may make. Humphreys v. Milling Co., 98 Mo. 548, 10 S. W. 140; Crim v. Walker, 79 Mo. 335; Fisher v. Tallman, 74 Mo. 39; Mullen v. Hewitt, 103 Mo. 639, 15 S. W. 924. Nor is this rule affected by the fact that the debtor, as in this case, is a corporation. In Atlas Nat. Bank v. John Moran Packing Co., 138 Mo. 92, 39 S. W. 71, Burgess, J., speaking for this court, said: "As the plaintiff has no lien upon its property, the packing company has the same right to sell or mortgage its property as a private person, and the same steps necessary to be pursued by a creditor in order to reach property conveyed or disposed of by the latter with intent to defraud creditors must be pursued by the creditors against the corporation; and, before such creditor can in either case...