Ready v. Smith
| Decision Date | 18 November 1902 |
| Citation | 70 S.W. 484,170 Mo. 163 |
| Parties | READY et al., Appellants, v. SMITH et al |
| Court | Missouri Supreme Court |
Appeal from Pettis Circuit Court. -- Hon. Geo. F. Longan, Judge.
Affirmed.
Wm. S Shirk, B. G. Wilkerson and G. W. Barnett for appellants.
(1) The complaint here is, that the corporation being dissolved, the defendant Smith, as president and business manager, has fraudulently converted to his own use property and assets of the dissolved corporation, which under the law he held in trust for the benefit of its creditors; that instead of using said property to pay the creditors he has entered into a fraudulent scheme to place the property beyond the reach of the creditors. (2) The plaintiffs as creditors are the parties injured, and as the petition alleges they are the sole creditors, they are the only ones injured and they, not the corporation, are the proper parties to sue. The suit must be in the name of the real parties interested. Our right to recover the amount due us, and to charge the property of the dissolved corporation with the payment of our debts, can not depend upon the action or non-action of the corporation. The corporation is dissolved. The purposes for which it was formed have been abandoned. The property of the defunct corporation is chargeable with its debts. Its assets constitute a fund for the discharge of the debts, and the defendant Smith as trustee, president and business manager is a "trustee of the corporation with power to settle the affairs, collect the outstanding debts and pay the outstanding debts due and owing by such corporation as far as the assets will enable him; to sue for and recover the property in his name as such trustee; and as such trustee is responsible to the creditors of the corporation to the extent of its property and effects that have come into his hands." R. S. 1899, sec. 976. (a) Under this statute the defendant Smith as trustee of the dissolved corporation, not the corporation itself, could sue a wrong-doer for the wrongful appropriation of the assets of the corporation, but in the present case he is the wrong-doer. The allegation is that he has fraudulently appropriated the assets of the corporation which constituted the fund for the payment of the debts. Of course he will not sue himself, and the creditor who is injured and the real and only party interested can sue, and ask that the property be appropriated to the payment of his debt. (b) A court of equity will lay hold of the assets of the corporation for the purpose of paying its debts. Hill v. Fogg, 41 Mo. 563; Powell v Railroad, 42 Mo. 63. (3) It was not necessary for plaintiffs to reduce their claims to judgments before bringing a suit in equity to charge the property with the payment of their claims. The parties to this suit are all the creditors of said corporation. The corporation is dissolved and wholly insolvent. There are no funds with which to pay the debts except that in the hands of defendant Smith. It would be useless to attempt to reduce these claims to a judgment. This is a suit belonging peculiarly to equity jurisdiction and in such a case there is no necessity for a judgment. The corporation being dissolved, there is no one to sue, except the trustees and officers who hold the property as trustees for the benefit of creditors. Sec. 976, R. S. 1899; White v. Land Co., 49 Mo.App. 466; Woolen Mill Co. v. Kampe, 38 Mo.App. 234. (a) A suit against the corporation would be a useless form and the law will not require an act which would be frivolous. Savings Association v. Kellogg, 52 Mo. 583. (b) The fund sought to be reached is a trust fund held in trust for the benefit of creditors and can only be reached by the aid of a court of equity. Wait on Insolvent Corporations, sec. 41, p. 52; Morawetz on Corporations, sec. 1035; Herman v. Britton, 88 Mo. 555; Eppwright v. Nickerson, 78 Mo. 490; Powell v. Railroad, 42 Mo. 68; Williams v. Jones, 23 Mo.App. 132. (c) Where the property is in the hands of the defendant as a trust fund, as in this case, or where the debtor is dead, absconded, or is a dissolved corporation or is wholly insolvent, the law will not require the plaintiff to reduce his claim to a judgment before proceeding in equity by means of a creditor's bill. Pendleton v. Perkins, 49 Mo. 467; Woolen Mill Co. v. Kampe, supra; Savings Association v. Kellogg, 52 Mo. 583.
George P. B. Jackson and Montgomery & Montgomery for respondents.
(1) The plaintiff can not maintain this action because the right of action, if any, for the alleged wrongs belonged to the corporation itself, the university company, and a general creditor can not maintain the action. Oil Co. v. Marbury, 91 U.S. 590; Buel v. Buckingham & Co., 16 Iowa 289; Alcott v. Railroad, 27 N.Y. 567; Branch v. Roberts, 50 Barb. 435; Allen v. Curtis, 26 Conn. 460. (2) The petition fails to state any facts showing that the plaintiff suffered any injury by the failure of defendant Smith to communicate to the other trustees of the university company the knowledge he is charged to have had, or, that if he had communicated such knowledge, they could have derived any benefit therefrom. (3) The petition shows that plaintiffs are simple contract creditors, not having reduced their claims to judgment, and they can not maintain this proceeding in equity. Bank v. Packing Co., 138 Mo. 92; Wilkerson v. Goodwin, 71 Mo.App. 396; Grocery Co. v. Clark's Execut'x, 79 Mo.App. 405; Hollins v. Brierfield Coal & Iron Co., 150 U.S. 371; LaGrange Button Co. v. Bank, 122 Mo. 154. (4) The plaintiffs have lost whatever remedy they may have had for the wrongs complained of by their laches. Kitchen v. Railroad, 69 Mo. 255; Twin-Lick Oil Co. v. Marbury, supra. (5) The plaintiffs can not maintain this action because no fraud is alleged on the part of the corporation, the university company, who is the debtor of the plaintiffs. Parker v. Roberts, 116 Mo. 662; Bump on Fraudulent Conveyances, p. 18; Johnson v. Bennett, 39 Barb. 237; French v. Shotwell, 5 Johns. Ch. 564; 1 White and Tudor's Leading Cases in Equity, pt. I., p. 180; Wait on Fraudulent Conveyances, sec. 403; Garretson v. Kane, 27 N. J. L. 211; Eaton v. Perry, 29 Mo. 96; Priest v. White, 89 Mo. 616; McAlpin v. Switzer, 76 Ind. 78; Min. and Manfg. Co. v. Coosa Furnace Co., 95 Ala. 614; s. c., 10 So. 290; Crocker v. Ballangee, 6 Wis. 645; Railroad v. Railroad, 20 Wis. 192; Gruber v. Baker, 20 Nev. 453; s. c., 23 P. 863; Whitney v. Kelly, 94 Cal. 146; s. c., 29 P. 624. This rule applies to corporations as well as to individuals. Graham v. Railroad, 102 U.S. 148; Hollins v. Coal and Iron Co., 150 U.S. 384; LaGrange Button Co. v. Bank, 122 Mo. 154; Manfg. Co. v. Shoe Co. 60 F. 341; Buel v. Buckingham, 16 Iowa 289; Alcott v. Railroad, 27 N.Y. 567.
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 fifty-four acres lying adjacent to the city of Sedalia, twenty 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 twenty 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 twenty 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, borrowed 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 twenty 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 defendants, 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 twenty 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 employee of the Missouri, Kansas & Texas Railway Company that said...
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