Schufeldt v. Smith
| Decision Date | 25 May 1897 |
| Parties | Schufeldt et al., Appellants, v. Smith et al |
| Court | Missouri Supreme Court |
Appeal from Buchanan Circuit Court. -- Hon. H. M. Ramey, Judge.
Affirmed.
Hall & Pike, Stauber & Crandall, and Johnson, Rusk & Stringfellow for appellants.
(1) The deed of trust in question here is prima facie fraudulent, and the burden was on defendants to show that the debts of the creditors secured in the deed were valid debts of the corporation. See former opinion in this case, 131 Mo. 280. (2) A corporation can not, as against its creditors, apply its assets in satisfaction of debts of persons whom it is under no obligation to pay, and the inhibition extends to their use in the payment of the private debts of its officers. National Tube Works v. Ring Refrigerator & Ice Machine Co., 118 Mo. 365. (3) An absolute agreement on the part of the corporation would be required to charge even the corporation, this being not a case of the consolidation of two corporations, nor the absorption of one by another. Pennison v. Railroad, 67 N.W. 702. At the organization of this corporation, the capital stock was paid up by property belonging to its stockholders, which had constituted part of the assets of the firm, of which the stockholders were members. This is all. In such a case, the property would be taken of course, subject to any lien actually existing against it, and not subject to any other claims against the former owners of the property. (4) It is well settled in this State that partnership creditors have no lien on partnership effects. Their rights must be worked out through the equities of the partners, and these may be waived. Sexton v. Anderson, 95 Mo. 381; Reyburn v. Mitchell, 106 Mo. 365; McDonald & Co. v. Cash & Hainds, 57 Mo.App. 536. From this it would seem to follow that an agreement binding on the corporation would be necessary to give the directors power to prefer firm claims.
H. K White for respondent The Walsh Mercantile Company.
James F. Pitt for respondent Ferdinand Lutz.
(1) Where partners organize a corporation and transfer to it the firm's business and assets, the corporation issuing its stock in consideration of such transfer, the partnership liabilities attach to the new concern by operation of law and the partners simply acquire a new name under which they may be sued, and by which they may assign the corporate property to pay or secure those liabilities. When the corporation is sued at law, in the absence of an express agreement to pay the debts, it may defend in equity that the firm was insolvent and be relieved pro tanto, but this does not alter the liability to respond at law to the full amount of the assets received. Dean v. LaMotte Lead Co., 59 Mo. 524; Slattery v. Transportation Co., 91 Mo. 217; Bank v. Branch-Crookes Saw Co., 104 Mo. 425. (2) The preference to the third class creditors, and to each one in that class, is to be treated as though made by a separate instrument. Woodson v. Carson, 35 S.W. 1005; Jacobi v. Jacobi, 101 Mo. 507; Bank v. Moran Packing Co., 39 S.W. 71. (3) The record discloses, by plaintiff's own showing, an express agreement between the partners and the corporation to the effect that the latter should pay the debts of the former; when the corporation took the assets it was bound to know the terms upon which it got them, and it is immaterial what percentage of the capital stock was considered paid in the transaction. Nor could the corporation repudiate this agreement and still hold the assets.
James W. Boyd for respondent James Walsh, administrator of the Conrad estate.
(1) These two promissory notes were executed in good faith by the James Walsh Mercantile Company, for money borrowed by it from the estate of Thomas Conrad, deceased; and this deed of trust, so far as these debts are concerned, is valid. Carson v. Woodson, 35 S.W. 1006; Schufeldt v Smith, 131 Mo. 280. (2) The appellants have elected not to accept the provisions of said deed of trust. They have repudiated it and now claim that it is fraudulent and void. They are not judgment creditors; they have no lien on or special interest in the property. Hence, their petition fails to state a cause of action and they have no legal standing in this court. Bank v. Moran Packing Company, 138 Mo. 59; Reyburn v. Mitchell, 106 Mo. 365. (3) But the appellants can not claim under a deed and at the same time attack it, or any part of it. They must accept said deed in toto or reject it in toto. They can not claim under the deed and at the same time attack and defeat provisions made by it for the benefit of other creditors. Valentine v. Decker, 43 Mo. 583; Drew Glass Co. v. Baldwin, 27 Mo.App. 44; Frierson v. Branch, 30 Ark. 453; Hasenritter v. Kirchhoffer, 79 Mo. 239; Sampson v. Shaw, 19 Mo.App. 274-282; Stoller v. Coates, 88 Mo. 514-522, 523; Eppright v. Kauffman, 90 Mo. 25-28. (4) If there is one valid claim secured in said deed of trust, without any fraud on the part of the holder of said claim, then said deed of trust can not be annulled, and appellants can not prevail in this suit. Carson v. Woodson, 35 S.W. 1006; Hardcastle v. Fisher, 24 Mo. 75.
S. P. Huston and Brown & Pratt for respondent Smith.
(1) There is neither allegation or proof of any fraudulent intent or conduct on the part of the trustee. The only charge is that he knew the corporation was insolvent when he accepted the trust, but of this there is not a scintilla of proof. R. S. 1889, sec. 8685. (2) The plaintiffs appellants can not as simple general creditors, without lien or specific interest in the property, attack the deed of trust. Aside from the rights derived to them through that deed, they are completely and conclusively outside the jurisdiction of a court of equity. Bank v. Moran, 138 Mo. 59; Mullen v. Hewitt, 103 Mo. 639; Mellier v. Bartlett, 106 Mo. 381; Reyburn v. Mitchell, 106 Mo. 365. (3) We concede that if they claim under the deed they may by virtue of their rights as creditors secured thereby, attack any claim thereby secured to any other person, but they can not attack the very deed under which alone they must rely to maintain themselves in court as an entirety -- to set it aside as to all secured thereby. Gibson v. Lyon, 115 U.S. 439; Bissell v. Foss, 18 Wall. 252; Austin v. Loring, 63 Mo. 19. (4) Under the pleadings and proof the court would be required as a matter of law to sustain the deed of trust. First. Because if plaintiffs as general creditors only prosecute this bill, they must fail and in that event the deed stands. Second. Because if they avail themselves of the right conferred by the deed, they can not at the same time attack it as wholly void. Third. Because even conceding, which we do not, that any of the claims secured by the deed were fraudulent, yet such concession would only cancel such claims and leave the trust deed in force as to the other secured claims to be administered according to its terms except as to the canceled claims.
On the eighteenth of March, 1893, the James Walsh Mercantile Company, a corporation under the laws of this State, which had since 1887 been engaged in the business of wholesale merchants in the city of St. Joseph, under a resolution of the board of directors, executed to defendant Smith, as trustee, a deed of trust on all its property to secure its creditors. The deed was drawn in pursuance of the resolution under which the debts and liabilities were divided into five classes and preferences given to the creditors in the order of classification. The general mercantile creditors of the concern were placed in the fifth class, and the assets are insufficient to pay the debts in the preceding classes. These creditors sue to set aside the deed as being fraudulent. On the first trial the trial court found, as a fact, that the corporation was insolvent when it executed the deed of trust, and held, as a matter of law, that an insolvent corporation could not prefer some of its creditors, and therefore entered a decree annulling the deed of trust. From that decree defendants, the trustee and preferred creditors, appealed and the judgment was reversed and a new trial was ordered. The opinion, accompanied by a statement of the facts, will be found fully reported in volume 131, page 283, of Missouri Reports.
When the case went back to the circuit court an amended petition was filed, the case was retried, and a judgment rendered for defendants, and plaintiffs appeal.
Upon this trial it was shown that for some years prior to the organization of the corporation, James Walsh & Company, a partnership composed of James Walsh, John Byrne, and Thomas Culligan, were engaged in business at St. Joseph as wholesale merchants. On the seventh of July they organized a corporation with a capital stock of $ 150,000 to conduct the same line of business. At the first stockholders' meeting the following resolution was adopted:
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