Sherrill v. Hutson

• Decision Date: 21 May 1914
• Docket Number: 639
• Citation: 187 Ala. 189,65 So. 538
• Parties: SHERRILL v. HUTSON.
• Court: Alabama Supreme Court

65 So. 538

187 Ala. 189

SHERRILL v. HUTSON.

No. 639

Supreme Court of Alabama

May 21, 1914

Appeal from Chancery Court, Morgan County; W.H. Simpson, Chancellor.

Bill by P.R. Hutson, as trustee of the Twin City Installment Company against John W. Sherrill. From a decree overruling a demurrer to the bill, defendant appeals. Affirmed.

Chenault & Chenault, of Russellville, and Eyster & Eyster, of Decatur for appellant.

Kyle &amp Hutson, of Decatur, for appellee.

GARDNER J.

The bill shows that the complainant in this cause has been duly elected trustee of the bankrupt estate of the Twin City Installment Company, a corporation, which was adjudged a voluntary bankrupt by the District Court of the United States for the Northern Division of Alabama, and that complainant was authorized and empowered by the referee in bankruptcy of said court to file this bill. The bill is filed against appellant John W. Sherrill, J.G. Johnsey, and George W. Mills, stockholders in said corporation, and seeks to have set aside as fraudulent and void transactions whereby said stockholders sold their stock to one W.C. Bulman as manager of said corporation and received payment therefor from the funds of said corporation, and a recovery of the same. The appellant alone appeared in the cause, and demurred to the bill, and from the decree overruling his demurrer this appeal is prosecuted by him.

We are concerned therefore, principally, only with the averments of the bill in so far as they affect the appellant.

The third paragraph of the bill shows who were the stockholders of said corporation in June, 1910, and the amount held by each, this appellant owning 20 shares, and that one W.C. Bulman was the president and manager, and B.W. Watson, treasurer, of said corporation. It is further alleged: That at that time the said corporation owed debts then due and unpaid largely in excess of its assets, "and that said corporation, at said time, was wholly insolvent." That in August, 1910, each of said officers and stockholders, to quote from the bill--

was "aware of the financial condition of said corporation, and knew at that time the same was insolvent, and with the intent to hinder, delay, and defraud the creditors of said corporation, in said month, the respondent, John W. Sherrill, realizing the insolvent condition of said corporation, agreed with W.C. Bulman, who was at that time general manager of said corporation, with authority to transact all its business except the execution of checks, to sell him said 20 shares of stock for a consideration of about $2,250, to the said W.C. Bulman as manager of the said corporation, and the said W.C. Bulman to pay for said stock out of the assets of the said corporation. And complainant avers that in consummation of said agreement, respondent, John W. Sherrill, transferred to the said W.C. Bulman all his shares of stock in said corporation, and the said W.C. Bulman executed to respondent, John W. Sherrill, notes to the amount of approximately $2,250. And plaintiff avers that said notes were executed by W.C. Bulman as manager of the Twin City Installment Company, that all of said notes with the exception of approximately $250 have been paid to the said John W. Sherrill out of the assets of the said Twin City Installment Company."

We do not deem it necessary to discuss each assignment of demurrer separately, but will treat the bill in a general way.

The bill shows that in reality the sale of the stock was by the stockholders to the corporation, payment for which was made out of the assets of said corporation, the insolvency of the corporation, a knowledge of such condition on the part of the stockholders, and goes further and alleges the transfer was made to hinder, delay and defraud its creditors. It is further alleged that:

"The aforesaid transactions between the said W.C. Bulman as manager of the Twin City Installment Company, and respondent, John W. Sherrill, were acquiesced in and agreed to by the stockholders of said Twin City Installment Company."

The said corporation was adjudged a voluntary bankrupt in August, 1911.

"Whether pursued on the trust-fund theory, or on the ground of fraud, there is no doubt that prejudiced creditors may follow and apply to their claims property or money transferred by an insolvent corporation in the purchase of its own stock. The funds represented by the capital stock of the corporation cannot be impaired to the advantage of the members of the corporation at the expense of its creditors. So money paid by an insolvent corporation for shares of its own stock is property fraudulently transferred which may be reached and subjected by a creditor to his claim by a bill in equity." (Italics ours.) Jones on Insolvent & Failing Corporations, § 254.

We are there cited in the note to our own authority, Hall v. Ala. Terminal Co., 143 Ala. 464, 39 So. 285, 2 L.R.A. (N.S.) 130, 5 Ann.Cas. 363, wherein, speaking to the same effect, it was said:

"The purchase by a corporation of shares of its own capital stock is a fraud upon its creditors. Such shares neither import nor represent any right or claim in or to, or to subject to their payment

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