Union Trust Co. v. Amery

• Decision Date: 24 January 1912
• Citation: 67 Wash. 1,120 P. 539
• Court: Washington Supreme Court
• Parties: UNION TRUST CO. v. AMERY.

120 P. 539

67 Wash. 1

UNION TRUST CO. v. AMERY.

Supreme Court of Washington

January 24, 1912

Department 1. Appeal from Superior Court, Spokane County; E. H Sullivan, Judge.

Action by the Union Trust Company, trustee of the Syphers Machinery Company, against Benjamin E. Amery. From a judgment of dismissal, plaintiff appeals. Reversed.

Campbell & Goodwin, for appellant.

H. M Stephens, for respondent.

GOSE J.

Plaintiff a trustee in bankruptcy for the estate of Syphers Machinery Company, a corporation, brought this action to recover from the defendant a sum of money paid to him by the bankrupt corporation for 5,500 shares of its capital stock purchased from him by the corporation prior to the time it was adjudged a bankrupt. A demurrer to the complaint was sustained, and a judgment of dismissal entered. The plaintiff has appealed.

The complaint, in substance, avers that the Syphers Machinery Company, a Washington corporation, was adjudged a bankrupt in the United States District Court, Eastern District of Washington, Eastern Division, on the 6th day of May, 1909; that the appellant, a corporation, was elected as its trustee in bankruptcy on the 3d day of June, 1909, and has duly qualified as such; that the appellant as such trustee was on the 29th day of November, 1909, granted permission by the referee in bankruptcy to prosecute this suit; that on the 18th day of October, 1906, the bankrupt corporation, in pursuance of an oral agreement, purchased from the respondent, who was then its president and one of its trustees, 5,500 shares of its capital stock of the par value of $1 per share, and paid him therefor from the funds of the corporation the sum of $5,500, and that the capital stock of the corporation consisted of 25,000 shares of stock of the par value of $1 per share. It is further alleged: 'That the sale by the said Benjamin E. Amery, otherwise known as B. E. Amery, of the said 5,500 shares of capital stock to the said Syphers Machinery Company, a corporation, was prejudicial to the creditors of the corporation, in that the creditors have not been paid, and the trustee in bankruptcy, the Union Trust Company of Spokane, has now no funds in its hands with which to pay the debts of the said Syphers Machinery Company, the bankrupt corporation; that the said Syphers Machinery Company by the sale of the said 5,500 shares of its capital stock, as aforesaid, to the said Benjamin E. Amery, otherwise known as B. E. Amery, attempted to reduce and reduced its capital, contrary to law.'

The first question presented for our consideration is whether the action is barred by the statute. A reference to the dates stated will disclose that three years had not elapsed between the purchase and sale of the stock and the adjudication of bankruptcy. We think the case falls within the provisions of Rem. & Bal. Code, § 159, subd. 4, which is as follows: 'Within three years,--An action for relief upon the ground of fraud, the cause of action in such case not to be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud.' Rem. & Bal. Code, § 3697, provides that it shall be unlawful for the trustees of a corporation 'to make any dividend except from the net profits arising from the business of the corporation, nor divide, withdraw, or in any way pay to the stockholders, or any of them, any part of the capital stock of the company, nor to reduce the capital stock of the company,' except as provided by the statute. Sections 3704, 3705, 3706, Rem. & Bal. Code, make specific provisions for the manner of diminishing the capital stock of a corporation, and expressly require that, if the capital stock be diminished, it be made to appear upon the public records in the same manner as is provided for the filing of the original articles of incorporation. The obvious purpose of the statute is to make the public records show the amount of the capital stock of a corporation; in other words, to speak the truth. It follows, therefore, that, where the capital stock had not been diminished in compliance with the statute, the original articles of incorporation operate as a continuing representation on behalf of the corporation that its capital stock is unimpaired, and that the impairment of its capital stock in any other manner is a fraud upon its creditors both as to the corporation and all others who participate in a profit by such an act. Tait v. Pigott, 32 Wash. 344, 73 P. 364; Same, 38 Wash. 59, 80 P. 172; Hall & Farley v. Henderson, 126 Ala. 449, 28 So. 531, 61 L. R. A. 621, 85 Am. St. Rep. 53; Hospes v. Northwestern Mfg. & Car Co., 48 Minn. 174, 50 N.W. 1117.

As to whether the cause of action accrues and the statute commences to run when the stock is sold or when insolvency takes place, we need not decide, as three years had not elapsed between the date of the sale and the adjudication of bankruptcy.

The respondent contends, as the complaint does not allege that there were any creditors when the delict occurred, a cause of action is not stated. The federal bankruptcy law provides that the trustee of the estate of the bankrupt upon his appointment and qualification is vested by operation of law with...