Valley Bank v. Malcolm

• Decision Date: 10 February 1922
• Docket Number: Civil 1794
• Citation: 204 P. 207,23 Ariz. 395
• Parties: VALLEY BANK, a Corporation, and VALLEY BANK ADJUSTMENT COMPANY, a Corporation, Appellants, v. WILLARD H. MALCOLM, Appellee
• Court: Arizona Supreme Court

204 P. 207

23 Ariz. 395

VALLEY BANK, a Corporation, and VALLEY BANK ADJUSTMENT COMPANY, a Corporation, Appellants, v. WILLARD H. MALCOLM, Appellee

Civil No. 1794

Supreme Court of Arizona

February 10, 1922

APPEAL from a judgment of the Superior Court of the County of Maricopa. R. C. Stanford, Judge. Reversed and remanded for new trial.

STATEMENT OF FACTS.

For many years prior to November 9, 1914, the Valley Bank of Phoenix was a banking corporation carrying on a large business at Phoenix, Arizona. On that day the state auditor and bank comptroller took possession of its assets and property and closed its doors, and shortly thereafter reported his action to the Attorney General of the state. No further action was taken with respect to winding up the affairs of the bank by the state authorities, but the comptroller remained in possession until December 31, 1914. Negotiations were entered into looking to the organization of a new bank, and certain parties were interested who formed a banking corporation called the Valley Bank.

On the thirtieth day of December, 1914, the Valley Bank of Phoenix and the Valley Bank entered into a written agreement which set forth a resolution adopted on the same day by the board of directors of the Valley Bank of Phoenix, reciting that --

"This corporation is financially embarrassed and at present unable to meet its obligations to its depositors and other creditors, and this board deems it necessary, in order to avoid loss and injury to its depositors and other creditors that means be provided for the liquidation of its debts and obligations."

The resolution further recited that the Valley Bank had proposed and offered, in consideration of the transfer to it of all the assets and property of the Valley Bank of Phoenix, to pay off and liquidate all of the obligations of the latter bank as shown by its books and records, and accordingly it conveyed and transferred all of its assets and property to the Valley Bank, which in turn agreed to assume and pay all debts and obligations of the Valley Bank of Phoenix, as shown by its books and records.

This contract was carried out. All assets and property of the Valley Bank of Phoenix were transferred to the Valley Bank and the latter institution thereupon commenced operations. Among the assets of the Valley Bank of Phoenix were securities amounting to the sum of $869,000 face value, which the Valley Bank declined to accept. An arrangement was thereupon entered into for the handling of these particular assets, and another corporation, called the Valley Bank Adjustment Company, was organized for the purpose of handling and reducing to money the $869,000 of assets. These securities were thereupon transferred to the Valley Bank Adjustment Company for a consideration of $562,000. The capital stock of the Valley Bank Adjustment Company was in two classes, $200,000 in preferred stock, which was subscribed for by depositors in the Valley Bank of Phoenix and paid for by checks drawn on their deposits; the subscriptions amounting to twenty-five per cent of their several deposits. The common stock, amounting to $150,000 was subscribed for by the directors of the Valley Bank of Phoenix, and promissory notes to that amount executed by the subscribers were turned over to the Valley Bank as a payment pro tanto on the purchase price of the assets received by the Valley Bank Adjustment Company. For the balance, $212,000, the adjustment company gave its note to the Valley Bank, secured by a pledge of the assets which it had received. The adjustment company thereupon entered upon the handling of these assets which had been transferred to it by the Valley Bank, and is still engaged in an effort to realize as much upon them as may be possible.

On the seventh day of August, 1915, appellee, Malcolm, commenced an action against the Valley Bank of Phoenix, styled in the complaint "trustee." The defendant in that action failed to answer the complaint, and thereafter, on the sixteenth day of September, 1915, judgment was rendered in favor of the plaintiff in that action for the sum of $4,644.62, with costs.

The complaint in the action of Malcolm against Valley Bank of Phoenix set forth a cause of action based upon a contract made between the parties on January 27, 1913, by which the bank agreed to sell to Malcolm certain farming lands in Maricopa county for the sum of $7,200, alleging that he had been induced to make this contract by certain false and fraudulent representations of the Valley Bank of Phoenix that he had paid the sum of $2,400 as part payment of the purchase price of the property and had made certain improvements upon the property. Malcolm sought to rescind the contract and recover from the bank the amount paid and the cost of the improvements. On this cause of action judgment was rendered, as before stated. The judgment not being paid, Malcolm brought this action against the Valley Bank of Phoenix, Valley Bank, and Valley Bank Adjustment Company to recover the amount of the judgment in the former action against the Valley Bank of Phoenix. The trial court rendered judgment in favor of the plaintiff and against each of the defendants for the amount due under the former judgment, and from the judgment so rendered the Valley Bank and Valley Bank Adjustment Company prosecute this appeal.

Messrs. Kibbey, Bennett & Jenckes and Messrs. Gandy & Cunningham, for Appellants.

Mr. M. T. Phelps, Mr. R. E. Sloan, and Miss Alice M. Birdsall, for Appellee.

OPINION

PATTEE, Superior Judge

(After Stating the Facts as Above). The complaint in this action contains four counts, based upon different theories of the rights of the plaintiff. It is first claimed that the indebtedness upon which judgment was recovered was an obligation appearing upon the books and records of the Valley Bank of Phoenix on December 31, 1914, and, by the terms of the contract transferring the assets of that corporation to the Valley Bank, was assumed and agreed to be paid by the latter bank. The court below so found, and it is assigned as error that such finding is wholly unsupported by the evidence.

Giving the evidence the most favorable interpretation in favor of appellee, there is nothing in it that would warrant the conclusion that the cause of action upon which Malcolm recovered his judgment was shown upon the books and records of the Valley Bank of Phoenix. The most that could be said is that the contract entered into with Malcolm for the purchase of the lands may have been among the records of the bank, but there is not a particle of evidence to indicate that there was any record or any entry upon any of the books of the bank, or any documents in its possession, which would indicate that Malcolm had any cause of action for alleged false representations upon which he claimed to have relied in entering into the contract of purchase, or that any liability rested upon the bank by reason thereof. The finding is wholly without evidence to sustain it, and there is no evidence even tending to show that this was one of the debts or obligations assumed by the purchasing bank under the terms of the contract.

The fourth count of the complaint charges a conspiracy between the two banks and the adjustment company to defraud plaintiff and defeat the collection of his judgment, but no proof was made of any such situations, and the court below dismissed this count of the complaint without objection on the part of appellee.

The remaining counts are based upon the theory that the assets of the Valley Bank of Phoenix constituted a trust fund for the benefit of its creditors, and that upon the purchase of its assets by the Valley Bank it was left entirely without property out of which a judgment against it could be collected; that the purchasing bank took with notice of the insolvency of the Valley Bank of Phoenix, or the inability of that bank to pay its debts, and took the assets charged with a trust in favor of the creditors of the selling bank.

At the trial the court admitted in evidence, over the objection of the appealing defendants, the judgment-roll in the case of Malcolm against the Valley Bank of Phoenix, and this ruling of the court is assigned as error. It is urged by the appellants that they were not parties to the action in which that judgment was rendered; that they had no opportunity to appear and defend against liability, and are not in any way bound by the judgment that was rendered.

Treating the action as one brought by a creditor to enforce payment of his debt out of the assets which were transferred by the debtor corporation, to impress a trust in his favor upon such assets, and to recover to the extent of the assets received by the purchaser, the ruling below is well sustained by authority. The plaintiff in such an action must necessarily show that he is a creditor of the corporation whose assets have been conveyed and from whom he is unable directly to collect his debt. Whether he brings such an action without reducing his debt to judgment, as he may, under the rule laid down in First Nat. Bank v. McDonough, 19 Ariz. 223, 168 P. 635, or whether he first recover judgment and then bring his action, he must in one form or another establish his claim to be a creditor of the corporation whose property has been conveyed away to his prejudice. The rule applicable to ordinary creditor's bills has long been settled. If the plaintiff allege a debt not reduced to judgment, he must, of course, prove the debt. If he allege a recovery of judgment, he must likewise prove the judgment, and the judgment is admissible for the purpose of establishing that plaintiff is a creditor of the corporation whose assets he seeks to follow and from which to collect the amount of his debt.

A judgment...