Wabash Ry. Co. v. Iowa & S. W. Ry. Co.
| Decision Date | 10 March 1925 |
| Docket Number | No. 36108.,36108. |
| Citation | 202 N.W. 595,200 Iowa 384 |
| Parties | WABASH RY. CO. v. IOWA & S. W. RY. CO. ET AL. |
| Court | Iowa Supreme Court |
OPINION TEXT STARTS HERE
Appeal from District Court, Page County; Earl Peters, Judge.
Action in equity by a judgment creditor to recover the amount of the judgment from the directors of the debtor corporation. The opinion states the facts. From a judgment dismissing the petition, the plaintiff appeals. Affirmed.Ferguson, Barnes & Ferguson, of Shenandoah, for appellant.
William Emory Miller, of Des Moines, and Orr & Turner, of Clarinda, for appellees.
This action was begun on November 25, 1919, against the Iowa & Southwestern Railway Company, the Iowa & Southwestern Railroad Company of Iowa, and the appellees Farquhar, Richardson, Galloway, Taggart, Abbott, Berry, Orr, Harvey, and the Clarinda Trust & Savings Bank. The petition alleged an indebtedness to the plaintiff and its predecessors, to whose rights it succeeded, on the part of the Iowa & Southwestern Railway Company, growing out of the exchange of freight between the two carriers aggregating $44,570.84. It was further alleged that the Iowa & Southwestern Railway Company was insolvent, and had transferred all of its property to certain of the other defendants in fraud of its creditors, and judgment was asked against all of the defendants for the amount claimed. The defendants Iowa & Southwestern Railway Company and Iowa & Southwestern Railroad Company failed to appear, and on April 7, 1922, a judgment was entered against each of such defendants for $60,000.02. On July 22, 1922, an amendment to the petition was filed which set up the judgments against the Iowa & Southwestern Railway Company and the Iowa & Southwestern Railroad Company, and pleaded the insolvency of both corporations. It alleged in detail acts of the parties and transfers of property, which we shall refer to as briefly as possible, and charged, in substance, that the various acts and transfers were fraudulent; that the transfers were without consideration; and that thereby all of the property of the Iowa & Southwestern Railway Company was distributed to the individual defendants, who were its officers and directors, and that thereby they were personally liable to pay the plaintiff's judgment.
The answer of the defendants admitted many of the acts and transfers so pleaded, and that the defendants Farquhar, Richardson, Galloway, Taggart, Abbott, Orr, and Berry were officers, directors and stockholders of the Iowa & Southwestern Railway Company, and that they received the proceeds of the property of the Iowa & Southwestern Railway Company, denied any fraud, and alleged in substance that they acquired such property from a purchaser at execution sale, and applied the proceeds in settlement of amounts due them. Many other allegations are made which we shall have no occasion to consider.
The appellee Harvey denied any connection with the transactions in question. We do not understand appellant to here claim any liability on his part, or on the part of the appellee Clarinda Trust & Savings Bank. The controversy here is between the plaintiff, appellant, and the defendants and appellees, Farquhar, Richardson, Galloway, Taggart, Abbott, Orr, and Berry. We shall refer only to the latter as the appellees.
The essential facts are not in serious dispute. The following material facts are either admitted by the pleadings or established by the evidence.
The Iowa & Southwestern Railway Company, an Iowa corporation, in about 1913, constructed a line of railway from Clarinda to Blanchard in Page county. It incurred indebtedness in the construction of its road, and various parties filed mechanics' liens against its property. An action was brought in the United States District Court for the Southern District of Iowa, Southern Division, to foreclose some of these liens. This action was defended by the corporation, but on October 24, 1914, it resulted in a decree of foreclosure establishing the priority of certain of the liens. Execution was issued on this judgment and levied on all the property of the railway company, and on March 10, 1915, the property, with some exceptions, was sold by the United States marshal to C. C. Barnes for $20,200, subject to redemption within a year, and a certificate of sale was issued by the marshal to Barnes. This certificate of sale was on April 19, 1916, after the expiration of the year for redemption, assigned to Robert Abeles, and on April 20, 1916, by Abeles assigned to the Western Tie & Timber Company. Under the decree of foreclosure Barnes had the first lien, Abeles the second for a portion of his claim, the Western Tie & Timber Company, the fourth, and Abeles, the fifth for the balance of his claim. On April 29, 1916, the Western Tie & Timber Company assigned the certificate of purchase to the Iowa & Southwestern Railroad Company, an Iowa corporation, and on June 8, 1916, the marshal executed to that corporation his marshal's deed for the property sold.
The judgment of Abeles, established as the fifth lien, was not satisfied by this sale, and was subsequently assigned to the appellees, who caused an execution to issue thereon which was levied on certain other personal property of the Iowa & Southwestern Railway Company not included in the first sale, and this property was sold to one Barron for $200. It is alleged in the answer that the individual appellees herein furnished the money paid by the purchaser at such sale.
The Iowa & Southwestern Railroad Company was organized by some of the appellees and certain individuals connected with or representing the Western Tie & Timber Company, but all of its stock, of which only a sufficient number of shares was issued to qualify its officers and directors, came into the possession of the appellees and one other. It is admitted in the answer that the defendants Farquhar, Richardson, Galloway, Taggart, Abbott, Orr, and Berry, and one McKinley took charge of the Iowa & Southwestern Railroad Company of Iowa and its affairs, and were the only persons eventually owning any stock therein or having any interest therein. The money paid to the Western Tie & Timber Company for the marshal's certificate of sale was furnished by the appellees and McKinley. The exact amount is not shown, but it was about $28,000. No stock of the Iowa & Southwestern Railroad Company was issued for the money so furnished, and, as we understand, it never operated the railroad. After the execution of the marshal's deed to the Iowa & Southwestern Railroad Company, efforts were made by the appellees in various directions to secure financial backing for the road.
In September, 1917, a contract was entered into between the Iowa & Southwestern Railroad Company of Iowa and S. Stephenson Sons Company, providing for the improvement and extension of the road. Following this, and in November, 1917, the appellees caused to be organized in the state of Maine a corporation, also named the Iowa & Southwestern Railroad Company. No stock of this corporation was issued, except such as was necessary for its officers to qualify. The appellees acted as such officers and directors, and alleged in the answer that the Maine corporation was organized in pursuance of the Stephenson contract and to enable the Stephenson Company to finance the road and carry out the contract. It is admitted that all the property of the Iowa & Southwestern Railroad Company of Iowa, being that acquired by that corporation by the marshal's deed, and also, as we understand, that purchased by the appellees through Barron at the later execution sale, was transferred to the Iowa & Southwestern Railroad Company of Maine. No consideration was paid for the transfer. The United States government, being then engaged in the war, with Germany, refused permission for the expenditure of the money necessary to rehabilitate the line from Blanchard to Clarinda or the construction of any extension as contemplated by the Stephenson contract. It was impossible to raise money by the sale of proposed bonds, and that contract was abandoned.
The record contains minutes of meetings of the board of directors, of the Iowa & Southwestern Railroad Company, but whether of the Iowa or the Maine corporation of that name, after its organization, does not appear. These minutes relate in many instances to efforts to dispose of the property. At such a meeting on October 10, 1918, at which all the appellees except Galloway were present, a motion was unanimously carried by a recorded vote to accept the offer of the Clarinda Iron & Metal Company of $88,500 for “all the rails on the right of way of the old I. & S. W. Ry. Co., including those in side track and loose rails not laid, frogs, switches, angle irons, and spikes,” and certain cars and equipment, including the property purchased through Barron at the second execution sale. On the same day a written contract was entered into in the individual names of the appellees as seller and the Clarinda Iron & Metal Company as buyer, which recited that the seller owned “the old Iowa & Southwestern property,” and sold and conveyed to the buyer property substantially as described in the minutes of the meeting of the directors above referred to.
The property was sold as junk, and owing to the high prices incident to the war, at a price much above the ordinary value of such material. It is admitted in the answer that the appellees and McKinley received the proceeds of this sale. The testimony shows that the proceeds were applied by the appellees and McKinley to reimburse them for the money furnished by them to purchase the marshal's certificate of sale from the Western Tie & Timber Company, to pay an indebtedness of $11,000 incurred by them in the effort to finance the project after procuring the marshal's deed, and in settlement of various amounts owing to the individuals by the original corporation, the Iowa & Southwestern Railway Company. A portion of this indebtedness was...
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