Berney National Bank v. Guyon & Co. , 111 Ala. 491 ( 1895 )

COLEMAN, J.

Complainants, as creditors of Steward & Eddy, a corporation, by the present bill seek to set aside and annul certain transactions entered into between the said-corporation and W. C. Steward, who was the president, treasurer and owner of nine-tenths of the stock of the corporation; and also a transaction between the said Steward and one I M. Eddy, who was the wife of B. W: Eddy, the manager and secretary of the corporation ; and also a mortgage executed by the said I. M. Eddy to the Berney National Bank, a creditor of said corporation. The bill avers and the evidence shows that on the 14th of June, 1893, the said corporation, being then largely indebted to complainants and others, some of whose demands were due and others to fall due within 30, 60 and 90 days, and not able to meet its liabilities at maturity, by a resolution adopted at a meeting of the directors, who represented all of the stock of the company, agreed to sell all of its assets, of every kind and character, to W. C. Steward, in consideration that he would assume and pay all the debts of the corporation, and the resolution directed the secretary and t general manager to execute a bill of sale accordingly. The resolution provides “that said W. C. Steward be allowed eighteen months in which to arrange and pay the indebtedness of Steward & Eddy.” W. C. Steward “in. consideration of the sale and conveyance by Steward & Eddy of all its property, as mentioned in the conveyance, this day made to me * * * assume and promise to pay all debts and liabilities of Steward & Eddy now existing.” The resolution and agreement were regularly entered upon the minutes of the corporation. This transaction is assailed . by complainants as fraudulent and void, and we will first dispose of it.

Although W. C. Steward and B. W. Eddy testify, that they did not consider the corporation insolvent at the time of the sale to W. C. Steward, it is obvious from their own testimony, that if the creditors pressed their claims, and the assets were subjected to a forced sale, that they were not sufficient to satisfy the indebtedness of the corporation, and both hoped and it was expected that W. C. Steward would.be able to get an extension of time upon the debts, and prevent a forced sale by creditors, and sacrifice of the property. It is insisted by appellant that although the resolution allowed W. C. Steward eighteen months within which to arrange and pay the debts of the corporation, that his obligation was absolute, and that he was required to pay them at once. The argument is not warranted. The authority to sell, the terms of the sale, the sale itself and agreement to •pay are to be construed together as an entire transaction. The entire proceedings were begun and consummated by the same parties, at the same time. We know of no rule of law which would force the purchaser to pay otherwise than as provided by the resolution of the board and the agreement to pay, whidi together constitute the contract. We are of opinion and declare the law to be, that a debtor, whether solvent or insolvent, who makes any disposition of his property to another, not in payment of his debts, for the purpose of preventing his creditors from subjecting it to the satisfaction of their demands at a forced sale, although it would thereby be sacrificed, and such disposition is calculated to have such effect, is guilty of hindering, delaying and defrauding his creditors. — Knight v. Parker, 72 Am. Dec. 388. Whether the person to whom the property is thus disposed would also be guilty, depends upon the facts and the principles of law. applicable to him. If the property had been sold to W. C. Steward, the purchase money payable to Steward & Eddy, the vendor, upon a credit of six or eighteen months, the sale would be invalid, for the reason that the credit given, hindered and delayed the creditors. — Lehman, Durr & Co. v. Kelly & Bro., 68 Ala. 192; Bank v. St. John et al., 25 Ala. 621. The effect upon the creditors, is the same, where by the terms of the sale and purchase, the purchaser is allowed th9 same time within which to pay the creditors of the vendor. Under any view' we may take of this transaction, we are led to the conclusion that the sale to W. C. Steward was calculated to hinder, delay and defraud the creditors of the Steward & Eddy corporation, and as to them must be held invalid.

We will next consider the sale by Steward to I. M. Eddy, and the mortgage executed by her to the Berney National Bank together, as the bank is the party vitally concerned in this transaction. The sale to W. C. Steward was concluded on the 14th of June. At that time, Steward & Eddy, the corporation, was indebted to the Berney National Bank, with which it had done its banking business, in about five thousand dollars or añore. Thirty-five hundred dollars-was due for borrowed money and evidenced by its promissory note. Its liability for the remainder was that of indorser for ■ paper discounted by the bank.- Upon all of this indebtedness-W. C. Steward and B. W. Eddy were liable, individually as indorsei’s. It is uncontroverted, that at the time of the sale to W. C. Steward, B. W. Eddy, for articles purchased from the corporation, viasindebted to' it between twelve and sixteen hundred" dollars, and that he' owned no property subject to- execution. Under these circumstances, on or about the 29tH’’ óf June, W. C: Steward, B. W. Eddy acting for his wife, I. M. Eddy, and the Berney National Bank effected a sale of a- part of the assets which had been purchased by W. C. Steward from the corporation, amounting in value to four thousand nine hundred and ninety-two 24-100 dollars,' to I. M. Eddy. The sale to I. M-. Eddy was concluded July 2d, 1893. • The arrangement was, that the goods were to be purchased by B. W. Eddy forhis wife I. M. Eddy, for cash, the bank agreeing tó loan her the money with the understanding that she was to execute a note and mortgage to the bank upon the goods, to secure the-loan, but the money loaned was to be applied in payment of the indebtedness of the Steward & Eddy corporation to the bank. Under the arrangement no money in fact was loaned other than the amount was credited as agreed upon. Mrs. Eddy executed her-note payable thirty days for the amount, but for some reason the .mortgage was not then executed. When the note fell due (August 2d) Mrs. Eddy paid $500 on the note, proceeds of the sale of the mortaged goods, and renewed the note and executed the mortgage in pursuance of the previous agreement. On the same day(August 2d)W. 0.Steward made a general assignment of all his property, for the benefit of all Ms creditors, including among his creditors the creditors of the Steward & Eddy corporation, but claimed his exemptions. The property selected as exempt, largely consisted of the property purchased by him from the Steward & Eddy corporation. Mrs. Eddy seems never to have been present, or to have taken any part personally, in any of these transactions, except on the occasion when she signed the note and mortgage to the bank, B. W. Eddy having represented and acted for her. It is in evidence that at the time of the arrangment for the purchase of the goods by Mrs. Eddy, upon which she was to execute the mortgage to the bank, the bank had no actual knowledge of the pecuniary condition of the Steward & Eddy corporation, or that in the sale to W. C. Steward he was allowed eighteen months or other time within which to arrange and settle the debts of the corporation, nor did it have actual knowledge of the pecuniary condition of W. C. Steward, individually ; and,there is evi-; dence tending to show that the bank had reason to' believe that the corporation was not insolvent, and that Steward was solvent. It is uncontroverted that. the. bank was chargeable with knowledge that the. corporation had sold out its entire assets to W. C. Steward on the ,14th of June, and’ceased to be a going concern, and that it ow;ed debts in addition to those due the bank, and that by the terms of the sale, W. C. Steward assumed to pay its liabilities. The circumstances leave no reasonable doubt, that upon inquiry the bank could have ascertained that by the terms of his purchase, W. C. Steward was .allowed time within which to . arrange and settle the debts of the corporation, and that his pur.-, chase of the assets of the corporation, under the facts, was fraudulent and void as to its creditors. The bank was also chargeable with knbwledge, that by the settlement of the debts due it from the corporation, its presi-: dent, W. C. Steward, and its general manager and secretary, B. W. Eddy, after it ceased to do business, and-, without any intention of resuming business, secured' their release from individual liability as indorsers — a preference and advantage to the controlling directors of an insolvent corporation, or one which has stripped itself of’all means to pay its debts, and ceased to do busi-. ness, a court of equity will not tolerate. The bank did not part with a dollar as a loan in good faith to obtain the mortgage. It merely substituted Mrs. I. M. Eddy for the original debtor. The money under the pretense., or form of a loan to her, according to the agreement, was applied to the debt of the corporation, and she became the debtor. It was in legal effect no more than if W. C. Steward himself had completed the arrangement in his own name without making use of Mrs. I. M. Eddy. However just and fair it may have supposed the advantage to the corporation and to Steward thereby obtained to have been, in a court of equity it was doubly fraudulent and vicious. — Corey v. Wadsworth, 99 Ala. 68; Goodyear Rubber Co. v. Scott, 96 Ala. 439, and authorities. We have not considered any right of Mrs. Eddy in the matter, as she was a mere conduit, and confessed all the material averments of the bill by her failure to answer, and the real defense as to this transaction is that made by the bank. She was á mere instrument to accomplish certain purposes of ¡the parties.in interest.

We have decided that a sale made by an insolvent partnership of all its assets, to a member of the partnership, with the intent to delay and defraud its creditors, did not vest-in the purchaser a title or interest available to him under the exemption laws. — Aiken v. Steiner, 98 Ala. 355. The conscience of a court of equity must be seared, that would allow the president of an insolvent corporation, owning a controlling power, to purchase all of its asssets on a credit, and then without payment hold them under the exemption laws against its creditors. Good faith and common honesty require that he should account to the creditors for the property, and so should all others who are not bona fide purchasers.

There are some .assignments of error directed against the rulings of the court upon demurrer to the bill, and amendpd bill. We are of the opinion the object of the bill originally and as amended was to subject the assets of the Steward & Eddy corporation, which were purchased by W. O. Steward, and a part of which were subsequently mortgaged to the bank, to the payment of the debts of the corporation. The bill throughout assails both these transactions as fraudulent' and void, and states the facts upon which the charge of fraud is "made. True, in one place it avers, that the “assets were a trust fund,” but that is averred as a conclusion, and was not good pleading. A reading of the paragraph in which this statement occurs, shows that conclusion was averred as one of the grounds why the sale was invalid and and should be set aside, and why Steward could not assert a claim of exemption. The right to relief is not. based upon any lien the complainants held upon the property, but wholly upon the grounds, that the transactions were invalid and fraudulent, and should be set aside and annulled.

It is further contended that the cause was not at issue . when submitted for final decree. Decrees pro confesso were taken against all tlie defendants, except the bank and W. O. Steward. After the evidence had closed, and when the cause was ready for submission, the complainants by leave of the court amended their bill. The bank and W. C. Steward were present in court, and submitted the cause without objection. The statute, section 3449 of the Code, no doubt gave them a right to a continuance but this they waived. Decrees pro confesso had been entered against the other respondents upon the bill and amended bill made prior to the last amendment. As to this last amendment the abstract states as follows : “After notice to defendant by leave of court, complainants on the 19th of April, 1895, amended their bill of complaint, as theretofore amended, by adding after and at the end of paragraph 3 \ the following averrment.” Here the amendment is set out. Who is referred to as “defendant” to whom notice was given does not appear. Whether the “defendant” was one or more of those against whom decrees pro confesso had been rendered, or a “ respondent” who had answered the bill, is a mere question of presumption. For aught that appears the “notice” may have been in strict conformity to section 3456 ■of the Code and Rule 43 Chancery Practice. Error must be affirmatively shown. Independently of these considerations, the amendment was immaterial and without effect. It evinces a confusion of the understanding as to the legal effect of the facts averred, and the character of the relief the complainants were entitled to under the bill, and especially paragraph 3 i to which the amendment was added. The essence of the amendment was, that the sale to Steward and by him to I. M. Eddy and the execution of the mortgage was to secure the payment of the debt of the corporation, and thereby release W. C. Steward, the president, and B. M. Eddy, manager, and directors, from liability as indorsers. Without this amendment, the averments of the bill showed their official position as directors of the corporation, and that they were indorsers of the debts due from the corporation to the bank, and it averred the facts by which these liabilities were extinguished. The same legal results follow from these averments of facts, whether the purpose was open or “secret.” We find no reversible error in the decree of the court in any respect.

Affirmed.