Zimmerman v. W. L. Grush Produce Co.

BROADDUS, P. J.

This is a suit in equity to impound assets which áre charged to have been transferred in fraud of creditors, in contravention of the statute against fraudulent conveyances as contained in sections 2880 and 2881, Revised Statutes 1909.

The special object of the action is to recover from the respondent the sum of twenty-five hundred dollars and interest and costs, being the amount recovered by the appellant in a suit brought by him against the W. L. Grush Produce Company. It is charged in the petition that the plaintiff, in 1906, sued the W. L. Grush Produce Company for forty-five hundred dollars; that that company was a corporation organized and existing under the laws of Missouri with a capital stock of Ten Thous- and ($10,000.00) Dollars, ninety-eight per cent of wMch was owned by W. L. Grush, and that he had absolute control of the remaining two per cent; and that on the 5th day of November, 1907, the plaintiff recovered a judgment' against that corporation for twenty-five hundred dollars, which has not been paid; that prior to October 26, 1907, that corporation became insolvent and that W. L. Grush went into voluntary bankruptcy on October 28, 1907. It is further charged that on about the 26th and 28th days of October, 1907, W. L. Grush, with the fraudulent intention to merge the W. L. Grush Produce Company into another corporation which might absorb and take over all assets and business and good will of the same, and that he intended to hinder, delay and defraud the creditors of that corporation, and especially the plaintiff, caused the respondent, W. L. Grush Produce and Commission Company, to be incorporated. *593 Tlie petitioner states the names of the several incorporators and the number of shares subscribed by each, and charges that said incorporators, with knowledge of the fraudulent intent of said Crush and for the purpose of aiding him in such fraudulent scheme, permitted their names to be used in incorporating the respondent, and that none of said incorporators paid for their stock or become bona fide stockholders in the respondent corporation. It is further charged in the petition that on the 26th day of October, 1907, the W. L. Crush Produce Company executed a certain bill of sale to J. E. Chandler for the named consideration of nineteen hundred and thirty-five dollars, but that, as a matter of fact, Mr. Chandler paid nothing for said bill of sale and did not, in fact, purchase the property therein described; and that said corporation did not, in fact, sell said property to Mr. Chandler; that on the 28th day of October, 1907, all of the assets, goods, wares and merchandise of the said W. L. Crush Produce Company were transferred into the possession of the respondent and that no consideration was paid therefor, and that the value of said property was about four thousand dollars; that when W. L. Grush went into voluntary Bankruptcy he was the owner of certain lots in Kansas City which he listed as a part of his assets and turned over to the trustee in bankruptcy, and that afterwards Crush procured an order to be made by the referee in. bankruptcy upon the trustee in bankruptcy to sell the said lots at private sale, and said lots were sold and purchased by and conveyed to the respondent herein for a consideration of two hundred and fifty dollars..

The parties in their respective statements disagree almost entirely as to the facts as disclosed by the evidence. It was disclosed by the evidence that about the 5th of November, 1907, the plaintiff obtained judgment against the W. L. Crush Produce Company, a corporation, doing business in Kansas City, Missouri, for the sum of *594 $2,5Q0; that in the month of October next prior thereto, said company became insolvent and went into bankruptcy; that Grush himself was for all practical purposes the corporation, being the owner of all but a few shares of the stock which were held by others in order to have a sufficient number to organize as a corporation; that about this time, the purpose was conceived by friends of Grush, who were also engaged in the same and similar businesses, to form a new corporation in order to afford him assistance; that in furtherance of this object a new corporation was formed under the same name as the old and $7,500 of its stock was subscribed and paid up by the new members of the corporation.

It appears that it was arranged the new company should take over the property of the old, and that Grush was to continue to run the business in the same manner that he had formerly under the old organization, for which he was to receive a monthly salary of $200. It is insisted that it was a part of the agreement that the subscribers to the stock in the new company should hold such stock for and on behalf of Grush. But the evidence tended to show that there was no such agreement, but it seems that it was the general understanding among them that they ^ere expécted to sell their stock to him when he was able to pay for it, if he wanted to buy. Subsequently, some of them did sell to Grush their stock, for which he paid in one instance the par value and profits and in other instances par value and ten per cent interest. But at the time of the trial the majority of the shareholders retained their holdings.

About the time of the formation of the new company J. E. Chandler, one of its incorporators,"bought from the old company its horses, wagons and other equipment for the sum of $1935, all of which was taken over by the new company. As soon as it was incorporated the new company bought of the old company all of its stock of merchandise on hand for which it paid the sum of $2.142.72. It was shown that the price paid for all the *595 said property was its reasonable market price. It was further shown that the money so received was paid out by the old company to its creditors. In the course of a short time thereafter it collected from its outstanding-accounts about f8,000 all of which was also paid out to its creditors. The finding and judgment were for the defendant and plaintiff appealed.

It is held that: “Where one corporation goes entirely out of existence by being annexed to or merged in another, if no arrangements are made respecting the property and liabilities of the corporation that ceases to exist, the subsisting corporation will be entitled to all the property, and answerable for all the liabilities.” [Thompson v. Abbott, 61 Mo. 176 .] And it is said: “It is a settled rule of equity jurisprudence that where one corporation is consolidated with another, or merged in another, which takes its property, such new corporation is bound to discharge the liabilities of the old one.” [Bertholdt v. Land & Lumber Co., 91 Mo. App., 233 .] And, “An educational society chartered under the laws of this state may add to or change its charter without destroying its identity, and such alteration of the charter may as well be effected by substitution of a new charter, which is germane, as by the adoption of mere amendments.” [Grand River College v. Robertson, 67 Mo. App. 329 .]

The instances cited are not parallel to this one. The purpose of the new company Avas not to continue in existence the old company, but to put into existence a new corporation with new stockholders. It did not take over the property of the old company, but bought it outright with the money of its shareholders. It was in no sense a continuance of the old company except in name. It lacked in the most important particulars the elements of a consolidation with the old company or a merger of the latter.

Do the facts shown constitute fraud as- meant by the statute? We think the evidence conclusively shows *596 that there Ayas no intentional fraud upon.the part of the neAV incorporators. It was not their object to defeat creditors,' but to help to re-establish their friend upon a new footing in business. He was about to go into the bankruptcy court in order to relieve himself from the burden of insolvency, and his friends in anticipation of that fact formed the new corporation in the furtherance of their purpose.

But there is another controlling factor in the case, viz.: There was no fraud. The money paid for the property of the old company Avas applied by it to the payment of its debts. And the facts go to show that Grush as sole OAvner and manager of the old company intended no fraud as against his creditors, or else why should he have applied all the money he received from the new corporation for his property and all its assets to the payment of his liabilities? The whole transaction savors of the utmost generosity on the part of the im corporators of the new corporation on the one part, and the strictest fidelity upon the part of Grush as sole owner of the old company. Most of the members of the new company Avere engaged in the same business as was Grush, and as such, were his competitors, and their effort to strengthen his hands in the contest in order that he might not fail in the struggle should be commended rather than condemned.

It is said in behalf of the new incorporators, with a single exception, that they did not know of the pendency of plaintiff’s suit at the time of the formation of the new company, and that person who had such knowledge had the impression that it had been settled.

It being fully established that the transaction amounted to nothing more than the purchase of the property of one corporation by another in good faith, we cannot see wherein appellant has any standing in equity. It is true the transaction amounts to giving a preference of one set of creditors over another. But it is legitimate for a corporation in failing circumstances to prefer one *597 creditor to another in discharging its obligation, “if the preference is made in good faith while the property remains in its possession nnaifected by liens or by process of law.” [Alberger v. Spank, 123 Mo. 313 ; Schufeldt v. Smith, 131 Mo. 286 .]

The judgment is affirmed.

All concur.