was alleged that on June 25, 1885, the bridge company obtained a judgment against the packing company in the United States circuit court for $3,404.74; that an execution was issued upon the judgment, and placed in the hands of the United States marshal, who on December 6, 1887, levied upon certain real estate in Wyandotte county as the property of the packing company. There is an allegation of the organization of the packing company on November 19, 1878, with a capital stock of $150,000, of which George Fowler was appointed the general manager, which position he continued to occupy until shortly before the rendition of the judgment in favor of the bridge company, on June 25, 1885, and that as such manager he had knowledge of the indebtedness of the packing company to the bridge company, and was aware that it had not been paid. It was alleged that on May 30, 1885, the packing company, by its officers, made a deed of conveyance pretending to convey all of the real estate in question to George Fowler, for a pretended consideration of $580,000; that the conveyance was made for the purpose of defrauding the creditors of the packing company, and especially the plaintiff, the bridge company. It is alleged that there was no consideration for the transfer, and that the pretended indebtedness of the packing company to Fowler, claimed to be a consideration, was fraudulent and fictitious. It is alleged that at the time of the transfer the packing company had no other property or assets except that included in the transfer, and that George Fowler accepted the conveyance for the purpose of carrying out the fraudulent intent and purpose of placing the property beyond the reach of the plaintiff and other creditors. It is alleged that shortly after the deed was made George Fowler conveyed the property in question to Alexander Muir and Arthur Booth, which conveyance, it is averred, was placed on record without any consideration whatever passing from Muir and Booth to either Fowler or the packing company. There is a further averment that the bridge company did not discover the alleged fraud until within 12 months before the bringing of the action. The packing company is alleged to be insolvent, and that since the transfer of its property and assets it has ceased to do business, and has practically abandoned its corporate rights and privileges. The prayer of the petition is that the property should be adjudged to be that of the packing company, and subject to the payment of the judgment of the bridge company, and that George Fowler be held to have received and held the property in trust for the benefit of the creditors of the packing company, and that the same shall be subjected to the payment of such judgment. There is a further prayer that, in case the property cannot be subjected to the payment of the judgment, George Fowler shall be required to account

for the value of the property up to the amount necessary to pay the judgment, and that the bridge company have judgment against him for the sum of $3,768.64. George Fowler filed a separate answer, admitting the organization of the packing company, the acquiring of the property described, the transfer of the same, and that the title thereto had been conveyed to Muir and Booth. He denies all of the allegations charging fraud against himself, the packing company, or its officers. He further alleges that the causes of action set forth in the plaintiff's petition are barred by the statute of limitations. The answer was verified.

The cause was submitted to the court upon an agreed statement of facts, it being stipulated that either party might object to any of the admitted facts as irrelevant and immaterial under the issues made by the pleadings. The agreed statement is as follows: "(1) The plaintiff obtained judgment in the United States circuit court, June 25, 1885, against the Anglo-American Packing & Provision Company, on a cause of action which accrued, as alleged in the petition, for a debt incurred by said packing company in the operation of its packing house at Winthrop, Mo. (2) That the judgment, to the amount of $4,900 for principal, interest, and costs, to this date remains unpaid. (3) That executions were issued and returned as set forth in the petition, and the United States marshal took such action as shown by his returns indorsed on executions as set forth in petition. (4) That said Anglo-American Packing & Provision Company was incorporated, under the laws of the state of Illinois only, November 19, 1878, as shown by the charter and certificates of incorporation annexed hereto as Exhibit A. (5) That Robert Fowler, Anderson Fowler, George Fowler, and John Fowler were the sole stockholders of the Anglo-American Packing & Provision Company, and Robert Fowler was the president, and Anderson Fowler was the secretary, and George Fowler was the manager of the Atchison house, at Winthrop, until it was closed out in the fall of 1883. Robert Fowler, Anderson Fowler, and George Fowler were stockholders in said AngloAmerican Packing & Provision Company during all the time from its incorporation to date it went out of and ceased to do business. (7) Anderson Fowler, George Fowler, Robert D. Fowler, John Fowler, William Fowler, and Alexander Fowler were the persons who comprised the firm of Fowler Bros. (8) On the 1st day of May, 1884, the AngloAmerican Packing & Provision Company was indebted to the firm of said Fowler Bros. in about $2,000,000; and on that day the deed referred to in plaintiff's petition, a copy of which is hereto annexed as Exhibit B, was executed as shown by said deed, but was not recorded until the 30th day of May, 1885. (9) On May 1, 1884, the date of said deed, the Anglo-American Packing & Provi

(6)

Part

sion Company owned and were operating a packing house in Chicago, the property described in the petition, and owned a packing house in Winthrop, Mo., the title of which last-mentioned property was in the name of Robert Fowler in trust for the company, and operated by the company until the fall of 1883. (10) In July, 1885, all of the Chicago property was conveyed to Anderson Fowler, Robert Fowler, and William Fowler, in payment of debts due from the Anglo-American Packing & Provision Company to Fowler Bros. (11) In the fall of 1883 the machinery in the packing house at Winthrop, Mo., was all removed to Kansas City, Kansas, and in the winter of 1886 the Winthrop packing house was burned and was destroyed. In May, 1884, the packing house at Winthrop, Mo., was worth $20,000.00. (12) At the date the executions referred to in the petition of plaintiff were issued, the Anglo-American Packing & Provision Company had no property except as hereinbefore stated, and was still indebted to Fowler Bros. in a sum exceeding $200,000. (13) The consideration of the deed to George Fowler of the property described in the petition was $580,000, which was the fair value of the property. was paid in cash, and he executed notes to Anderson Fowler, Robert Fowler, and William Fowler, as part consideration therefor, which have been paid. There was no money paid directly to the Anglo-American Packing & Provision Company, or notes given to the company, but the money was paid and notes given as aforesaid to satisfy a debt of the Anglo-American Packing & Provision Company to Fowler Bros., which was done with the consent of Anglo-American Packing & Provision Company. (14) The capital stock of the Anglo-American Packing & Provision Company was $150,000, which was paid up. (15) On May 1, 1884, and prior thereto, George Fowler knew of the claim of the Chicago & Atchison Bridge Company against the Anglo-American Packing & Provision Company, referred to in plaintiff's petition; but he was then in good faith contesting the claim for the Anglo-American Packing & Provision Company on the ground that there was no liability, and he knew that no special provision, except as hereinafter shown, had been made for the payment of said claim of plaintiff against the Anglo-American Packing & Provision Company by said company; and he continued to contest same for said Anglo-American Packing & Provision Company until same was reduced to judgment. (16) On May 1, 1884, the property described in plaintiff's petition was delivered to George Fowler, and he took possession thereof, and has since operated the same in his own name. (17) In February, 1888, John C. Tomlinson was duly appointed receiver of the plaintiff, as alleged in the petition herein, and in March, 1888, instituted an action in this court, as alleged in petition, which action was dismissed, as alleged in the petition, and John C.

Tomlinson, as such receiver, was thereafter discharged by said United States court, as alleged in the petition; and the only order of court for such action by said receiver is his order of appointment hereto attached as Exhibit C. (18) The statutes of the state of Illinois are as alleged in plaintiff's petition, and the same were in force at the time the Anglo-American Packing & Provision Company was incorporated, and have since remained in force. Said statutes of Illinois provide, further, that the remedy given by the statutes may be enforced by suit in chancery. (19) On May 1, 1884, and as a part of the same transaction of the execution of said deed of that date to George Fowler, a written contract was entered into between John, George, William, Anderson, and Robert Fowler, dissolving the partnership firm of Fowler Bros., in which it was stipulated, with reference to the packing house at Winthrop, Mo., as follows: "The said packing house and property at Winthrop shall be sold and realized, and, after first discharging all debts, liabilities, and outgoings affecting the same, the moneys arising from such sale and realization shall be applied, firstly, in repaying to each partner ne amount of capital invested by him in said concern, and interest thereon; and the ultimate surplus shall be divided equally amongst all of the parties hereto,— it being understood that any loss which may arise on the sale and realization of the lastmentioned premises shall, in the final adjustment of accounts, be borne by all the parties hereto in equal shares.' But of this agreement the plaintiff had no notice until November 14th, 1889. (20) The Anglo-American Packing & Provision Company had been operating the packing house at Kansas City, Kansas, for about three years previous to May 1, 1884; and when George Fowler assumed control of said property under deed of May 1, 1884, he took the business and property of said company at Kansas City, Kansas, as it stood on April 30, 1884, on the books of the company which pertain to said business at Kansas City, Kansas, which transfer of said property and business at Kansas City, Kansas, was provided for in said written contract of date May 1, 1884, between said John, William, Anderson, George, and Robert Fowler, and which said agreement provided for the execution of said deed May 1, 1884, which agreement provided, further, that said George Fowler, 'as purchaser, shall take over, as a going concern, at the respective sums at which they stand or will stand on the books of the company on the 30th day of April, 1884, all of the business assets of the business heretofore carried on by the Anglo-American Packing & Provision Company at Kansas City, Kansas,' which included the real estate described in plaintiff's petition; and by the terms and conditions of the same agreement the Chicago property was subsequently, in like manner, transferred to Anderson, Robert, and William Fow

ler, upon them assuming the liabilities of the Anglo-American Packing & Provision Company growing out of the business at Chicago, Ill., which said agreement was subject to the ratification of the Anglo-American Packing & Provision Company; and thereafter said agreement of date May 1, 1884, was consummated by deed to George Fowler (Exhibit A, hereto attached), and a like deed to the Chicago property to Anderson, Robert, and William Fowler, which last deed bears date July, 1885. (21) On May 1, 1884, the liabilities of the Anglo-American Packing & Provision Company amounted to about $2,000,000 due said Fowler Bros. for money theretofore advanced to said Anglo-American Packing & Provision Company by them in its business, and in payment of its obligations theretofore created; and the foregoing debts to said Fowler Bros. and the claim of the plaintiff were all the debts and liabilities of the Anglo-American Packing & Provision Company May 1, 1884, date of said agreement, all of which debts and liabilities were paid before commencement of this action, except the claim and judgment of plaintiff and balance of $200,000 due Fowler Bros. It is agreed that from June 25, 1885, to June 25, 1888, George Fowler was absent from the state of Kansas one year, and present in the state two years between said dates. (23) The foregoing are all of the material facts in this case, but are not to be construed as modifying any admissions made in the pleadings; and if, upon the pleadings and facts as herein stipulated, the plaintiff is entitled to recover, the amount thereof shall be $4,900, with interest from November 14, 1889. The foregoing is all the evidence."

(22)

Upon this statement the court gave judgment against the bridge company and in favor of the defendant, Fowler, for costs. Of this judgment the plaintiff complains.

Waggener, Martin & Orr and Mills, Smith & Hobbs, for plaintiff in error. Hutchings & Keplinger, for defendant in error.

JOHNSTON, J. (after stating the facts). Several questions are presented upon a preliminary motion to dismiss the proceeding in error. One ground of the motion is that the case made is invalid, having been allowed without notice. By the terms of the order the case was to be settled and signed on three days' notice, and it appears that after it was duly served it was presented to the judge, who settled and signed the same without notice to the defendant. Afterwards, and before the expiration of the year, a notice was served that on a certain day the case would be presented for allowance, and upon that day the case was presented, amendments thereto were suggested by the defendant, and without any objection the case was duly settled and signed. The first attempt of the judge to settle the case was a nullity for want of notice to the defendant. The

case made was duly served, notice was duly given, and the case made was settled within the time allowed by law. The void effort to settle did not tie the hands of the judge, nor prevent him from performing the duty which the law requires. Another ground of the motion is that, George Fowler having died since this proceeding was begun, and as it has not been revived against his heirs at law or devisees, the proceeding abates by force of the statute. Soon after the death of the defendant the proceeding was revived by stipulation against the executor and trustees of the last will and testament of George Fowler, deceased. The action taken appears to have been sufficient as against the personal representatives of the deceased, but it is contended that, as the action is brought to enforce a trust in real estate in which the deceased had an interest, the action survived only as against the heirs and devisees of the deceased, and not against the personal representatives. If the sole purpose of the action had been to subject real estate to the payment of the judgment, and to decree a sale of the land in satisfaction of the judgment, there would be considerable force in the contention of the defendant; but as the plaintiff asked, and, as we shall hereafter see, was entitled to recover, a personal judgment, it was proper that the revivor should be made against the personal representatives of the deceased. The final ground urged for dismissal is that there is a defect of parties. It is contended that several parties who were named as defendants in the petition were necessary to a review of the proceedings in this court. If a joint judgment had been rendered for or against them, or if the judgment rendered could not be reversed or modified without affecting them all, then it would be necessary that all of them should be made parties to this proceeding; but the judgment sought to be reviewed was against the bridge company and in favor of George Fowler alone. It does not appear that service was made upon any of the other defendants who were named in the petition, and their rights were not determined in the action. Their absence, as we shall see later on, did not prevent the court from enforcing the personal liability of George Fowler, and as no judgment for or against them was rendered in the court below, and as they are not to be affected by this proceeding, they are not necessary parties here.

The plaintiff insists that upon the merits it should have been awarded judgment against George Fowler for the full amount of its claim. Of the validity of the debt and judgment held by the bridge company there is no question. When the debt accrued, the packing company was a going concern, operating packing houses at Chicago, Kansas City, and at Winthrop, near to the city of Atchison. The company was organized in 1878, under the laws of Illinois, and George Fowler was one of the promoters, and also

a director of the corporation during a great part of the time it was engaged in business. As the agreed facts show, the Fowlers were the sole stockholders, and had absolute control of the corporation. The members of the corporation were also members of the partnership of Fowler Bros., and George Fowler was a manager of one of the packing houses while it was in operation. In 1884 the Fowlers entered into an agreement with each other to wind up the business, and distribute among themselves the entire assets of the corporation. Although the capital stock of the corporation was only $150,000, the members of the company had at that time assumed an indebtedness of more than $2,000,000, and the statutes of Illinois, under one of which the company was organized, provided that "if the indebtedness of any stock corporation shall exceed the amount of the capital stock, the directors and officers of such corporation assenting thereto shall be personally and individually liable for such excess to the creditors of such corporation." Laws 1871-72, § 16, p. 300. It appears that the greater part of the indebtedness of the company was due to the Fowlers, but before they divided the assets among themselves the debt of the bridge company had accrued. While there is no specific statement that the company was insolvent when the transfer of the property was made in 1884, it is shown that when the assets were distributed in accordance with the agreement then made there still remained an unpaid debt of more than $200,000. By that agreement the officers and stockholders of the company divided its entire capital and assets, and in that way deprived it of all facilities to carry on business, or to exercise the functions of a corporation. The company being in such a condition, the action of its officers and stockholders in absorbing the entire assets of the company and dividing them among themselves operated as a wrong as against the exIcluded creditors. In its disabled condition, and the assets being insufficient to meet the liabilities of the company, its property became a trust fund for the payment of its debts. In equity, the creditors have a lien upon the property superior to the claim of any of the stockholders, and they are entitled to follow it into the hands of any one who has notice of the trust. If it has been taken by one who is chargeable with notice of the condition of the corporation, and of the purposes of the officers and stockholders who propose to wrongfully withdraw the capital and divide and distribute the assets, he will be held to be a trustee, and made to account to the creditors to the extent of the property so misapplied. By the agreement made May 1, 1884, the Fowlers not only proceeded to wind up the business of the corporation, but also to dissolve the partnership firm of Fowler Bros. As has been seen, the Fowlers who were members of the corporation were also members of the firm to

whom the corporation owed the principal part of the indebtedness. In effect, the agreement was to transfer the property to themselves. George Fowler, although not a director at the time of the transfer, had been such, and was at that time a stockholder of the company. He was also a member of the firm of Fowler Bros., and was, therefore, cognizant of the facts which would invalidate the transaction, and must have known that the members of the corporation were dividing the whole assets of the same among themselves, without paying or making adequate provision for the debt of the bridge company. It is true that in the agreement it was provided that when the property at Winthrop should be sold the assets and liabilities affecting the same should be discharged; but this property and its proceeds were retained within the control of the Fowlers, and they have never paid the debt, nor have they made any adequate provision for its payment from that or any other of the resources of the company. There was conveyed to George Fowler from the assets of the company property of the value of $580,000. It is stipulated that he gave this amount in cash and notes to his brothers, but the money and notes were not given to the company, but were actually paid over to Fowler Bros., of which firm George Fowler was a member. He was the manager of the packing house when the debt to the bridge company accrued, and has resisted the same from the outset. He knew of the relationship which existed between the members of the company and the members of the firm. He was acquainted with the fact that the directors had without authority contracted debts far in excess of the capital stock, and that these directors, who were members of the firm of Fowler Bros., had made themselves liable for this excess of indebtedness to the extent of about $1,850,000. He knew that his associates had no authority to make a contract with themselves, nor to make a disposition of the assets which would exclude the creditors from a share of the assets. Those who conducted the negotiations by which the assets of the corporation were absorbed controlled both sides of the agreement, and the effect of the negotiations was a transfer of the assets to them individually. "The law will not permit them to manage the affairs of the corporation for their personal and private advantage, when their duty would require them to work for and use reasonable efforts for the general interests of the corporation and its stockholders and creditors." Ryan v. Railway Co., 21 Kan. 398. In the same case it is held that if persons other than the directors and officers of the corporation participated with them in their illegal transactions, with knowledge of all the facts, equity will hold them to their just responsibilities, following the trust property into the hands of remote grantees and purchasers who take it with notice of the trust, in order to subject

it to the trust. Under the facts, George Fowl- | er cannot be regarded as a bona fide purchaser of the property, but, having had full knowledge of all the facts, he is equally liable with the officers who made the wrongful transfer. "Equity regards the property of a corporation as held in trust for the payment of the debts of the corporation, and recognizes the right of creditors to pursue it into whosesoever possession it may be transferred, unless it has passed into the hands of a bona fide purchaser. Assets deriv

ed from the sale of the capital stock of the corporation, or of its property, become, as respects creditors, the substitutes for the things sold, and as such they are subject to the same liabilities and restrictions as the things sold were before the sale, and while they remained in the possession of the corporation. Even the sale of the entire capital stock of the company and the division of the proceeds of the sale among the stockholders will not defeat the trust, nor impair the remedy of the creditors, if any debts remain unpaid, as the creditors in that event may pursue the consideration of the sale in the hands of the respective stockholders, and compel each one, to the extent of the fund, to contribute pro rata towards the payment of their debts out of the moneys so received and in their hands. # # Moneys derived from the sale and transfer of the franchises and capital stock of an incorporated company are assets of the corporation, and as such constitute a fund for the payment of its debts, and if held by the corporation itself, and so invested as to be subject to legal process, the fund may be levied on by such process; but if the fund has been distributed among the stockholders, or passed into the hands of other than bona fide creditors or purchasers, leaving any debts of the corporation unpaid, the established rule in equity is that such holders take the fund charged with the trust in favor of creditors, which a court of equity will enforce, and compel the application of the same to the satisfaction of their debts." Railroad Co. v. Howard, 7 Wall. 409, and cases cited. In Bradley v. Farwell, Holmes, 433, Fed. Cas. No. 1,779, it is said that, "the fiduciary relation between the directors and the creditors being established, the fact that the trustees in dealing with the trust fund have secured to themselves a benefit or advantage over the creditors, or a benefit or advantage to themselves as creditors over and above the other creditors, taints the transaction, and invokes the aid of a court of equity to see to the right execution of the trust. Not that the trustees cannot prefer one creditor to the others at common law, and outside of the provisions of the bankrupt act, but that in equity a trustee cannot contract with himself as he may with third parties. If he exercises in his own favor the powers he may rightfully exercise in favor of another, the court does not stop to inquire whether he gained or lost.

It is enough that the beneficiary is dissatisfied with the transaction for the court to set the transaction aside, without requiring the beneficiary to prove actual loss or actual fraud.

It must be assumed that the Fowlers were bona fide creditors of the corporation, and therefore were entitled to a pro rata distribution of the assets. But, being directors and manager of the corporation, the law will not permit them to secure to themselves any preference or advantage over other creditors. Hays v. Bank, 51 Kan. 535, 33 Pac. 318. Under the rules of equity, George Fowler took the property charged with a trust in favor of the creditors. If the property remained in his hands, the creditors might enforce a trust against the same; but, as it has passed out of his hands, he may be compelled to account for the fund, and contribute pro rata towards the payment of the debts of the company to the extent of the fund which he has received. It is contended in his behalf that, if it is granted that the assets should have been ap plied pro rata upon the debts of the company, and therefore that George Fowler must refund all that he has received in excess of his pro rata share, his interest in the partnership is not shown, and therefore it cannot be determined what amount he is liable to refund. We have no such difficulty in this case, as it is agreed that, if the plaintiff is entitled to recover, the amount of recovery shall be $4,900, with interest from November 14, 1889. Were it not for this agreement, there would be some difficulty in determining the amount which the plaintiff would obtain upon a pro rata distribution of the assets. It is clear, however, upon the agreed facts, that the plaintiff was a bona fide creditor, and is entitled to recover from George Fowler, who, with notice of all the circumstances, has appropriated to himself more than half a million of dollars of the assets of the corporation, and that the agreement made fixes the amount of such recovery.

It is strongly contended that there is a defect of parties, and that Muir, Booth, the company, and Fowler Bros. are indispensable parties. As already indicated, the presence of Muir and Booth would be necessary to proceedings to subject the property which has been transferred to the payment of the plaintiff's judgment. They are named in the petition, but whether they were served or not does not appear, and in their absence that kind of relief cannot be granted. That, however, will not prevent a personal accounting by George Fowler of so much of the trust fund as he may have received and placed beyond his control. In respect to the other parties alleged to be necessary to a final disposition of the cause, the objection made by the defendant is not available. No objection with respect to the parties was made in the court below. Under section 89 of the Civil Code. where upon the face of the petition there appears to be a defect of parties plaintiff or de