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was alleged that on June 25, 1885, the bridge for the value of the property up to the company obtained a judgment against the amount necessary to pay the judgment, and packing company in the United States cir- that the bridge company have judgment cuit court for $3,404.74; that an execution against him for the sum of $3,768.64. George was issued upon the judgment, and placed Fowler filed a separate answer, admitting in the hands of the United States marshal, the organization of the packing company, who on December 6, 1887, levied upon cer- the acquiring of the property described, the tain real estate in Wyandotte county as the transfer of the same, and that the title there. property of the packing company. There is to had been conveyed to Muir and Booth. an allegation of the organization of the pack- He denies all of the allegations charging ing company on November 19, 1878, with a fraud against himself, the packing company, capital stock of $150,000, of which George or its officers. He further alleges that the Fowler was appointed the general manager, causes of action set forth in the plaintiff's which position he continued to occupy until petition are barred by the statute of limitashortly before the rendition of the judgment tions. The answer was verified. in favor of the bridge company, on June 25, The cause was submitted to the court upon 1885, and that as such manager he had an agreed statement of facts, it being stipuknowledge of the indebtedness of the pack- lated that either party might object to any ing company to the bridge company, and of the admitted facts as irrelevant and imwas aware that it had not been paid. It material under the issues made by the plead. was alleged that on May 30, 1885, the pack- ings. The agreed statement is as follows: ing company, by its officers, made a deed of "(1) The plaintiff obtained judgment in the conveyance pretending to convey all of the United States circuit court, June 25, 1885, real estate in question to George Fowler, for against the Anglo-American Packing & Proa pretended consideration of $580,000; that vision Company, on a cause of action which the conveyance was made for the purpose of accrued, as alleged in the petition, for a defrauding the creditors of the packing com- debt incurred by said packing company in pany, and especially the plaintiff, the bridge the operation of its packing house at Wincompany. It is alleged that there was no throp, Mo. (2) That the judgment, to the consideration for the transfer, and that the amount of $4,900 for principal, interest, and pretended indebtedness of the packing com- costs, to this date remains unpaid. (3) That pany to Fowler, claimed to be a considera- executions were issued and returned as set tion, was fraudulent and fictitious. It is forth in the petition, and the United States alleged that at the time of the transfer the marshal took such action as shown by his packing company had no other property or returns indorsed on executions as set forth assets except that included in the transfer, in petition. (4) That said Anglo-American and that George Fowler accepted the con- Packing & Provision Company was incorpoveyance for the purpose of carrying out the rated, under the laws of the state of Illifraudulent intent and purpose of placing the nois only, November 19, 1878, as shown by property beyond the reach of the plaintiff the charter and certificates of incorporation and other creditors. It is alleged that short-/ annexed hereto as Exhibit A. (5) That Robly after the deed was made George Fowler ert Fowler, Anderson Fowler, George Fowconveyed the property in question to Alexan- ler, and John Fowler were the sole stockder Muir and Arthur Booth, which convey- holders of the Anglo-American Packing & ance, it is a verred, was placed on record Provision Company, and Robert Fowler was without any consideration whatever passing the president, and Anderson Fowler was the from Muir and Booth to either Fowler or secretary, and George Fowler was the manthe packing company. There is a further ager of the Atchison house, at Winthrop, unaverment that the bridge company did not til it was closed out in the fall of 1883. (6) discover the alleged fraud until within 12 | Robert Fowler, Anderson Fowler, and George months before the bringing of the action. Fowler were stockholders in said AngloThe packing company is alleged to be insol- American Packing & Provision Company durvent, and that since the transfer of its prop- ing all the time from its incorporation to erty and assets it has ceased to do business, date it went out of and ceased to do busiand has practically abandoned its corporate
(7) Anderson Fowler, George Fowler, rights and privileges. The prayer of the pe- Robert D. Fowler, John Fowler, William tition is that the property should be ad- Fowler, and Alexander Fowler were the perjudged to be that of the packing company, sons who comprised the firm of Fowler Bros. and subject to the payment of the judgment (8) On the 1st day of May, 1881, the Angloof the bridge company, and that George American Packing & Provision Company Fowler be held to have received and held was indebted to the firm of said Fowler the property in trust for the benefit of the Bros. in about $2,000,000; and on that day creditors of the packing company, and that the deed referred to in plaintiff's petition, a the same shall be subjected to the payment copy of which is hereto annexed as Exhibit of such judgment. There is a further pray- B, was executed as shown by said deed, but er that, in case the property cannot be sub- was not recorded until the 30th day of May, jected to the payment of the judgment, 1885. (9) On May 1, 1884, the date of said George Fowler shall be required to account deed, the Anglo-American Packing & Provision Company owned and were operating a Tomlinson, as such receiver, was thereafter packing house in Chicago, the property de- discharged by said United States court, asalscribed in the petition, and owned a packing leged in the petition; and the only order of house in Winthrop, Mo., the title of which court for such action by said receiver is his last-mentioned property was in the name of order of appointment hereto attached as ExRobert Fowler in trust for the company, and hibit C. (18) The statutes of the state of operated by the company until the fall of Illinois are as alleged in plaintiff's petition, 1883. 10) In July, 1885, all of the Chicago and the same were in force at the time the property was con veyed to Anderson Fowler, | Anglo-American Packing & Provision ComRobert Fowler, and William Fowler, in pay- pany was incorporated, and have since rement of debts due from the Anglo-American mained in force. Said statutes of Illinois Packing & Provision Company to Fowler provide, further, that the remedy given by Bros. (11) In the fall of 1883 the machinery the statutes may be enforced by suit in chanin the packing house at Winthrop, Mo., was cery. (19) On May 1, 1881, and as a part of all removed to Kansas City, Kansas, and in the same transaction of the execution of said the winter of 1886 the Winthrop packing deed of that date to George Fowler, a writhouse was burned and was destroyed. In ten contract was entered into between John, May, 1884, the packing house at Winthrop, George, William, Anderson, and Robert FowMo., was worth $20,000.00. (12) At the date ler, dissolving the partnership firm of Fowler the executions referred to in the petition of Bros., in which it was stipulated, with referplaintiff were issued, the Anglo-American ence to the packing house at Winthrop, Mo., Packing & Provision Company had no prop- as follows: "The said packing house and erty except as hereinbefore stated, and was property at Winthrop shall be sold and realstill indebted to Fowler Bros. in a sum ex- ized, and, after first discharging all debts, ceeding $200,000. (13) The consideration of liabilities, and outgoings affecting the same, the deed to George Fowler of the property the moneys arising from such sale and realidescribed in the petition was $380,000, which zation shall be applied, firstly, in repaying to was the fair value of the property. Part each partner we amount of capital invested was paid in cash, and he executed notes to by him in said concern, and interest thereon; Anderson Fowler, Robert Fowler, and Wil- and the ultimate surplus shall be divided liam Fowler, as part consideration therefor, equally amongst all of the parties hereto,– which have been paid. There was no money it being understood that any loss which may paid directly to the Anglo-American Packing arise on the sale and realization of the last& Provision Company, or notes given to the mentioned premises shall, in the final adcompany, but the money was paid and notes justment of accounts, be borne by all the given as aforesaid to satisfy a debt of the parties hereto in equal shares.' But of this Anglo-American Packing & Provision Com- agreement the plaintiff had no notice until pany to Fowler Bros., which was done with November 14th, 1889. (20) The Anglo-Amerthe consent of Anglo-American Packing & ican Packing & Provision Company had been Provision Company. (14) The capital stock operating the packing house at Kansas City, of the Anglo-American Packing & Provision Kansas, for about three years previous to Company was $150,000, which was paid up. May 1, 1884; and when George Fowler as(15) On May 1, 1884, and prior thereto, sumed control of said property under deed of George Fowler knew of the claim of the Chi- May 1, 1884, he took the business and propcago & Atchison Bridge Company against erty of said company at Kansas City, Kanthe Anglo-American Packing & Provision sas, as it stood on April 30, 1884, on the books Company, referred to in plaintiff's petition; of the company which pertain to said busibut he was then in good faith contesting the ness at Kansas City, Kansas, which transfer claim for the Anglo-American Packing & of said property and business at Kansas Provision Company on the ground that there City, Kansas, was provided for in said writwas no liability, and he knew that no spe- ten contract of date May 1, 1884, between cial provision, except as hereinafter shown, said John, William, Anderson, George, and had been made for the payment of said claim Robert Fowler, and which said agreement of plaintiff against the Anglo-American Pack- provided for the execution of said deed May ing & Provision Company by said company; 1, 1884, which agreement provided, further, and he continued to contest same for said that said George Fowler, 'as purchaser, shall Anglo-American Packing & Provision Com- take over, as a going concern, at the respecpany until same was reduced to judgment. tive sums at which they stand or will stand (16) On May 1, 1884, the property described on the books of the company on the 30th day in plaintiff's petition was delivered to George of April, 1884, all of the business assets of Fowler, and he took possession thereof, and the business heretofore carried on by the has since operated the same in his own name. Anglo-American Packing & Provision Com(17) In February, 1888, John C. Tomlinson pany at Kansas City, Kansas,' which inwas duly appointed receiver of the plaintiff, cluded the real estate described in plaintiff's as alleged in the petition herein, and in petition; and by the terms and conditions March, 1888, instituted an action in this court, of the same agreement the Chicago property as alleged in petition, which action was dis- was subsequently, in like manner, transfermissed, as alleged in the petition, and John C. red to Anderson, Robert, and William Fowler, upon them assuming the liabilities of case made was duly served, notice was duly the Anglo-American Packing & Provision given, and the case made was settled within Company growing out of the business at Chi- the time allowed by law. The void effort to cago, Ill., which said agreement was subject settle did not tie the hands of the judge, por to the ratification of the Anglo-American prevent him from performing the duty which Packing & Provision Company; and there- the law requires. Another ground of the moafter said agreement of date May 1, 1884, tion is that, George Fowler having died since was consummated by deed to George Fow
eding was begun, and as it has not ler (Exbibiu A, hereto attached), and a like been revived against his heirs at law or devideed to the Chicago property to Anderson, sees, the proceeding abates by force of the Robert, and William Fowler, which last deed statute. Soon after the death of the defendbears date July, 1885. (21) On May 1, 1884, ant the proceeding was revived by stipulathe liabilities of the Anglo-American Packing tion against the executor and trustees of the & Provision Company amounted to about $2,- last will and testament of George Fowler, 000,000 due said Fowler Bros. for money deceased. The action taken appears to have theretofore advanced to said Anglo-Ameri- been sufficient as against the personal reprecan Packing & Provision Company by them sentatives of the deceased, but it is contendin its business, and in payment of its obliga- ed that, as the action is brought to enforce tions theretofore created; and the foregoing a trust in real estate in which the deceased debts to said Fowler Bros. and the claim of had an interest, the action survived only as the plaintiff were all the debts and liabilities against the heirs and devisees of the deceas. of the Anglo-American Packing & Provision ed, and not against the personal representaCompany May 1, 1881, date of said agree- tives. If the sole purpose of the action had ment,--all of which debts and liabilities were been to subject real estate to the payment of paid before commencement of this action, ex- the judgment, and to decree a sale of the cept the claim and judgment of plaintiff and land in satisfaction of the judgment, there balance of $200,000 due Fowler Bros. (22) would be considerable force in the contention It is agreed that from June 25, 1885, to June of the defendant; but as the plaintiff asked, 25, 1888, George Fowler was absent from the and, as we shall hereafter see, was entitled state of Kansas one year, and present in the to recover, a personal judgment, it was propstate two years between said dates. (23) er that the revivor should be made against The foregoing are all of the material facts in the personal representatives of the deceased. this case, but are not to be construed as mod- The final ground urged for dismissal is that ifying any admissions made in the pleadings; there is a defect of parties. It is contended and if, upon the pleadings and facts as here. that several parties who were named as dein stipulated, the plaintiff is entitled to re- fendants in the petition were necessary to cover, the amount thereof shall be $4,900, a review of the proceedings in this court. If with interest from November 14, 1889. The a joint judgment had been rendered for or foregoing is all the evidence.”
against them, or if the judgment rendered Upon this statement the court gave judg- could not be reversed or modified without af. ment against the bridge company and in fa- fecting them all, then it would be necessary vor of the defendant, Fowler, for costs. Of that all of them should be made parties to this judgment the plaintiff complains.
this proceeding; but the judgment sought to
be reviewed was against the bridge company Waggener, Martin & Orr and Mills, Smith
and in favor of George Fowler alone. It does & Hobbs, for plaintiff in error. Hutchings
not appear that service was made upon any & Keplinger, for defendant in error.
of the other defendants who were named in
the petition, and their rights were not deter. JOHNSTON, J. (after stating the facts). mined in the action. Their absence, as we Several questions are presented upon a pre- shall see later on, did not prevent the court liminary motion to dismiss the proceeding in from enforcing the personal liability of error. One ground of the motion is that the George Fowler, and as no judgment for or case made is invalid, having been allowed against them was rendered in the court be without notice. By the terms of the order the low, and as they are not to be affected by case was to be settled and signed on three this proceeding, they are not necessary pardays' notice, and it appears that after it ties here. was duly served it was presented to the The plaintiff insists that upon the merits judge, who settled and signed the same with- it should have been awarded judgment out notice to the defendant. Afterwards, against George Fowler for the full amount of and before the expiration of the year, a no- its claim. Of the validity of the debt and tice was served that on a certain day the judgment held by the bridge company there case would be presented for allowance, and is no question. When the debt accrued, the upon that day the case was presented, amend- packing company was a going concern, opments thereto were suggested by the defend- erating packing houses at Chicago, Kansas ant, and without any objection the case was City, and at Winthrop, near to the city of duly settled and signed. The first attempt Atchison. The company was organized in of the judge to settle the case was a nullity 1878, under the laws of Illinois, and George for want of notice to the defendant. The Fowler was one of the promoters, and alsa
a director of the corporation during a great whom the corporation owed the principal part of the time it was engaged in business. part of the indebtedness. In effect, the As the agreed facts show, the Fowlers were agreement was to transfer the property to the sole stockholders, and had absolute con- themselves. George Fowler, although not a trol of the corporation. The members of the director at the time of the transfer, had been corporation were also members of the part- such, and was at that time a stockholder of nership of Fowler Bros., and George Fowler the company. He was also a member of the was a manager of one of the packing houses firm of Fowler Bros., and was, therefore, while it was in operation. In 1884 the Fowl. cognizant of the facts which would invalers entered into an agreement with each other idate the transaction, and must have known to wind up the business, and distribute that the members of the corporation were diamong themselves the entire assets of the viding the whole assets of the same among corporation. Although the capital stock of themselves, without paying or making adethe corporation was only $150,000, the mem- quate provision for the debt of the bridge bers of the company had at that time as- company. It is true that in the agreement it sumed an indebtedness of more than $2,000,- was provided that when the property at 000, and the statutes of Illinois, under one of Winthrop should be sold the assets and liawhich the company was organized, provided bilities affecting the same should be disthat "if the indebtedness of any stock cor- charged; but this property and its proceeds poration shall exceed the amount of the cap- were retained within the control of the Fowl. ital stock, the directors and officers of such ers, and they have never paid the debt, nor corporation assenting thereto shall be per- have they made any adequate provision for sonally and individually liable for such ex- its payment from that or any other of the cess to the creditors of such corporation." resources of the company. There was conLaws 1871–72, $ 16, p. 300. It appears that veyed to George Fowler from the assets of the greater part of the indebtedness of the the company property of the value of $580,company was due to the Fowlers, but before 000. It is stipulated that he gave this amount they divided the assets amouy themselves the in cash and notes to his brothers, but the debt of the bridge company had accrued. money and notes were not given to the comWhile there is no specific statement that the pany, but were actually paid over to Fowler company was insolvent when the transfer of | Bros., of which firm George Fowler was a memthe property was made in 1881, it is shown ber. He was the manager of the packing house that when the assets were distributed in ac- when the debt to the bridge company accordance with the agreement then made crued, and has resisted the same from the there still remained an unpaid debt of more outset. He knew of the relationship which than $200,000. By that agreement the offi- existed between the members of the company cers and stockholders of the company di- and the members of the firm. He was acvided its entire capital and assets, and in quainted with the fact that the directors had that way deprived it of all facilities to carry without authority contracted debts far in on business, or to exercise the functions of a excess of the capital stock, and that these dicorporation. The company being in such a rectors, who were members of the firm of condition, the action of its officers and stock- Fowler Bros., had made themselves liable for holders in absorbing the entire assets of the this excess of indebtedness to the extent of company and dividing them among them- about $1,850,000. He knew that his associ. selves operated as a wrong as against the ex- ates had no authority to make a contract cluded creditors. In its disabled condition, with themselves, nor to make a disposition of and the assets being insufficient to meet the the assets which would exclude the creditors liabilities of the company, its property be- from a share of the assets. Those who concame a trust fund for the payment of its ducted the negotiations by which the assets debts. In equity, the creditors have a lien of the corporation were absorbed controlled upon the property superior to the claim of both sides of the agreement, and the effect of any of the stockholders, and they are en- the negotiations was a transfer of the assets titled to follow it into the hands of any one to them individually. “The law will not who has notice of the trust. If it has been permit them to manage the affairs of the taken by one who is chargeable with notice corporation for their personal and private adof the condition of the corporation, and of the vantage, when their duty would require them purposes of the officers and stockholders to work for and use reasonable efforts for who propose to wrongfully withdraw the the general interests of the corporation and capital and divide and distribute the assets, its stockholders and creditors." Ryan v. Railhe will be held to be a trustee, and made way Co., 21 Kan. 398. In the same case it to account to the creditors to the extent of is held that if persons other than the dithe property so misapplied. By the agree- rectors and officers of the corporation particiment made May 1, 1884, the Fowlers not pated with them in their illegal transactions, only proceeded to wind up the business of the with knowledge of all the facts, equity will corporation, but also to dissolve the partner- hold them to their just responsibilities, folship firm of Fowler Bros. As has been seen, lowing the trust property into the hands of the Fowlers who were meinbers of the cor- remote grantees and purchasers who take it poration were also members of the firm to with notice of the trust, in order to subject
it to the trust. Under the facts, George Fowl. It is enough that the beneficiary is dissatiser cannot be regarded as a bona fide pur- fied with the transaction for the court to set chaser of the property, but, having had full the transaction aside, without requiring the knowledge of all the facts, he is equally lia- beneficiary to prove actual loss or actual ble with the officers who made the wrongful fraud. transfer. "Equity regards the property of a It must be assumed that the Fowlers were corporation as held in trust for the payment bona fide creditors of the corporation, and of the debts of the corporation, and recog- therefore were entitled to a pro rata distribunizes the right of creditors to pursue it into tion of the assets. But, being directors and whosesoever possession it may be transfer- | manager of the corporation, the law will not red, unless it has passed into the hands of a permit them to secure to themselves any bona fide purchaser.
Assets deriv- preference or advantage over other creditors. ed from the sale of the capital stock of the Hays v. Bank, 51 Kan. 535, 33 Pac. 318. Uncorporation, or of its property, become, as der the rules of equity, George Fowler took respects creditors, the substitutes for the the property charged with a trust in favor of things sold, and as such they are subject to the creditors. If the property remained in the same liabilities and restrictions as the his hands, the creditors might enforce a trust things sold were before the sale, and while against the same; but, as it has passed out they remained in the possession of the cor- of his hands, he may be compelled to account poration. Even the sale of the entire capital for the fund, and contribute pro rata towards stock of the company and the division of the the payment of the debts of the company to proceeds of the sale among the stockholders the extent of the fund which he has received. will not defeat the trust, nor impair the rem- It is contended in his behalf that, if it is edy of the creditors, if any debts remain un-. granted that the assets should have been ap. paid, as the creditors in that event may pur- plied pro rata upon the debts of the company, sue the consideration of the sale in the hands and therefore that George Fowler must reof the respective stockholders, and compel fund all that he has received in excess of his each one, to the extent of the fund, to con- pro rata share, his interest in the partnership tribute pro rata towards the payment of is not shown, and therefore it cannot be detheir debts out of the moneys so received and termined what amount he is liable to refund. in their hands.
Moneys derived We have no such difficulty in this case, as it from the sale and transfer of the franchises is agreed that, if the plaintiff is entitled to and capital stock of an incorporated com- recover, the amount of recovery shall be $4,pany are assets of the corporation, and as 900, with interest from November 14, 1889. such constitute a fund for the payment of its Were it not for this agreement, there would debts, and if held by the corporation itself, be some difficulty in determining the amount and so invested as to be subject to legal which the plaintiff would obtain upon a pro process, the fund may be levied on by such rata distribution of the assets. It is clear, process; but if the fund has been distributed however, upon the agreed facts, that the among the stockholders, or passed into the plaintiff was a bona fide creditor, and is enhands of other than bona fide creditors or titled to recover from George Fowler, who, purchasers, leaving any debts of the corpora- with notice of all the circumstances, has tion unpaid, the established rule in equity appropriated to himself more than half a is that such holders take the fund charged million of dollars of the assets of the corporawith the trust in favor of creditors, which a tion, and that the agreement made fixes the court of equity will enforce, and compel the amount of such recovery. application of the same to the satisfaction of It is strongly contended that there is a detheir debts." Railroad Co. v. Howard, 7 fect of parties, and that Muir, Booth, the Wall. 409, and cases cited. In Bradley v. company, and Fowler Bros. are indispensable Farwell, Holmes, 433, Fed. Cas. No. 1,779, it parties. As already indicated, the presence is said that, "the fiduciary relation between of Muirand Booth would be necessary to prothe directors and the creditors being estab- ceedings to subject the property which has lished, the fact that the trustees in dealing been transferred to the payment of the plainwith the trust fund have secured to them- tiff's judgment. They are named in the petiselves a benefit or advantage over the cred- tion, but whether they were served or not does itors, or a benefit or advantage to themselves not appear, and in their absence that kind of as creditors over and above the other cred- relief cannot be granted. That, however, will itors, taints the transaction, and invokes the not prevent a personal accounting by George aid of a court of equity to see to the right Fowler of so much of the trust fund as he execution of the trust. Not that the trus- may have received and placed beyond his tees cannot prefer one creditor to the others control. In respect to the other parties alat common law, and outside of the provi. | leged to be necessary to a final disposition of sions of the bankrupt act, but that in equity the cause, the objection made by the defenda trustee cannot contract with himself as he ant is not available. No objection with remay with third parties. If he exercises in spect to the parties was made in the court behis own favor the powers he may rightfully low. Under Section 89 of the Civil Code. exercise in favor of another, the court does where upon the face of the petition there apnot stop to inquire whether he gained or lost. pears to be a defect of parties plaintiff or de.