Opinion
No. 3592.
November 29, 1928. Rehearing Denied December 6, 1928.
Appeal from Lamar County Court; J. M. Braswell, Judge.
Action by Vernor Hall against Crawford Delphenis, a partnership. Judgment for defendants, and plaintiff appeals. Affirmed.
The suit was brought by appellant as assignee of Carter Anderson Co., a corporation, to recover of Crawford Delphenis, a partnership, the sum of $372 alleged to be money wrongfully paid and accepted by them through checks of the corporation in payment of the personal obligation of Carter Anderson, an officer thereof. The suit was filed June 9, 1927. The defendants pleaded, as a defense, that the corporation was solvent at the time of the transactions, and that the stockholders, as well as the corporation, by acquiescence ratified them. The case was tried without a Jury, and the court entered judgment for the defendants.
The court filed findings of fact, which are unchallenged and are substantially as follows: In 1923, Carter Anderson Co. was incorporated under the laws of Texas to conduct a general dry goods business, and carried on such business until January 9, 1926, when it executed an assignment for the benefit of creditors, naming the plaintiff herein, Vernor Hall, as assignee. The place of business was Paris, Tex. From the date of the organization of said corporation until the time it executed said deed of assignment, Carter Anderson was its active president, with authority as manager of the business with full direction and charge thereof. He was the owner of all the stock of the corporation except a few shares which had been formally issued to his wife and to a clerk, Mr. Holloman. Carter Anderson, his wife, and Mr. Holloman were the three directors. These three persons were the only incorporators. Carter Anderson, in the capacity of manager of Carter Anderson Co., issued the following checks: April 15, 1924, check No. 991 for $46.20; October 22, 1924, check No. 341 for $54.05; January 14, 1925, check No. 23 for $98: October 3, 1925, check No. 561 for $57.60; August 27, 1925, check No. 633 for $66.40; November 14, 1925, check No. 958 for $51.20. All of said checks were payable to the order of Crawford Delphenis, defendants, and were drawn against the bank account of said corporation. On the dates of said checks the same were presented by the defendants to the bank for payment, and the bank paid said checks to defendants, who received the respective sums of money therein named. All of said checks were given to defendants in payment of the personal indebtedness of Carter Anderson to defendants. Carter Anderson Co. was not in any wise indebted or liable to defendants for any sum of money. Carter Anderson Co. at the date of each respective check was not actually indebted to Carter Anderson in any sum whatever. Carter Anderson has never repaid any part of the checks to Carter Anderson Co. At the time all of said checks were given, Carter Anderson Co. was solvent, and continued to be solvent up to and including the date of the deed of assignment. At the date of assignment the assets of the corporation invoiced $54,502.58. The liabilities, including cost of liquidation, listed with the assignee amounted to $32,000. Neither the plaintiff nor any of the present creditors of Carter Anderson Co. knew of the execution and payment of said checks until about 60 days after the assignment was made. The plaintiff, upon examination of the books and the returned checks among the records of said corporation, found out that the checks were executed and were charged to the personal account of Carter Anderson with the corporation. The amount of each check was fully reflected on the book of the corporation. The book shows that on the date of the issuance of each check the personal account of Carter Anderson was overdrawn, and that Carter Anderson was indebted to the corporation. Prior to the filing of this suit the assignee demanded of defendants payment of the aggregate amount of the checks, which they refused. There was a prearranged agreement to dispose of the business, and the creditors of the corporation duly and fully ratified the proposed deed of assignment. The plaintiff took charge of the assets of the corporation, sold the same for $26,000, and applied that sum on the indebtedness of the corporation. There is still unpaid the balance of $6,000. The remaining assets of the corporation consist of $239.19 in cash, the claim against defendants, and other like claims aggregating $1,500. Since the creation of the corporation and up to the date of the deed of assignment, Carter Anderson had customarily paid his ordinary personal obligations by checks drawn in the name of the corporation against the bank deposits of the corporation, and charged Such checks against himself in his account on the book of the corporation, and then credited his account with monthly salary due him as manager as and when such salary was due. The checks in suit were pursuant to that custom and method, and were regularly entered on the book of the corporation.
Conclusions of the court are as follows: "Title to the money received on the checks given to defendants passed to defendants, as the acts of Carter Anderson in directing such payment from the funds of the corporation in settlement of his personal obligations became and were binding on the corporation. The corporation at said time was solvent, and it made no timely demand on defendants for the return of said money. Carter Anderson Company acquiesced in and ratified such acts of its manager, Carter Anderson. The defendants by reason of such acquiescence can not now be held liable for such sum of money received by them, to either the corporation or its creditors."
W. A. Hutchison, of Paris, for appellant.
Beauchamp Lawrence, of Paris, for appellees.
The appellant relies upon the point in view, in effect, that as assignee he was entitled to restitution of the payments made to the appellees under the doctrine of resulting trusts, and that the court erred in holding otherwise, because the facts found by the court conclusively established misapplication of the corporation's funds by an officer thereof, and that the appellees acquired such, funds as transferees with notice. Every case of this character of misapplication must be decided in the light of its individual status and peculiar incidents. It appears that Carter Anderson, for the ordinary bills he personally owed, customarily gave monthly a check of the corporation, not to himself, but directly to his creditor. The giving of corporation checks direct to his creditors was in pursuance of a business method used by him as active president managing the business, in drawing his monthly salary. The check so issued was by him charged against his account on the book of the corporation. His salary as and when due was then regularly credited to his account. At most times, however, his account on the book was in a sum exceeding his salary, and the salary when credited did not satisfy the account in full. This practice continued from the date of the entry of the corporation in business to date of assignment, a period of time of nearly three years. In such facts the method pursued monthly by Carter Anderson, of giving corporation checks, not to himself, but directly to his own creditors, may properly be regarded as merely an indirect way of paying himself his salary due, in so far as such checks represented an amount equal to and not exceeding his monthly salary payable. He was the active manager of the business, and as such had the authority to pay himself his salary. The act of misappropriation of corporate funds must rest upon the precise fact that Carter Anderson, in paying his personal debts, gave corporation checks monthly to his creditors in a sum greater than his salary, and his account on the book became and remained overdrawn.
It is believed, in the special circumstances, that the trial court did not err in denying judgment in favor of appellant as representative of the corporation, its stockholders, or the present creditors. This is so as to the corporation and its stockholders, because of the factual element, as found by the trial court, of ratification by timely acquiescence in the custom of the president and active spirit and manager of the business in drawing checks directly upon the corporate funds for his ordinary private purposes. There being no positive fraud shown in so doing, equitable estoppel arises, as between them and third persons, from claiming that in overdrawing the account the officer was wrongfully misappropriating corporate funds. Jorndt v. Reuter Hub Spoke Co., 112 Mo. App. 341, 87 S.W. 29. The assignee, as their representative, has no greater rights than the corporation or its stockholders. It is clear that the transactions in evidence were the subject-matter of ratification. 3 Thompson Corp. (Ed. 1895) § 4025; Ibid, vol. 5, § 6531; 14a C.J. pp. 377 and 401; Little v. Garabrant, 90 Hun, 404, 35 N.Y.S. 689 . And ratification ordinarily becames a question of fact. Ft. Worth Nat, Bank v. Harwood (Tex.Com.App.) 229 S.W. 487.
Carter Anderson was, and was known to be, the sole owner of practically all the stock of the corporation, and sole real acting controller and manager of its affairs, with full control and direction of the business. As clearly demonstrated by the facts, there was no embezzlement or secret withdrawal of the corporation funds. There was no effort made to intentionally defraud the corporation. Neither does it appear that the withdrawal of the funds for his private purposes operated to be in fraud of other persons interested in the corporation. Carter Anderson owned practically all of the stock, and his wife and Mr. Holloman were only nominal shareholders by gift of the shares to them. And it is admittedly shown that the withdrawal of the funds did not bring about or influence insolvency of the corporation. The failure of the assets to sell for enough to entirely satisfy the corporation debts is attributed to a state of affairs particularly existing at date of assignment. There is no evidence that the two nominal stockholders did not know of the method and mode of Carter Anderson of drawing the checks and to the extent drawn. They had full opportunity to know of such method, and a real duty to speak of it and object, but remained inactive and abstained from objecting. The evidence sufficiently established acquiescence and ratification, and the trial court was authorized to so find. The six checks in evidence were given on dates ranging respectively from April, 1924, to November, 1925. Considering all the circumstances apparently known to the appellees, they could have reasonably assumed that authority existed in Carter Anderson to give the checks, and that he was not in fact doing an unauthorized act amounting to wrongful misappropriation of corporation funds. As involved in the court's conclusion, the appellees would be injured if the corporation, and its stockholders, in the circumstances, were not held to the attitude on which the estoppel pleaded is based.
Second. Did the present creditors have such rights to the payments sued for, independent of the stockholders, as would sustain this action in their behalf as against appellees? If so, the liability must rest upon the prohibited transfer of the property of an insolvent debtor to hinder, delay, and defraud his creditors. Logeman Mfg. Co. v. Logeman (Mo.App.) 298 S.W. 1040. Such acts only impair rights of creditors. It does not appear that the present creditors were corporation creditors at the time the checks were given. And even though they were, the evidence is conclusive that at the times of the respective transactions in evidence the corporation had ample assets to pay existing obligations, and continued solvent for some months afterwards. The withdrawal of such particular funds by the president and manager, either of the $372 in suit or the entire amount of the overdrawn account, did not, as found by the court, in any wise cause or influence default in the payment of debts or the exigency causing the corporation to suspend business by means of the execution of the deed of assignment. Consequently the acquiescence or assent of the sole stockholders and officers to the withdrawal of the funds in suit did not in fact operate to impair rights of creditors.
The present suit is quite similar to the cases of Watts v. Gordon, 127 Tenn. 96, 163 S.W. 483; Sweet v. Lang (C.C.A.) 14 F.2d 762; Little v. Garabrant, 90 Hun, 404, 35 N.Y.S. 689. The cases cited by appellant are applicable to a different situation than in the instant case, and are therefore not in point here.
The judgment is affirmed.
On Rehearing.
The original opinion, it is perceived, denied the appellant, as representative of the creditors, the right of recovery in the facts upon the ground that the withdrawal of the funds by Carter Anderson "did not operate to impair rights of creditors." The ruling was influenced by the factual elements, namely: (1) The withdrawal of the funds did not "in anywise cause or influence insolvency"; (2) "insolvency did not cause the execution of the deed of assignment"; and (3) "the failure of the assets to sell for enough to satisfy the corporation debts is attributed to a state of affairs particularly arising at date of assignment," and not on account of the fact of withdrawal of the particular funds by the manager. If the factual elements had appeared differently, the appellant's contention would prevail.
The motion is overruled.