
    Pfisterer v. The Toledo, Bowling Green & Southern Traction Company.
    
      Corporations — Action to enforce judgment — Conveyance of property by defendant in personal injury case — Plaintiff a subsequent creditor and transfer will not be set aside, when — Proof necessary to set aside conveyance — Question of fraudulent transfer to defeat creditors’ rights.
    
    1. An incorporated company made a conveyance of all its property, including its franchise. At the time of the conveyance, the plaintiff had a valid cause of action against it for personal injury caused by its negligence, upon which he brought his action, after the conveyance, and recovered judgment for $1250. Held: He is a subsequent creditor, and in a suit by him to subject the property thus transferred into the hands of the purchaser to the payment of his judgment, the transfer will be set aside only upon proof of the grantor company’s actual intent to defraud its creditors. (Evans et al. v. Lewis, 30 Ohio St., 11, approved and followed.)
    2. Especially where the purchaser has paid valuable and adequate consideration (viz., $239,250 and some stock in another company for property alleged to be worth $300,000), there must be clear and satisfactory proof of fraudulent intent on his part.
    3. 'Where the vendee is a natural person who purchases for himself and others associated with him, and he and his associates afterwards form an incorporated company; and after the.pur- ' - chase price is actually paid to the vendor company’s treasurer, the latter company, at the request of the vendee, makes the deed of conveyance directly to the new incorporated company; and some of the stockholders of the vendor company take stock in the new company, as well as some money, for the transfer to the purchaser of their certificates of stock in the vendor company, which are destroyed; and the treasurer of the vendor company distributes to its stockholders the balance of the money so paid to him, after having paid to its acknowledged and listed creditors $70,000, to discharge their claims, leaving-unpaid only the plaintiff’s unlisted and unliquidated claim finally adjudicated to be $1250. Held: These circumstances are not sufficient to establish a constructive fraudulent purpose of the new company to defeat the vendor’s creditors, and thereby avoid the conveyance.
    (No. 14160
    — Decided December 19, 1913.)
    
      Error to the Court of Appeals of Lucas county..
    September 16, 1900, plaintiff instituted an action for damages for personal injuries against The Toledo, Bowling Green & Fremont Railway Company in the common pleas court of Lucas county. May 31, 1901, the service of summons was quashed. A new petition for the same cause of action was filed September 25, 1901. The first action was dismissed without prejudice, but not till January 6, 1902. Judgment was rendered for the plaintiff in the second action for $1,250 December 23, 1903. This judgment was affirmed by this court October 18, 1905. No execution was ever issued.
    The capital stock of this railway company, which for brevity we will call the Fremont Company, was $159,000. James A. Huston was president, R. E. Hamblin, secretary, and C. C. Schenck, treasurer. About April 1, 1901, George B. Kerper, of Cincinnati, for himself and others associated with him, negotiated with Schenck for an option for 30 days on the capital stock at $150 per share. April 27, 1901, $30,000 was paid upon the option. Kerper was a controlling stockholder and the chief officer of The Findlay Street Railway Company. His plan was to consolidate the two roads by building a connecting link and thus form a continuous line. To this end, on April 3, 1901, he organized The Toledo, Bowling Green & Southern Traction Company, with a capital of $1,500,-000, to take over both roads, and on April 25 he contracted with the latter company to convey both roads to it for its mortgage bonds, of the par value of $1,075,000, and all its capital stock (less 25 shares already issued). May 7 he paid to Schenck, treasurer of the Fremont Company, $186,750. All but three shareholders (who held $5,000 each) had filed their stock with Schenck and Huston, the president, for delivery to the purchaser. They delivered over to the purchaser the stock held by them. The holdings of the other three shareholders were transferred through a Mr. Tracy, as attorney for the holders, about the same time and were also delivered, and all the stock was cancelled.
    May 18, 1901, the stockholders of, the Fremont Company authorized the transfer of the property to the Traction Company, and a deed was executed on June 15, 1901, containing the following recital: “Resolved further, that the board of directors be and they hereby are authorized and instructed to receive from said The Toledo, Bowling Green & Southern Traction Company in exchange for said property and of the right, title, interest, property and estate of the stockholders therein as represented by their shares of stock' equivalent shares of stock in The Toledo, Bowling Green & Southern Traction Company and the mortgage bonds of said company, and that the shareholders receive said shares of stock and bonds in exchange and payment for their shares of stock in The Toledo, Bowling Green & Fremont Railway Company.”
    The money which was paid for the stock of the Fremont Company was raised upon the bonds of the Traction' Company. In the contract of sale there was a' stipulation that the Fremont Company had no debts, but that four or five suits were pending, which the Traction Company agreed to settle and did settle. Pfisterer’s suit was not one of them. About that time his first suit was quashed,- and the second suit was not begun till about four months later.
    The plaintiff in error alleges that the value of the property was $300,000. The money consideration paid upon the transfer of the stock, as appears at one place in the record, was $239,250. It appears that $70,000 of this money was paid to creditors and the balance distributed to the stockholders. The consideration expressed in the deed is “the sum of ten thousand ($10,000) dollars and the exchange of stock certificates to be paid. by The Toledo, Bowling Green & Southern Traction Company.” Mr. Kerper’s attention being drawn to this, he testified: “It is not correct; it was all cash. We paid cash for the property.”
    The record book of the Traction Company, in the minutes of a directors’ meeting on April 25, 1901', shows that “pursuant to notice for bids, George B. Kerper, Jr., submitted to the board his proposition and bid for the acquisition and purchase of The Toledo, Bowling Green & Fremont Railroad, and the Findlay Street Railroad, and conveyance of title to The Toledo, Bowling Green & Southern Traction Company. Also the acquisition of the right of way from Trombley in Wood county to Mortimer in Hancock county, and the construction thereon of an electric road with all suitable turnouts so as to connect the tracks of the Toledo, Bowling Green & Fremont Company with the tracks of the Findlay Street Railway Company. * * * Also to thoroughly equip the entire line from Findlay to Perrysburg, * * * and offered and agreed to receive in full compensation thereof at the face value, the bonds of The Toledo, Bowling Green & Southern Traction Company to the amount of $1,075,000 and certificates or shares of the capital stock of the company to the amount of $1,500,-000 less twenty-five shares already issued.” A formal resolution was passed accepting this bid and authorizing the president and secretary to enter into contract with Mr. Kerper “for the acquisition of the roads named and the completion of the road ready for full operation from Toledo to Findlay.” Another entry on the books shows, under date of August 15, 1901, “Capital stock. *. * * To George B. Kerper, Jr. For 14,475 shares of stock issued to him as per certificates. Nos. 16 to 74, inclusive.”
    The plaintiff contends that the conveyance was without consideration except that the Traction Company exchanged an equal amount of its capital stock for all the stock of the Fremont Company; that said companies were then consolidated and merged .under the laws of Ohio, and that by reason thereof the Traction Company became lia- ' ble for the payment of all of the obligations of the Fremont Company, including the amount due to the plaintiff, and assumed for valuable consideration to pay all indebtedness of the Fremont Company. The basis of this contention is the usual proposition of law, as stated in his brief: “As- - sets of a corporation being a trust fund for the benefit of creditors may be followed into the hands of a purchasing corporation, when not purchased in the usual course of business, under a device which protects the stockholders, but leaves the company insolvent.”
    The defendant denies that the directors of The Fremont Railway Company authorized its president and secretary to convey its property to the Traction Company; that it did convey its property to the Traction Company without consideration; that the Traction Company exchanged its certificates of stock for an equal amount of the Fremont Company’s stock; that the latter company had a right of way from Perrysburg to Trombley; that the purchase of the Fremont and Findlay properties by the Traction Company operated as a merger or consolidation of said companies; that the Traction Company became liable for any debts or obligations of the Fremont Company; that it had any knowledge at the time it purchased the Fremont railway property of any claim of the plaintiff; that the Fremont Company was insolvent; that the conveyance of the Fremont property was for the purpose of any one to defraud its creditors; and it avers that when said conveyance was made all debts and obligations of the Fremont Company were satisfied; that the Traction Company had no notice or knowledge that plaintiff was a creditor or making any claim against the Fremont Company until long after it purchased the property of said company; that the purchase price was fully paid by the defendant to the Fremont Company and not to its stockholders individually, and thereupon its stock certificates held by it were fully cancelled and it passed out of existence as a corporation, and that the said purchase was in good faith, without fraud upon the Fremont Company, its stockholders or any of its creditors.
    The defendant bases its defense upon the following proposition taken from its brief: “Where a solvent corporation makes a real sale of all of its assets in consideration of the payment either of money or of stock to its stockholders, such sale will be valid as against even the existing creditors of the selling corporation, in the absence of fraud participated in by the purchaser, and in such event the creditors of the selling corporation may follow the proceeds of its property into the hands of its stockholders, but cannot follow the property into the hands of the purchaser.”
    The minute statement of the details of the transaction would be a tedious repetition of much of the testimony, which is vague and uncertain on many points which the statements of the briefs of counsel do not clear up, but leave in “confusion worse confounded.” The transaction seems to have been, first, an option sale to George B. Kerper of all but twenty-five shares of the Fremont Company stock. Then he organized the Traction Company and negotiated for a sale to it of the Fremont property for its bonds and shares of its stock. He raised money on the bonds to pay for the Fremont stock, and procured a resolution of the stockholders of the Fremont Company to convey its property, not to him, but directly to the Traction Company, which was done. The Fremont stock was destroyed and some of the Fremont shareholders got stock in the new company. How, when, in what method or order, these changes took place counsel have not shown, us and we cannot figure out from the transcript.
    
      Mr. R. S. Holbrook; Mr. C. R. Banker and Mr. G. B. Keppel, for plaintiff in error.
    
      Messrs. King, Tracy, Chapman & Welles, for defendant in error.
   Wilkin, J.

It is apparent from the foregoing statement of facts and of the altercation between the parties that the contention narrows down to two questions of fact, namely: (1) Whether the plaintiff was a creditor of the Fremont Company at the time of the sale of its property to George B. Kerper and his associates; (2) Whether the sale was a bona fide transaction for a valuable consideration, or a mere collusivé transfer of title to a reorganization of the vendor company in fraud of its creditors, or a consolidation of the Fremont railway with the Findlay street railway by a merger of those two companies into a consolidated company under a new name known as the Traction Company.

It is unnecessary to consume time and space with a commentary on the facts. It is sufficient 'to say that this case was heard twice in each of the courts below. It comes to this court upon error to the judgment of the court of appeals rendered January 18, 1913.

One of the errors alleged in the court of appeals ■was that the common pleas court on a second trial refused “to follow the opinion and judgment of the circuit court of Lucas county, Ohio, rendered and entered on substantially the same evidence, in the former proceedings in error herein.” The court of appeals reversed the judgment of the common pleas court for the reason that the decision and judgment of the latter court is against the weight of the evidence. And the plaintiff assigns here as one ground of error that the court of appeals has no power to reverse for that reason, the circuit court having once reversed for that reason.

An excerpt from the unanimous opinion of the court, rendered by Wildman, J., will exhibit the view which that court took of the case:

“Both the circuit court and the judge of the common pleas court, to whom the cause was submitted without a jury, seem in accord as to the good faith of the transaction, so far as the Traction Company is concerned, and there is not much attempt to charge the Fremont Company with such actual fraud. The trial judge, however, as we gather from his opinion, which has been transcribed and filed with the briefs of counsel, takes the view that by virtue of Section 8618 of the General Code, the transaction between the companieswas a conveyance constructively in fraud of creditors of the grantor, the Fremont Company. * * * While it was not embodied in an entry making separate statements of fact and law, we feel justified in considering it as an expression of the ground upon which the judgment was rendered. * * *
“The question which addresses itself to us is whether Pfisterer at the time of the conveyance by the Fremont Company to the Traction Company, was a 'creditor’ within the meaning of .that part of the statute of frauds embodied in the section of the General Code relied upon by the trial court and to which reference has already been made. * * * The current of authorities is unbroken that, as to subsequent creditors, transfers will be set aside only upon proof of actual intent to defraud. In the case of Evans et al. v. Lezuis, 30 Ohio St., 11, the third paragraph of the syllabus is as follows: 'One having a valid cause of action, sounding in tort, against said grantor, at the time of such conveyance, upon which an action was subsequently brought and judgment recovered, is to be regarded as a subsequent creditor.’ * * *
“In White v. Gates, 42 Ohio St., 109, the case of Evans v. Lewis was cited approvingly with the statement .that the fact that an action was pending for damages at the time of the sale and transfer of the property was immaterial. The case .of Evans v. Lezvis was again followed in Stuard v. Porter, 79 Ohio St., 6. The circuit court of this county has also had occasion to pass upon the question with the same holdiñg. Detwiler v. Louison, 10 C. D., 95, 97.
“That the conveyance might be attacked, if made with the intent to defraud subsequent creditors is, of course, true, but to establish such intent the burden is upon the party asserting it, and it is not apparent in the case at bar that that burden has been sustained. * * * Indeed, it is clearly indicated by the record that all existing creditors, whose claims amounted in the aggregate to some $70,000.00, including some claims then in litigation, were taken care of in the transaction. There is no suggestion that the Traction Company participated in any fraudulent intent, even if it existed in the minds of the Fremont Company or the persons arranging the transfer. * * * It. is almost inconceivable that such a transfer as that of the entire assets of the Fremont Company, amounting to over $200,000.00 in value, would be made for the purpose of avoiding payment of this one comparatively small claim. In our view of this case, it is of no moment that the transfer was made by a corporation instead of an individual. Numerous authorities might be cited in support of this opinion, but it is hardly necessary. Attention may, however, be called to the case of Graham v. Railroad Company, 102 U. S., 148, and especially the" discussion of the question by Mr. Justice Bradley, pages 153, 160 and 161. The closing words which are especially pertinent to this point are as follows: ‘We see no reason why the disposal by a corporation of any of its property should be questioned by subsequent creditors of the corporation, any more than a like disposal by an individual of his property should be so. The same principles of law apply to each.’ * * ■ *
“As the character of the plaintiff’s claim and the facts bearing upon the question which we have considered in this opinion are undisputed, the judgment will be entered, in this court which should have been entered in the court of common pleas, dismissing the action of the plaintiff below.”

We concur in this opinion of the court of appeals. While it does not say in exact words that there is no evidence in support of the plaintiff’s contention, the language of the opinion seems to import as much. The finding in its journal entry is “that the judgment and decree entered by the court of common pleas * * * is not sustained by sufficient evidence, and is against the weight of the evidence,” which is precisely the finding made by the circuit court upon its review of the first trial. The record of the second trial shows a persistent effort of the plaintiff’s counsel to bring to light details of the transaction and of the relations of the parties, from which collusion and fraud could be inferred; but the testimony and the documents thus brought upon the record can hardly be said to give rise to such inference, and hence do not have the force and the value of proof of the fraud alleged. Nor do we think that the probative effect of the facts established by the testimony and the documents tends to establish constructive fraud; that is to say, a transaction not inspired by an actual evil purpose to deceive but tending nevertheless to mislead innocent persons and to beguile them of their rights, contrary to good public policy. Hence, we might say there is no proof to sustain this branch of the plaintiff’s case. Such is the impression the facts make upon the mind of this court.

However that may be, the plaintiff has utterly failed to make any proof that he was a creditor of the vendor company at the time of the sale, and therefore he has established no title to maintain this suit as a prior creditor. Nor has he made any proof of actual fraud which would entitle him to maintain the action as a subsequent creditor. His evidence proves conclusively that he was not a creditor when the sale was made, and failing entirely to produce evidence of intentional design by the vendor or the vendee to defraud creditors, he has established no grounds for the remedy which he seeks. This puts an end to his contention. It is, therefore, not necessary to consider the other proposition which he makes, namely, that the court of appeals had no power to reverse the case the second time on the weight of the evidence, contrary to Section 11577, General Code.

The court of appeals having, as stated in its opinion, based its judgment on the plaintiff’s total failure to prove his title to maintain the suit, its judgment, both to reverse and to dismiss, was right in both aspects. Even though its journal entry does not accurately or fully state the grounds, if the judgment is right on any ground, it must be affirmed.

Judgment affirmed.

Shauck, Donahue and Newman, JJ., concur.

Johnson and Wanamaker, JJ., dissent.

Nichols, C. J., not participating.  