69 ARK.] LANGE V. BURKE. s's LANGE V. BURKE. - Opinion delivered February 16, 1901. COBPORATIONS—IDENTITY.—The facts that two corporations are irmacti-cally under the control of the same persons, who are the owners of a large majority of the stock, that the two corporations have intimate business relations, and that they employ the same bookkeeper, each coiporation paying one-half of his salary, do not prove that the two corporations are in fact one and the same; and, on the insolvency of the two corporations, a claim of one of the corporations against the other will not, upon proof of the above facts, be postponed until other creditors of the latter corporation are paid. Appeal from Ph illips Ohancery Court. EDWARD D. ROBERTSON, Chancellor. J. C. 11:awthorne, for aPpellant. The appellants are estopped by their dealings with the two corporations to allege their identity. 6 Thompson, Corp. p. 376, § 518; 1 S. W. 319; S. C. 47 Ark. 269 ; 91 U.., S. 56; 95 U S. 665; 12 Ark. 769 ; 68 N. W. 863. The evidence shows the separate existence of the two co -rporations. If the one corporation oWned the other as a branch, it would be only by virtue of 'charrter PoNijer to do so, and the burden is on the one alleging this faa. .13 Pet. 519; 4 How. 16; 14 Pet. 122; 3 Head, 337; 92 Tenn. 115; 18
86 LANGE V. BURKE. r•vr, [69 ARK. L. R. A. 252; 29 Cent. Law J. 9 ; „ 20 S. W. ,• 427 ; 1,75 I l l. J25. 4n the ab'sence of duch' aulhority,' the contract sh ' oUld not be, ratified . so as to bind the corporation. 58 U. S..App. 674 ; S. _C. 40.O.,O. A. 409; `-86,-'resd."142.'" Jno. J,. and E. C-Hornor, for appellee. . Under. te evidence adduced it is . plain that the corporations were identiCal. • ApPellee is.in no position : to' allege that the owner- . ship Of one, cOrphration by; the Othu • .• as ultra yires. The plea w ill nut: be tolerate& When 'its- resu - will be inequitable i .110
N. Y. 531; 12 S. W. 1054; 23 How. 400; 62 N. Y. 69; 51-N.-W: 642; 137 N. Y. 417; 26 Ark 663 • 7 Thompson Corp ,§ 8314 5 Thompson, Corp. § 6015. BATTLE, j. On - the fifth day of February, 1897, the "United States One Stave Barrel Corifiran37and three other corporations filed a complaint, in the Phillips circuit court, against the. Kaiser Lumber Company; which, for convenience : we : shall call the Lumber Company. They allege that the d ' efendant is a corporation, organized and doing busines.under tie. jaws of the state of, Arkansas ; that is was largely indebted to each" of them, and was, on the 27th of January . , 1897, insolvent, a f, p , art , of its commercial. paper gone to Piote gc ? -( ank.'it,lia , Ving conveyed all its : property Jo, a 4/7u .stee rt. to securel a large ni ' del,iiedness. Oeged . to,be owing to the, Standard Eagle &ix 8-,5 1 ,4rnber CoMpany,....They asked that. the ..affairs of ... the defendant , be closed ; that. a, receiver be appointed .to lake ! • charge of , its property; and that its creditors be re -quired to . present-- their claims to,the téceiver within ninety days, or be barrekfrom participiting i la its-asSets ; 'and that its property be sold , to pay . its debts. On the 8th of February, , Asp, R. 1 0. i Burke 1 .mr,as appointed.,11._ such receiver. On .the 10th . Of Apri f l, 189 , 7, Berthold_ Lange,...a.k.,,, trustee for the creditors of the Stindard Eagle tox &- Lumber Company,- a corporation organized under .the„ laws of ,Missouri,, . which for convenience we will call the Box Company, , filed a petition -in the priieeedidg instituted by the..plaintiffs,. , an&„ alleged •- that thedafendanrwas indebted to hira as stch trustee in various sums, ainOuritink in tlie aggregate fo the slim of . $57,067.72; .an& asked for- judgment in his fa y or*-as such . trUstee - for said.indebt-•-, edness,'an& that_ tho. receiver be . recinired to , pay the same out of the assets of the- deferid4nt, or -. such a proPo ' rtiona . te, part-- as may - be
9 ARK.] LANGE V. BURKE. 87 paid to other creditors: On the same day he presentec1 his claim to the receiver, who " referred it- to the court. • After hearing the evidence adduced by' all parties; the court found that the, Lumber -Company was-a branch _of' the Box Company, and -was -incorporated , as the Kaiser 'anther - Company for convenience only ; that . the -former -was indebted to the latter in the sum of 853,508.83, and- that the latter-iwaS -not entitled to recover anything until the creditors-of 'the farmer are paid; and post- " poned its -collectioniuntil- that- time; and the -trustee appealed. The appellant complains of- the : bction of the circuit catirr -because-. it -found% that the "Lumber-Coinpany branch of the Box Company, , and I postponed the -payment of his' clainc. all the r other creditors -of- the Lumber Company are paid. Is this complaint - well founded ? - - - , The- -two: companies- are separate- corporations. Oneveas organized under the laws r of Missouri,--and the other -ander the • Arkansas. The Box laws' Of . ; Company ,fwas' created- sometime before ' the Lumber Oempany- was organized. -They were -organized'for different c purposc o one - far the niSnufScture 'bf -lumber, and the . other for another purpose not-claarly shavVn bY the -evidence. - In 1894 the Box Company- decided r to make an 'effort to -lease . a certain-milhat . Helena, -in this t state-i and'-saw L their ()sin cc:4ton, wood, ' ,gum, oak, -and- cypress dumber,' and thereby -save r a 'late' • - amount of money.- Its president and- treasurer' we're- appointed- a committee to ,. -negotiate with the' owner- and- 'ascertain -what ' tetm g -- - could be.madet: i-The president, Kaiser, L and -the- COnsolidated": Box Company, of Kansas- City, -succeeded in- Obtaining an .option to purchase the "the Schutte'Lumber -Conipany- at Helena-,' - Ark., and-the action-of the-president-Was Sppioyed by"' the-board'of - directors , bf his 'compsny. ; The option was' permitted"to- expire-withoutcs purchase,- SubSequentl y-K -Siser,--the,Toresident,-and-O.N 4..- Ohrndorf; the, treasurer-of the box : - Oampaity;--cansummäted whereby -:their a trade-- , cOmpany , became-the-purchaser of -: the Mill Of the Schutte- Lumberm Company: . at ! -Helena.-. -They- wetit to , the- Office-- - of the attorney of the Arendor -to-ha*e the-properff sold iiiinsferred to the Box Company, and-also - Ito, ,seebre , the evidencing pfiythelit Of the .notes the-deferred payments ;I the l tale ha y a credit, ing-leen- partly - on-Wlien theY r reached thcrci they-staled- to 'the :iittorner:"-- the terms. of -the-trade,..and: he I deeided 'that-it--wonld 4 -be-best to". vest thewtit1e4n4 - -a v repreSentetil y e---of the-BOx' COmpany, and-rthie he could afterwards transfer it to the company. This was done
88 LANGE V. BURKE. [69 ARK. because the Box Company was a foreign corporation, and because, if the title was in it, there Would be delay and difficulty in obtaining a mortgage securing the deferred payments. The result of the advice of the attorney was that the title to the property was vested in Kaiser, and the Box Company advanced to him $2,000 to make the cash payment, and Kaiser was charged by the Box Company with this amouni. The Kaiser Lumber Company was then organized under the laws of this state, and the property was transferred to it, and the $2,000 were charged against it. At the time the Lumber Company was organized, R. J. Kaiser, C. W.'ohrndorf, E. L. Lange, and Charles Schutte, were its shareholders, and R. J. Kaiser, C. W. Ohrndorf, L. K. Loy, Gus Gunlach, and Louis Schil]ing were the stockholders of the Box Company. R. J. Kaiser, C. W. Ohrndorf and E. L. Lange- constituted the board of directors of the former company, and R. J. Kaiser, C. W. Ohrndorf, and L. K. Loy composed the directory of the latter; and Kaiser was president of both. Ohrndorf and Kaiser owned a majority of the stock in each of the two companies. The Box Company never claimed the mill Kaiser purcliased of the Schutte Lumber. Company. BY agreement nearly all the lumber manufactured by the Lumber Company was shipped to and taken by the Box Company, and paid for by it according to the market value thereof. On the 25th of August, 1896, •the former was indebted to the latter in a large sum of money on account of Advance's made on lumber. On that day the latter instructed its president, Kaiser, "to go to Helena, Ark., and have about 3,000,- 000 feet of lumber marked and set aside for" its use, and to cause 'the same to be shipped in at the rate of from two to four cars • iier day until enough lumber" was "shipped to liquidate all indebtedness.7 On the 10th of October following the former executed to the latter its notes for the larger portion of its indebtedness. From the organization of the Lumber Company,. and so long as the Box Company thereafter continued in business, the two companies kept accounts Of their dealings with each other as separate and distinct organizations; and they continued to deal with each Other as separate organizations until the former becathe indebted to the latter in the sum of $53,508.83 as found by the cireuit court. Insolvency was the end of the business careet of both companies.. On the 27th Of January, 1897, the Box Company conveyed :all_ its propertyle the apiaellant in truet tO decure its &editors; and on the 5th of February . follewing creditete of the timber Coin-°
69 ARK.] LANGE V. BURKE. 89 pany instituted proceedings against it for the winding up of its affairs. On the 8th of the same month a receiver was appointed to take possession of its assets. The controversy in this proceeding is between these representatiVes of the creditors of the two corporations. The trustee presented his claim against the estate - in the hands of the receiver, and was denied the right to participate in the assets of the lumber company to the detriment of its other creditors. The receiver contends that the Box Company . and Lumber Company are "in truth and in fact one and the same being, the latter being the offspring of the former, organized in this state for the benefit of the parent company; and that the mill at Helena was owned by the former, was purchased for its benefit, and whatever was owing for advances by the former to the latter was an indebtedness due . to itself from itself ; and that it would, therefore, be inequitable to apply the assets in his hands to the payment of this debt until other creditors of ihe Lumber Company are satisfied." If the contention of the receiver be correct, the action at bar is without foundation. It was based upon the theory that the Lumber Company was an independent organization, and that the mill purchased at Helena was its property. If the contention is true, the assets held by the Lumber Company are the property of the Box Company; and the latter is liable to the alleged creditors of the former for their claims. In supporting his contention the receiver lays, much stress upon the fact that the two corporations were practically under the control of the same persons, Kaiser and Ohrndorf being directors and officers, and the owners of the large majority of the stock, in each company. But this fact does not prove that the two 'companies were in fact one corporation, and that the trustee, the appellant, was not a creditor of the Lumber Company. A corporation is an artificial being separate and distinct from its' agents, officers, and stockholders. Its dealings with another corporation, .although "it may be composed in part of persons who own the majority of the stock in each company, and may be managed by the same officers, if they be in good faith and free from fraud, stand upon the same basis, and affect it and the other corporation in the same manner and to the same extent, that they would if each had been composed of different stockholders and controlled by different officers. In such cases, however, the utmost good faith as to the minority of the stockholders is required. The owners of such majority cannot,
LANGE V. BURKE. [69 ARK. „ as directors or otherwise, lawfully manage :the; affairs. of . one, Qf tha corporations' in the interest ., of the other , to. , the ; detriment of the former,: because in:their , conirol and , management of. the corpora-, . -7 tions, • . in respect fo the minoritY of , each. , company, ,they .stapd , in. - much the.sapie attiinde ty4 i the directors . maintain.,to n all the rstockr, holders ,; ant thpy are ; required to exercise . .the . ,sarne ,good faith. as to creditors as is required of stockholders of a corporation dealing with . another, in. W . hi r ch . .they ; have no stock ; Farniers'„ cf: Mist . Col v.. I s109 17(ir1e 150 N. Y. 410, 430; 2 Cook, CorporatioRS § 662„ ; In the ease . , before:,ns ihe, exidence . shows _that the, two .pompanies were independent organizations ;, that, .tliey „dealt with, each...other as such; . and mpl, ,lloe ,n.a. ney,er was : .clairned ..by any- party Other than„the 'Lumber. Company, ;after its organization,. < It:, _ fails to . show that the, t Lumber ..Company , ,yvas.. managed intereSt n of :the , Box . Company; bnt does, Show that both.companies became insolvent' abont the same. tinie. It .shows . that the, Box Company . purcha i) s " ed...the " , • pro •• duct , of , i thumber .,Company,..,and paid faT market.vaine.,.I Ritlier coppany ; was manapd for the benefit Of the nthei . the result shows that it was,the Box..Com,- pany ; jfpr , their husiness.yelations closed ii withi thqjininber . Company largely' indebtea , ito . if14 , 13m Company for advances made on lumber to be Manufacture.d. ,• ,177 PI '!f • As .evidence r, to ..show that. , ;the ,Lp.mber, Company _ was fAiallaggsl. for the .. i;en0 . the , Box; Company,. the,: receiver, in.:this. case says • that Kaiser reported to the Box Company that the mill, at.ffelena., was working yll.; and :would soon ship: lumber natural ' and rikiA. At that' , fling, the lumbe 'Jr 1 ,,, . • I r I .Compa , ny,-was .4uTot-.-._ ft debted 'to " 'the Box Company 2)i a . nd.,ih . e„t . a tter co . mpany, intended to 47,,,; purchas 'N e J its„ c . r 1 q . tim : b .1 e • r , , frOnn.pe fomer.He . slso i says that Pie , books1 of the former company r vie0 actually lccpt.juASt...Louls„Aucipthat,,,) too, by" a ,lr ojc-44 q 1;,, -9. 1N-h, alf ,,o f-. whose . a al a UIW N Paid -1hy',the:4 latter. If 'so; :• h •e : W w a ir s e . f , u rnishe s d . w . ith tbe..infopnationi. company .,whit • rr r ..r • r. a cdi doi. so; .a.nd,.hejentlered,the,=Aatter service at D iliesitme lAn Ice„fur i tber. aayat1at 1the aqcn 4p940e,!. which file tilvisadi loA.bet ivee lvioe , ,w , companiesoyere„resoTded the fornier... coniiany,4as , ,:bAded, "Standardt..gaglTiox,gompiinyal —Kais.PrIrie 99. ir:419y. "L t h*,13TRr shil o thi'Mar.Put tageQ111#113::. following ah r. _ ht thei r- Were dealing with each other as separate . companies. La
39 ARIEIA 91 After a .careful consideration Of 'all the' evidenC'e; 'our . conclu .. -- lion is that so much of the decree of the court below as postpones: he payment 'of , appellant's 1.claim -until all other claims are paid hould.-be reversed,, and, that he should -be a.11owed to -)roportionately with other 'creditors of particiPata-t he distribution ot the Lumber COMpany' :in . its assets; and it is so ordered.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.