16 Mo. App. 150 | Mo. Ct. App. | 1884
delivered the opinion of the court.
This was an action upon promissory notes, begun by at
The issue raised by the plea in abatement was submitted, upon an agreed statement of facts, to the court without a jury. The court found the issue in favor of defendant, and the attachment was dissolved.
The facts, as agreed upon, are as follows : —
On the 5th of May, 1883, defendant executed and delivered to one Joseph P. Schureman, a deed, in the ordinary form of a deed of trust to secure the payment of money. This deed embraced the leasehold on which the planing mill of defendant is erected, and all the materials, appliances, machinery, etc., appertaining to the mill, and all open accounts and money due to the mill, and was given to secure the following indebtedness of defendant described in the deed : —
A note of defendant, due May 21, 1883, for $2,500, payable to the order of F. Germer, and indorsed by F. Germer, William Leroi and Meyer & Stipp ; also a note of defendant for $500, due May 15, 1883, payable to A. Meyer; also a note of defendant, due May 30, 1883, for $674.70, payable to Meyer & Stipp ; also sums in cash to the amount of about $2,000, due to twenty-eight different creditors of the company, whose names are set out in the deed with the sum due to each one. All of this indebtedness was a bona fide liability of defendant at the time the deed was executed, as set out in the deed. Of the accounts, one was to Germer for $236, one to Holkemper, for $46.00, and one to Stender for $33.00. These three men were directors of defendant when the deed was given. The $2,500 note had been indorsed for defendant’s accommodation, and discounted at the Mullanphy Savings Bank by defendant, which received the proceeds and used them in its business. The note was held by the Mullanphy Bank when the deed was executed; and, at its maturity, on May 21, 1883, the ac
The board of directors of defendant was fixed at thirteen persons. The deed was executed under a resolution of this board passed April 30, 1883. Ten directors voted for the resolution. Two were absent; one voted against it. The four directors named above as beneficiaries in the deed voted for the resolution. The majority vote determines the action of the board.
Defendant was insolvent when the deed was executed ; but the deed was not fraudulent in fact; nor was it executed or received with any fraudulent purpose or intent on the part of any of the parties to it, to hinder or delay any creditor or creditors of defendant, but in good faith for the bona fide purpose of securing- the claims therein mentioned.
Plaintiff’s suit is upon four notes of defendant, each for $1,600, all dated September 14, 1881, maturing in one, two, three, four, and five years after date.
To warrant attachment on the ground of a fraudulent conveyance of the debtor’s property, it is not essential that the conveyance should have been made with any dishonest intent. The intention may have been not to defraud creditors, but to better provide for their payment by preventing a sacrifice of the assets at forced sale ; but, if the natural and necessary’ effect of the deed is to hinder and delay the creditors, the conveyance is a fraud in law of such a character as will warrant an attachment. Reed v. Pelletier, 28 Mo. 173. A conveyance thus fraudulent in law, is to be regarded as utterty void as to the attaching creditor. It is for this reason that he need not apply to equity for relief,, but may at once proceed by attachment. Ryland v. Callison, 54 Mo. 513.
A conveyance, however, is not fraudulent merely be
If the conveyance under consideration in the present case is void for constructive fraud, so as to furnish a ground for attachment, it must be on the ground that the fiduciary relations of the directors of defendant to the company and the creditors of the company rendered them incompetent to authorize by their votes a deed which had the effect of giving them, as bona fide creditors of the company, a preference over some other creditors of the same company.
It is not necessary that we should critically examine all the cases which the diligence of counsel for appellant has brought together in their carefully prepared brief as bearing upon the question of the trust relations of directors of corporations. Some of these cases are cited by counsel as authority for propositions which we can not accept as law. In view of what is said by the supreme court in Kitchen v. St. L., K. C. & N. Ry. Co. (69 Mo. 254), and of the approval there expressed of the doctrine of the case of Twin-Lick Oil Company v. Marbury (1 Otto, 588), and of the separate opinion of Judge Ryland in The City v. Alexander (23 Mo. 528), and the cases cited in that opinion by Judge Hyland, we must hold that the directors of a corporation are not prohibited from lending it moneys when they are needed for its benefit and the transaction is open and otherwise free from blame ; nor are they prohibited from taking a deed of trust upon property of the company to secure such indebtedness, nor from purchasing such property under a fair public foreclosure sale under the deed of trust.
The case of The City v. Alexander is severely criticised by Judge Sherwood in The State ex rel. v. Garoutte (67 Mo. 445), commonly known as the Green County Bond Case. From that opinion Judge Hough and Judge Napton dissented at the time. But the criticism of Judge Sher
In the last named case it was held that the fact that one or more of the persons proposing to advance money to complete a railroad were directors to whom the proposition was made, and by whom it was accepted, does not vitiate the contract, nor make it void; and the court adopts the language of Judge Miller in Twin-Lick Company v. Marbury (supra), that “ a rule forbidding one director amongst many from loaning money to a corporation where the money is needed, and the transaction open and free from blame, while it would afford little protection to the corporation against actual fraud, would deprive it of the aid of those interested in giving aid, and best qualified to judge of the necessity of that aid, and the extent to which it might be given.”
It would seem to follow from this that the director lending the money may take the ordinary fair business means for his protection when dealing thus with the corporation of which he is director. And our own supreme court, in the the case just cited, proceeds to approve the same doctrine as laid down in Judge Ryland’s separate opinion in The City v. Alexander (supra).
It is said by Judge Dillon, in Buell v. Buckingham (16 Iowa, 284), that a director of a corporation may avail himself of his superior knowledge, and of the advantages of his position, in running a race with other creditors to obtain security for his debt; and by Judge Redfeld in Whitewell v. Warner (20 Vt. 444), that it is certainly not competent to predicate constructive fraud on the mere fact of a stockholder availing himself of his' superior advantages to obtain security for debts due to himself to the exclusion of other debtors. The inequality between the stockholder
That a corporation in failing circumstances may assign its property to preferred creditors, just as individuals may do in like circumstances, seems to be generally settled. And this is true whether the assignment be general or partial, if the whole fund is assigned in good faith and without fraud. Ex parte Conway, 4 Ark. 354; 13 Ark. 575; Whitewell v. Warner, supra; Dana v. United States, 5 W. & S. 223. That this doctrine is inconsistent with the settled principle that the assets of a corporation are a trust fund for the benefit of preditors must be admitted. We do not pretend to reconcile the cases in these points.
It is also clear that the lien of the creditors upon the assets of a corporation does not become fixed by the mere fact that the debts of a corporation exceed its available assets. A corporation in this condition may go on, manage its affairs and transfer its property in the due course of business, whilst there is an honest purpose and reasonable hope of reclaiming its fortunes, though a part of the creditors be thereby deprived of their security. Pond v. Framingham, 130 Mass. 134; 15 N. Y. 10. But whilst the legal ownership of the assets is not altered by insolvency, the directors of an insolvent corporation will not be allowed to secure a preference to themselves at the expense of other creditors. They are placed, when the compan}'- becomes insolvent, in the same fiduciaiy relation to its creditors in which they originally stood to the members of the corporation. Hoyle v. Railroad Co., 54 N. Y. 314; Bradley v. Farwell, 1 Holmes (U. S.), 433; 21 Wall. 616; Richards v. Insurance Company, 43 N. H. 263 ; 28 Cal. 398 ; 90 Pa. St. 69.
Whilst we recognize and assert these principles, and affirm that the director of joint stock corporations occupies fiduciary relations which cause the courts to view with extreme
We do not feel at liberty to hold that the deed attacked in the present proceeding was void for a constructive fraud. The remedy of the creditors of the corporation, if any they have, was, we think, by a proceeding in equity to avoid the deed, and subject all the property of the corporation to the lien of the creditors. We are of the opinion that the agreed facts do not make out a case of legal fraud such as to make the deed void and to bring it within the provision of the attachment law. The conveyance of property to hinder, delay or defraud creditors which authorizes the-seizure of the property conveyed, or of other property of the debtor, by attachment or execution, is such a conveyance as is held to be not merely voidable in equity but utterly void as to creditors, so as to create a resulting trust in their favor, and to constitute the grantee in the deed a trustee for their benefit. Ryland v. Callison, supra. Though the corporation in the present case is admitted by the agreed statement to have been insolvent when the deed was executed, this admission goes only to this, that it was unable at the time to pay its debts as usual. It does not follow that it might not ultimately have a surplus in winding up its affairs. The case may have been no worse for-
We are of opinion that upon the agreed facts the circuit judge committed no error in finding the issue of fraud in favor of defendant, and the judgment will therefore be affirmed.