203 P. 614 | Or. | 1922
“Where a party has so prosecuted his action that he is entitled to a judgment without further contest, or where by delay of the court he fails to obtain judgment when he is entitled to it, and his adversary dies, it is the duty of the court upon proper application to render judgment in favor of such party as of a time when the adverse party was living.”
In the Dartmouth College Case, 4 Wheat. (U. S.) *714 (4 L. Ed. 629), we read:
“Upon the suggestion of the plaintiff’s counsel, that the defendant had died since the last term, the court ordered the judgment to be entered nunc pro tunc as of that term, as follows.”
1 C. J. 166, Section 283, reads:
“An action abates on the death of plaintiff or defendant after trial and before a verdict is rendered, unless the rule is changed by statute. But in courts of equity it is the practice, when a party dies after a cause has been submitted upon the final hearing, for the court, notwithstanding, to go on and render its decision and direct a final decree to be entered up as of the day when the cause was submitted for decision; and the same practice has obtained in some jurisdictions in courts of law.”
It is contended on behalf of defendants in regard to the assignment of the rents due from the subtenants of the Company and the leases from the Company to the subtenants, on May 28, 1915, that the Company was then a going concern and that the trust doctrine does not apply to the assets of the Company. The law is stated in the brief of the learned counsel for defendants, thus:
“In order that the trust doctrine may apply to corporations, a corporation must either have suspended its business and become insolvent or its assets placed in possession of the Court, and also ceased to be a going concern. (Citing) Sabin v. Columbia Fuel Co., 25 Or. 15 [45 Am. St. Rep. 756, 34 Pac. 692, 35 Pac. 854]; Garretson Hilton Lbr. Co. v. Hinson, 69 Or. 609 [140 Pac. 633]; Childs v. Carlstein Co., 76 Fed. 86; Oil Co. v. Marbury, 91*286 U. S. 587 [23 L. Ed. 328, see, also, Rose’s U. S. Notes].”
It seems appropriate first to notice the condition of the Company at that time and its prospects, or what might reasonably be supposed the outcome would be. It appears that the Company was organized for the purpose of obtaining leases of property and constructing a building thereon at a cost of $350,000, and subletting such leased property. It depended for gain upon the rents it should receive in excess of the ground rent it was required to pay.
“The President stated that the. meeting had beeen called for the purpose of protecting the sureties as far as might be possible for the amount of rent and taxes which they had been compelled to pay under the terms of the bond given to the lessors of the property at the corner of Third and Morrison- Streets at the time of the execution of the lease;
“And it appearing that the sureties had been compelled to pay under the obligations of said bond upwards of Six Thousand Hollars ($6000) above the total net rentals received by this Corporation, and that they are obligated to pay other sums to prevent the forfeiture of said lease,—
“Now, therefore, on motion duly made and seconded, it is unanimously—
“Resolved: That this Corporation, Willamette Building &' Realty Company, do forthwith assign to Fred H. Rothchild, Joseph R. Bowles and Frederick S. Stanley, sureties on said bond, through their proper officers, who are hereby authorized and directed to execute such assignments, the following leases, to wit: * * ”
Then follows a description of seven leases of the Company to various subtenants.
“Together with all rents due and to grow due thereunder.”
This is the last meeting of the directors of the Company shown in the secretary’s minute-book.
“Q. Now bold on, wait a minute, you did not pay money back to Bowles, Stanley and Rotbcbild by reason of tbe note of September 4th, 1914?
“A. No, but it was tbe intention at tbe time of making tbe assignment to pay back tbe money. -It was tbe intention at tbe time of making tbe assignment to tbe individuals to apply tbe moneys upon tbe indebtedness due tbe individuals of approximately six thousand dollars advanced prior, wbicb was tbe liability of tbe Company to tbe individuals prior to Grantenbein’s first action.
“Q. Mr. Bowles, you did not do so, did you? ■
“A. No, we .changed our course of procedure after making assignments and decided to bold tbe money and pay it over to tbe Pleiscbners.
“Q. You paid all tbe money over to tbe Pleiscbners?
“A. Yes, and to tbe operation of tbe building.”
Tbe contention of defendants that tbe Company was a going concern is predicated upon tbe fact that in May, 1915, tbe Company was the owner of tbe lease from tbe Pleiscbners and. that this was a
We find in 4 Words & Phrases, 3103:
“ ‘Going business or establishment’ is a term applied to a corporation which ‘is still prosecuting its business with the prospect and expectation of continuing to do so, even though its assets are insufficient to pay its debts.’ Corey v. Wadsworth, 99 Ala. 68 (11 South. 350, 353, 42 Am. St. Rep. 29, 23 L. R. A. 618).”
The point of time at which the directors lose power to prefer themselves as creditors, and at which the trust fund rule attaches is defined in 10 Cyc. 1056, thus:
“This obligation to hold the assets of the corporation as a trust fund for equal distribution among its creditors attaches to the directors, not only when they have voted the corporation to be insolvent, but whenever the fact that it must discontinue business by reason of the insolvency comes to their knowledge. This knowledge of insolvency is not; and cannot from the very nature of things be a positive knowledge. It is a reasonable belief founded upon probabilities having reference to the company’s affairs. It is sufficient to put an end to the right of directors to prefer themselves as creditors for them to know that it is probably insolvent * * . ”
7 R. C. L. 760, Section 775, reads in part thus:
“It would seem that the position denying the right of directors of an insolvent corporation to obtain a preference by way of security for or payment of debts due them by the corporation, should not be founded upon the trust fund doctrine but is sustainable upon the theory that it is inequitable that a director, whose position as to knowledge of conditions and power to act for the corporation gives him an advantage, should be permitted to protect his own claim to the detriment of others, at a time when it is apparent that all the unsecured debts of the corporation are equally in peril, and that all of them cannot be paid.”
“We feel safe in declaring that when a corporation’s assets are insufficient for the payment of its debts, and it has ceased to do business, or has taken, or is in the act of taking, a step which will practically incapacitate it for conducting the corporate enterprise with reasonable prospect of success, or its embarrassments are such that early suspension and failure must ensue, then such corporation must be pronounced insolvent.” 0
An exception to the rule which denies the right to prefer creditors is recognized in some jurisdictions in cases where the corporation, although insolvent, is a “going concern” at the time of the preference, doing business in the ordinary way. Under such circumstances preferences to particular creditors are sustained if made in good faith: 14A C. J. 899, § 3076. As to the rule in this state, see Sabin v. Columbia Fuel Co., 25 Or. 15 (34 Pac. 692, 35 Pac. 854, 42 Am. St. Rep. 756); and Garetson Lbr. Co. v. Hinson, 69 Or. 605 (140 Pac. 633).
The rule rests upon the basis that a corporation has the same right as an individual to prefer general creditors, and in so far it merely involves a repudiation of what has been known as the trust fund doctrine. Under its operation the assets of the corporation, although insolvent, are not a trust fund for its creditors in any sense other than that in which the assets of a partnership or an individual are a trust fund for its creditors: 14A C. J. 897, § 3074. It is declared in that volume, page 898, Section 3075, thus:
*292 “It is an essential .to the validity of a preference under the rule authorizing' the giving of preferences that it should he honestly made to secure or distinguish a bona fide debt, and the right must be exercised without regard to the personal interest of the persons to whom the corporation intrusts its exercise.”
The State of Oregon has adopted the trust fund doctrine: Williams v. Commercial Bank, 49 Or. 492 (90 Pac. 1012, 91 Pac. 433, 11 L. R. A. (N. S.) 857); Macbeth v. Banfield, 45 Or. 553 (78 Pac. 693, 106 Am. St. Rep. 670). oIn the Williams case the preferences given to a stockholder were set aside. In Corbett v. Woodward, 6 Fed. Cas. 531, an opinion by Judge Deady, the syllabus reads:
“The directors of a corporation are trustees for the stockholders and creditors; and where a director by means of his power, as such, secures to himself any advantage over other stockholders, or creditors, equity will treat the transaction as void, or charge him as trustee for the benefit of the injured parties; nor can such director, as to such parties, claim to have acted in ignorance of what it was his duty to know concerning the conduct and condition of the affairs of the corporation.”
The states which recognize the trust fund doctrine hold that directors of a corporation cannot prefer themselves over general creditors -for the security of precedent debts, nor can a director who is surety upon a corporate obligation take any preference over other creditors: 10 Cyc. 1246-1256; 7 R. C. L. 757, 759; Lippincott v. Shaw Carriage Co., 25 Fed. 577; Beach v. Miller, 130 Ill. 162 (17 Am. St. Rep. 291); Corey v. Wadsworth, 99 Ala. 68 (11 South. 350, 42 Am. St. Rep. 29, 23 L. R. A. 618); Conover v. Hull, 10 Wash. 673 (39 Pac. 166, 45 Am. St. Rep. 810); Hogan v. Price River Irr. Co., 55 Utah, 170 (184 Pac.
In the present case it should be remembered that the indebtedness for which the directors preferred themselves was a past indebtedness. See Beach v. Miller, 130 Ill. 162 (22 N. E. 164, 17 Am. St. Rep. 291), and Illinois Steel Co. v. O’Donnell, 156 Ill. 624 (41 N. E. 185, 47 Am. St. Rep. 245, 31 L. R. A. 265), where the court said at page 634:
‘ ‘ There is a marked difference between a case where a mortgage or other preference is given by an insolvent corporation to a director or officer to secure a pre-existing indebtedness, and a case like this, where the corporation, though in fact insolvent, in the sense above stated, is a going corporation that is seeking- to accomplish the objects of its incorporation, and the security is given to directors for moneys actually and in good faith loaned, at the time the security is given, to such embarrassed corporation, and for its benefit.”
It is the position of defendants that after the assignment of the rents was made they changed their plan and applied the money so obtained in payment of the rents due to the original lessors, and that the rents from the subtenants should first be so applied. This claim was asserted, litigated, considered and determined in the case of Bowles v. Gantenbein, 83 Or. 510. In that case these defendants, who were there plaintiffs, contended that as against all comers the landlord is entitled to his rent and until he is satisfied no other creditors of the tenant can interfere with what is coming from subtenants. They also claimed that, having paid the arrearages, they are subrogated to
At page 521 in the opinion on petition for rehearing, Mr. Justice Burnett said:
“In brief, the defendant holds a contract debt against the company. Its obligation to the plaintiffs is likewise upon contract. The two are in the same class. There is nothing in either claim to give one preference over the other. Where the equities are equal the law will prevail. The defendant, being the more diligent in seeking to enforce his claim, has attached and there is nothing in the demand of the plaintiffs to give them priority over him or to stay his hand.”
It would not be in conformity to equitable principles to allow the defendants as directors of the Company to place themselves in an advantageous position as creditors and defeat the judgment of plaintiff, merely because of the position which they held as officers of the Company at a time when they knew that the Company could not pay all of its creditors. The decree of the Circuit Court was just and equitable.