70 Iowa 697 | Iowa | 1886
I. The questions presented in this case arise upon the ruling of the district court in sustaining a demurrer to the answers of defendants to plaintiff’s petition. It therefore becomes necessary to state with particularity the pleadings in the case, especially the answers held upon the demurrer to present insufficient defenses to the action.
The petition alleges the corporate character of defendant the Burlington Plow Company, and that, being indebted by promissory notes to the Iowa State Savings Bank in the amount of $10,000, to Bubie ID. Tuttle and Lauren Tuttle in sums of $7,295.93 and $6,641.81, respectively, it executed to plaintiff, as trustee, a mortgage upon real and personal property, to secure its indebtedness to these several parties. The petition prays for judgment upon the several promissory notes, and the foreclosure of the mortgage. The petition alleges that after the plow company executed the mortgage to plaintiff it made an assignment of its property, for the benefit of its creditors, to Christian Mathes, who is made a defendant to the action.
In an answer and amended answer, she pleads the following matters as defenses:
The plow company is indebted to various creditors, other than the persons for whom plaintiff is trustee, in the sum of $21,400. Its capital stock, authorized by the articles of incorporation, is $50,000, of which $25,000 was subscribed. Its indebtedness was limited by its articles of incorporation to two-thirds of the amount of its capital stock. At the time of the assignment, its indebtedness exceeded $50,000. No provision is made in the mortgage for the application of. the proceeds of the sale by the mortgagor of personal property covered thereby to the payment of the debts secured; manufactured articles and material therefor being covered by the mortgage, of which the company was to retain possession. The promissory note to the savings bank was indorsed by E. D. Band, one of the incorporators and a director of the company, who is solvent. Bubie D. Tuttle, to whom
The directors, with knowledge of the existence of corporate debts beyond the limit prescribed by the articles of incorporation, and the insolvency of the company, and knowing that the other creditors who had given it credit in ignorance of these things were pressing their claims, caused the mortgage in suit to be executed in order to indemnify themselves. On the day after the execution of the mortgage, they transferred to the National State Bank of Burlington notes and accounts to the amount of $40,000, the proceeds of which were to be applied, first, in payment of the sum of $18,000 owed by the company to that bank, and the balance to be applied in payment of the indebtedness secured by the mortgage in suit. The claims thus transferred, and the property covered by the mortgage, constituted substantially all the property of the plow company. After the death of Lauren Tuttle, no person was chosen to fill his place in the board of directors of the incorporation.
The creditors whose claims were not secured reposed great confidence in the business character and integrity of the directors, especially of Rand, who is a man of great wealth. These directors concealed the amount of the indebtedness of the company, and the other creditors, having no knowledge on the subject, believed it was solvent, and therefore gave it credit. Two of the directors of the company are the heirs of Lauren Tuttle, deceased, and the consideration of the debt to Rubie D. Tuttle, was the property of her husband, one of the directors. She and the administrator of the estate of Lauren Tuttle had notice when the notes were executed that the indebtedness of the incorporation exceeded the limit pre
Other matters are alleged in tbe answers of like import as tbe foregoing, tending to show that tbe directors acted in the execution of the mortgage for their own protection, which need not be here more specifically noticed. It is finally charged that tbe execution of tbe mortgage, and tbe transfer of tbe notes to tbe national bank, being a disposition of all tbe property of tbe plow company, amounts, in effect, to a general assignment of its property, with preferences to certain óf tbe creditors, and is therefore invalid.
Plaintiff, by demurrer, assailed the answers of defendants on tbe ground that no defense to tbe action is pleaded therein.
II. It will be observed that it is not alleged in defendant’s answers that either of the notes secured by the mortgage was not executed in good faith, for tbe full consideration shown upon its face; nor is it alleged that any fraud was practiced by either of the payees in procuring the notes. The mortgage is assailed on the ground that the payees of two of the notes were stockholders and directors in the plow company, or held such relations to the directors that their rights were no other than the rights held by the directors.
The transaction, so far as it involves the indebtedness to the Iowa State Savings Bank, is questioned upon the ground that the directors of the company are indorsers or guarantors upon the note given therefor. ~We are required to consider the rights of the holders of these notes separately. It may be assumed, for the purposes of the case, that the notes given to JRubie D. Tuttle, and the administrator of the estate of Lauren Tuttle, are to be regarded as though they were given to and. held by a director of the company. The case, in this view, presents questions as to the rights of directors of a corporation holding its notes secured by mortgage upon its
Do the facts alleged in the answer, that the holders of the notes, as directors of the company, in the management of its
Counsel for defendants admit this proposition, with an exception in the case of the insolvency of the corporation. They insist that the directors of an insolvent corporation cannot take from it security, by mortgage or other conveyance creating a lien upon its property, even though given in
It is not shown in the answer of defendants that there was any bad faith or dishonest practices on the part of the creditors for whom plaintiff is trustee, in becoming creditors of the plow company, and taking security from it. It is true that the courts will scan with care, and even with suspicion, such transactions, and demand that they be accompanied by the utmost good faith. Defendants’ answers make no charge of bad faith or fraud in the creation of the debt, or the execution of the mortgage. It is averred that the directors unlawfully contracted indebtedness of the corporation in excess of the limit prescribed by its articles of incorporation. But this has nothing to do with the directors’ claims in controversy. As we have before said, they may be liable to proper parties for their negligence or unlawful acts, but honest contracts made with them are not defeated thereby.
Our views above expressed are in harmony with familiar rules of the law, and are supported by the following decisions of this court: Buell v. Buckingham, 16 Iowa, 284; Farmers' & Merchants’ Bank of Lineville v. Wasson, 48
Counsel for defendants cite two or three cases, which they claimed are in conflict with our conclusions; the more important one being Haywood v. Lincoln Lumber Co., 64 Wis., 639; S. C., 26 N. W. Rep., 184. This ease, and the decisions cited in it, we think do not give support to counsel’s position.
III. The note held by the savings bank presents a different and less difficult question. It was not given to a
IY. The defendants insist that the execution of the mortgage, and the transfer of the notes and accounts to the
Other questions discussed by counsel need not be considered.
The judgment of the district court is
AFFIRMED.