146 Ind. 545 | Ind. | 1897
The questions involved in this cause arise out of the proceedings of the trial 'and judgment in the. lower court in adjudicating claims of the creditors of the O’Brien Wagon Company, a corporation organized under the laws of this State, and engaged in the manufacture and sale of wagons in the city of Lafayette. On August 10, 1893, this corporation being insolvent, was placed in the hands of a receiver by order of the lower court. Appellant, Levering, holder of a certain alleged note against said corporation, which he held as trustee of the First National Bank and the Merchants’ National Bank of Lafayette, Indiana, filed his intervening petition in the cause in which said receiver was appointed, wherein he averred that said note of $39,400.00 which he so held was secured by a chattel mortgage executed by said company, and he asked that this mortgage be foreclosed and that the proceeds of the sale of the mortgaged property be ordered by the court to be first applied to the payment of this claim. At the same time his co-appellant, Lucy A. Kaull, filed a like petition, in which she alleged that she held a note against said company for $48,360.00, secured by a mortgage upon its real estate, and by a chattel mortgage upon certain personal property, etc.
Appellees, being unsecured creditors of the corporation, were by the court permitted to appear and file answers to these intervening petitions, and to defend against said claims and mortgages. Upon these petitions, and the respective answers and replies of the
The facts material to the principal questions involved appear from the special finding to be substantially as follows: On July 14, 1890, the O’Brien Wagon Company was duly incorporated at Lafayette, Indiana, with a capital stock of $100,000.00, the object of said corporation being to manufacture and sell wagons at said city. Before the incorporation of this company it operated and carried on its business at Tiffin, Ohio, as a partnership, but was induced to locate at Lafayette, where, as before stated, it was incorporated under the general laws of this State. On August 7, 1893, this corporation was indebted, as the court finds, to the First National Bank of the city of Lafayette, Indiana, as follows: \
On ten notes executed by the wagon company to said bank for borrowed money.. .$11,500.00
On five notes, executed by the wagon company to F. M. Ward, and endorsed by him to said bank........................... 3,790.40
On one note executed by the wagon company to Frey, Eeiff & Co., and by them endorsed to said bank.................. 189.15
All of which it is found, with interest, amounted, on August 7, 1893, to........$16,139.46
On endorsement of other notes............ 9,396.83
Total..............................$25,536.29
On four notes executed by the wagon company to said bank for borrowed money.. .$ 7,623.79
On two notes executed by the wagon company to Frey, Beiff & Coi, and by them endorsed to said bank.................. 874.54
On endorsements of promissory notes...... 7,572.12
Total..............................$16,070.45
On the four notes first named said Burt J. Kaull was also surety for the company.
The court also finds: “That all the indebtedness from said corporation to said banks was for money on direct loans to said corporation or for discount of commercial paper, governed by the law-merchant, during the months of April, May, June and July, 1893, and while said corporation was carrying on its business, and that all of said money was used by said corporation in the ordinary course of business.”
On August 9, 1893, Lucy A. Kaull, appellee, it appears, held certain notes or claims against said corporation, which aggregated $48,360.10, part of it being for money advanced and loaned by her to the corporation. That all of the notes held by Mrs. Kaull were signed by said Burt J. Kaull, as surety, he being the son of the former and a director of said company at the time the notes were executed by it to his said mother. As to these notes the court finds that on said
Other facts are found, some of which are more in the nature of conclusions than a finding of facts. Fraud, however, as a fact is not found by the court in its special findings. Neither is it in any way disclosed that the amounts found due to the appellees respectively by the court were not bona fide preexisting indebtedness against said corporation at the time, of the execution of the mortgages. It is conceded by appellee’s learned counsel that the findings and conclu
“A corporation organized under the laws of this State, after it has become insolvent and has abandoned the further prosecution of its business, cannot mortgage or pledge its property for the sole purpose of giving some of its creditors a preference over others in the distribution of its assets, especially if such preference inures to the personal benefit of some of the directors of such corporation.”
They admit that an insolvent corporation may secure some of its creditors by mortgage or otherwise, provided it be a going concern and the security is given for the puropse of enabling it to prosecute its business and with the expectation that it will continue to do so. It is true, they say, that a natural person may make any honest disposition of his property, but a corporation in this State can do only what it is expressly authorized to do by the law under which it is created and operates, and such other acts as are essential to carry into effect the powers granted.
The learned counsel for the appellants, on the other hand, insist that the rights of a corporation, in regard to preferring its creditors, must be the same as natural persons, and that the notes and mortgages under the facts in this case must be held valid and enforceable obligations, at least to the amount found to be due by the court. This question then, as asserted and denied by the parties to this appeal, may be said to be the cardinal one presented for our decision. The
A natural person has absolute dominion over the disposition of his property, provided such disposition does not result in defrauding his creditors. Under this right an insolvent debtor may, in good faith, prefer one or more of his bona fide creditors to the exclusion of others. Where a mortgage or other security is given to secure an honest debt, and is in a bona fide manner accepted for that purpose, the fact that the giving and accepting of such security may result in defeating the claims of other creditors, affords no legal or equitable grounds for complaint upon the part of the latter. This doctrine is settled in this State by many decisions, of which the following are a part. Lord v. Fisher, 19 Ind. 7; Wilcoxon v. Annesley, 23 Ind. 285; Ball v. Barnett, 39 Ind. 53; Cushman v. Gephart, 97 Ind. 46; Grubbs v. Morris, 103 Ind. 166; Gilbert v. McCorkle, 110 Ind. 215; Hays v. Hostetter, 125 Ind. 60; Straight v. Roberts, 126 Ind. 383; Carnahan v. Schwab, 127 Ind. 507; Dice v. Irvin, 110 Ind. 561; Fuller and Fuller Co. v. Mehl, 134 Ind. 60.
Blackstone, in his Commentaries, says that it is necessarily and inseparably incident to every corporation aggregate that it has power to sue, or be sued, implead or be impleaded, grant or receive by its corporate name, and do all other acts as a natural person may. Blackstone’s Comm. (Cooley’s ed.), Vol. 1, star p. 475.
In Angell & Ames on Corporations, section 187, p.
Morawetz in his Law on Private Corporations, Yol. 2, section 802, says that in the absence of a statutory prohibition, a corporation has the same power of making preferences among its creditors as an individual.
Beach in his work on Corporations, Yol. 1, section 358, says, that a corporation, unless prohibited by law, may sell and transfer its property and may prefer its creditors, although insolvent even when all of its property be conveyed in the payment of a single debt, leaving other creditors unpaid. The fact that a solvent corporation, under the law, in this State has the power to borrow money and secure the payment thereof by mortgage, on its property or otherwise, the same as an individual, is not controverted by appellees. Upon what reasonable grounds then, can it be said that an insolvent corporation, in the absence of legislation to the contrary, has not the power, under like circumstances as an insolvent, natural person, to make a preference among its bona fide creditors? Appellees, however, seek to show a distinction by invoking the trust fund doctrine, which is recognized by the courts in some of our sister states, upon the theory apparently that the directors of a corporation are the trustees for all of the creditors. As between the corporation and its creditors, it cannot, in reason, be said that the relation is anything more than that of debtor and creditor. The relation of trustee and cestui que trust does not exist so as to create a lien upon its assets in favor of the creditor, in any other sense than applies to an individual debtor. This court recently had the question of this trust fund doctrine presented for its consideration, and declined to accept it as it is urged now by the appellees. We held that it did not exist
This rule must now be considered as settled in this jurisdiction. See Henderson v. The Indiana Trust Co., 143 Ind. 561; First Nat'l Bank, etc. v. Dovetail Body, etc., Co., id. 534, 550, and the many authorities cited in the opinions.
By these decisions it is also, in effect, held that an insolvent corporation is not to be denied the right to prefer a creditor or creditors, when such preference does or may inure to the benefit of some of its officers who are sureties upon the claims of the creditors preferred. .It being true, then, as a legal proposition, that an insolvent corporation may, in like manner as a natural person, prefer its creditors, upon what logical or reasonable grounds can it be said that a holder of a 'bona fide indebtedness against the former cannot be preferred, for the reason that some of the directors are the sureties for the corporation for the payment of said indebtedness? See Worthen v. Griffith, 59 Ark. 562, 28 S. W. 286, 43 Am. St. 50.
The broad doctrine that the officers of a corporation cannot, in their own names contract with it is unreasonable. Such a holding would virtually deny to corporations the credit upon which their business may be transacted. If the right of the stockholders and officers of a corporation to advance money to it to carry on its affairs, or to endorse for it to obtain money for such purpose, is denied, it would result in depriving the corporation of its most ready and frequent source
Where, however, an officer of an insolvent corporation is preferred, the rule properly asserted by the authorities is, that such act, when assailed, should be closely scrutinized by the court, and the burden will be cast upon the preferred officer to establish that he held a Iona fide debt against the corporation. Schufeldt v. Smith, supra, and authorities there cited.
While it may be said that if a corporation is allowed to make preferences that will inure to the benefit of its officers, that this will enable the latter, by reason of the position which they occupy, to outstrip the other creditors in the race of diligence in collecting or securing claims. This fact, however, cannot be deemed sufficient to deny it the right to prefer its creditors. An individual debtor may prefer his wife, or any other member of his family, provided, of course, the preferred debt is an honest one. No.more equity or reason appear for allowing an individual to do this, than in permitting a corporation to prefer its own stockholders or officers. It is true that they have an advantage over others in this respect, but this vantage ground results from their position, and is known to every one who deals with the corporation or extends it credit. See Buell v. Buckingham & Co., 16 Ia. 284.
As said by Judge Dillon, in this latter case: “Being an officer in the corporation did not deprive Buell of the right to enter into competition with other creditors and run a race of vigilance with them, availing himself in the contest, of his superior knowledge and of the advantage of his position, to obtain security
The decisions of this court upon the question of preference by an insolvent corporation and the holding that the trust fund doctrine applied to the extent insisted upon by appellees, cannot be upheld, are in harmony with the great current of decisions, both of state and federal courts.
In addition to those cited in the opinions of this court in the previous cases, we cite the following: Worthen v. Griffith, supra; Shufeldt v. Smith, supra; The Waggoner, etc., Co. v. Zeigler, etc., Co., 128 Mo. 473, 31 S. W. 28; Bank of Montreal v. Potts, etc., Lumber Co., 90 Mich. 345, 51 N. W. 512; Meyer v. American, etc., Co., 130 Mo. 188, 32 S. W. 300; Thompson-Houston, etc., Co. v. Henderson, etc., Co., 116 N. C. 112, 21 S. E. 951; Planters Bank v. Whittle, 78 Va. 737; Lexington, etc., Ins. Co. v. Page, 17 B. Mon. (Ky.) 412, 66 Am. Dec. 165; Coats v. Donnell, 94 N. Y. 168; Santa Cruz, etc., R. R. Co. v. Spreckles, 65 Cal. 193, s. c., 3 Pac. 661; Sargent v. Webster, 13 Metc. (Mass.) 497; Catlin v. Eagle Bank, 6 Conn. 233.
Neither of the appellants in this appeal were stockholders or officers of the corporation, but strangers thereto, hence the question of a preference by an insolvent corporation to its own officers for debts held by them against such concern is not directly involved,
It is also insisted by appellees that the fact that the preferences in the case at bar were authorized by the votes of the two directors who were the sureties upon the notes of the preferred creditors rendered the mortgages illegal. But the execution of the mortgages, as it appears, was authorized by the unanimous vote of the five directors, being the entire directory. Consequently, a majority of the directors, constituting a quorum, by their votes authorized the preference, independent of the votes of the two who were the sureties, therefore, the principle asserted in the case of Buell v. Buckingham & Co., supra, would apply. It was held in .that case that a preference made by an insolvent corporation to its president, by a vote of its directors, sufficient without counting the vote of the former, was valid.
The facts do not establish that the corporation in question took any steps itself to apply for a receiver when it executed the mortgages in dispute. Neither does it appear that the placing of the concern in the hands of a receiver and the act of preferring the claims of appellants were a part of the same transaction, so as to bring it within the principle affirmed in Shillito Co. v. McConnell, 130 Ind. 41.
, It is disclosed by the finding that the money loaned by the banks and Mrs. Kaull to this company was loaned at a time when it was carrying on its business. We fail to recognize anything under the facts that will take these preferences to the appellees out of the protection of the rule which we sustain and adhere to, relative to the right of an insolvent corporation to prefer its creditors in like manner as a natural person.
The judgment as to both of the appellants is therefore reversed,- and the cause is remanded-to the lower court, with directions to vacate its judgment and grant appellants a new trial, and for further proceedings not inconsistent with this opinion.