15 Utah 110 | Utah | 1897
It appears from tbe complaint in this case that on the 27th day of June, 1896, tbe defendant James-Spencer-Bateman Company, by its board of directors regularly assembled, declared itself insolvent, and unable to further carry on tbe business for which it was incorporated, and by deed of assignment transferred all of its property, both real and personal, to the defendant George H. Horne, as assignee, in trust, for tbe purpose of paying tbe claims of its creditors. In tbe deed of assignment tbe claims of certain creditors are preferred over that of tbe plaintiff and those of other creditors, and required to be paid in tbe order of preference indicated. Tbe deed also provides that, in case any balance shall remain in tbe bands of tbe assignee after all claims shall have been paid, then such balance shall be paid to tbe assignor. It is alleged that tbe assets of tbe concern amounted to over $18,800, and that tbe liabilities exceeded tbe assets by about $15,000. Tbe prayer is that a receiver be appointed; that tbe deed of assignment be set aside; that tbe assets of tbe defendant corporation be declared a
The important question presented is whether an insolvent corporation in this state has power, in the disposition of its corporate property, to prefer, by deed of assignment, one creditor or class of creditors over other creditors whose claims are equally meritorious. The contention of appellant is that, under the laws of this state, when a corporation has become insolvent, and ceased to pursue the business for which it was incorporated, all its assets constitute a trust fund, to be equally and ratably distributed among all its creditors, and that a deed of assignment, in which it prefers some of its creditors over others, and conveys all its property to a trustee for the purpose of paying its creditors in the order of preference, is fraudulent and void. To sustain this position considerable stress is placed on the constitution and laws of the state, and the provisions referred to will be considered, because,' if there is any constitutional or statutory provision which prohibits a corporation from making preferences among its creditors, then the contention of appellant must be sustained. A corporation is a mere creaturé of law, and has such powers only as are expressly granted by the state, or as are necessary to carry into effect the powers expressly granted. 2 Kent,
The provisions of the constitution which it is claimed affect the question under consideration are contained in article 12, section 7 of which reads: “No corporation shall lease or alienate any franchise so as to relieve the franchise or property held thereunder from the liability of the lessor, or grantor or grantee contracted or incurred in operation, use or enjoyment of such franchises or any of its privileges.” This section simply prohibits a corporation from leasing or alienating its franchise, so as to relieve the franchise or property from the liabilities of the lessor or grantor or grantee; but it does not prohibit any corporation from conveying its corporate property to a trustee for the purpose of subjecting it to such liabilities, and the defendant company, by conveying its corporate property expressly for the purpose of subjecting it to liabilities of the grantor, committed no act in contravention of this provision of the constitution. Section 10 reads: “No corporation shall engage in any business other than that expressly authorized in its charter, or articles of incorporation.” This limits the business of every corporation to that authorized by the law of its creation, but the section contains no restrictions as to the mode of discharging liabilities which may be created in the conduct of the business which the corporation may lawfully transact. Section 18, the remaining one to which reference is made, merely provides for an individual liability of the stockholders of every corporation and joint-stock association for banking purposes, but contains no provisions relating to the manner in which a corporation should pay the claims of its creditors. Whether or not these provisions of the constitution are applicable to a corporation like the one at
The statutory provisions, with one exception, which are invoked in behalf of the appellant, may be found in chapter 87, Sess. Laws 1896. Section 2 provides how a corporation may be organized, and what shall be stated in the agreement of the incorporators, which they must enter into, and also prescribes how the agreement shall be executed. Section 3 provides when and with what officers the agreement shall be deposited for record after its execution. Section 4 refers to the qualification of officers, and prescribes that, before entering upon their duties, they must make oath “that they will discharge the duties of such office to the best of their judgment, and that they will not do nor consent to the doing of any matter or thing relating to the business of the corporation with intent to defraud any stockholder or creditor, or the public.” The oath here required is pertinent and entirely proper, whether the corporation has power to prefer creditors or not. Under either theory of the law, fraud will vitiate the acts of officers. Section 6, among other things, refers to the powers of a corporation, and provides that it “shall have power to make contracts, to sue and be sued, to have a seal, which it may alter at its pleasure, to buy, use and sell, or dispose of personal property, to buy, use, sell or dispose of all such real estate as may be necessary for its general business and such as shall be necessary for the collection of its debts,
It is clear, beyond reasonable controversy, that neither the organic nor the statutory laws of this state prohibit an insolvent corporation from preferring one creditor over another by deed of assignment. Nor is there any express constitutional or statutory grant of such power in this state. In the absence of such prohibition and grant, it becomes necessary to determine whether or not such power exists by referring to the law as stated by text writers and declared by judicial decision. The question under consideration has frequently arisen in courts with the result of some conflict of authorities, and that the law places artificial and natural persons on the same footing, in regard to assignments for the benefit of creditors, has been denied in numerous cases. That a solvent debtor, whether an individual or a corporation, can make an assignment of his or its property for the payment of his or its debts, has never been denied, either in England or in this country. Indeed, it would be impossible to predicate fraud on such an assignment, because this would be to deny a debtor the right to do what the law enjoins upon him as a duty, — the right to pay his just debts. In the performance of an act which the law and justice require to be done, no question of fraud can
The justness of these criticisms of the rule, made by that eminent jurist, can hardly be controverted; for, while there are doubtless cases where preferences are meritorious, and are called for by considerations of grati
Tbe doctrine that an insolvent corporation may make an assignment of all its property for tbe purpose of paying its just debts, and prefer one creditor or class of creditors over others, tbe same as it might do if it were a natural, instead of an artificial, person, when none of its officers or agents are preferred, must, in tbe absence of charter and statutory provision to tbe contrary, be regarded as the settled law of this country, and, like the rule in tbe case of an individual debtor, has been so thoroughly incorporated in our system of jurisprudence that it cannot be overthrown, except by legislative enactment. It appears that tbe earliest case in which this question was raised in this country was that of Catlin v. Bank, 6 Conn. 233, where it was decided in the affirmative, in 1826, by the supreme court of errors of Connecticut. In that case the right to prefer had been exercised by the bank in favor of a particular creditor., and it was attempted to establish a distinction between the creditor of an insolvent corporation and that of an individual respecting the right of alienation in general, and it was contended that when a corporation became insolvent its officers or agents became trustees for the creditors, and that the creditors were entitled to be paid out of the trust fund equally and ratably. These propositions were overruled, the court maintaining that no distinction respecting the general power of disposition of their property existed between a corporation and an individual. Mr. Chief Justice Hosmer, delivering the opinion of the court, said: “Where no legal lien has been obtained, it is a reasonable supposition that the relation of creditor and •debtor must in all cases infer the same consequences, and
This doctrine has since been maintained by the decided weight of judicial decisions, but few cases comparatively having denied to insolvent corporations the same right to prefer which an insolvent individual has. Generally corporations have been held to have the same dominion over corporate property, the same interest therein, and the same right of disposition thereof, as an individual has concerning his property. In Graham v. Railroad Co., 102 U. S. 148, Mr. Justice Bradley, delivering the opinion of the court, said: “It is contended, however, by the appellant, that a corporation debtor does not stand on the same footing as an individual debtor; that, while the latter has supreme dominion over his own property, a corporation is a mere trustee, holding its property for the benefit of its stockholders and creditors; and that, if it fail to pursue its rights against third persons, whether arising out of fraud or otherwise, it is a breach of trust, and creditors may come into equity to compel an enforcement of the corporate duty. This, as we understand, is the substance of the position taken. We do not concur in this view. It is at war with the notions which we derive from the English law with regard to the nature of corporate bodies. A corporation is a distinct entity. Its affairs are necessarily managed by officers and agents, it is true; but in law it is as distinct a being as an individual is, and is entitled to hold property (if not contrary to its charter) as absolutely as an individual can hold it. Its
Counsel for the appellant, however, insists that, when a corporation has become insolvent, and ceased to carry on its business, its property and assets constitute a trust fund for the equal benefit of all its corporate creditors, and that the directors become trustees for all the creditors, and hence have no power to make preferences among them. It is true that courts of high character have made the general statement that the assets of an insolvent corporation constitute a trust fund for the benefit of its creditors, and in a few of the states the courts have based their decisions upon these general statements, and reasoned thence that managers or directors of an insolvent corporation had no power to dispose
The case of Purifier Co. v. McGroarty, 136 U. S. 237, cited by counsel for the appellant to sustain its conten
Our attention is also directed to the case of Robins v. Embry, 1 Smedes & M. Ch. 207. That case was decided by the superior court of chancery of Mississippi in 1843, and the doctrine that an insolvent corporation may prefer creditors was vigorously assailed by Chancellor Buckner, who, in one of the ablest, if not the ablest, opinion which has yet been written against the right to prefer by a corporation, combated the views of Mr. Chief Justice Hosmer in Catlin v. Bank, above cited, and held it to be deducible from principle, adjudged cases, and legal analogy that the assets of a corporate bank constitute a trust fund primarily for the equal benefit of its creditors, and that it is not competent to defeat the right of equality by an assignment with preferences. The chancellor also held that the rule which permitted an individual debtor to prefer creditors was founded on his absolute dominion over his property, and his unrestricted right of disposition, which, he contended, a corporation did not possess. These views, however, were afterwards overruled, in the case of Arthur v. Bank, supra, by the high court of error and appeals, and the doctrine settled in that state that a corporation may prefer one creditor over another. The Washington cases appear to sustain appellant’s contention that an insolvent corporation, even in the absence of statutory provision on the subject, cannot prefer creditors, and that its assets are a trust fund for the equal benefit of its creditors; but they are
Upon careful examination of adjudged cases, as well as upon principle and analogy, and in the absence of insolvent laws and statutory restrictions, we feel ourselves bound to hold that a corporation, in this state, has the same power to prefer creditors, by deed of assignment or otherwise, as a private debtor has, so long as its assets have not been taken into possession by a court of equity, in a proper proceeding, at the instance of a proper party. The rule in the case of a corporation, the same as in that of an individual, is impregnable, except by legislative enactment. This also appears to be in harmony with the English rule, for there the power of a corporation to prefer creditors seems to be fully established, except as restricted by statute. In re Wincham Ship
The contention of the appellant that the assignment dissolved the corporation is not tenable. The law is well settled that a mere transfer of the corporate property of a corporation to a trustee, for the purpose of paying its debts, does not per se work a dissolution, and there is nothing in the deed of assignment in this case which would produce such a result. Manufactory v. Langdon, 24 Pick. 49; Town v. Bank, 2 Doug. 530; Bruffett v. Railroad Co., 25 Ill. 310; Pyles v. Furniture Co., (W. Va.) 2 S. E. 909, 921; Reichwald v. Hotel Co., 106 Ill. 439; Buell v. Buckingham, 16 Iowa 284.
We do not deem it necessary to discuss any other question presented in this case. The judgment of the court below is affirmed.