Larrabee v. Franklin Bank
| Citation | 114 Mo. 592,21 S.W. 747 |
| Parties | LARRABEE et al. v. FRANKLIN BANK et al. |
| Decision Date | 14 March 1893 |
| Court | United States State Supreme Court of Missouri |
failure in time to protect itself, the company, at the request of defendant bank, drew drafts on its solvent debtors for the amount of their indebtedness, and sold to M., one of the directors of defendant bank, its stock of goods, receiving therefor M.'s check in payment, which check and drafts were thereupon assigned to defendant bank, and appropriated to the company's indebtedness to the bank. The deed of assignment of the remainder of the company's effects was then delivered to the assignee. Held, that the execution of the assignment, and the transfer of the drafts and check to defendant bank, being one and the same transaction, such transfer is void, under Rev. St. 1889, § 424, providing that every voluntary assignment for the benefit of creditors shall be for the benefit of all the creditors.1
Appeal from St. Louis circuit court; James E. Withrow, Judge.
Suit in equity by Edward J. Larrabee and others against the Franklin Bank and others. From a decree for plaintiffs, defendant bank appeals. Affirmed.
Paul F. Coste, for appellant. J. M. Holmes, for respondents.
This is a suit in equity, in the nature of a creditors' bill, by three creditors of the Kendall-Bayle Cracker Company, joined as plaintiffs, against the Franklin Bank, the Kendall-Bayle Cracker Company, its officers and directors, and P. R. Flitcraft, as assignee of the Kendall-Bayle Cracker Company for the benefit of its creditors. The defense consists mainly in a denial of the allegations and charges of the bill. The Kendall-Bayle Cracker Company was a corporation engaged in the manufacture and sale of crackers in the city of St. Louis. The stock of the company was fully paid, and was owned in nearly equal proportions by Messrs. Kendall, Bayle, Daniels, and Cole. The business of the company, at first prosperous, was conducted for a considerable period at a loss; and for some months prior to January, 1888, the company was in a very precarious financial condition. In December, 1887, the company owed to the Franklin Bank $20,000, which was evidenced by several notes, a portion of which were indorsed by Mr. Cole, and the remainder by Mr. Kendall, both of whom were directors of the company. It owed nearly the same amount to what may be termed "outside creditors," among whom were plaintiffs, and these debts were wholly unsecured. They had assets of the value of about $15,000, divided in about the following proportions:
Stock on hand ......................... $7,000
Good accounts.......................... 5,000
Leasehold, machinery, and odds and ends 3,000
The company was hopelessly insolvent, and could no longer go on, unless matters should change in some manner. To furnish a possible means of raising fresh capital, Bayle and Daniels surrendered their stock to the company, for one dollar each, and retired. This situation was well known to the bank and its directors, and they knew that unless fresh capital could be secured, or better prices obtained for their crackers, the company would be compelled to suspend. They knew, also, that the only chance for obtaining better prices for the product of the company lay in the action of the "cracker pool," which was to meet in January. They had a secret arrangement with the cracker company by which they were to be notified when failure should take place, in time to protect themselves. Such was the situation in December, 1887. In the second week in January, 1888, a statement was submitted to the bank, from which it appeared that the company was still losing money. Notice was then given by the bank to the company that unless the coming meeting of the cracker pool, for which the bank agreed to wait, should relieve them, they must furnish additional security for the note next maturing, — January 26th or 27th, — or they would be "closed." The cracker pool met, and refused to advance prices, the directors refused to indorse further, and the concern was at an end. The directors of the company held a meeting on Thursday, the 26th of January; resolved to cease business, and make an assignment. They instructed their attorney to prepare a deed of assignment, which he did, leaving the date blank. The deed was an ordinary assignment under the statute. On the same Thursday, or possibly on the morning of Friday, the 27th, (the evidence is not clear as to which day,) the directors of the company, accompanied by their attorney, Mr. Mills, went to the bank, and notified them of their failure, and of the fact that an assignment had been determined upon. The directors of the company, the attorney, and the officers of the bank, then entered into a consultation to determine the best method of "protecting the bank," and securing for it a preference over other creditors. Mr. Mills was of the opinion that the best method was to attach, as, in his opinion, any plan which required the visible co-operation of the company, would be dangerous. Mr. Garrells, the cashier of the bank, had, however, another plan. He was willing to "take the chances." The assets of the company consisted of a leasehold and machinery of small value, (the machinery, with various odds and ends, proved to be worth $1,500, and the leasehold proved to be worth $100 less than nothing;) the stock on hand, manufactured and unmanufactured; good debts and bad debts. There was no money. Mr. Garrells had previously arranged with Mr. Moll, his codirector in the bank, and a codefendant in this case, a method for turning the stock into money. His proposition, then, at the meeting, was that the bank should take the stock and the good debts, and the assignee should take the machinery and the bad debts. He explained that drafts could be drawn by the company against all of its solvent debtors, and turned over to the bank, and that Mr. Moll, one of its directors, could take the stock, thus converting it into money, which would be paid over to the bank. This proposition was accepted. Mr. Moll was called up, and reached the bank at the conclusion of the conference. He and Mr. Garrells then went to the factory of the company, and Mr. Moll examined the stock, and arranged the terms of purchase. The drawing of the drafts and the making up of the invoice of the stock consumed all of that day and the next. At a late hour in the afternoon of Saturday, the 28th, the drafts having all been drawn and delivered to the bank, and the invoice having been completed, Mr. Garrells and Mr. Moll proceeded to the office of the cracker company. The president, Mr. Kendall, handed Mr. Moll the invoice. Mr. Moll handed him his check. He indorsed and handed it to Mr. Garrells. The latter balanced the bank book of the company, then and there, passing this check to its credit, and received its check for such balance. At 10 o'clock that night the blank date in the deed of assignment was filled in, and it was executed and delivered to Mr. Flitcraft, the assignee, at the Laclede Hotel. On the Sunday morning following the stock was transferred, in wagons belonging to the various directors of the bank, to the warehouse of Mr. Moll. The bank realized from the drafts turned over $5,181.44; from the check of the cracker company, being the amount of Mr. Moll's check less the amount the company was overdrawn, $5,695.95, making a total of $10,877.39, — which they applied to their notes due and not due. In addition they collected from the indorsers about $3,000. The assignee received, all told, less than $3,000. Deducting expenses, he paid a dividend of 5 per cent.
On final hearing the court rendered the following decree: ...
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