Alberger v. National Bank of Commerce of Kansas City

• Decision Date: 19 June 1894
• Parties: Alberger v. National Bank of Commerce of Kansas City, Appellant
• Court: Missouri Supreme Court

27 S.W. 657

123 Mo. 313

Alberger v. National Bank of Commerce of Kansas City, Appellant

Supreme Court of Missouri, First Division

June 19, 1894

Appeal from Jackson Circuit Court.

Reversed and remanded.

Karnes Holmes & Krauthoff and Elijah Robinson for appellants.

(1) It was declared by this court at an early day that "the law may be considered as settled that a corporation may convey its property in trust to pay its debts, and, like an individual, may prefer one creditor over another." St. Louis v. Alexander, 23 Mo. 483, 524; Foster v. Mill Co., 92 Mo. 79; Hutchinson v. Green, 91 Mo. 367; Bank v. Iron Co., 97 Mo. 38; Coates v Donnell, 94 N.Y. 168. (2) "If there be no legislative prohibition against a transfer of corporate property, or its use in preferring creditors after insolvency, no reasons can be given why such transaction should be invalid which would not invalidate also the like transfers of individuals. Both reason and authority establish the proposition that a corporation may sell and transfer its property, and it may prefer its creditors, although it is insolvent, unless such conduct is prohibited by statute." Wilkinson v. Bauerle, 41 N.J.Eq. 635; Allis v. Jones, 45 F. 148. (3) Such is the position of many standard authorities on the subject. Kent Com., *315 note g, and, also, *281; Cook on Corp. [2 Ed.], sec. 691; Angell & Ames on Corp. [11 Ed.], sec. 187; 1 Beach on Priv. Corp., sec. 358; 2 Potter on Corp., sec. 695; Burrill on Assignments [5 Ed.], sec. 64. (4) There is no adjudged case in which a preference to a stranger was annulled upon the sole ground urged by these plaintiffs. In one case (Rouse v. Merchants' Bank, 46 Ohio St. 493) a preference was set aside, partly upon the trust fund idea and partly upon considerations of public policy evidenced by local constitutional and statutory provisions. In so far as the court proceeded upon the former ground, one of the most accomplished of modern jurists declared that the opinion could not be maintained "on general principles of equity jurisprudence." (Mr. Justice Gray in Smith Purifier Co. v. McGroarty, 136 U.S. 237, 241.) (5) There are two cases in the St. Louis court of appeals, in one of which a preference to a stranger was assumed to stand upon precisely the same grounds as a preference to a director; and, in the other, in dicta of the most glaring type, the broad proposition is announced that the insolvency of a corporation ipso facto operates as though it had made a general assignment. Woolen Co. v. Kampe, 38 Mo.App. 229, 233; State ex rel. v. Brockman, 39 Mo.App. 131. (6) Under the statute, the Krull Tailoring Company had the power "to hold, purchase, mortgage or otherwise convey such real and personal estate as the purposes of the corporation shall require" (R. S., sec. 2508), language broad enough to authorize a preference to be given to creditors. Gordon v. Preston, 1 Watts, 385. (7) One of the purposes of the corporation was to pay its debts. To this end the directors had the power to apply its property to secure the payment of such of its creditors as they might select. In re Patent File Co., L. R. 6 Ch. App. 83; Sargent v. Webster, 13 Metc. 497. (8) "The property or business of the corporation shall be controlled and managed by (its) directors." R. S., 2772. (9) The statute (sec. 2513) declares "that upon the dissolution of any corporation, the president and directors, or managers, of the affairs of said corporation at the time of its dissolution shall be trustees of said corporation," etc. Upon the well known maxim "expressio unius," etc., this must be held to be a declaration of legislative intent that prior to the dissolution of a corporation or an interference by the courts, the control of its property is to remain with the directors, to whom it is committed by section 2772. The authorities are clear and to the point that the insolvency of a corporation does not work its dissolution, nor make its directors trustees of its assets, although it has ceased active business and is not in a condition to resume. Adams v. Milling Co., 35 F. 433; Lippincott v. Carriage Co., 25 F. 577; Buell v. Buckingham, 16 Iowa 284 (approved in 69 Mo. 224; 2 Potter, Corp., secs. 693, 694, 695, p. 824, note 5; 2 Kent, Com., *312; Hill v. Fogg, 41 Mo. 563; Bank v. Robidoux, 57 Mo. 446; Hotel Co. v. Sauer, 65 Mo. 279; Ins. Co. v. Floyd, 74 Mo. 286; Cattle Co. v. Frank, 148 U.S. 603; Sewell v. Beach Co., 25 A. 929 (New Jersey, 1893).

Brown, Chapman & Brown for respondents.

(1) The evidence shows that when the preference was made to the bank the Krull Tailoring Company was unable longer to continue in business; that it owed some $ 20,000, over $ 10,000 of which was due; that it was being pressed for payment and was unable to pay any part of its indebtedness; that it was insolvent and unable longer to continue in business. Insolvency is the state of a person who, from any cause, is unable to pay his debts in the ordinary or usual course of trade. 11 Am. and Eng. Encyclopedia of Law, p. 168. A corporation, like an individual, is insolvent when it is unable to pay its debts. Boone on Corporations, sec. 202; Brower v. Harbeck, 9 N.Y. 589; Hazleton v. Allen, 3 Allen, 114; Ring v. Paint & Glass Co., 44 Mo.App. 111. (2) It is also shown by the evidence that the turning over of the assets of this corporation to the bank was not for the purpose of furthering the interests of the corporation, but because the corporation could not longer continue in business, and the entire assets were turned over with a view of going out of business and making the bank a preferred creditor. This is conclusively shown, for the corporation having turned over its entire assets to the bank could not have continued in business if it had desired and from the further fact that within an hour after the bank took possession the corporation made a general assigment. The officers and directors of an insolvent corporation, after it has been ascertained and declared by its managing board to be insolvent and unable to longer continue in business can not turn over to one creditor the assets of the corporation, thereby giving such creditor a preference, to the exclusion of other creditors of the corporation. Taylor on Private Corporations, sec. 668; Dabney v. Bank, 3 S.C. 124; Robbins v. Embry, 1 Sm. & M., Ch. (Miss.) 207; Haywood v. Lumber Co., 64 Wis. 639, et seq.; Bodley v. Goodrich, 7 How. 276; Swepson v. Bank, 9 Lea (Tenn.), 713; Hightower v. Mustian, 8 Ga. 506; Richards v. Insurance Co., 43 N.H. 263; Morawetz on Private Corporations, sec. 803; Marr v. Bank, 4 Cold. 471; Rouse v. Bank, 46 Ohio St. 493; Lyons Thomas Co. v. Stove Co., 86 Tex. 143.

Barclay, J. Black, C. J., and Brace and Macfarlane, JJ., concur.

OPINION

Barclay, J.

This is a suit to set aside a preference and for the appointment of a receiver, etc.

It is not necessary to state the pleadings.

The facts are admitted.

In February, 1891, the Krull Tailoring Company of Kansas City became financially embarrassed. Being threatened with attachments, it turned over its merchandise, fixtures and book accounts to the National Bank of Commerce, and delivered immediate possession of the same to the latter to secure a debt of about $ 3,200, then due to the bank, evidenced by the note of the company.

In January, 1891, the stock of the company had been invoiced at about $ 22,000; but, owing to a shrinkage of values, the stock could not have been sold for cash in February, 1891, for more than thirty-five per cent. of the invoice figures.

The liabilities of the company, February 17, 1891, were about $ 20,000.

The note to the bank had been due since January 3, 1891. The cashier of the bank had pressed for payment without avail.

There is no suggestion of any fraud on the part of the bank or its officers in getting the preference. The debt was honest and unquestioned.

After the company had delivered possession of the property to the bank to secure its indebtedness to that institution, the company, on the same day, February 17, 1891, made a general statutory assignment of all its remaining assets to Mr. Bainbridge for the benefit of its general creditors. But prior to the assignment, nothing was said to any of the bank officers, indicating an intent or purpose of the company to follow the preference with an assignment.

On this case the circuit court found for plaintiffs and entered a decree, setting aside the preference and appointing a receiver to take possession of the property acquired by the bank, as aforesaid, and to administer the property for the benefit of all the creditors of the tailoring company.

The bank appealed, after the necessary preliminaries.

All the counsel concede that the clear question presented by the appeal is whether or not a corporation in failing circumstances may lawfully prefer one creditor to another in discharging its liabilities, there being no fraud shown.

Neither the principal creditor whose rights are involved in the present controversy, nor any one of its officers, was interested in the failing concern, as stockholder, director, or otherwise than as a creditor having a valid and enforceable, overdue demand against the corporation.

1. It was said in Missouri, as long ago as Murray v. Cason (1852), 15 Mo. 378, that "it is not necessary to quote books for the purpose of showing that a debtor in failing circumstances may give a preference to one or more of his creditors, to the exclusion of others."

Such a preference, made in good faith, may undoubtedly be given by an individual; but it is claimed that a private corporation has no such right. This claim is planted on the ground that without any action of a court, the mere insolvency of a corporation transforms its assets into a different sort of "trust...