Colorado Fuel & Iron Co. v. Western Hardware Co.

Decision Date04 October 1897
Docket Number835
Citation16 Utah 4,50 P. 628
PartiesCOLORADO FUEL & IRON COMPANY, APPELLANT, v. THE WESTERN HARDWARE COMPANY ET AL., RESPONDENTS
CourtUtah Supreme Court

Appeal from the Third district court, Salt Lake county. Ogden Hiles Judge.

Action by the Colorado Fuel & Iron Company against the Western Hardware Company and Oscar W. Moyle to set aside a deed of assignment for the benefit of creditors. Joseph Geoghegan and others intervened. From a judgment for defendants, plaintiff and interveners appeal.

Affirmed.

MINER, J. ZANE, C. J., and BARTCH, J., concur.

OPINION

MINER, J.:

The defendant the Western Hardware Company was a corporation organized under the laws of Utah, with a capital stock of $ 30,000, divided into 300 shares of $ 100 each. One hundred and fifty shares of this stock were held by five stockholders, who were also directors in the corporation, and the balance of the stock was owned by the corporation, and was not issued. Reed Smoot held 60 shares of the stock, and was a director of the corporation. On September 9, 1896, the corporation, being insolvent and unable to pay its debts, by a vote of all its directors and stockholders, including Mr. Smoot, for the purpose of paying its debts, and contemplating a cessation of business, passed, by unanimous vote, a resolution, and caused to be made, executed, and delivered, an assignment of all its property to defendant Moyle for the benefit of its creditors. The Provo Commercial & Savings Bank, a corporation, was, among others, made a first preferred creditor for $ 3,000. There was also a list of several who were second preferred creditors. The plaintiff and interveners, some of whom were attaching creditors, were in the third and unpreferred list of creditors. The Provo Commercial & Savings Bank had a capital stock of $ 75,000, divided into 750 shares of a par value of $ 100. At the time of the making of the assignment by the Western Hardware Company, Reed Smoot was a director and president of the bank, and the owner of 195 shares of its capital stock, and his wife owned 50 shares of said stock. According to the terms of the assignment, the plaintiff and interveners would receive not over 70 per cent. of their claims from the proceeds of the assigned property, while the preferred creditors, including the bank, would receive full payment of their claims. This action was brought to set aside and declare void the deed of assignment. Plaintiff and interveners now claim that by reason of the preference of the Provo Commercial & Savings Bank, in which Reed Smoot was president, director, and stockholder, he derived a direct advantage from such preference, and that the assignment is therefore void, by reason of the preference of the bank by the hardware company over other creditors, for whom he stood in a position of trustee. The question for determination in this case is whether the double agency of Mr. Smoot, as stockholder and director in each corporation, renders the assignment fraudulent and void in fact, because the bank, in which he and his wife owned about one-third of the stock, was made a preferred creditor by a vote of all the stockholders and directors of the hardware company, in which vote he participated, notwithstanding the same result would have been reached had he refrained from voting, and notwithstanding that the assignment was made in good faith, without any fraud in fact, and notwithstanding, as the court found, that Smoot would not derive any benefit, or secure to himself any advantage, by reason of the preference.

In the case of Weyeth Hardware & Manuf'g Co. v. James-Spencer-Bateman Co., 15 Utah 110, 47 P. 604, this court held that a corporation is an artificial person, acting in an individual capacity, and in this state, in the absence of insolvent laws and statutory restrictions, it has the same power to prefer creditors, who are not its officers or agents, 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, and that the assets of an insolvent corporation constitute a trust fund, in a sense that they cannot be appropriated for any purpose foreign to its legitimate business, or distributed among its officers or stockholders until its debts are paid. In the case of Noble Mercantile Co. v. Mt. Pleasant Equitable Co-op. Inst., 12 Utah 213, 42 P. 869, this court said:

"We think the great weight of authority is in favor of the rule that when an incorporation has become insolvent, and abandoned the objects for which it was created, its directors or managing agents cannot, by deed of assignment, prefer themselves over other creditors, so as to secure an advantage over them by reason of their official positions, and superior knowledge concerning the corporate affairs. In such a crisis its property becomes affected with an equitable lien and trust for the benefit of all the creditors, and equity will not permit those who stand in relation of trustees to them to manage and dispose of the corporate property for the individual benefit of such trustees, regardless of the rights of the cestuis que trustent, not even though they are not trustees, as is contended by the respondents, in the technical sense of that term, because, whatever may be the technical standing of such officers, they hold, in respect to the corporate affairs, a fiduciary relation to the creditors which is controlled by equitable rules and principles." In the case of Manufacturing Co. v. Hutchinson, 11 C. C. A. 320, it appears that two companies had practically the same set of officers and stockholders. The Hopper Company, being insolvent, drew bills on the Sutton Company, which were accepted for accommodation, but without receiving any value therefor. Before the bills matured the Hopper Company gave a mortgage on all its property to the directors of the Sutton Company to secure the bills, and immediately thereafter made an assignment for the benefit of its creditors. The court held the transaction fraudulent in fact, and also held that ...

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3 cases
  • Wilson v. Baker Clothing Co.
    • United States
    • Idaho Supreme Court
    • December 30, 1913
    ... ... insolvent bank. (Hollins v. Brierfield Coal & Iron ... Co., 150 U.S. 371, 14 S.Ct. 127, 37 L.Ed. 1113.) ... Scott & Co., 18 Utah 400, 55 P. 374; ... Colorado Fuel & Iron Co. v. Western Hardware Co., 16 ... Utah 4, 50 ... ...
  • Passow & Sons v. Wetherbee
    • United States
    • Utah Supreme Court
    • August 20, 1917
    ... ... 110, 47 P. 604; Colorado Fuel & Iron Co. v ... Hardware Co., 16 Utah 4, 50 P. 628; ... ...
  • McAllister v. Swan
    • United States
    • Utah Supreme Court
    • October 30, 1897

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