Coons v. Tome

• Decision Date: 17 December 1881
• Citation: 9 F. 532
• Parties: COONS & BRAINE v. TOME and others.
• Court: U.S. District Court — Western District of Pennsylvania

9 F. 532

COONS & BRAINE v. TOME and others.

United States Circuit Court, W.D. Pennsylvania.

December 17, 1881

William A. Stone, for plaintiffs.

J. O Parker, for defendants.

ACHESON D. J.

The Minnequa Springs Improvement Company, a corporation of the state of Pennsylvania, on the fifteenth of June, 1877, issued its coupon bonds of the denomination of $500 each, amounting to $250,000, payable to bearer on September 1, 1897, with interest payable semi-annually; which bonds were secured by the company's mortgage, of even date, to Benjamin S Bentley, trustee of the bondholders. The mortgage covers a tract of land in Bradford county, Pennsylvania, containing about 20 acres, upon which are the 'Minnequa Springs' and the 'Minnequa House.'

On January 24, 1878, the whole of these bonds were held and owned by Peter Herdic, who on that day sold them, and also 9,320 shares of the stock of the company, to the defendant Jacob Tome. The evidence establishes that Tome was a bona fide purchaser for value of all said bonds. The improvement company acquired, prior to the transactions about to be mentioned, other lands contiguous to the mortgaged premises. On the thirteenth of August, 1878, Coons & Braine, the present complainants, brought suit in the court of common pleas of Bradford county against the said corporation to recover damages sustained by them by the breaking of a dam alleged to have been improperly and negligently constructed by the company. This case was ruled out and tried before arbitrators, who, by their award, filed in court on October 26, 1878, found the sum of $5,875 in favor of the plaintiffs. At this time, and from June 12, 1878, Jacob Tome was a director of the corporation, and its president,-- Kelion Packard, and John W. Maynard being the other directors,--any two of whom constituted a quorum of the board.

While the suit of Coons & Braine was pending before the arbitrators, Jacob Tome, on October 18, 1878, instituted an action in this court against the corporation to recover his interest on said bonds, then past due and unpaid, and also some money he had advanced to the company. On the twenty-second of October, 1878, during an adjournment of the arbitration, the board of directors of the corporation met in special session,-- the three directors, Tome, Packard, and Maynard, being present,-- and passed a resolution authorizing and directing the solicitor of the company to confess a judgment in favor of Tome and against the corporation for the amount of his claim sued for; and, accordingly, the next day, October 23 1878, such judgment was confessed for the sum of $19,248.53. Save for such action of the board, judgment could not have been obtained in that suit until after the first Monday of November, 1878,-- the return-day of the writ of summons.

At the date of the special meeting of the board of directors the corporation was insolvent, and this must have been known to the board, whose purpose in authorizing the confession of judgment undoubtedly was to give Jacob Tome priority of lien over Coons & Braine. I am, however, satisfied from the evidence that there was no actual fraud in the transaction, either on the part of Tome or the board of directors. The claim in suit was an honest debt due Tome, and the corporation was without defence. It may be assumed, too, that the board entertained the conviction that the claim which Coons & Braine were pressing to judgment was not a meritorious one, and doubtless the board believed they had morally and legally the right to prefer Mr. Tome by giving him the prior judgment lien.

But could the board of directors, under the circumstances, give such preference to Jacob Tome, who was both a director of the corporation and the president, and also the principal stockholder, owning, indeed, at least eight-tenths of the entire capital stock? I am of opinion that they could not. The mortgaged premises, it is shown, are wholly insufficient to pay...