Forster v. Mullanphy Planing Mill Co.

• Decision Date: 24 June 1884
• Citation: 16 Mo.App. 150
• Parties: GEORGE M. FORSTER, Appellant, v. MULLANPHY PLANING MILL COMPANY, Respondent.
• Court: Missouri Court of Appeals

16 Mo.App. 150

GEORGE M. FORSTER, Appellant,

v.MULLANPHY PLANING MILL COMPANY, Respondent.

St. Louis Court of Appeals, Missouri.

Jun. 24, 1884.

APPEAL from the St. Louis Circuit Court, BARCLAY, J.

Affirmed.

CHAS. B. STARK and A. MOORE BERRY, for the appellant: The directors of a solvent corporation are trustees for the shareholders, and are subject to all the duties and disabilities of trustees.-- McAllen v. Woodcock, 60 Mo. 174; Lingle v. Hogan, 45 Mo. 109; Bent v. Priest, 10 Mo. App. 543-547; Skrainka v. Allen, 7 Mo. App. 434; Brewster v. Stratman, 4 Mo. App. 41; Cumberland Coal Co. v. Sherman, 30 Barb. 553; Koehler v. Black River Falls Iron Co., 67 U. S. (2 Black) 715. The directors of an insolvent corporation are trustees for the benefit of its creditors.-- Bradley v. Farwell, 1 Holmes, 433; Hopkins and Johnson's Appeal, 90 Pa. St. 69; Marr v. The Bank of West Tenn., 4 Cold. (Tenn.) 471; Jackson v. Ludeling, 88 U. S. (21 Wall.) 616; Railroad Co. v. Howard, 74 U. S. (7 Wall.) 392-409; Lingle v. Hogan, 45 Mo. 109, 110; Skrainka v. Allen, 7 Mo. App. 434-438-440; Eyerman v. Krieckhaus, 7 Mo. App. 455; Chouteau v. Allen, 70 Mo. 290-338. A trustee will not be permitted to create such a relation between himself and the trust property as will make his own interest antagonistic to that of his beneficiary.-- Lingle v. Hogan, 45 Mo. 109; McAllen v. Woodcock, 60 Mo. 174; Bent v. Priest, 10 Mo. App. 543-557; Skrainka v. Allen, 7 Mo. App. 434; Brewster v. Stratman, 4 Mo. App. 41; Koehler v. Black River Falls Iron Co., 67 U. S. (2 Black) 715; Jackson v. Ludeling, 88 U. S. (21 Wall.) 616; Sawyer v. Hoag, 84 U. S. (17 Wall.) 610. The term fraud, as understood in the statute concerning fraudulent conveyances, has the same meaning in the attachment law; and it is not necessary to show that the act originated in any premeditated design to commit a positive fraud or to injure other persons.-- Reed v. Pelletier, 28 Mo. 173; Beach v. Baldwin, 14 Mo. 597. When one makes a conveyance of his property to hinder, delay or defraud his creditors, a trust results thereby in their favor, and the deed, as against them, is “utterly void,” and such property may be seized on attachment or execution at law against him, and sold.--Rev. Stats. 1879, sect. 2497; Ryland v. Callison, 54 Mo. 513.

JAY L. TORREY, for the appellant: The assets of an insolvent corporation are a trust fund primarily for the benefit of its creditors and secondarily for its shareholders; and its directors and managers occupy a fiduciary relation toward both creditors and shareholders.-- Drury v. Cross, 7 Wall. 302; Jackson v. Ludeling, 21 Wall. 616; Brewster v. Stratman, 4 Mo. App. 41; Covington, etc., R. Co. v. Bowler, 9 Bush, 468; Lingle v. Nat. Ins. Co., 45 Mo. 109; McAllen v. Woodcock, 60 Mo. 174; Wood v. Dummer, 3 Mason, 308. The fiduciary relation which exists between the directors of an insolvent corporation and its creditors is of such a character as to render an attempt on the part of such directors to secure a preference for debts due to themselves out of the assets of such corporation, fraudulent in law.-- Bradley v. Farwell, 1 Holmes, 433; Curran v. The State of Ark., 15 How. 307; Drury v. Cross, 7 Wall. 299; Little Rock, etc., R. Co. v. Page, 35 Ark. 304; Hopkins' and Johnson's Appeal, 90 Pa. St. 76; Farmers' and Merchants' Bank v. Downey, 53 Cal. 466; McDowell v. Ark. Machine Co., 38 Ark. 17; Stout v. Yaeger Milling Co., 13 Fed. Rep. 802; Union National Bank v. Douglas, 1 McCrary, 86.

LEONARD WILCOX and H. J. GROVER, for the respondent: A director in a corporation has a right to deal with such corporation in any way that any other person can.-- St. Louis v. Alexander, 23 Mo. 527, 531; Kitchen v. Railroad, 69 Mo. 243, 245, 254 and 255; Buell v. Buckingham, 16 Iowa, 284; Smith v. Skeary, 47 Conn. 54; Duncourt v. Railroad, 84 N. Y. 199, 207; Whitwell v. Warner, 20 Vt. 444, 445; Gordon v. Preston, 1 Watts, 387; Twin Lick Oil Co. v. Marburg, 1 Otto, 587. A corporation which is insolvent merely--as well as a partnership or individual--can prefer one creditor to another.-- Catlin v. Bank, 6 Conn. 233, 241; Poudville & Co. v. Clark, 25 Conn. 97; Maryland v. Bank, 6 Gill & J. 219, 220; Poole's Case, 9 Ch. L. Div. 322, 328; St. Louis v. Alexander, 23 Mo. 483; Sheely v. Booth, 73 Mo. 77; Dougherty v. Cooper, 77 Mo. 528. If, by reason of the insolvency merely of the defendants, its assets became a trust fund for creditors, it was a joint trust for all its creditors and can not be enforced by plaintiff in a suit at law.-- Edwards v. Welton, 25 Mo. 379; Craig v. Gregg, 83 Pa. St. 19; Grear v. Gouge, 69 N. Y. 154; Thorn on Liability of Officers, etc., 257; Fusz v. Spaunhorst, 67 Mo. 264; Smith v. Poor, 40 Me. 422. The liability of a principal to indemnify and secure his surety or accommodation indorser is a debt contracted from the time the surety is given.-- Rice v. Southgate, 16 Gray, 142; Bayer v. Coal Co., 106 Mass. 131; Duvall v. Raisin, 7 Mo. 450.

BAKEWELL, J., delivered the opinion of the court.

This was an action upon promissory notes, begun by attachment, upon the ground that defendant had fraudulently conveyed, assigned, and disposed of its property and effects, so as to hinder and delay its creditors.

The issue raised by the plea in abatement was submitted, upon an agreed statement of facts, to the court without a jury. The court found the issue in favor of defendant, and the attachment was dissolved.

The facts, as agreed upon, are as follows:--

On the 5th of May, 1883, defendant executed and delivered to one Joseph P. Schureman, a deed, in the ordinary form of a deed of trust to secure the payment of money. This deed embraced the leasehold on which the planing mill of defendant is erected, and all the materials, appliances, machinery, etc., appertaining to the mill, and all open accounts and money due to the mill, and was given to secure the following indebtedness of defendant described in the deed:--

A note of defendant, due May 21, 1883, for $2,500, payable to the order of F. Germer, and indorsed by F. Germer, William Leroi and Meyer & Stipp; also a note of defendant for $500, due May 15, 1883, payable to A. Meyer; also a note of defendant, due May 30, 1883, for $674.70, payable to Meyer & Stipp; also sums in cash to the amount of about $2,000, due to twenty-eight different creditors of the company, whose names are set out in the deed with the sum due to each one. All of this indebtedness was a bona fide liability of defendant at the time the deed was executed, as set out in the deed. Of the accounts, one was to Germer for $236, one to Holkemper, for $46.00, and one to Stender for $33.00. These three men were directors of defendant when the deed was given. The $2,500 note had been indorsed for defendant's accommodation, and discounted at the Mullanphy Savings Bank by defendant, which received the proceeds and used them in its business. The note was held by the Mullanphy Bank when the deed was executed; and, at its maturity, on May 21, 1883, the accommodation indorsers named above, their liability having been fixed, paid the note, and ever since held it. The note for $674.70 was given for money lent to defendant by Meyer & Stipp. Meyer, Germer, Holkemper, and Stender were directors of defendant when the deed was executed.

The board of directors of defendant was fixed at thirteen persons. The deed was executed under a resolution of this board passed April 30, 1883. Ten directors voted for the resolution. Two were absent; one voted against it. The four directors named above as beneficiaries in the deed voted for the resolution. The majority vote determines the action of the board.

Defendant was insolvent when the deed was executed; but the deed was not fraudulent in fact; nor was it executed or received with any fraudulent purpose or intent on the part of any of the parties to it, to hinder or delay any creditor or creditors of defendant, but in good faith for the bona fide purpose of securing the claims therein mentioned.

Plaintiff's suit is upon four notes of defendant, each for $1,600, all dated September 14, 1881, maturing in one, two, three, four, and five years after date.

To warrant attachment on the ground of a fraudulent conveyance of the debtor's property, it is not essential that the conveyance should have been made with any dishonest intent. The intention may have been not to defraud creditors, but to better provide for their payment by preventing a sacrifice of the assets at forced sale; but, if the natural and necessary effect of the deed is to hinder and delay the creditors, the conveyance is a fraud in law of such a character as will warrant an attachment. Reed v. Pelletier, 28 Mo. 173. A conveyance thus fraudulent in law, is to be regarded as utterly void as to the attaching creditor. It is for this reason that he need not apply to equity for relief, but may at once proceed by attachment. Ryland v. Callison, 54 Mo. 513.

A conveyance, however, is not fraudulent merely because creditors are preferred by it. Such a deed hinders and delays one or more creditors, and such is the necessary intent of it; but it can not be objected to on that ground alone. The State to use v. Laurie, 1 Mo. App. 371.

If the conveyance under consideration in the present case is void for constructive fraud, so as to furnish a ground for attachment, it must be on the ground that the fiduciary relations of the directors of defendant to the company and the creditors of the company rendered them incompetent to authorize by their votes a deed which had the effect of giving them, as bona fide creditors of the company, a preference over some other creditors of the same company.

It is not necessary that we should critically examine all the cases which the diligence of counsel for appellant has brought together in their carefully prepared brief as bearing upon the question of the trust relations of directors of corporations. Some of these cases are cited by counsel as authority...