Foster v. Mullanphy Planing-Mill Co.

• Decision Date: 16 May 1887
• Citation: 4 S.W. 260,92 Mo. 79
• Parties: Foster, Appellant, v. Mullanphy Planing Mill Company
• Court: Missouri Supreme Court

4 S.W. 260

92 Mo. 79

Foster, Appellant, v. Mullanphy Planing Mill Company

Supreme Court of Missouri

May 16, 1887

Appeal from St. Louis Court of Appeals.

Affirmed.

Charles B. Stark for appellant.

(1) The only question before the court on an issue in a plea in abatement to an attachment, alleging that the defendant has fraudulently conveyed or assigned his property, is whether he has so conveyed or assigned his property, and it is therefore, entirely immaterial whether the trustee Schureman, has any title to the property conveyed here. Enders v. Richards, 33 Mo. 598. (2) 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 Hon, 45 Mo. 109; Bent v. Priest, 10 Mo.App. 543-7; S. C., 86 Mo. 475; 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; Sawyer v. Hoag, 84 U.S. [17 Wall.] 610; Jackson v. Ludeling, 88 U.S. [21 Wall.] 616; Wardell v. Railroad, 103 U.S. [13 Otto] 651; Railroad v. Howard, 74 U.S. [7 Wall.] 392, 409; Hoyle v. Railroad, 54 N.Y. 315-28-29-30; Coleman v. Railroad, 38 N.Y. 201; Bliss v. Matteson, 45 N.Y. 22. (3) The directors of an insolvent corporation are trustees for the benefit of its creditors. Railroad v. Howard, 74 U.S. [7 Wall.] 392, 409; Lingle v. Hogan, 45 Mo. 109-10; Skrainka v. Allen, 7 Mo.App. 434-8-40; Eyerman v. Krieckhaus, 7 Mo.App. 455; Chouteau v. Allen, 70 Mo. 290, 338; Jones v. Mech. Co., 38 Ark. 17; United Soc. v. Underwood, 9 Bush [Ky.] 609; Gaslight Imp. Co. v. Terrell, 39 Law J. Chan. 725; S. C., 10 Eq. Cases [Law Rep.] 168-76; Sykes Cases, 13 Eq. Cases [Law Rep.] 255-59-60; Morawetz Priv. Corp., secs. 246, 579-82; Thompson Liab. Off. and Agts., p. 397, sec. 23. (4) 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. 543-57; S. C., 1 West. Rep. 749; 86 Mo. 475; Skrainka v. Allen, 7 Mo.App. 434; Brewster v. Stratman, 4 Mo.App. 41; Koehler v. 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; Wardell v. Railroad, 103 U.S. [13 Otto] 651; Haywood v. Lumber Co., 26 N.W. 184 (Wis.) . (5) The execution of the deed of trust in question, by the board of directors of the respondent, to secure to four of their number a preference in the payment of preexisting debts over the general creditors of the corporation was a breach of the duty which they owed to the general creditors, their cestuis que trust, and was, therefore, fraudulent as against them. See authorities cited under points 2, 3, and 4. (6) 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. (7) 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. R. S., 1879, sec. 2497; Ryland v. Callison, 54 Mo. 513; Allen v. Berry, 50 Mo. 90; Potter v. McDowell, 31 Mo. 62. (8) The deed of trust in question is void as against the plaintiff, because the resolution authorizing its execution was adopted by the votes of directors interested in its execution. Patrick v. Gas Co., 17 Mo.App. 462; Bennett v. Roofing Co., 19 Mo.App. 349; Butts v. Wood, 37 N.Y. 317; Coleman v. Railroad, 38 N.Y. 201; Chamberlain v. Wool Co., 54 Cal. 103; Haywood v. Lumber Co., 26 N.W. 184 (Wis.) ; Lippincott v. Shaw Carriage Co., 25 F. 577.

Leonard Wilcox and H. J. Grover for respondent.

(1) A corporation which is insolvent merely -- as well as a partnership or individual -- can prefer one creditor to another. 2 Morawetz on Corp. [2 Ed.] sec. 786; Catlin v. Bank, 6 Conn. 233, 241; Pondville & Co. v. Clark, 25 Conn. 97; Maryland v. Bank, 6 Gill and J. 219, 220; Poole's Case, 9 Ch. L. Div. R. 322, 328; St. Louis v. Alexander, 23 Mo. 483, 524; Shelley v. Boothe, 73 Mo. 77; Dougherty v. Cooper, 77 Mo. 528. (2) It is a settled doctrine (in Missouri at least) that 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; Bank v. Whittle, 18 Rep. 566; Smith v. Skeary, 47 Conn. 54; Whitwell v. Warner, 20 Vt. 444-5; Gordon v. Preston, 1 Watts, 387; Twin Lick Oil Co. v. Marburg, 1 Otto, 587; Duncomb v. Railroad, 84 N.Y. 199, 207. (3) The resolution, pursuant to which the deed of trust was executed, was passed by the votes of a sufficient number of disinterested directors to make it valid as a corporate act. R. S., 1879, sec. 730. (4) If when the directors committed the act, which is alleged to constitute a constructive fraud, they held the corporate assets in trust for the creditors, then such act would not constitute constructive fraud on the part of the company, nor sustain an attachment against it. Goodwin v. Kerr, 80 Mo. 226; Pinney v. Hart, 30 Mo. 561, 569; Douglas v. Cinna, 17 Mo.App. 61. (5) Even if the act of the directors complained of was constructively fraudulent it would be voidable merely and not void, and so far as reclaiming the property is concerned the only remedy would be a direct proceeding against the persons holding the legal title to the property to set the conveyance aside, the right to bring which proceeding would be primarily in the company. Bowlin v. Furman, 28 Mo. 432; Kitchen v. Railroad, 69 Mo. 260; Buell v. Buckingham, 16 Iowa 293; Poole's Case, 9 Ch. Div. L. R. 222; Brewer v. Theater Co., 104 Mass. 378. (6) If, by reason of the insolvency merely of the defendant, its assets became a trust fund for creditors, it was a joint trust for all its creditors and cannot be enforced by plaintiff in a suit at law. Morawetz on Corp. [2 Ed.] sec. 784; Edwards v. Welton, 25 Mo. 379; Craig v. Gregg, 83 Pa. St. 19; Grear v. Gouge, 69 N.Y. 154; Thompson on Liability of Officers, etc., 257; Fusz v. Spaunhorst, 67 Mo. 264; Smith v. Poor, 40 Me. 422; Pond v. Framingham, 130 Mass. 194. (7) 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.

OPINION

Sherwood, J.

Action brought August 9, 1883, on four promissory notes for $ 1600 each, dated September 14, 1881, and maturing in two, three, four and five years after date. At the time of filing his petition, plaintiff sued out an attachment, based on the grounds that the defendant had fraudulently conveyed and assigned, and had fraudulently disposed of its property and effects, so as to hinder and delay its creditors. Schureman and Gibson were summoned as garnishees. Defendant, in usual form, pleaded an abatement of the attachment. The issues thus raised were submitted on the following agreed statement of facts:

"1. That the defendant is a corporation, duly organized under the laws of the state of Missouri.

"2. That on the fifth day of May, 1883, the defendant executed and delivered the deed of trust, hereinafter mentioned, to Jos. P. Schureman, to secure certain indebtedness in said deed of trust described; which deed of trust was executed under authority of a resolution of defendant's board of directors, passed April 30, 1883.

"3. The number of the directors of defendant company was fixed at thirteen persons, and on the said thirtieth day of April 1883, the following persons constituted the board of directors of the defendant: F. Lohse, H. Richter, H. Sunderman, F. Rose, H. H. Bruning, J. Nieman, F. Germer, Wm. Nolkemper, I. G. Twiehaus, W. A. Stender, C. H. Meyer, Henry Giese, and William Piel, all of whom, except Giese and Piel, the two last named, were present when the said resolution authorizing the execution of said deed of trust was adopted. All of said directors, so present, voted in favor of said resolution, excepting J. Nieman, who voted against it.

"4. That defendant's note for $ 2,500, due May 21, 1883, mentioned in said deed of trust, was endorsed jointly by F. Germer, Meyer & Stip, William Leori, and John Stoeppelworth, for the accommodation of said defendant, and discounted by the defendant at the Mullanphy Savings Bank, and that the defendant received the entire net proceeds, in cash, of said note, so discounted, and used the same in carrying on its business. That this note, at the time said deed of trust was executed and delivered, was held and owned by the Mullanphy Savings Bank.

"5. That, at the maturity of said note, on or about May 21, 1883, the said accommodation endorsers, their liability having become fixed by protest, took up and paid said note by substituting therefor their own note, which was accepted by said bank in payment thereof; and defendant, failing to pay its note when due, the endorsers aforesaid paid it, and became, and ever since have been, the owners and holders thereof.

"6. That the note mentioned in said deed of trust for $ 674.70, due May 30, 1883, and payable to Meyer & Stip, was given for money loaned to defendant by said Meyer & Stip.

"7. That the said C. H. Meyer, who was one of the aforesaid directors of the defendant, was a...