Garrison Canning Co. v. Stanley

• Decision Date: 11 January 1907
• Citation: 110 N.W. 171,133 Iowa 57
• Parties: THE GARRISON CANNING COMPANY and F. S. ULERY, G. W. AULD, J. W. HANNA, and MARK REEVE, Appellants, v. J. S. STANLEY, as Administrator de bonis non cum testamento annexo, Estate J. B. Reeve, Deceased, and J. S. Stanley
• Court: Iowa Supreme Court

110 N.W. 171

133 Iowa 57

THE GARRISON CANNING COMPANY and F. S. ULERY, G. W. AULD, J. W. HANNA, and MARK REEVE, Appellants, v. J. S. STANLEY, as Administrator de bonis non cum testamento annexo, Estate J. B. Reeve, Deceased, and J. S. Stanley

Supreme Court of Iowa, Des Moines

January 11, 1907

Appeal from Benton District Court.-- HON. OBED CASWELL, Judge.

THIS is an action to have a claim of plaintiff the Garrison Canning Company against the estate of defendant's testator decreed to be a preferred claim, and to rescind and set aside a settlement of such claim as a claim of the third class, by which settlement the other plaintiffs as directors of the company have become bound to refund to the estate a portion of the amount paid to the company under such settlement. There was a decree for defendants, and plaintiffs appeal.

Affirmed.

J. D. & C. Nichols, for appellants.

Whipple & Brown, for appellees.

OPINION

MCCLAIN, J.

The Garrison Canning Company was incorporated in 1893, with articles providing that "the general nature of the business to be done by this corporation shall be that of canning corn, vegetables, and anything that is canned or preserved as food," and that "the regular meeting of the stockholders shall be held on the second Tuesday of January in each year following this one, at which time there shall be elected from among the stockholders a board of directors consisting of five members, who shall have the general management of the business of the corporation." In January, 1897, J. B. Reeve, defendant's testator, was one of the board of directors and treasurer of the company. At a director's meeting held in that month Reeve offered to borrow the balance in the treasury of the corporation until July 1st at 5 per cent. interest, to be credited to the company each month on the balance in his hands as shown by the books, paying out in the meantime such amounts as should be drawn by checks upon him for current bills. This proposition was accepted by the company and a passbook was kept by Reeve in which the company was credited with the amounts received from it and debited with the amounts paid out on its checks, and at the end of each month interest was entered up to its credit at the rate of 5 per cent. per annum on the balance as shown by such book. It appears that this arrangement was entered into because the canning company had no use for the funds on hand until the beginning of the canning season in July, and Reeve, who owned and operated a private bank in which the money was being kept on deposit wished to make use of it in his business. Reeve died in June 1897, having in his hands at that time under the arrangement above described nearly $ 8,000 of the company's money. Soon after the death of Reeve the remaining directors of the company desiring to use its funds in carrying on its business during the canning season, tried to secure payment of their claim from Reeve's widow, who was temporary administratrix of his estate, but they were advised by her attorney that as their claim was of the third class (under Code, section 3348), and therefore not payable until the expiration of one year (under Code, section 3350), and as the temporary administratrix had in any event no authority to pay claims, nothing could be done unless by an order of court. Thereupon an application to the probate court, signed by the directors, was made, in which the court was asked to order the payment to them of the amount of the company's claim, with the condition that they should individually agree to refund later to the estate on final settlement the difference between the amount paid to them for the company and the amount that would have been paid to the company on final settlement of the estate had its claim been filed and established as of the third class, with the further condition that said directors would save the estate harmless from any liability on account of certain obligations of the company outstanding as to which the deceased was liable as surety. The widow, as temporary administratrix, united with the petitioners in this request, and the court approved the arrangement.

In accordance with this order, the funds of the company were paid to it in full soon after the death of testator, and at a time when it was assumed by all parties that the estate was entirely solvent. Subsequently, however, it developed that testator was insolvent at the time of his death, and had been insolvent at the time the funds of the company were loaned to him, and it is now shown that, if the claim of the company is to be treated as a claim of the third class, not more than 60 per cent. thereof would have been paid on the final settlement of the estate had not the arrangement already described been made, and that, therefore, the directors who joined in the application for the order under which the company's money was paid in advance will be liable to the estate to the extent of about 40 per cent. of the money thus paid. It is from this situation that the plaintiffs seek to have relief.

The grounds on which relief is asked are, first, that the claim of the company was, in fact, a preferred claim, payable in full out of the estate, without regard to other creditors because the act of the directors in loaning the money to Reeve was ultra vires, and was also entered into as the result of a fraudulent concealment on Reeve's part of his insolvent...