German Nat. Bank v. First Nat. Bank

• Decision Date: 04 May 1898
• Citation: 55 Neb. 86,75 N.W. 531
• Parties: GERMAN NAT. BANK v. FIRST NAT. BANK ET AL.
• Court: Nebraska Supreme Court

55 Neb. 86

75 N.W. 531

GERMAN NAT. BANK

v.FIRST NAT. BANK ET AL.

Supreme Court of Nebraska.

May 4, 1898.

Syllabus by the Court.

1. An insolvent corporation, merely because it is a corporation, is not prohibited from preferring particular creditors.

2. A corporation resolved to remove its stock of merchandise to a distant city, and effect a consolidation there with another corporation. Afterwards its managing officers determined, in order to avoid trouble with creditors, to retain a portion of the goods, sell them, and apply the proceeds to the payment of debts. No trust was created, and no provision made for the manner of the application of the proceeds. Held, that this arrangement did not constitute the goods a trust fund for the payment of creditors pro rata.

3. The president, one director, and a stockholder who was not a director, acting without authority from the board of directors, sold all the visible assets of an insolvent corporation, and turned the proceeds of the sale over to a single creditor, a corporation, in which two of the persons so acting were interested, and of which they were directors. Held, that such acts amounted to a conversion of the corporate property.

4. Such acts were reported to a meeting of the board of directors attended by four out of seven members, two of the four being directors of the preferred corporation also. No action was taken. Held, that this did not constitute a ratification of the acts of the persons selling the assets and paying out the proceeds.

5. If a transaction between two corporations, effected by the votes of directors common to both, can, in any event, be sustained, it must only be on an affirmative showing of good faith.

6. An action in the nature of a creditors' bill may be maintained by a judgment creditor to reach any assets of the debtor subject to the payment of his debts, which cannot be reached by ordinary process of law.

7. So, where the debtor's property, subject to the payment of his debts, has been wrongfully converted by a stranger, the creditor may, by suit in the nature of a creditors' bill, reach the debtor's cause of action for conversion.

8. Estoppel by laches in delaying the commencement of an action is not available as a defense unless pleaded.

Error to district court, Adams county; Beall, Judge.

Suit by the German National Bank against the First National Bank and others. There was a finding by the referee in favor of defendants, and plaintiff brings error. Reversed.

Tibbets, Morey & Ferris, for plaintiff in error.

J. B. Cessna, John A. Casto, and Capps & Stevens, for defendants in error.

IRVINE, C.

The petition of the German National Bank against the First National Bank, Alonzo L. Clark, and Oswald Oliver alleged the existence of a corporation called the Burger-Alexander Hardware Company; that Clark and Oliver were stockholders therein, and Oliver a director thereof, and that Clark and Oliver were also stockholders in and president and vice president, respectively, of the defendant the First National Bank. These facts were admitted by the answer. The petition further alleged that the plaintiff was a judgment creditor of the hardware company, and that an execution issued upon its judgment had been returned unsatisfied; that the hardware company had previously, in the city of Hastings, goods to the value of $20,000, which it was agreed between the officers thereof, the defendants, and the plaintiff, should be sold, and the proceeds applied pro rata to the satisfaction of debts; that Clark and Oliver sold the goods for about $10,000, and turned the proceeds over to the First National Bank, which converted them to its own use. The prayer was that the defendants be required to account for the value of the goods, and that they be required to pay to plaintiff its pro rata part thereof. After answers had been filed denying these allegations, except in particulars above stated, the case was referred to John M. Stewart, Esq., to take the proofs and report findings of fact and conclusions of law. The referee found, in brief, that the hardware company had been organized in 1888, with a capital stock of $100,000, of which $70,000 was paid up; that it carried on a hardware business in Hastings until November, 1890, when it was, by the stockholders, resolved to ship its property to Denver, and effect a consolidation with the Denver Hardware Company. January 1, 1891, merchandise inventoried at $53,000 was accordingly shipped to Denver, and the company received in exchange therefor stock in the Denver company of the par value of $53,000. Merchandise of the cost price of $28,000 was left in Hastings “to avoid trouble with, and satisfy” the Hastings company's creditors, and as a provision for the payment of its debts amounting to from $35,000 to $40,000. The company also had due it on book accounts about $32,000, most of which was uncollectible. The managing officers of the Hastings company then determined to keep its business open until a reasonable opportunity should occur to dispose of the goods so retained, “and under such arrangement it was provided that the fund derived from the sale of such merchandise and the collection of such accounts should be applied to the payment of its said indebtedness.” Business was continued in Hastings until September, 1891, and during the interval the stock was partly replenished, but on the latter date it had been reduced to about $16,000, and was then sold to one Hamot for $9,600, which sum the referee finds was its fair market value. Notes given by Hamot in payment were turned over to the First National Bank, and their amount credited on the indebtedness of the hardware company to that bank. The notes have since been paid. The sale of the goods and the application of the proceeds were made by Clark and Oliver, together with Burger, the president of the hardware company, and this conduct “was acquiesced in by Samuel Alexander (another director of the First National Bank) and O. E. Alexander, director of such company, together with said Burger and Oliver, when in session as a board of directors of such company, at the meeting of September 10, 1891, but no vote was taken or resolution adopted on that subject at such meeting, or at any other time by such board of directors.” The company had seven directors. Other facts are found, which clearly enough show the insolvency of the hardware company at that time. It was further found that the plaintiff was notified by the managing officers of the hardware company of the arrangement for retaining the goods in Hastings for the purpose of paying debts, and relied on its receiving its proportion of the proceeds of any sale. The First National Bank,...