German National Bank of Hastings v. First National Bank of Hastings
| Decision Date | 04 May 1898 |
| Docket Number | 7934 |
| Citation | 75 N.W. 531,55 Neb. 86 |
| Parties | GERMAN NATIONAL BANK OF HASTINGS v. FIRST NATIONAL BANK OF HASTINGS ET AL |
| Court | Nebraska Supreme Court |
ERROR from the district court of Adams county. Tried below before BEALL, J. Reversed.
REVERSED AND REMANDED.
Tibbets Morey & Ferris, for plaintiff in error.
Capps & Stevens, John A. Casto, and J. B. Cessna, contra.
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 the 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 E. O. Alexander, directors 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, through Clark, its president, had also notice of the arrangement, and that plaintiff was relying thereon. The stock in the Denver company became worthless through the subsequent failure of that company, and was sold on execution for a nominal sum. On these findings the referee based three conclusions of law: First, that the facts were insufficient to create a lien in favor of plaintiff on the goods or their proceeds; second, that the goods and proceeds were not held by the managing officers of the hardware company as a trust fund for plaintiff and other creditors, but that they had authority to sell the goods and apply the proceeds to the payment of the debt to the First National Bank, and in doing so they violated no right of plaintiff; third, that the defendants were entitled to judgment. Exceptions to the report were overruled and a judgment of dismissal entered. The plaintiff brings the case here by petition in error, alleging as error only that the conclusions of law and judgment are not sustained by the findings of fact.
The conclusions of law are assailed in the briefs on several grounds. The first of these is that an insolvent corporation is without authority in any case to prefer particular creditors, its assets constituting a trust fund which must be devoted to the payment of creditors pro rata. Since the briefs were filed this doctrine has been by this court repudiated, and it has been held that the generally recognized right to prefer creditors is not defeated by the single fact that the debtor is a corporation. (Shaw v Robinson-Stokes Co., 50 Neb. 403, 69 N.W. 947.) Next it is claimed that...
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