Goodyear Rubber Co. v. George D. Scott Co.

• Decision Date: 21 June 1892
• Citation: 11 So. 370,96 Ala. 439
• Parties: GOODYEAR RUBBER CO. v. GEORGE D. SCOTT CO. ET al.
• Court: Alabama Supreme Court

11 So. 370

96 Ala. 439

GOODYEAR RUBBER CO. v. GEORGE D. SCOTT CO. ET al.

Supreme Court of Alabama

June 21, 1892

Appeal from city court of Birmingham; H. A. SHARPE, Judge.

Creditor's bill by the Goodyear Rubber Company against the George D Scott Company and another. From a decree sustaining a demurrer to its bill, complainant appeals. Reversed.

Cabaniss & Weakley and Mountjoy &amp Tomlinson, for appellant.

Ward & John, for appellees.

STONE C.J.

The case made by the original bill is substantially as follows The Goodyear Manufacturing Company and the George D. Scott Company were, each of them, private corporations. The former company is engaged in importing the material of which India rubber is made, and manufacturing it into merchandise for sale. The business of the latter corporation was that of merchant tailoring, and it dealt in gentlemen's furnishing goods. The latter corporation became indebted to the former for merchandise purchased, the indebtedness being due in August, 1890. The present suit is a creditor's bill, instituted in December, 1891, and it is so framed as to let in other creditors, should they desire to join in the suit. It is charged in the original bill that the George D. Scott Company became indebted in greater amount than its assets, and was insolvent; and that "in November, 1891, it sold, transferred, and delivered to the Alabama National Bank, for the alleged consideration of $13,000, all of its stock of goods, wares, and merchandise." The consideration on which said sale and conveyance were made was an alleged indebtedness of the George D. Scott Company to the bank for borrowed money. This conveyance left the Scott Company without merchandise or means, and it ceased to carry on business. It is nowhere charged in the pleadings that the recited consideration-$13,000-was not a real debt from the one corporation to the other. No charge of simulated debt or other actual fraud is made. The precise ground on which relief was claimed in the original bill was and is that the corporation had come to be unable to pay all its debts, was insolvent, and was going out of business, and that the assets of the corporation had thereby become a trust fund in the hands of the governing board as trustees, to be distributed and divided ratably among all the creditors of the insolvent corporation. The prayer of the original bill was that the bank be declared and decreed a trustee of the merchandise and effects it had received from the Scott Company for the pro rata benefit of all the creditors alike. There was a demurrer to the original bill, assigning causes, of which the following is one of the specifications: "(2) The fact alleged in said bill of complaint, that the defendant, the Geo. D. Scott Co., being an insolvent corporation, and largely indebted at the time in excess of its assets, sold and delivered the property named in the complaint to its codefendant, the Alabama National Bank, does not constitute such sale a general assignment for the benefit of all the creditors, or the said Alabama National Bank a trustee for such creditors." In Corey v. Wadsworth, (Ala.) 11 South. Rep. 350, we cited and collated many authorities, and reached the following conclusions: That the capital stock and assets of an insolvent corporation are, in a sense, a trust fund, of which the governing board are trustees for the benefit of the creditors, and that such governing board cannot convey or assign such corporate assets in such manner as to secure to themselves, or to any member of their board, as a creditor of the insolvent corporation, a preference over the other creditors. This principle rests not alone on the fact that the assets are a trust fund, of which they are the trustees. It is largely supported by the undue advantage the knowledge they necessarily have of the corporation's embarrassments will secure to them over outside creditors, and by the fact that in paying or securing themselves no antagonistic interest is represented. They deal with themselves, and are thus both seller and buyer. Transactions of this kind by any one filling a fiduciary relation are voidable, if seasonably objected to by the beneficiary. We did not, however, go to the length of holding that directors of an insolvent corporation are so completely hampered by the trust relation they sustain as to disable them from paying or securing some creditors in preference to and at the expense of others to whom the corporation is indebted. The trust element of the relation they sustain to the assets, considered alone, points in this direction; and perhaps it would be the sounder policy if such were the rule. The very great weight of the authorities, however, is the...