Gottlieb v. Miller

• Decision Date: 29 October 1894
• Citation: 39 N.E. 992,154 Ill. 44
• Parties: GOTTLIEB et al. v. MILLER et al.
• Court: Illinois Supreme Court

154 Ill. 44

39 N.E. 992

GOTTLIEB et al.

v.MILLER et al.¹

Supreme Court of Illinois.

Oct. 29, 1894.²

Appeal from appellate court, First district.

Creditor's bill by the Landowners' Building Company against the American Parlor Frame Company, Leopold Miller, and others. Julius Schmits, Rudolph Gottlieb, and others intervened. Defendants obtained a decree, which was affirmed by the appellate court. 47 Ill. App. 588. Interveners appeal. Modified.

Moran, Kraus & Mayer, for appellants.

Duncan & Gilbert and Pence & Carpenter, for appellees.

BAKER, J.

On January 10, 1890, the Landowners' Building Company recovered in the Cook circuit court a judgment for $2,665.62 against the American Parlor Frame Company, and Rudolph, Simon, and Joseph Deimel, as the firm of R. Deimel & Bros. The execution issued thereon was levied on property of the frame company, but without resulting in satisfaction, because prior thereto, on January 7, 1890, two judgments by confession had been rendered in said court in favor of Leopold Miller against the American Parlor Frame Company, for $10,225 and $3,000, respectively, and on January 8, 1890, three judgments had been rendered in the same court, by confession, in favor of Ignatz Deimel against said frame company, for $7,560, $5,400, and $4,018, respectively, and the sheriff at the date of the issuance of the execution of the Landowners' Company was already in possession of the property of the frame company under proper executions issued on the judgments of Miller and of Ignatz Deimel, and which executions much more than exhausted all the assets of the frame company. The first step in the litigation certified to this court in this voluminous record was a bill in equity exhibited in the Cook circuit court by the Landowners' Building Company against the American Parlor Frame Company, Leopold Miller, Ignatz Deimel, Canute R. Matson, sheriff, Rudolph Deimel, Simon Deimel, and Joseph Deimel. The bill is a creditor's bill, and it charges conspiracy and that the judgments in favor of Miller and in favor of Ignatz Deimel are fraudulent and void. By leave of court, Thomas Parker, Jr., receiver of the estate and effects of the firm of R. Deimel & Bros., was made a party defendant to the original bill of complaint, and he answered the same, and filed a cross bill. Next came into the litigation Julius Schmits, the American Oak-Leather Company, and a large number of other creditors of R. Deimel & Bros., who intervened by petition, and were made parties codefendant to the original bill and co cross complainants in the cross bill of Parker, receiver. It is not deemed necessary to set out the pleadings herein, nor is it deemed necessary, for the purposes of the decision, to set out the facts of the case, which are very numerous and very complicated. At the final hearing in the circuit court a decree was rendered dismissing the bill of the Landowners' Company for want of equity, and dismissing the cross bill of the receiver of R. Deimel & Bros., and of Julius Schmits, the American Oak-Leather Company, and others, for want of jurisdiction. It was further decreed that the judgments in favor of Leopold Miller the first paid by the receiver of the American Parlor Frame Company, appointed therein, and that the judgments in favor of Ignatz Deimel be next paid. Pending the litigation in the circuit court Leopold Miller had died, and Charles L. Miller and others had been substituted in his place as condefendants to the bill and cross bill. The decree of the circuit court was affirmed in the appellate court.

Appellants in their argument on the facts and the law of the case make three principal points. The first of these they formulate thus: The American Parlor Frame Company, at the time of the confession of the Miller and the Ignatz Deimel judgments, and before the giving of the notes on which such judgments were confessed, and for many months prior thereto, was not a going business concern, but was in fact then an insolvent corporation, which had utterly ceased and long since abandoned its business. We understand that this proposition is admitted by appellees; but, whether this be so or not, we find it to be true as matter of fact. The second of the propositions of appellants runs in this wise: The conditions of abandonment of business and of corporate insolvency which rendered the American Parlor Frame Company in no sense a going business concern were well known to Leopold Miller, to Ignatz Deimel, and to the Deimels who were stockholders and officers of the frame company, at the time when the judgment notes were given by and accepted from the frame company, and when judgments thereon were entered; hence, Leopold Miller and Ignatz Deimel cannot be considered, even if bona fide, diligent creditors. It may be well here to remark, by way of explanation, that the frame company was organized by the members of the firm of R. Deimel & Bros., that its entire capital stock belonged to Rudolph, Joseph, and Simon Deimel, who were the sole directors of the company, except one share, of the par value of $100, which stood in the name of a traveling salesman of R. Deimel & Bros.-for purposes of convenience, but which he never paid for; and that Joseph Deimel was president and Rudolph Deimel secretary of the company. So far as this second proposition states matters of fact, they are correctly stated; so far as it deduces therefrom conclusions of law, it will be more conveniently considered along with the third proposition of appellants.

And this third proposition, on which hinges the gist of the controversy herein, is thus stated: When a corporation becomes insolvent, abandons business, and ceases to be a going concern; or when, having become insolvent, it is kept in operation, not as an actually going concern, but simply that it may continue in apparent business life, for the purpose of preferring, by security or payment, certain of its creditors who know its true condition,-the preference of creditors chargeable with such knowledge is unlawful in equity, since it violates the equitable principle that the assets of an insolvent corporation are a trust fund to be divided equally among its creditors, for whom its officers are in equity trustees, and to whom persons who take the property of the company from such officers with notice of the trust are compellable to account. For the purposes of the present inquiry, many of the qualifying phrases found in the proposition as thus formulated may properly be eliminated therefrom; such as ‘abandons business,’ ‘ceases to be a going concern,’ ‘is kept in operation,’ actually going concern,' ‘apparent business life,’ ‘who know its true condition,’ and ‘chargeable with such knowledge.’ These matters so eliminated may be of importance in this suit so far as the supposed cause of action is based on the charge of fraud in fact, but it seems to us that they are of importance no further than that. The proposition speaks of the assets of an insolvent corporation as a ‘trust fund,’ and of the officers of the corporation as ‘trustees.’ This is not strictly accurate. The supposed trust does not fall within the definition of either an express trust, an implied trust, a resulting trust, or a constructive trust. 1 Perry, Trusts (2d Ed.) §§ 24-27, inc. At most, the assets of a corporation are, under some circumstances, a quasi trust fund, and the directors or officers of the corporation, under some circumstances, quasi trustees. In 3 Pom. Eq. Jur. § 1089, it is said: ‘The directors and supreme managing officers of corporations are constantly spoken of as trustees. They are not, however, true trustees, with the corporation or the stockholders as their true cestuis que trustent, since they hold neither the legal title to the corporate property nor that to the stock. In fact, directors are clothed at the same time with a double character, that of quasi trustees and that of agents. It is of the utmost importance to discriminate exactly between these two characters, and to determine accurately for whom, over what subject-matter, and to what extent they are thus trustees.’ Pomeroy further says (volume 2, § 1046): ‘By analogy, courts regard partnership property, after an insolvency or dissolution of the firm and in the proceeding for widening up its affairs, as a trust fund for the benefit of the firm's creditors; and the capital stock and other property of private corporations, especially after their dissolution, is treated as a trust fund in favor of creditors. These statements may be sufficiently accurate as strong modes of expressing the doctrine that such property is a fund sacredly set apart for the payment of partnership and corporation creditors before it can be appropriated to the use of the individual partners or corporators, and that the creditors have a lien upon it for their own security; but it is plain that no constructive trust can arise in favor of the creditors unless the partners or directors, through fraud or a breach of fiduciary duty, wrongfully appropriate the property, and acquire the legal title to it in their own names, and thus place it beyond the reach of creditors through ordinary legal means.’ A natural person has absolute dominion over the disposition of his own property. It follows from this that an insolvent debtor, in the absence of any intention to hinder, delay, or defraud his other creditors, has the right to prefer one creditor over all others, even if the preference exhausts his whole estate. Such is the rule in this state, and it has been the rule for so long a time, and has been announced in so many cases, that it is wholly useless to cite any authority in that behalf. Blackstone, in his Commentaries (book 1, p. 475), says that it is necessarily and inseparably incident to every corporation aggregate that it has power to sue or be sued, implead or be impleaded, grant or receive, by its corporate name, and do all other acts, as natural persons may. And...