Heman v. Britton

• Decision Date: 31 October 1885
• Citation: 88 Mo. 549
• Parties: HEMAN, Receiver, Appellant, v. BRITTON et al.
• Court: Missouri Supreme Court

88 Mo. 549

HEMAN, Receiver, Appellant,

v.BRITTON et al.

Supreme Court of Missouri.

October Term, 1885.

Appeal from St. Louis Court of Appeals.

REVERSED.

Dryden & Dryden and B. H. Dye for appellant.

(1) The referee's findings both of law and fact were right. The exceptions to his report should have been overruled. The corporate power of the company under the law in force at the time it was incorporated was in the directors only. G. S. 1865, p. 355, sec. 7; p. 360, sec. 36. And by that law the special power of distributing the assets of the company, was also bestowed upon it. G. S. 1865, p. 364, sec. 51. The corporate power being vested by law in the directors, could not be exercised by the stockholders, even if all were present and assenting. Green's Brice's Ultra Vires [Am. Ed.] pp. 390, 394, and notes. But in fact there was no meeting of the stockholders, and no attempt at any corporate action by them as such. (2) If the referee had even found that the respondents held the bonds in trust for the stockholders, still, under the evidence, the plaintiff would have been entitled to a decree subjecting so much of the bonds, or their proceeds, as might have been needed, to the payment of the debts of the company, the costs of the dissolution proceedings, the receivership and the litigation incident thereto. That the assets or capital of a corporation are a trust fund for its creditors which cannot be given away, or distributed to its stockholders, without being subject to be followed by creditors, and applied to the payment of debts, is a doctrine now too well established to need citation of authority. Wood v. Dummer, 3 Mason, 308; Thompson on Stockholders, sec. 10; Gill v. Balis, 72 Mo. 424; Sawyer v. Hoag, 17 Wall. 610; Upton v. Trebilcock, 1 Otto, 45. (3) It was error for the court, after sustaining respondents' exceptions to the referee's report, to enter a judgment as upon the report. It should have re-committed the case to the same, or some other referee, for a new trial. The report of a referee stands in the place of the verdict of a jury, and, if confirmed, is made the basis of a judgment, with like effect as a special verdict. R. S. 1879, sec. 3623. In a case where all the exceptions are sustained, and they, in their nature, go to defeat all of the findings, surely there is nothing left upon which to base a judgment, and the only logical result would seem to be, that which the statute seems to prescribe in such a case, namely, a reference again for a new trial and a new report. R. S. 1879, p. 618, sec. 3623. Nor is this adverse to those decisions of our Supreme Court which hold that after a court has set aside the report of a referee it may proceed, taking the evidence returned by him, to make for itself a new and distinct finding of facts and law. O'Neil v. Capelle, 62 Mo. 208; Moniteau Nat'l Bk. v. Miller, 73 Mo. 192.

Alexander Martin also for appellant.

The receiver represents the creditors. He could not be an efficient representative of them if he was concluded by every act that concludes the company. He can recover assets which the company would be estopped from recovering. In looking at the substance of things, equity will sometimes clothe intentional efforts with the raiment of accomplished facts. This is done in furtherance of justice between contracting parties. But it will not do this if the effect of it is to destroy a right or lien in a third party, which is superior to the rights of both the contracting parties, as in this case. Justice would not be advanced by such a construction of the dealings between the company and its stockholders. Alexander v. Relfe, 74 Mo. 495; Hayes v. Kenyon, 7 R. I. 136. It is settled in this state that the assets of a corporation constitute a trust fund for the benefit of its creditors. An equitable lien exists in their favor which equity will protect and maintain in all proper proceedings for their benefit. This lien outranks the lien of the stockholders. Their shares belong to them subject always to the payment of all debts and obligations incurred by the company. When the assets of a company have been distributed in violation of the lien of creditors, equity will interfere to restore them to their subject condition. Bartlett v. Drew, 57 N. Y. 587; Hastings v. Drew, 76 N. Y. 9; Rieds v. Eatonton Man'f'g Co., 40 Ga. 104; Sawyer v. Hoag, 17 Wall. 610. A fortiori will it interfere as in this case to protect and maintain the lien of creditors before actual distribution.

Overall & Judson for respondents.

A corporation may distribute its assets among its stockholders after providing for the payment of its debts. Morawetz on Private Corporations, sec. 573.

BLACK, J.

The plaintiff was appointed receiver of the DeSoto Mutual Life Insurance Company in 1878 in a suit instituted by the superintendent of insurance, and by which suit the company was adjudged to be insolvent. By this suit the plaintiff seeks to require the defendants to account for and turn over to him eleven bonds of the denomination of one thousand dollars each, and the interest thereon. The defendants received the bonds under the following circumstances:

The DeSoto Insurance Company ceased to do business, that is, to take new policies, in 1871, and then reinsured with the Republic Insurance Company of Chicago. That company became insolvent and the DeSoto was required to take care of its outstanding policies, of which there were only fifty-four in number. To that end the DeSoto, in 1874, made a contract with the Mound City Insurance Company, which in substance is as follows: The Mound City agreed to assume and pay all losses then existing or that might thereafter accrue upon the fifty-four policies, to pay all other liabilities of the DeSoto, there then being some other contested demands; and to cause to be released and turned over to Lionberger, Ballantine and Britton, in trust for the stockholders of the DeSoto, one hundred thousand dollars of bonds and other securities, which the DeSoto then had on deposit with the state insurance department, by the substitution of other securities therefor. In consideration of all this the DeSoto agreed to pay $20,019, and also to give the Mound City a bond in the sum of ten thousand dollars, with Ballantine and these defendants, Lionberger, Tutt, Johnson and Burr, as securities, conditioned to indemnify the Mound City against all demands against the DeSoto, except those arising upon said fifty-four policies. The DeSoto also agreed to cause all of its stock to be assigned to such person or persons as the Mound City might designate, the assignee, however, not to participate in the division of the securities and assets to be...