HULINGS v. HULINGS LUMBER Co..

• Decision Date: 29 November 1893
• Citation: 38 W.Va. 351
• Parties: HULINGS v. HULINGS LUMBER Co. et al.
• Court: West Virginia Supreme Court

38 W.Va. 351

HULINGS

v.HULINGS LUMBER Co. et al.

Supreme Court of Appeals of West Virginia.

Submitted June 13, 1893

Decided November 29, 1893.

1. Corporations Directors.

A corporation receives its certificate of incorporation and organizes under the act of February 28, 1877, called the "Boom Law." See Code (Ed. 1891) p. 1004.' The board of directors must be composed of those who are stockholders, but they are not required to be residents of this state.

2. Corporations Directors Fraudulent Conveyance.

A corporation is unable to pay its debts or further cany on the business for which it was incorporated. Two of the board of directors compose a firm, which is a creditor at large of the corporation for a relatively large amount. The board of directors ordered the conveyance of all its property, real and personal, to be made to a trustee to secure and pay its debts, giving a preference to the claim of the firm composed of the two directors. These two directors, in violation of the statute (section 52, c 53, Code) were present at the board while the subject of ordering the conveyance giving their claims such preference was being considered, but they did not vote on that question. Held, the conveyance giving such preference made by virtue and in pursuance of such order is prima facie fraudulent and void as to the preference thus given, when assailed by the creditors, and will be so declared, unless it be shown on behalf of such preferred creditor by the most clear and convincing proof that such preference was not only free from fraud, but was in itself in the circumstances both fair and reasonable.

3. Vendor's Lien Subrogation.

Those who sold and conveyed land to the corporation reserved on the face of the conveyance a lien on the land for the payment of the balance of the purchase-money. A third person at the instance of the corporation advanced the money to pay off and lift such purchase-money notes with the understanding that he was to hold them as additional security for the money thus loaned and advanced. Held, such third person so paying and lifting from the vendors the purchase-money rotes is entitled, as far as may be necessary, to be subrogated to such vendors' liens.

4. Assignment Check.

A check operates as an equitable assignment pro tanto from the time it is drawn and delivered, as between the drawer and the payee or holder.

5. ASSIGnment Check.

A general assignment for the benefit of creditors does not defeat the check-holder, although the check be not presented to the bank for payment till after such assignment.

6. Fraudulent Conveyance.

A case in which it is held that creditors assailing a deed of trust as illegal and fraudulent, and succeeding as to one, and only one, of the claims thereby secured, are not entitled to occupy, in the order of payment out of the trust fund, which is treated as a whole, the place thus made vacant, or to displace or in any manner lessen or impair the claims of the bona fide creditors, who are without fault and therefore retain the place given them in the trust-deed.

Dayton & Dayton, C. F. Teter, J. P. Scott and A. J. Valentine for appellants:

I Charter. Acts 1885, 467-8; Code 1891, 1004.

II. Officers of Corporation, Trustees, &c. Wait In. Corp. §

162; 2 Morawetz Pri. Corp. § 803; 25 W. Va 789; 37 N. Y. 317; 6 Wal. 752; 7 Wal. 299; 16 W. Va. 32; 75 Ind. 156; 20 Vt. 551; 30 W. Va. 443; 28 W. Va. 668; 2 Morawetz Corp. § 787-8; 44 Fed. Pep. 281; 45 Fed. Rep. 7; 39 Mo. App. 131; 33 III. App. 310; 33 Ill. App. 442; 29 Pac. Rep. 1063; 81 Tex. 452; Wait Fraud. Con. § 41; 5 Am. R. & C. 509; 2 Pom. Eq. Jur. §§ 958, 959, 1050 and 1077, and notes; 1 White & T. Lead. Cas. in Eq. (2 Am. Ed.) 148, and notes; 30 Barb. 553; 84 N. Y. 190, 198; 80 N Y. 535; 56 N. Y. 48 or 485; 54 N Y. 314; 59 Me. 277; 91 U. S. 587-8; 17 Wal. 352

610; 102 IT. S. 148; 114 IT. S. 587; 133 IT. S. 30.

III. Director's disability Non-residence. 1 Morawetz Corp. § 361; 5 Col. 282; 45 Wis. 579; 2 Morawetz Corp. § 963; 13 Pet. 588-9; 2 Scam. 427; 23 Ill. 579; 11 Hump. 24; 20 Ind. 492; 25 Mich. 222; 51 Mich 145; 13 R. I. 312; 12 N. Y. 505; Code 1891, c. 53, s. 49.

IV. Creditors assailing trusts as fraudulent obtain priority. Code 1891, c. 133, s. 2; 27 Graft. 487;" 19 W. Va. 393; 30 W. Va. 443.

V. Ultra vires Act of officer Knowledge of immateral. 81 Tex. 306. C. J. Heydrick and C. Heydrick for appellees Mitchell & Co., cited: 6 Cranch 8; 33 Pa. 151; 5 Bing. (N. C.) 455; 2 Vt. 283; 2 N. H. 193; 10 Pick. 129; 2 Rich. Eq. 64; 27 Ala. 445; 18 Am. & Eng. Ency. L. 251; 27 W. Va. 510; 12 How. 793; 96 U. S. 641; 60 Pa. 290; 20 W. Va. 807; 30 W. Va. 443.

J. Sprigg for appellee First National Bank of Cumberland, cited: Acts 1885, p. 407; Jones Corp. B. & M. §§ 117, 176; Code, c. 53, s. 49; 2 Doug. 124; 21 Pa. St. 146; 2 Cr. 449; 12 Wheat. 64; 1 Pet. 46; 19 N. H. 290; 5 Am. & Eng. Ency. L. 94-105; Jones Corp. B. M. §§ 45, 47; 12 Am. St. Rep. 412 (119 Ind. 324); 9 Johns. 159; 6 Cow. 23; 20 Am. & Eng. Corp. Cas. 519; 36 N J. Eq. 548; 3 N. J. Eq. 349; 32 N. J. Eq. 236; Jones Corp. B & M. §§ 205-209; 105 Mo. 255; 127 Y. 252; 122 N. Y. 135; 22 N. Y. 494; 63 N Y. 62; 12 Wall. 358; 88, Ala. 115; 1 Law. R. & Rem. § 365; 1 Mor. § 502; 2 Mor. § 593.

A. B. Parsons and W. J. Hulings for Ilulings & Co., cited: 12 K Y. 872; 25 Ill. App. 168: Wood R'y L, 16-19, 356, 357; Cook St. Sthldrs. 689; Lutw. 508; 3 Graft, 215; 19 Wend. 135; 27 Vt.-755; 1 Mote. 359; 12 N.H. 205; 2 Cr. 449; 11 S. & R. 411; 20 N. H. 58; 1 Laws R. & Rem. 637, 713, 801; 109 U. S. 522; 5 W. & S. 147; 1 C. P. Green 232; Catlin v. Eagle Steel Bk 6 Conn.; 3 Gratt. 236; 30 W. Va. 123; 25 W. Va 285, 293, 300, 789; 28 W. Va. 653; 78 Va, 736; 51 N. W. 512; 514 Am. Dig. § 256; 34 N. W. 467; 16 Ia. 284: 20 Vt. 425; 1 Watts 385; 60 Pa. 290; 1 Spears Eq. 445; 47 Conn. 47; 6 Id. 233; 13 Mete. 497; Field Corp. § 177; Aug. & A. Corp. § 233; 4 Wheaton 578.

Holt, Judge:

This is a suit in equity brought in the Circuit Court of Tucker county in February, 1891, by the appellee M. Howard Hulings, trustee, against the Hulings Lumber Company and the various creditors of that corporation, in order to receive the instructions and directions of the court and conform his action thereto in his administration of the trusts imposed upon him by the deed from the Ilulings Lumber

■ Company to him, dated December 1, 1890. Defendants Kenneweg & Co. and fourteen other creditors of the Hulings Lumber Company, who are appellants, answered, and by way of prayers etc., under the statute for affirmative relief attacked the deed of trust as illegal, fraudulent and void, and prayed that it might be set aside. Plainttff replied specially to these various answers, and the issues were made up. On the 10th day of March, 1891, the cause was referred to Commissioner Adams, who was directed to ascertain and report the property, real and personal, of the Hidings Lumber Company, the state and condition of the title thereto, the liens thereon, to whom owing, with their respective amounts, order and priorities all the facts touching the authorization and execution by the defendant corporation of the three deeds of trust in the bill and proceedings mentioned. In execution of this order, the commissioner took a great deal of testimony touching these matters, and on the 9th of June, 1891, returned a very full report, to which various exceptions were taken and filed. The commissioner filed a supplemental report.

On June 20, 1891, the court without passing upon the report or exceptions thereto, and by consent of all parties, decreed the sale of all the property, real and personal, in this state belonging to the Hulings Lumber Company, and appointed commissioners to make the same. A sale was made at the price of ninety five thousand six hundred and five dollars, and reported, but the court by decree of August 28, 1891, refused to confirm the same for inadequacy of price, set it aside and directed a resale, and by the same decree ordered the First National Bank of Cumberland to pay Kenneweg & Co. nine hundred and forty seven dollars and twenty five cents, amount of a check in controversy.

On the 2d of December, 1891, the cause came on for hearing on the merits, on the commissioner's report, exceptions thereto, and other papers, and the court on mature consideration overruled all the exceptions except that of Ann M. Garrison, which was sustained, placing her claim in the seventh class. In all other respects the report of Commissioner Adams was approved and confirmed subject to certain modifications set out in the. decree. By this decree the court held valid the three deeds of trust on the property in question and directed the payment, of the various liens in the order thus provided for and as reported by the commissioner.

From this decree these fifteen defendants, on January 30, 1892, obtained this appeal, assigning the following grounds of error: (1) It was error to overrule the various exceptions to the commissioner's report. (2) It was error to uphold, under the circumstances, the debt of thirty five thousand dollars of defendants F. W. Mitchell & Co. (3) It was error to refuse to hold all three deeds of trust nullities, and to refuse to decree defendants' several debts as just liens on the property of the corporation, in the order of the filing of their several answers praying such affirmative relief. (4) It was error, in any event, to sustain the debt secured in the last trust deed to defendants Hulings & Co., and to refuse to postpone it to petitioner's debts.

The important facts of the case are as follows: On the 20th day of February, 1884, Marcus Hulings, Willis J. Hillings, Noah F. Clark, John E. Butler, George W. Dorr, of Oil City, Pa., and William B. Maxwell, of St. George, W. Va., received from the secretary of state of West Virginia their certificate of incorporation, creating and declaring them from that date a corporation by the name of the Hulings Lumber Company until the 1st day of February, 1915. See Sess. Acts....