James Clark Co. v. Colton

Citation46 A. 386,91 Md. 195
PartiesJAMES CLARK CO. et al. v. COLTON et al.
Decision Date27 April 1900
CourtCourt of Appeals of Maryland
46 A. 386
91 Md. 195

JAMES CLARK CO. et al.
v.
COLTON et al.

Court of Appeals of Maryland.

April 27, 1900.


46 A. 387

Appeal from circuit court of Baltimore city; I'ere L. Wickes, Judge.

"To be officially reported."

Bills by William Colton and Simon P. Schott, receivers of the South Baltimore Bank, against the James Clark Company and another and against Winfield S. Cahill and others, to establish payments made by such bank as fraudulent preferences, and to recover the same. From a decree in the consolidated cases in favor of the receivers, the defendants appeal. Affirmed.

Argued before McSHERRY, C. J., and FOWLER, BOYD, PAGE, PEARCE, BRISCOE. SCHMUCKER, and JONES, JJ.

Robert H. Smith and Gans & Naman, for appellants. Wm. S. Bryan, Jr., and Martin Lehmayer, for appellees.

FOWLER, J.The questions we are to consider grow out of the failure of the South Baltimore Bank, which, by a decree of the circuit court of Baltimore city, passed on the 1st of June, 1898, was declared insolvent, and dissolved. By the decree just mentioned the appellees Messrs. Colton and Schott were appointed receivers, with the usual powers given to such officers, and also with power to wind up, under the court's direction, the affairs of the bank, in conformity with the provisions of article 23 of the Code of Public General Laws in so far as the same apply to the liquidation of the affairs of insolvent corporations through the agency of receivers, and to that end they were authorized to exercise and have "all the title, power, and authority" which it is declared by the said provisions of article 23 shall be conferred upon or vested in receivers appointed by the court of the estate or effects of corporations. In the exercise of the powers thus conferred upon them they brought two suits in the same court by the decree of which they were appointed; one against the James Clark Company, a body corporate, and Winfield S. Oahill, and the other against Cahill, Norman H. Storey, and Walter L. Denny. The first bill asked that the payment of a check of the James Clark Company on the South Baltimore Bank for $10,000 be declared a fraudulent preference, and the prayer of the second bill was to the same effect in reference to the payment of a note of said bank for $5,000, held by the Citizens' National Bank, and indorsed by Cahill, Storey, and Denny. The defendants named in both bills answered, fully denying all fraud. Testimony was taken, and the court below found that both these payments were unlawful and fraudulent preferences. A decree was passed accordingly (the two cases having been consolidated by the agreement of all parties), and from that decree this appeal was taken.

There are but three questions in the case, only two of which require consideration, although at the hearing a number of other questions were discussed in a most interesting and able manner. The questions we are to consider are whether, under all the circumstances of this case, the payments above referred to were made by the South Baltimore Bank—that is to say, by its officers and agents—at a time when it was insolvent, and about to close its doors; secondly, whether the payments thus made, when the corporation was insolvent in fact, by such officers, of their own claims, to the exclusion of and to the detriment of other creditors of the bank, are unlawful preferences within the meaning of the insolvent law; and, third, whether, apart from the insolvent law and sections 264, 264a, art 23, Code, the payments made under the circumstances these were made will be declared by a court of equity to be consistent with a fair, equitable, and just distribution of the assets of an insolvent corporation.

The first question is one entirely of fact, and is fully answered in the affirmative by the testimony. Indeed, it is conceded all the way through the case that the bank had been insolvent for several years. The evidence shows without contradiction that, in addition to this long-continued state of insolvency, the bank became hopelessly insolvent at the time when these payments were made, or immediately following thereupon. There is no denial of either condition of insolvency; but the officers, especially the defendants Cahill, Storey, and Denny, who got the benefit of the payments, place their defense on their denial of knowledge of the bank's insolvency. We are forced to the conclusion, however, that, if the bank is conceded to have been insolvent for years, its officers must have known it, and that, if it was hopelessly insolvent on the 23d, they knew, or ought to have known, it on the preceding business day, when the payments were made. We have not overlooked the fact that Mr. Cahill and his co-indorsers have denied that they had any knowledge of the insolvency of his bank at the time the payments

46 A. 388

were made. The fact that he was, as he said, only president in name, may, to some extent, account for his want of that accurate knowledge which he should have had. As president and director of such a financial institution, the law imputes the requisite knowledge, and neither he nor they can be given on account of their willful ignorance a better standing than they would have had if they had performed their duties. Corbett v. Woodward, 5 Sawy. 416, Fed. Oas. No. 3,223; McDaniel v. Harvey, 51 Mo. App. 205; Sicardi v. Oil Co. (Md.) 24 Atl. 164; Dowry Banking Co. v. Empire Lumber Co., 91 Ga. 626, 17 S. E. 968; Roan v. Winn, 93 Mo. 511, 4 S. W. 736.

2. It was urged with a good deal of force that the bill which was filed in the original case in which receivers were appointed and dissolution decreed, and under which proceedings were first commenced against the South Baltimore Bank, was not filed under the provisions of sections 264, 264a, art. 23, relating to the dissolution and winding up of insolvent corporations; that, therefore, the court below had no Jurisdiction to decree dissolution, and that the insolvent law has no application to this case. Section 264, Just referred to, provides that "whenever any corporation in this state shall have been determined by legal proceedings to be insolvent, or shall be proven to be insolvent by proof offered under any bill filed under the provisions of this section, it shall be deemed to have surrendered its corporate rights, * * * and may be adjudged to be dissolved after hearing, according to the practice of courts of equity in this state, upon a bill filed for that purpose," etc. And section 264a, among other things, provides "that whenever such corporation shall have been adjudged to be dissolved as provided in the next preceding section of this article, all of its property * * * shall be distributed * * * in the same manner" as is required by our insolvent laws (article 47, Code Pub. Gen. Laws). And this section further provides that the receivers so appointed of such corporations shall have the same powers to bring suits and to set aside transfers, payments, and preferences made by the corporation, or by any of its officers on its behalf, as the permanent trustee of a natural person who is an insolvent debtor has under the insolvent law of this state. It was contended that the bill in the original case does not specifically ask for dissolution, and that, therefore, it must be held not to have been filed either for that purpose or under the sections mentioned. It does, however, ask not only for the appointment of receivers, but also that the bank (a corporation) be declared insolvent. It prays for the "winding up" of the corporation by the distribution of its assets among the stockholders should anything remain after the payment of debts, and for general relief. The act of 1896 (chapter 349) was passed to bring corporations within the provisions of the insolvent law, and to give courts of equity power to declare them insolvent, and dissolve them. But, as we have said, the decree shows the purpose of the bill. But, aside from any other view, it would seem to be beyond the power of these defendants in this case to deny the validity of the decree dissolving the South Baltimore Bank. It is true they do not make a direct attack upon the decree, nor deny the jurisdiction of the court to pass it. But the contention is that the bill was not filed for dissolution nor for winding up under sections 264, 264a, art. 23, and that, therefore, the court was without jurisdiction to entertain this bill, and hence the insolvent law has no application. The decree, however, provides that the estate and assets of the bank shall be administered according to that law, and that the receivers shall have the same powers as to setting aside illegal preferences which are thereby given to permanent trustees. Now for the first time it is suggested that the dissolution decree is not to have full force and effect. No such suggestion was made when that decree was before us in the case of Colton v. Association (Md.) 45 Atl. 23, and Same v. Mayer (Md.; decided last Jan. term, and not yet officially reported) 45 Atl. 874. On the contrary, the receivers relied upon that decree to show that the extent of their powers was the same as that of permanent trustees under the insolvent law; and in the former case the opinions of this court assume that the proceedings were under section 264a, and in the latter declare that the receivers were acting under that section. Indeed, ever since the date of that decree—June 1, 1898—declaring the South Baltimore Bank insolvent and dissolved, its affairs and estate have been administered by the receivers without objection from any quarter under the provisions of the insolvent law. It is perfectly obvious that all interested were in fact acting under the provisions of sections 264, 264a. The decree is conclusive upon this point. It was passed without objection, if not with the implied consent of all parties. If the intention had been unquestioned to proceed under those sections, and counsel had been instructed so to file the bill, but had omitted to...

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