John Miller Co. v. Harvey Mercantile Co., Ltd.
| Decision Date | 18 May 1920 |
| Citation | 178 N.W. 802,45 N.D. 503 |
| Court | North Dakota Supreme Court |
Rehearing denied June 15, 1920.
Action in the nature of sequestration proceedings in District Court Wells County, Coffey, J.
From a judgment of dismissal the plaintiff has appealed and demands a trial de novo.
Affirmed.
Judgment affirmed, with costs to the respondent.
Pierce Tenneson, & Cupler, for plaintiff.
A second mortgagee may maintain an action for conversion against the first mortgagee for the wrongful conversion of the property covered by two mortgages, and recover as damages the value of the property converted, up to the amount due on his lien, less the amount due upon the prior liens held by the first mortgagee. Lovejoy v. Bank, 5 N.D. 623, 67 N.W. 956.
If, in this case, it appeared that the amount of defendant's mortgage liens exceeded the value of the property, then plaintiff would have suffered no damage, and direction of a verdict against him would have been proper. Clendening v. Hawk, 8 N.D. 423; Cook v. Loomis, 26 Conn. 483; Chamberlin v. Shaw, 18 Pick. 278; Brewster v. Silliman, 38 N.Y. 423; Reynolds v. Shuler, 5 Cow. 323; Stone v. Chicago, M. & St. P. R. Co. 53 N.W. 191; Force v. Peterson Mach. Co. 17 N.D. 222.
Although an insolvent corporation may, as a general rule, prefer certain of its creditors, and its assets are not, to that extent, a trust fund in the hands of its directors, such assets are a trust fund as against the individual claims of the directors themselves.
3 Clark & M. Corp. § 786, pp. 2411, 2419; 8 Thomp. Corp. § 6207, p. 683; Buck v. Ross, 68 Conn. 29, 57 Am. St. Rep. 60 and note pp. 66, 77, 78; Bosworth v. Allen (N.Y.) 55 L.R.A. 761.
These courts declare a preference to a creditor who is also a director or managing officer of the corporation illegal and void. Tatum v. Leigh, 136 Ga. 791, 72 S.E. 236, Ann. Cas. 1912D, 216; Beach v. Miller, 130 Ill. 162, 17 Am. St. Rep. 291 and note, 22 N.E. 464; Warren v. Columbus First Nat. Bank, 149 Ill. 9, 25 L.R.A. 746, 38 N.E. 122; Atlas Nat. Bank v. More, 152 Ill. 528, 43 Am. St. Rep. 274, 38 N.E. 684; Illinois Steel Co. v. O'Donnell, 156 Ill. 624, 31 L.R.A. 265, 41 N.E. 185, 47 Am. St. Rep. 245; Blair v. Illinois Steel Co. 159 Ill. 350, 31 L.R.A. 269, 42 N.E. 895; Campbell Printing Press, etc., Co. v. Marder, 50 Neb. 283, 61 Am. St. Rep. 573, 69 N.W. 774; National Wall Paper Co. v. Columbia Nat. Bank, 63 Neb. 234, 56 L.R.A. 121, 88 N.W. 481; Hill v. Pioneer Lumber Co. 113 N.C. 173, 21 L.R.A. 560, 37 Am. St. Rep. 621, 18 S.E. 107.
The prevailing rule is that the property of an insolvent corporation is a trust fund in such a sense as to preclude the directors and officers of the corporation from dealing with it in such a manner as to secure preference for themselves. Note to Buck v. Ross, 57 Am. St. Rep. pp. 77, 78.
A corporation may, in the absence of actual fraud, prefer bona fide debts due its directors. Note to Furber v. Williams-Fowler Co. (S.D.) 15 Ann. Cas. 1221.
The rule applies to debts of the corporation for which the officers or directors are liable as sureties or guarantors. National Wall Paper Co. v. Bank, 56 L.R.A. (N.S.) 121; Blair v. Illinois Steel Co. (Ill.) 31 L.R.A. 269; 5 Thomp. Corp. p. 5128, § 6503. See also Taylor v. Mitchell (Minn.) 83 N.W. 418.
Bangs & Robbins, for respondents.
F. B. Dodge and Edward P. Kelly, for Geo. V. McLaughlin and H. B. Murphy, executors of the estates of James T. Morris, deceased, and the defendant creditors of the Harvey Mercantile Company, Ltd., defendants and respondents.
Bangs & Robbins, for Harvey Mercantile Company, Ltd.
If the defendant makes use of the claim against the plaintiff as a set-off or counterclaim, the same is disposed of by the judgment rendered in that action; he cannot split the demand, using part of it as a set-off or counterclaim and the balance to sue upon a separate action. 23 Cyc. 1163-1201 et seq.; 1 Van Fleet, Former Adj. 438; 15 Standard Enc. Proc. 546; 1 Sutherland, Damages, 3d ed. 186, 187, 189; Freeman, Judgm. 224-277; Inslee v. Hampton, 11 Hun, 171; S. Del. Villamil v. Merced, 152 C. C. A. 136, 239 F. 86; Evans v. Maskey, 189 Ala. 283, 66 So. 3; House v. Donnelly, 7 Ala.App. 267, 61 So. 18; Brown v. Bank, 66 C. C. A. 293, 132 F. 450; Watkins v. Bank, 67 C. C. A. 110, 134 F. 36; Hagle v. Smith, 136 Iowa 32, 113 N.W. 556; O'Connor v. Varney, 10 Gray, 231; Biere v. Fritz, 37 Kan. 27, 14 P. 558; Richards v. Randall, 4 Gray, 53; Sargent v. Fitzpatrick, 4 Gray, 511; G. T. M. Co. v. Farmer, 27 Minn. 428, 8 N.W. 441.
Where a purchaser sets up a breach of warranty as a defense to one of a series of notes given for purchase price of a machine, he cannot set up such breach as a defense to subsequent suits on the other action. Geiser Mach. Co. v. Farmer, 27 Minn. 428, 8 N.W. 144; Furneaux v. Bank, 39 Kan. 144, 17 P. 852; Knorr v. Reaper Co. 23 Neb. 636; Case Mfg. Co. v. Moore, N. C. , 10 L.R.A. (N.S.) 734, 57 S.E. 213.
Any action brought to enforce the liability created by § 4544 is premature until the happening of the event which imposes the liability upon the defendants. Topeka Paper Co. v. Publ. Co. 7 Okla. 220, 54 P. 455; Swaford Bros. v. Owens, 37 Okla. 616, L.R.A.1916C, 189, 133 P. 193.
Statement.
--This is an action in the nature of a statutory sequestration proceeding. The plaintiff has appealed from a judgment of dismissal. This case was before this court formerly upon an appeal from an order overruling a demurrer to the complaint. 38 N.D. 531, 550, 165 N.W. 558. This court then held the complaint to state a cause of action in that it not only charged preferential conveyances made, but also a joint scheme and conspiracy to place property and assets of the Harvey Mercantile Company beyond the reach of the plaintiff and other creditors similarly situated, and to divide such assets among certain persons. It is unnecessary to restate the allegations of the complaint rather fully stated in the former opinion, to which reference is made. The plaintiff's cause of action is grounded upon two claims:
A judgment for $ 6,605.50 rendered July 23, 1912, upon which there is a claimed balance of $ 4,665.38 and interest, and a judgment for $ 567.49 rendered February 23, 1913,--both against the Harvey Mercantile Company, a corporation.
After the determination of the former appeal the defendants, including the Harvey Mercantile Company and other creditors concerned, interposed answers, wherein the judgment of $ 567.49 and interest is admitted to be due and owing, but, concerning the larger judgment, it is alleged that there is nothing due thereon. In this regard it is alleged that in May, 1913, one Phillips, a defendant herein, instituted an action against the plaintiff herein to recover $ 6,000 damages for the conversion of certain twin elevators at Harvey, formerly owned by the Harvey Mercantile Company; that in such action plaintiff asserted, by way of counterclaim and equitable set-off to defeat such conversion actions, the indebtedness and certain chattel mortgages upon such elevators which stood as security therefor; that such indebtedness was reduced to the larger judgment herein by an action at law; that by reason thereof such larger judgment was barred and paid. It appears in the record that in October, 1909, the Harvey Mercantile Company gave certain notes to this plaintiff; that to secure the same, in August and September, 1910, it executed certain chattel mortgages on its one-half interest in the elevator property mentioned. That subsequently, in January, 1912, this Mercantile Company conveyed by bill of sale its interest in the elevator to one Stricker, who thereafter, on March 21, 1912, likewise conveyed by bill of sale to Phillips, who thereupon took possession. In April, 1912, this plaintiff commenced an action against the Mercantile Company to recover judgment on such notes, and under a writ of attachment seized the elevator property, through the sheriff, from the possession of Phillips. In July, 1912, judgment was rendered on such notes for $ 6,605.50. In August, 1912, the elevator property was sold under the attachment and a special execution upon the judgment for $ 2,000. This amount was credited upon the judgment.
In this action, instituted by Phillips, judgment was finally rendered, in August, 1914, dismissing the action upon the findings, generally stated,--that this plaintiff was entitled to offset and recoup any claim of Phillips to the full amount of the debt secured by such...
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