Levering v. Bimel
| Decision Date | 12 January 1897 |
| Docket Number | 17,403 |
| Parties | Levering et al v. Bimel et al |
| Court | Indiana Supreme Court |
From the Tippecanoe Superior Court.
Reversed.
Stuart Bros. & Hammond and Kumler & Gaylord, for appellants.
Wallace & Baird, Caldwell & Caldwell, Corwin & Smith, G P. Haywood and G. J. Eacock, for appellees.
The questions involved in this cause arise out of the proceedings of the trial and judgment in the lower court in adjudicating claims of the creditors of the O'Brien Wagon Company, a corporation organized under the laws of this State, and engaged in the manufacture and sale of wagons in the city of Lafayette. On August 10, 1893, this corporation being insolvent, was placed in the hands of a receiver by order of the lower court. Appellant, Levering, holder of a certain alleged note against said corporation, which he held as trustee of the First National Bank and the Merchants' National Bank of Lafayette, Indiana, filed his intervening petition in the cause in which said receiver was appointed wherein he averred that said note of $ 39,400.00 which he so held was secured by a chattel mortgage executed by said company, and he asked that this mortgage be foreclosed and that the proceeds of the sale of the mortgaged property be ordered by the court to be first applied to the payment of this claim. At the same time his co-appellant, Lucy A. Kaull, filed a like petition, in which she alleged that she held a note against said company for $ 48,360.00, secured by a mortgage upon its real estate, and by a chattel mortgage upon certain personal property, etc.
Appellees, being unsecured creditors of the corporation, were by the court permitted to appear and file answers to these intervening petitions, and to defend against said claims and mortgages. Upon these petitions, and the respective answers and replies of the parties, the issues were joined, and the cause was tried by the court. There was a special finding of facts, and by its conclusions of law thereon, the court held that the note and mortgage held by Levering were illegal and void, and also that the note and mortgages held by Mrs. Kaull were illegal, and that the action of the corporation in assigning certain notes and accounts to her as collateral security, was illegal and void, and judgment was rendered accordingly.
The facts material to the principal questions involved appear from the special finding to be substantially as follows: On July 14, 1890, the O'Brien Wagon Company was duly incorporated at Lafayette, Indiana, with a capital stock of $ 100,000.00, the object of said corporation being to manufacture and sell wagons at said city. Before the incorporation of this company it operated and carried on its business at Tiffin, Ohio, as a partnership, but was induced to locate at Lafayette, where, as before stated, it was incorporated under the general laws of this State. On August 7, 1893, this corporation was indebted, as the court finds, to the First National Bank of the city of Lafayette, Indiana, as follows:
amounted, on August 7, 1893, to
$ 16,139.46
On endorsement of other notes
9,396.83
Total
On nine of the notes first mentioned Burt J. Kaull was a surety for the company, and Richard Carpenter was a surety for the company on the other note of said ten. Carpenter and Kaull being at the time directors of said corporation; the former being the president and the latter secretary. It is further found that on the date last mentioned, the company was also indebted to the Merchants' National Bank of said city as follows:
On four notes executed by the wagon company
to said bank for borrowed money
$ 7,623.79
On two notes executed by the wagon company
to Frey, Reiff & Co., and by them
endorsed to said bank
874.54
On endorsements of promissory notes
7,572.12
Total
On the four notes first named said Burt J. Kaull was also surety for the company.
The court also finds: "That all the indebtedness from said corporation to said banks was for money on direct loans to said corporation or for discount of commercial paper governed by the law-merchant, during the months of April, May, June and July, 1893, and while said corporation was carrying on its business, and that all of said money was used by said corporation in the ordinary course of business."
On August 9, 1893, Lucy A. Kaull, appellee, it appears, held certain notes or claims against said corporation, which aggregated $ 48,360.10, part of it being for money advanced and loaned by her to the corporation. That all of the notes held by Mrs. Kaull were signed by said Burt J. Kaull, as surety, he being the son of the former and a director of said company at the time the notes were executed by it to his said mother. As to these notes the court finds that on said 9th day of August, there was only due to Mrs. Kaull from said corporation the sum of $ 24,368.41, and no more. That as to the remainder of her said claim the company had received no consideration for the execution of the notes and that the same were executed without authority from its board of directors. On the 7th day of August, 1893, the corporation, by its board of directors, authorized the execution of a note for all of the preexisting indebtedness due from it to said banks, together with a mortgage on the personal property of the company to secure said note, and that immediately thereafter the note for $ 39,400.00 and the mortgage to secure the same, as set out in Levering's petition, were executed to him by the president and secretary, and Levering thereupon executed a declaration of trust to both of said banks. That before the execution of this note and mortgage these banks surrendered to Levering all the notes held by them upon which the company was liable. That on August 9, 1893, the company, by its board of directors, authorized the execution of a note, and a mortgage to secure the same, to Lucy A. Kaull for the indebtedness held by her against the corporation, and in pursuance thereof the note and mortgages set up in her petition were executed to her by the corporation. The execution of the notes and mortgages to Levering and Mrs. Kaull was authorized by the unanimous vote of all the directors, being five in number, and the execution of these notes was also approved by the stockholders of said corporation. Payments on the note to Levering were made after its execution and before the trial of the cause, which reduced the amount due when the judgment was rendered to $ 31,667.95. At the time of the execution of the mortgages in dispute, Carpenter was insolvent, and Burt J. Kaull had no property in this State, but owned some outside of Indiana. It is also found that the latter was the agent of Mrs. Kaull in obtaining the mortgage set out in her petition. That on the 7th and 9th of August, 1893, said corporation was insolvent, which fact was known to its officers, and that Mrs. Kaull also knew at the time of the execution of the note and mortgage to her of its insolvency. That on the 9th day of August, 1893, Eugene N. O'Brien, a stockholder and one of the directors, a few hours after the execution of the mortgage to Mrs. Kaull, filed a petition to have a receiver appointed for said corporation, and that it, on the next day, appeared by its attorneys and consented to the appointment of a receiver, and that thereupon a receiver was appointed by the court, that he duly qualified and assumed the duties of his trust. It is further disclosed by the finding that each of said banks, at the time of the execution of the mortgage, knew that Burt J. Kaull and Carpenter were directors of the corporation and liable as sureties on said notes. On August 2, 1893, a part of the employes of said company quit work on account of the reduction of wages, and thereafter only a few men were employed for the time being in finishing work and in the shipping department. That on said 7th day of August, the assets of said corporation were $ 75,000.00, and its direct liabilities $ 116,368.00, and its contingent liabilities $ 20,0000.00.
Other facts are found, some of which are more in the nature of conclusions than a finding of facts. Fraud, however, as a fact is not found by the court in its special findings. Neither is it in any way disclosed that the amounts found due to the appellees respectively by the court were not bona fide preexisting indebtedness against said corporation at the time of the execution of the mortgages. It is conceded by appellee's learned counsel that the findings and conclusions of law as made and stated by the court do not proceed upon the theory of actual fraud in fact, but upon the theory that the notes and mortgages in question, and also the assignments of certain notes and accounts to Mrs. Kaull as a collateral security, as found by the court, were illegal and void by reason of the facts stated in the special finding. The contention of counsel for appellees, as stated by them, is that:
"A corporation organized under the laws of this State, after it has become insolvent and has abandoned the further prosecution of its business, cannot mortgage or pledge its property for the sole purpose of giving some of its creditors a preference over others in the distribution of its assets, especially if such preference inures to the personal benefit of some of the directors of such corporation."
They admit that an insolvent corporation may secure some of its...
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