Marvin v. Anderson
| Decision Date | 24 September 1901 |
| Citation | 111 Wis. 387,87 N.W. 226 |
| Parties | MARVIN v. ANDERSON ET AL. |
| Court | Wisconsin Supreme Court |
1. The term “insolvency,” as understood in the administration of bankrupt and insolvent laws, is inability of a person to pay his debts as they mature in the regular course of business; as understood in dealing with contracts challenged on the ground of fraud, actual or constructive, it has reference to insufficiency of assets of the debtor to cover his liabilities.
2. In respect to the bona fides of a sale of property when challenged by a creditor of the vendor on the ground of fraud, the latter is said to have been solvent at the time of the sale if he then possessed a substantial excess of assets, on a cash basis, over and above his liabilities; and that rule applies to corporations as well as natural persons.
3. A solvent, going corporation has the same right to sell its property in the regular course of business, regardless of whether the vendee is a stockholder of the corporation, as a natural person.
4. The trust fund doctrine, so called, has no application to a going corporation. Its creditors have no equitable lien upon its assets. Such a lien does not attach till the corporation is insolvent and has either suspended business or is on the verge of collapse, so that it may reasonably be said to be civilly dead as regards the purposes for which it was organized.
5. A solvent corporation may purchase its own stock if not prohibited by its articles of organization or some statute.
6. If capital stock in a corporation is purchased for it by its officers without any special authority so to do, the transaction cannot be impeached by stockholders who knew of and consented to the transaction, or by the corporation or any representative thereof, if all the stockholders acquiesced in the purchase, nor by subsequent creditors.
7. If a corporate deed is executed in the manner prescribed by statute, the presumption is that its officers were duly authorized to make it. Such presumption will prevail against all persons who acquiesced in the transaction, or mere proof that corporate action by the stockholders was not taken, specifically authorizing the particular transaction.
Appeal from circuit court, Dane county; Robert G. Siebecker, Judge.
Action by Henry H. Marvin, trustee in bankruptcy, against Louis Anderson and others. Judgment for defendants. Plaintiff appeals. Affirmed.
Action by the trustee in bankruptcy of the property of the Badger Cycle Company to set aside a deed, given by the bankrupt some time before the commencement of the bankruptcy proceedings, upon the ground that it was fraudulent as to the creditors and stockholders of the corporation. The court decided as matters of fact as follows: On October 22, 1897, the day when the deed was given to defendant Louis Anderson, he was and for some time prior thereto had been a stockholder of the corporation, possessed of five out of the fifty shares of its capital stock, each share being of the par value of $100, and was also a director of the corporation and the foreman of its business. At such time the corporation was indebted to its stockholders in the sum of $1,573, $803 of which was due to Anderson for labor and services; was also indebted to outside parties in the sum of $5,444.32, and possessed property of the value of from nine to ten thousand dollars, being solvent and in every respect a going corporation. Anderson, upon the advice of his physician, decided to discontinue his work for the corporation, and thereupon requested it to pay him the amount due for his services. It being difficult for the corporation to comply with such request by paying Anderson in money, the parties agreed, without any formal action by the directors as a board or by the stockholders, but upon their individual consideration and determination, that plaintiff should release his claim against the corporation and transfer to it his five shares of capital stock, and receive therefor the real estate in question, which was of the value of $850, and was not used in the corporate business, four bicycles of the value of $20 each, and $225 in money, which agreement was fully consummated. All the stockholders and directors had knowledge of and fully acquiesced in the entire transaction, and after it occurred treated it as valid till after the commencement of the proceedings in bankruptcy nearly two years subsequent to the making of the deed. Aside from claims of stockholders of the corporation who acquiesced in the transaction in question, the only claim proved in bankruptcy which existed at the time of such transaction was a small one in favor of one Comstock, which, prior to the commencement of this action, was fully paid. After the making of the deed and before its validity was in any way called in question, Anderson mortgaged the land to defendant John Gilbert to secure the payment of a loan of $200.
Upon such facts the court concluded as a matter of law that plaintiff was not entitled to recover, and thereupon rendered judgment in favor of defendants.
Tenney, Hall & Tenney (H. W. Chynoweth, of counsel), for appellant.
Haskell & Getts (Jones & Stevens, of counsel), for respondents.
MARSHALL, J. (after stating the facts).
If the Badger Cycle Company was solvent at the time of the transaction in question, the main contention by counsel for appellant, that the judgment appealed from is wrong, fails. The trial court decided that question in the affirmative because the property of the corporation, at a fair valuation, exceeded to a considerable extent its debts. Appellant's counsel say that was not the proper rule to be applied. The conclusive answer thereto is that the trial court followed the law as it has been laid down by this court. Hamilton v. Quarry Co., 106 Wis. 352, 81 N. W. 876;Shaw v. Gilbert, 86 N. W. 188, 190. Counsel makes the common mistake of failing to distinguish between the meaning of the term “insolvent,” as the subject of insolvency is dealt with by insolvent and bankrupt laws, and the general meaning thereof. The former is inability of a person to pay his debts as they mature in the ordinary course of business; the latter is a substantial excess of a person's liabilities over the fair cash value of his property. The former does not militate against a debtor corporation dealing with its property as it sees fit; while the latter, in case of a corporation, if it is...
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