Merchants' National Bank of Omaha v. McDonald
| Decision Date | 18 December 1901 |
| Docket Number | 10,119 |
| Citation | 88 N.W. 492,63 Neb. 363 |
| Parties | MERCHANTS' NATIONAL BANK OF OMAHA ET AL. APPELLANTS, v. JOHN W. MCDONALD, SHERIFF, ET AL. APPELLEES |
| Court | Nebraska Supreme Court |
APPEAL from the district court for Douglas county. Heard below before SCOTT, J. Reversed.
Action by John W. McDonald, sheriff, against the Merchants' National Bank of Omaha, consolidated with other actions for the distribution of the assets of the Hobrecker Stove Company.
REVERSED AND REMANDED.
George E. Pritchett and Warren Switzler, for appellants.
Edson Rich, Winfield S. Strawn, W. A. Corson, C. W. DeLamatre Arthur C. Wakeley, Bartlett, Baldrige & De Bord and Congdon & Parish, contra.
DUFFIE C. AMES and ALBERT, CC. concur.
On April 24, 1896, the Hobrecker Stove Company, a corporation doing business in the city of Omaha, made a bill of sale of all its stock in trade to the Merchants' National Bank of Omaha, to secure the payment of notes in the sum of about $ 10,000, claimed to be made by said corporation to the bank and which notes James C. McKell, a director and president of the corporation, signed as co-maker or surety. On the same day, and as a part of the same transaction, the corporation assigned all its book accounts and bills receivable to Luther Drake, trustee, for the purpose of further securing the payment of said notes to the bank. It is conceded that at that time the corporation was insolvent. On said April 24, 1896, the Ellwood Gas & Vapor Stove Company commenced an action in the district court against the Hobrecker Stove Company to recover the sum of about $ 1,000, and a writ of attachment was issued in that action and levied upon a portion of the stock in trade of the defendant, the Hobrecker Stove Company. On April 27, 1896, the Cleveland Steel Range Company and the Galusha Stove Company each commenced actions in the district court against the Hobrecker Stove Company, which actions were aided by attachment, and the remainder of the stock in trade, not levied on under the attachment in favor of the Ellwood Gas & Vapor Stove Company, was attached by the sheriff of Douglas county. On May 27, 1896, this action was commenced by the March-Brown-back Stove Company, a general creditor of the Hobrecker Stove Company, the action being in the nature of a creditors' bill, alleging the insolvency of the defendant corporation, that it had suspended business and was no longer a going concern, charging that the assets of the corporation were a trust fund for the benefit of all its creditors, and asking the court to appoint a receiver and take possession of the assets and make a distribution of them ratably among the creditors of the concern. The petition recited the bill of sale made by the defendant corporation to the Merchants' National Bank, as well also as the assignment to Luther Drake, trustee, of the book accounts and bills receivable, and asked that these conveyances and the attachments above referred to might be set aside and the property covered thereby held to be the assets of the corporation and distributed among its creditors. The Merchants' National Bank, Drake, trustee, and the attaching creditors of the corporation were made parties defendant to this bill. On June 8, 1896, the Merchants' National Bank brought an action of replevin against the sheriff of Douglas County, Nebraska, to recover possession of the goods under its bill of sale, and which had been taken possession of by the sheriff under the attachments in the three actions above mentioned. May 28, 1897, the Cannonsburg Iron and Steel Company filed a supplemental answer and cross-bill in this action, alleging the entry of a judgment in its favor against the Hobrecker Stove Company subsequent to the commencement of the action, and asking a ratable distribution of the assets. October 19, 1896, the Novelty Manufacturing Company filed its answer and cross-bill in this action, and on October 29, 1896, the A. J. Linderman & Hoverson Company filed its answer and cross-bill in this action. The two parties last named are non-judgment creditors of the Hobrecker Stove Company. March 6, 1897, the Dayton Manufacturing Company, the Victor Stove Company, the Farmers' National Bank and Schill Bros. intervened in the action, alleging in their petition of intervention that they were creditors of the Hobrecker Stove Company, that they had reduced their claims to judgment, had execution issued and returned unsatisfied and had thereafter garnished the Merchants' National Bank and Luther Drake, trustee, as parties having property and funds of the Hobrecker Stove Company in possession, and claiming a priority in the distribution of the assets of the defendant corporation over all creditors, with the exception of the three attaching creditors first above mentioned. November 1, 1897, the Belding-Hall Manufacturing Company, a creditor at large, intervened in this action, and asked to be allowed to participate in the distribution of the assets. By consent of all the parties, the replevin action brought by the Merchants' National Bank against McDonald, sheriff was consolidated with this action and tried to the court. Upon the trial a decree was entered canceling the bill of sale made by the defendant corporation to the Merchants' National Bank, as well also as the assignment of book accounts and bills receivable made to Drake, trustee, and ordering a distribution of the assets of the corporation, giving the three attaching creditors first above named a first lien on the assets for the payment in full of their claims, and directing the remaining assets to be ratably distributed among all the creditors. It was further found that the value of the property taken by the bank in the action of replevin against the sheriff, together with interest thereon to the date of trial, was $ 7,682, and that the amount collected by the Merchants' National Bank of Omaha on the accounts and bills receivable assigned to Drake, as trustee, amounted, with interest, to the sum of $ 1,429.85, and these several amounts the bank was ordered to pay to the clerk of the court, to be distributed under the terms of the decree. The Merchants' National Bank has taken an appeal from this decree, and insists that the value of the goods taken in replevin found by the court is excessive, as well also as the amounts collected on the accounts. The four intervening parties whose claims had been reduced to judgment prior to their intervention in this case, and who had garnished the bank and Drake, trustee, also appealed and insist that the court erred in not allowing them a preference in the payment of their claims over the non-judgment creditors.
The conveyance to the bank and to Drake, trustee, are void, for two reasons: First. McKell, a director of and president of the Hobrecker Company, was a co-maker or surety upon the notes which these conveyances were made to secure. An insolvent corporation can not prefer its officers by securing debts due to third parties for which they are liable. Tillson v. Downing, 45 Neb. 549, 63 N.W. 836; Ingwersen v. Edgecombe, 42 Neb. 740, 60 N.W. 1032. Second. By a supplemental decree entered April 13, 1898, it was found that the debt due the bank, and which these conveyances were made to secure, was the individual debt of McKell, for which the Hobrecker Stove Company was in nowise liable. The question raised by the appeal of the interveners is not only important, but interesting. Are they entitled to priority in the distribution of the assets of the corporation over the non-judgment creditors because of their proceeding in reducing their claims to judgment, and causing the parties in possession of the assets to be garnished, and thereafter intervening in this action? The plaintiff the March-Brown- back Stove Company undoubtedly filed its petition in the belief that this court would adopt what is commonly known as the "trust fund doctrine" in relation to insolvent corporations, and deny a preference to any creditor of the corporation, regardless of the steps that had been taken to secure such priority. The question was an open one at the time this action was commenced, but has since been settled against the contention of the plaintiff in Shaw v. Robinson, 50 Neb. 403, 69 N.W. 947. Upon the theory that the assets of an insolvent corporation are a trust fund, to be distributed ratably among the creditors of the concern, the action was well brought and a court of equity was the proper tribunal to ascertain the amount of the liabilities and distribute the assets ratably. By the rule announced in Shaw v. Robinson, supra, the insolvent corporation may give one creditor a preference over another, and by analogy one creditor may, by his superior diligence, secure a preference in the payment of his claim over those who are less diligent. When the circumstances are such as to allow of legal proceedings, those first reaching the property of the corporation by attachment or other proper process secure a preference; but when the assets of the corporation are beyond the reach of legal process then a court of equity must be called on to assist the creditor, and the same rules applicable in other equity cases must be observed. It being settled that the plaintiff in this action was not entitled to a ratable distribution of the assets of the Hobrecker Stove Company under the "trust-fund doctrine," the petition must be regarded as a simple creditors' bill; and judged of in that light it was wholly insufficient, because the plaintiff had not reduced its claim to judgment and exhausted its legal remedies. The rule has always obtained in this state that a general creditor has no standing to maintain a creditors' bill. A judgment or special lien is an indispensable requisite. Weil v. Lankins, 3...
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