Shaw v. Robinson & Stokes Co.

• Decision Date: 19 January 1897
• Parties: SHAW ET AL. v. ROBINSON & STOKES CO. ET AL.
• Court: Nebraska Supreme Court

50 Neb. 403

69 N.W. 947

SHAW ET AL.

v.ROBINSON & STOKES CO. ET AL.

Supreme Court of Nebraska.

Jan. 19, 1897.

Syllabus by the Court.

1. There is no inflexible rule in existence, which, under all conditions, prevents an insolvent corporation from transferring or incumbering its property in good faith, and for proper purposes.

2. Whether or not an insolvent corporation has made a disposition of its property in fraud of the rights of its creditors cannot be determined as a question of law, but, as a question of fact, must be determined upon consideration of the evidence in each particular case.

Error to district court, Douglas county; Ferguson, Judge.

In the matter of the insolvency of the Robinson & Stokes Company, a corporation. A petition for a receiver was filed, in which the Commercial National Bank and others were defendants. May Bros. and T. A. Shaw & Co. intervened. From the decision as to the distribution of assets T. A. Shaw & Co. bring error, and the First National Bank of Hastings and others appeal, and the German National Bank brings error. Affirmed.

Duffie & Van Dusen and E. R. Duffie, for plaintiffs in error.

W. W. Morsman, Charles B. Keller, Mahoney, Minahan & Smyth, and Montgomery & Hall, for defendants in error.

RYAN, C.

In the district court of Douglas county the Robinson & Stokes Company, a corporation, petitioned for and obtained a receiver. In the petition, which was filed on the 16th day of November, 1892, it was alleged that the defendants the Commercial National Bank, Anastatia Burnette, and the National Bank of Commerce had each procured to be levied attachments upon the wares and merchandise of the plaintiff, and that, to prevent irreparable loss by reason of certain facts pleaded, it was necessary that the plaintiff's factory, wherein its goods and wares were situated, should be kept in operation. The receiver was appointed as prayed to operate said factory, and collect outstanding debts due the plaintiff. From the proceeds of the sales of merchandise it seems that the claims of the defendants above named were fully paid. The Commercial National Bank, one of these defendants, had in its possession book accounts and bills receivable of the plaintiff as collateral security to its claim, and it is in respect to the proper distribution of the proceeds of these that this controversy exists between the interveners May Bros. on one hand and T. A. Shaw & Co. on the other. By its petition of intervention the firm of May Bros. founded its claim upon the following written agreement: “Omaha, November 15th, 1892. Whereas we are indebted to May Brothers, of Fremont, Nebraska, in the sum of $5,000; and whereas, we have assigned all our book accounts and bills receivable to the Commercial National Bank of Omaha, Nebraska, as collateral security for our indebtedness to said bank (excepting thirteen hundred dollars assigned to First National Bank, Marshalltown, Iowa); and whereas, we have also assigned said book accounts and bills receivable as aforesaid to Mrs. Anastatia Burnette as collateral security to secure the sum of about $11,500.00 subject to that of the bank as aforesaid; and whereas, we have further assigned said book accounts and bills receivable as aforesaid to the National Bank of Commerce, to secure the sum of about $6,000, subject to the aforesaid assignments: Now, therefore, we hereby assign all our right, title, and interest in and to said book accounts and bills receivable to said May Brothers, of Fremont, Nebraska, as collateral security for said indebtedness of $5,000.00, subject, however, to the rights of each and all of the aforesaid assignees as hereinbefore specified.” The right of the firm of T. A. Shaw & Co. to the amount in controversy was, in its petition of intervention, predicated upon averments that on November 18, 1892, said firm had brought its action in the district court of Douglas county against the Robinson & Stokes Company, and had on the same day caused to be garnished the Commercial National Bank. On motion of May Bros. the amount in controversy was ordered paid to May Bros., and it is for a review of this order that T. A. Shaw & Co. have prosecuted error proceedings to this court.

It appears from the evidence that after nightfall of November 15, 1892, there were present in the law office of Montgomery, Charlton & Hall the president, the secretary, and the attorney of the Robinson & Stokes Company, and certain attorneys representing the defendants named in the petition for a receiver, and that there was at said time and place adopted by the Robinson & Stokes Company this resolution: “Whereas, this company is indebted to the Com. Nat. Bank of Omaha, Nebraska, in the sum of $40,000.00; and whereas, said bank is demanding security for the payment of said indebtedness: Now, therefore, be it resolved that the Pres. and Secy. of this Co., on behalf of the Co., be authorized to assign to May Bros., Fremont, Neb., all their notes, bills receivable, accounts, books of accounts, demands, and claims of every kind and name owing to and belonging to this Co., subject to prior assignments as collateral for the payment of the indebtedness of this Co. to said May Bros., evidenced by a certain promissory note calling for $5,000.00 in favor of J. T. Robinson, R. E. Sears, T. H. Burnette, G. E. Stokes.” The parties who are named after the words “in favor” seem to have been concerned in the Robinson & Stokes Company as officers and stockholders. On September 7, 1893, there were the following proceedings, as shown by the journal entry in this case: “The above cause coming on this day to be heard upon the exceptions of May Brothers, interveners, to the report of the receiver, and the exceptions of Theodore A. Shaw et al. to the report of the receiver, and the exceptions of the Robinson Stokes Company to the report of the receiver, and, after hearing the evidence and the argument of counsel, and the court, being fully advised in the premises, overrules the exceptions of Theodore A. Shaw et al. to the report of the receiver so far as the same pertains or relates to the power of a corporation to prefer a creditor, and to prefer the parties which the said Robinson & Stokes Company did prefer in this case, to which the said Theodore A. Shaw et al. except.” Conformably with the above ruling, the receiver was directed to pay to May Bros. the amount in dispute. In the petition in error there is assigned the overruling of the exceptions above noted, but we have been unable to find in the record any exception of the nature indicated. Indeed, the report of the receiver very properly dealt only with what he had done, and how much he held in his hands subject to the order of the court. The record, therefore, must be assumed to have described the contention of counsel for Shaw & Co. as exceptions of the nature indicated, and the question to be determined is thus limited to the power of an insolvent corporation, under any circumstances, to prefer one of its creditors. It would be useless to attempt a review of all the cases cited on this proposition, and we shall therefore take up the contentions of plaintiff in error in the order in which they are presented by its brief, and with reference to each express our views in a general way.

It is first contended that the transfer of November 15th by the Robinson & Stokes Company amounted in law to a general assignment for the benefit of creditors. This question is not presented by the order assailed by the petition in error, for this is not an appeal from a decree which presents all questions for trial de novo, but is a proceeding in error to review an order affecting a substantial right, made in a special proceeding determined upon an exception limited to a certain matter which was the abstract right of an insolvent corporation to prefer certain creditors.

It is next urged that the directors of an insolvent corporation are trustees for its creditors; that is to say, upon the insolvency of a corporation its directors become mere trustees to hold its property for the benefit of its creditors, for, as it is argued, a corporation's insolvency is, civilly, its death. If the proposition that at the instant a corporation becomes insolvent it is dead is conceded, there would be no question that it could not afterwards transact business of any kind, and plaintiff in error would be entitled to the relief he prays, unless, perchance, this principle is too far-reaching in its consequences. Let us suppose that the Robinson & Stokes Company was civilly dead on the 15th of November, 1892, and that the transfer of its assets, which precluded the transaction of business by it, was conclusive evidence that as a corporation it had no further existence, and what inevitably follows? In the first place, it could not have commenced and maintained this action for the appointment of a receiver and the winding up of its business affairs, for a dead person cannot be plaintiff in an action or civil proceeding. In the next place, the firm of T. A. Shaw & Co. would have no standing in this case, for their attachment action was begun on November 16th, and was prosecuted, according to their own argument, against a dead person. Other general considerations point to the same result, one of which is that a corporation may, in an insolvent condition, do business for years, and, if the contention of the plaintiff in error is correct, its transactions during this time be found finally to be absolutely void. We are now speaking of the status of an insolvent corporation unaffected by statutory provisions. Later we shall consider an argument based on a statutory enactment. The functions of such a corporation may be suspended, and such a suspension must inevitably accompany its death; but from these predicates it does not necessarily result that a suspension of functions always implies death. As to the proposition that the directors of an insolvent...