State v. Manhattan Rubber Mfg. Co.

• Decision Date: 15 February 1899
• Citation: 149 Mo. 181,50 S.W. 321
• Court: Missouri Supreme Court
• Parties: STATE ex rel. GRIMM v. MANHATTAN RUBBER MFG. CO. et al.

50 S.W. 321

149 Mo. 181

STATE ex rel. GRIMM v. MANHATTAN RUBBER MFG. CO. et al.

Supreme Court of Missouri, Division No. 1.

February 15, 1899.

CORPORATIONS — INSOLVENCY — DIRECTORS AS PREFERRED CREDITORS — TRUST DEED — AUTHORITY — SEAL — GOOD FAITH — NOTICE — EVIDENCE — INSTRUCTIONS — FRAUDULENT INTENT — BONDS.

1. The only testimony to overcome the prima facie fraudulent character of a trust deed executed by the directors in control of an insolvent corporation, in which they preferred their claims, was furnished by themselves, and they were heavily interested. Held, that remarks by the court assuming that their authority was satisfactorily shown, and that the only question for the jury was as to the honesty of the claims, were prejudicial.

Per Brace, P. J., and Valliant, J.

2. It is the duty of directors of an insolvent corporation, executing preferential mortgages, to act in good faith, according to their best judgment, for the interest of the corporation and its stockholders.

Per Brace, P. J., and Valliant, J.

3. On the issue of good faith of directors in control of a corporation in executing preferential mortgages to themselves, evidence tending to show that an absent director had changed his mind, and was opposed and objected to the scheme, to their knowledge, was competent, notwithstanding he had first voted for it.

4. A charge predicated on a by-law providing that, if the directors of a corporation were present, a meeting could be held without notice, is erroneous which leaves the jury to infer that a meeting is valid if the directors were only present; all must consent to the meeting.

Per Brace, P. J., and Valliant, J.

5. By-laws of a corporation provided that, if the three directors were present, they could hold a meeting without notice. The three were present in the sick room of one of them, and the validity of an adjourned meeting depended on the regularity of this one, which was contested because of the nonconsent of the sick member. Held, that a charge assuming the adjourned meeting to be valid was erroneous.

Per Brace, P. J., and Valliant, J.

6. Though a corporation's seal was not necessary to the validity of a deed of the directors, yet, on the issue of their good faith in executing a trust deed, the fact of their substituting a fac simile for the true seal was a circumstance for the jury.

Per Brace, P. J., and Valliant, J.

7. A charge was that, if a deed of trust was executed in good faith by the directors of a corporation to secure bona fide indebtedness, it was valid. The other instructions showed that the court acted on the theory that the only question as to good faith was as to the honesty of the debts. Held, that the charge, taken with the other instructions, did not sufficiently show that the good faith required was that of the directors to the corporation and its other stockholders.

Per Brace, P. J., and Valliant, J.

8. The directors of an insolvent corporation can execute preferential mortgages to themselves to secure bona fide debts, if they act in good faith towards the other stockholders.

Per Brace, P. J., and Valliant, J.

9. A charge that unless the jury believed that the directors of an insolvent corporation, in executing preferential mortgages to themselves, acted in good faith and honesty, they must find them fraudulent, should set out the duties of the directors in respect to the act, so that the jury could know what was the test of the good faith and honesty required.

Per Brace, P. J., and Valliant, J.

10. Knowledge of the trustee in a deed of trust, of fraud in its execution, is imputed to the creditors named therein.

Per Brace, P. J., and Valliant, J.

11. The directors of a corporation have no authority to execute a trust deed except by resolution regularly adopted at a board meeting.

Per Brace, P. J., and Valliant, J.

12. A fraudulent intent may be shown by inference from the acts of the party and by the facts and circumstances of the case.

Per Brace, P. J., and Valliant, J.

13. The question whether a trust deed of a corporation conformed to the resolution of the directors ordering its execution is for the court.

Per Brace, P. J., and Valliant, J.

14. Notes executed by the president of a corporation to certain directors, who are creditors, are not subject to the prima facie presumption of fraud which attaches to the preferential trust deed securing them, executed by the directors, on the corporation becoming insolvent.

Per Brace, P. J., and Valliant, J.

15. A statutory bond, in the language of the statute, was conditioned to indemnify against damages in consequence of the "seizure and sale" of the goods attached. Held, that another provision of the statute, that the party injured could sue in consequence of a levy "or" sale, should be read into the bond.

Per Brace, P. J., and Valliant, J.

16. On the issue of the authority of directors of a corporation to execute a trust deed, the purported minutes of the alleged meetings at which the action was taken, though not evidence of the truth of their statements, were evidence of the fact that they were written in the minute books as minutes of the meeting, which fact the jury could consider with the evidence tending to show that there were such meetings and what occurred at them.

Per Brace, P. J., and Valliant, J.

Appeal from St. Louis circuit court; Daniel Dillon, Judge.

Action by the state, for the use of and at the relation of J. Hugo Grimm, trustee, against the Manhattan Rubber Manufacturing Company and American Surety Company of New York. There was a judgment for plaintiff, and defendants appeal. Reversed.

This is a suit upon the statutory bond given by a plaintiff in attachment to the sheriff to indemnify a third party, claimant of the property attached. The facts of the case are substantially as follows:

The Peters Rubber & Supply Company was a corporation doing business in St. Louis in 1895. There were but three directors, viz. Charles C. Peters, James Ruane, and Charles W. Ohrendorf, who were respectively president, vice president, and secretary. Peters owned nearly all the stock. Ohrendorf and Ruane owned each a small part, and had very little to do with the business, both being engaged in other pursuits, and the business of the corporation was under the sole management of Peters. In December, 1895, the corporation was indebted as follows: Third National Bank, $10,000; Continental Bank, $4,700 Berthold Lange, for Director Ohrendorf, $9,155.99; Director Ruane, $420.20; Graton Knight Manufacturing Company, $9,027.45; Metropolitan Rubber Company, $10,543.74; Manhattan Rubber Manufacturing Company, $9,399.78; Cable Rubber Company, $621.50; Boston Woven-Hose Company, $921.73; Milford Shoe Company, $534.65; Kelly-Goodfellow Shoe Company, $264.52; Western Advertising Company, $400; W. L. Williamson, $265.25; New York Leather-Belting Company, $219.44; aggregating over $50.000. The debts owing to the Third National Bank and the Continental Bank were evidenced by notes indorsed by Directors Ohrendorf and Ruane. The debt to Lange was evidenced by notes which belonged to Ohrendorf, and by him turned over to Lange for the purpose of having them appear in his name in the deed of trust presently to be mentioned. The Ruane debt was evidenced by note. As to the rest of those debts, Directors Ohrendorf and Ruane were under no individual liability and had no interest. On December 19, 1895, Peters was confined to his home with serious illness, and Ohrendorf looked into the affairs of the corporation, and became alarmed on account of the debts for which he was indorser and those owing to himself. He then applied to his personal attorney, Mr. Grimm, for advice as to the best method of securing himself. Mr. Grimm advised the execution of a deed of trust conveying all the property of the corporation to secure the debts of the concern, applying the proceeds of the property to the payment of the debts, not pro rata, but in the order to be enumerated in the deed, naming first those on which he was indorser, then the debt due him, then the debt due Director Ruane, and after that the other debts. It was also concluded between Ohrendorf and his attorney that it would look better if his debt did not appear in the deed in his own name, and for that reason it was put in the name of his friend, Berthold Lange. Acting on this advice of his attorney, Ohrendorf conferred with Ruane, who approved the scheme. The two went to the home of Mr. Peters, and according to the testimony of these two, which is all the evidence we have on that point, Peters agreed to it. That was Thursday, December 19th. They left, with the understanding that the three should meet at the store on the following Monday and execute the deed. But during that interview Ohrendorf became impressed with the idea that Peters was going to die, and with this thought in mind they had the deed drawn by Mr. Grimm, and on Saturday Mr. Ruane and a notary took it to Mr. Peters' house for him to execute. He read it, according to their testimony, and was about to sign it, when the notary asked him if he had the corporate seal at hand, and, on being answered in the negative, the notary declined to take the acknowledgment, and he and Ruane went away, leaving the deed in Peters' possession. The next day, Sunday, Peters sent to the store and got the seal. On Monday, at 9 a. m., the notary returned to Peters' house, but, as he testified, was met at the door by Mrs. Peters, who stated that her husband was too ill to see any one or attend to business, and declined to admit the notary, and declined to give him the deed or seal. The notary immediately went down town, and reported these facts to Ruane, and he and Mr. Grimm, the attorney, requested the notary to go to Mr. Peters' house again, which he did at about 11 a. m. same day, and met with same refusal, and immediately reported result to Mr. Ruane. Then Ohrendorf and Ruane held a meeting, ordered a new seal to be...