Stough v. Ponca Mill Co.

• Decision Date: 08 April 1898
• Citation: 54 Neb. 500,74 N.W. 868
• Parties: STOUGH ET AL. v. PONCA MILL CO. ET AL.
• Court: Nebraska Supreme Court

54 Neb. 500

74 N.W. 868

STOUGH ET AL.

v.PONCA MILL CO. ET AL.

Supreme Court of Nebraska.

April 8, 1898.

Syllabus by the Court.

1. The assets of an insolvent corporation constitute a trust fund in the hands of its directors, to be used by them in paying corporate debts.

2. A mortgage executed by an insolvent corporation to secure a debt due from it to one of its officers or directors is illegal and void.

3. So, also, is a mortgage executed to a third person to secure a debt for the payment of which one of its officers or directors is personally bound.

4. One who buys a corporation note unlawfully issued is not an innocent purchaser where it appears on the face of the note that the payee therein named, and the officer by whom it was executed, is the same person.

5. Where money is borrowed by stockholders of a corporation for its benefit, and actually used in its business, the corporation is legally liable for the repayment of such money.

Appeal from district court, Dixon county; Robinson, Judge.

Action by S. B. Stough and others against the Ponca Mill Company and S. P. Mikesell, intervener. Judgment for intervener, and plaintiffs appeal. Affirmed.Gantt & Welty, for appellants.

A. E. Barnes and J. J. McCarthy, for appellees.

SULLIVAN, J.

S. B. Stough, L. E. Baltzley, William Sheffel, and Peter Sheffel commenced this action in the district court of Dakota county to foreclose a mortgage executed to their assignor, S. K. Bittenbender, by the Ponca Mill Company, on the 11th day of July, 1894. The mill company was a corporation engaged in the grain and milling business at Ponca from the latter part of 1886 until February 3, 1893, at which time, its mill and elevator being destroyed by fire, it ceased to do business. The mortgage in suit covered the entire property of the company, and was given, pursuant to a resolution adopted by the board of directors, to secure the payment of four promissory notes for the aggregate sum of $3,400. Each of the plaintiffs is the assignee and owner of one of these notes, and all joined in this action to foreclose the mortgage. The corporation was duly served with summons, but it did not answer or otherwise appear in the case. On his application, and without objection on the part of the plaintiffs, S. P. Mikesell, a creditor and stockholder of the corporation, was permitted to intervene. In his answer to the petition, Mikesell alleged that the mill company was insolvent on July 11, 1894; that there was no consideration for the mortgage; that it was executed by John Stough as president and S. K. Bittenbender as secretary of the corporation, for the purpose of defrauding the creditors and stockholders; and that the plaintiffs were not bona fide purchasers of said notes. The trial in the district court resulted in favor of the intervener. There was a decree canceling the notes and mortgage, and the plaintiffs have appealed the cause to this court.

Plaintiffs first insist that the insolvency of the corporation is not established by the evidence. The trial court found that the value of the assets of the mill company was $4,500, and its liabilities $8,500. This latter sum included an item of $6,000, borrowed from one W. L. Ogden by Mikesell and two other stockholders, for the benefit of the company, and which was actually used in its business. Plaintiffs argue that the company was not directly liable to Ogden for this sum, and therefore it should not be counted as a liability. But we think it should. The company received the money, and was under a legal obligation to repay it, either to Mr. Ogden or to the stockholders on whose credit it was obtained. The finding of the district court that the corporation was insolvent...