Suddath v. Gallagher

• Decision Date: 09 January 1895
• Parties: Suddath, Appellant, v. Gallagher et al
• Court: Missouri Supreme Court

28 S.W. 880

126 Mo. 393

Suddath, Appellant, v. Gallagher et al

Supreme Court of Missouri, Second Division

January 9, 1895

Appeal from Bates Circuit Court.

Reversed and remanded.

""A. B. Logan and ""R. T. Railey for appellant.

(1) The court erred in holding that the surplus of insurance was not corporate property. Respondent Garrison, being an officer and director of the corporation, could not deal with the trust property to his individual benefit. ""Bent v Priest, 10 Mo.App. 543; s. c., 86 Mo. 475; ""Foster v. Mill Co., 92 Mo. 79; ""Roan v. Winn, 93 Mo. 503; ""Ward v. Davidson, 89 Mo. 445; ""Packet Co. v. Davidson, 95 Mo. 467; ""Bennett v. Company 19 Mo.App. 349. (2) The decree finds that the corporation was dissolved, not simply that it had ceased to be a going concern. It does not state the existence of certain facts and then draw the conclusion from those facts that it was dissolved, but it is stated with all the force and effect of the term, that it was dissolved and insolvent, and whatever facts are necessary to constitute dissolution and insolvency are conclusively proven to have existed. ""Block v. Estes, 92 Mo. 318; ""Greely v. Bank, 103 Mo. 212; ""Thompson v. Greely, 107 Mo. 577. The corporation, being dissolved at the time of the appropriation of the Garrison and Gallagher note, the surplus of the insurance only was a trust fund, ought to have been distributed ""pro rata among the creditors of the corporation. R. S. 1889, sec. 2513. ""Co. v. Bank, 122 Mo. 154; ""Alberger v. Bank, 123 Mo. 313. (3) The corporation is shown by the decree to have been insolvent and dissolved at the time the surplus of the insurance money was applied to the payment of the Garrison and Gallagher note, and, Garrison and Gallagher being directors and officers, a preference could not be made in their favor, and this applies as well to a case of contingent liability such as indorsers or guarantees. ""Williams v. Jones, 23 Mo.App. 132; ""Mill Co. v. Kampe, 38 Mo.App. 229; ""Corey v. Wadsworth, 11 S. Rep. 350; ""Richards v. Ins. Co., 43 N.H. 263; ""Haywood v. Lumber Co., 64 Wis. 639; ""Sweeny v. Grape Sugar Co., 30 W.Va. 443; ""Gibson v. Trowbridge Fur. Co., 96 Ala. 357; ""Drury & Page v. Railroad, 7 Wall. 299; ""Ogden v. Murray, 39 N.Y. 202; ""Hoyle v. Railroad, 54 N.Y. 314; ""Beach v. Miller, 130 Ill. 162; ""Roseboom v. Whittaker, 132 Ill. 81; ""Co. v. Tool Co., 44 F. 231; ""Line Co. v. Varnish Co., 45 F. 7; ""Port v. Russell, 36 Ind. 60; ""Jackson v. Ludding, 21 Wall. 616; ""Olney v. Land Co., 16 R. I. 595. (4) Garrison, as president of the corporation, had no authority to appropriate assets to the payment of this demand, and this is especially true in a case like this, where he is by the act preferring himself as a creditor of the insolvent corporation, and this would be equally true if all the three directors had consented, or agreed to the preference, as Garrison and Gallagher, a majority of the directors, were interested in the preference. ""Mills Co. v. Kampe, 38 Mo.App. 229; ""Ward v. Davidson, 89 Mo. 445; ""Foster v. Planing Mill Co., 92 Mo. 79; ""Bennett v. Co., 19 Mo.App. 349; ""Hyde v. Larkin, 35 Mo.App. 365; ""Haywood v. Lumber Co., 64 Wis. 639; ""Belcher v. Sugar Refining Company, 118 Mo. 264; ""Rubber Co. v. Geo. D. Scott Co., 96 Ala. 439; ""Roseboom v. Whittaker, 132 Ill. 81; ""Hill v. Coal Mining Co., 24 S.W. 223.

""Robert M. Foster for respondent.

(1) The policies were indorsed, "loss, if any, payable to F. E. Fowler, trustee, as his interest may appear." No part of the proceeds of the policies ever became the property or money of the corporation and neither the corporation nor the receiver ever became entitled to any part of it, as the payee's interest, as it is shown, absorbed the whole of it and left something still unpaid. ""Griswold v. Ins. Co., 1 Mo.App. 100; s. c., 70 Mo. 658; ""Bidwell v. Dock Co., 40 Mo. 46; ""Kemp v. Ins. Co., 41 Mo.App. 30; ""Franklin v. Ins. Co., 43 Mo. 495; ""Holland v. Smith, 6 Esp. 11; ""Kabrick v. Ins. Co., 48 Mo.App. --. (2) Even if the corporation was confessedly insolvent at the time the insurance was effected and the payments made, there was no preference in fraud of creditors, or undue use of their trust position. (3) The presidents of corporations by general custom exercise certain powers in acting for the corporation; and being the legal head of the body, when an act is performed by him (it being objected he had no authority to assign), the presumption will be indulged in that the act is legally done and binding upon the body in the absence of proof that under the charter and by-laws of the corporation he had no such authority. ""Glover v. Lee, 140 Ill. 107; ""Smith v. Smith, 62 Ill. 493; ""Southgate v. Railroad, 61 Mo. 94; ""Brambrick v. Campbell, 37 Mo.App. 463. (4) On payment of the labor claims to the amount of $ 2,600 without express contract, Garrison became subrogated to the rights of those whose claims were satisfied. ""Bush v. Wodsworth, 60 Mich. 266; ""Hoover v. Epler, 52 Pa. St. 523; 1 Jones on Liens, 993. (5) Among the rights of the labor claimants was that to preferred payment, in case of the insolvency of the corporation. Sec. 2538, R. S. Mo. 1889; ""Foster v. Planing Mill Co., 92 Mo. 89. (6) The interest assigned by the indorsement on the policy was not in the property insured, but only in the contract of insurance. ""Franklin v. Ins. Co., 43 Mo. 495; ""Parks v. Ins. Co., 26 Mo.App. 524. (7) But if the corporation was not confessedly insolvent, though embarrassed, the directors could with other creditors rightfully secure themselves on its property. ""First. It is well settled in this state that a corporation like an individual, though insolvent, may prefer some creditors to others, even though such creditors be directors. ""Foster v. Planing Mill Co., 92 Mo. 87; ""City v. Alexander, 23 Mo. 524; ""Ketchum v. Railroad, 69 Mo. 224; ""Oil Co. v. Marlbery, 1 Otto, 587. ""Second. And a director may, in good faith, loan the corporation his money for its legitimate purposes and hold a valid claim against the corporation, but only while the corporation is a "going concern" and before it passes into the hands of a receiver, or liens attached to its property. ""Co. v. Bank, 122 Mo. 154; ""Foster v. Co., 118 Mo. 264.

OPINION

Burgess, J.

This is an action by plaintiff as receiver of the Montserrat Mining and Manufacturing Company, against defendants, to recover the sum of $ 3,000, alleged to be the property and money of said company, collected and taken charge of by the defendants as directors of said corporation, after the same became insolvent and dissolved. Plaintiff has made a full and fair statement of the salient facts in the case, which we adopt. It is as follows:

"On the ninth day of August, 1886, The Montserrat Terra Cotta Company was incorporated as a manufacturing and business corporation under the laws of the state of Missouri, and during its existence contracted a large amount of debts to divers parties, and particularly to the Farmers' Bank of Frankfort, Indiana. On the twelfth day of January, 1887, said Terra Cotta Company, by authority of its board of directors, executed and delivered a certain mortgage or deed of trust to F. E. Fowler, trustee, covering the property of said Terra Cotta Company to secure the payment of a certain note for $ 12,500 in said deed described, which said deed of trust contained the usual covenants as to insurance, taxes, etc., and said property was insured for the benefit of the holders of said note, indorsed thereon 'Loss, if any, payable to F. E. Fowler, trustee, as his interest may appear.'

"On the thirteenth day of April, 1888, and for a long time prior thereto, the said Montserrat Terra Cotta Company became and was totally dissolved, insolvent, and unable longer to do business. On the thirteenth day of April, 1888, the Montserrat Mining and Manufacturing Company was duly incorporated as a manufacturing and business corporation under the laws of the state of Missouri and continued to exist as such until about the twenty-ninth day of June, 1889. O. L. Garrison, John A. Gallagher and John H. Siegrist were the first board of directors, Garrison being the president, Gallagher the vice-president and business manager, and, as no successors were elected, they continued to be such during all the time covered by the controversy in this case. The Montserrat Mining and Manufacturing Company became the successor of the Terra Cotta Company, and continued to transact the same business theretofore carried on by the Terra Cotta Company, and at the same place, and all the property, real and personal, owned and acquired by the Terra Cotta Company up to the time of its dissolution, was transferred to the Mining and Manufacturing Company, and it assumed the balance of $ 11,000, due on said $ 12,500 note. The Montserrat Mining and Manufacturing Company continued in business until about the twenty-ninth day of June, 1889, when it became insolvent, unable longer to do business, and was also dissolved.

"Just prior to, or about the time of the dissolution of the said Mining and Manufacturing Company, it was indebted for labor to the amount of $ 2,600, there being some sixty days' labor due the men, and the defendant, Garrison, gave his check to the secretary of the company for the amount, taking the note of the company, payable to Gallagher and himself for $ 2,600, which note was indorsed by both of them, taken to St. Louis and discounted, defendant Garrison having advanced the money before he received any proceeds of the discount at the bank. This note, by renewal, was afterward increased to $ 2,700, and is the $ 2,700 note hereinafter mentioned as being paid out of the proceeds of insurance.

"On the day of October, 1889, the...