The Grand De Tour Plow Company v. Rude Brothers Manufacturing Company
| Citation | 55 P. 848,60 Kan. 145 |
| Decision Date | 07 January 1899 |
| Docket Number | 10987 |
| Parties | THE GRAND DE TOUR PLOW COMPANY v. RUDE BROTHERS MANUFACTURING COMPANY |
| Court | Kansas Supreme Court |
Decided January, 1899.
Error from Sedgwick district court; D. M. DALE, judge.
Judgment reversed.
Stanley Vermilion & Evans, and Morrison & Bethea, for plaintiff in error.
J. V Daugherty, J. D. Huston, and Adams & Adams, for defendant in error.
This is a controversy between the preferred and unpreferred creditors of the Wichita Implement Company, a corporation which had been in a failing condition for some time prior to November 21, 1895. On that day the corporation preferred one of its creditors, the Grand De Tour Plow Company, by mortgaging and transferring to that company a considerable part of its property and assets; and at the same time some other creditors were in like manner preferred. In this proceeding the unpreferred creditors challenged the validity of the mortgage and the transfer that was made to the Grand De Tour Plow Company, and asked for an accounting by that company of the property so mortgaged and transferred to it. The officers of the Wichita Implement Company realized the failing condition of the corporation and its inability to meet its obligations, and on November 16, 1895, a representative of the company visited the Grand De Tour Plow Company for the purpose of obtaining an extension of time, knowing that unless an extension was granted it could no longer carry on its business. The extension was refused, and on November 21, 1895, the mortgage in question was executed, and the transfer of the property and assets was made to the Grand De Tour Plow Company. After the transfer was made, the Wichita Implement Company actually quit and went out of business, and has never since resumed.
The trial court set aside the chattel mortgage and other conveyances made by the implement company to the Grand De Tour Plow Company, holding that an insolvent corporation has no power, while in such condition, to transfer its property, or any part thereof, to one or more creditors to secure them, to the exclusion of others.
After the action was begun, the court, upon the application of the defendants in error, appointed a receiver to take possession of the property the transfer of which was sought to be set aside, and it is now contended that this proceeding should be dismissed because the receiver has not been made a party hereto. The receiver was not a party to the suit in any sense, and his name did not appear in any of the pleadings. He was not appointed as the representative of the insolvent corporation with authority to take possession of all its property and to carry on and conclude its business, but was a mere stakeholder, to keep possession of the property during the pendency of the litigation, and to distribute and dispose of it as the judgment of the court might direct. The assets placed in his custody were only a fraction of the property of the insolvent corporation, and, instead of standing as its representative, he was, rather, an officer of the court, entrusted with the possession of the property during the pendency of the suit, in which he had no interest whatever. Having no interest in the property, nor any standing in the case as a party, he had no right to appeal or to prosecute proceedings in error, and it was not necessary or proper to make him a party in this proceeding.
On the merits, the question presented is whether an insolvent corporation, which has made an unsuccessful attempt to obtain further extension of credit and has determined to quit business, may prefer one or more of its creditors. Although there is a diversity of opinion upon the question, the great weight of authority is that a corporation has the same power to make preferences among its creditors that a partnership or an individual has. Most of the courts which deny the right to prefer do so upon the theory that the assets of an insolvent corporation constitute a trust fund which must be applied pro rata to the payment of all its creditors. Insolvency alone, however, does not operate as a dissolution of the corporation, nor does it create a specific lien or direct trust in the corporate assets in favor of the...
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