Union Trust & Savings Bank v. Idaho Smelting & Refining Co.

• Decision Date: 03 October 1913
• Citation: 24 Idaho 735,135 P. 822
• Court: Idaho Supreme Court
• Parties: UNION TRUST & SAVINGS BANK, Respondent and Plaintiff, v. IDAHO SMELTING & REFINING CO. et al., Defendants and Respondents, and TITLE GUARANTY & SURETY CO., Intervenor and Appellant

135 P. 822

24 Idaho 735

UNION TRUST & SAVINGS BANK, Respondent and Plaintiff, v. IDAHO SMELTING & REFINING CO. et al., Defendants and Respondents, and TITLE GUARANTY & SURETY CO., Intervenor and Appellant

Supreme Court of Idaho

October 3, 1913

JUDGMENT ON PLEADINGS-CORPORATE BONDS AND MORTGAGE-CONSTITUTIONAL LAW-SOLVENCY OF CORPORATION-INTERVENTION-RIGHT OF AMENDMENT.

1. As to whether a corporation may, under the provisions of sec. 9 art. 11, of the state constitution, issue its bonds secured by mortgage for the payment of pre-existing indebtedness or for a pledge as collateral for pre-existing indebtedness mooted but not decided.

2. Where a third party seeks to intervene in a foreclosure suit and to have the mortgage or trust deed which is sought to be foreclosed set aside and canceled on the ground that it was issued by a corporation in violation of sec. 9 of art. 11 of the state constitution, and the intervenor alleges that it has a valid claim against the corporation which executed such mortgage which the corporation should pay, but fails to allege the insolvency of the corporation, or to show that intervenor has prosecuted its claim to judgment, or has made any attempt or effort to collect the same from the corporation, or that an attempt to do so would have been useless or futile, and has failed to allege that the corporation was unable to meet the obligation or that the same could not be collected from the corporation, held, that the complaint in intervention does not state facts sufficient to entitle intervenor to any relief in the foreclosure suit.

3. The assumption by the purchaser of real property of a pre-existing mortgage indebtedness as a part of the purchase price of such property constitutes a valuable consideration for the sale and transfer of the property.

4. The fact that a corporation has failed to pay interest on its bonds as the same fell due would constitute a circumstance as a part of the proof showing that such corporation was insolvent; but, standing alone as an isolated fact set up in the pleading, it is not sufficient from which a court may draw the conclusion or find that the corporation so failing to pay interest was insolvent.

5. The fact that one cannot or does not meet his obligations as they fall due does not of itself establish the fact that he is insolvent.

6. In order to render the provisions of sec. 15, art. 11, of the state constitution applicable to the sale or transfer of the property of a corporation, it must appear that the debt which it is sought to recover was "contracted or incurred in the operation, use or enjoyment" of the franchise or privileges accorded to such corporation under the constitution or statutes of the state.

7. Under the provisions of sec. 4111 of the Rev. Codes, any party may intervene in an action who has "an interest in the matter in litigation, in the success of either of the parties or an interest against both."

8. Where a motion is made by the plaintiff for a judgment on the pleadings, and an intervenor who has filed his complaint in intervention stands upon his complaint and argues the same and submits the matter to the judgment of the court, and it does not appear that he was taken by surprise, or in any way taken unawares, after the motion was granted and judgment was entered in favor of the plaintiff as prayed for by the complaint, it was too late for the inter- venor to move to vacate and set aside the judgment and for leave to file an amended complaint in intervention, and the trial court properly denied such a motion.

APPEAL from the District Court of the Eighth Judicial District for Bonner County. Hon. John M. Flynn, Judge.

Suit for foreclosure of a mortgage. Complaint in intervention by Title Guaranty & Surety Co. Judgment for the plaintiff. Intervenor appealed. Affirmed.

Judgment affirmed. Costs awarded in favor of respondent.

Charles L. Heitman, for Appellant.

It is contended by plaintiff's counsel that there is nothing in the record to show that the defendant mortgagor is now, or was, insolvent at the time of the execution of the mortgage. There is no direct allegation in the complaint in intervention to that effect, but it is submitted that plaintiff's complaint itself shows such a state of facts from which the mortgagor's insolvency must be conclusively presumed. (French v. Andrews, 81 Hun, 272, 30 N.Y.S. 796; In re Black, 3 F. Cas. 495, F. Cas. No. 1457, 2 Ben. 196; Phipps v. Harding, 70 F. 468, 17 C. C. A. 203, 30 L. R. A. 513.)

Nearly five years have elapsed since the first instalment of interest was due on these mortgage bonds, and not a dollar has been paid. Such a condition of affairs conclusively establishes insolvency. One corporation cannot transfer its assets and business to another corporation, itself ceasing to do business, and no provision being made for the payment of the debts of the selling corporation. (Tacoma Ledger Co. v. Western Home Assn., 37 Wash. 467, 79 P. 992.)

Our constitution, art. 2, sec. 15, prohibits a corporation from alienating its property "so as to release or relieve the franchise or property held thereunder from any of the liabilities of the lessor or grantor, or lessee or grantee, contracted or incurred in the operation, use, or enjoyment of such franchise or any of its privileges." (Seymour v. Boise R. R. Co., ante, p. 7, 132 P. 427.)

Intervenor's right to intervene is governed by sec. 4111, Rev. Codes. (Pence v. Sweeney, 3 Idaho 181, 28 P. 413; Gold-Hunter Min. Co. v. Holleman, 3 Idaho 99, 27 P. 413; Lacroix v. Menard, 3 Mart. (La.), N. S., 339, 15 Am. Dec. 161; Potlatch Lumber Co. v. Runkel, Intervenor, 16 Idaho 192, 101 P. 396, 18 Ann. Cas. 591; Coffey v. Greenfield, 55 Cal. 382.)

It is contended that intervenor must secure a judgment and exhaust its remedy by execution. Such is not the law. An illegal corporate mortgage may be attacked by a general creditor where the corporation is insolvent. (3 Cook on Corporations, sec. 788; Mellen v. Moline Iron Works, 131 U.S. 352, 9 S.Ct. 781, 33 L.Ed. 178; Case v. Beauregard, 101 U.S. 690, 25 L.Ed. 1004.)

Where it appears by the bill that the debtor is insolvent and that the issuing of an execution would be of no practical utility, the issue of an execution is not a necessary prerequisite to equitable interference. (Turner v. Adams, 46 Mo. 95; Postlewait v. Howes, 3 Iowa 365; Ticonie Bank v. Harvey, 16 Iowa 141; Botsford v. Beers, 11 Conn. 369; Payne v. Sheldon, 63 Barb. (N. Y.) 169.)

Whenever a creditor has a trust in his favor, or a lien upon property for the debt due him, he may go into equity without exhausting legal processes or remedies. (Tappan v. Evans, 11 N.H. 311; Holt v. Bancroft, 30 Ala. 193.)

Plaintiff should have objected to the complaint in intervention at the time it was filed by motion to strike. By answering the complaint in intervention plaintiff waived its right to question intervenor's right to participate in the action and to obtain the relief to which the proofs and admissions show it entitled. (Smith v. Penny, 44 Cal. 161; Donner v. Palmer, 51 Cal. 629; Lacroix v. Menard, 3 Mart. (La.), N. S., 339, 15 Am. Dec. 161.)

Right cannot be affected by the granting of a nonsuit against the plaintiff, nor by the plaintiff's dismissal of the action. (Elliott v. Ivers, 6 Nev. 287; Poehlmann v. Kennedy, 48 Cal. 201.)

Objection to intervention because of insufficiency of complaint or want of right must be made at the time, or the right to object will be considered waived. (Bangs v. Dunn, 66 Cal. 72, 4 P. 963; People v. Reis, 76 Cal. 269, 18 P. 309.)

A judgment on the pleadings is not proper when there is an issue joined upon any single material proposition. (Norris v. Lilly, 147 Cal. 754, 109 Am. St. 188, 82 P. 425; 25 Cyc. 769.)

The application to vacate the judgment should have been resolved in favor of the intervenor. (Humphreys v. Mining Co., 21 Idaho 127, Ann. Cas. 1913D, 433, 120 P. 823.)

A motion to amend the complaint after a nonsuit has been directed is not too late. (Medbury v. Wattson, 6 Met. (Mass.) 246, 39 Am. Dec. 726; 1 Ency. Pl. & Pr. 605.)

In the case at bar the amended complaint in intervention sets up additional defenses. (State v. Coleman, 71 Wash. 15, 127 P. 570.)

G. H. Martin and W. E. Cullen, for Respondent.

Insolvency of the Idaho Smelting & Refining Co. must be shown affirmatively by the intervenor, as of the date of the execution of the trust deed, to entitle it to the relief prayed for in this action. (Thomp. on Corp., sec. 6128; Metcalf v. Munson, 10 Allen (Mass.), 491; Vennard v. McConnell, 11 Allen (Mass.), 555; Hollins v. Brierfield Coal & Iron Co., 150 U.S. 371, 14 S.Ct. 127, 37 L.Ed. 1113; Bank v. Dovetail Co., 143 Ind. 550, 52 Am. St. 435, 40 N.E. 810; Louisville Banking Co. v. Etheridge, 19 Ky. Law Rep. 908, 43 S.W. 170; Alberger v. Bank, 123 Mo. 313, 27 S.W. 657; Waggoner etc. Co. v. Ziegler, 128 Mo. 473, 31 S.W. 28; Shaw v. Robinson, 50 Neb. 403, 69 N.W. 947; Bank v. Newton Cotton Mills, 115 N.C. 507, 20 S.E. 767; Weyeth Hdw. Co. v. James, 15 Utah 110, 47 P. 604; O'Bear Jewelry Co. v. Volfer, 106 Ala. 205, 54 Am. St. 31, 17 So. 525, 28 L. R. A. 707; 3 Clark & Marshall on Corp., p. 2331; and note to Conover v. Hull, 10 Wash. 673, 45 Am. St. 810, 39 P. 166.)

A corporation is not insolvent, necessarily, because it is embarrassed and unable to pay its debts, as they become due, or even because all of its assets, if sold, would not bring enough to pay all of its liabilities, if it is still in good faith engaged in the business for which it is created, with the prospect and expectation of continuing. (3 Clark & Marshall on Corp., p. 2370.)

It does not appear in this case that either the Fasset or the Traders' State Bank debt was contracted or incurred in the operation, use or...