Walker Bros. v. Eastern Motors Co.

• Decision Date: 18 November 1927
• Docket Number: 4337
• Court: Utah Supreme Court
• Parties: WALKER BROS., Bankers, v. EASTERN MOTORS CO. et al

262 P. 97

70 Utah 543

WALKER BROS., Bankers, v. EASTERN MOTORS CO. et al

No. 4337

Supreme Court of Utah

November 18, 1927

Appeal from District Court, Seventh District, Carbon County Dilworth Woolley, Judge.

Action by Walker Bros., Bankers, against the Eastern Motors Company George M. Miller, R. M. Jones, and others. From a judgment for plaintiff against defendants Miller and Jones, they appeal.

REVERSED AND REMANDED.

King &amp Schulder, of Salt Lake City, and L. A. McGee, of price, for appellants.

B. W. Dalton, of Price, for respondent.

CHERRY, J. THURMAN, C. J., and STRAUP, HANSEN, and GIDEON, JJ., concur.

OPINION

CHERRY, J.

This action was brought by the plaintiff for the purpose of enforcing, against the individual defendants, a judgment previously obtained by the plaintiff against the Eastern Utah Motors Company, a corporation. A trial was had before the court, resulting in a judgment in favor of the plaintiff and against the defendants George M. Miller and R. M. Jones, from which both have appealed.

The established facts relevant to the controversy may be briefly stated. The Eastern Utah Motors Company was a corporation doing an automobile and garage business at Huntington, Utah. At the times in controversy, defendant, George M. Miller, was president and director and defendant, R. M. Jones, was secretary and director, of the corporation. The corporation owed the plaintiff, upon two promissory notes, the sum of $ 2,060, and also owed the First National Bank of Price, upon one promissory note, the sum of $ 11,275, upon which the defendant, George M. Miller, was secondarily liable as indorser.

On or about September 18, 1921, and when the corporation was in a failing condition and insolvent, defendants Miller and Jones, as officers of the corporation, sold five used automobiles belonging to the corporation to the defendant Mina S. Miller for $ 2,180. The sale was without fraud and for the full value of the property sold. After the sale, and at the direction and request of defendant, George M. Miller, the purchase price was, by the defendant Mina S. Miller, paid to the First National Bank of Price in part payment of its note against the corporation defendant. Thereafter the plaintiff obtained a judgment upon its notes against the corporation, and after having exhausted the legal remedies for its collection, without success, brought this action.

The judgment was rendered against the appellants upon the grounds that the transaction amounted to a preference of the debt of the First National Bank of Price, and as defendant, George M. Miller, a director of the corporation, was secondarily liable on the debt, it was indirectly a preference to him, and therefore unlawful, and constituted a wrongful diversion and conversion of the corporate funds to the prejudice of the plaintiff.

Opposing contentions are made on this appeal concerning the individual liability of the directors at the suit of other creditors in such case. We think the matter is concluded by the former decisions of this court.

In Noble Mercantile Co. v. Mt. Pleasant Co-operative Inst., 12 Utah 213, 42 P. 869, it was held that the directors of an insolvent corporation, through their superior or exclusive knowledge of the corporate affairs, could not secure a benefit or advantage to themselves in derogation of the rights of other creditors, and had no power to prefer their own claims over those of other creditors. Thereafter, in Wells Fargo v. Scott, 18 Utah 127, 55 P. 81, and National Bank v. Scott, 18 Utah 400, 55 P. 374, it was held that a preference in a deed of assignment, made by the board of directors and ratified by the stockholders of an insolvent corporation, of a bona fide indebtedness evidenced by notes upon which one of its officers was an accommodation indorser, where, it appeared that the result would have been the same even if the indorser had voted against the assignment, was not in violation of law or fraudulent.

But in Hoggan v. Price River Irrigation Co., 55 Utah 170, 184 P. 536, the question was set at rest in these words:

"If a director who is a creditor of an insolvent corporation may not prefer himself, it is immaterial whether he prefers himself as a principal or as a guarantor or indorser or surety. He has no right to do by indirection that which he may not do directly. The adjudicated cases are not in harmony on this subject, but we think the better rule is that an insolvent corporation has no...