Wilson v. Baker Clothing Co.

• Court: United States State Supreme Court of Idaho
• Writing for the Court: SULLIVAN, J.
• Citation: 25 Idaho 378,137 P. 896
• Parties: L. C. WILSON, Receiver, Appellant, v. BAKER CLOTHING CO., a Corporation, Respondent
• Decision Date: 30 December 1913

137 P. 896

25 Idaho 378

L. C. WILSON, Receiver, Appellant,
v.
BAKER CLOTHING CO., a Corporation, Respondent

Supreme Court of Idaho

December 30, 1913

COMPLAINT - DEMURRER - INSOLVENT CORPORATION - PREFERENCES - LEGAL AND ILLEGAL-STATUTORY PROHIBITION.

1. Held, that the court did not err in sustaining the demurrer to the complaint and entering a judgment of dismissal.

2. A depositor who actually knows that a bank is insolvent and does nothing but draw his check and present it for payment, and it is paid in the usual course of business, cannot be required to refund the amount so withdrawn.

3. A corporation, although insolvent, holds its assets just as a natural person holds his property, with the same power to dispose of it to secure or pay its debts, and neither a private person nor a corporation can fraudulently dispose of his or its property to the injury or damage of his or its creditors.

4. The property of a corporation, in one sense, is a trust fund for the payment of its debts, but this only means that such property cannot be distributed among its stockholders or applied to any purpose foreign to the legitimate business of the corporation until its debts are paid.

5. An insolvent corporation is not prohibited by the statutes of this state from preferring certain creditors over others in the due course of business where such preference is not collusively or fraudulently made.

[25 Idaho 379]

6. Merely alleging that an act was collusive and fraudulent is not sufficient. The facts constituting the collusion or fraud must be alleged.

7. Preferences that are made by a bank through conspiracy or fraud with the creditor may be set aside on proper application.

APPEAL from the District Court of the First Judicial District, in and for Shoshone County. Hon. W. W. Woods, Judge.

Action by a receiver of an insolvent bank to recover from a depositor money which such depositor checked out of the bank. Demurrer to the complaint sustained and judgment of dismissal entered. Affirmed.

Demurrer sustained, with costs in favor of respondent.

Jas. E. Babb and J. H. Wourms, for Appellant.

Cases involving the liability of a depositor of a bank who, with knowledge of its insolvency, has withdrawn his money therefrom are not numerous, and by far the greater number have been determined under particular statutes. (McGregor v. Battle, 128 Ga. 577, 58 S.E. 28, 13 L. R. A., N. S., 185; Livingstain v. Columbian Banking & Trust Co., 81 S.C. 244, 62 S.E. 249; Burrell v. Bennett, 20 Wash. 644, 56 P. 375; Cook v. Moody, 18 Wash. 114, 63 Am. St. 872, 50 P. 1020; Conover v. Hull, 10 Wash. 673, 45 Am. St. 810, 39 P. 166; James Clark Co. v. Colton, 91 Md. 195, 46 A. 386, 49 L. R. A. 698; McDonald v. Chemical Nat. Bank, 174 U.S. 610, 19 S.Ct. 787, 43 L.Ed. 1106.)

Not only was the payment of defendant's check under the circumstances alleged in the complaint a violation of every principle of fair dealing and justice to the other depositors of said bank, who had not the knowledge which defendant's president had of its insolvency, but such payment was in direct violation of sec. 3169, Rev. Codes.

The banking business, being of a public nature, must be conducted without discrimination among the patrons thereof--the depositors. (Joyce on Franchises, p. 1041, sec. 63.)

This principle is at the bottom of sec. 65 of the Idaho banking laws (chap. 124, p. 386, Sess. Laws 1911), declaring a prior lien in favor of all depositors, and the section prohibiting receipt of deposits when insolvent, and secs. 73 and 74, requiring a bank when insolvent to be wound up.

These provisions, all taken together, prohibit the transaction of business by an insolvent banking corporation. (5 Cyc. 562-564; 2 Cook on Corp., 6th ed., p. 2120.)

The principles upon which preferences have been allowed heretofore, together with the Idaho statutes with reference to banks, clearly declare illegality of a preference by an insolvent bank. (Hollins v. Brierfield Coal & Iron Co., 150 U.S. 371, 14 S.Ct. 127, 37 L.Ed. 1113.)

Our statute provides that all depositors have an equal lien upon the assets. (Blackman v. Pettengill, ante, p. 307, 137 P. 182.)

J. E. Gyde, for Respondent.

"The mere allegation of fraud in general terms without stating the facts upon which the charge rests is not sufficient, and where it is claimed that a contract is procured by fraudulent representations they must be set up." (Smith on the Law of Fraud, sec. 251; Kemmerer v. Pollard, 15 Idaho 34, 96 P. 206; Oroville & V. R. Co. v. Suprs. Plumas County, 37 Cal. 354; Heller v. Dyerville Mfg. Co., 116 Cal. 127, 47 P. 1016; Bliss on Pleading, sec. 211.)

"We are not prepared to hold that one who actually knows that a bank is insolvent, but does nothing except to draw his check and present it and receive payment over the counter in the usual course of business, would be required to refund the amount so withdrawn, less his pro rata share upon a final winding up of the affairs of the bank." (McGregor v. Battle, 128 Ga. 577, 58 S.E. 28, 13 L. R. A., N. S., 185.)

Idaho has no statute prohibiting an insolvent natural person or an insolvent corporation from making a preference of one or more of its creditors at any time prior to the insolvent corporation going into the hands of a receiver or making an assignment for the benefit of creditors. (3 Clark & Marshall on Corporations, 2365, sec. 780, and cases cited; Tiffany on Banks and Banking, 346; Merced Bank v. Ivett, 127 Cal. 134, 59 P. 393; O'Brien v. East River Bridge Co., 161 N.Y. 539, 56 N.E. 74, 48 L. R. A. 122.)

"Wherever a preference is recognized, a banking corporation can prefer creditors like an individual." (2 Bolles, Modern Law of Banking, p. 803; Grand De Tour Plow Co. v. Rude Bros. Mfg. Co., 60 Kan. 145, 55 P. 848.)

In the absence of statutory prohibition, an insolvent corporation may make a general assignment for the benefit of creditors, with preferences. (Ames & Frost Co. v. Heslet, 19 Mont. 188, 61 Am. St. 496, 47 P. 805; Warfield v. Marshall Canning Co., 72 Iowa 666, 2 Am. St. 263, 34 N.W. 467; Blair v. Illinois Steel Co., 159 Ill. 350, 42 N.E. 895, 31 L. R. A. 269; West v. Hanson Produce Co., 6 Colo. App. 467, 41 P. 829; National Bank v. George M. Scott & Co., 18 Utah 400, 55 P. 374; Colorado Fuel & Iron Co. v. Western Hardware Co., 16 Utah 4, 50 P. 628; Levering v. Bimel, 146 Ind. 545, 45 N.E. 775; Slack v. Northwestern Nat. Bank, 103 Wis. 57, 74 Am. St. 841, 79 N.W. 51; Bank of Montreal v. Potts Salt & Lumber Co., 90 Mich. 345, 51 N.W. 512.)

SULLIVAN, J. Ailshie, C. J., and Stewart, J., concur.

OPINION

[25 Idaho 381] SULLIVAN, J.

This is an appeal from a judgment of dismissal entered on an order sustaining the respondent's demurrer to the appellant's amended complaint. The action was brought by the receiver of the State Bank of Commerce of Wallace against the defendant corporation, the Baker Clothing Company, to recover the sum of $ 2,000, which the amended complaint alleges was fraudulently withdrawn from said bank by the respondent in contemplation of said bank's insolvency, and for the purpose and with the intent of securing to the defendant corporation a preference over other creditors and depositors of said bank.

The allegations of the amended complaint set forth the organization of said State Bank and allege that it was transacting a general banking business at Wallace, Idaho, and that it continued to [137 P. 897] conduct a banking business for a number of years and down to May 12, 1911, when it availed itself of the provisions of sec. 70 of chap. 124 of the Session Laws of 1911, [25 Idaho 382] by placing its affairs in the hands of the state bank commissioner.

It is alleged that on May 12, 1911, and for a long time prior thereto, and...