Wyeth Hardware & Manufacturing Co. v. James-Spencer-Bateman Co.

• Decision Date: 12 January 1897
• Parties: WEYETH HARDWARE & MANUFACTURING COMPANY, APPELLANT, v. JAMES-SPENCER-BATEMAN COMPANY ET AL., RESPONDENTS
• Court: Utah Supreme Court

47 P. 604

15 Utah 110

WEYETH HARDWARE & MANUFACTURING COMPANY, APPELLANT, v. JAMES-SPENCER-BATEMAN COMPANY ET AL., RESPONDENTS

Supreme Court of Utah

January 12, 1897

Appeal from the Third district court, Salt Lake county. Hon. M. L Ritchie, Judge.

Action by the Weyeth Hardware and Manufacturing Company against the James-Spencer-Bateman Company and another to set aside a deed of assignment.

From a judgment of dismissal, plaintiff appeals.

Affirmed.

N. W Sonnedecker, for appellant.

Young and Moyle, for respondents.

No briefs were filed.

BARTCH J. MINER, J., concurs. ZANE, C. J., concurring in part and dissenting in part.

OPINION

BARTCH, J.:

It appears from the complaint in this case that on the 27th day of June, 1896, the defendant James-Spencer-Bateman Company, by its board of directors regularly assembled, declared itself insolvent, and unable to further carry on the business for which it was incorporated, and by deed of assignment transferred all of its property, both real and personal, to the defendant George H. Horne, as assignee, in trust, for the purpose of paying the claims of its creditors. In the deed of assignment the claims of certain creditors are preferred over that of the plaintiff and those of other creditors, and required to be paid in the order of preference indicated. The deed also provides that, in case any balance shall remain in the hands of the assignee after all claims shall have been paid, then such balance shall be paid to the assignor. It is alleged that the assets of the concern amounted to over $ 18,800, and that the liabilities exceeded the assets by about $ 15,000. The prayer is that a receiver be appointed; that the deed of assignment be set aside; that the assets of the defendant corporation be declared a trust fund for the payment of the creditors, including the plaintiff's claim, and costs; and that such relief be granted as may be just and equitable. To the complaint the defendants interposed separate demurrers, on the ground that there is a misjoinder of parties parties defendant, that several causes of action have been improperly united, and that the complaint does not state a cause of action. The demurrers were sustained, and, the plaintiff electing to stand by its complaint, the court entered judgment of dismissal, and for costs. From this judgment the plaintiff appealed.

The important question presented is whether an insolvent corporation in this state has power, in the disposition of its corporate property, to prefer, by deed of assignment, one creditor or class of creditors over other creditors whose claims are equally meritorious. The contention of appellant is that, under the laws of this state, when a corporation has become insolvent, and ceased to pursue the business for which it was incorporated, all its assets constitute a trust fund, to be equally and ratably distributed among all its creditors, and that a deed of assignment, in which it prefers some of its creditors over others, and conveys all its property to a trustee for the purpose of paying its creditors in the order of preference, is fraudulent and void. To sustain this position considerable stress is placed on the constitution and laws of the state, and the provisions referred to will be considered, because, if there is any constitutional or statutory provision which prohibits a corporation from making preferences among its creditors, then the contention of appellant must be sustained. A corporation is a mere creature of law, and has such powers only as are expressly granted by the state, or as are necessary to carry into effect the powers expressly granted. 2 Kent, Comm. 298. It therefore has no power to do any act foreign to the law of its creation.

The provisions of the constitution which it is claimed affect the question under consideration are contained in article 12, section 7 of which reads: "No corporation shall lease or alienate any franchise so as to relieve the franchise or property held thereunder from the liability of the lessor, or grantor or grantee contracted or incurred in operation, use or enjoyment of such franchises or any of its privileges." This section simply prohibits a corporation from leasing or alienating its franchise, so as to relieve the franchise or property from the liabilities of the lessor or grantor or grantee; but it does not prohibit any corporation from conveying its corporate property to a trustee for the purpose of subjecting it to such liabilities, and the defendant company, by conveying its corporate property expressly for the purpose of subjecting it to liabilities of the grantor, committed no act in contravention of this provision of the constitution. Section 10 reads: "No corporation shall engage in any business other than that expressly authorized in its charter, or articles of incorporation." This limits the business of every corporation to that authorized by the law of its creation, but the section contains no restrictions as to the mode of discharging liabilities which may be created in the conduct of the business which the corporation may lawfully transact. Section 18, the remaining one to which reference is made, merely provides for an individual liability of the stockholders of every corporation and joint-stock association for banking purposes, but contains no provisions relating to the manner in which a corporation should pay the claims of its creditors. Whether or not these provisions of the constitution are applicable to a corporation like the one at bar, which was organized long before the constitution became the organic law of this state, it is not necessary, nor is it our purpose, to decide in this case; but, if it were conceded that they were applicable, it would be difficult to perceive in what respect they could affect the power of a corporation to make preferences among its creditors, if such power exists independent of the constitution.

The statutory provisions, with one exception, which are invoked in behalf of the appellant, may be found in chapter 87, Sess Laws 1896. Section 2 provides how a corporation may be organized, and what shall be stated in the agreement of the incorporators, which they must enter into, and also prescribes how the agreement shall be executed. Section 3 provides when and with what officers the agreement shall be deposited for record after its execution. Section 4 refers to the qualification of officers, and prescribes that, before entering upon their duties, they must make oath "that they will discharge the duties of such office to the best of their judgment, and that they will not do nor consent to the doing of any matter or thing relating to the business of the corporation with intent to defraud any stockholder or creditor, or the public." The oath here required is pertinent and entirely proper, whether the corporation has power to prefer creditors or not. Under either theory of the law, fraud will vitiate the acts of officers. Section 6, among other things, refers to the powers of a corporation, and provides that it "shall have power to make contracts, to sue and be sued, to have a seal, which it may alter at its pleasure, to buy, use and sell, or dispose of personal property, to buy, use, sell or dispose of all such real estate as may be necessary for its general business and such as shall be necessary for the collection of its debts, or judgments, or decrees in its favor." A fair interpretation of this section gives a corporation the same right of disposition of its corporate property as an individual has to dispose of its property. And such interpretation is in harmony with the provisions of the entire act, of which this section forms a part, as an examination will show; for nowhere is there manifest any intention on the part of the legislature to abridge the jus disponendi as to corporations. In the construction of statutes the intent of the legislature must prevail, and such intent may be gleaned from the context. Section 7, referred to, provides how the capital stock of a corporation may be increased or diminished, how its name may be altered and the number of its officers changed, and how corporations may consolidate. It has no bearing whatever on the question at issue. Section 8 provides a method for the dissolution of a corporation, and section 9, the remaining section under the act of 1896 referred to by counsel for the appellant, provides that, after dissolution, the corporate powers shall continue for certain purposes, specified. Whether or not these several provisions of the act of 1896 apply to corporations organized under the laws of the late territory of Utah, it is not necessary to decide in this case, because at the time of the organization of the defendant corporation the statutes contained substantially the same provisions, and because a careful scrutiny fails to reveal any prohibitory or restrictive provision, respecting preferential assignments by corporations, in any of the statutes in force then or now. Counsel for the appellant has also referred to section 3330, Comp. Laws 1888, which, among other things, provides that a receiver may be appointed, by the court in which an action is pending or has passed to judgment, "in the cases when a corporation has been dissolved, or is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights." This authorizes the appointment of a receiver when an action is pending or has passed to judgment; and, doubtless, after proceedings in equity have been instituted for such purposes, and the corporate property of a corporation has become subjected to the control of a court of equity, the corporation has no longer any power to make an assignment of such property. But such is not the case here. There is no contention that...