Case ID: f_64/html/0497-01.html
Source: Caselaw Access Project
Author: {"author": "JENKINS, Circuit Judge.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

WISCONSIN MARINE & FIRE INS. CO.’S BANK v. LEHIGH & F. COAL CO. (MOLSON’S BANK, INTERVENER.)
    (Circuit Court, N. D. Illinois.
    November 5, 1894.)
    1. Insolvent Corporation — UniiAwtih. Pkefekence —Wil\t OosrsTmrTKS.
    The president of an insolvent corporation, whose tangible property was in the custody of the law, ¡rave a bank ilie company’s note, payable on demand. for a debt not due. Suit was commenced on it the next day. The company filed its appearance, pleaded the general issue, waived a jury, and consented to an immediate hearing. Execution was issued, and returned nulla bona, and on the same day the bank tiled a creditor’s bill. A diredor of (he company was individually liable, as guarantor and otherwise, for the debt due such bank. Jichi an unlawful attempt to give the bank a preference over other creditors of such company.
    2. Same- •Pistiubutuw or Assets — Rights ok Creditors.
    In the absence of any attack on the bona lides of the debt, and of any actual fraud in such proceeding, such bank was entitled to share ratably with all other creditors of such company in the distribution of its assets hy a receiver.
    Bill by the Wisconsin Marine & Fire Insurance Company's Bank against the Lehigh & Franklin Coal Company, in which the Molsons' Bank intervened. Complainant demurred to the intervening petition.
    Demurrer overruled.
    0.13. More, for complainant.
    Weigley, Bulkley & Cray, for receiver.
    Beckham & Brown, for Molsons’ Bank.
    Chas. 6?. Miller, for defendant.
   JENKINS, Circuit Judge.

Treating the intervening petition as amended as proposed,--which I do not understand to be opposed, —the case stands thus: On the 17th of April, 1893, the Lehigh & Franklin Coal Company was wholly and entirely insolvent, bad ceased to do business, and its property in the state of Wisconsin had during the preceding week been attached by creditors, of all of which the complainant had knowledge. The company was indebted to I he complainant at that time; and on that date the president of the coal company executed a note, payable on demand, without grace, for $(>6,336.25, for an indebtedness not then matured. For the indebtedness to the bank one A. C. Tates, a director of the coal company, was personally and individually liable, the indebtedness being in the form of notes and drafts upon which Yates was maker, indorser, or guarantor, and was covered by a, general guaranty running from Tates to the bank. The president, of the coat company delivered the note to the solicitors of the coal company, who placed the same in the hands of an attorney, Mr. Mon1, connected in business and occupying the same office with said solicitors. On the 18th of April, Air. More commenced suit in this court upon such note in favor of the bank against the coal company. Contemporaneously therewith the coal company tiled its appearance, pleaded the general issue, filed a stipulation waiving a trial by jury and consenting to an immediate hearing, and thereupon judgment was immediately en•tered upon suck note. On tbe same day a Idee judgment was entered in favor of tbe Globe National Bank in tbe state court, under wliicb tbe sheriff took possession of all tbe tangible property of tbe coal company situated witbin tbe county of Cook. Execution upon tbe judgment in favor of tbe complainant was immediately issued, and immediately returned nulla bona. On tbe same day tbis creditors’ bill was filed by tbe bank, tbe complainant, to subject tbe assets of tbe coal company to tbe payment of its judgment, and a receiver was immediately appointed with tbe consent of tbe coal company, wbicb entered its immediate appearance in tbe suit. Under these proceedings there has been impounded a fund over and above all expense of tbe receivership aggregating $22,612.63. On tbe 11th of May, 1893, tbe Molsons’ Bank, tbe intervening petitioner, obtained a judgment against tbe coal company in invitum for $7,101.54 and costs, and on tbe 13th of May, 1893, filed its intervening petition, which, with tbe proposed amendments, declared tbe facts stated, and asked that its judgment should be first paid out of tbe assets of tbe coal company, or that tbe funds should be distributed pro rata among tbe creditors of tbe coal company who may prove their claims in tbis proceeding. To tbis petition tbe bank, complainant, demurs.

I am of opinion that tbis case is ruled by Manufacturing Co. v. Hutchinson (lately decided by tbe court of appeals in this circuit) 63 Fed. 496. I cannot but regard tbe proceedings resulting in the judgment in favor of tbe bank, complainant, as an attempt to give a preference to its debt over tbe debts of tbe other creditors of tbe coal company, as surely so as if tbe president of tbe coal compbny bad executed to tbe bank a mortgage of tbe property of tbe coal company. At that time tbe coal company was no longer a going concern. It bad ceased to do business. Its tangible property was largely, if not wholly, in the custody of tbe officers of tbe law. Tbe note to tbe bank, complainant, was given for a debt not then matured,- and was made presently payable. It was given without authority of tbe board of directors. While the president of a going concern may have authority to execute obligations in behalf of bis company in tbe usual conduct of its business while it is a going concern, when it ceases to do business, and has become bankrupt, such function of its president ceases, and be has no right, without authority of the board of directors, to usurp their function, and to grant preference at bis pleasure to tbe creditors of bis company. In such case his occupation is gone, except in respect to tbe care of tbe property in the interest of all the creditors of tbe company. Tbe debt to tbe bank, complainant, according to tbe allegations of tbe intervening petition, was secured by tbe personal responsibility of one of the directors of tbe coal company. In Manufacturing Co. v. Hutchinson it was ruled that it was incompetent for tbe directors, tbe corporation being insolvent, to secure or to give preference to such a debt with a view to absolve one of its directors. Certainly tbe president of an insolvent corporation, without authority of tbe board of directors, cannot exercise any such function. I am therefore clear in opinion that tbe demurrer must be overruled.

It does not follow, however, that because the bank, complainant, could not thus obtain a preference over other creditors, the intervening- petitioner is entitled to the benefit of a priority which its petition condemns in the bank, complainant. There is no real attack upon the bona Mes of the actual indebtedness to the bank, complainant, although it is asserted — but merely upon belief — that the note given by the president on the 17th of April was in excess of the actual indebtedness.* The complainant bank, irrespective of the attempted preference, was entitled to share ratably with all other creditors of the coal company in the distribution of its assets. There was no actual fraud or moral turpitude in the transaction. It amo unto;! merely to a constructive fraud, because the law condemns such transactions. This does not debar (he complainant of its right to share with other creditors in the distribution of the estate, nor does it prevent the court from imposing upon the fund in the interest of the bank, complainant, the expense incident to the accumulation of the fund. The order will therefore be that the amendments proposed to the intervening -petition will be allowed, the demurrer to the original petition to stand as a demurrer to the petition as amended. The demurrer will be overruled, with leave to the complainant bank, if it shall be so advised, to answer thereto to the merits within 20 days; otherwise a decree will be passed that the fund be charged with the expense of this bill, including' a reasonable counsel fee to the solicitors for the complainant, and for distribution of the fund according to law.