Case Name: Blake v. Ray
Court: Kentucky Court of Appeals
Jurisdiction: Kentucky
Decision Date: 1901-05-01
Citations: 110 Ky. 705
Docket Number: 
Parties: Blake v. Ray.
Judges: followed by dissenting opinion oi' JUDGE O’REAR.
Reporter: Kentucky Reports
Volume: 110
Pages: 705–722

Head Matter:
Case 80 — Action on Bond of Indemnity —
May 1.
Blake v. Ray.
APPEAL FROM JEFFERSON CIRCUIT COURT, LAW AND EQUITY DIVISION.
Judgment for Defendant and Plaintiff Appeals.
Reversed.
Corporations — Assignment of Note io President.
Held: The assignment by a corporation of a note to its president is valid, if made to reimburse the assignee for money advanced for the corporation, and if the corporation was solvent; and, there being testimony tending to establish each of these facts the question was for the jury.
JUDGE O’REAR dissenting.
WM. MARSHALL BULLITT for appellant.
John S. Ray, appellee, being a judgment creditor of the'Southern Land Improvement Co., had an execution levied upon certain furniture, &e., in Pineville,. Ky. John D. Blake, appellant, who was president of the Improvement Co., claimed that the furniture was his individual property, and so notified the sheriff of Bell county, who before making the sale, required Ray to give him an indemnifying bond. The bond was given with Ray as principal, and the Germania Safety Vault & Trust Co. as surety. Thereupon the sheriff made the sale and the property was bought in by Ray. The claimant brought this suit upon the bond. Code, section 643. ,.
At the close of the plaintiff’s evidence the Court directed a verdict for the defendant.
The only question in the case is whether the furniture was the property of the Improvement Co. and subject to an execution against it. •
The facts are as follows:
Prior to March 27, 1893, the Improvement Company owned the Pineville Hotel and all the furniture in it. On March' 27, 1893, the said company leased the hotel building to Mr. A. L. Too-good and sold him the furniture in the hotel for $1,476.68, and Mr. Toogood executed and delivered his note for $1,476.68 to said company in payment for the furniture. Prom March 27, 1893, until June 3, 1893, Mr. Toogood had been in possession of the hotel building, and the furniture and had occupied the hotel himself during that entire time.
Shortly after the sale of the furniture to Toogood, viz: On April 29, 1893, the Improvement Company by its secretary, R. Chichester, assigned and delivered the $1,476.68 note to John D. Blake to be credited upon his arrears of salary, and upon the $30,000 which he had advanced to the company. Blake accepted the note as cash at its face value on account of his debt, .and it was so charged to him at the time upon the Improvement Company’s books.
On June 3, 1893, Mr. Toogood having determined to quit the hotel business, made a written contract with Mr. Blake individually, ,and with the Improvement Co., by which two things were done. 1. The lease was cancelled by mutual consent. 2. Mr. Blake purchased the furniture from Toogood and paid him for it by surrendering to him the $1,476.68 note, which he, Blake, had received some weeks before from the Improvement Co.
As soon as the contract was executed, Toogood delivered possession of the furniture to Blake, who with his wife and daughters, then rented the hotel building from the Improvement Co. and ran it for some months, during all of which time Blake was in the possession of the furniture.
Under this showing we claim that the furniture was the individual property of Mr. Blake, and was not subject to the execu tion against the Improvement Co. Swan, &c. Co. v. Frank, 148 II. S., 610; Newsom v. Kurtz, 86 Ky., 277; 11 Am. & Eng. Enoy. Law, 624; 14 Am. & Eng. Ency. Law (2d Ed.) 312; Holt v. Bennett, 145 Mass., 437-439; Heidrick v. Silva, 89 Ky., 422, 427; McKee v. Seobee, 80 Ky., 124; Grimes v. Grimes, 86 Ky., 511; German Sec. Bank v. Jefferson, 10 Bush, 326; Given, Haynes & Co. v. Gordon, 3 Met., 538; Whitehead v. Woodruff, 11 Bush, 209; Temple, Barker & Co. v. Poynts, 2 Duvall, 276.
H. S. BARKER, Attorney for appellee.
The questions for decision are these:
1 Could the president and general manager of a corporation, insolvent at the time, transfer a part of its assets to hinmelf?
2. Could three directors ratify the transaction where there were only three out of five of the whole number of directors present, and one of these three was the beneficiary of the ratification in question.
I think clearly not.
It seems to me that the law is very plain and simple that a director of a corporation can not trade with the corporation for his own benefit; especially is that true when said director is also president and general manager. Morawetz on Private Corp., secs. 517 and 518; Main & Jellieo Mountain Coal Co. v. Lotzpeiteh, 14 Ky. Law Rep., 595.

Opinion:
Opinion of the court by
JUDGE BURNAM
Reversing,
followed by dissenting opinion oi' JUDGE O'REAR.
The Southern Land Improvement Company, a corporation, owned the Pineville Hotel, and all of the furniture in it. On the 27th of March, .1893, they leased the hotel to A. L. Toogood, and suld the furniture to him for $1,476.68 taking his note in payment therefor. Toogood took possession under his lease, and operated the hotel until the 3d day of June, 1893. On the 28th-of April, 1893, while Toogood was in possession of and operating the hotel, the improvement company assigned, and delivered the $1,476.68 Toogood note to the appellant, who was then the vice-president of the company, to in part reimburse him for advancements made to the company, and his account was credited with the amount of the note on the books of tlie company. Subsequently, on the 3d of June, 1893, Toogood sold the furniture to the appellant in consideration of the surrender to him of the note which he had executed to the improvement company, and immediately delivered possession of the furniture to appellant; who thereupon rented the hotel from the improvement company, and operated it himself, until the 1st day of October, 1893, at which time the hotel company leased the hotel to one Gamier, and the furniture passed with the building, under an agreement from Gamier to buy it at a price thereafter to be ascertained by inventory and appraisement. Before the sale to Gamier was finally closed, appellee, James. S. Ray, obtained a judgment in the Louisville Chancery Court against the improvement company for $10,000. Upon this judgment he caused execution to issue, directed to the sheriff of Bell county, Ky., into whose hands it regularly came, and was by him levied upon the furniture in question. Before the sale under execution the sheriff was notified by appellant, John D. Blake, that he was the owner of the personal property levied upon, and that it did not belong to the improvement company. Thereupon the sheriff required appellee, Ray, to execute a bond of indemnity before he would sell the property under execution, and the property was sold on the 29th of March, 1894, and delivered to appellee, who became the purchaser. Whereupon appellant instituted this action against appellee upon the bond' of indemnity, claiming- damages in the sum of $2,000, which he alleged accrued to him by reason of being deprived of the title and possession of the furniture sold. Appellee, by answer, denied appellant's title to the property, and also that it was of any greater value than $800. Upon the issue so raised a trial was had, and at the termination of the evidence for appellant tlie trial judge peremptorily instructed the j ury to find for the defendant, and-appellant prosecutes this appeal to reverse the judgment rendered pursuant to this verdict.
It is the contention of appellee that the transfer of the Toogood note to appellant by the improvement company was absolutely void, and conferred no title whatever upon him, for the reason that an officer of a corporation can not deal with it to his own advantage. We do not for a moment question the principle of law that it is the duty of the officers of a corporation to preserve its property as a trust fund-, and that they can not be permitted to use their official place to promote their private interest, at the expense of the corporation or of its creditors; but there is no reason why a. solvent corporation should not conduct its business in the ordinary way, and if, in the course of such business, it pays to one of its officers his, salary or money, properly and justly due for advancements theretofore made to the company, it certainly can not be said that such a transaction is per se fraudulent and void. It appears from the testimony of appellant, and his statements are fully corroborated by the secretary of the company, that at the date of the assignment of the Toogood note the company was not only indebted to appellant for past-due salary largely in excess of the amount of the note, but also for advancements made by him to the company in the shape of loans, to enable them to meet their maturing obligations. And we are bound to believe from their uneontradicted statements that the improvement company at this date was solvent, and that the transfer was made in good faith, to pay a valid subsisting demand justly due by the company, which was at that time a going concern, transacting the business for which it was incorporated. Appellant testifies that the capital stock of the company was $326,590, and that its bonded debt was $500,000, and that he owned $220,000 of the capital stock; that on the 1st day of July, 1892, he voluntarily advanced $15,000 to enable the company to meet its maturing indebtedness; that in October, 1892, he had negotiated a lease of about one-third of the improvemen company's property to the Central Appalachian Company nf Belgium, a strong and solvent company, by the terms of which the Appalachian Company agreed to pay $25,000 rent for ihe first year, $30,000 for the second, and so on, increasing at the rate of $5,000 a year, until a maximum of $45,000 was reached, and for five additional years that the Appalachian Company was to pay $45,000, and that the company was also to pay certain royalties on coal, and for the use of the1 railroad, making the whole lease very valuable; that under this lease they actually paid $25,000 in cash in October, 1892, and $30,000 the following year; that this lease was in full force in the spring of 1893, and the improvement company was perfectly solvent when the Toogood note was assigned to him, and he thought that the enterprise would be successful, and make money for everybody connected with it.
It seems to us that there was certainly sufficient evidence, both of the validity of appellant's claim and the solvency of the company, to have authorized the submission of the question to the jury. This court, in a long line of decisions, has condemned the giving of peremptory instructions where the evidence conduces in any degree to establish the right of recovery. The trial judge erred in so doing in this case. For reasons indicated, the judgment is reversed, and the cause remanded for a new trial consistent with this opinion.