Court Opinion

ID: 7006466
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:51:22.061662+00
Date Added: 2024-06-11T16:10:05.682339
License: Public Domain

Mr. Presiding Justice Smith delivered the opinion of the court. The sole matter of controversy in this case is the right to the proceeds of the credit indemnity bond. From the evidence in the record it may well be doubted whether the indemnity bond in question was ever transferred to the appellant. We are inclined to the opinion that the delivery of the bond to the attorney for appellant Moody, under the circumstances, was not intended to be the formal transfer of the bond to him under the agreement. The bond was sent or delivered to the attorney for the purpose of enabling him to read its provisions and to describe it more correctly and particularly in the draft of the agreement which he was engaged in preparing. It was not assigned to Moody by the company either formally or informally, and the circumstances shown in the record would seem to indicate that it was the intention of the parties to transfer the bond when the memorandum of agreement was formally signed. If, however, it can be considered under the evidence that the bond was delivered to appellant Moody in pursuance of the verbal agreement which had been entered into, but which had not as yet been reduced to writing and signed, it was, at most, a partial execution of an incomplete agreement, and its validity, under the facts, is questioned by appellee upon the ground that it was fraudulent and void as to the creditors of the Moody-King Company, and upon the further ground that the transaction was in violation of the bankruptcy law. Upon the first contention the courtfound thatthe Moody-King Company at the date of the pretended transfer was insolvent. The subsequent bankruptcy proceedings would seem to be conclusive evidence upon that question. The testimony of the expert who had made an examination of the books of the Moody-King Company leaves little room for doubt that the company was in a failing condition. Moody evidently knew that the company was in bad financial condition. His principal excuse for entering into the agreement and obtaining a transfer of the bond was that his banks were finding fault with King’s management of the company; that the company had borrowed $20,000 from the National Bank of North America, and that his credit with his 'own bankers was impaired by his connection with the company and his endorsement of its paper. He testified that he could not afford to be connected with the corporation any longer, because his bankers were finding fault with King and his manner of doing business, and that the credit of the company and his own credit was being injured in Chicago; that he was engaged in much larger enterprises, and that he could not longer afford to be associated with a concern that was carried on and managed as King managed the Moody-King Company. We think the evidence fairly tends to support the findings of the decree that the company was insolvent, and that appellant Moody knew that it was insolvent; but whether he knew of the actual condition of the company is legally unimportant, for he was bound to know its condition, and occupying the position that he did he must be presumed to know its actual condition. The question then is, could Moody, the president and a director of the corporation, advance the money to the company to pay its indebtedness to the bank according to the contemplated agreement and take over the assets of the corporation while it was insolvent and hold them as against the existing creditors of the company or the trustee in bankruptcy? It is claimed on behalf of appellant Moody that on January 12, 1903, at the time the bond was delivered to him, Moody was not a creditor of the corporation, and that, therefore, the taking over of this bond as a part of the assets of the company was not a fraudulent preference of Moody over any other creditor of the company. We think, however, this contention cannot be sustained. According to the terms of the agreement, Moody was to advance this money as a part of the consideration for the assignment of the indemnity bond and other assets of the company. The advancement of the money constituted Moody a creditor, for by that act he took up the indebtedness of the company to the bank, and stood with reference to that indebtedness and the corporation in the relation of the bank to the corporation. He was a guarantor of. the debt prior to the making of the agreement, and the agreement did not change his relations in that respect. While he claims to have resigned the offices of president and director, the record does not show that the resignations had been accepted and that he had ceased to occupy those official positions. It is undoubtedly the law in this State that in the absence of statutory prohibition an insolvent corporation can prefer its creditors the same as an individual; but it is also the law that an insolvent corporation cannot prefer a creditor who at the same time is a director therein. Beach v. Miller, 130 Ill. 162; Rockford Grocery Company v. Grocery Company, 175 Ill. 89. The directors and officers of an insolvent corporation are trustees of its funds and property for the creditors and they cannot give them away or use them to exonerate themselves to the injury of other creditors. Beach v. Miller, supra. We entertain no doubt that the object and purpose of appellant in entering into the transaction in question was to secure an advantage to himself over the existing creditors of the corporation, and that this was the real purpose and object of, the verbal agreement which was entered into between appellant Moody and King so far as Moody was concerned, and when Moody obtained possession of the bond in question he took it charged with the trust in favor of the other creditors, and that trust may be enforced in equity. In Estate of Smythe et al. v. Evans, 209 Ill. 376, it is said, quoting from Aberdeen Railway Company v. Blaikie, 1 MacQueen (H. L.) 461: “A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of those corporations whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal, and it is a rule of universal application that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting, or which position may conflict with the interests of those whom he is bound to protect.” In our opinion the transfer of the indemnity bond in question, assuming that it was a substantial transfer, was in violation of section 60 B of the Bankrupt Law, where it is provided that a creditor receiving a preference, having reasonable cause to believe that a preference was intended, must return the same. We think the decree is correct and it is accordingly affirmed. Affirmed.