Court Opinion

ID: 3487546
Source: CourtListenerOpinion
Date Created: 2016-07-05 21:15:11.363451+00
Date Added: 2024-06-11T13:37:21.213519
License: Public Domain

On October 8th, 1927, the Milburn Realty Company, a Maryland corporation, purchased from Caroline V. Richardson a tract of land known as "Glenleigh" containing about twenty-one acres on Glen Avenue near Park Heights Avenue in Baltimore City for $60,000, of which it paid in cash $20,000, and executed to the vendor a mortgage on "Glenleigh" to *Page 444 
secure the payment of the balance of the purchase price. The mortgage was in the form ordinarily employed under the Public Local Laws of Baltimore, matured in three years, contained provisions for a consent decree, and the usual covenants for the payment of taxes, charges, assessments, interest, and principal.
On January 6th, 1923, Joseph Berman, the Lyon Realty Company, and the Druid Realty Company, of the first part, and the Milburn Realty Company, of the second part, executed an agreement under which Berman, for himself and as president of the Lyon Realty Company, and the Druid Realty Company, agreed to furnish the Milburn Realty Company "at the rate of six per cent. per annum, such sums of money and at such times as I may deem necessary for the carrying on of the business of The Milburn Realty Company." In the same agreement the Milburn Company undertook to execute on demand a mortgage or mortgages pledging any of its property which Berman deemed adequate to secure such loans or advances.
On July 29th, 1930, in response to a demand made under that agreement, the Milburn Realty Company executed to the Lyon Realty Company a mortgage for $124,564.38 on its entire assets for loans or advances made to it from time to time by the Lyon Realty Company or the Druid Realty Company. And, on February 20th, 1931, in consideration of the release of certain land covered by that mortgage, the Milburn Realty Company executed to the Lyon Realty Company another mortgage for $35,000 (the portion of the first mortgage released) on two pieces of fee simple property included in that mortgage.
Caroline V. Richardson having been adjudicated a lunatic, and Nathaniel G. Grasty and Peter E. Vale having been appointed a committee of her estate, and the mortgage from the Milburn Realty Company to her being in default, on November 14th, 1930, that committee instituted in Baltimore City foreclosure proceedings to enforce the payment of a balance due under that mortgage "in excess of $38,000." *Page 445 
A sale of the property was in due course reported and ratified in that proceeding, and a deficiency decree entered therein in favor of the committee for $29,209.28 on July 29th, 1931.
On July 18th, 1931, petitions were filed for the foreclosure of the two mortgages from the Milburn Realty Company to the Lyon Realty Company, the case referring to the earlier being designated as case B and that referring to the later mortgage as case A. A sale was reported to the Beta Realty Company in case A of the property therein described for $705 subject to a first mortgage of $30,000, and in case B a sale was reported to the same purchaser of the property described in the mortgage filed in that case for $5,000, "subject to prior mortgages of $38,501.73."
On August 8th, 1931, the committee of Richardson filed in Circuit Court No. 2 of Baltimore City a bill of complaint against the Milburn Realty Company, in which it prayed that that corporation be dissolved, a receiver appointed, and its affairs wound up. As a result of further proceedings, Edward H. Hammond and Abraham Davidson were appointed receivers for the company, and on October 1st, 1931, it was dissolved and the receivers continued in charge of its assets, with authority "to institute any and all proper suits and actions, or to appear in any suits already pending in order to prosecute their rights as Receivers or on behalf of said corporation to any and all preferences, or to any and all claims or choses in action to which they as Receivers, or to which the said corporation have been or is or are now entitled."
On September 15th, 1931, the receivers filed exceptions to the sales reported in cases A and B, and on the following day similar exceptions were filed by the committee, both sets of exceptions being grounded on the proposition that the two mortgages to the Lyon Realty Company constituted an unlawful preference and were void. After the testimony and a hearing, those exceptions were overruled and the sales ratified. The appeals from those decrees were entered by the receivers and the committee, and after that, the Milburn Company *Page 446 
having been adjudicated a bankrupt, the appeals were prosecuted by the trustee in bankruptcy.
The questions growing out of the appeals may be thus stated: (1) Whether at the time the Milburn Company executed its B mortgage to the Lyon Realty Company it was in fact insolvent; (2) whether the mortgage to the Lyon Realty Company was in effect and for the purposes of this case a mortgage to Berman; (3) whether, if in fact it was insolvent, it could validly prefer Joseph Berman, one of its stockholders, who was also an officer and a director in it, over its general creditors; and (4) whether such preference can be avoided in this proceeding.
Since any consideration of those questions involves to some extent the relation in which Berman stood to each of the several corporations to which reference has been made, and as there is no dispute as to just what that relation was, that will be first stated.
The Milburn Realty Company was a Maryland corporation which conducted a real estate and construction business in Baltimore City, in the course of which it bought, sold, leased, mortgaged, and developed real estate. It issued fifty shares of stock, of which sixteen and one-half stood in the name of Joseph Berman, sixteen and one-half in the name of Harry M. Berman, his son, and seventeen in the name of Isaac Rosenberg, his son-in-law. Isaac Rosenberg was its president, Harry M. Berman, its secretary and treasurer, and they with Joseph Berman its board of directors.
The Lyon Realty Company was a corporation which was engaged in the business of operating the Riviera Apartments at Lake Drive and Linden Avenue in Baltimore, Md. It issued 500 shares of stock, 498 to Joseph Berman, and 1 each to Harry M. Berman and Isaac Rosenberg. Joseph Berman was its president and Harry M. Berman its secretary and treasurer, and they with Isaac Rosenberg its directors. Harry M. Berman was merely a nominal officer and the shares of stock which he and Rosenberg owned were mere qualifying shares indorsed "in blank back to Joseph Berman," so that *Page 447 
in fact he was the actual owner of all of the stock of that corporation.
The Beta Realty Company, a Maryland corporation, was also in the real estate business. It issued to Joseph Berman 248 shares of its stock, and to Harry M. Berman and Isaac Rosenberg, 1 share each. Harry M. Berman was its president, Isaac Rosenberg its secretary, and they with Joseph Berman its directors.
The Druid Realty Company, also a Maryland corporation, issued 189 shares of its stock to Joseph Berman, 10 shares to Harry M. Berman, and 1 share to Isaac Rosenberg. Joseph Berman was president of that company and Harry M. Berman its secretary and treasurer.
Reverting to the question first stated, the evidence permits no reasonable inference other than that on July 29th, 1930, the Milburn Realty Company was insolvent within any definition of that term by this court. Within the meaning of bankruptcy and insolvency statutes, insolvency has been held to mean the inability of a debtor to pay his debts when they accrue in the ordinary course of business. Castleberg v. Wheeler, 68 Md. 277, 12 A. 3. In Strouse v. Amer. Credit Indemnity Co., 91 Md. 260,46 A. 328, 330, 1063, an action on an indemnity bond, where liability depended upon the insolvency of debtors, it was said: "The insolvency designated is the usual legally defined `insolvency,' which is an inability of the debtor to pay his debts as they fall due in the ordinary course of business, and this is dependent neither upon a formal adjudication, nor on an actual insufficiency of assets to meet liabilities." In U.S.Fid.  Guar. Co. v. Williams, 148 Md. 304, 129 A. 660, an action on an automobile casualty indemnity policy, it was held equivalent to "general financial irresponsibility." And it has been held to mean the insufficiency of the insolvent's assets when fairly appropriated and sold at their fair market value to pay his just debts. 3 Words  Phrases, First Series, 2648. The term is not therefore one of precise legal significance, but its meaning varies within somewhat narrow limits according to the facts to which it is applied. But whether it means inability to pay *Page 448 
debts as they accrue in the ordinary course of business, or the deficiency of the assets of the insolvent if sold at their fair market value to discharge his liabilties, the evidence in this case leads inevitably to the conclusion that on July 29th, 1930, the Milburn Realty Company was insolvent.
On November 7th of that year that company wrote Messrs. Mullen and Hammond in reference to an extension of the mortgage as follows:
    "We are desirous of having this mortgage amounting to $37,079.00 extended for a period of two years. Due to present economic conditions, particularly with reference to real estate, we are unable at present time to pay the unpaid taxes for 1929 and 1930, and the six months interest which fell due on October 8th. We propose to pay the 1929 taxes at this time and the 1930 taxes during the year 1931, and further to pay the sum of $200.00 per month on account of the interest.
    "We regret that we are unable to do better, but feel that the estate of Miss Richardson would be benefited if our proposition is accepted, rather than resorting to foreclosure proceedings."
At that time it owed the Lyon Realty Company $124,564.38, the committee of Caroline V. Richardson an amount which with accumulated interest on November 14th, 1930, exceeded $38,000; it was also indebted to different creditors in amounts aggregating a substantial sum on notes and accounts payable, and its financial condition appears from these extracts from the testimony of Harry M. Berman, its secretary and treasurer: "Q. At that time you owed large sums that you were not able to pay? A. In the ordinary course of business, no, sir. Q. You did not owe a cent? A. No, I say we were not able to pay in the ordinary course of business, that is right. Q. That is what I am trying to get at. On October, 1930, you owed quite a large sum of money which you were unable to pay in the ordinary course of business? A. That is right. Q. Isn't the same thing true on July 29th, 1930? A. Approximately, yes. * * * Q. Let me *Page 449 
change my question; as I understood you to say, on July 29th, 1930, you did owe large sums of money. When I say `you' I mean the Milburn Realty Company owed large sums of money which you were unable to pay in the ordinary course of business? A. That is partially true, yes, sir. * * * Q. Now, then, Mr. Berman, when the receivers took charge of the Milburn Realty Company, the only assets that they received — or, at least, were available, I won't say `received,' were some furniture which, I believe the State Tax Commission appraised at $450 and which your company claimed was worth $250. That is one asset, isn't that so? A. That is correct. Q. There was not a cent in bank, the bank account was overdrawn, wasn't it? A. There wasn't anything in there; I don't know about being overdrawn. Q. And there are no accounts receivable, are there, that are any good? A. No, sir. Q. There is no physical property of the company at all? A. No, sir."
All the property covered by the Lyon Realty Company mortgage was sold for $5,705, and the "Glenleigh" property sold under foreclosure of the Richardson mortgage for $29,209.28 less than the sum needed to pay that mortgage, accrued charges, and costs of foreclosure. So that the Milburn Realty Company was on July 29th, 1930, in financial distress, heavily indebted, unable to meet such immediate and pressing debts as taxes due on the Glenleigh property, with assets which proved wholly inadequate to pay the debts which it then owed, and was, within any accepted definition of the term, insolvent.
The second question is whether the mortgage to the Lyon Realty Company is to be regarded as a mortgage to Joseph Berman. Berman was the nominal owner of 498 of the 500 shares of the capital stock of the Lyon Realty Company and the actual owner of the entire issue. He therefore derived the identical benefit from the mortgage to the company that he would have derived had it been made directly to him, and, in fact, in the following extract from his testimony, he speaks of the Lyon Company and himself indifferently as signifying *Page 450 
the same person, when he said: "Most of the money the Milburn Company used to borrow was furnished through you and your companies? A. At times. In the first few years there was very little money I had to put up or lend to them. At times that I know of the books summed up to 1929, I believe, or 1930, they owed me at one time $30,000. They owed the Lyon Realty Company $30,000, and after that — that was, I think, in 1927 or 1928, I would have to refer to the statement — after that, in fact, one time they paid us over and above the amount that we had lent to them, and then later when times got hard, then I had — the Lyon Company had to lend them larger sums to pay their bills, and so forth and so on." And, while for all corporate functions a corporation is to be regarded as separate and distinct from its stockholders, yet where it is used as a mere device or contrivance to effect some personal purpose or design of a stockholder who controls it, the fiction of a distinct identity will not, in a court of equity at least, be permitted to defeat a just claim which could have been enforced against the stockholder had he stood in the place of the corporation. For a court of equity will look through the form to the substance beneath, and will not permit a mere fiction to validate a transaction which but for such fiction would be illegal, when recognition and acceptance of the fiction would result in injustice or would confer upon one relying upon the transaction an unfair advantage over others.
In Swift v. Smith, 65 Md. 428, 5 A. 534, it was intimated that ownership by one person of all the stock in a corporation virtually suspends its operations as a corporation until the election of new officers through new stockholders purchasing from that person. Whether in the light of more recent developments in the law the principle thus announced would be accepted now (Dollar Dry Cleansers and Dyers, Inc., v. MacGregor,163 Md. 105, 161 A. 159), need not be decided, because the question here is not whether a one man corporation could as to all matters within the sphere of its legitimate corporate operations function as a corporation, but whether such a corporation can be used by its owner to escape the application *Page 451 
of legal rules and principles which would reach and control him as a natural person. And in reference to that question it was said in Bauernschmidt v. Bauernschmidt, 101 Md. 162, 60 A. 437, 442: "In Anthony v. American Glucose Co., 146 N.Y. 407,41 N.E. 23, the court said, `We have of late refused to be always and utterly trammeled by the logic derived from corporate existence, when it only serves to distort or hide the truth;' and inSeymour v. Spring [144 N.Y. 333, 39 N.E. 365], supra, `The abstraction of the corporate entity should never be allowed to bar out and prevent the real and obvious truth.' This principle was recognized and applied in a different situation in Pott v.Schmucker, 84 Md. 535, 36 A. 592, in which it was held that `it was competent for a court of equity to look back of the mere artificial and formal body corporate, * * * and to treat the corporation and the individual owning all its stock and assets as identical.'" In Fletcher's Cyclopedia of Corporations, sec. 44, it is said: "It is idle to promote a corporation for the purpose of endeavoring to accomplish fraud or other illegal acts under the cloak of the corporate fiction. Where this is attempted, courts of law, equity, or bankruptcy, do not hesitate to tear aside the veil of corporate entity and to look beyond it and through it at the actual and substantial beneficiaries. A notable instance is found in cases where it is sought to delay, hinder and defraud creditors by means of `dummy' incorporations. The courts have uniformly held that there is no magic in incorporation and refuse to apply the doctrine of corporate entity to enable such schemes to be successful."
In 14 C.J. 61, the same principle is expressed in this language: "Thus it has repeatedly been held that the courts, both at law and in equity, will disregard the fiction of corporate entity apart from the members of the corporation when it is attempted to be used as a means of accomplishing a fraud or an illegal act." The rule thus stated is generally accepted, and cases illustrating its application may be found collected inDonovan v. Purtell, 216 Ill. 629, 75 N.E. 334; 14 C.J."Corporations," secs. 5, 20, 21, 22, 25; Fletcher's *Page 452 Cyclopedia of Corporations, secs. 43, 44; Carozza v. FederalFinance Co., 149 Md. 223, 131 A. 332.
In considering the facts referred to above in connection with the third and controlling question, it will be assumed for the purposes of this case that, at the time the Milburn Realty Company mortgaged its entire assets to the Lyon Realty Company, it was insolvent, and that Joseph Berman and the Lyon Realty Company may be regarded as identical.
The third question in the case, which is whether the Milburn Realty Company, being insolvent, could lawfully prefer one of its directors over its general creditors in the distribution of its assets, is academic and moot unless the appellants are entitled to attack that preference in this proceeding.
That it would have been unlawful upon a seasonable application to avoid it appears settled by Clark Co. v. Colton, 91 Md. 195,46 A. 386, 391. In that case a banking corporation, insolvent at the time, for the purpose of discharging obligations of certain of its directors who had notice of its insolvency, paid on the day before it closed its doors a certain promissory note which they had indorsed, and also paid another note due to a corporation in which the president of the bank owned nearly all the stock. In the course of the opinion filed in that case it was said: "In our opinion, fairness and justice require that the officers should be placed on an equality, and no more than an equality, with the other creditors of the corporation. And so, in the case of Sutton Mfg. Co. v. Hutchinson [(C.C.A.) 63 F. 496],supra, Harlan, J., says: `It is, we think, the result of the cases that, where a private corporation is dissolved, or becomes insolvent, and determines to discontinue the prosecution of business, its property is affected by an equitable lien or trust for the benefit of creditors. The duty in such cases of preserving it for creditors rests upon the directors or officers to whom has been committed the authority to control and manage its affairs. Although such directors and officers are not technical trustees, they hold, in respect of the property under their control, a fiduciary relation to creditors; and, necessarily, in the disposition of the property of an insolvent corporation, *Page 453 
all creditors are equal in rights, unless preference or priority has been legally given by statute or by the act of the corporation to particular creditors.' * * * Certainly one of the interests of every corporation is that, while solvent, all its creditors should be fully paid, and, when insolvent, that all its assets should be equally divided, and not awarded by the president and directors or other officers to themselves and their friends."
That statement of the law agrees with the rule which Fletcher, in the following statement from his Cyclopedia of Corporations
(Rev. Ed.), secs. 7468, 7469, says is supported by the "great weight of authority": "When a corporation becomes insolvent and can no longer continue in business, the directors and other managing officers occupy a fiduciary relation towards creditors by reason of their position and their custody of the assets, and they cannot, by conveyance, mortgage, pledge, confession of judgment, or otherwise secure to themselves, as creditors, any preference or advantage over other creditors, but the most that they can claim is the right to come in and share pro rata with the other creditors in the distribution of the assets. This is the rule sustained by the great weight of authority, and the fiduciary relation occupied by the officers results from their duty to wind up the affairs of an insolvent corporation and pay the debts incurred. As was said in one case, `while the directors and officers of a corporation, solvent or insolvent, are not in any proper sense the trustees of the creditors, they do occupy a relation to them demanding the utmost good faith on their part in the handling of the corporation assets. To their honest and fair dealing with the property and to their just and prudent management of the business, the creditors must look for their continued security. As in the case of others occupying a fiduciary position, they cannot innocently sacrifice the interest of those who trust them to their own personal advantage. As managers of the corporation and its property, they owe a duty to those dealing with them, which they violate when, to the detriment of those who confide in them, they make themselves preferred beneficiaries in the disposition of assets *Page 454n 
which, without such preference, would be available alike to all creditors.'"
The rule as thus stated is in accord with the trend and weight of current authority elsewhere (74 A.L.R. 940; Jackson v.Newbold [C.C.A.], 28 Fed. [2nd] 107; Baird v. First Nat. Bank,55 N.D. 856, 215 N.W. 810; Lyness v. Kuske, 54 N.D. 479,209 N.W. 993; Nelson v. Jones, 38 Idaho 664, 224 P. 435; 19A.L.R. 334), and, as far as it characterizes a transaction between an insolvent corporation and its officers under which they obtain a preference, it seems in accord with such cases asBartlett v. Smith, 162 Md. 478, 160 A. 440, 442; Macgill v.Macgill, 135 Md. 384, 109 A. 72.
The vital and controlling question in the case, however, is, whether, assuming that the mortgage to the Lyon Realty Company was preferential, it is such a preference as may be attacked in this proceeding and at this time.
The ground of the attack is not that the mortgage was a fraudulent conveyance, for it is not disputed that the consideration named in it was for an actual antecedent indebtedness, but that it was an unlawful preference. The general rule is that, unless restrained by statute, a corporation has the same right to prefer creditors as a natural person (In re LakeChelan Land Co. [C.C.A.], 257 Fed. 497; Mowen v. Nitsch,103 Md. 587, 62 A. 582; Fletcher, Cyclopedia Corporations, sec. 5074), and at common law, in the absence of fraud or an intent to hinder and delay creditors, a debtor had the right to prefer one creditor to another. Cole v. Albers, 1 Gill, 422; Foley v.Bitter, 34 Md. 646; Drury v. State Capital Bank, 163 Md. 84,161 A. 176. So that, if the mortgage is to be avoided simply as a preference, it must be by the force of some statute or because fraud in fact may be inferred from the mere fact that the preference was to an officer of the corporation. But the only statutes applicable are Code, art. 23, sec. 94, which in part provides that "whenever any corporation shall be dissolved by the decree of any court of this State, its property shall vest in its receivers appointed and named therein, and all preferences, payments and transfers, howsoever made by it or by any of *Page 455 
its officers on its behalf, which would be void or fraudulent under the provisions of the insolvency laws of this State, if made by a natural person, shall to the like extent and with like remedies be fraudulent and void; and for the purpose of setting aside such preferences, payments and transfers, the receiver of such corporation shall have all the powers vested in the permanent trustee of an insolvent debtor and the date of the filing of the petition or bill by or against such corporation shall, for the purpose of determining the validity of preferences and for all other purposes, be treated as the date of the filing of the petition in insolvency by or against a natural person," and Code, art. 47, sec. 14, which provides that "no deed or conveyance executed, or lien created by any person being insolvent or in contemplation of insolvency, save as hereinafter provided, shall be lawful or valid if the same shall contain any preference, * * * provided, the grantor or party creating said lien or preference shall be proceeded against under section 23 of this article, or shall apply for the benefit of this article under section 1 within four months after the recording of the deed or conveyance or the creation of said lien or preference, and shall be declared or shall become, under the provisions of this article, an insolvent."
Taking these statutes together, the only cases in which statutory receivers may, under their authority, move to avoid a preference by a corporation are those in which the petition or bill is filed within four months from the recording of the conveyance creating it. In this case there is no bill or petition directly attacking the supposed preference, but the question is raised by exceptions to sales made in the course of foreclosure proceedings instituted to collect the debt secured by the mortgages attacked as preferential. Those exceptions were filed both by the receivers of the Milburn Realty Company and by the committee of Caroline V. Richardson. If the exceptions filed by the receivers are given the same force and effect which would be given a bill or petition filed by them to avoid the preference, and there is no apparent theory under which the receivers would have greater rights in such a proceeding as this than if they had proceeded directly to *Page 456 
strike down the preference, it is manifest that the mortgages to the Lyon Realty Company are not affected by these statutes, for the exceptions to the foreclosure sales and the bill to dissolve the Milburn Realty Company were all filed more than a year after the mortgages had been recorded.
But it is contended that the case of Clark Co. v. Colton,91 Md. 195, 46 A. 386, 389, is authority for the proposition that the receivers have the right to ask that the mortgages be avoided, irrespective of statutory authority, on the theory that a court of equity has inherently the power to avoid any preference by an insolvent corporation to its officers, and it may be said that that case lends some support to that contention. There were in it two decisive issues: (1) Whether the payments in question had been made at a time when the bank was insolvent, and (2) whether such payments constituted unlawful preferences within the meaning of the insolvent law. Both of those issues were decided in the affirmative, and that decision disposed of the case. But, after having decided those issues, the court announced that it would discuss "the question whether, apart from the insolvent law, a court of equity will recognize them as fair and equitable payments," and it reached the conclusion that payment by an insolvent corporation of a debt owed by it to one of its directors in preference to other creditors constitutes an unlawful preference which may be avoided in a court of equity without regard to statute.
The authority of that statement was shaken, however, by the decision in Mowen v. Nitsch, 103 Md. 687, 62 A. 582, 583, where it was said: "Whilst apart from the provisions of the insolvent laws and the terms of section 377, art. 23 of the Code, the mere fact that a corporation debtor is insolvent will not prevent it from securing a pre-existing creditor by giving to the latter a priority over other creditors, if the transaction be made in good faith, upon a valid consideration, and without a fraudulent intent; yet if the security given was without consideration, or was created with a view to hinder and delay creditors it will not be permitted to stand when properly assailed." The distinction resulting *Page 457 
from the decision in Mowen v. Nitsch between a preference under the insolvency law and a fraudulent conveyance is also apparent in the later decision, in Hughes v. Hall, 118 Md. 673,85 A. 946, 948, that the ordinary chancery receiver cannot sue to set aside an unlawful preference, where the court said:
"But in considering section 54, which relates expressly to cases of dissolution under a decree of court, and provides that in such cases the property of the corporation shall vest in its receivers `named and appointed therein,' the court said: `This vesting in the receiver is thus made the legal consequence of a decree of dissolution' — that is to say, that, when the dissolution prayed for has been decreed, then, by virtue of such decree, the receiver is vested with the powers of a permanent trustee in insolvency, and may ask that unlawful preferences be set aside, just as was said in Mowen v. Nitsch, supra: `It is under sections 376 and 377 of article 23 of Code of 1904, and section 22 of article 47, that proceedings must be had to set aside or avoid a prohibited preference.'
"Whatever support might be derived from the case of Clark v.Colton, 91 Md. 195, 46 A. 386, for the argument of the appellants, if that were the last word upon the subject, it cannot be successfully contended, since the decisions in Mowenv. Nitsch and Hughes v. Hall  Spring (117 Md. 547,83 A. 1023) that a prior decree of dissolution is not essential to the maintenance of a bill by a receiver to set aside an unlawful preference."
The cases of Macgill v. Macgill, 135 Md. 384, 109 A. 72;Mundy v. Jacques, 116 Md. 11, 81 A. 289; Dollar Dry Cleansers Dyers v. MacGregor, 163 Md. 105, 161 A. 159, and Bartlett v.Smith, 162 Md. 478, 160 A. 440, relied upon in support of thedictum in Clark v. Colton, supra, are hardly in point.Macgill v. Macgill and Dollar Dry Cleansers  Dyers v.MacGregor turned on the question of actual fraud, as did Mundyv. Jacques, and Bartlett v. Smith raised the question of the right of the receiver of an insolvent corporation *Page 458 
to recover, under the provisions of a Delaware statute, dividends paid to its stockholders.
So that, even if it were conceded that the dictum in Clarkv. Colton is consistent with natural justice and equity, and in harmony with the weight of authority elsewhere, nevertheless it is not, since Hughes v. Hall, supra, the law in this state. In that case the bill was filed by receivers appointed in a proceeding brought to dissolve a corporation but in which no actual decree of dissolution had been filed. But while the appellants were not statutory receivers to wind up the affairs of the corporation, they were at least chancery receivers and expressly authorized to bring that suit. The purpose of the bill was to set aside preferential payments made by an insolvent corporation to one who was its president and a director and stockholder in it. Upon those facts the bill was dismissed on the ground that, since there had been no decree of dissolution, the receivers were not entitled to assert or rely upon the rights granted by Code, art. 23, sec. 94, to receivers appointed after the dissolution of a corporation to wind up its affairs. And in dismissing the bill it was necessarily decided that apart from that statute a court of equity had not the power to entertain a suit to avoid a preference by an insolvent corporation to a creditor who was also its president, a director, and one of its stockholders.
The reasoning upon which that conclusion rests and which, of course, is the antithesis of that of the majority opinion inClark v. Colton, supra, is thus expressed by Mr. Justice Brewer in Sanford Fork  Tool Co. v. Howe, Brown  Co., 157 U.S. 312, 15 S. Ct. 621, 623, 39 L. Ed. 713: "Can it be that if, at any given time in the history of a corporation engaged in business, the market value of its property is in fact less than the amount of its indebtedness, the directors, no matter what they believe as to such value, or what their expectations as to the success of the business, act at their own peril in taking to themselves indemnity for the further use of their credit in behalf of the corporation? Is it a duty resting upon them to immediately stop business, and close up the affairs of the corporation? Surely, a doctrine like *Page 459 
that would stand in the way of the development of almost any new enterprise. It is a familiar fact that in the early days of any manufacturing establishment, and before its business has become fully developed, the value of the plant is less than the amount of money which it has cost; and, if the directors cannot indemnify themselves for the continued use of their personal credit for the benefit of the corporation, many such enterprises must stop at their very beginning."
The effect of Hughes v. Hall, supra, upon the issues in this case must be measured not only by what the court said in that case but by what it decided. It was alleged in the bill filed in it, and conceded by demurrer, that, at a time when to his knowledge it was insolvent, the corporation made payments to Hall who was its president and one of its directors on account of an antecedent indebtedness owed to him by it, thereby preferring him to other creditors whose claims at the time the bill was filed remained unpaid. Upon those facts the court decided: (1) That, since there had been no decree of dissolution, the receivers were "ordinary chancery receivers"; (2) that as such, upon the authority of Gaither v. Stockbridge, 67 Md. 224, 9 A. 632, 10 A. 309, they had "no estate" in the property but were mere custodians of it for the court; (3) that they could only have acquired title to it by force of a decree of dissolution; (4) that having no such title they had no standing to attack the payments as preferential; and (5) that as "ordinary chancery receivers" they could not maintain the bill, which was accordingly dismissed. In connection with those conclusions it must be noted that, if the receivers had in fact taken title as a result of a decree of dissolution, they could only have attacked preferential transactions within the time limited by the statute.Castleberg v. Wheeler, 68 Md. 266, 12 A. 3. But either as chancery receivers in a creditors' suit to avoid a fraudulent conveyance (Tardy's Smith on Receivers, sec. 273; Haight v.Burr, 19 Md. 130; High on Receivers, sec. 314 et seq.), or as receivers to wind up the affairs of an insolvent corporation under the statute (Applegarth v. Wagner, 86 Md. 468, 38 A. 940; Code, art. 47, sec. 8; Ensor v. Keech, 64 Md. 382, 1 A. 756;Waters v. *Page 460 Dashiell, 1 Md. 472), they would have had the right to recover the payments made to Hall if they were fraudulent in fact. The only evidence of fraud in that case, and the only evidence of fraud in this case, is the inference to be drawn from the facts that the payments in that case and the mortgage in this were to an officer of the corporation to settle an antecedent indebtedness, and made at a time when to the knowledge of the creditor the corporation was insolvent. Therefore, it was necessarily held in that case (Hughes v. Hall), that whatever inferences might be drawn from such preferences were not sufficient to show fraud in fact, for upon no other theory could the bill have been dismissed.
This case differs from Hughes v. Hall in that here the corporation has been actually dissolved and title to all its assets vested first in the receivers and eventually in the trustee in bankruptcy. But the only effect of that adjudication was to confer upon the receivers the authority to attack any payment, transfer, or preference made by the corporation which would have been void under the insolvency laws if made by an individual. Code, art. 47, sec. 8, does provide that: "Any confession of judgment, and any conveyance or assignment made by any insolvent under this article, for the purpose of defrauding his creditors or giving an undue preference, shall be void, and the property or thing conveyed or assigned shall vest in the trustee." But it was said in Williams v. Cohen, 25 Md. 486: "Our conclusion is, that this section contemplates as void or voidable, only such acts of a debtor in derogation of the rights of his creditors as may be done by him when he knows or believes himself to be insolvent, and has no reasonable expectation of exempting himself from execution without the aid of the insolvent laws, or expressing the same proposition in equivalent terms, only such acts as the debtor may be presumed to have done in derogation of the rights of his creditors, with a view of applying for the benefit of the insolvent laws. The provision in question was codified from the Act of 1854, chap. 193, sec. 7, which in substance and effect is the same as the 6th section of the Act of 1816, chap. 221, and the construction given to *Page 461 
it here corresponds with that given to the Act of 1816, in the cases of Hickley v. Farmers' Bank, 5 G.  J. 377; Crawfords v.Taylor, 6 G.  J. 323, and Dulaney v. Hoffman, 7 G.  J. 170.
So that, in so far as the immediate question is affected, the only additional authority conferred upon the receivers by the decree of dissolution was to attack acts of the debtor done in contemplation of taking the benefit of the insolvent laws, for the powers of a trustee under the insolvency laws is made the measure of the powers of receivers appointed to wind up the affairs of a corporation after a decree of dissolution. And the test of the power of the receivers in this case to attack the mortgages from the Milburn Realty Company to the Lyon Realty Company is whether they were executed in derogation of the rights of creditors of the corporation with a view "of applying for the benefit of the insolvent laws." Id. The insolvent laws of this state, in so far as they apply to such a corporation as the Milburn Realty Company, while suspended by the National Bankrupt Act (Remington on Bankruptcy, secs. 2106, 2107, 2108;U.S.C.A., title 11, page 6 et seq.), remain in abeyance and have not been totally destroyed (Id.), and, as to classes of insolvents not included in the federal act, the state laws remain in full force and effect. Old Town Bank v. McCormick,96 Md. 341, 53 A. 934. But whether suspended or not, they may nevertheless be used as a measure or scale to fix the extent of the court's jurisdiction, as was done in Code, art. 23, sec. 94, and, when so used, should be given a reasonable construction to effect the purpose of the statute in which they were adopted as such measure or scale. When thus construed, "insolvency," as used in Code, art. 47, sec. 8, should be regarded as the equivalent of "bankruptcy" as used in the Federal Bankruptcy Law (11 U.S.C.A.), which superseded it, or as applied to the hypothesis that the state insolvency law, in so far as it is invoked as a means for interpreting Code, art. 23, sec. 94, is still in effect. Thus considered, it cannot be said upon the evidence in this case that the mortgages were fraudulent under the statute, because it does not appear *Page 462 
that they were executed "with a view of applying for the benefit of the insolvent laws," since, as interpreted in Williams v.Cohen, supra, both insolvency and an intent to apply for the benefit of the insolvency laws must concur to justify an inference of fraud in fact within the meaning of the statute.
And while the principle that fraud in fact may not be inferred from the conveyance by an insolvent corporation of its assets to a creditor who is one of its officers is opposed to the trend and weight of authority elsewhere [Fletcher, Cyclopedia ofCorporations (Rev. Ed.), 7469], nevertheless it must be accepted upon the authority of Hughes v. Hall, supra, as the law of this state, and it is supported by a respectable volume of decisions in other jurisdictions. Id., sec. 7470; Rose's Notes on U.S.Reports, vol. 17, p. 148. And if it is to be changed, it should be changed by the Legislature and not by the courts.
In this case there is to be found nothing sufficient to stamp the transaction between Berman and the corporation as fraudulent in fact, except such inferences as may be drawn from his relation to it, nor can it be said as a fact that the conveyances were to hinder or delay creditors, or that they were fraudulent conveyances. It was conceded that the consideration was bonafide, and it was not disputed or questioned that the mortgages were made in the performance of an agreement of long standing. But, as stated above, in the present state of the law in this state, while the fact that the mortgages were executed by the corporation when it was insolvent to one of its officers would be sufficient to prove an unlawful preference, it is not sufficient proof of the fraud required to characterize them as fraudulent conveyances. And since they were not attacked as unlawful preferences within the time limited by the statute, they cannot be attacked now as fraudulent conveyances, merely because the creditors of the corporation failed to make seasonable use of the remedies which the statute afforded them.
For the reasons stated, in the opinion of the writer and Judge Sloan, the decree should be affirmed. *Page 463