Court Opinion

ID: 8184524
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:06:49.155394+00
Date Added: 2024-06-11T16:40:22.027737
License: Public Domain

ELgwmah, J.
The order of the circuit court is questioned upon this appeal only in respect of its direction to the sheriff of Milwaukee county to turn over to the receiver the moneys which he had raised by execution sales of the property of the insolvent corporation defendant, the Lap-pen Furniture Company. All other parts of the order are unquestioned upon this appeal.
*370For the purposes of the motion in the court below and of this appeal, the verified complaint, being untraversed, is taken to be true. It charges, in effect, that the defendant the Lappen Furniture Company is an insolvent corporation; that after it became insolvent, and while known to be insolvent both by its directors and the appellant bank, it colluded and conspired with the appellant bank, and certain others of its creditors named, for the purpose of securing to such creditors unjust and inequitable preference over other creditors of such insolvent corporation; that, as a means of effecting the object of such conspiracy, judgments were confessed by such insolvent in favor of such creditors, executions were issued upon such judgments, and property of the insolvent corporation to a large amount was sold, of which sales the moneys so in the hands of the sheriff and directed to be turned over to the receiver are the fruit.
Assuming what is charged to be true, it seems quite clearly to show a proper case for the sequestration of the property and effects of the insolvent corporation, said, prima facie at least, that the appellant bank and the other creditors named are not justly entitled to the entire fund in the sheriff’s hands, to the exclusion of other creditors of the insolvent corporation.
The law applicable to the question is well settled. The corporation, being only a fictitious body, can act only through agents called “ directors.” The directors manage the business for the stockholders. For this purpose they hold and manage the business and corporate property as trustees for the stockholders. But when insolvency of the corporation happens then the duty and function of the directors are changed. Then they become trustees for the creditors of the corporation of all the corporate property and rights. They are trustees for all the creditors, and are bound to preserve and administer all the corporate *371property in the interest, impartially, of all the corporate creditors. Being trustees for all the creditors, they are incapable of making any preference of their own claims, or of giving preference to the claims of any creditor. As between the creditors, equality is equity.
It is believed that the decisions are uniform, except as to the last proposition. Upon the question whether an insolvent corporation has the power to prefer some of its creditors there is a conflict of decisions. Upon that question eminent courts are found arrayed on either side. In 27 Am. law Bev., on page 846, is a strong article against the existence of such power, by Judge Seymour D. Thompson, of the St. Louis court of appeals. In a note, Judge Thompson has collected many of the cases upon either side of the question, showing how widely the courts have differed. But in this state it is no longer an open question. It is settled for this state by the opinion by the present chief justice in Haywood v. Lincoln L. Co. 64 Wis. 639, and First Nat. Bank v. Knowles, 67 Wis. 373. See, also, Lyons-Thomas Hardware Co. v. Perry Stove Mfg. Co. 86 Tex. 143.
It is within the function of the circuit court to supervise and compel the directors of insolvent corporations to perform their duties as trustees for the corporate creditors in the administration of the corporate property. To that end, in a proper case, by sequestration it will lay hold of the corporate estate, and administer it by its receiver. A proper case for the intervention of the court arises whenever execution on a judgment against a domestic corporation has been returned unsatisfied. Then the court, in an action for that purpose by the execution plaintiff, will sequester the property and effects of the corporation, and put it into the hands of a receiver, to wind up its affairs and distribute its assets among its creditors. E. S. secs. 3216-3228. To make the sequestration effectual, it will *372enjoin other creditors from pursuing their own remedies, and will compel all officers of the law to turn over to the receiver all property of the corporation held bjr them on attachment or execution, to the end that there shall be a fair and just division of the assets of the corporation among all of its creditors according to law. Ballin v. Loeb, 78 Wis. 404. All this is well settled and no longer open to question in this state.
But the appellant contends that the moneys in the sheriff’s hands, made upon its executions, were not subject to sequestration as the property of the corporation, because, it claims, the title to those moneys was in it (the appellant) and not in the corporation. Probably the appointment of a receiver can affect only such property as is owned by the insolvent at the time of the appointment. And cases are cited which hold that moneys made on execution, while still in the hands of the sheriff, are the property of the creditor. This may be the law, as between the debtor and the creditor, in an ordinary case; but it is not controlling here, because, for the purposes of this motion and appeal, it is assumed to be true that the moneys which are in the sheriff’s hands are the fruit of an illegal combination between the directors of the insolvent corporation and the appellant for the purpose of giving to the appellant an illegal preference over its other creditors. This is a fraud upon the rights of the other creditors. Fraud taints whatever it touches. No right can grow out of a transaction which fraud has touched. So, upon the present showing, it is held that these moneys were properly directed to be turned over to the receiver as a part of the assets of the corporation.
But this does not, of necessity, supersede or displace the appellant’s right to the fund. If it has a valid lien, that lien will follow' the fund into the hands of the receiver, and the fund will be administered accordingly. The order is *373not a final determination of its right. The right is not to be determined on a mere motion; it is to be determined in the action itself. The rights of the creditors are to be adjusted and determined by the final order or judgment in the action. The statute so directs. Sec. 3217, R. S., provides that it shall be the duty of the court, in the final order in the action, to direct a just and fair distribution of the property of such corporation and of the proceeds thereof among its fair and honest creditors, in proportion to their debts respectively, to be paid in the same order as provided in sec. 3245. Sec. 3245 provides that all legal and equitable liens upon the property of such corporation shall be paid in the order of their priority, and before the common debts are paid. The remedy for the enforcement of such rights as the appellant may have is to be sought in the action where the whole estate of the insolvent corporation is being administered. That this is the regular and orderly proceeding in such, cases is recognized and made clear by the decision in Aschermann v. Commercial Bank, 86 Wis. 612.
By the Court.— The order of the circuit court is affirmed.