Teague v. Teague Furniture Co.

Adams, J. The appellant’s only assignment of error relates to that part of the judgment which directs the receiver to withhold payment of $2,500 on the claim filed with him by J. E. Neal, trustee, to whom T. O. Teague had conveyed certain property for the benefit of his creditors. T. O. Teague and J. W. Crawford were not only directors in the defendant company but they occupied responsible official positions'— the former those of president and treasurer and the latter those of *807 secretary and bookkeeper. On 18 January, 1930, when tbe defendant was insolvent and indebted to its president in excess of $100,000, Crawford drew two checks on its treasury aggregating $2,500 payable to tbe order of T. O. Teague, tbe president, wbo in turn endorsed tbem to Crawford in payment of stock issued to Crawford by tbe defendant and purchased by Teague. Two days afterwards Crisp was appointed receiver of tbe defendant at tbe instance of Teague, and on 8 February Teague conveyed bis property to a trustee for tbe benefit of bis creditors. In_oux...jurisprudence the principle is firmly entrenched that the capital stock and property of a corporation constitute a trust fund which, in ease of insolvency, should be administered first for the satisfaction of its creditors and then for tbe stockholders, tbe object being to give its creditors a right to priority of payment in preference to tbe claims of those who hold stock in the corporation. It is likewise an accepted principle that the directors of a corporate body and others who have the direct control of its affairs and tbe management of its business occupy in reference to tbe corporation a fiduciary capacity which imposes the peril of personal liability if they use their knowledge of its financial condition for their own benefit. Hill v. Lumber Co., 113 N. C., 178. If this principle did not obtain it would be possible for the directors and shareholders of a corporation to dispose of practically all the assets of the corporation to their own advantage without incurring liability for their act. McIver v. Hardware Co., 144 N. C., 478; Bassett v. Cooperage Co., 188 N. C., 511. The appellant concedes the principle but denies its application, contending that an issue is drawn between the creditors of the corporation and the creditors of Teague; that the legal title to Teague’s claim against the defendant passed to the trustee upon the execution of the deed of trust and the equitable or beneficial title to Teague’s creditors; that the equities of the creditors are equal; and that the judgment should be reversed. All the real and personal property of the defendant company and all its franchises, privileges and effects, upon the appointment of the receiver forthwith vested in him and the title of the corporation was thereby divested. C. S., 1210; Hardware Co. v. Garage Co., 184 N. C., 125. The entire assets were then in custodia legis. Bank v. Bank, 127 N. C., 432. This was the situation when Teague’s assignment was executed. Teague could convey no greater right than he had and his trustee, who succeeded to his rights, took the property subject to all equities enforceable against Teague, the assignor. Southerland v. Fremont, 107 N. C., 565; Wallace v. Cohen, 111 N. C., 103; Sykes v. Everett, 167 N. C., 600, 607. *808 Tbe trustee bolds tbe legal title to Teague’s property; be took it after tbe receiver bad been appointed and with at least constructive notice. Tbe receiver is seeking to enforce an equity against Teague; and upon the findings of fact set out in the judgment he has established an equity superior to that of the trustee. The equities, therefore, are not equal, as insisted by the appellant, and in our opinion the judgment should be affirmed. Affirmed.