Moller v. Keystone Fibre Co.

Opinion by Mr. Justice McCollum, The appellants have judgments against the Keystone Fibre Company amounting to $1,092.83, exclusive of interest and costs, which judgments they obtained in September and October, 1894. On November 23, 1894, the company’s plant was [563] partially destroyed by fire. There were then eight policies of insurance on the plant, aggregating $18,500, which were issued in March and April, 1894, for the term of one year, and each of the policies bore the following indorsement: “ Loss, if any, payable as interest may appear, first to R. W. Reynolds, Trustee for the bondholders.” On November 24, 1894, the appellants issued attachments in execution on their respective judgments. The attachments were duly served and the insurance companies were summoned as garnishees. Before the attachments were served the Keystone Fibre Company made an assignment of its interest in the policies to its bondholders and other creditors named therein. Tlie most important, if not the only, question presented on this appeal is whether the assignment is valid. The appellants claim that it is not, because, as they allege, it was not authorized at any regular or duly called special meeting of the directors of the company and, because, as they further allege, it is a fraud upon the creditors of the company who are not named therein as assignees. The learned court below found as a fact that two of the five directors of the company did not have timely notice of the meeting at which the assignment was authorized, and held that on this ground it was voidable, but held also that as no officer or stockholder of the company had made any objection to it, their acquiescence must be accepted as a ratification of it, and cited Gordon v. Preston, 1 Watts, 385, as authority for its conclusion respecting the first objection made to the validity of the assignment. In this conclusion we concur. The objection that the assignment is in fraud of the creditors not named in it was not sustained by the court below, because a corporation, as well as an individual or copartnership, may prefer one creditor to another if the preference is honestly made to secure or satisfy a bona fide debt, and because, further, that the assignment furnishes no basis for an inference of actual fraud in the preference given in this case. No attempt was made by the appellants to show actual fraud in the transaction, and the court found from the evidence that it was not present. It is not alleged that the assignment was intended to secure the payment of fraudulent claims, or that any assignee named in it demands payment of or has such a claim, and it is conceded by the appellants that the insolvency of the company [564] is not a bar to or abridgement of its right to prefer one creditor to another. The fund for distribution is #2,949.95, and it is the balance remaining in the hands of R. W. Reynolds, trustee for the bondholders and “ attorney in fact of all the parties claiming the insurance moneys,” after paying the bondholders and other creditor or creditors secured by the mortgage and the indorsements on the insurance policies. The learned court below held that the fund was applicable to the debts still due from the company to the persons named in the assignment and that it was not sufficient to satisfy all these debts. Assuming that this view is correct, it follows that each creditor named in the assignment and having an unsatisfied claim is entitled to a pro rata share of the fund. But the appellants contend that, as Frisbie and Decker were at the special meeting and two of the three directors who voted for the assignment, they acquired no preference by it. We think this contention is sound. No case has come under our notice in which a director and creditor of an insolvent corporation has been allowed by his own vote to obtain a preference for his claim over the claims of other creditors. The weight of authority in this country is certainly against such a preference. We therefore hold that Decker as a judgment creditor of the company did not acquire a preference by the assignment over the judgment creditors who are the appellants in this case. The assignment was not necessary for the protection of Frisbie, because his only claim against the company was as a bondholder, and the bondholders, as we have seen, were protected by the mortgage and the insurance. We cannot sustain the contention of the appellants that the unsuccessful attempt of Decker to obtain a preference by the assignment is fatal to the preferences lawfully created and conferred by it. If the sum for distribution was more than suffi ■ cient to satisfy the lawfully preferred debts, we would, in accordance with the views herein expressed, reverse the decree appealed from, but as the fund is primarily applicable to such debts, and the court below has found as a fact that it is insufficient to satisfy them there is no occasion or ground for a reversal. Decree affirmed and appeal dismissed at the cost of the appellants.