Smith v. Skeary

Carpenter, J. The plaintiff Hotchkiss, and Smith the intestate of the other plaintiff, were stockholders and directors of the Star Tool Company, a joint stock corporation. They were creditors to the corporation to an amount exceeding six thousand dollars, which was justly due and unsecured. On the 15th day of December, 1876, pursuant to a vote of the board of directors, there were transferred to them from the corporation in payment of their claim, personal property, including that embraced in the present suit, of the value of about six thousand dollars. The corporation was in fact insolvent, although it was supposed by the parties at the time [54] that it would be able to pay all its debts and liabilities. The transaction was in entire good faith, with no intention to defraud creditors, and there was no fraud unless the same arises as matter of law from the facts found. We are unable to discover any principle of law which renders the transaction fraudulent. The corporation had a right, and it was its duty, to pay this debt. These creditors had a perfect right to receive pay in money or goods, and the fact that they were stockholders and directors did not modify or abridge that right, so long as there was no actual fraudulent intent. The fact, if it be a fact, that it operated to' prefer these creditors, is not sufficient at common law to stamp it as fraudulent, for the common law favored the vigilant, and a creditor might lawfully obtain a preference. It does not become fraudulent under our insolvent laws, because no proceedings in insolvency were instituted in due time, so that the case can not be brought within the operation of those laws. The consideration was good and adequate, so that there is no badge of fraud in that respect. It is next objected that the transaction was legally fraudulent, for the reason that the goods after the transfer were suffered to remain in the possession of the vendor, the corporation, as before. Upon this point the finding is as follows: “ Immediately after the delivery of the bill of sale, Hotchkiss and Smith, with the knowledge and consent of the company, openly, in the day time, took possession of the warehouse, with other roa.1 estate, under and by virtue of a mortgage of the same which they held from the company, to secure them for other debts and liabilities from and on account of the company, (the condition of the mortgage being then ’ broken,) and from thence to the time when the goods were attached, continucd-to hold possession exclusively, and to have the exclusive charge and control of the warehouse and the goods contained therein, treating them as their own, and selling and disposing of portions of the goods from time to time as they liad opportunity. Hotchkiss was with Smith till the death of the latter, which occurred some time in January, 1877, and with his administratrix afterwards. No other [55] change of possession or delivery of possession of the goods than what is herein stated and found, was made by the company.” From this finding it seems to us that there was a real and substantial change of possession. The plaintiff's had a good title to the real estate, including the warehouse, and took possession as owners. The title to the goods was transferred to them, and they took and retained the open and visible possession of them. The goods were cared for and some of them sold by the plaintiffs and not by the corporation. There is no evidence that the corporation or its agents had any control of the goods, and the finding' leaves no ground for an inference that the transaction was colorable, and that it was intended that the real possession should remain in the company. The only fact in the case on which the defendant relies in support of this claim is the circumstance that the goods remained, in the warehouse where they were kept when owned by the company; in other words, the change was effected, not by removing the goods, but by changing the occupancy of the warehouse and the custodians of the goods. It will hardly be claimed that a change of that nature may not answer the demands of the law. If such a claim could be successfully made sales of business establishments and changes in business would be rendered difficult and dangerous. It is true that in this case there is the additional circumstance that the sale was made to parties who were previously interested in the corporation; but that fact is of no importance unless it should further appear that they had something to do with the management of the property before as well as after the sale; and that is not found. If stockholders and directors may deal with the corporation in their individual capacity, the law will protect them as well as other parties. Their relation to the corporation however may be shown as bearing upon the question of good faith, and will be weighed with the other evidence, but will not as matter of law destroy what would otherwise be a valid legal change of possession. [56] The Superior Court is advised to render judgment for the plaintiffs. In this opinion the other judges concurred.