Bouton v. Smith

Mr. Justice Dickey delivered the opinion of the Court: This was a creditors’ bill brought by the appellees, against the Chicago Plow Manufacturing Company and others of its officers and stockholders, under section 49 of the Chancery Code, to compel a discovery, under oath, of any property or thing in action belonging to or due such company, or held in trust for it, and to enjoin any transfer of the same, and for the appointment of a receiver, and for other relief, generally. The defendants other than the debtor corporation answered under oath, averring that the complainants’ note upon which its judgment was recovered, was1 secured by a chattel mortgage executed by the company to Boswell B. Bacon, the agent and attorney of the complainants, on all the machinery and tools of the Chicago Plow Manufacturing Company; that said Bacon took said machinery and tools under said mortgage, and removed and disposed of the same in some manner unknown to the defendants; that neither the complainants nor their agent has ever accounted to the company for the disposition of said property, and that said property was of the value of $20,000,—much more than enough to satisfy said debt to the complainants; also averring, that on March 3, 1879, Herbert C. Ayer and Henry I. Higgins, a firm, etc., filed their creditors’ bill in the Superior Court of Cook county against said company, in which suit a receiver was appointed, to whom the company assigned all its assets, and that on July 21, 1879, the receiver sold such assets under an order of court, which sale was approved by the court, and denying, specifically, the other allegations of the bill. The first point .made is, that the bill was for a discovery, only, and failing as such, it should have been dismissed, and that the court had no jurisdiction to entertain the same for any other purpose. This point would doubtless be good if the bill was for discovery, and that alone. Such is the case where discovery is asked in aid of an action at law. In this case the bill not only seeks a discovery of assets, but in addition thereto it seeks to have a receiver of the defendant corporation appointed, and certain payments made by the corporation to certain others of the defendants adjudged fraudulent as to complainants. No good reason is perceived why this may not be done, and thus obviate the necessity of more than one suit. It sets up fraud as a ground of equitable relief. It charges that the defendant corporation, acting in collusion with the other defendants, has, at divers times since the accruing of said indebtedness to complainants, paid to the said Nathaniel S. Bouton, Christopher B. Bouton, etc., large sums of money, without any good or valid consideration therefor, and that such payments so made as aforesaid were made in fraud of complainants’ and other creditors’ rights in the premises, and that they were so made for the purpose of hindering and delaying complainants and other creditors in the collection of their just debts, etc. This is certainly sufficient to give the court jurisdiction to determine the matters alleged. In point of fact, was there any payment or payments made by this corporation to appellant without any valid consideration therefor ? The proofs show very clearly that notes and accounts of the corporation to the amount of about $15,000 were transferred to him, and that from such notes and accounts he has collected and realized about $9000 in money. These notes and accounts are claimed to have been paid to him and accepted by him in satisfaction of a previous bona fide indebtedness of the corporation to the appellant of over $15,000, consisting of a debt of $9856.46 due for moneys advanced for the company at its request, and interest thereon, and the sum of $6000 allowed him by vote of the directors for past services in behalf of the company. As to the first item of $9856.46, or thereabouts, for moneys advanced by appellant, there was a valid legal obligation resting upon the corporation to pay the same, with interest, which appellant might have enforced by action at law. Any payment upon this, either in money or in notes and accounts, can not be fraudulent as to other creditors. At most, it is but a preference of one creditor over others, which is lawful,, and not fraudulent. But the transfer of the notes and accounts to appellant was not made in payment or discharge of his claim for moneys advanced, alone, with interest thereon, but in discharge and satisfaction of his claim and demand of over $15,000, composed of the advances and the salary or compensation of $6000 for his personal services. If this last item was not a valid indebtedness of the company, it had no right to use the corporate funds or assets to pay the same, to the injury of actual bona fide creditors. If this demand was not enforcible against the corporation, the payment of the same was a mere gift or donation, and as to real creditors fraudulent .and void in law. We can not regard the $6000 voted to be paid the appellant, August 1, 1878, for alleged services rendered for-the corporation, as constituting a valid .indebtedness, which the corporation was under a legal obligation to pay. We do not think appellant could have maintained an action against the corporation for compensation for such services. There is no evidence of any contract or agreement whatever for the performance by appellant of any services for this corporation, much less for paying him anything therefor. We fail to find any contract binding appellant to perform any services for the company. Doubtless the records of the company show what compensation was to be paid to the officers and employes of the company, but they disclose no entry in respect to the employment or payment of appellant, except the vote in August, 1878, allowing him $6000. It will not do to allow either the officers or stockholders of a private corporation organized for pecuniary profit, after incurring a large indebtedness, and while actually insolvent, by vote to set apart moneys or corporate property to themselves for past services not previously provided for in any manner, or in any way to appropriate to their own use the property or funds of the company on the plea of payment for services voluntarily rendered, under no contract therefor, and thus absorb or even diminish its means of discharging its just obligations, to the detriment of actual creditors. A corporation has no right to give away its property, leaving its creditors unpaid and not provided for, and any transfer of its assets not made in the usual course of business, and for value, will be set aside, and the lien of its creditors enforced in equity. It remains to be seen whether the court was justified in requiring the appellant to pay anything, and, if he was liable in any amount, whether the decree was not for too large a , sum. If appellant received no more than his just and legal dues, leaving out of consideration the $6000 allowance, then he is not liable for any sum, and the decree is clearly erroneous. The appellant was charged by the corporation (as its account, if understood, shows,) with book accounts at forty-five per cent of their face, $5140.78, and for $29,259.97 at thirty-five per cent of their face, amounting to $10,240.99, making in all a charge of $15,381.77, which lacked $474.69 of balancing his account, which was composed of the $6000 allowance, and $9856.46, the latter being for the moneys advanced by him, and interest. In this account of $15,381.77 the appellant was charged with $3330.70 of notes, which he claims were never delivered to him; they being in the hands of attorneys for collection; and he also claims that he was wrongfully charged $800 for another note. We regard the adjustment of the several items of the account as constituting but one transaction or demand, which was attempted to be paid and balanced by the transfer of the notes and accounts, the sum. actually due him from the corporation. Appellant claims that he has allowed the corporation for the notes and accounts taken by him more than they were worth, and would not have taken them at the price he did had he understood that only a part of his claim was to be allowed and paid thereby, and that he took such notes and accounts not expecting to have to advance any money therefor, as he would, at the prices agreed, if his $6000 allowance is rejected. He also insists that if the contract is set aside and declared void at all, it should be in toto, and not in part, and that he should then be charged for said, notes and accounts only the sums he has actually collected and received thereon, and should not, in any event, be charged for more than the actual value of those uncollected. There is force in this position. We think he should not be bound conclusively by the price he agreed to give, as that contract, when avoided, can not bind him or any one else, although he could not himself have had it set aside. If appellant will render a full account of the net proceeds of that portion of these securities and demands which he has converted into money or disposed of, and turn over to the receiver that part of the same which he still holds, he ought not to be required to refund any money except the excess of the net receipts over and above his demand for moneys advanced to the company, and interest thereon. The judgment of the Appellate Court is reversed, with directions to reverse the decree and remand the cause for further proceedings in accord with the views here expressed. Judgment reversed.