Henry Dibblee Co. v. Watson

Me. Justice Shepaed delivebed the opinion of the Couet. This was an action of assumpsit with attachment in aid brought in the court below by appellees against appellant to recover for coal delivered by appellees to appellant from October 2d to December 12th, in the year 1893. The grounds of the attachment, as set forth in appellee’s affidavit, were that the defendant had, within two years last past, conveyed or assigned its effects, or a part thereof, so as to hinder and delay its creditors, and had, within two years last past, fraudulently concealed or disposed of its property so as to hinder and delay its creditors, and is about, fraudulently, to conceal, assign or otherwise dispose of its property so as to hinder or delay its creditors. Issues by plea traversing the allegations of the affidavit, and of general issue in assumpsit were made and tried by a jury, and found for appellees; the jury returned a verdict for $320.94, and judgment was entered in appellees’ favor upon the finding. This appeal is from that judgment. The appellant especially insists that there was rio proof whatever of any actual fraud. That the utmost that was attempted to be shown was constructive fraud, which consisted in preferring a director of the appellant corporation aftér it had become insolvent to the extent of an already existing debt, and that such preference amounts only to a breach of trust for which a remedy does not exist at law, but only in equity. It appears from the evidence that the appellant corporation was in fact insolvent on October 10,1893, and had been iri that condition for a considerable time prior thereto. Its board of directors at that date consisted of B. F. Sunny, George Martin, G. H. Atkins and S. A. Barton. It had no president, but B. F. Sunny was its vice-president. George Martin, one of the directors, was its bookkeeper. Of the payees of the judgment notes on that day executed, the Messrs. Sprague and Bartlett were among appellant’s stockholders, S. A. Barton was one of its directors, and Mrs. B. McDowell, a sister of W. K. McClintock, its secretary and treasurer, and the Northwestern National Bank was its banker. On said October 10, 1893, the following resolution was adopted at a meeting of appellant’s board of directors, at which meeting directors Sunny, Martin and Atkins, only, were present: e‘ Whereas, this company is justly indebted to Mrs. B. McDowell in the sum of $1,000, and A. S. Barton in the sum of $7,223.43, and has also long been indebted to Messrs. A. C. Bartlett, O. S. A. Sprague, A. A. Sprague and O. H. Morse, jointly in the sum of $10,778.95, for money loaned and long overdue, and is also indebted to the Northwestern National Bank of Chicago in the sum of $21,500, a portion of which is secured by Congress Hotel bonds and Chicago Athletic Club notes; and Whereas, it is necessary that this company give saidcreditors further assurance and security for said amounts, in order to procure said creditors to delay the enforcement of their claims for the immediate present, thereby preserving the credit of the company and giving it time to turn its assets, and continue in business; and Whereas, judgment notes will be accepted by said creditors as such further assurance and security; Therefore, be it, and it is hereby resolved, that the officers of this company be, and they are hereby authorized and directed to execute, sign, seal and deliver in the name of this company, and on its behalf, the judgment notes of this company to said creditors, payable one day after date of said notes. The said notes to be for the above named respective amounts, except in the case of said bank, the note to said bank to be for the difference between the whole amount owing to it, and the reasonable value of securities held by said bank.” In pursuance of such resolution judgment notes payable one day after date to the parties respectively named, and for the several amounts specified, were, on the same day, executed by the appellant, and were delivered to the attorney of the appellant, who appears also to have then been, or thereafter to have become, the attorney of some, if not all, of the payees. Afterward, and on December 13, 1893, judgments were confessed on said judgment notes, and on the same day executions were issued thereon and levied upon all the property of the appellant in the forenoon of the same day. The writ of attachment in this case, at the suit of’hppel'lees, was levied upon the same property a few hours later and in the afternoon of the same day. On the day thereafter, December 14th, a special meeting of the board of directors of appellant was held, Sunny and Martin being the only directors present, at which a resolution was adopted as follows : “ Be it, and it is hereby resolved, that owing to levies by the sheriff upon the property of this company, and the difficulties of its situation, this company does forthwith cease doing business.” All of the acts in the premises done by the appellant appear to have been done voluntarily, and the appellee predicates upon that fact and the unanimity and harmoniousness of conduct between the payees of the several notes after their execution, that there was a secret and fraudulent purpose to benefit those particular creditors at the expense of all other creditors. It must now be considered as settled in this State that a corporation may prefer one creditor over another in the payment of its honest debts. Reichwald v. Commercial Hotel Co., 106 Ill. 493. Therefore, from the mere fact of a preference having been made by the appellant by the giving of judgment notes in favor of certain of its good faith creditors, no inference, of fraud can be drawn. It is only upon the ground that one of the judgment notes was given to Barton, a director of the appellant, at a time when the corporation was insolvent, that the charge of fraud upon other creditors can be predicated. But it seems to be settled that in such a case the fraud perpetrated is described, not as actual fraud, but only such a fraudas a court of equity will impose upon the transaction because of the trust relation of the director with reference to the corporate property, as to creditors of the corporation. Beach v. Miller, 130 Ill. 162; Roseboom v. Whittiker, 132 Ill. 81; Atwater v. Am. Ex. Bk., 152 Ill. 513; Illinois Steel Co. v. O’Donnell, 156 Ill. 624. See, also, Juillard v. Walker, 54 Ill. App. 517. In other words, whatever fraud upon other creditors of the appellant was committed by the giving of the preference by judgment note to Barton, the director, was not actual, but merely constructive fraud, the remedy against which exists only in equity, and did not subject the corporation to a seizure of all its property by an individual creditor under an attachment at law. The giving, therefore, of the seventh instruction for the plaintiff, which omitted all question of actual fraud, or intention on the part of the company to hinder or delay its creditors, was clearly erroneous, and almost necessarily extremely prejudicial to the appellant, and we do not find that any other of the instructions given materially aided it. The judgment will therefore be reversed and the cause remanded.