Sells & Co. v. Rosedale Grocery & Commission Co.

Calhoon, Special J., delivered the opinion of the court. A number of creditors of the Rosedale Grocery & Commission Company filed their several independent bills against N. B. Scott, its assignee, and the Bank of Rosedale, and, subsequently, filed amended bills, bringing in Geo. S. Zehnder, trustee. Both the grocery company and the bank are corporations. — 602 — The bills and amendments charge that the grocery company made an assignment composed of three instruments: One, a bill' óf sale to the bank, another, a trust-deed to secure the bank, and, another, an assignment to N. B. Scott, assignee, and that all the instruments go to constitute a general assignment. They charge that the assignment was fraudulent and void, because the debt of the bank was contracted outside the scope of the business of the grocery-company, as authorized by its charter, and because the parties executing the assignment eould not, by law or its charter, validly do so, and because, as a general assignment, with preferences, it did not comply with § 124 of the code, in that it omits schedules, etc., and because the grocery company and bank had the same person as president, who was a large stockholder in both, and several stockholders in one were stockholders in the other; that, when its debts far exceeded its assets, it sold its goods, wares and merchandise, store fixtures, etc., to the bank, and also made a trust-deed to Zehnder, as trustee, of its real estate and certain other of, its property, and assigned to the bank its book accounts and a large amount of its choses in action and everything not conveyed to Zehnder in trust; that the grocery company thus placed -all it had in the hands of the bank and under its control,, and did this not merely to secure the bank, but to prefer it as a creditor, and that the bank took possession of all the property, and an account of everything is called for; that the common president of the company and the bank was a heavy in-dorser of the company’s paper held by the bank; that, having by oversight failed in its deed of trust to provide for any surplus after paying the bank, the grocery company soon after made an assignment to N. B. Scott of all its assets, without preferences, for the benefit of creditors; that its" officers and managers, seeing it was insolvent, and wishing to prefer the bank, and fearing a general assignment would not stand the test of the statute, tried to evade it by first selling to the bank all its goods, wares and merchandise, and then by assigning to it its — 603 — cboses in action, and then by conveying in trust for it all its realty and remaining personalty, and that all was done simultaneously to defeat the statute, and that these acts were done without the knowledge of the stockholders, and constitute a felo de se by the. grocery company, and were therefore void. And the bills pray answer under oath, and a full accounting and discovery of the assets and moneys collected, etc., and for the annulment of the instruments, and for a first lien, or, if not entitled to that, that all preferences be abrogated, and for general relief. The answers are full, but need not be digested here, as the evidence and the law applicable to it must determine the case. The charter of the grocery company empowers it to acquire all kinds of property, real and personal, t.o sell, incumber it and to hypothecate its choses in action to secure its debts. The by-laws provide for a í' credit and executive committee, ’ ’ and a meeting of the stockholders organized one with ' ' full and plenary power in the control and management of all the affairs and business of this company of every kind and description.” The board of directors ratified the acts done by this committee, the president, secretary and treasurer, the general manager and one other director. The assignment to N. B. Scott is dated December 2, 1892, and purports to be a general assignment without preferences. On November 30, 1892, two days before the assignment was executed, the company, by its president, general manager, secretary and treasurer and executive committee, sold and delivered to the bank its ' ' entire stock of goods, wares and merchandise of every kind and description owned by us, and now in our brick store,” etc., for the consideration of $13,175, in payment of that much of the debt the company owed the bank. This action was approved by the board of directors, which board also approved the agreement of the executive committee made with the bank to secure the balance of the debt to it by a deed of trust. On the same day, November 30, 1892, the company, by its same officers and committee, conveyed to Zehnder, in trust, to secure — 604 — the bank the balance of its debt, amounting to $31,808.59, certain land, animals, wagons, etc., on farms, and cotton, etc. The bank was a party to this deed of trust by its cashier, and, as a consideration for it, gave an extension of time until March 1, 1893, for the payment of this balance. In all the cases begun by original bills, complainants, who were the creditors of the grocery company, moved for, and got, .an order of the court consolidating their cases with the assignee’s petition case, and providing that their bills should'be taken as answers and cross petitions to the petition of the assignee in the matter of his trust. The petition of the assignee conforms to the statute. The proof is, that on the sale of goods, etc., the bank took possession of them, and that part of the building where they were, and, 'as soon as the assignee was appointed, rented the store from him at fifty dollars per month. The president of the grocery company, who was also president of the bank, owned more than half the stock of the company, and nearly half the stock of the bank, all but one hundred dollars of the latter of which had been and remained hypothecated by him as collateral to secure his individual debts to the full value of the stock, and this stock stood in the names of his personal creditors on the books of the bank. The president of the two corporations had indorsed for - the grocery company, very heavily to firms and to banks other than the Bank of Bosedale, and, when the trust-deed was executed, he was deeply involved, and his property and choses in action incumbered and collateralized. He was individual indorser on divers notes of the grocery company to the bank, for the bank’s accommodation, to enable the bank to rediscount them at need with other banks, but all this class of paper has been retired by the bank, and it was always able to protect it. At the time of the execution of the sale and trust deed to Zehnder, the grocery company owed about $100,-000, of which it owed about $40,000 to the bank. Its assets nominally exceeded its debts, but the agricultural disasters of — 605 — its tributary region bad prevented collections and made its further progress in business hnpossible. No evidence of actual fraud, or fraudulent intention, appears anywhere in the record. The goods, etc., which were sold to the bank were sold for their fair value. The evidence of the witnesses uncontradicted, is, that, at the time of the execution of the bill of sale and deed of trust, there was no contemplation of making an assignment, and the assignment was first thought of on December 2, 1892, the day on which it was executed, and because the officers saw it was impossible to continue business longer. The large debt to the bank was for borrowed money used by the grocery company in its legitimate business. No objection to any of the proceedings of sale, execution of the deed of trust or the assignment was ever made by any of the stockholders. In the negotiation of the sale and deed of trust the bank was represented by its cashier, The final decree sustained the instruments, and the creditors appealed. For the reason that the debts of the grocery company were double the amoimt of its capital stock, it was insisted in the-argument that the -conveyances complained of were invalid. This is not sound, even if the question had been presented by the pleadings, which is not the case. The only penalty provided by the statute is to make the directors contracting the debts individually liable for the amount of their excess over the capital stock. Code 1892, § 853. The validity of the debts is not impaired, nor are the creditors interfered with, except to enlarge their rights. They may not only look to the corporation for payment, but also to the directors for the excess of debts over the capital stock.- The position that the conveyances were void because not executed by the proper officers under the charter and by-laws of the company, is equally untenable. If conceded that the proper officers did not execute them, their acts were ratified by the — 606 — board of directors, and this is no proceeding of complaint by any stockholder. The sale of the goods, the transfer of the collaterals to the bank, and the trust-deed to secure it of date November 30, 1892, and the assignment of December 2, 1892, do not, together, form a general assignment for creditors. They were separate and independent transactions. No reason is perceived why the company might not have performed the first three acts to secure the bank with the then purpose of subsequently executing a general assignment without preferences. An individual in a case free from fraud might have done so, and a corporate entity has equal power in this regard. In Mayer v. McRae, opinion book P, 391, this court held that “where one makes an assignment of part of his estate for the benefit of creditors, intending at the time to convey the remainder of his estate to another creditor in payment of his debt to such other, the assignment and conveyance together do not constitute a general assignment under chapter 8 of the code, nor is the assignment alone such general assignment to be dealt with under the code provisions.” We approve and adhere to the principle announced in this decision. All these matters must be governed by the statutes, jurisprudence and policy of the state where the acts are done, and here, wherever two or more instruments are held as one, it has been where one was executed in support of another and had the taint of actual or constructive fraud. Our statute on assignment does not at all affect the settled policy of the state that a person or corporation, whether solvent or insolvent, may dispose of his own as he sees fit, where he practices no fraud, but with the simple requirement (Code, §124) that, where he makes a general assignment of what he has, or has left, if it makes preferences of creditors, he shall file with it certain schedules, or the preferences shall fail. The code provision, § 847, that, on the dissolution of a corporation, the ' ‘ debts diie to and from it shall not be extinguished — 607 — by its dissolution, but shall be a charge upon its property, ’ ’ does not deprive it of the jus disponendi of its property, and creates no such trust as interferes with this right, exercised in good faith. The only purpose of this statute was to avoid the common law rule which, on dissolution, abated all suits for or against the corporation, extinguished all debts due to and from it, vested all its personal property in the crown or state, and reverted its real estate to the grantor and his heirs. On the main question in this case we unhesitatingly approve and adopt the reasoning of that line of decisions holding that an insolvent corporation or individual may prefer creditors by mortgage, sale or assignment in cases untainted by fraud. In Palmer v. IIutchinson Grocery Co., opinion book O, p. 193, the language of this court is this: ‘‘ Counsel for the appellant concede .the correctness of the decree appealed from, if the question involved is to be controlled by prior decisions of this court, but argue that the decision in Arthur v. Commercial Bank, 9 Smed. & M., 394, in which it was held that an insolvent corporation might make a preferential assignment for creditors, should be now overruled, and the contrary view adopted. We decline to overrule that decision. ” In Eldridge v. Phillipson, 58 Miss., 270, the right of a debtor in failing circumstances to prefer in good faith is stated to be “ a firmly established rule in the jurisprudence of Mississippi,” and the decision refers to the numerous cases of our own court of last resort in support of the position. In the same case it is said that this right ‘ ‘ results from the dominion yhich the owner has over his property. It is a right of his proprietorship. ’ ’ This case is quoted from and approved in Estes v. Gunter, 122 U. S., 450. There is no reason, in Mississippi, why one corporation should not prefer another corporation, its creditor, because the two had each the same person as president, and had stockholders common to both. To the suggestion that such right would perhaps always eventuate in a preference, the answer comes — 608 — that the preferred corporation is its most useful friend in difficulties, for the very reason that they have stockholders in common, and one may prefer his friend or kindred, or eve¿ his wife, if he chooses. In Richardson v. Davis, 70 Miss., 219, a general assignment was sustained which preferred the debt of a partner who was himself partner, in the eye of the law, as to the creditors, because of no notice to them of his abandonment of his interest in th'e business. The cases in the books which are not in accord with our position in the case at bar are generally based on statutes prohibiting preferential assignments altogether. There is no constructive fraud shown in this record, and no fraud in fact, the debts preferred being manifestly honest and meritorious, and, therefore, the decree of the chancellor is Affirmed. Woods, J., being disqualified, took no part in this decision. S. S. Calhoon, Esq., a member of the bar, was, by agreement, selected, and sat in his stead.