Judges： Iiolt
Filed Date： 11/29/1893
Status： Precedential
Modified Date： 10/18/2024
This is .a suit in equity brought in the Circuit Court of Tucker county in February, 1891, by the appellee M. Howard llnliugs, trustee, against the Hidings Lumber Company and the various creditors of that corporation, in order to receive the instructions and directions of the court and conform his action thereto in his administration of the trusts imposed upon him by the deed from the llnliugs Lumber
On June 20, 1891, the court without passing upon the report or exceptions thereto, and by consent of all parties, decreed the sale of all the property, real and personal, in this state belonging to the Hillings Lumber Company, and appointed- commissioners to make the same. A sale was made at the price of ninety five thousand six hundred and five dollars, and reported, but the court by decree of August 28, 1891, refused to confirm the same for inadequacy of price, set it aside and directed a resale, and by the same decree ordered the First National Bank of Cumberland to pay Kenneweg & Co. nine hundred and forty seven dollars and twenty five cents, amount of a cheek in controversy.
On the 2d of December, 1891, the cause came on for hearing on the merits, on the commissioner’s report, exceptions thereto, and other papers, and the court on mature consideration overruled all the exceptions exbopt that of Ann M. Garrison, which was sustained, placing her claim in the seventh class. Xu all other respects the report of Commissioner Adams was approved and confirmed subject to
■ From this decree these fifteen defendants, on January 30, 1.892, obtained this appeal, assigning the following-grounds of error: (1) It was error to overrule the various exceptions to the commissioner’s report. (2) It was error to uphold, under the circumstances, the debt of thirty five thousand dollars of defendants F. W. Mitchell & Oo. (8) It was error to refuse to hold all three deeds of trust nullities, and to refuse to decree defendants’ several debts as just liens on the property of the corporation, in the order of the filing of their several answers praying such affirmative relief. (4) It was error, in any event, to sustain the debt secured in the last trust deed to defendants Hulings & Co., and to refuse to postpone it to petitioner’s debts.
The important facts of the case are as follows: On the 20th day of February, 1884, Marcus Hulings, Willis J. Hulings, Noah F. Clark, John E. Butler, George W. Dorr, of Oil City, Pa., and William B. Maxwell, of St. George, W. Va., received from the secretary of state of West Virginia their certificate of incorporation, creating and declaring them from that date a corporation by the name of the TIuliugs Lumber Company until the 1st day of February, 1915. See Sess. Acts. 1885, p. 467. This certificate is the charter of the company.
Quite a controversy has been raised and discussed as to what chapter of our Code or act of the legislature this company was organized under. This is due, in part at least, to some acts which were not incorporated into the revisáis subsequent to the revisal of the West Virginia (lode of 1868, especially Act Feb. 28, 1877 (see Acts 1877, p. 178); as amended by Act March 10, 1881 (see Acts 1881, p. 296); as again amended by Act Feb. 9, 1882 (see Acts 1882, p. 15); again amended by Act Feb. 20,188-3 (see Acts 1888, p. 84); again amended by Act Feb. 27, 1885 (see Acts 1885, p. 47); again by Act Feb. 20, 1889 (see Acts 1889, p. 39). This act, authorizing the
This company was organized for the purpose of buying, selling, and manufacturing timber, etc., for operating lumber mills, constructing a boom in Tucker county on Cheat river within two miles, and below the mouth of Shafer’s Fork, etc. When -wo look at the act of 1877, as amended by the act of 1881, authorizing the construction of a boom in Tucker county, and by the twenty first section conferring the power, among other things, to purchase, sell, .and hold timber lands, there can be no question but that this lumber company, owning a boom, sawmills, and about twenty five thousand acres of timber lands on Cheat river and its waters, was organized under this act, for by no other statute do wo find all these powers conferred.
Under this act, therefore, it received its charter or certificate of incorporation. It organized at Oil City, Fa., on the 20th of February, 1885; Marcus Hulings having subscribed for oneliundred shares, of one hundred dollars each; Willis J. Hillings, one thousand two hundred and seventy five shares; Noah F. Clark, ten shares; George W. Dorr, ten shares; and William B. Maxwell, five shares — -making one thousand five hundred shares, of one hundred dollars each, one hundred and fifty thousand dollars the amount, of the capital stock, of which twenty five thousand dollars were paid in -pro rata by the stockholders. The board of directors then and there elected were Noah Clark, J. E. .Butler, J. C. Simpson, Samuel Justice, Marcus Hidings, George W. Dorr, and W. T. Hidings. W. J. Hidings was elected president,' ,J. E. Butler treasurer, and D. W. Osburu secretary. Its principal office or place of business has
On the 6th day of February, 1886, the lumber company, being in need of some thirty or forty thousand dollars to pay off and lift from the several vendors the balance of the purchase-moneys respectively due them on the several tracts of land which they had sold and convoyed, reserving on the face of the conveyances liens for such unpaid balances, induced defendants F. W. Mitchell & Co., bankers of Oil City, to lend the money, thirty five thousand dollars, by giving them a deed of trust to secure the same on the various tracts of land, comprising about twenty four thousand eight hundred acres. It was also a part of the agreement that F. W. Mitchell & Co. were to hold as further security for the money loaned, the purchase-money notes with their vendor’s liens thus paid to the original vendors and taken up.. This agreement was carried out.
The deed of trust of February 6, 1886, on all these lands, (twenty nine tracts) was duly executed by the company, conveying the same to O. M. Husbands, Jr., trustee, and was duly acknowledged and admitted to record in the counties of Tucker and Randolph, where the lands lie, and the purchase-money notes were lifted and turned over to F. W. Mitchell & Co., who still holds them unpaid as further security under the agreement.
On the 1st day of July, 1889, the lumber company, being still further in need of money to carry on its operations and pay its debts, conveyed all its real property situate in Tucker county, describing it to William H. Wise, trustee, to secure the payment of seventy live bonds, of one thous- and dollars each, which deed was also duly executed, acknowledged, and admitted to record in the county of Tucker. These bonds were never sold, but were hypothecated to various banks and individuals as security for money loaned the lumber company, aggregating the sum of about forty nine thousand five hundred dollars. Both of these trust deeds are recited as subsisting liens in the trust deed of general assignment to pay debts executed to M. Howard Hidings, trustee, the plaintiff in this suit.
“They (the stockholders) may in general meeting by a by-law prescribe the number of which the boards (of directors) shall consist; but unless a different number b’e so prescribed there shall be-five directors. They may also by by-law prescribe the qualification of directors; but if it be not otherwise provided every director must be a resident of this state and a stockholder.”
In my opinion, this point is not well taken, for the following reasons:
(1) This company obtained its certificate' or charter of incorporation under section 8, e. 121, of the Acts of 1877, giving — -first the name of the proposed corporation ; second, the place at which it was proposed to construct its boom, dams, eic., within two miles below the mouth of Khafer’s Fork of Cheat river, Tucker county; third, the place at which shall he established and maintained the principal office, viz. Oil City, state of Pennsylvania; fourth, the time of commencement, etc.; fifth, the amount of capital stock, viz. one hundred and fifty thousand dollars, the number of shares, one thousand five hundred, each of the par value of one hundred dollars; sixth, the names and places of residence of the several persons forming the association for incorporation, and the number of shares subscribed by each, showing that five of the corporators subscribing for all the capital stock, except the nominal amount, of five shares out of the one thousand • five hundred, are non-residents of this state, and residents of Oil City, Pa.
(2) Hoction 6 of the Act of 1877 provides that every corporation organized under the provision of this act shall hold its first meeting at such time and place as may be designated by the corporators thereof, and all subsequent meetings at such place or places, in or out of this State, as the directors may from time to time appoint, except as hereinafter specially provided ; and the stockholders shall
Defendants Willis J. Hidings and John E. Butler, who were the partners composing the firm of Hidings & Co., conveyed to the corporation property estimated at about seventy thousand dollars, consisting of mills, boom, saw logs,
Thus the Hillings Lumber Company, in the year 1885, became the owners of about twenty live thousand acres of land, charged with the payment of these sums, to the amount of twenty eight thousand eight hundred and thirty six dollars and seventy cents; for the payment of which the vendors selling to M. IIulings retained liens upon the face of their respective conveyances, which are of record; and the notes given therefor are not ¡¡aid, but have been assigned or transferred, and remain unpaid in the hands of other parties, most of them in the hands of defendants F. W. Mitchell & Co.
Soon after the organization of the corporation, viz. on November 4,1885, a directors’ meeting was held at Oil City, which has always been the place of the principal office, until, on June 13, 1890, it was changed to IIulings, W. Va., with a branch at Oil City. At this meeting on November 4, 1885, J. E. Butler, J.. C. Simpson, Samuel Justice, George Dorr, Marcus IIulings, and W. J. IIulings constituted the board of directors, and were the owners of ninety per cent of the stock. W. J. IIulings was president,
This act of 1877 vests all the corporate powers in the board of directors, and section 1, c. 52, which treats of corporations, generally declares wliat a corporation shall be, and enumerates its powers; and among them it may sue and be sued; plead and be impleaded : contract and be contracted with, by simple contract or specialty; purchase, hold, use, and grant estate, real and personal, appoint officers and agents, prescribe their powers, duties and liabilities; take bond and security from any of them, and fix and pay their compensation; and make ordinances, by-laws and regulations for the government of' its council, board, ollieers, and agents, and the management and regulation of its property and business — such in fact as the common law itself makes it. Hoe Report of Devisors of Code of 1819, r. 323. _
_ The directors of a corporation are, as to all purposes of dealing with others, the corporation itself, and, when convened as a board, they are the primary possessors of all the powers possessed by the corporation. What they do as the representatives of the corporation the corporation itself is deemed to do. See Ellerman v. Stock Yards Co., (N. J. Chy; filed Dec. 18, 1891) 23 Atl. 287, 35 Amer. & Eng. Corp. Cas. 388, and notes of editor. A director duly elected or appointed is a director dejare. Those who usurp the office of director, and exercise the functions of the board of directors, under color of tlie election or appointment-in itself not legal, become directors de jacto; and the official acts of such board are valid iu reference to rights which innocent third parties or strangers to the corporation may thereby acquire, for they are not bound to know— often have no right to know — what goes on in the privacy of the council chamber of the directors or stockholders.
The board of directors, at this meeting held at the principal office in Oil City, Pa., on the 4th day of November,
At a directors’ meeting held February 6, 1886, at the principal office, W. J. Hidings, the president, presented, and was authorized to execute, to C. M. Husbands, trustee, and did execute, the deed of trust of February 6, 1886, by which the Hidings Lumber Company, by its president, conveyed to the trustee various tracts of land in the counties of Tucker and .Randolph, embracing about twenty four thousand eight hundred acres, in trust to secure to F. W. Mitchell & Co. the payment of the loan of thirty five thousand dollars and the vendors’ notes, secured by vendors’ liens, retained, were lifted and put in their hands, as assignees or transferees, to hold as additional security for their loan to the lumber company, which loan, with six per cant,, interest, payable semiannually, ivas due November I, 1887. This is deed of trust No. 1, already referred to.
'But in the mean time — that is, from February, 1885, to February, 1886 — many of these notes given for the purchase of these lands, had fallen due, and defendants, Ilu-lings & Co. took up these notes to the amount of eight thousand two hundred and ninety nine dollars and two cents, with interest to dune 12, 1891, composing a part of said sum. They also paid faxes and advanced other sums to the corporation, amounting in all, with interest to December 5, 1890,' to thirty thousand three hundred and eighty three dollars and seven cents On December 7, 1886, the Spring Garden Bank of Pennsylvania brought suit in equity, by foreign attachment, in Tucker county, to make these lands liable for a debt claimed by the bank to bo due it from Marcus Hidings, upon the ground that the corporation was not in existence when the conveyance was made to it by Marcus Hidings, and that it was voluntary
In February, 1889, it was determined to enlarge the business, and in anticipation thereof, it seems, the stockholders had each donated one third of his holdings of stock to the treasury of the company, (bus putting into the treasury fifty thousand dollars of stock, which was to be sold at par; and, F. IT. rfteel and Willis J. Hidings having purchased twenty thousand dollars of this treasury stock at par, J C. Forgie & Co., on February 5, 1889, were induced to purchase the remaining thirty thousand dollars at par.
At a regular meeting id'the directors held at Oil City on duly 15, 1889, and at another meeting of the '‘directors held at the same place on the 19th day of August, 1889, at which all the directors were present, and at which all the stock was present and represented, except forty one shares out of the one thousand five hundred shares, the president and secretary wore authorized and directed to prepare seventy five thousand dollars of its first mortgage bonds, of one thousand dollars each, bearing six per cent, interest, and [lavable to bearer, with intenst payable semiannually, evidenced by coupons of thirty dollars each, attached— from one to fifteen inclusive, due and payable July 1,1890 ; sixteen to thirty, inclusive, due and payable July 1, 1892, etc.; and sixty one to seventy five, due and payable July 1, 1894. See State v. Standard Oil Co., 49 Ohio St. 137, point 2 (30 N. E. Rep. 279). To secure the payment of these bonds, the Hidings Lumber Company, by its president, Willis J. Hillings, by deed dated 1st July, 1889, and duly recorded in the counties of Tucker and Randolph, granted
These bonds were originally intended in part to pay off the Mitchell & Co. debt, but were afterwards, by resolution of the hoard of director's, directed to be hypothecated for other purposes. On August 11, 1890, the president of the IIulings Lumber Company borrowed of the First National Bank of Cumberland, Md., ten thousand dollars for four months, and placed ton of those bonds as collateral security with the hank; and on August 8th the president of the company borrowed the further sum often thousand dollars of this bank, and deposited -fifteen thousand dollar's of these bonds as-co 11 ate ral. Both sums borrowed wore placed in the hank to the credit of the lumber company. ,and paid out on its checks. The president also borrowed of Simpson, Clapp & Co. seven thousand five hundred dollars, and deposited fifteen thousand dollars of these bonds as collateral; of George W. Dclameter six thousand dollars, and deposited with him ten thousand dollars of them as collateral; of Drexel & Co. six thousand dollars, and deposited with them eleven thousand dollars as collateral; and deposited with Geo. F. Craig & Co. fifteen thousand dollars, the residue, but they were all equally secured and payable pro rata.
At Oil City, December 1, 1890, at a meeting of all the directors, who were also owners of all the stock, except forty three undone third shares, a resolution was offered and adopted which, after reciting that the IIulings Lumber Company was indebted in various sums, amounting in the aggregate to about the sum of one hundred and forty one thous- and dollars, the greater portion of which had already matured, and the residue would mature in a few day's, and that it was unable to provide the money to meet its debts, although the value of its real and personal poperty was be-
Ilulings and Butler, who composed the firm of Ilulings & Co., were present, but did not vote. The preference to them was not suggested by either of the partners, but by other directors, who knew that Hulings & Co. had been lending the company large sums of money for four or five years, which was expended in betterments of the property, which advancements had been audited and approved by three several disinterested auditing committees, at a time vdien none of the present creditors at large had any existence. This resolution-was carried into effect by the deed of the Ilulings Lumber Company of December 4, 1890, by which, by its president, it granted and conveyed all its property, real and personal, to M. Howard Ilulings, in trust for the various creditors, and in the order of preference therein named: (1) The debt of F. W. Mitchell & Co., of about thirty nine thousand dollars secured by the Husbands deed of trust,’(No. 1:) (2) for the holders of the seventy five one thousand dollar bonds under the Wise deed of trust. (No. 2;) (3) all just labor claims, etc., (these have been paid, and are not involved); (4) Huling & Co., their debt of twenty two thousand nine hundred and seven dollaVs and eight cents, then amounting to thirty thousand three hundred and eighty three dollars and seven cents; (5) Kay Bros. & Co., two thousand eight hundred dollars; (6) pro rata all other indebtedness of the grantor incurred for merchandise, machinery and supplies; (7) pro rata all other indebtedness of the grantor not then paid. The trustee was to take possession at once, wdnd up as rapidly as possible, and pay the
As to the validity of the Mitchell & Co. loan of thirty five thousand dollars, secured by the Husbands deed of trust. It has already been shown tKat this company was incorporated under the act of 1877, as amended by the act of i 881, and that it was not governed by section 49 of chapter 53, of the Code; that its directors might all be nonresidents of the state; and that the proper place of meeting both of stockholders and directors was at their principal office or place of business at Oil City, as mentioned and set forth in the charter, unless otherwise prescribed by the by-laws, for in these respects the act of 1877, as amended, is inconsistent with section 49 of chapter 53 of the Code (see section 29 of the act of 1877;) and, besides, it was the place of meeting prescribed by the by-laws.
When this loan was negotiated, and the Husbands deed of trust was executed, F. TI. Steel, a member of the firm of F. W. Mitchell <fc Co., was not one of the board of directors, and did not become one until, after that transaction, he was elected to fill the place of Ceorge W. Dorr, resigned. The validity of the Wise deed of trust is attacked oh the same grounds, which need not be further discussed. These creditors who hold these seventy five one thousand dollar bonds can only recover the amount of their debts for which these bonds were hypothecated, forty nine thousand and five hundred dollars and interest, ’and they do not claim any more.
This question touching the validity of these two deeds of trust was directly submitted to the commissioner. All the books, etc., of the company were to be submitted to him, and the officers to he examined by him. This was doin', and Willis J. Hillings rendered before him on oath a full and, as far as I can see, a frank statement of all the details of the transaction of the board of directors and meetings of stockholders; and the. commissioner reports them valid and subsisting liens, and this is confirmed by the Circuit Court. After a searching examination this rec
The claim of F. W. Mitchell & Co. was the aggregate of certain valid and subsisting vendors’ liens, retained on the face of the deeds of conveyance to Marcus Hidings before the corporation had any existence. F. W. Mitchell & Co. became the holders of these liens for full value, and at the instance and at the request of the corporation, before any member of this tirm had become a director, and by no act of the board of directors since the election of F. II. Steel as a director has their security been improved, or any advantage in any way been gained by them. The bondholders under the 'Wise deed of trust advanced their money in good faith, upon the hypothecation of these bonds thereby secured, and are clearly entitled to have their money paid back with its interest out of the proceeds of the sale of the property, and they ask no more. And this is"the law, whether the apparent and acting directors were directors dejare or only directors defacto.
Having already seen that this corporation was created under the act of 1877 and amendments thereof, and that it was not necessary for the directors to be residents of this state, and that they were directors dejare,, as well as de facto, that question and the questions connected therewith discussed by counsel upon the hypothesis of their not being officers of the corporation dejare need not be further considered, except that I wholly fail to appreciate the force of the argument based on any state policy against nonresident directors. The real estate, sawmill and other property were in this state. The articles of incorporation were recorded in Tucker county, and in the office of the secretary of state; also a copy of their'by laws. The corporation had an office and place of business in this state, in Tucker county, where ils property was, and its business of manufacturing lumber was carried on, as required by section 6 of the act of 1877. It was not a corporation created by non residents, under the laws of this state for the purpose of manufacturing lumber in some other state; and I do
I see no trouble as to subrogating F. W. Mitchell & Co. to the vendors’ liens. It is true that these liens were in the ordinary sense extinguished by payment made to the original vendor of the land out of money advanced by Mitchell & Co., but they were not destroyed ‘but turned over to these bankers, for the purpose and with the understanding on the part of the debtor corporation, which had agreed to lift them, that they should be treated as still subsisting, and that, as far as it could be done without injury to the rights of others, Mitchell & Co. should be substituted to the rights and remedies of the lienors.
This doctrine of subrogation is said to be a creature of courts of equity suggested by or with qualification adopted from the civil law, so administered as to secure substantial justice without regard to form and often independently of of any contractual relation, and therefore is not allowed, where it would work injustice to the rights of others, or defeat or impair any higher supervening equity. See Sheld. subr. (2d Ed.) § 1 et scq. Mitchell & Co., having become or being about to become creditors by special lieu on the same property had a right on that ground also to lift the von-
This brings us to the main point of controversy; that is, the validity of the third deed of trust, executed December 5, 1890, conveying all the property of the corporation for the benefit of all the creditors to M. Howard Ilulings, trustee, called the “Hulings deed of trust.” The question as to the good faith and validity generally of this assignment to secure and pay creditors was also submitted to Commissioner Adams, with directions to take testimony, examine the books and papers of the lumber company, examine on oath the officers of the corporation and others, and report thereon, together with such other matters as ho might deem pertinent or any party require. This the commissioner has done, returning with his report all the books and papers put in evidence before him, together with all the testimony taken touching the matters referred.
In this case the.compauy was insolvent, and two of the directors, on December 1, 1890, when the resolution was passed authorizing and directing this deed of trust, and the preference given the debt of Hulings & Co. to be thus preferred, were the two partners, "Willis L Ilulings and J. E. Butler, who composed the firm, and were present, and although they did not suggest such preference or vote on the adoption of the resolution, this conveyance was prima fade fraudulent and void as to these appellants, who were creditors of the grantor, the Hulings Lumber Company; and the burden is on Hulings & Co., the preferred creditors, to remove this presumption of fraud by clear and convincing proof that such conveyance was fair and reasonable and absolutely free from fraud. Sweeny v. Refining Co., 30 W. Va. 443 (4 S. E. Rep. 431); Hope v. Salt Co., 25 W. Va. 789. Still, it was held that an insolvent corporation, having ceased to do business, has the,same power as an insolvent individual to prefer a creditor in a general assignment of all its property for the payment of its debts. Burr v. McDonald, 3 Gratt. 215; Pyles v. Furniture Co., 30 W. Va. 123 (2 S. E. Rep. 909).
At the time this trust deed was made, there was nothing in the policy of our statutes which forbade an insolvent
Where questions purely of fact are referred to a commissioner in chancery, his finding will be given great weight, though not as conclusive as the verdict of a jury. Reger v. O’Neal, 33 W. Va. 159 (10 S. E. Rep. 375). In such case his findings will be given great weight and should be sustained, until it plainly appears that they are not warrant, d by any reasonable view of the evidence, and this view operates with peculiar force in the appellate court, when the findings of the commissioner have been approved by the decree of the court below. Moore v. Ligon, 30W. Va. 147 (3 S. E. Rep. 572). Every presumption is in favor of the correctness of the decision of the master. Metsker v. Bonebrake, 108 U. S. 66 (2 Sup. Ct. 351); Tilghman v. Proctor, 125 U. S. 136 (8 Sup. Ct. 894); Callaghan v. Myers, 128 U. S. 617 (9 Sup. Ct. 177); Kimberly v. Arms, 129 U. S. 512 (9 Sup. Ct. 355). If the testimony is conflicting, the Court will rarely interfere with the master’s decisions on the facts, provided he made no errors of law which aftectod the result. See Welling v. La Bau, 34 Fed. 40; Mason v. Crosby, 3 Woodb. & M. 258; Gottfried v. Brewing Co., 22 Fed. 433; Jaffrey v. Brown, 29 Fed. 476; Central Trusi Co. v. Texas & St. L. Ry. Co. 32 Fed. 448; 1 Fost. Fed. Pr. (2d Ed.) § 315; 2 Bart. Chy. Pr. 656; 2 Daniell Chy. Pr. 1317.
What are questions purely of fact within the meaning of the rule ? However much ’Blackstone’s definition of “municipal law” has been criticised, it remains with slight modifications (expressing, perhaps, what is already implied) the definition given by common-law courts to this day. See 1 Hammond’s Bl. Comm. 95, notes of editor ; 1 Bish. Crim. Law, §§ 1, 2, note; Bouv. Law Dict.; Black. Law Dict. Municipal law is a rule of civil conduct, prescribed or recognized by the supreme power in a state, commanding
But that is not the true meaning of the term “a mixed question of law and fact.” A fact, as distinguished from the law, may be taken as that out of which the point of law arises'; that which is asserted to be or not to be, and is to be presumed or proved to be or not to be, for the purpose of applying or refusing to apply a rule of law. The true meaning can be better shown by an illustration. The question of negligence as a want of ordinary care is generally a mixed question of law and fact, one for the jury, under the instructions of the court. Sec 2 Thomp. Trials, §§ 1662, 1705; Cooley, Torts (2d Ed.) 800, 801, et, seq. The prudent man, for the occasion, with reference to what he would do, and therefore what'the defendant must have done under the circumstances, is formed in the minds of the jury by the light of the facts as they find them to be, under the instructions of the court as to what the law requires him to do in a given or supposed state of facts, which there is some evidence tending to prove, and so on through all the complications of the various questions of negligence. The questions of fraud are still more complicated, for they hardly ever occur alone, but, whatever the evidentiary facts may be, the question whether they make out a case of fraud or not is a question of law. So, whether the evidence tends to show fraud is a question of law. See 2 Thomp. Trials, § 1935. See, also, Hooe v.
Hut the case here involved does not belong to that class, but to what is eálled “constructive fraud,” depending upon a fiduciary or confidential relation between the parties. There was no actual falsehood or deceit, no concealment of facts which the party ought to have made known, but participation in an act which, if held good, would violate a confidence and trust, which the law implies and imposes in a given state of facts, pronouncing such violation of the trust as in some cases conclusively, in others prima facie fraudulent.
In this case we start out with the preference given the claim of Hulings & Co. as prima facie fraudulent. So for as the commissioner had the witnesses before him, and saw and heard them testify, he is the judge of their credibility, as far as it depends on manner and general demeanor. The commissioner reaches the conclusion that the preference given the claim of Hulings & Co. is valid, being without taint or suspicion of fraud or unfairness; and he gives the following statement of the evidentiary facts that bring him to this conclusion:
“(1) The evidence and records before me clearly show that this sum remained due and owing IIulings & Co. several years before the creation of the debts due the persons on whose claims their claim is preferred. (2) These advances were made to the company, which had valuable property, and but little money, to enable it to put things in motion, and give the property available value, with the promise, and no doubt expectation, of speedy repayment out of the timber manufactured into lumber and sold. (3) .Eight thousand dollars of it was to lift for the company vendors’ liens reserved on the faces of the conveyances from the several vendors on the lands sold and conveyed to Marcus IIulings, which the company was bound to pay as*373 a part of the consideration of the purchases aud conveyance of these same lands by Marcus Hidings to the company; also taxes on these lauds. This began in February 1885, and ran through the years 1886 and 1887. And (4) during these same years Hidings & Co. advanced to the lumber company over twenty two thousand dollars cash, to pay hands, buy logs and supplies, aud pay running expenses, all shown .in detail by itemized statements, duly proved, and with vouchers, consisting of cheeks drawn by Hidings & Co. on the Oil City Trust Company, to the order and for the account of the Hidings Lumber' Company. This account was audited by two different auditing committees, of disinterested persons, in the years 1886 aud 1888. That the firm of Hidings & Co. is composed of Willis J. Hidings and John K. Butler, who are directors of the Hidings Lumber Company; but they did not vote for the resolution giving them the preference, nor did the suggestion thereof come from them, or either of them, though present at the meeting, but was proposed by and voted by the three other directors of the the company, who had no interest of any kind in the claini; and that this.claim amounts to thirty one thousand ninety three dollars and nineteen cents, with interest included, computed to 12th of June, 1891.”
The members of the firm of Hulings & Co. were examined by the commissioner, and no doubt he was impressed favorably by, among other things, their full and unreserved statements on all points touching the inquiry he had before him for investigation.
I can not agree with the commissioner in the conclusion he draws from these facts ; for, although the two directors of the lumber company who compose the firm of Hulings & Co. did not suggest the preference given their claim, nor vote for it, yet, in violation of the statute (see section 52, c. 53, Code) they were “present at the hoard while the same was being considered, thus bringing them within the rule laid down in Sweeney v. Refining Co., 30 W. Va. 443 (4 S. E. Rep. 431) and Hope v. Salt Co., 25 W. Va. 789.
The directors of this corporation, of which the members of the firm of Hulings & Co. were two, occupy the relation
“The giving of a mortgage by solvent corporations, to secure payment to a director is viewed with suspicion, but it is legal when perfectly free from actual fraud.” (Citing, among others, Hope v. Salt Co., 25 W. Va. 789; Hotel Co. v. Wade, 97 U. S. 13). “But where the corporation is insolvent, an entirely different cpiestion arises. There has
In this state, being -prima fade fraudulent, I do not'think that it has been shown before the commissioner by clear and convincing proof that the preference for the twenty two-thousand dollars and odd was fair and reasonable to the non-preferred creditors. The outside creditors, who do not know what is.going on indoors, had a right to expect from their trustees a fair and reasonable disposition of their trust-property; at least, the right to expect that their trustees would not virtually take all their trust-property to pay their own .debt. If it he said that the preferred claim of Hullings & Co. of twenty two thousand dollars has been twice audited and found correct, the reply is, no one questions its perfect fairness and correctness, or that it was advanced to the lumber company when they were in groat need, and before these debts of appellant wore created, aud upon a promise of speedy repayment; but the reply of appellants to this is, that their claims have been audited by the commissioner of the court and also found correct and to be due and payable, and, if not as old'as the preferred debt, they were old enough to be in existence when the lumber company failed and made the assignment, and when the two preferred directors occupied with their 'co-directors the relation of trustees to the corporation and its property, and that this property was a trust-fund, pledged for the payments of appellants’ claim on the same footing as the claims of other creditors at large; at least, that their trustees, also as creditors at large, could not fairly and reasonably consent to or claim the preference aivarded them.
Huling and Co. advanced some eight thousand dollars to the lumber company for the purpose of lifting vendors’ liens with the understanding that they were to hold those liens or purchase-money notes as security for the money thus advanced. 1 see no reason why the firm of Hidings k
It is true that by supplemental answer, filed Hovember 23, 1891, they claim a first lien on the lands on which the' notes lifted by them were, in the deeds of the original grantors, retained as vondors’.liens; but this was after their first answer, insisting on the validity of the Hidings or third deed of trust, after the pleadings were made up, the evidence all in, also the commissioner’s report — in fact, after the land had by consent been decreed to be sold; and the best bid obtained was not enough to reach their claim. Under these circumstances, and-at this stage of the case, it would not be equitable to permit Hidings & Co. to displace to that extent the mortgage bondholders, and, under the familliar doctrine and principles of subrogation, would not he allowed; and this also disposes, in advance, of their • counter assignment of error Ho. 2.
.As to the rest of their claim against the Hidings Lumber Company, they were mere general creditors; early ones, it is true, hut not in any other respect standing on higher ground than the other creditors at large, As to this part
Hulings & Co., appellees, make three counter assignments of error: .
(1) The Circuit Court, hy its decree of 20th of June, 1891, erred in decreeing that the First National Bank of Cumberland should pay to Kennewog & Co., defendants and appellants, the sum of nine hundred and forty seven dollars and twenty five cents, instead of directing that the same should be paid over to M. Howard Hulings, trustee.
The facts, as far as they appear, are as follows: On the 5th of December, 1890, the defendant Hulings Lumber Company had on deposit, to its credit, in the First National Bank of Cumberland, Md., the sum of one thousaud three hundred and one dollars and ninety eight cents. It owed to defendant Kenneweg & Co. a negotiable note, payable at that bank, for nine hundred and forty seven dollars and twenty five cents, falling due, not counting days of grace,
Whether it was a fraudulent transfer of this particular fund does not arise, being nowhere raised by the pleadings or otherwise. The'question when and under what circumstances the death or insolvency of the drawer of such a check has the legal effect to countermand its payment— when the check is to be regarded as an equitable assignment — has given rise to a great deal of discussion, and to some differences of opinion, it was, in this case, an order to the cashier of the bank to transfer the deposit pro tanto of the lumber company to the account of Kenneweg & Co., in discharge of the note of the drawer, then there for col
As a matter of honesty and fair dealing under the common usage in such matters, it is generally regarded as a fraud on the part of the drawer of a check in payment of his debts to- countermand it without some good caiise, and such fraud should not be encouraged by the law’s approval. As a matter of public policy and general convenience, the law’s approval of the unlimited right of revocation would tend to weaken confidence in chocks as money, and impair the usefulness of banks as places of deposit for convenient paying, as well as for safekeeping. Regarded as an equitable assignment, it has all the elements of a contract of sale or transfer of negotiable paper without inconvenience to the bank, or undue restraint upon the proper pow
As matter of authority, so long ago as 1835, in the case of Brooks v. Hatch, 6 Leigh, 534, such check or order was held to be an equitable assignment pro tanto of the funds thereafter to come into the hands of the drawee; citing Row v. Dawson, 1 Ves. Sr. 331; Peyton v. Hallett, 1 Caines, 363; and Cutts v. Perkins, 12 Mass. 206. In the case of Clayton v. Fawcett (1830) 2 Leigh, 10, the letter of Fawcett would have been adjudged an equitable assignment but for the condition contained in it that the payment was to depend on the drawer’s being absent; citing ou the subject of equitable assignment, Duke of Chandos v. Talbot, 2 P. Wms. 608; Theobalds v. Duffoy, 9 Mod. 102; and Bates v. Dandy, 2 Atk. 207. In Anderson v. De Soer (1849) 6 Gratt. 363, the . same doctrine is laid down ; and in Bank v. Kimberlands, (1880) 16 W. Va. 555, 558; and Bell v. Alexander (1871) 21 Gratt. 1, 6. Upon the subject of a check duly issued operating as an equitable assignment, see 2 Daniel, Neg. Inst. (4th Ed.) § 1618b, note; Id. ⅜ 1635 et seq.; Please v. Landuer, 63 Wis. 20 (22 N. W. Rep. 847); Stoller v. Coates, 88 Mo. 514; Roberts v. Corbin, 26 Ia. 327; Union Nat. Bank v. Oceana Co. Bank, 80 Ill. 212, and cases cited; Sav. Inst. v. Adae, 8 Fed. 106; Bank v. Coates, Id. 540; Row v. Dawson, and Ryall v. Rowles, 2 White & T. Lead. Cas. (4th Am. from 4th Eng. Ed.) 1531, 1583; Grant, Banks, side pp. 50, 51, citing Tate v. Hilbert (1793) 2 Ves. Jr. 111; Rev. Rep. 175, referring to Rolls v. Pearce, 5 Ch’y Div. 730, a case of donatio mortis cansa. On same subject, see Austin v. Mead, Brett. Lead. Cas. Eq. 122; 15 Ch’y Div. 651, and Burke v. Bishop, 27 La. Ann. 465, treating the check as a mandate. On nature of -a check, see 2 Daniel, Neg. Inst, c. 49, § 1566 et seq.; Bolles, Banks, § 58 et seq.; Bullard v. Randall, 1 Gray, 606. On nature of bank contracts and duty to pay checks, see Bolles, Banks, §§ 32, 80, et seq.; 2 Morse, Banks (3d Ed., by Parsons) c. 36, § 565 et seq. On revocation of checks, seo 1 Morse, Banks, c. 28, § 397 et seq.; revocation by death, section 480; by insolvency, section 400a. On assignment in equity, see 1 Beach, Mod. Eq. Jur. 326; 2 Story (13th Ed.) § 1044. On the French
This is not a case of a suit at law against the bank, but in equity, where the court has the fund under its control and all the parties before it, including the stakeholder; and I do not understand any decisions of the Supreme Court of the United States as not treating it as a good, equitable assignment, as between the payee and the trustee. Certainly such is the settled rule of law in this state.
The second and third counter assignments of. error have been already disposed of. Although the State may have had an inchoate lien for the taxes on these lands, yet there was none to which Hulings & Co. could be substituted by paying them, or thereby give them any other standing than that of craditors at large of the corporation.
In my view, the court should have permitted defendants Hulings & Co. to have retained the place in the order of payment given them by the deed of trust to M. Howard Ilulings, trustee, so far, and so far only, as the claim reported for them by Commissioner Adams is made up of notes, etc., which were secured by vendors’ lieus on the real estate of the Ilulings Lumber Company, lifted and held by defendants Hulings & Co.; their amounts, and the several tracts of land to which they apply, to be ascertained by the court in any proper mode. As to the rest of their claim reported by Commissioner Adams, they should come last in the deed of trust, not simply in the last class. But those creditors of the lumber company who, by their answer or other pleadings, have successfully assailed the claim of Hulings & Co., are not to occupy in the order of payment out of the trust-fund the place thus made vacant; for although the settled rule in this State is that his diligence is to be rewarded who has enlarged the fund to be distributed by removing some fraudulent contrivance that has concealed it in part, or illegal preference that would, under the trust deed, have consumed it, yet the qualification of the rule is as well settled as the rule itself that such impeach-
The decree of December 2, 1891, is reversed, and the cause remanded, with directions to modify and correct the same in accordance with the views here expressed, and, as modified and corrected, to be entered and carried into execution.