Summary
In Bonney v. Tilley, 109 Cal. 346, it was held that a director could recover against the corporation on a note assigned to him the amount which he paid for the note.
Summary of this case from Snediker v. AyersOpinion
Department Two
Appeal from a judgment of the Superior Court of Nevada County. John Caldwell, Judge.
COUNSEL:
The vendor's lien was not assignable and no right passed to the defendant. (Jones on Mortgages, sec. 212; Lewis v. Covillaud , 21 Cal. 179; Ross v. Heintzen , 36 Cal. 313; Avery v. Clark , 87 Cal. 619; 22 Am. St. Rep. 272; Woolley v. Wickerd , 97 Cal. 70; Claiborne v. Castle , 98 Cal. 30.) The directors of an insolvent corporation who were creditors of the corporation cannot secure to themselves any preference or advantage over other creditors in payment of their claims; and the purchaser of the note of Conly could only enforce it for the money paid. (Morawetz on Corporations, sec. 582; Hays v. Citizens' Bank, 51 Kan. 535; Thomas v. Sweet, 37 Kan. 183; Hopkins' Appeal , 90 Pa. St. 69; Adams v. Kehlor Mill Co ., 35 F. 433; Poole v. West Point etc. Assn ., 30 F. 513.)
J. M. Walling, for Appellant.
P. F. Simonds, for Respondent.
The action being continued in the name of the vendor, the vendor's lien was not extinguished by the assignment. (Woolley v. Wickerd , 97 Cal. 70.) He who seeks equity must do equity, and respondent is entitled to be repaid the amount expended by him on account of the vendor's lien before relief can be had against the judgment foreclosing it. (Carnes v. Platt , 59 N.Y. 405; Sutter Street R. R. Co. v. Baum , 66 Cal. 52.) The corporation had a right to prefer any creditor. (Priest v. Brown , 100 Cal. 626.) The law presumes that the Conly note was given for a sufficient consideration. (Code Civ. Proc., sec. 1963, subd. 21.) Tilley, at the date of the assignment, was not a stockholder nor a director of the company, and acquired by the assignment all the right that the assignor had, or might thereafter have become entitled to. (Wetmore v. San Francisco , 44 Cal. 300.) There can be no fraud in the pursuance of a remedy allowed by law. (Pehrson v. Hewitt , 79 Cal. 594.)
JUDGES: Belcher, C. Vanclief, C., and Haynes, C., concurred. McFarland, J., Temple, J., Henshaw, J.
OPINION
BELCHER, Judge
This is an appeal from the judgment entered in the case on the judgment-roll alone. The facts admitted by the pleadings and found by the court are in substance as follows: On March 7, 1893, the Midnight Gold and Silver Mining Company, a corporation, executed to the plaintiff its two promissory notes for the sum of $ 514 each, one payable four and the other six months after date, with interest. On the same day the said corporation also executed to one J. F. Cox its two promissory notes for the sum of $ 520 each, one payable four and the other six months after date. On August 20, 1893, Cox assigned his notes to the plaintiff, but no consideration for the assignment was paid by plaintiff. Thereafter on November 24, 1893, plaintiff recovered two several judgments against the corporation on the said promissory notes, one for $ 1,128 and the other for $ 1,178.
On March 10, 1893, the said corporation executed to W. H. Conly its promissory note for $ 14,188.80, payable on demand, and on the 16th of the same month Conly assigned the said note to the defendant, who paid him therefor the sum of $ 1,000 in lawful money of the United States. Afterward, on May 13, 1893, defendant caused an action to be brought in his name as plaintiff, to recover from the corporation the amount due on the note, and on May 24, 1893, judgment by default was entered thereon for $ 14,363.70, principal and interest, and for $ 6.75 costs of suit. On September 5, 1893, said judgment remaining unpaid, a writ of execution thereon was duly issued and placed in the hands of the sheriff of the county, with directions that he levy on and sell in satisfaction thereof the real property of the corporation, and on the same day the sheriff levied the writ upon certain real property of the corporation, which, on October 20, 1893, after giving due and legal notice of the sale, he sold at public auction to the defendant for the sum of $ 2,500, that being the highest and best sum bid therefor. Thereafter the sheriff duly issued and delivered to defendant a certificate of sale of the land, and the defendant is still the owner and holder thereof.
On May 11, 1893, Mary E. Gray et al ., as plaintiffs, commenced an action against said corporation and said Conly to recover the sum of $ 1,300 and to foreclose a vendor's lien upon a certain portion of the real property of the corporation. The lien was claimed as security for the unpaid portion of the purchase money of the property which was sold by the plaintiffs in the action to Conly on November 18, 1890, and by him transferred to the corporation. On August 25, 1893, while the action to foreclose the lien was pending, Mary E. Gray et al. assigned their claim and right to a vendor's lien to the defendant, and he paid them therefor the sum of $ 775. Thereafter defendant caused the action to be continued in the name of the plaintiffs, and on September 18, 1893, caused a judgment by default to be entered thereon for the sum of $ 1,519.90, and a decree foreclosing the vendor's lien upon said property. On September 27, 1893, defendant caused an order of sale to be issued in said action, and placed it in the hands of the sheriff of the county, and under it, after due and legal notice, the sheriff sold the premises affected by the foreclosure to the defendant for the sum of $ 1,619, and thereupon issued to defendant a certificate of sale of said premises, which he still owns and holds. During all the times mentioned in the complaint the said corporation was insolvent.
On March 7th, when the corporation executed its notes to Cox, he was [42 P. 440] a stockholder and a director of the corporation, and he so continued until April 17th. On March 10th, when the corporation executed its note to Conly, he was a director and the president of the corporation, and he so continued until May 3d. And on March 16th, but not till after Conly assigned his note to the defendant, the latter became a stockholder and a director of the corporation.
This action was commenced in January, 1894, and the prayer of the complaint was for judgment declaring the liens of plaintiff's judgments against the corporation superior and prior to the claims of defendant as against the property of said corporation.
After stating the facts, the court below found as conclusions of law in substance as follows: 1. That the judgment in the case of Mary E. Gray et al. against the corporation was a valid judgment for the sum of $ 775, with interest thereon at the rate of seven per cent per annum from the date of its entry, and was a valid lien upon the lands and premises mentioned and described therein, and was prior in point of time and superior to each of plaintiff's judgments against the corporation. 2. That the two judgments recovered by the plaintiff against the corporation were valid judgments for the sums respectively of $ 1,128 and $ 1,178, with interest thereon at the rate of seven per cent per annum. 3. That the judgment recovered by the defendant against the corporation was a valid judgment for the sum of $ 14,370.54 with interest thereon at the rate of seven per cent per annum. 4. That subject and subordinate to the lien of the judgment in the Mary E. Gray et al. case, to the extent of $ 775, with interest, the other judgments with interest were liens equal in point of time upon the rest and residue of all the real property of said corporation.
In accordance with these conclusions judgment was entered, and from that judgment this appeal is prosecuted.
It is claimed for appellant that the judgment is erroneous: 1. "In declaring that defendant is entitled to a prior lien for the sum of $ 775 on that portion of the property described in the judgment"; 2. "In decreeing that defendant is entitled to enforce his judgment for $ 14,370.54 against the property of said corporation on an equality with plaintiff."
In support of the first point the well-settled rule is invoked that a vendor's lien is not assignable, and it is said that, conceding Mary E. Gray et al. were entitled to a vendor's lien, the sale by them to defendant of their demand against the corporation, before judgment, destroyed the lien, and no right to such lien passed to defendant.
It is not denied that the claim of Gray and others was a valid claim for the full amount for which judgment was entered on it. And the court expressly found that in purchasing the claim and in causing judgment to be entered thereon and sale to be made, "defendant was not attempting to prevent plaintiff from collecting from said corporation any amount owing by said corporation to plaintiff, nor to obtain an unlawful advantage or any advantage over plaintiff, and that no acts or act done by plaintiff were or are detrimental to the interests of the creditors of said corporation."
Judgment on this claim was entered in September, 1893, and about two months later the judgments in favor of plaintiff were entered. If, therefore, that part of the judgment foreclosing the vendor's lien were eliminated, there would still be left a valid judgment which was a lien on all the real property of the corporation and was prior and superior to the lien of plaintiff's judgments.
In Morawetz on Corporations, section 787, it is said: "Directors of an insolvent corporation who have claims against the company as creditors must share ratably with the other creditors in a distribution of the company's assets. They cannot secure to themselves any advantage or preference over other creditors by using their powers as directors for that purpose. These powers are held by them in trust for all the creditors, and cannot be used by them for their own benefit. It is to be observed, however, that a person who is a creditor of an insolvent corporation is not deprived of any of his rights as creditor by the fact that he also occupies the position of director of the company. He is merely incapacitated as director from using any of the powers of his position for his own benefit or the benefit of his codirectors."
Under these circumstances we fail to see that the court committed any error in adjudging that the defendant was entitled to a prior lien for the sum of $ 775, that being the amount which he actually paid Gray and others for their claim.
In support of the second point it is urged that, while defendant had a right to recover judgment against the corporation for the full amount due on the Conly note, the distribution of the company's assets should be made to him and other creditors ratably and by taking into account only what he actually paid for the note, viz., $ 1,000.
It seems to be well settled that directors of an insolvent corporation, who are creditors of the company, cannot secure to themselves any preference or advantage over other creditors in the payment of their claims. (Hays v. Citizens' Bank, 51 Kan. 535; Beach v. Miller , 130 Ill. 162; 17 Am. St. Rep. 291; Adams v. Kehlor Milling Co ., 35 F. 433; Hopkins' Appeal , 90 Pa. St. 69.)
In Cook on Stock and Stockholders, section 660, it is said: "It is a fraud on the corporation and on corporate creditors for the directors to buy up at a discount the outstanding debts of the corporation and compel it to pay them the full face value thereof. In such a case the directors may be compelled to turn over to the corporation the evidences of indebtedness upon being paid the money which they gave for the same."
We conclude, therefore, that the court erred in determining that defendant was entitled to have his judgment [42 P. 441] on the Conly note enforced against the property of the corporation, on an equality with the plaintiff, for the full amount thereof, and that he should have been limited to the amount which he paid for the note with legal interest thereon.
The judgment should be reversed and the cause remanded with directions to the court below to modify its judgment or decree in accordance with this opinion.
For the reasons given in the foregoing opinion the judgment is reversed and the cause remanded with directions to the court below to modify its judgment or decree in accordance with this opinion.