Creighton v. Scranton Lace Curtain Manufacturing Co. , 191 Pa. 231 ( 1899 )

Opinion by

Mb. Justice Mitchell,

The weight of the evidence is that the Lace Company defendant was insolvent in July, 1896, when it gave the bond on which the judgment was entered, and such, as we read it, was the opinion of the court below. The company had previously received advances of money from plaintiffs, as security for which it had pledged manufactured goods by delivery to the plaintiffs, and by setting apart for them in the custody of Taylor, its own assistant general manager. In July, 1896, plaintiffs, becoming doubtful of the sufficiency of the security by the goods set apart in this manner, the board of directors passed the resolution under which the bond was given. Creighton, one of the plaintiffs, was also a director in the company, and voted for giving the hond as a new security to his firm. The pledge of the goods for contemporaneous or future advances actually made upon the faith of them was entirely lawful, notwithstanding the fact that Creighton was a director: Cowan v. Plate Glass Co., 184 Pa. 1: Finch Mfg. Co. v. Stirling Co., 187 Pa. 596. Whether the security agreed upon and taken at the time of such advances can subsequently, after insolvency, present or in contemplation, be exchanged for a new security more disadvantageous to the other creditors is not so clear, but we have not that question now directly before us.

The bond was for a penal sum, “ as security for such sums as may be owing to Creighton & Birch from time to time,” and the condition was that the Lace Company should pay such sums of money as should be owing or deliver such goods as the creditor should order, and in default judgment was. authorized to be entered “ for any sum or sums that maybe due or owing to the said Creighton & Birch,” etc. In February, 1897, judgment was entered on the bond for the penalty, and execution immediately issued for the full amount. This, of itself, under the circumstances, was sufficient to put plaintiffs on explanation. The court subsequently directed the judgment to be amended so as to show that it was for the penalty, and ordered the real debt to stand as liquidated at $62,670,08. This, however, did not help the case in the least. No such sum was due or owing. The utmost that plaintiffs could bring forward as a present debt on the day the judgment was entered was $54,829. The $8,000 difference was made up by including certain notes of the Lace Company on which one Kemmerer,the president of the company, was indorser, and which it was said that in some vague and not specified way the plaintiffs had “ obligated ” themselves to pay and thus relieve Kemmerer. These notes were not in any possible view within the terms of the bond. They were not advances or “ sums due or owing ” when execution was issued for their amount, for they had not been paid, and the alleged “ obligation ” to pay them was not shown to rest on any consideration, or any circumstances that would justify the assumption of them as part of his preferred debt by a director with knowledge of the insolvency of his company, present or impending. It is true that a failing debtor may secure a bona fide creditor against a contingent liability, but it is enough in the present case, without regard 'to other objections, that the bond did not undertake to do so.

On the whole case it is clearly’ one of presumptive fraud and illegality. This prima facies maybe rebutted, but it calls upon plaintiffs for explanation. The ascertainment of the exact facts which may show a special equity and the good faith of the transaction should go to a jury.

We have considered the case on the merits, because that was the course taken by the court below. But appellee has raised the question of appellant’s standing, citing South West Natural Gas Co. v. Fayette Fuel Gas Co., 145 Pa. 13. The circumstances necessary to enable a stockholder to assume the maintenance of the corporate rights as declared in that case do not affirmatively appear here, but the case differs in the fact that the rule for an issue to determine the validity of the judgment as against other creditors was taken by an attaching creditor, as well as by the stockholder, and it does not appear that the latter has ever been called upon to show his standing. He is entitled to an opportunity to do so.

The order discharging the rule is reversed and the rule reinstated, with directions to award the issue prayed for, unless it shall appear that there is no party before the court entitled to ask for it.