Opinion
(February Term, 1895).
Corporation — Creditor and Debtor — Trust Fund — Equitable Relief — Counterclaim — Exceptions Filed After Adjournment of Court.
1. As between itself and its creditors, a corporation is simply a debtor, and the relation of trustee and cestui que trust does not exist so as to create a lien upon the assets of the corporation in favor of the creditor in any other sense than applies to an individual debtor; therefore,
2. A creditor has no equitable title to assets of a corporation, whether solvent or insolvent, in the hands of its treasurer, and the courts will not interfere with their equitable jurisdiction to enforce the payment of a judgment in favor of the creditor against the corporation.
3. A counterclaim embracing a transaction not connected with the subject of the action and with which the plaintiffs had no connection, but which was for an alleged tort against parties other than the plaintiff, was properly disallowed.
4. Exceptions to the findings of fact by the trial judge, filed after the adjournment of the court for the term, will not be entertained.
ACTION heard at May Term, 1894, of VANCE, before Battle, J., on the report of referees.
The action was instituted to recover of the defendant corporation the sum of $2,006.30, and interest, for goods sold and delivered, and the directors and stockholders of the defendant corporation were made parties to obtain injunctive relief against the threatened conversion of the assets, and to enable plaintiff to follow the fund if converted.
(119) T. T. Hicks and T. M. Pittman for plaintiff.
J. W. Hinsdale for defendants.
The theory upon which the plaintiffs, in their complaint, seek equitable relief, rests upon the idea that the directors of the defendant corporation are trustees, in the most comprehensive sense, for them, that the assets of the corporation are a trust fund in the hands of the directors for their benefit, and that therefore in this action they can have an order against the defendant Burgwyn for a payment into court of funds in his hands as treasurer, to be applied to such judgment as the plaintiffs may recover against the defendant corporation. The argument of Mr. Hicks for the plaintiffs was able and ingenious, but it failed to satisfy us of the correctness of the plaintiff's position. The relation between a creditor and a corporation, solvent or insolvent, is simply that of creditor and debtor, and where the law-writers and the courts have used the words "trust fund" in connection with the assets of an insolvent corporation, it has not been intended to mean that there is a direct and express trust attached to the property. The assets are not in any true and complete sense trusts. 1 Pomeroy Eq. Jur., sec. 1046. In Hill v. Lumber Co., 113 N.C. 173, this Court decided that a director of the insolvent defendant corporation, who was also a creditor, could not take advantage of the information which he had of the affairs of the corporation to protect himself by a judgment confessed by the corporation in his favor to the injury of other creditors who did not have the same means of information; and that the assets of the corporation were a trust fund, and that general creditors were entitled to come in on equal (120) terms with directors who were bona fide creditors. It is true, too, that in that case the Court used the word "lien" in reference to the claims of creditors upon the assets of the company, but the word was afterwards explained in Bank v. Cotton Mills, 115 N.C. 507, to mean simply a right of priority of payment over stockholders of the corporation. It did not undertake to decide that these priorities were such a trust as attached to the property and placed the right thereto in the creditors. In Hollers v. Brierfield, 150 U.S. 371, these words are used: "A party may deal with a corporation in respect to its property in the same manner as with an individual owner and with no greater danger of being held to have received into his possession property burdened with a trust or lien. The officers of a corporation act in a fiduciary capacity in respect to its property in their hands, and may be called to an account for fraud or mismanagement in respect thereto. As between itself and its creditors, the corporation is simply a debtor and does not hold its property in trust or subject to a lien in their favor in any other sense than does an individual debtor. The assets of such a corporation (an insolvent bank) are a fund for the payment of its debts. If they are held by the corporation itself and so invested as to be subject to legal process, they may be levied on by such process." Curram v. Arkansas, 15 How., 304. So it appears from the authorities that the plaintiffs have no equitable title to the assets of the corporation in the hands of Burgwyn, the treasurer of the defendant company. The relations of trustee and cestuis que trust between him and the creditors, for the purposes of this action, do not exist, and the plaintiffs cannot invoke the aid of the court, in its equitable jurisdiction, to enforce the payment of the judgment recovered against the defendant in this action by an order of the court, on pain of attachment for contempt. In Daniel v. Owen, 72 N.C. 340, where the relation of trustee and (121) cestui que trust did not exist, the court below made an order that the judgment debtor should pay into court on a certain day the amount of the judgment. This Court held that the order was void because of the want of power to make it. In that case the Court said: "Under the old equity system the chancellor had power to order one who held the legal title in trust for another to execute a deed. So he had power to order a defendant who held a fund in trust, whether it consisted of bonds or money, to pay `the funds' into court to the end that the fund should be put under the protection of the court. This power the court still has under the new system in all cases where there is the relation of trustee and cestui que trust, and the land or the fund is in contemplation of a court of equity the property of the plaintiff in an action brought to enforce the equity, and an order made for the execution of a deed on the payment of the fund into court, is a lawful order within the meaning of Battle's Revisal, ch. 24, sec. 1, subdivision 4." Code, sec. 648, subdivision 4.
The judge below properly overruled the second conclusion of law of the referee allowing the counterclaim of the defendants set up in their amended answer. Upon the facts found by the referee the defendant, as a matter of law, was not entitled to it. According to the referee's finding, the counterclaim embraced a transaction not connected with the subject of the action, the plaintiff had no connection with it, nor ever had, and it was for a tort against other persons than the plaintiffs.
All of the exceptions filed by the defendants to the findings of fact by his Honor were filed too late. They were not put in until after the court had adjourned for the term. Battle v. Mayo, 102 N.C. 413; (122) Lowe v. Elliott, 107 N.C. 718. The judgment of the court below is affirmed, except that part of it which adjudges "that the said W. H. S. Burgwyn, treasurer, be and he is hereby ordered and directed to satisfy the plaintiff's said recovery and the costs by paying the same out of the said assets." The plaintiffs may however at once examine, as under the chapter of The Code entitled Proceedings Supplementary to the Execution, W. H. S. Burgwyn and the other directors of defendant corporation, or any other persons who may have any assets of defendant corporation in their hands or under their control, without any further proceedings, as it appears from the complaint and answer in this case and the proof, that the defendant company, through Burgwyn, its treasurer, either received or ought to have received, at the time of the sale of the defendant corporation's property and franchise, an amount from that sale more than the judgment recovered in this action, and that there is no other creditor, nor is there any other property of the defendant corporation.
Modified and affirmed.
Cited: Howard v. Warehouse Co., 123 N.C. 92; McIver v. Hardware Co., 144 N.C. 484; Edwards Supply Co., 150 N.C. 172; Powell v. Lumber Co., 153 N.C. 56.