Fargason v. Oxford Mercantile Co.

Mississippi Supreme Court March 15, 1900

Fargason v. Oxford Mercantile Co., 78 Miss. 65 (Miss. 1900)

Calhoon

Opinion of the Court

Calhoon, J.,

delivered the opinion of the court.

We will not disturb the numerous decisions of this court holding that insolvent corporations may, in good faith, prefer creditors as individuals may. No bad faith is shown in this-record. It shows merely a prefernce of the bank as creditor,, and every stockholder either expressly authorized, or ratified and approved, the sale to the bank in satisfaction of the debt to it. Sells v. Grocery Co., 72 Miss., 590. If the bank transcended its charter and loaned a larger percentage of its capital to the mercantile company than its charter authorized it to lend to any one person, that was a matter between it and the state. This could in no way prevent the collection of the debt.

The evidence shows that the debt to the bank was for loans made boda fide and the money used by the company to pay its mercantile debts. If fraud was practiced by the company in the use of the money borrowed, of which the proof does not show any, it could not affect the bank, which clearly was not a party to any fraud. Section 5 of the charter of the company *73authorizes it to commence business “ when as much as forty per cent, of the authorized capital has been actually paid in.” It is shown that goods of the value of fifty per cent, of it were put in. This is enough, and, in any case, this was a matter for the state, and could not affect the rights of creditors in good faith. Nor could the fact of operation with an insufficient number of directors invalidate the claims of innocent creditors. Even if a concern should be carried on apparently as a corporation, without any charter at all, it cannot be that its creditors would be powerless to collect from it, or that it could not pay its debts. It was the business of the bank to look after its own debt, and it is not chargeable with any duty to warn others against extending credit. Because the debts of the company were largely in excess of its capital stock is no reason that the debts should be thereby avoided. Such action is the concern of the state, and cannot affect creditors except to give them the statutory right, in season, to pursue the officers and stockholders to the statutory limit. Nor can we hold if the bank did induce the stockholders to fill the vacancies in the directory in order that the board of directors might authorize a ■sale to it for the purpose of paying its debt, that, therefore, the sale was void. The bank, by reason of its being at the scene of action, seems to have had an advantage over' the other creditors. It also seems to have used this advantage as it had the legal right to do, and, no doubt, the other creditors would have made the same use of the same advantage m collecting.

Affirmed.

Reference

Full Case Name: Jeremiah T. Fargason v. Oxford Mercantile Company
Cited By: 4 cases
Status: Published
Syllabus: 1. Corporations. Insolvency. Preferences. An insolvent corporation may in good faith prefer a creditor. 2. Same. Banks. Loans in violation of charter. The preference by an insolvent debtor of a debt due a bank is not invalid because the bank loaned him a sum in excess of what it was allowed by its charter to lend to a single borrower. 3. Same.. Loans. Borrower's fraud. The fraudulent use by an insolvent corporation of borrowed money, in which the lender did not participate, wiil not invalidate its debt for the loan, and such debt may be preferred in good faith. 4. Same. Capital stock. P'ayment for. The capital, stock of a corporation, the charter not providing otherwise, may be paid for in property at its actual value. 5. Same. Beginning business. Stock. Payment for same. That a corporation began business, contrary to the provisions of its charter, before a sufficient amount of its capital stock was paid in, does not invalidate its debts, or deprive it of the right to prefer a bona fide creditor. 6. Same. Insufficient number of directors. That a corporation carried on its business, contrary to the provisions of its charter, with an insufficient number of directors, does not invalidate its debts or deprive it of the rig-ht to prefer a bona fide creditor. 7. Same. Defective organization. Capital stock not paid. Knowledge of preferred creditor. Knowledge by a creditor of the insolvency of a corporation debtor, of its defective organization and that its capital stock had not been paid in does not require that he shall cease to do business with it, or impose on him a duty to warn others selling to it on credit, nor deprive it of the right, in good faith, to prefer such creditor. 8. Same. Debts in excess of capital stock. That the debts of an insolvent corporation exceed its capital stock does not deprive it of the power to 'prefer a bona fide creditor. 9. Same. Creditor. Directors. That a creditor of an insolvent corporation induced the stockholders to increase the number of its directors, thereby conforming to the requirement of its charter, in order for it to make a sale of property in payment of his debt, does not invalidate such sale. 10. Same. Right of creditor. A creditor of an insolvent corporation, if he have an advantage over other creditors because of proximity to the debtor, may use such advantage in securing a bona fide preference of his debt. 11. Same. Ultra vires acts. Who can complain. The state alone can complain of the following ultra vires acts of a corporation: (a) The loaning of too much money to one borrower; (bp The beginning of business before a sufficient amount of capital stock is paid; and, (c) The carrying on of business with an insufficient number of directors.