Finch Manufacturing Co. v. Stirling Co.

Citations

• 187 Pa. 596
• 41 A. 294
• 1898 Pa. LEXIS 1113

Syllabus

<p>Corporations — Insolvency—Preferences—Directors—President.</p> <p>Statutory insolvency is generally determined as an inability to pay debts when due or demandable, but the rule that an officer or director of an insolvent corporation cannot prefer his individual debt is based, not on statutory insolvency, but on the unfair and fraudulent character of the transaction. If, however, the contract by which the officer is preferred is made when the corporation is solvent, or believed by the officer to be solvent, the reason for the rule disappears, because the officer has no motive distinguishable from that of other creditors to seek payment of or security for his debt.</p> <p>That a corporation apparently solvent may by subsequent disasters or mismanagement cease to do business, and be sold out by the sheriff, for a sum far less than its debts, does not of itself prove that it was insolvent when the alleged illegal contract was made.</p> <p>A coal company transferred to a manufacturing company some machínery in part payment of a debt. The president of the coal company was also president of the manufacturing company. The former company at the time of this transaction had expended large sums in improvements on valuable leases and had also paid large sums as advanced royalties. The company was a new one, and from the very beginning the coal trade had been in such a state of depression that it had conducted a losing business. The company had given an option which had not expired, at a price which would have paid all the debts, and saved a very considerable value to the stock. Held, that the company was not insolvent in the sense that its insolvency would have invalidated the preference given to the manufacturing company in which the president of the coal company was interested.</p> <p>It seems that where the president of an insolvent corporation is present at a meeting of the directors of the company which votes to give a preference to another company of which the presiden