
    GRAHAM v. CARR.
    (Filed May 6, 1902.)
    1. CORPORATIONS — Directors—Stockholders—Trustee—Saile.
    A sale by a trustee of an insolvent corporation of bonds and capital stock belonging to it to one of its directors, is valid if made in good faith and for full value.
    2. CORPORATIONS — Payment of Debts — Directors.
    A director of an insolvent corporation, being a surety for the payment of corporate debts, can not apply the proceeds derived from the sale to him of corporate property to the payment of such debts.
    3. CORPORATIONS — Payment of Debts —Directors —Creditors — Stockholders.
    
    A director of an insolvent corporation, having signed a bond to indemnify a corporate creditor for the purpose of protecting the corporate property, may, from funds derived from the sale to him of corporate property, pay such creditor.
    4. PLEADINGS — Judgment—Corporations.
    A complaint in an action by a receiver of an insolvent corporation against a director to recover corporate bonds and stocks sold to him, authorizes a money judgment equal to the corporate debts improperly paid by such director from the proceeds of such sale.
    ActioN by Paul C. Graham, as receiver of the Golden Belt Hosiery Company, against J. S. Carr, and J. S. Manning, trustee, beard by Judge Thos. J. Shaw, at September Term, 1901, of the Superior Court of Durham County. Erom a judgment for the plaintiff, the defendants appealed.
    
      W. P. Bynum, Boone, Bryant & Biggs, and J. W. Graham, for the plaintiff.
    
      Guthrie & Guthrie, H. A. Foushee, and Burwell, Walker & Cansler, for the defendants.
   FURCHES, C. J.

On the 13tb day of December, 1895, a corporation was organized in tbe city of Durham with J. W. Smith, J. S. Carr, T. M. Gorman and W. A. Guthrie as stockholders, Smith and Carr holding* the greater part of the stock — Smith holding $7,000 and Carr $6,000, Guthrie and Gorman holding $100 each. These stockholders were incorporated under the name of the “Golden Belt Hosiery Company,” and elected J. W. Smith President, and T. M. Gor-man secretary and treasurer. Smith continued to be its president for a time, when he resigned and Oarr was elected. It was not a financial success under the administration of either’ Smith or Oarr, and in February, 1898, it was admitted to be insolvent and the mill shut down, and negotiations: commenced to sell out to the “Durham Hosiery Mills.” At a meeting of the stockholders and directors of the Golden Belt Hosiery Company, on the 17th February, 1898, a sale was effected to the Durham Hosiery Mills, which company was to reorganize under the name of the “Durham Hosiery Company,” and the Golden Belt Hosiery Company was to> receive for its property, good will, etc., so sold, $20,000 of first-mortgage bonds' to be issued by the new company, and $19,000 par value of stock in said new company. The Golden Belt Hosiery Company having no other means of paying its large outstanding indebtedness, which was ascertained to be over $50,000, T. S. Manning was appointed a trustee, and this $20,000 in bonds and $19,000 of stock in the new company were put in his hands, and he was authorized and empowered to sell the same and apply the proceeds to the payment of the debts of the old company. Manning, acting under this authority given him at the meeting on the 17th February, 1898, sold the defendant Carr $14,000 of these bonds in payment of a debt due the Bank of Durham to that amount — Carr and Smith were both liable as sureties for this debt. But the Judge held this sale to have been properly made, and it is out of the case, as plaintiff did not appeal.

But tbe question remains as to tbe validity of tbe sale of tbe other $6,000 bonds and tbe $19,000 par value of tbe stock of the new company. We have found that Manning, trustee, had tbe right to sell, and it is found as a fact that these sales to Carr were for a fair and full price; that tbe bonds were only worth par value at tbe time of tbe sale of them; and tbe stocks in tbe new company at the time they were sold were only worth fifty per cent of their par value; that these sales were fair, open and in good faith, and tbe money was paid and applied to tbe payment of tbe admitted indebtedness of tbe Golden Belt Hosiery Company.

Why this was not a valid sale that carried tbe property iu these bonds and stocks to Carr, we are unable to' see. An insolvent party has a right to sell bis property for a fair price, and be may sell to one creditor in preference to another,so it is done in good faith, and to pay an honest debt; or, be may sell bis property and, out of tbe proceeds; pay one creditor in preference to anotehr, if tbe debt be pays is an honest debt; and SO' may an insolvent corporation; and its creditors' have no right to complain, as they have no lien on tbe property of tbe corporation for tbe payment of their debts. And tbe corporation in that respect stands on tbe same footing that an insolvent individual would have stood. Bank v. Cotton Mills, 115 N. C., 507.

Suppose Manning bad sold these bonds and stocks to John W. Fries, as be tried to do, for tbe same price be sold them to the defendant Carr; could it be contended that Fries would not have acquired a, good title to them and they would not have been bis property ? And if so, why did not tbe title pass to Carr, and these bonds and stocks become bis property? He bad tbe same right to deal with tbe corporation (and certainly with Maiming, its trustee) as any one else bad, and if tbe transaction was fair, open, honest and without fraud, it was valid. Langston v. Imp. Co., 120 N. C., 132; Howard v. Warehouse Co., 123 N. C., 90; Mfg. Co. v. Bradley, 105 U. S., 175.

The trouble is not in these sales, which are found to have been tona fide and without fraud, if there be trouble, but it is in the application of the money received from these sales of the $6,000 of mortgage bonds and the $19,000 of stock, amounting to $10,612.93’. The debts paid were all bona fide debts due by the Golden Belt Hosiery Company, and the corporation had no right to complain at their application, nor did the stockholders, as stockholders, have any right to do so, as they were entitled to nothing until all the debts of the corporation were paid.

But creditors, whether they are stockholder’s or not, sustain •a different relation to the assets of the corporation and the corporation sustains a different relation to them, and they have rights, with regard to the payment of debts that stockholders as such do not have. As they have no lien on the assets of the corporation for the payment of their debts, and no right to have their debts preferred to those of other creditors, nor to object to' the payment of other creditors in preference to- the payment of their debts (if they are just debts), if such payments are made in good faith and without fraud, unless the debts so paid are due to a stockholder or officer of the corporation. When this is the case, the law will not allow the stockholders and officers of the corporation to take advantage of their knowledge of the insolvent condition of the concern, and their power to use and control the assets, to- pay their own debts, or to relieve them from special liabilities to, the injury of other creditors. Bank v. Cotton Mills, 115 N. C., 507; Hill v. Lumber Co., 113 N. C., 173, 21 L. R. A., 560, 37 Am. St. Rep., 621, as explained in Bank v. Cotton Mills, supra; 5 Thompson on Corporations, Sec. 6503; 7 Thompson, Sec. 8497.

Neither was the Mitchell debt, the New Bern Bank debt, nor tbe Mayo Needle Co-. debt due to tbe defendant Carr, and be seems not to have bad any special interest in tbe payment of tbe Mayo debt over tbat of any other creditor of tbe Golden Belt Hosiery Company. Tbe bond of indemnity be signed was for tbe benefit of all of tbe stockholders and creditors, to protect their common property. We therefore see no reason why tbe defendant Carr should be held to an account for anything because be signed tbat bond.

But as be was specially and personally liable for tbe Mitchell debt and for tbe New Bern Bank debt,- tbe law will not a ]low bim to retain tbe advantage be got in having tbe Mitchell debt paid out of tbe proceeds arising from tbe sale of the $6,000 mortgage bonds, nor tbe advantage be got by having tbe application of a sufficient amount of tbe proceeds of tbe sale of tbe stocks applied to pay tbe New Bern Bank debt, to discharge it.

While these sales were valid and tbe title to tbe bonds and stocks passed to bim, tbe plaintiff, who represents tbe creditors, should bave judgment for tbe amount of tbe New Beam Bank debt and the amount of tbe Mitchell debt, and tbe defendant Can’ will become a creditor, to these amounts, of tbe Golden Belt Hosiery Company, and entitled to prove tbe same and pro rate in tbe funds so collected, and any other funds tbe receiver may have collected, as be will be as to any other debt be has paid for tbe Golden Belt Hosiery Company, or any other debt it may be due to bim. And this will not prevent bim from claiming contribution against any co-surety on any residue tbat may remain unpaid.

We bave not considered all tbe exceptions, nor bave we considered them in tbe order presented. We bave not discussed tbe positions taken, by counsel as to tbe various meetings stated to have been held by tbe directors at Carr’s office, though we bave considered them. ’ We do not think they were such meetings as conferred any authority, but tended to show good faith in the transaction. We do not think it necessary to rely upon them for authority to sell, and do not rely upon them. We derive the power in Manning to sell from the meeting on the 17th February, 1898. Nor have we felt called upon to- consider the interesting and novel question presented by the defendant’s exceptions and motion for a jury trial. The view we have taken of the case eliminated that question. It could have been of no benefit to the defendant.

The plaintiff’s pleadings seem to be framed with a view to recovering the bonds and stocks mentioned. And while we hold he is not entitled to recover them, we think the facts stated entitle him to recover the price paid for them; and as be is in the right jurisdiction to recover that, as well as the bonds and stocks themselves, if he had been entitled to recover them, we direct judgment as above indicated.

Error.  