4S0 To arrive at such a conclusion requires a decision that pier 42 in the North river is within the jurisdiction of this court. So, upon the argument of thl:l motion, the ground taken on behalf of the respondents was that, inasmuch as pier 42 in the riveriswest of the bulkhead, and built over waters within theC01,1Dty of New York, service of process upon the respondents there would have been servioe within the jurisdiction of this court. The jurisdiction of this court, as defined by statute, is to be found in section 542, Rev. St., and is as lo11ows: "The district COUI;\S of the Southern and Eastern districts of New York shall have concurrent jurisdiction over the waters within the counties of New York; Kings, Queens. and and over all seizures made and all matters done in such waters; and all processes or orders issued out of either of said courts, or by any judge thereof; shall rrin and be executed in any part of the said waters." It has never until now been contended that bv virtue of this statute a process issued from the Eastern district of New York could be served upon one olthe piers of New York city. Such contention cannot be upheld. The piers of New York city., although they extend over the waters o,f'the county of New York, are Dot part of the waters of that connty, but part of the land, and they are not within the jurisdiction of this court. 1'hisdecision leaves nothing of the present application; for, assuming tHat :it'wdtlId competent for the.respol1d,ents, on a motion like this, to show the falsity of the marshal's return, (a proposition by no means asIlellted to ,) such falsity is not shown. Forunght that a ppear8, the marsha1'sretl1rn is striotly true; and, being true, the validity of the attachof the: bond given;to disoharge the property, is not open to . . '
be
THE ANGETJA MARIA. MANTOUT v; THE ANGELA MARIA. (DiBtrict Court, D. South Carolina. June 21, 1888.) IfARI'I'1MELrENIl-PmoRITIES-BoTTOMRy..,..MAsTIUt'S WAflES-ITALIAN VESSEL.
(8t/llabuB lYu tllB Court;)
In tbe proceeds of sale of an Italian vessel sold by an order of the. court in ptoceeditigs to enforce a bottomry bond given in Algiers on vessel alid cargo, on Which bond the II)Rster was not personally liable, the lien of the master for his w,ages, secured to him by Italialllaw" sustained liS against owners of the cargo, who are American citizens, assignees of the bill of lading made in Italy to Italian residents or order.
In Admiralty· . Smythe &; Lee, for libelants. ,J. N. ,Nathans, fotvessel and master. ,'Barker ,;G1J},UJ,lld &; Jilitzsimons, for the cargo. SIMQNTON, J. To understand. the prElcise question 'heforeus. a brief of facts will be needed. The Angela Maria,an Italiauvessel
THE ANGELA MARIA..
'31
under the Italian flag, loaded a cargo Gf sulphur\mder a and sailed from an Italian port for S. C. The charter':party was made in Italy, and is in the Italian language. It hires the freightroom of the vessel. The bill of lading is to the order of the charterers, is indorsed by them, and is held by Pettus and Petit, citizens of this country. On her voyage she met with stress of weather, and, being at sea in distress, was towed into the .port of Algiers by a British ,steamship. .After repairs she resumed her voyage, the master having executed a bottomry and respondentia bond upon her hull, freight, and cargo, at Algiers, to libelants. Arriving in this port, she was libeled on thisbolld, and has been sold under the order of this court. The proceeds of sale , are in court, and bond has been given for freight and cargo. The crew have been paid the balance due on their wages up to the day of sale. ThemRster and mate now ask for their wages. The shipping articles ate in evidence. . They are signed by the master and· mate, and in the column for the wages are the woids "special agreement." This was in writing. 'It has not been produced, but parol evidence of its contents :wasadmitted. The master was to receive 250 liras per month, and a commission of 21 per cent. on the freight, with a gift of £10 on arrival at port. The mate was to receive 150 liras per month. The question is, have they a lien on the ship· for their wages? Under our lawthe master has no such lien. Desty; Shipp. &Adm. 117,118.. Under the Italian Code he has. By article 675 of the Italian Code of CGmmerce the following claims are privileged upon the ship, and rank against its proceeds in this order: (1) LawcostSj (2) salvage services; (3) navigationduesj (4) pilotage and custodyj (5) expenses of storage; (6) expenses of maintaining the ship, etc., 6ioce its last voyage and arrival in portj (7) wages,emoluments, and compensation due to the master and any other person of the crew for the last voyage; (8) contributions for general averagej (9) bottomry bonds, etc. The Olga, 32 Fed. Rep. 330. In this respect the law of Italy conforms to that of England, (Williams & B. Adm. Jur.204;) of Holland, (The Velox,21 Fed. Rep. 479;)and of Germany, (The Graf Klot Trautvetter, 8 Fed. Rep.B33.) The claims against the proceeds ofthis vessel are'port dues; pilotage, etc. j supplies and advances made to her, a foreign vessel in this port; repairs on her here; seamen's wagesj bottomry bond; a claim for general average; these wages for master and mate. The liens for port dues, pilotage, etc.· , supplies and advances and repairs made here, would be first recognized by this court. The Olga, irUpra; TheBelah, 4 Sawy. 40; Story, Confl. Law, §327. But with respect to the bottomry bond, (Mac. Shipping, 63,170,) charter-party, bill of lading, .and the wages ofmaster and mate, these contracts made on Italian soil or under the Italian flag are regulated as tolien and priority by the Italian law, which this court will enforce by comity. The Brantjord .Oity, 29 Fed. Rep. 373; The Olga, irUpra; Hen. Adm. 97j Covert v. The We;iford. 3 Fed. Rep. 577; Williams & B. Adm. 201, 202. When the charterps.rty was made, or· the insurance effected, or bottomry bond made, each party to the contract knew or had notice that, under the Italian law, govewing that vessel, in case of hersnle the proceeds would be divided ao-
t82
FEDERAL REPORTER.
cording to certain priorities; and he made his contract subject to these provisions.. All the courts oftheUnited States have recognized and enfOJ'ced foreign liens, as between foreigners, in accordance with the law of the flag.' The Scotland, 105 U.S.,24, and cases above quoted. Indeed, so far as the bottomry bond is concerned, claims for salvage, damages, wages accrned.during the voyage, pilotage, towage, and dues of this character must be satisfied before the,ship and freight can be applied to bottomry claims. Carv. Carr. by Sea, § 397; The Bark Ir.ma, 6 Ben. 1;. The iEdward Oliver, 1 Adm. & Ecc. 3,79. It has been urged with much abi!Jty and earnestness that, we. are not now administering the law as be'tween foreigne1'9, that the owners of this cargo are American citizens,and "that they setup a maritime: lien.. This maritime lien arises in this way: ,The cargo has been put under bottomry bond for the benefit of the ship. ·If it or any part Mit bad"been sold for the benefit of the ship, ,clearly ,the, owners of the cargo coolddo, that extent have a claim and lien for reinibursementenforciblo'agaioat the ship. Now, the whole cargo has been, hypothecated, conditionally sold for the benefit of the ship; hence ·the owners of the cargonlUst:be protected by a lien. Thecase of The ,Edward Oliver, above quoted, is 'opposed to this view. Indeed, the argument itself, plausible as it seems, will not bear examination. This 'claim 'Of the carg0 is based.on thoceonditional sale by the bottomry bond. If ,that bond be not enforced,: it cannot arise. lithe bond be enforced, 'the ship and Jreight must 'be exhausted before the cargo is reached, :(Williams &B. Adm. 66, 68; Carv. Carr. by Sea, §§ 317, 318;) that is 'to say ,the cargo cannot 'be touohed until ship and freight are used. If .so, when the claim of the cargo arises, the ship and freight are gone; ,there is nothing to act upon. But it is insisted that when the proceeds mthe vessel are used for this purpose, they must not be reduced, before their application, by the payment of the. wages of the captain. Now, alFWe have seen, under the Italian law,which controls the authority of .the. master to make thebottoinry bond and the construction of the effect cifthat.bond, the wages of the captain areprefel'red to the lien by botfomry . How, then; can this claim of the cargo, which is dependent upon, arises. from, isa consequence of, the bottomry bond, be superior to the lien ofthe master, which has, priority over the bond? The Irnw." 6 ,Ben. 1. Besides this, the American owners of this cargo are such own:e:l:s ;by reason of the bill of lading to order, transferred to them by in,dorsement. A bill of lading is not a negotiable instrument, under the .law...nrerchant. The transferee is effected by anything which would affect "h.is<transferei:. The transferers ar,e Italians, under an Italian contract madejiJ. Italy, bound by Italian Law. The holders of the bill oflading .are at best the 'assignees of ail Italian contract. The bottomry bond is rtotiri theform which imposes a personal liability on the master. Dixon, .8lilipp. 28. . If he,wasjustified in giving the bond,it cannot interfere -with his prop eli claim', . If, he gav.e the bond withont authori ty, so that ,the cargo; '.is :not};>ound, the owners of the cargo will not suffer by the payment Let an order be prepared for the payment of the master and mate:out of the fund, in court.
ADAMS ".KEHLOR MILLING CO.
ADAMS
et ale
'II. KEHLOR MILLING
CO. et ale
(OVrcuit Oourt, E. D. jlfi88ouri, E. D.
June 15, 1888.)
1.
CORPORATIONS-INSOLVENcy-PREFERENCES BY DIRECTORS OF RELATIVES.
The directors of a corporation, known to be insolvent, granted a preference to ,the estate of a deceased director and president of the corporation. The board, at the time of the preference, consisted of but three persons, two of whom ,were brothers of the deceased director, and one of whom was agent of the deceased's estate, and-voted his stock at corporate meetings. Held, that the'preference so granted was illegal, and that an unsecured judgment creditor of the corporation, complaining of such preference, was entitled to recoyer of the directors such percentage of his debt as he would have received if the sum wrongfully paid br. way of preference had been divided pro rata aU the unsecured creditors.!
'2,' BAMJI-t·..INSOLVENCy-,-DISSOLU'fION. 'dA cQrp@ration which, though insolvent, continues to hold meetings and
transact bUsiness, and against which suit is ,pending and judgment obtained, iii notdisBolvedwithin the meaning of Rev. St. 744, providing that upon the;disBolution of corporation the president and directors or managers shall be trustees t,O settle its affairs. '
InEquity. Rev. StoMa. § 744 provides that "upon the dissolution of a corporation '>Ii " ' the president and directors or managers of the affairs of said corporation at the time of its dissolution * * * shall be trustees of such, corporation, with full power to settle the affairs, collect the standing and divide' the moneys and other property among the stockholders after paying the debts due and owing by such corporation at the time of its dissolution, as fiu as such money and property will enable them; to sue for and recover such debts and property by the name of the .trustees'of.suchcorporation, describing it by its corporate name, and may be sued by the same; and such trustees shall be jointly and severally ,responsible to the creditors and stockholders of such corporato the extent of its property and effects that shall have cOQle into their, hands." , Mil18! Flitcrajt, for complainants. G. B.'Burnett and Dyer, Lee &for defendants. THAYER, J. 1. Under the testimony in this case it cannot be said that the Kehlor Milling Company had become dissolved on June 1, 1885, withintheJDeaning of section 744, Rev. St. Mo., and that the directors of the company then became statutory trustees of its assets by force of the statute., Insolvency alone does not work a dissolution of a corporaRep. 260; 2 Mol'. tion. : F'0ster v.Planing-Mill Co., 92 Mo. 87 4 S. Priv.. CQrp,§ 787, anrl cases cited; Manufacturing (Jo. v. Importing Co., 30 Fed. Rep. 864. The Kehlor Milling Company continued to hold meetings ltnd trllrnsact business various kinds for months after June 1, 1885. . A, suit was pending against it at that time, in behalf of com. 1 See'
atE/nd of case.
v.35F.no.7-28
434
plainant, and judgment was obtained against it after that date. It must accordingly beheld that it had not been dissolved ;in a legal sense, and that a practical dissolution had not taken place by a failure on its part to exercise its corporate functions. It follows therefore that section 744 of the Revised Statutes of Missouri does not affect the case, and that the liability of the directors must be determined solely with reference to the genern,l rules of law governing the conduct of directors and man· agers of corporations. 2. The only question in the (',ase involving any doubt or difficulty is whether the directors of the corporation against whom this hill is filed, acted lawfully in giving a preference to the estate of J. O. M. Kehlor in the sum ,of $21,500, which the milling company appears to have owed him at the date of his death. There seems to be no occasion to criticise the conduct of the directors in other respects; but, to the view the court has taken of the case, the question last mentioned must be answeredin the negative for the following reasons: J. O. M. Kehlor, in his life-time, had been a director in the corporation, and also its presi. dent and its largest as well as most influential stockholder. At various times he had loaned the milling company $21,500, which was unsecured at the date of his death. On the death of J. O. M. Kehlor, J. B. M. Kehlor, who was also a to the management of J. O. M. Kehlor's interest in the corporation,. and was elected president in his stead. It became apparent to him and the other dh'ectors very soon after June 1, 1885, that the company was insolvent, and must liquidate its affairs and suspend business, and steps in that direction were at once taken. Thereafter certain personal property of the company was pledged, and money to the amount of $5,000 was raised and applied on the debt due to J.O. M. Kehlor's estate. Subsequently, at a meeting of the .board at which only J. B. M. Kehlot' and D. M. Kllhlor (both brothers of thedeceased) were present; .a resolution was passed to make the balof the debt due the deceased $16,500, a mortgage lien on min and real estate of the company , and papers to that effect were shortly afterwards executed. Thereafter the mill and real estate of the Kehlor for the sum company were sold by order of the board to J. of $500, subject to incumbrances then existing on the property to the amount of about $60,000, including the mortgage in favor of J. O. M. Kehlor's estate. This transaction exhausted the company's assets, leaving the complainants' claim in the sum of $1,237 for over-advances made OIl consignments, which was then in litigation, wholly unpaid. During the period covered by these transactioIls, frotnJune to December, 1885, which resulted in giving the unsecured claim of J. O. M. Kehlor in the sum of $21,500 a preference over other unsecured claims, the corporation was evidently insolvent, and that fact was known to the direct· ors. During that period the board consisted of only three persons,tWd'of whom were brothers Of J. O. M. KehIo!', and one of whom acted as agent of his estate, and voted the stock by it held in the company. I have no doubt that J. B. M. Kehlor paid for the company's mill and real estate as much as it was fairly worth, and perhaps more
\
ADAMS V. KEHLOR MILLING CO.
435
than it would have brought at a forced sale in the open market at that time. The board of directors evidently desired to make the corporate assets pay as much as possible of the corporate indebtedness; but at the same time the evidence unquestionably shows a disposition on the part of the majority of the board to pay the claim of J. O. M. Kehlor in 1'1]11 to the exclusion of other unsecured claims that were equally meritorious. On the facts stated, which are substantially admitted, I am of the opinion that the directors of the milling company violated their duty in giving a preference to the estate of J. O. M. Kehlor. The case seems to fall fairly within the rUle which prohibits directors, when a corporation is insolvent and about to go into liquidation, from preferring debts due to themselves from the corporation, or from preferring debts in the payment of which they have a personal interest. It may be conceded that a corporation, though insolvent, has the power to prefer creditors, but the relation which directors bear to the corporation as trustees of its assets is such that they cannot lawfully exercise the power in question for their personal advantage. Koehler v. Black River Falls 00., 2 Black, 720; Drury v. Oross,7 Wall. 299; Bradley v. Farwell, 1 Holmes,433; Corbett v. Woodward, 5 Sawy. 417-419; Richards v. I'YlIsurance 00.,43 N. H. 263; LVppincott v. Oarriage 00.,25 Fed. Rep. 586, and cases cited. It is but an application of the same principle to say that if the directors of an insolvent corporation, in the distribution of its assets, pay a certain creditor in full, to the exclusion of others, the choice ought not to be influenced solely by relationship existing between the directors and the creditor so preferred, or by other considerations of a purely selfish nature. In the present case it was the estate of a deceased director and president of. the corporation that was preferred. The majority of the board were brothers of the deceased. One of them was agent for the estate, and controlled and voted its stock at corporate nleetings. 'Ihe interest of the estate was as effectually represented in the board at the time the preference was given, by and through J. B. M. Kehlor, its agent, as it could hltve been by the deceased director hinlself. Under these circumstances it must be decreed that the directors are liable to account to the complainants for such a percentage of their demand as tbey would have realized by a pro rata distribution of the assets of the corporation among all its unsecured creditors, after debts secured by morlgage or other liens hau been paid, if no preference in favor of the deceased director's estate had been allowed. The unsecured creditors are entitled to sbare equally in Whatever would have remained for distribution after the payment of the 1110rtgage and other liens created in the lifetime. of .0. M. Kehlor. ',l'he slim of $21,500 advanced by way of have been divided pro rata among the unsepreference should at cured claimants. There seems to be no occasion to g.-ant any further relief, as no othe!" acts of the board have been called in question. A reference will be ordered to a master to ascertain and report the'sum due to the complainants on the ,basis above indicated.
436
, NOTE. A "ontract between a corporation and. individuals, some of whom are directors of the corporation, is voidable, at the option of the corporation.. Thomas v. Railroad 8 Sup. Ct; Rep. 315, reversing S. C. 2 Fed. Rep. 877: Meeker v. Iron Co., 17 Fed.. Rep. 4ll; Munson v. Railway Co. (N. Y.) 8 N. E. Rep. 355. A director of a corpOl'ation is not absolutely prohibited from into a contract with it through his fellow directors; but the validity of such contract depends upon its nature and terms, and the circumstances under which it is made. Hubbard v. Investment Co., 14 Fed. Rep. ti7'5; Thomas v. Sweet, (Kan.) 14 Pac. Rep. 545. Such contract will be enc forced when shown to have been made for the benefit of the corporation, and to be just. Trust Co. v. Weed,2 Fed. Rep. 24. A director of a corporation may become its creditor, and take security for his debt, but his conduct in enforcing such claim will be ijloreclosely scrutinized than that.of an ordinary creditor, and the proceedings set if it appears that he has not acted in good faith as director. Hallam v. Hotel Co., (Iowa,) 9 N. W. Rep. 111. See, also, Garrett v. Plow Co., (Iowa,) 29 N. W, Rep. 395. On a sale of corporate property to one of the directors taking ,part in the. transaction as buyer and seller, it devolves upon the directors to est.c,blish the good faith of the trans.liCtion, and that the sale produced the full value oithe property, Wilkinson v. BauerleJ (N.J.) 7 Atl. Rep. 514. The sale by the president of a national, bank, to himself ana cashier, of the stock of the bank ownod by the bank, may be ratified by the bank or its legal representative ; but a sale by himself to the bank, of its own stock, where he acts in ,the double capacity of seller and buyer, ca.nnot be ratified when the purchase of the lltock by the is not prevent loss uppn a debt previously.; c,ontracted. Bundy v. Jackson, 24 Fed. Rep. 628. . Concerning preferences by insolvent corporations,' see Pyles v. Furniture Co., (W. Va.) ,2,S. E. Rep. 909, and note. . . CORPORATIONS-OFFICERS.
, SEVENTH NAT. BANK OF PHII,ADELPHIA
et al.
V. SHENANDOAH lRON CO. I
(CirCUit Court,
w: IJ. Virginia.
,A.ugust, 1887.
An incorporated iron manufacturing company does not come within the. equity principles that give the employes of a. railroa.d, corporation a prior)ien on its current earnings for the payment, of their wages. .' .
2.
SAME-SUPPL1ES-GOODS FURNISHED LABORERS ON OROERS.
8.
SAME-RIGHTS OF ACCEPTOR OF ORDER.
The limitation of a statlite reqiJ;iring claims of 'employes and. others to be -n.tl'lcorded w:jthinllb:,m((>l1th!!.l\ft.er.,thesnme slra.ll have fallen due, in order to secure their priority, is not suspended by tpe pendency of Ii. suit in which re-; U . o · '.
a;
4. SAME-:'WAGES-SALARY OF PRESIDENT. . . The president of an iron manufacturing company is not embraced ·i1'1 the "languageof the Virginill. statute,.giving priorit;v of lien to secure the ;wages of. ce!tain employes; no, does designating him' general manager" . the dass of such employes. . . SAllE-PRESENTMENT OF ClJA,IM.
i
.
·
,,:
. '.
1
Reported by F. T. Barr, Esq., of the Abingdon ba.r.
