should never forget that the statutes which denounce fraudulent conveyances as void are civil, not criminal; that their object is not the punishment of a guilty mind, but simply the ascertainment of a question of property. If the conveyance was unreal, the property is still in the former owner; if it was voluntary-made upon any valuable consideration-the law simply steps in and says to the debtor, "you must be just before you are generous; you can not give your property away; you hold it, or its representative price, in trust for your creditors."

Some absurd conclusions in detail have followed from not keeping this fundamental principal in view. Where a firm-say A & B-are insolvent, neither of them have a beneficial interest in the firm assets, it follows that the creditors of either A or B, individually, con not reach any part of these assets by any process at law, in equity nor in bankruptcy, yet both English and American courts have held, that an appropriation of such assets to the payment of an individual creditor can not be set aside as fraudulent by the creditors of the firm, upon the alleged ground that the partnership creditors have no lien upon the first assets, but can claim only through the partners, whose consent binds them—a course of reasoning which overlooks entirely the controlling point, that, if the partners consent to part with their property without a consideration to themselves, without receiving anything to take the place of the property disposed of, their consent is voluntary, and therefore void as against those creditors who, but for their consent, could have reached the property thus given away.

In many cases, the true rule has been recognized by statute. Thus, it is a part of the English Bankrupt Law, and has been such for nearly two centuries, through all its changes, that personal chattels within the possession and visible control of the bankrupt, shall pass to the assignee. The meaning of the law-giver was this: What a man has in his possession, and what he controls, is his; he may owe duties concerning the thing to third persons, but practically it is his, and so when he fails to meet his debts, it should be a fund for his creditors. In some American States, for instance in Missouri, the doctrine of Twyne's case has been carried to the fullest length, both by legislative enactment and judicial decision. Yet, several years ago, in a Kentucky case (Short v. Tinsley, 1 Metcalfe, 497)—a case by-the-by, in which the facts hardly called for the mischievous distinctionthe Appellate Court declared, that a sale of chattels without delivery but otherwise honest, was void only in a

may never have taken place, and as to intentions hid away in men's hearts. It therefore shuts its ears to the latter, and judges only by the facts open to the eye.

It seems to us that in every new revision or codification, pains should be taken to eliminate from the law of Fraudulent Conveyances, as far as possible, all reference to the grantor's intention, and to rest the rights of grantees on the one hand, and of creditors on the other, upon outward visible facts-such as a valuable consideration of the grant, its irrevocable character and actual charge of possession-and wherever the frame of the local statute does not prevent it, I hope the courts may return to the views held by Chancellor Kent in Reade v. Livingston, according to which men's actions are a safer guide to a right decision than thoughts and motives.

The mere acceptance from a debtor of his own note, or the note of a third person, in case of an antecedent indebtedness, is not a payment of the indebtedness. In the absence of a special agreement, it must be considered as a conditional payment or as collateral security.

One not a party to a note, but who has caused it to be drawn or indorsed or delivered over to a third person as a security, or has guaranteed the payment, is not entitled to notice of dishonor of it, but in an action on the original liability he may show in defense any injury he has actually sustained by the laches of the transferee. The fact that the collaterals were changed for other securities which were ultimately found worthless, changes the liability unless it is further shown that a loss resulted to the owner of the collaterals by reason of such exchange.

A creditor has a right to retain all unpaid securities until he obtains satisfaction of the debt due him. Error to the Court of Common Pleas of York County.

MERCUR, J.

This judgment was entered on the report of a referee. The important facts found by him are substantially these: Hunter was indebted on book account to Moul in the sum of some eleven or twelve hundred dollars. On being asked for payment, he replied he had no money, but had the promise of a note of $900 from Camp & Ran

would be treated as a security for the amount actually paid; in short, it would be treated as a mortgage, which parties, who perhaps were not honest, can at pleasure make large enough to cover the whole value of the chattel, and which mortgage, contrary to the known policy of the law, is not only unrecorded, but even unwritten. In like manner, the old doctrine of Twyne's case, according to which the continued possession of personal chattels, after an absolute sale, has been held for ages to bo fraudulent and void as to creditors, has been much misunderstood, and hence much broken in upon. The true reason for the rule is this: If a man really buys a chattel he wants the possession of it, and his not taking possession is almost conclusive proof that he has not bought it. The seller still has the enjoyment of the chattel; why should it not be subject to his debts? The court trying the right of property will rather believe their senses than human testimony, as to conversations that

The

give that to Moul to get discounted and use the money. The latter answered that he did not want the note, but that Hunter should take the note and get it discounted and give him the money. To this Hunter replied he was a stranger, and could not get it discounted, but that Moul should take the note and get it discounted, and he, Hunter, would stand for it and see it was paid. Moul assented to this. note was made payable to him and sent to him. It was not indorsed by Hunter. Moul had it discounted at bank ard received the proceeds. When it matured it was protested for non-payment and taken up by the defendant in error. In lieu thereof, and soon thereafter, he took from Camp & Randell their two drafts of $450 each, payable at twenty and thirty days respectively,

indorsing or transferring it by delivery when payable to bearer, but merely caused it to be drawn or indorsed or delivered over by a third person as a security, or has merely guaranteed the payment, it has been considered that he is

The contention is whether the circumstances under which the defendant in error took the note, or his subsequent action in relation thereto compelled him to apply it as a payment on the account against the plaintiff in error. There was no express agreement to accept the note as payment, nor to give time for the payment of the account. The referee found the note was not taken by the defendant in error, as absolute payment of so much of the indebtedness of the plaintiff in error, and technically not as collateral security therefor, but inasmuch as paper so held has been called collateral by the courts, he treats it as such. He further found the defendant was guilty of no negligence in failing to collect the note, and that he did not so convert it to his own use as to bar his right to recover of the plaintiff in error.

The mere acceptance from a debtor of his own note or the note of a third person, in case of an antecedent indebtedness, is not a payment of the indebtedness. In the absence of a special agreement, it must be considered as a conditional payment or as collateral security. The debtor continues liable for his own debt in the event of a failure of payment of the note thus given or transferred Leas et al. v. James. 10 S. & R., 307; Maginn v. Holmes, 2 Watts, 121; Weakly v. Bell et al., 9 Id., 273; M'Intyre v. Kennedy et al., 5 Casey, 448; Brown et al. v. Scott, 1 P. F. S., 357; Logue v. Waring & Company, 4 Norris, 244.

When the transfer of a note is a conditional payment, it is necessary to inquire what the true condition was and if not fulfilled by the person accepting it, what injury if any has resulted from the breach. The cases are not in harmony, as to the effect of a failure to present the note of a third person and give notice of its dishonor when no injury therefrom has resulted to the debtor. We shall not attempt to review them, but refer to some which we think correctly rule this case. Great regard must be had to the char acter of the transaction. If the debtor indorse the note, a more stringent rule prevails as to notice than if he transferred it by delivery only. When the guarantee is absolute, that a specific act shall be done by another, it was said in Vinal v. Richardson, 13 Allen, 521, demand and notice need not be averred, although the want of them may be a defense on the ground of negligence to the extent of the resulting injury. One who has merely guaranteed it, but whose name is not on the bill or note, is not in general entitled to notice of non-payment. Chitty on Bills, 498. So on page 441, it is further said in general if the bill or note be given as collateral security and the party delivering it were no party to it, either by

or party to it so as not to be absolutely entitled to strict regular notice, nor discharged from his liabilities by the neglect of the holder to give him such notice unless he can show by express evidence, or by inference, that he has actually sustained loss or damage by the omission. The reason is, when a person delivers over a bill to another without indorsing it, he does not subject himself to the obligations of the law merchant, and cannot be sued on the bill. As he does not subject himself to the obligation he is not entitled to the advantages. If he can prove he has sustained damages, then he is discharged only to the extent of such actual damages. Id. The guarantor of a note does not stand in the same situation as parties to it. His obligation is in the nature of an insurance of the debt, and there is no need of the same proof to charge him as if he was an indorser. The necessity of demand in order to charge the indorser of a bill is solely grounded on the custom of merchants, and applies only to actions against the indorser on the bill itself. It does not apply when the guarantor is not an indorser: Gibbs v. Cannon, 9 S. & R., 201; Overton v. Treacy, 14 S. & R.., 311; McLughan v. Bovard, 4 Watts, 308, The law is clearly stated in 2d Parsons on Bills, 184, where it is said if paper be transferred by delivery only as security for a pre-existing debt, and it is dishonored while in the hands of the transferee, it affects in no way the debt it was intended to secure. The original liability remains what it was, and upon dishonor of the paper it is not even necessary to give him notice thereof as an indorser, but the debtor may show in defense any injury he has sustained by the actual laches of the creditor. Nor does the fact that the collaterals were exchanged for other securities which were ultimately found worthless, change the liability unless it is further shown that a loss resulted to the owner of the collaterals by reason of such exchange: Girard Fire and Marine Insurance Co. v. Marr 10 Wright 504.

The name of the plaintiff in error was neither in or on the note. It was not payable to bearer. He was in no sense a party to it. With a view that the proceeds when paid should discharge an amount of his indebtedness equal thereto, he caused it to be made payable to his creditor and put it into his hands. Through no fault of that creditor it was not paid. It is not shown that it could, at any time, have been collected of the makers. The acceptance from the makers of their two drafts was no pay. ment, but did result in the payment of one-half the amount. Having sustained no loss of damage by any act of his creditors the plaintiff in error has no just cause of complaint at being still held liable for his indebtedness. The creditor was not obliged to give up the unpaid draft be

Section 32 of the insurance law (Wag. Stat., p. 774,) confers upon the courts, in proceedings instituted against an insurance company under that law by the Superintendent of the Insurance Department, power to appoint agents or receivers to take possession of the property of the company and to make such orders and decrees as may be needful to suspend, restrain or prohibit the further continuance of the business of the company, or for the dissolution of the company and the winding up of its affairs.

Held, That the general power of mak ing all needfu orders for winding up the affairs of the company thus conferred included the power to make an order authorizing and directing a receiver appointed in such a proceeding to bring suit in his own name for the assets of the company; and that a suit so brought under such an order could be maintained.

The board of directors of an insurance company knowing that their company had just been reported by an official examiner to the Superintendent of the Insurance Department as being in an unsound condition, and that that officer would probably institute legal proceedings to have the company wound up, passed a resolution to the effect that all stockholders who would pay five per cent. on their stock (on which ninety per cent. was unpaid) and would surrender their stock certificates to the company, should have the privilege of retiring from the company, and withdrawing their stock notes. If all the stockholders had acted on this resolution, the company would have had the means of paying about one-half of its ascertained liabilities, and no more, with no provision for its outstanding policies.

Held, That the resolution was a fraud in law, if not in fact, upon the creditors of the company, and was no protection as against them, to those stockholders who had availed themselves of its provisions.

The board of directors of a corporation have no power to diminish the capital stock of the corporation unless authorized by a vote of the stockholders.

An attempt on the part of a portion of the stockholders of a corporation to withdraw from the corporation before all its debts are paid, by cancelling their stock, will be none the less void because enough remain to meet the claims of creditors.

Appeal from Jackson Circuit Court.
NORTON, J.

The Superintendent of the Insurance Department, on the 24th day of March, 1871, instituted a suit in the Circuit Court of Jackson County against the Kansas City Fire and Marine Insurance Company, the purpose of which was, among other things, to enjoin it from carrying on its business as an insurance company, and to wind up its affairs. On the 9th day of August, 1871, à decree was rendered in said cause enjoining and restraining said company from conducting business, and with a view to winding up its affairs. L. C. Slavens was appointed receiver, and was directed to take possession of all the assets and property of every nature and description, including moneys and all books, records and papers belonging to said company. On the 10th day of May, 1872, said Slavens tendered his resignation as receiver to said court, which was accepted, and on said day said court, by its order and decree, and

in furtherance of its purpose of winding up the affairs of said company, appointed Turner A. Gill, the plaintiff in the present suit, receiver, and devolved upon him the performance of all duties required of the former receiver, Slavens.

By the further order of said court made in June, 1873, the said receiver, Gill, was required and directed to join in an action prosecuted in his own name, all parties liable in any way for and on account of .subscriptions to the capital stock of said insurance company, now unpaid and for balances unpaid on stock or subscriptions therefor. In obedience to the order, plaintiff Gill, as such receiver, instituted the same suit in his own name against all the defendants as stockholders of said company for the purpose of recovering forty per cent. of the par value of each share of the capital stock of said company. The trial of the cause resulted in a judgment for the plaintiff, from which the defendants prosecute their appeal to this court. The principal grounds of error relied upon by defendants as touching the merits of the case are, first, that the plaintiff, as receiver, could not institute or maintain a suit in his own name, and second, that if he could do so, they were in no way liable as stockholders, each of the defendants claiming exemption from liability as such by reason of their having surrendered their stock to said company, whereby they insist they ceased to become stockholders thereof.

It will be observed that the receiver in this case derives his power and right to sue from an order of the Jackson County Circuit Court; and the question presented, whether or not he can maintain this suit in his own name, is dependent upon a construction of section 32, page 772, Wagner's Statutes. The above section is found in a law entitled "Insurance," which, among other things, provides for the creation of an insurance department, which shall be charged with the execution of all laws in relation to insurance and insurance companies in this State, and also provides for the appointment of a Supt. of the Insurance Department as the chief officer thereof. Section 32 of this law makes it the duty of the Superintendent, when, upon an examination of the affairs of any insurance company, it shall appear that such company is insolvent, or that its condition is such as to render its further proceedings hazardous to the public, to file, in the office of the Circuit Court of the County, in which it has its principal office or place of business, a petition setting forth the condition of the company, and praying for a writ of injunction to restrain said company in whole or in part, from further proceedings in its business. At any time after such a petition is filed, the court in which it is pending is charged with the duty. of appointing agents or receivers to take possession of the property of said company, and upon final hearing, with the further duty of making such orders and decrees as may be needful to suspend, restrain and prohibit the further continuance of the business of said company, or

any part thereof, or for the dissolution of the company and the winding up of its affairs.

By virtue of this section, when the Superintendent of the Insurance Department files his petition, the court or judge may, upon inspection of the petition, before answer filed or any hearing had upon the merits, appoint a receiver to take charge of the property of the delinquent company; and if no other power than this had been conferred upon the court, the position taken by appellants that the receiver could not - prosecute a suit in his own name, for the recovery of a debt due the company, would be maintainable. But the section goes further and authorizes the court on a final hearing to make such orders and decrees as may be needful "in winding up the affairs of such company." It is difficult to perceive how the court could perform the duty enjoined upon it of winding up the affairs of the company, if it could not employ agencies to enforce the collection of the debts owing to said company. The settlement or winding up the affairs of a delinquent corporation can only be accomplished by the application of its assets to the payment of its debts, and the distribution to the stockholders of what may remain after the debts are paid. Ordinarily, before the assets, when they consist in property and debts due the company, can be thus applied, it is necessary to convert the property into cash and to collect the debts, and the duty enjoined upon the court of winding up its affairs would remain unperformed.

The duty of settling up the affairs of the company, being thus devolved upon the court, no reason is perceived why it might not (without any statutory provision) resort to such methods as would enable it to perform the duty. But we think that section 32, supra, sets this question at rest by expressly authorizing the court to make all orders and decrees needful for winding up its affairs. The statute invests the court in which the proceeding is pending, with the power to determine the necessity of the orders and decrees it may make in respect to the end to be attained; and if, in order to the attainment of the end, it appears to the court that a necessity exists for the collection of the debts due the company, and if, acting upon the necessity, it does order and direct a receiver, its own officer, to institute suits in his own name for that purpose, we would not be authorized to review his action in that respect, unless the power thus exercised was a gross and palpable abuse of it and in no aspect of the case calculated to accomplish the winding up of the affairs of the company. The question is not as to the power of the receiver to sue in his own name, but as to the power of the court charged with the duty of winding up the affairs of the corporation to make such orders as in its judgments are necessary to enable it to perform the duty enjoined. This question the statute settles by expressly giving such power to the court, and to deny that it possessed it would be to nullify the statute. The making of an order

in terms dissolving the corporation is not a condition precedent to the exercise of the power given to wind up its affairs, since the defendant corporation in this suit instituted by the Superintendent of the Insurance Department for the purpose of dissolving it and winding up its af fairs, withdrew its answer to the petition and suffered judgment to go by default.

Defendants base their claim of exemption from liabilities as stockholders on a certain resolution passed by the board of directors on the 17th day of February, 1871, to the effect that all stockholders who would pay five per cent. on their respective shares of stock and surrender their stock certificates to the company, should have the privilege of retiring from the company and withdrawing their stock notes. Defendants claim that they complied strictly with the above resolution, and by reason of such compliance they are released from liability as stockholders. It is, on the other hand, insisted that the passage of said resolution by the directors was ultra vires, and for that reason void, and that it was also fraudulent as to creditors and stockholders.

A solution of this question can only be reached by reference to the facts found by the referee to whom the case was referred. It appears from his report that the capital stock of the company was $400,000, of which $255,250 had been subscribed, and on which only ten per cent. had been paid, and the remainder secured by the stock notes of the respective stockholders; that after the resolution of February 17, 1871, the stockholders, among whom the defendants are embraced, surrendered to the company certificates of stock amounting to $167,200, after paying five per cent. thereon, and received therefor from the company their stock notes, given to secure the payment of stock respectively subscribed for by them to the amount of $150,400. The only stock remaining after this surrender, amounted to $88,000, on which there was owing not to exceed $81,000, only $47,760 of which the receiver. finds was collectable. At the time the resolution was adopted, according to the report of the finance committee of said company, the company had lost $48,250, and the liabilities of the company other than the capital stock amounted to $32,121.27, including a re-insurance fund estimated at $10,000, which estimate the referee finds to be $5,621.37 less than it ought to have been. In the report of this committee no account was taken of $350,000 of outstanding policies and liabilities. The referee further finds that on the 17th day of February, 1871, the Superintendent of the Insurance Department entered, through an expert, upon an examination of the condition of said company, who, on the 14th day of February, three days before the passage of the resolution under which defendant claims exemption, reported to the Superintendent that the condition of the company was such as to render its further proceedings in busi ness hazardous to the public and those holding policies. The referee finds further, that at the time of the passage and adoption of said resolu

tions the affairs of said company were in a bad, unsafe, unsound condition, and in such a state that said stockholders of said company were liable to lose heavily; and said directors also, then, each and all, well knew of the before mentioned examination of the affairs of the company, caused to be made by the Superintendent of the Insurance Department, and that said Superintendent would probably file a petition praying for an injunction to restrain said company in whole from further proceeding with its business, to wind up its affairs; and they also knew that said company had failed to make the reports to the Insurance Department required by law, and to comply with the law governing it and its business in many respects; that said resolutions were never ratified or adopted by the stockholders of said company. The referee further finds that at the time of the passage of the resolution, excluding the stock notes held by the company, the remaining assets amounted only to $2,000.

In the light of the above facts we cannot see how the action of the board of directors in the passage of the resolution of February, 1871, can be upheld. Casting out of view liabilities which might come against the company in consequence of the $350,000 of outstanding policies, and taking the estimate of its liabilities to be $32,121.27, as reported by finance committee, if all the stockholders had complied with the terms of the resolution by paying five per cent of their stock notes and surrendering their stock, and receiving in return therefor their stock notes, constituting all the assets of the company except $2, 000 and the five per cent thus paid in on $255, 250, amounting to$12,762.50, the spectacle would be presented of a company with liabilities amounting to $32,121.27, with no one responsible for the payment of the balance of $17,358.77, which would be remaining after the application of the $12,672.50 and $2,000 of the assets to the payment of such liabilities. A resolution which embraces within its scope such a result can neither be maintained on principle nor authority. It is no answer to this to say that but two thirds of the stockholders availed themselves of the avenue of escape from liability provided in the resolution. Its validity is to be tested by the fact that under its terms all the stockholders might have escaped liability, taking with them all the assets of the company, amounting to $230,780, except $2,000, and putting in the treasury in lieu thereof $12,760.50 in money, with which to pay liabilities amounting to $32,121, for the payment of which all the stockholders would have been ratably bound previous to such withdrawal. If such withdrawal of all would have operated as fraud in law, if not in fact, on the creditors, so the withdrawal of a part would likewise pro tanto have the same effect.

The resolution in question never having been ratified or sanctioned by the stockholders, is also assailable on the ground that the directors had no power to pass it, inasmuch as by its operation the capital stock was diminished from $255,250 to $88,000. The directors had only the general

powers of managing the affairs of the company in the prosecution of its business, and its business was to make contracts of "insurance against loss or damage by fire, on land and water, on any description of property or merchandise." Such powers do not authorize the directors either to increase or diminish the capital stock, or to change the fundamental organization of the company. The case of Railway Co. v. Allerton, 18 Wall, 233, fully sustains the above proposition, where it is held that changes in the extent of constituency or membership of a corporation involving the amount of its capital stock, are necessarily fundamental in their character, and cannot on general principles be made without the express or implied consent of the members. A change as respects the constituency or capital and membership of a body corporate, being fundamental and next in importance to the purposes and objects of the corporation, without the consent of the stockholders, "would be to make them members of an association in which they never consented to become such. It would change the relative influence, control and profit of each member. If the directors alone could do it, they could always perpetuate their power. Their agency does not extend to such an act unless so expressed in the charter."

Its

The case of Upton v. Tribilcock, 91 U. S., 45, is equally emphatic in condemnation of the right of directors to limit the liability of stockholders as to unpaid stock, and pronounces such a transaction void. Justice Hunt, speaking for the court, uses the following language: "The capital stock of a moneyed corporation is a fund for the payment of its debts. It is a trust fund of which the directors are trustees. It is a trust to be managed for the benefit of its shareholders during its life, and for the benefit of its creditors in the event of its dissolution. This duty is a sacred one and cannot be disregarded. violation will not be undertaken by any justminded man, and will not be permitted by the courts. The idea that the capital of a corporation is a football to be thrown in the market for purposes of speculation, that its value may be elevated or depressed to advance the interests of its managers, is a modern and wicked invention. Equally unsound is the opinion that the obligation of a subscriber to pay his subscription may be released or surrendered to him by the trustecs of the company. This has often been attempted but never successfully. The capital paid in and promised to be paid in is a fund which the trustees cannot squander or give away. They are bound to call in what is unpaid and carefully husband it when received." Section 201, Thompson on Stockholders, is an authority to the effect that the American courts have steadily annulled all arrangements between corporations and their stockholders whereby the latter sought to be released from their liability to creditors. The same author, in the following section, refers to the case of Dorr v. Stockdale, 19 Iowa, 269, to which counsel of defendants have. cited us as sustaining the resolution of the 17th