Moran, P. J.
The J. L. Regan Printing Company wag a corporation organized under the laws of Illinois for carrying on the printing business in the city of Chicago, and it became indebted to one James J. West, who had a series of transactions with said company, and said West on the 27th of October, 1887, held the judgment notes of said company for something over $40,000, the principal amount of which was for money loaned and advanced by said West to said printing company.
Some time prior to said 27th day of October, 1887, said West had purchased from one Yaggy 130 shares of the stock of the said J. L. Regan Printing Company, and had paid therefor, as he claimed, about $13,000. Said West claims, and it is probable from the evidence, that the understanding between West and the officers of the said J. L. Regan Printing Company was that said West should purchase said stock for the company.
After the purchase by said West of said stock, he transferred it to the company and procured from the company the said company’s judgment note for the sum of $13,000. The said J. L. Regan Printing Company was indebted to the Kalamazoo Paper Company in the sum of $2,576, and West was the agent and representative of the said Kalamazoo Paper Company, for the purpose of collecting its indebtedness from the said J. L. Regan Printing Company.
Upon the said 27th day of October, West procured from the J. L. Regan Printing Company a legal assignment of all the book accounts whatever due and owing to the said J. L. Regan Printing Company, and which amounted on their face to something over $30,000, and on the same day said West had entered up against the said J. L. Regan Printing Company judgments on judgment notes held by him in about the sum of $45,000, the $13,000 judgment-note given to West for the stock not being included therein. Immediately after procuring the assignment of the book accounts from the printing company, West got possession of the boobs and delivered them to the Commercial Rational Bank, together with the $13,000 note which he held against the J. L. Regan Printing Company as collateral security for a debt of $25,000 which he about that time contracted to the bank, the bank loaning him that amount of money. Under the execution that had been issued on the judgments which West had procured to be entered against the J. L. Regan Printing Company, all the plant and property of the company were seized by the sheriff. In November, 1837, the bill in this case was filed by a simple contract creditor, against the J. L. Regan Printing Company, James J. West, the Union Trust Company, J. L. Regan, C. O. Owen, Canute R. Matson and others, alleging the insolvency of the said printing company and asking for the appointment of a receiver. By an order of court the book accounts turned over to the Commercial Rational Bank by West, were directed to be turned over to the receiver to collect the same.
In January, 1888, an intervening petition was filed in said suit by the Commercial Rational Bank and also one by the Kalamazoo Paper Company, the bank claiming the right to have the book accounts applied to the payment of the $13,000 note held by it against the J. L. Regan Printing Company, and the Kalamazoo Paper Company claiming to have said book account applied to the discharge of its debt. Upon a hearing of these petitions they were both dismissed for want .of equity, and the order dismissing the same is brought to this court for review.
The order dismissing the petitions is sought to be upheld upon the ground that the president and secretary of the J. L. Regan Printing Company, who made the assignment in question, did not have power or authority to execute the same, and that therefore the assignment of the book accounts was void. The directors of the J. L. Regan Printing Company before the execution of said assignment to West passed the following resolution:
“The president and secretary of this company are authorized to hereafter execute judgment notes, chattel mortgages, bills of sale or other instruments in their judgment necessary to the financial interests of this company.”
Proceeding under the authority of that resolution the officers of the company executed the various judgment notes to West, and also the assignment of the book accounts heretofore mentioned. We are inclined to the view that the officers of the company had under said resolution, legal power and authority to execute the assignment in question; but we are of opinion that the decree dismissing the petition of the Commercial Rational Bank is to be sustained, but upon another ground.
The sole consideration of the $13,000 note, to satisfy which the bank now seeks to have the book accounts which were assigned to West, and by him to the bank, applied, was the purchase of a. portion of the capital stock of the printitíg company. The financial condition of the printing company at the time that West purchased the said shares of stock was not such as would, under the law as announced by our Supreme Court, permit it to thus diminish its capital stock and impair the rights of its creditors, and that condition was known to West. The purchase of the stock by West from Yaggy made West a stockholder of the company, and lie; knowing its condition, could not sell that stock to the company in such a manner as to hold property received from the company in consideration thereof against the then existing creditors of the company.
This question is settled by the decision of the Supreme Court in the case of Clapp et al. v. Peterson, 104 Ill. 26, where it is held that the purchase of its own stock by a corporation, by the exchange of its property of equal value, though made in good faith and without any element of fraud about it, there not being anything in the apparent condition of the company to interfere with the malting of the exchange, will not be allowed, where it injuriously affects a creditor of the company, even though the fact of the indebtedness was not at the time established or known to the stockholder.
The court holds that the capital stock of an incorporated company is a fund, set apart for the payment of its debts, and that the directors of the company hold it in trust for that purpose; and they say: “The shareholders of a corporation are conclusively charged with notice of the trust character which attaches to its capital stock, as to it they can not occupy the status of innocent purchasers, but they are to all intents and purposes privies to the trust. When, therefore, they have in their hands any of this trust fund, they hold it cum onere, subject to all equities which attach to it.”
How, the evidence, so far as it shows the purpose for which the assignment of the book accounts was made, establishes that it was made as collateral security for the note for $13,000, given in consideration of the transfer of the stock to the company, and as security for the payment of the debt due to the Kalamazoo Paper Company. This is the testimony of West and of the secretary of the company, and it is substantially uncontradicted. The transfer of the note from West to the bank having been made before the note was due, made the bank an innocent holder of the note for value, and protected it under the rule which protects the innocent purchaser of negotiable paper; but the book accounts were mere choses in action, and the assignment of them was a transfer of so much of the property of the J. L. Began Printing Company to West to satisfy the said note.
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Moran, P. J.
The J. L. Regan Printing Company wag a corporation organized under the laws of Illinois for carrying on the printing business in the city of Chicago, and it became indebted to one James J. West, who had a series of transactions with said company, and said West on the 27th of October, 1887, held the judgment notes of said company for something over $40,000, the principal amount of which was for money loaned and advanced by said West to said printing company.
Some time prior to said 27th day of October, 1887, said West had purchased from one Yaggy 130 shares of the stock of the said J. L. Regan Printing Company, and had paid therefor, as he claimed, about $13,000. Said West claims, and it is probable from the evidence, that the understanding between West and the officers of the said J. L. Regan Printing Company was that said West should purchase said stock for the company.
After the purchase by said West of said stock, he transferred it to the company and procured from the company the said company’s judgment note for the sum of $13,000. The said J. L. Regan Printing Company was indebted to the Kalamazoo Paper Company in the sum of $2,576, and West was the agent and representative of the said Kalamazoo Paper Company, for the purpose of collecting its indebtedness from the said J. L. Regan Printing Company.
Upon the said 27th day of October, West procured from the J. L. Regan Printing Company a legal assignment of all the book accounts whatever due and owing to the said J. L. Regan Printing Company, and which amounted on their face to something over $30,000, and on the same day said West had entered up against the said J. L. Regan Printing Company judgments on judgment notes held by him in about the sum of $45,000, the $13,000 judgment-note given to West for the stock not being included therein. Immediately after procuring the assignment of the book accounts from the printing company, West got possession of the boobs and delivered them to the Commercial Rational Bank, together with the $13,000 note which he held against the J. L. Regan Printing Company as collateral security for a debt of $25,000 which he about that time contracted to the bank, the bank loaning him that amount of money. Under the execution that had been issued on the judgments which West had procured to be entered against the J. L. Regan Printing Company, all the plant and property of the company were seized by the sheriff. In November, 1837, the bill in this case was filed by a simple contract creditor, against the J. L. Regan Printing Company, James J. West, the Union Trust Company, J. L. Regan, C. O. Owen, Canute R. Matson and others, alleging the insolvency of the said printing company and asking for the appointment of a receiver. By an order of court the book accounts turned over to the Commercial Rational Bank by West, were directed to be turned over to the receiver to collect the same.
In January, 1888, an intervening petition was filed in said suit by the Commercial Rational Bank and also one by the Kalamazoo Paper Company, the bank claiming the right to have the book accounts applied to the payment of the $13,000 note held by it against the J. L. Regan Printing Company, and the Kalamazoo Paper Company claiming to have said book account applied to the discharge of its debt. Upon a hearing of these petitions they were both dismissed for want .of equity, and the order dismissing the same is brought to this court for review.
The order dismissing the petitions is sought to be upheld upon the ground that the president and secretary of the J. L. Regan Printing Company, who made the assignment in question, did not have power or authority to execute the same, and that therefore the assignment of the book accounts was void. The directors of the J. L. Regan Printing Company before the execution of said assignment to West passed the following resolution:
“The president and secretary of this company are authorized to hereafter execute judgment notes, chattel mortgages, bills of sale or other instruments in their judgment necessary to the financial interests of this company.”
Proceeding under the authority of that resolution the officers of the company executed the various judgment notes to West, and also the assignment of the book accounts heretofore mentioned. We are inclined to the view that the officers of the company had under said resolution, legal power and authority to execute the assignment in question; but we are of opinion that the decree dismissing the petition of the Commercial Rational Bank is to be sustained, but upon another ground.
The sole consideration of the $13,000 note, to satisfy which the bank now seeks to have the book accounts which were assigned to West, and by him to the bank, applied, was the purchase of a. portion of the capital stock of the printitíg company. The financial condition of the printing company at the time that West purchased the said shares of stock was not such as would, under the law as announced by our Supreme Court, permit it to thus diminish its capital stock and impair the rights of its creditors, and that condition was known to West. The purchase of the stock by West from Yaggy made West a stockholder of the company, and lie; knowing its condition, could not sell that stock to the company in such a manner as to hold property received from the company in consideration thereof against the then existing creditors of the company.
This question is settled by the decision of the Supreme Court in the case of Clapp et al. v. Peterson, 104 Ill. 26, where it is held that the purchase of its own stock by a corporation, by the exchange of its property of equal value, though made in good faith and without any element of fraud about it, there not being anything in the apparent condition of the company to interfere with the malting of the exchange, will not be allowed, where it injuriously affects a creditor of the company, even though the fact of the indebtedness was not at the time established or known to the stockholder.
The court holds that the capital stock of an incorporated company is a fund, set apart for the payment of its debts, and that the directors of the company hold it in trust for that purpose; and they say: “The shareholders of a corporation are conclusively charged with notice of the trust character which attaches to its capital stock, as to it they can not occupy the status of innocent purchasers, but they are to all intents and purposes privies to the trust. When, therefore, they have in their hands any of this trust fund, they hold it cum onere, subject to all equities which attach to it.”
How, the evidence, so far as it shows the purpose for which the assignment of the book accounts was made, establishes that it was made as collateral security for the note for $13,000, given in consideration of the transfer of the stock to the company, and as security for the payment of the debt due to the Kalamazoo Paper Company. This is the testimony of West and of the secretary of the company, and it is substantially uncontradicted. The transfer of the note from West to the bank having been made before the note was due, made the bank an innocent holder of the note for value, and protected it under the rule which protects the innocent purchaser of negotiable paper; but the book accounts were mere choses in action, and the assignment of them was a transfer of so much of the property of the J. L. Began Printing Company to West to satisfy the said note. Each successive assignee of a chose in action takes it subject to the equities existing between the original assignor and his immediate assignee. Therefore, if West could not hold the book accounts as collateral security for the payment of the $13,000 note, the bank can not hold them; for, as far as the assignment of the book accounts was concerned, the bank stands in the shoes of West. It holds its negotiable promissory note, relieved from all defenses, but holds the hook accounts subject to all defenses and therefore subject to the claims of the creditors of the corporation. The court, therefore, properly dismissed the intervening petition of the said bank, but such dismissal will not operate to prevent said bank from proving up its claim upon the note, and sharing pro rata in the assets of the printing company in the hands of the receiver.
With reference to the intervening petition of the Kalamazoo Paper Company we reach a different result. ' West himself received and assigned to the hank the book accounts as security, first for the §13,000, and next to apply on the indebtedness of the Kalamazoo Paper Company. There is no protense that the claim of the Kalamazoo Paper Company was not a valid and bona fide indebtedness. We see nothing in the evidence in this record that would prevent the Kalamazoo Paper Company from receiving an assignment of any' property from the J. L. Pegan Printing -Company as collateral security for the indebtedness that was due to it.
It is argued that the Kalamazoo Paper Company knew the insolvent condition of the J. L. Pegan Printing Company, because its agent, West, knew of that condition. The evidence in the record shows that while the J. L. Pegan Printing Company was probably in fact insolvent, it was, at the time the assignment in question was made to West, a going concern. It was carrying on its business, and its officers expected that it would continue to carry on its business, and were undoubtedly surprised at the course pursued by West in entering up judgment and wrecking the company. The fact that West intended, at the time he took said assignment to enter up his judgments and levy upon all the remaining property of the company, and leave other creditors with their debts unpaid, may be fairly inferred from the evidence. But suppose that the Kalamazoo Paper Company knew that West intended to do just what he did, and knew that the J, L. Began Printing Company was in danger, and insolvent, and likely to be wound up, and that many of its creditors would be left without the means of satisfying the debts, what provision of law is it that would prohibit the Kalamazoo Paper Company, knowing just these facts, from seeking to get from the J. L. Began Printing Company security for the satisfaction of its own debt ?
We are aware of the principle which has been frequently applied by various courts, that directors of an insolvent corporation are trustees of its funds for creditors; that they can not give them away or use them to exonerate themselves to the injury of the other creditors. This rule was applied in Beach v. Miller, 130 Ill. 162; see, also, Kankakee Woolen Mill Company v. Kampe, 38 Mo. Appeals, 229; Rouse, Trustee, v. The Merchants National Bank, 46 Ohio St. 493.
But the fact that the directors of an insolvent company may not prefer themselves, and probably may not of their own motion prefer individual creditors after the insolvency of the corporation is ascertained and it is determined that the objects of its creation are no longer to be pursued, does not prevent a diligent creditor from pursuing all legitimate means to secure or satisfy, from the assets of the corporation, his particular debt. Indeed, it is by no means a settled question that a corporation, even though insolvent, may not prefer a particular creditor. The right of a creditor to obtain a preference over other creditors of an insolvent corporation is expressly recognized in the case of Burch v. West, 134 Ill. 258, where it is said :
“ In the case at bar the corporation was undoubtedly insolvent, and this was probably known to both West and to the officers and directors of the company. But then,it is equally clear that said officers and directors did not contemplate that the corporation would make a voluntary assignment of its property, and that no such assignment was in fact made. On the contrary, it is manifest that those in charge of the corporate affairs were using every endeavor to tide over the indebtedness of the corporation with a view of an improvement of its affairs.”
This was said upon the very facts which we are here considering when the validity of the West judgment notes were under consideration. Ascribing, then, to the Kalamazoo Paper Company, the same knowledge that its agent, West, had, we are of opinion, that so far as the assignment of the book accounts was made as collateral security to the debt of that company it was valid and binding, and that the said company can not justly be deprived of the benefit thereof. Therefore the dismissal of the intervening petition of the said company was error, and the same must be reversed. Both cases are here presented on the same record.
The judgment of this court will be that the order dismissing the petition of the Commercial National Bank be affirmed; that the order dismissing the intervening petition of the Kalamazoo Paper Company be reversed, and the said petition remanded to the' Circuit Court, with directions to pay over to the said paper company so much of the proceeds of the said boob accounts, now in the hands of the receiver, as shall be necessary to satisfy said paper company’s demand against said J. L. Began Printing Company.
Affirmed in part and reversed in part.