Haywood v. Lincoln Lumber Co.

• Decision Date: 23 December 1885
• Citation: 64 Wis. 639,26 N.W. 184
• Parties: HAYWOOD AND ANOTHER v. LINCOLN LUMBER CO. AND OTHERS.
• Court: Wisconsin Supreme Court

64 Wis. 639

26 N.W. 184

HAYWOOD AND ANOTHER

v.LINCOLN LUMBER CO. AND OTHERS.

Supreme Court of Wisconsin.

Filed December 23, 1885.

Appeal from circuit court, Lincoln county.Pullings, Hoyt & Holway and D. S. Ordway, for appellants, Murray Haywood and another.

Silverthorn, Hurley & Ryan, for respondents, Lincoln Lumber Co. and others.

ORTON, J.

This is an action brought by the appellants to foreclose a mortgage given by the defendant lumber company, by its president and secretary, to the said appellants and the defendant T. P. Matthews and one George C. Smith, on the fourth day of February, 1884, on all of the real property of said corporation, to secure a bond in the penal sum of $100,000, given at the same time by said company, to said mortagees, conditioned to pay them certain indebtedness of the company past due them, respectively, in the aggregate of over $50,000. The interest in said mortgage of said George C. Smith was assigned to said plaintiffs. The defendant Robert C. Parcher was appointed receiver in April, 1884, in a suit of one J. C. Clark against said company; and said Parcher, as such receiver, in June, 1884, loaned of the defendant the First National Bank of the City of Wausau the sum of $10,000, to be used in the management of the business and property of said lumber company; and, by the order and leave of the court, executed, as such receiver, a mortgage upon the real property of said company to said bank to secure the same. The said defendant Parcher and the defendant the Lincoln Lumber Company answered the complaint, alleging, substantially, that the said mortgage sought to be foreclosed was executed by the president and secretary of said company, without authority; and that, at the time, said corporation was insolvent, to the knowledge of said mortgagees, and owed large indebtedness to others; and that said mortgage was given by said officers, and authorized, if at all, by the directors of said company to be given to themselves, to secure their own claims against the company, as an unlawful and fraudulent preference of themselves as the creditors of the company, in fraud and with intent to defraud the other creditors and the company, and that said bond and mortgage were therefore void. The said defendant the National Bank answered, setting up its mortgage by the receiver, and alleging its priority to the mortgage in suit by the agreement of the mortgagees in said mortgage, and prays a foreclosure thereof. The circuit court substantially held that said mortgage was given without authority, because the majority of the quorum of the directors voting that said bond and mortgage be given were interested in the same, and that said company was then insolvent; and that the directors held the property in trust for the creditors, and the execution of said mortgage by the officers and by the authority of the directors to themselves to secure their antecedent claims against the company was an unlawful preference, and was fraudulent and void; and that the said mortgage to the bank has priority, and was lawfully executed by said receiver. The special findings are numerous, and the case voluminous; but the above are believed to be substantially the findings, and upon the substantial issues in the case.

The principles involved in this suit are really very simple, and almost elementary, and not at all complicated; and we cannot but think they have been greatly magnified and more earnestly contested on account of the amount in controversy. The plaintiffs contest the power of the receiver, Parcher, to give the mortgage to the bank on the ground of the want of jurisdiction of the court to appoint him or any one receiver in the case of Clark against the company. These plaintiffs were directors of the company, and one of them the secretary, and both mortgagees, when the said Parcher was appointed such receiver, and as directors and as mortgagees counseled and advised his appointment, and consented thereto, and the directors over and over again recognized and confirmed it by dealing with him as such, and placing the property of the company in his hands; and, after his appointment, the plaintiffs, together with the defendant Mathews, as said mortgagees, by writing under seal, authorized the said receiver to borrow not exceeding $15,000, and give a mortgage on the property of the company in his hands to secure it, for the purpose of carrying on the business in running the mills and sawing up the logs, and released their said mortgage so far as it would have preference of the mortgage so given by the receiver, and so as to give the same priority to their said mortgage. There is abundant evidence of the plaintiffs' estoppel to dispute the authority of said receiver, both in pais and by deed. But accepting the allegations of the complaint in that case as true, the court not only had the power, but it was its duty, to appoint a receiver. The directors and officers had given the mortgage in suit alleged to be in fraud of the creditors of the company, nearly or quite insolvent at the time, and threatened afterwards to sell out in gross all the property of the company without notice, and to bid the same off in their own names and for their own benefit, in fraud of many other creditors of the company, and in this way to close up the business of the company. These are some of the substantial allegations of the complaint of Clark, the plaintiff, who was himself one of the stockholders of the company. Within the general powers of a court of chancery, which are preserved in the fifth subdivision of section 2787, Rev. St., this was a proper case for an injunction and receiver both. The property of the company was being mismanaged, and was in danger of being lost to the stockholders and creditors through the collusion and fraud of its officers and directors. The only place of safety for the business and property of the company was in the “hand” of the court through a receiver pendente lite. A stronger case for a receiver could scarcely be made, and the numerous authorities...