Adcock v. New Crystal Ice Co.

• Decision Date: 29 October 1921
• Citation: 234 S.W. 336
• Parties: ADCOCK v. NEW CRYSTAL ICE CO. et al.
• Court: Tennessee Supreme Court

234 S.W. 336

ADCOCK v. NEW CRYSTAL ICE CO. et al.

Supreme Court of Tennessee.

October 29, 1921.

Appeal from Chancery Court, Knox County; Chas. Hays Brown, Chancellor.

Suit by J. S. Adcock, trustee, for the use of S. L. Lewis, against the New Crystal Ice Company and another. Decree for defendants, and plaintiff appeals. Reversed and rendered.

L. C. Ely, of Knoxville, for J. S. Adcock.

Lucky, Jones & Andrews, of Knoxville, for New Crystal Ice Company.

GREEN, J.

This suit was brought by J. S. Adcock, trustee, for the use of S. L. Lewis, against the New Crystal Ice Company and J. H. Lynn, one of the officers of that company, for the purpose hereafter appearing. The chancellor dismissed the bill, and the complainants have appealed to this court.

J. S. Adcock is or was the trustee in bankruptcy of the North Star Ice & Coal Company, a concern formerly doing business in Knoxville. Lewis purchased the assets of the concern at the trustee's sale. The defendant New Crystal Ice Company has been for a number of years engaged in the manufacture and sale of ice in Knoxville.

In the spring of 1917 a contract was made between the two ice companies, the nature of which was set out in the report of the referee in bankruptcy during the administration of the affairs of the North Star Ice & Coal Company in that court. The New Crystal Ice Company filed a petition in that cause setting up a claim for about $3,400 alleged to have been due it from the bankrupt corporation. This claim was disallowed by the referee. Speaking of the contract between the two corporations on which the claim was founded, he said:

"Just what the specific terms of the agreement were the referee was unable to determine; but he found that the substance and effect of the agreement was that the claimant was to refrain from manufacturing and selling ice in the city of Knoxville, Tenn., during the year 1917 for a consideration of $5,000; which consideration in part is the basis of the claim in controversy. The referee found as a fact that the claimant did not lease nor turn over the possession of its plant to the bankrupt as lessee, nor contract that the same should be operated in any way by the bankrupt as lessor. He also found that the contract was not for the sale of 4,000 tons or any other amount of ice. He found that the contract was one to prohibit the production of ice by claimant's plant during the heated season of the year 1917, and was for the purpose of reducing the volume of ice production in the city of Knoxville during that season, destroying competition in the ice trade, and thereby bolstering up the selling price of ice to the consumer during that season."

The referee announced his conclusion as follows:

"That this contract was illegal and void, because in restraint of trade under the common law; that it was illegal and void because in violation of the statutes of Tennessee prohibiting unlawful trusts and trade combinations; and that therefore the notes based upon that contract and proven in this cause by claimant were not enforceable against this estate in bankruptcy."

Upon review the judge of the United States District Court confirmed the foregoing finding of fact by the referee and adjudged the conclusion of law reached by the referee was likewise sound.

This controversy in the bankruptcy court arose by reason of an effort of the New Crystal Ice Company to collect the balance due it under such contract. The bill herein filed is one by the assignee of the trustee in bankruptcy of the insolvent corporation to recover some $1,700 paid by the bankrupt corporation to the New Crystal Ice Company in pursuance of the terms of said contract.

The determinative question here, therefore, was the same question presented to the bankruptcy court, and the decision there is determinative of the matter here. This suit is between one of the parties and the privy in estate of the other party to the former controversy. The record of the bankruptcy court is properly brought before us. The question of the legality of the contract between the two corporations having been determined in a court of competent jurisdiction cannot be raised again in litigation between the same parties, although the form of action is different. Gudger v. Barnes, 51 Tenn. (4 Heisk.) 571; State v. Bank, 95 Tenn. 221, 31 S. W. 989; Memphis City Bank v. Smith, 110 Tenn. 337, 75 S. W. 1065.

There can be no doubt but that the creditors of the bankrupt corporation might have recovered from the defendant herein the sum of money paid to the latter on account of this illegal contract.

"Equity regards the property of a corporation as held in trust for the payment of the debts of the corporation, and recognizes the right of creditors to pursue it into whosesoever possession it may be transferred, unless it has passed into the hands of a bona fide purchaser." Vance & Kirby v. McNabb Coal, etc., Co., 92 Tenn. 47, 60, 20 S. W. 424.

"The doctrine that corporate assets are a trust fund, at least to the extent that creditors are entitled in equity to payment of their debts before any distribution of corporate property is made among stockholders, is fully established in Tennessee, and creditors have a right to follow its assets or property into the hands of any one who is not a holder in good faith in the ordinary course of business." Jennings, Neff & Co. v. Ice Co., 128 Tenn. 231, 236, 159 S. W. 1088, 47 L. R. A. (N. S.) 1058.

Clearly, therefore, these creditors might successfully maintain a suit to regain this fund diverted to an unlawful purpose, the trustee out of the way.

That the trustee himself might have recovered is equally clear, for he takes not only the right and title of the bankrupt, but...