American Handle Co. v. Standard Handle Co.

• Decision Date: 06 October 1900
• Citation: 59 S.W. 709
• Parties: AMERICAN HANDLE CO., Limited, v. STANDARD HANDLE CO.
• Court: Tennessee Supreme Court

59 S.W. 709

AMERICAN HANDLE CO., Limited, v. STANDARD HANDLE CO.

Court of Chancery Appeals of Tennessee.

October 6, 1900.

Appeal from chancery court, Knox county; Hugh G. Kyle, Chancellor.

Creditors' bill by the American Handle Company, Limited, against the Standard Handle Company in behalf of complainant and all other creditors of defendant company. From a decree denying the claim of the complainant, but sustaining the bill as to other creditors, the complainant appeals. Affirmed in part.

Comfort & Spillman and Curtin & Haynes, for appellant. Green & Shields, Jesse L. Rogers, and Washburn, Pickle & Turner, for appellee.

NEIL, J.

On October 20, 1897, the American Handle Company, a corporation organized under the laws of this state, filed its original bill in the chancery court of Knox county against the Standard Handle Company, a corporation organized under the laws of the state of New York, but having a local situs at Knoxville. This was a general creditors' bill filed on behalf of the complainant and all other creditors of the defendant company. The original bill referred to alleged that the defendant company was indebted to the complainant in the sum of $9,156.07 by note dated October 1, 1897, and due at one day; that this indebtedness was just and wholly unpaid; that the defendant had been engaged in the manufacturing business, and was at the filing of the bill an insolvent corporation, having its manufacturing plant at Knoxville; that it had ceased to do business and closed its factory; that by reason of its insolvency its whole estate had become impressed with a trust for the benefit of all its creditors. The bill prayed that the defendant company and F. J. Leland, M. R. Grace, and C. M. Woodbury, who were alleged to be the sole owners of the capital stock of defendant company, be made defendants; that it be sustained as a general creditors' bill, requiring all persons, creditors of the defendant corporation, to file their claims and have them adjudicated; that a decree be pronounced fixing the indebtedness of the corporation; that all of its assets be sold, and the proceeds distributed pro rata among its creditors; that a receiver be appointed to take possession of all of the property of the defendant corporation pending the litigation. On October 9, 1897, an attachment and injunction were awarded, and on October 30, 1897, an order or decree was entered adjudging that the bill was properly filed as a general creditors' bill, and taking jurisdiction thereof for the purpose of administering the assets of the defendant corporation as an insolvent concern for the benefit of all of its creditors, and directing the clerk and master to make publication for creditors, and enjoining the prosecution of suits elsewhere. On November 20, 1897, another order was entered in the cause, appointing S. B. Luttrell as permanent receiver of the defendant company, with power to collect outstanding notes and accounts, and to sell any manufactured product on hand, to operate the manufacturing plant, and to pay current expenses. Sundry creditors filed petitions in the cause. A reference was made to ascertain the amounts due creditors; also, the amount of assets. Pursuant to this order a report was made by the master showing debts aggregating $33,810.64. In this report the complainant was put down as a creditor for $9,809.20; being the amount of its claim sued on, with interest. The manufacturing plant, good will, and machinery of the defendant company were sold at $10,000. The other assets amount to about $2,000. The report of the master upon the debts was not acted upon at the term of the court to which it was made, but the cause was recommitted to the master to again report upon complainant's claim. Subsequently all claims filed were recommitted to the master.

Before a report was made under this last reference, sundry creditors, by leave of the court, filed a cross bill attacking the debt claimed against the Standard Handle Company by the complainant. This cross bill was filed on the 4th of March, 1899. After reciting the facts substantially as we have stated them above, and which recital contains a true statement of the record, as far as it goes, the cross bill proceeds: "That prior to October, 1895, the said Standard Handle Company had been engaged for a number of years in the manufacture and sale of handles for tools, manufacturing the same out of hickory timber made principally from trees growing in the state of Tennessee, which were purchased from the owners thereof. That its business had been reasonably profitable. It had been a going concern, and was then, and had assets largely above its liabilities. The Harrisburg Handle Company was a corporation organized under the laws of the state of Pennsylvania, and it had a manufacturing plant located at Bristol, Tenn., and it had been for some time prior to October 1, 1895, engaged in manufacturing handles for tools at its plant in Bristol, Va. These two manufacturing corporations were competitors of each other in the purchase of material for the manufacturing of their goods, and also for the sale of their manufactured products. They manufactured the same character of goods, and purchased substantially the same character of material for that purpose. In about October or November, 1895, the principal owners of the Standard Handle Company organized under the laws of the state of Tennessee a corporation also named the Harrisburg Handle Company, and about the same time the same parties and the Harrisburg Handle Company organized under the laws of the state of Tennessee the defendant, the American Handle Company, Limited. The purpose of the organization of this Tennessee Harrisburg Handle Company was to have it lease and operate the plant of the foreign corporation called the Harrisburg Handle Company, which upon the creation of the Tennessee corporation it did, from about October 1, 1895, to October 1, 1897. The purpose of organizing the American Handle Company, Limited, was not to have it engage in the business of manufacturing handles for tools, but to use it to pool the interests of the Standard Handle Company and the newly-created Harrisburg Handle Company, which latter corporation will hereafter in this cross bill be called the Tennessee Harrisburg Handle Company, for the purpose of distinguishing it from the foreign corporation called also the Harrisburg Handle Company. On the creation of the two corporations named, in the fall of 1895, the American Handle Company, Limited, did not engage in the business of manufacturing, yet it took out a charter under the provisions of the statutes of Tennessee authorizing the organization of manufacturing corporations, — a charter precisely similar to the one obtained by the Tennessee Harrisburg Handle Company. Yet under this charter the American Handle Company, Limited, engaged exclusively in the purchase and sale of handles, and operated that business until October 1, 1897, and it was never at any time engaged in the manufacturing business. It never had any machinery or equipment necessary for the manufacturing business. Its total capital stock was only $1,200, one half of which was paid by the Standard Handle Company; the other, by the Tennessee Harrisburg Handle Company. It was never afterwards increased. The object and purpose of the organization of the American Handle Company were to handle the entire output of the two manufacturing companies, and from and after October, 1895, — perhaps beginning with that month, — the entire manufactured output of both the Standard Handle Company and the Tennessee Harrisburg Handle Company was bought by the American Handle Company, and the same price was paid by it for handles from each company. In effect, the agreement between said three companies was that neither of the manufacturing companies should sell any of their product to any one else, save the American Handle Company, which became and was the sole and exclusive purchaser thereof, at a price which was agreed upon in advance; and from October, 1895, to October 1, 1897, the said American Handle Company did thus buy the entire product of both companies, during which period of time they were engaged in the manufacture of the same kind of goods. Large profits were made by the American Handle Company out of the goods thus sold, — so large that the net profits of the company for the first 15 months of its operation, upon a capital stock of only $1,200, produced the enormous sum of $15,000. What the net profits were from January 1 to October 1, 1897, complainants cannot state, but they believe that they were large. The result of this operation was at the end of two years to leave the Standard Handle Company hopelessly insolvent, and turn its affairs over to the administration of this court, as the victim of the said American Handle Company, Limited. The entire claim of $9,156.07 sued upon in its original bill by the American Handle Company, Limited, in said case, was the net amount claimed by it from the Standard Handle Company as a result of the dealings between the said three companies carried on under the plan hereinbefore stated for the preceding two years. The note sued upon was executed by F. J. Leland, as vice president and general manager of the Standard Handle Company; and in executing the same he acted for both the Standard Handle Company and the American Handle Company, being at that time vice president of the former and president of the latter. Complainants aver that the entire contract, arrangement, and transaction between the said three companies named, which culminated in the execution of said note to the American Handle Company, was a trust, pool, or combination, which was made with a view, or which tended, to prevent full and free competition in production and manufacture, and which was also designed to create a monopoly, and that the contract and result of said arrangement were illegal and void, under chapter 213 of...