Gow v. Collin & Parker Lumber Co.

• Decision Date: 31 March 1896
• Citation: 109 Mich. 45,66 N.W. 676
• Parties: GOW ET AL. v. COLLIN & PARKER LUMBER CO. ET AL.
• Court: Michigan Supreme Court

66 N.W. 676

109 Mich. 45

GOW ET AL. v. COLLIN & PARKER LUMBER CO. ET AL.

Supreme Court of Michigan

March 31, 1896

Appeal from circuit court, Muskegon county, in chancery; Fred J Russell, Judge.

Bill by James Gow and another against the Collin & Parker Lumber Company and others to enforce a partnership liability against the stockholders of the principal defendant, to foreclose mortgages, and for other relief. A demurrer to the bill was sustained, and complainants appeal. Affirmed.

Bunker & Carpenter, for appellants.

John Vanderwerp (Frank H. Smith, of counsel), for appellee Elwell.

MOORE J.

The complainants, James Gow and John Campbell, are copartners composing the firm of Gow & Campbell, engaged in a general lumber business at North Muskegon, where they own a mill. July 13, 1890, the defendants William W. Collin, Charles H Parker, and John A. Elwell incorporated under the name of the Collin & Parker Lumber Company, for the purpose of "the purchase, manufacture, and sale of lumber, shingles, and other forest products, and carrying on a general lumber business, and, incident thereto, to purchase and sell timber lands and timber," and to that end executed and filed articles of association for the incorporation of said company. The capital stock of the company was $20,000, divided into 2,000 shares of which Collin held 1,998, and Parker and Elwell held one share each. The articles of association filed with the clerk of Muskegon county state that the entire sum of the capital stock was paid in. August 30, 1890, the Collin & Parker Lumber Company increased its capital stock to $30,000. January 24, 1891, the company filed its annual report in the office of the clerk of Muskegon county, in which it was stated that the capital stock was divided as follows: "William W. Collin, 2,059 shares; Charles H. Parker, 60 shares; John A. Elwell, 1 share." The report also stated that: "The amount of capital stock is $30,000.00; the amount of capital actually paid in is $21,200.00; the amount invested in real estate is none; the amount of personal estate is $47,715.87; the amount of the debts of the corporation is $45,927.65; the amount of the credits of the corporation is $21,230.56." January 30, 1892, the company filed its second annual report, in which it was stated the division of the capital stock had not changed from that of the previous year, and that its liabilities and assets were as follows: "The amount of capital stock is $30,000.00; the amount of capital stock actually paid in is $21,200.00; the amount invested in real estate is $3,000.00; the amount of personal estate is $54,586.84; the amount of the debts of the corporation is $53,630.32; the amount of the credits of the corporation is $26,509.30."

The complainants allege that, relying on the statements in the articles of association and in the annual reports, and believing that the company had a capital stock of $20,000, subscribed in good faith and paid in, and that the company was doing a legitimate and profitable business, and that the stock in trade and assets of the company were increasing, and never having any information to the contrary prior to December 20, 1892, in the year 1891 and the early part of 1892 sold to said company large quantities of lumber, for which the company paid in full; that complainant Gow, on or about May 10, 1891, and prior to the time when complainants made any sale of lumber to the company, made inquiries of Colon C. Billinghurst, cashier of the defendant the Lumberman's National Bank, as to the financial responsibility of said company, in order to ascertain whether it would be safe for complainants to sell to the company on credit, and were assured by Billinghurst that the company was all right, and that it would be safe for complainants to sell to the company on credit. August 1, 1892, Collin, in behalf of the company, applied to complainants to purchase a million feet of lumber. Complainant Gow, knowing that defendants Hovey & McCracken had had and were having deals with said company, applied to McCracken for information as to the financial strength and credit of the company, and was assured by McCracken that the company was all right, that its financial responsibility and credit were good, and that Hovey & McCracken had sold to said company $20,000 worth of lumber at a time, but McCracken did not disclose to complainant that they had any security or guaranty for the payment of the same, and complainants were ignorant of that fact until December 20, 1892; that complainants, relying upon the financial strength and credit of said company as disclosed by its articles of association and annual reports, as well as upon the representations of McCracken, sold to the company, August 18, 1892, a million feet of lumber for $7,276.87, and delivered the same to the company from time to time, and took in payment therefor the notes of the company, described as follows: September 10, 1892, $3,000; September 26, 1892, $2,500; October 11, 1892, $1,776.87,-all payable to the order of complainants, 90 days after date, respectively. December 20, 1892, the Collin & Parker Lumber Company executed and delivered to the Lumberman's National Bank a chattel mortgage for $6,000, covering all the personal property of the company, its accounts, bills receivable, and books of account, which mortgage was recorded the same day as a first mortgage. On the same day, defendants also executed and delivered a second mortgage on the above-described personal property, books of account, etc., to Hovey & McCracken, for $14,425.39. Four other mortgages on the same property, except the accounts, bills receivable, books of account, etc., were also executed by the defendants in the following order, for the amounts specified: To complainants Gow & Campbell, for $7,276.87; to Gray Bros. Manufacturing Co., for $1,302.26; to C. S. Bacon & Co., for $3,198.47; to James E. Austin & Co., for $531. All of the mortgages were executed subject to the lien of the mortgage or mortgages that preceded them. December 28, 1892, Bacon & Co. and Austin & Co. assigned their mortgages to the complainants.

The bill of complaint alleges: That Collin & Parker, at the time of the incorporation of the Collin & Parker Lumber Company were pecuniarily irresponsible, and that Elwell was and is a man of large means and excellent credit. That he is the father-in-law of Collin. That their incorporation was simply to procure a means of credit for Collin & Parker by lending the name and business standing of Elwell. That the statement made by them that the entire capital stock was paid in was false. That the company has never had any capital stock or stock in trade other than the lumber acquired after their incorporation from other firms and corporations, except some lumber purchased by Collin from Hovey & McCracken, for the payment of which Elwell had become personally responsible. This lumber was turned over to the company by Collin. The agreement...