Harriman Welding Supply Co. v. Lake City Lightweight Aggregate Corp.

• Decision Date: 15 July 1959
• Citation: 330 S.W.2d 564,46 Tenn.App. 529
• Parties: HARRIMAN WELDING SUPPLY CO. v. LAKE CITY LIGHTWEIGHT AGGREGATE CORP.
• Court: Tennessee Court of Appeals

Page 564

330 S.W.2d 564

46 Tenn.App. 529

HARRIMAN WELDING SUPPLY CO. v. LAKE CITY LIGHTWEIGHT AGGREGATE CORP.

Court of Appeals of Tennessee, Eastern Section.

July 15, 1959.

Certiorari Denied Dec. 11, 1957.

Forrest Andrews and R. Arnold Kramer, Knoxville, for W. E. Fischer, Receiver of Tennessee Lightweight Aggregate Corporation, and Aldo Franconi.

H. T. Kern, Knoxville and W. B. Lewallen, Clinton, for H. C. Scruggs, Receiver of Lake City Lightweight Aggregate Corporation.

McAMIS, Presiding Judge.

This case originated as a general creditors' bill filed by Harriman Welding Supply Co. against Lake City Lightweight Aggregate Corporation. The bill was sustained and thereafter Tennessee Lightweight Aggregate Corporation filed an intervening petition seeking a recovery of $117,826.62 alleged to be owing by Lake City Lightweight Aggregate Corporation as royalties under an assigned lease. From a denial of its claim Tennessee Lightweight Aggregate Corporation has appealed. For convenience and brevity reference to the Receivers will be omitted. The petitioner will be referred to as 'Tennessee' and defendant as 'Lake City'.

Lake City answered the petition setting up the defense that Tennessee fraudulently and falsely represented at the time Lake City accepted an assignment of the lease that the product to be made from the shale covered by the lease would bring $6 per ton on the market; that Tennessee promised to forgive the royalties if the $1 per ton royalty required under the assignment proved too high and that the officers and directors of Tennessee who were largely the same persons who were in control of the affairs of Lake City fraudulently and falsely represented that the assignment would be to the advantage of Lake City but that, on the contrary, Lake City was never able to sell its product for $6 per ton and the materials mined under the lease contained so much coal that it burned the kilns in which it was used, forcing Lake City to procure 25% of its material from other sources, all to its great loss and damage. On these issues there was a reference to a Special Master.

The Special Master disallowed the claim and in disposing of exceptions filed by Tennessee, the Chancellor, in concurring with the Master, said:

'It appears that the Coal Creek Mining and Manufacturing Company is in the owner of the land whereon the defendant corporation leased large dumps of slate to one H. P. David who in turn assigned his lease to Tennessee Lightweight Aggregate Corporation, the defendant (petitioner) corporation herein; that there was a provision in the original lease to David to Tennessee Lightweight Aggregate Corporation that a royalty of 7 1/2cents per ton would be paid to the original lessor, Coal Creek Mining and Manufacturing Company; that there was placed in the lease existing between Tennessee Aggregate Corporation and Lake City Lightweight Aggregate Corporation a provision that Lake City Lightweight Aggregate Corporation would pay to Tennessee Lightweight Aggregate Corporation the difference between the royalty due and payable to the land owners and $1.00 per cubic yard of materials based upon a selling price of $6.00 per cubic yard.

'The proof discloses that the petitioner, Tennessee Lightweight Aggregate, was originally owned by David, Greenup and Dulworth; that there was no money invested in this corporation; that David sold his interest and that thereafter the defendant corporation was organized and Dulworth was the president of both corporations; that most of the directors of the defendant corporation were also stockholders and directors of the Tennessee Lightweight Aggregate Corporation.

'The president of the defendant corporation executed the lease to the Tennessee Lightweight Corporation, while president also of that corporation and without any authority from the Board of Directors of the defendant Corporation.

'As pointed out by the Special Master, there was some proof that the royalty was excused as being oppressive.

'The records and books of the defendant corporation did not reflect any indebtedness to the petitioner. Financial statements made from time to time to secure credit reflected no indebtedness.

'There were no books or records of any kind of the petitioner produced in proof to substantiate petitioner's claim for this large sum of money. The Court could agree with counsel for the petitioner that a claim should not be denied because an insolvent debtor did not carry on its books an account due a creditor if the circumstances were such as ordinarily prevails between debtors and creditors. Here, we have almost the same officers and directors handling the affairs of both corporations, making statements for the defendant corporation that reflected no indebtedness to the other corporation. We have no...