McClung v. Embreeville Freehold, Land, Iron & Ry. Co.

• Decision Date: 08 May 1897
• Citation: 42 S.W. 53
• Parties: McCLUNG et al. v. EMBREEVILLE FREEHOLD, LAND, IRON & RAILWAY CO., Limited, et al.
• Court: Tennessee Supreme Court

42 S.W. 53

McCLUNG et al. v. EMBREEVILLE FREEHOLD, LAND, IRON & RAILWAY CO., Limited, et al.

Court of Chancery Appeals of Tennessee.

May 8, 1897.

Appeal from chancery court, Washington county; John P. Smith, Chancellor.

Creditors' bill by C. M. McClung & Co. against the Embreeville Freehold, Land, Iron & Railway Company, Limited, and others. From a decree in favor of a receiver appointed in the suit, against Rogers, Brown & Co., creditors, said creditors appeal. Affirmed.

Tully R. Cornick, for appellants. Deaderick & Epps and Green & Shields, for appellee.

BARTON, J.

The original and amended bills in this cause were filed as general creditors' bills in the chancery court of Washington county to wind up the Embreeville Freehold, Land, Iron & Railway Company, Limited, as an insolvent corporation, and to set aside a certain deed of trust executed by said company to S. J. Kirkpatrick, as trustee, upon certain of its personal property. The trust deed was attacked on the ground that it was fraudulent, having been made to hinder and delay creditors; for want of authority in the agent of the company who executed it, it having been signed and executed by the general manager of the company without any direction so to do by the directors of the company or stockholders; and also because the making of the deed of trust was an attempt of an insolvent corporation to prefer certain of its creditors. The main contentions in this case have heretofore been passed upon by this court and by the supreme court, but by agreement and consent of all parties, and by a special segregation, the contention now before us was reserved. This contention is between the appellants here, Rogers, Brown & Co., a firm composed of residents of Ohio, with its place of business in Cincinnati, and the receiver appointed in the case, representing the general creditors. The main question is as to the right of appellants to have a set-off by reason of a large debt they have against the defendant the Embreeville Freehold, Land, Iron & Railway Company, as against the value of certain iron shipped them by S. J. Kirkpatrick, trustee, after the assignment made to him, and before the filing of the general creditors' bill. The facts on which the questions in this case arise are about as follows: The Embreeville Freehold, Land, Iron & Railway Company, Limited, was an English corporation, owning a furnace, property, and doing business, in Washington county, Tenn. Prior to the date of the assignment made to S. J. Kirkpatrick, trustee, on the 25th of June, 1893, the appellants, Rogers, Brown & Co., were, as stated, a partnership doing business in Cincinnati; and the defendant company (hereinafter designated, for convenience, the "Iron Company") had been selling the bulk of its product through the firm of Rogers, Brown & Co. During the financial depression which then existed, Estill, an agent and representative of the Iron Company, on or about June 12, 1893, representing the Embreeville Iron Company, visited the appellants, Rogers, Brown & Co., at their office in Cincinnati, for the purpose of arranging for an immediate advance of funds against iron shipments thereafter to be made, with which to meet maturing liabilities, especially the pay rolls, which would mature about June 15, 1893. At this time, as a matter of fact, the Embreeville Iron Company was overdrawn and indebted to the appellants in about the sum of $15,000 in excess of consignments. But at the conference held by Estill with the appellants, on a hasty examination by Rogers, Brown & Co. the true status of this account was overlooked, by reason of a mistake which had occurred by the failure of the red-ink balance of $15,000, as shown in the last account current, to copy into a copy book. From this, coupled with Estill's statement that he supposed that the accounts were about square, Rogers, Brown & Co. supposed that the accounts were about balanced, though, as stated, there was some $15,000 due Rogers, Brown & Co. We find this fact at the instance and upon the insistence of appellants' counsel, and will hereafter discuss the materiality thereof. It is insisted by appellants that, acting upon this statement, they agreed to make cash advancements on shipments thereafter to be made to them; the agreement being that iron was to be immediately shipped to the amount of about $7,000, and on such shipments being made, consigned to the appellants, that they would meet and pay the draft of $3,500 to be drawn on June 15, 1893, and another draft for a similar amount the week following. Estill wired the Embreeville Company of the arrangements he had made with Rogers, Brown & Co.; and on June 13th, 14th, and 15th that company shipped to Rogers, Brown & Co. 577 tons of pig iron, worth at the time $5,518.18, and drew a draft on Rogers, Brown & Co. on June 16, 1893, for $3,500, against these shipments, and got it cashed at the First National Bank at Johnson City on the strength of the appellants agreeing to meet the draft. Rogers, Brown & Co. received the $5,518.18 worth of pig iron, but when the draft for $3,500 was presented, about June 17, 1893, on account of the condition into which the money market had gotten they were only able to pay, and did only pay, $2,000 on that draft; and this was all they ever paid on the draft, or on the shipment of the $5,518.18 worth of iron received from the Iron Company. After this shipment no other iron was shipped by the Iron Company; it having made the assignment or deed of trust to the trustee, S. J. Kirkpatrick, on the 15th of June, 1893. The second draft for $3,500 was never drawn. On June 15, 1893, the Embreeville Iron Company executed a trust deed to S. J. Kirkpatrick, as trustee, whereby it conveyed to him substantially all of its personal property, including all the pig iron left in its yards after the shipments above set out had been made to Rogers, Brown & Co. This deed was for the security of certain of its indebtedness, giving preferences, and gave to Kirkpatrick, the trustee, the power to sell and ship pig iron. On June 19th, 20th, and 21st, S. J. Kirkpatrick, trustee, shipped to Rogers, Brown & Co. 417 tons of this pig iron, which was worth $3,418.35. This iron was shipped and billed to Rogers, Brown & Co., the appellants, in the name of S. J. Kirkpatrick, trustee, and they received and sold it after knowing that it was so shipped. When Estill returned from Cincinnati to Embreeville, he found that his company had failed and made the deed of trust above spoken of to Kirkpatrick; but he gave no notice to Rogers, Brown & Co. at that time, directly, and it was not until June 22d that the appellants were fully informed of the status of affairs, though they evidently knew it before they received and sold the iron in question, shipped by Kirkpatrick. About June 19, 1893, Rogers, Brown & Co. discovered that they and the Embreeville Iron Company had made a mutual mistake in their accounts, and that the Embreeville Company was indebted to them in about the sum mentioned above ($15,000) for moneys advanced to it by them, for which they had no security. It appears that this mistake was not fully known to either of the parties until about this day, when it was discovered by the bookkeeper of Rogers, Brown & Co. The money received on the $3,500 draft drawn, being $2,000, paid by the appellants, was paid out on the labor debts due from the company. The original bill in this cause was filed on June 20, 1893, attacking the deed of trust made to Kirkpatrick, and a few days thereafter a receiver was appointed under the bill, and ordered to take charge of all the company's property, and to collect all the claims due it. The shipments made by Kirkpatrick had been made after the assignment; acting under the deed of trust to him, and before the appointment of the receiver. To the original bill the appellants, Rogers, Brown & Co., as well as other creditors, were made parties.

They came in and filed an answer and petition setting up their debt against the company. On December 26, 1893, the chancellor made an order in this cause directing Rogers, Brown & Co., who had previously filed their petition and become parties to the cause, to pay over to the receiver, W. P. Brownlow, the proceeds of the pig iron that had been shipped to them by S. J. Kirkpatrick, trustee. They having failed to do so, on March 22, 1894, the receiver, W. P. Brownlow, filed a petition in this cause in which he set out the facts above stated, and asked the court to make a preliminary order on the defendants to pay said money into court, or to appear and show cause why they should not do so, and for general relief. The court made the order requiring the defendants to appear and answer or make defense to the petition. The defendants Rogers, Brown & Co. appeared and filed their answer, in which they incorporated a demurrer to the petition, assigning as grounds: First, that the proceeding was unknown to the forms of equity, and without precedent; second, that the controversy was not germane to any of the issues in the original cause, and could not be made a matter of settlement, under the intervening petition filed in the cause. Then, proceeding to answer, they relied upon their claims of set-off, and claimed that they had no knowledge of the assignment to Kirkpatrick until after the shipments of iron, and denied that they had ordered any iron shipped by Kirkpatrick, trustee; claimed that the defendant company was indebted to them in something over $10,000, and that it would be inequitable and unjust to compel them to make this payment. Otherwise the facts were substantially admitted as stated in the petition, and in accordance with the above findings of fact. The chancellor overruled the defendants' demurrer. Proof was taken, and the issue was raised in advance of the general hearing of the cause, without objection made at the time, so far as the record shows, from any one. The chancellor held that the defendants...