Mueller v. The Monongahela Fire Clay Co.

Decision Date03 January 1898
Docket Number113
Citation183 Pa. 450,38 A. 1009
PartiesG. A. Mueller, M.D., and Elijah Stewart, Receiver, v. The Monongahela Fire Clay Company, J. C. Bovard, Orr B. Bovard, A. v. Parnell and the Lincoln National Bank, Appellants
CourtPennsylvania Supreme Court

Argued October 13, 1897

Appeal, No. 113, Oct. T., 1897, by defendants, from decree of C.P. Beaver Co., Sept. T., 1895, No. 5, on bill in equity. Reversed.

Bill in equity by a stockholder for the appointment of a receiver.

On August 13, 1895, G. A. Mueller, M.D., filed this bill against the defendants. On August 23, 1895, Elijah Stewart was appointed receiver of the Monongahela Fire Clay Co. On October 5, 1896, said receiver was made party plaintiff by the court.

The facts appear by the opinion of the Supreme Court.

The court entered the following decree:

And now, to wit: June 4, 1897, the judgment at No. 158, September term, 1895, in favor of J. C. Bovard, O. B. Bovard, A. V Parnell and Benjamin Weaver, for use of the Lincoln National Bank, of Pittsburg, and the First National Bank, of Beaver, is declared null and void as against the creditors of the Monongahela Fire Clay Co., and the lien of the same is directed to be stricken off, and as to all other matters complained of in complainant's bill, the same is dismissed, the costs to be paid by the receiver out of the funds of the defendant company in his hands.

Error assigned among others was the decree of the court, quoting it.

The decree is reversed at the costs of the appellees, and it is directed that the balance in the hands of the receiver be distributed by the auditor in accordance with this opinion.

J. F. Reed, for appellants.

Alfred P. Marshall, with him John M. Buchanan and Wm. A. M'Connell, for appellees, cited Lippincott v. Carriage Co., 25 F. 585.

Before STERRETT, C.J., GREEN, WILLIAMS, McCOLLUM, MITCHELL, DEAN and FELL, JJ.

OPINION

MR. JUSTICE DEAN:

On the 1st of October, 1891, there was issued to Orr B. Bovard, James C. Bovard, Amsley V. Parnell, R. F. Orr and James H. Chambers, as incorporators, a charter for the organization of the Monongahela Fire Clay Co. The purpose of the company was mining fire clay and coal, and manufacturing fire brick. The capital stock was fixed at $60,000, which was afterwards reduced to $40,000. Before the issue of the letters patent, the two Bovards, Orr and Parnell were copartners, under the name of Bovard, Orr & Parnell. They had established a fire brick manufactory and were carrying it on. The property of the partnership consisted of four and a half acres of land in the borough of Monaca, having thereon erected a fire clay brick factory, outbuildings, office, boilers and machinery, everything necessary to the manufacture of brick; adjoining this, they owned about twenty acres of land underlaid with fire clay. All this property was conveyed to the corporation at a valuation of $32,000; in addition, the corporation agreed to assume the partnership liabilities then existing, amounting to $9,000, making the actual cost of the plant $41,000. There was sold cash stock, about $10,500, payable by installments; leaving at most a cash working capital, after payment of the $9,000 debts of the old partnership, only $1,500. On this basis the corporation commenced business about January 1, 1892, the incorporators being elected directors. From the confused method of presenting the annual statements in these paper-books, it is difficult to determine satisfactorily the amount of business done by the company; the statements were offered and marked as exhibits, but copies are not printed, only some of the items from them testified to by witnesses. We infer, however, from the testimony that the corporation manufactured and sold, including payment of freights, approximately about $20,000 worth of bricks annually. The first step taken by the new company was to provide for the debt assumed; and it borrowed from Mrs. Orr $5,000, for which was executed on December 30, 1891, a mortgage; the money was applied in part payment of the $9,000 indebtedness; the company also, soon after borrowed on its notes for the same purpose from the Lincoln National Bank of Pittsburg, $4,250; there was also borrowed on note of the company from First National Bank of Beaver, $750. On all these notes J. C. Bovard, A. V. Parnell, O. B. Bovard and Benjamin Weaver, directors, became indorsers. These notes were renewed from time to time with the same indorsers down until June, 1895. At a regular monthly meeting of the board held previously, March 9, 1895, a resolution had been adopted authorizing the secretary and treasurer, among other claims, to "make the necessary arrangements with the Lincoln National Bank and the First National Bank of Beaver in regard to the following notes: Notes for $2,000, $1,500 and $750, held by the Lincoln Bank, and $750 held by the First National Bank of Beaver." The banks, soon after, either in June or July following, from the facts of nonpayment for more than three years, and information that another creditor threatened suit, demanded security from the company for their debts, with the statement that if security were not given they would not renew. The directors did not seek the banks to be released from their indorsements, but the banks called upon the officers of the company who were indorsers and demanded security from the company. Notice the testimony of J. C. Bovard: "I was in the West; I came home; they told me [at] the Monongahela Fire Clay Co. Mr. McLain wanted to see me; I went to see Mr. McLain and asked him what he wanted; he said he wanted those notes better secured, and I asked him what security he wanted, and he said that the only way they could be secured would be for us to take the first judgment, and make a transfer of their interests, it being in two hands, to make a transfer of their interests in the judgment. . . . He said it would be better to put it in one judgment. . . . I made an arrangement right then and there to do that. . . . We called a meeting directly . . . and gave him judgment as stated on the minutes." The Mr. McLain who represented the bank in this arrangement, and who was president, is not called, but the cashier of the bank is called and testifies to having, in substance, made the same demand of O. B. Bovard, another of the directors, and the bank was notified about the 11th or 12th of July following that a judgment had been confessed against the company to the two Bovards, Parnell and Weaver, as trustees for the two banks, in the sum of $5,000. The cashier's testimony is corroborated by that of O. B. Bovard, who testifies that the judgment was to be taken in the names of the directors, and the Lincoln Bank's interest assigned to it. At a monthly meeting of the board of directors, on July 10, 1895, by resolution, the board was authorized and directed to execute and deliver to the two Bovards, Parnell and Weaver, the note of the company in the sum of $5,000, at one day after date, with power of attorney to confess judgment to secure their continued indorsements and renewal of the paper of the company. On July 13 following the note was executed and judgment confessed in the common pleas of Beaver county. On April 15, 1896, $4,250 of the judgment was assigned to the Lincoln National Bank, and $750 to the First National Bank of Beaver. The banks continued to renew the notes down to and after this assignment. It is not disputed that the indorsers on the notes were four of the directors who authorized the execution and delivery of the $5,000 note and confession of the judgment.

On August 13, 1895, the plaintiffs filed this bill against the company and the four directors as defendants, averring among other facts and conclusions, that the judgment was without consideration, and given to prefer the directors as creditors, solvency of the company, mismanagement, a purpose to permit the seizure and sale of the corporate property for their individual benefit, concealment of the books and real condition of the company, and praying that a receiver be appointed to manage the property and take possession of its assets; further, that the $5,000 judgment be declared null and void.

To this defendants filed answer, denying mismanagement or intention to have the property sold, and averring that the judgment was lawful and just. Ten days after the filing of the bill the court appointed Elijah Stewart receiver, who duly qualified on his petition, September 16, 1895; an order for sale of the property was awarded by the court, and it was accordingly sold by the receiver for the sum of $5,000, subject to the first mortgage of $5,000 in favor of Mrs. Orr, which sale was confirmed absolutely by the court; July 2, 1896, an auditor was appointed to distribute the balance in hands of the receiver as shown by his accounts filed, but was directed to suspend the audit until final event on the proceeding in equity. On February 13, 1897, the Lincoln National Bank was permitted to intervene as defendant to the extent of its interest in the judgment. After full hearing, the court found as facts:

1. That at the time the judgment note was authorized the company was insolvent, and known to be so by the directors.

2. That the directors authorized the judgment to be confessed to protect themselves as indorsers on the bank paper, thus securing a preference over other creditors.

Therefore the judgment was a fraud in law, and it was declared null and void as against other creditors.

From this decree the defendants appeal, assigning eight errors; all of them, however, in substance denying the correctness of the court's two findings of fact and conclusion of law.

First as to the finding relating to the insolvency of the company. That the business project at the foot...

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