Pittenger Equipment Co. v. Timber Structures

• Decision Date: 28 April 1950
• Citation: 189 Or. 1,217 P.2d 770
• Parties: PITTENGER EQUIPMENT CO. v. TIMBER STRUCTURES, Inc.
• Court: Oregon Supreme Court

217 P.2d 770

189 Or. 1

PITTENGER EQUIPMENT CO. v. TIMBER STRUCTURES, Inc.

Supreme Court of Oregon.

April 28, 1950

R. W. Nahstoll, of Portland, argued the cause for appellant. On the brief were Eben, Jones & Nahstoll, of Portland.

James K Buell, of Portland, argued the cause for respondent. With him on the brief were Griffith, Peck, Phillips & Coughlin, of Portland.

Before LUSK, C. J and BRAND, BELT, ROSSMAN and HAY, JJ.

ROSSMAN, Justice.

This is an appeal by the defendant from a decree of the Circuit Court which ordered the defendant to perform specifically a contract quoted in the complaint, and thereby deliver to the plaintiff 125,000 feet of lumber, or, in the event of failure to do so, suffer judgment to be entered against it in the amount of $5,795.15, the value of the lumber.

The defendant-appellant submits two assignments of error. The first is: 'The court erred in overruling the objection of defendant to a trial of the cause as a suit in equity and in proceeding to make its decree ordering delivery by the defendant to the plaintiff of lumber of the quantity and quality prayed for in plaintiff's complaint or in the alternative, and upon failure of such delivery within thirty days from the date of said decree, for recovery by plaintiff from defendant of the sum of $5,795.15 plus interest and costs.' The second assignment of error is: 'The court erred in denying defendant's motion for judgment.' The nature of that contention is stated by the appellant's brief as follows: 'It is the positive duty of the plaintiff to select the proper forum in which to proceed.' Going on, the brief says that the plaintiff's cause was legal, not equitable, and should have been instituted on the law side of the court. Thus basically, both assignments of error present the same contention; that is, that the court erred when it granted specific performance of the contract.

Section 9-113 O.C.L.A., says: 'The objection to the jurisdiction of the court, or that the complaint does not state facts sufficient to constitute a cause of suit, if not taken by demurrer or answer, may be made on the trial.' The challenge to the court as one of equity jurisdiction did not come until one of the witnesses had given his testimony. We shall now summarize the evidence.

The suit out of which the attacked decree arose was based upon transactions in which one person and three corporations participated. They were the plaintiff, Pittenger Equipment Company, a dealer in logging and sawmill machinery; the defendant, Timber Structures, Inc., a fabricator of timber structures; one Vern Thomas, who, until April 22, 1947, owned and operated a small sawmill; and Vern Thomas Lumber Company, a corporation, which, on April 22, 1947, acquired the properties, succeeded to the business and assumed the indebtedness of Vern Thomas.

The Thomas sawmill was located in the State of Washington at a point some miles distant from Portland. Mr. Thomas had purchased machinery from the plaintiff and, on April 22, 1947, was indebted to it in the sum of $5,795.15, that being the amount stated in the alternative judgment awarded by the decree. No one questions the accuracy of the figure $5,795.15. Thomas sold virtually the entire output of his mill to the defendant, which uses lumber in the conduct of its business. His source of logs was from timberland owned by the defendant. He and the defendant had still another business relationship: he lacked sufficient capital for the conduct of his business, and the defendant from time to time advanced to him sizeable sums of money.

In the spring of 1947, that being the time which is material in this suit, Thomas was beset with critical financial problems. His mill and related properties were encumbered with a defaulted first mortgage held by a bank, which secured an indebtedness of $34,000, and by a second mortgage, which secured an indebtedness of $30,000 owing the defendant. Thomas had some logging trucks which, if we are not mistaken, were subject to a purchase money lien. In addition, he owed $22,000 or more to unsecured creditors. The largest of the latter was the defendant, and the second largest was the plaintiff.

Although the evidence is not in full accord, it indicates that Thomas' mill and its related equipment were scarcely worth the total of his indebtedness. Some testimony, which possibly may represent the truth, suggests that the debts were greater than the value of all assets. Plainly, no one could be certain as to the value of the assets unless he prepared an inventory and, after offering all properties for sale, obtained offers. The record shows without peradventure of doubt that upon forced sale the properties would have yielded materially less than the total indebtedness. The fact that many of the creditors accepted in satisfaction of their accounts, as we shall presently see, only 30% of the total due may throw more light than any other phase of the evidence upon the issue of Thomas' solvency and his prospects for the future.

The condition of Thomas' finances had become so disturbing to his creditors by March of 1947 that some of them were manifesting impatience. The bank threatened foreclosure of its mortgage, and the plaintiff became insistent upon payment of its account. The defendant, which evidently felt that time would enable Thomas to discharge all of his debts, nevertheless was uneasy last one of the small creditors would attempt to have Thomas adjudged a bankrupt. Some of the other creditors actually met for the purpose of considering a plan of action. The record seems to warrant a belief that Thomas' condition was not hopeless, if his creditors would display forbearance.

In March, 1947, the defendant advanced Thomas $8,000 to enable him to resume operations after his mill had been shut down for a period. It was thought that further advances would be needed, and the defendant, being fearful, as we have said, that a creditor might attempt to have Thomas adjudged a bankrupt, wished to improve his financial condition. Incidental thereto, the defendant believed that Thomas ought to incorporate his business and render control of the business available to the defendant if it wished to exercise control. Yielding to the defendant's views, Thomas incorporated his business, had two of the defendant's nominees elected to the board of directors consisting of three persons, and deposited all of the stock of the corporation with trustees suggested by the defendant. The corporation assumed all of Thomas' indebtedness and, of course, acquired his sawmill properties. The purpose of the trust is thus expressed by the trust instrument: 'That for the purpose of perfecting such arrangement and of securing such voting rights to Timber Structures, Inc., or its nominees, the Stockholders hereby assign, transfer and set over unto the Trustees 100 shares of NPV stock, being all of the capital stock of Vern Thomas Lumber Co., in trust, until all unsecured creditors of Vern Thomas, and of said corporation, Vern Thomas Lumber Co., and all future unsecured advances to said corporation by any of said creditors, or by others, are fully paid, provided, however, that in no event shall this Trust continue for a period of more than ten years.' The two directors whom the defendant nominated were W. J. Van Arnam, comptroller of the defendant, and Arthur D. Jones, a member of the firm of attorneys who were the defendant's counsel. The two trustees were D. F. Kinder, vice-president of the defendant, and John Schneider, an employee of the defendant.

Shortly after the formation of the corporation, the defendant induced virtually all of the unsecured creditors of Thomas and of the corporation, Vern Thomas Lumber Company, to sign an agreement, which declared:

'Whereas, the debtors have agreed to transfer and assign all of their properties and assets in any way associated with their sawmilling and logging operations, including claims and accounts receivable, unto Timber Structures, Inc. and to pay in addition thereto unto said Timber Structures, Inc. a sum equal to 15% of their unsecured indebtedness exclusive of any indebtedness owing said Timber Structures, Inc. and have further agreed to obtain enforceable agreements with all of their unsecured creditors, except said Timber Structures, Inc., to accept in full settlement of their respective claims a sum equal to 30% thereof; and

'Whereas, Timber Structures, Inc. has agreed that, upon performance of said agreements by the said debtors within a period of 30 days from the date hereof, it will pay unto the said unsecured creditors a sum equal to 30% of their unsecured claims against said debtors and will, in addition thereto, discharge and release the debtors from liability on any and all secured and unsecured claims by it held against the said debtors.'

That agreement was signed by the defendant, by Thomas and by the newly formed corporation, Vern Thomas Lumber Company, in addition to virtually all creditors, with the exception of the plaintiff.

Concurrently with the above agreements, Thomas and his newly formed corporation agreed that they would purchase nothing without first securing the defendant's written approval. An official of the defendant visited the mill twice weekly.

The plaintiff refused to sign the agreement which bound the unsecured creditors to accept in satisfaction of their accounts 30% of the amount owing. About the same time the bank began foreclosure of its mortgage. The peril to Thomas' prospects of saving himself from financial destruction was thwarted by the defendant when it induced one of Thomas' creditors to purchase the mortgage after it (the defendant) had guaranteed its payment. In the meantime, the plaintiff and the defendant came to an agreement...