Sill v. Kentucky Coal And Timber Development Company

• Decision Date: 25 January 1916
• Citation: 11 Del.Ch. 93,97 A. 617
• Court: Court of Chancery of Delaware
• Parties: DUNCAN H. SILL, v. KENTUCKY COAL AND TIMBER DEVELOPMENT COMPANY

97 A. 617

11 Del.Ch. 93

DUNCAN H. SILL, v. KENTUCKY COAL AND TIMBER DEVELOPMENT COMPANY

Court of Chancery of Delaware, New Castle

January 25, 1916

MOTION TO DISMISS THE BILL OF COMPLAINT. The bill was filed May 27 1915, by Sill, alleging himself to be a creditor of the company based on a promissory note made by it, but not then due, and also a stockholder of the company, the object of the bill being the appointment of a receiver based on insolvency. By the bill it was alleged that the company owned 35,000 acres of undeveloped timber and coal land in Kentucky worth $ 2,000,000, and $ 3,500,000 when developed, and owns all the capital stock of another corporation which owned rights to other large tracts of land in Kentucky; that the defendant company had issued and outstanding bonds to the aggregate amount of $ 1,000,000 secured by a mortgage on all its property; that it owed the Royal Bank of Canada $ 880,000 payable in a large part on demand, and owed other persons about $ 75,000; and that the said bank holds as security all the bonds issued by the company, and no interest had been paid to the bank. Further, that the bank had given notice that on and after June 1, 1915, it would take legal proceedings to collect the debt due it; and that an agreement having been made by the defendant company with the W. H Dawkins Lumber Company, whereby the latter agreed to build a railroad into the property of the defendant company before June 1, 1915, the bank agreed to wait until that time; but that the Dawkins Company had failed to build the railroad and therefore, the bank was at liberty to proceed. These allegations were admitted by the original answer of the defendant company filed July 12, 1915.

It was further alleged in the bill that the defendant company was insolvent, in that it was unable in the due course of its business to meet its debts and obligations as they mature, and unable to pay its debts, and had no money or liquid assets, or other property, than that mentioned above. And further, that proceedings by the bank to collect its debt would wipe out the assets of the company and destroy their value, whereas, if a receiver be appointed to hold the assets until an opportunity be given to arrange a sale thereof, the value of the assets could be realized approximately, and after paying all the debts a substantial sum would be left for the stockholders.

The prayers were for the appointment of a receiver and for a preliminary injunction to prevent the officers of the company from disposing of the assets until the decision of the cause.

By its answer the defendant company denied insolvency and asserted that the officers of the company could manage the assets as well as a receiver, and also denied that legal proceedings by the bank were imminent.

By an amended answer filed December 1, 1915, the defendant company alleged that the bank had agreed to extend payment to March 1, 1916; that negotiations were pending with the Dawkins Company to complete the railroad; and again denied insolvency, because the value of its property was in excess of its indebtedness. For a further and separate defense, the amended answer avers that a bill "identical in all essential respects" with the bill here filed had been filed in the District Court of the United States for the Eastern District of Kentucky, and that after argument a motion by the defendant company to dismiss that bill was granted on October 25, 1915, by the federal court, and that the entire question was res judicata. It appeared from a copy of the opinion of the court, made part of the answer, that the cause was between the same parties as those in the case here; but neither the bill in the federal court, nor the decree made pursuant to the opinion, were set out in the bill filed here.

Before filing the amended answer the defendant company moved to dismiss the bill: (1) Because it did not show such insolvency as would call for the appointment of a receiver; (2) because mismanagement was not alleged and no good purpose shown for a receiver; and (3) because the complainant was not a judgment creditor and is not entitled to ask for a receiver.

Motion to dismiss the bill denied.

Christopher L. Ward, for the complainant.

Harry Emmons, and with him Henry M. Earle, of New York City, for the defendant.

OPINION

THE CHANCELLOR

Two defenses are made to the bill, one by the motion to dismiss the bill and the other by the allegations in the amended answer which constituted a defense of res judicata. A defense of res judicata if it be properly pleaded and established is a bar to the suit. The decision of a judicial tribunal having jurisdiction of the cause and the parties is in every other court everywhere a complete and absolute defense in bar to another proceeding for the same cause of action. Capelle, et al., v. Baker's Ex'r, 8 Del. 344, 3 Houst. 344, 358. A judgment in another state for the same cause of action may be pleaded in bar. Howard v. W. & S. R. R. Co., 2 Del. 471, 2 Harr. 471. And a final decree in Chancery has the same force and effect respecting another bill filed by the same complainant against the same defendant for the same subject-matter. Cochran v. Couper, Admr., 2 Del.Ch. 27; Hopkins v. Lee, 19 U.S. 109, 6 Wheat. 109, 5 L.Ed. 218.

This defense is more properly set up by a plea, than by an answer, though it may be used in either way. 1 Whitehouse Equity Practice, pp. 431, 451. The advantage of a plea is avoidance of discovery. If it be inserted in the answer, the defendant gets the benefit of it at the hearing, and in Cochran v. Couper, supra, it was so set up. But like every other defense it must be proved, and if it be set up by answer it cannot be proved until the hearing; while if it be set up by plea, then by the rules of this court it is taken to be true unless within thirty days a replication thereto be not filed, and it stands for argument upon the question of its sufficiency in law. See Rule 31 of Court of Chancery . So, too, the identity of the two causes must be alleged and, if not admitted, proved, and a copy of the record of the prior cause is the most satisfactory evidence for it shows not only an opinion of the court, but a final decree or order of the other tribunal. Story's Equity Pleading, 790; Bank v. Beverly, et al., 42 U.S. 134, 1 HOW 134, 11 L.Ed. 75.

In this case the defense of res judicata is set up in the answer, and though called a separate defense is not in fact a plea and does not have the requirements of a plea according to the rules of this court. It cannot therefore be considered at this time as a defense for reasons above stated, and if the defense is set up by the plea it should conform to the requirements of all pleas, and particularly to that kind of a plea. It may be questionable whether it is a good defense in this suit. The suit is for a receiver based on insolvency, by appealing to a discretionary power given to the court, and it does not necessarily follow that the prior refusal of another court to appoint the receiver based on certain allegations and a certain state of facts would preclude this court under other facts from granting the relief. The circumstances of the two cases must be alike in order that the former adjudication should control, or even...