Smith-Dimmick Lumber Co. v. Teague

• Decision Date: 15 August 1898
• Citation: 24 So. 4,119 Ala. 385
• Parties: SMITH-DIMMICK LUMBER CO. v. TEAGUE ET AL.
• Court: Alabama Supreme Court

24 So. 4

119 Ala. 385

SMITH-DIMMICK LUMBER CO. v. TEAGUE ET AL.

Supreme Court of Alabama

August 15, 1898

Appeal from chancery court, Dale county; Jere N. Williams Chancellor.

Bill by Teague, Barnett & Co. and others against the Smith-Dimmick Lumber Company. There was a decree for complainants, and defendant appeals. Reversed.

The bill averred substantially the following facts: That appellant owned the appellees various sums of money, which were then long past due, and was, in addition, indebted to various other parties; the aggregate indebtedness being upwards of $26,000. That its entire assets consisted of a mill plant, worth from $4,000 to $6,000, with fixtures and grounds, a small grist mill, worth about $400; about $100 worth of other lands; about $500 worth of merchandise; and a lot of timber and logs, worth from $9,000 to $12,00. That it was incorporated in 1896 with an authorized capital of $50,000, of which $25,000 was paid up. That it had been insolvent, and unable to pay its debts, for a year previous to the date of the filing of the bill. That complainants had for that length of time indulged it, and during that period of time it had, either improvidently or fraudulently disposed of or squandered its assets until it was at that time hopelessly insolvent, and could not possibly pay its debts with all of its assets. That it had shut down its plant, and was allowing its timber and logs to lie unattended in swamps and creeks, and worms to cut and depreciate its market value, and allowed the mill plant to become out of repair, and rust, and depreciate in value every day. That in connection with the mill it kept a commissary department, in which it carried a large stock of goods, and through which it became indebted to the complainants. That it was selling out in the course of daily trade this stock of goods, and either consuming the proceeds or putting them in its pockets without paying anything on its debts, and, unless stopped, would in a few days more have sold and placed beyond the reach of its creditors what remained of the stock. That it had recently made, or attempted to make, some kind of incumbrance upon its timber and logs to certain banks, thereby preferring them and placing beyond the reach of its other creditors by far the largest and only marketable portion of its assets leaving complainants without the right to share with other creditors in the distribution thereof. That Dimmick, who was solvent, was an indorser on the claims, and he had nearly or quite a controlling interest in the capital stock of the company. That he procured the pledges of the logs to protect and secure himself from loss on his indorsement, to the great detriment of complainants, whose leniency he and the corporation took advantage of to defeat them of their equal share in its small assets. That, if they remained longer inactive, the remaining assets would be destroyed, so they would probably lose their debts. That they were informed, and believed and charged, that it would be very hazardous to their rights, and they would probably suffer irreparable loss, if it should come to the knowledge of the appellant that they had filed the bill before the court had appointed a receiver; that it could, on learning of it, dispose of or incumber so much of the remaining portion of its assets that the complainants would lose their claims entirely, or have to pursue the assets of the corporation in various courts, and contest the rights of themselves thereto in the hands of other incumbrances or purchasers. That they were entirely without relief except in a court of equity, and should have a receiver appointed to preserve the assets of the corporation. The appellant was the only party defendant to the bill. The bill prayed for a receiver with authority to take charge and control of all the assets of the defendant, and to hold and dispose of them under the direction of the court, and convert them into money, that they might be applied to the satisfaction of its debts. It also prayed that all other persons who would come in as parties complainant in the bill and comply with the legal requirements be permitted to do so and pay their portion of the cost; and that all be required and permitted to prove and establish their claims in the court, and the assets of appellant be applied as in equity they should be.

On the day on which the bill was filed, one Sollie, attorney for the complainants, made affidavit that the facts set forth therein were true to the best of his knowledge, information, and belief. Thereupon the register of the court, without notice to any one, upon complainants executing bond in the sum of $800, with good and sufficient surety, conditioned as required by law, and approved by him, made an order appointing Gerald Ware receiver, with full power and authority to take possession and control of, and to gather into his possession, all of the assets of the appellant, and to hold and manage the same as he might be directed by the court. Bond in that sum was made, conditioned to pay all damages which any person might sustain by the appointment of the receiver if the appointment should be vacated on the same day, and the register issued a paper directed to any lawful officer of the state of Alabama, commanding him to notify Gerald Ware that he had been appointed receiver with power and authority to take charge and control of the assets of appellant. That paper was served on the next day by the sheriff. Ware gave no bond, and was not required to give one. On the 12th day of February, the receiver, by the same counsel that represented the complainants in the cause, filed a petition in vacation to the chancellor, asking that he be authorized to borrow money for the purpose of paying for floating the logs belonging to the appellant down the river, the money so borrowed to be a lien thereon. On the same day the chancellor made an order authorizing the receiver to borrow the money, to be repaid out of the proceeds of the sale of the logs. This order seems to have been made without notice to any one.

On the 16th day of February the defendant took an appellant to the chancellor in vacation from the order made appointing the receiver, and gave notice of such appeal, to be heard on the 26th day of February. On the same day the defendant filed a demurrer to the bill, and a motion to dismiss the same for want of equity, and gave notice that the bill would be submitted on such demurrer and motion at the same time. The grounds of demurrer assigned were substantially the following: (1) That complainants had an adequate remedy at law. (2) That it appeared that the complainants were merely simple contract creditors, and had no lien upon the property, or any of it, sought to be subject to the payment of their debts. (3) It appeared that the complainants had never reduced their claims to judgment, and it did not appear that they had any contract lien upon the property, or that defendant had done any act which gave to them the right to acquire a lien by filing a bill in equity. (4) It was not shown by the allegations of the bill that the property on which it was alleged that defendant had made or attempted to make an incumbrance was substantially all of the property of the defendant. (5) It did not appear by the allegations of the bill that the incumbrance which it was alleged defendant had made or attempted to make was to secure a debt created prior to that time. (6) That it did not appear that defendant had fraudulently conveyed, or attempted to convey, any of its property. The demurrer and the motion were not heard at the time appointed, but were subsequently heard.

On the 26th day of February, the complainants amended the bill, and by the amendment averred substantially the following facts That during nearly the entire time that appellant had been in business it had done such a volume and character of business that the proceeds of its operations were not sufficient to pay its running expenses. That it began with a paid-up capital of $25,000; was organized for the purpose of manufacturing pine lumber and timber, and had been engaged in that business while it was actively engaged in business. That from being in the outset a concern with a paid-up capital of $25,000, it had become, prior to the commencement of the suit, in so much worse condition financially that it owed between $39,000 and $40,000, while its assets were not worth exceeding $17,000. That in August, 1897, it became so deeply involved, and its assets were then so much smaller than its indebtedness, that it had suspended business operations, and had not since carried on any business. That if, at any time during 1898, all of its assets had been converted into money at their cash value, they would not have paid 40 cents on the dollar of its debts. That a large part of its debts had been due several months when the suit was commenced. That after it became insolvent a part of its indebtedness consisted of $6,500, which it owed to the First National Bank of Montgomery; a debt of $3,097.40, due to the Bank of Brewton,-for which each of them held the notes of the company, with J. W. Dimmick as indorser. That Dimmick owned upward of $12,000 of the capital stock of the corporation, was its president, and one of its directors, and had had a great deal of influence with and over its managers and management, because the directors trusted in his business judgment. That, in addition to his voice in its management as its largest stockholder, and with knowledge of its insolvency on the part of Dimmick and each of the banks, the said Dimmick and each of the said banks, in January, 1898, in order to save Dimmick from loss on account of his indorsement on the paper, and for the purpose of preferring him as such...