Smith v. The Wells Manufacturing Company
| Decision Date | 29 April 1897 |
| Docket Number | 17,912 |
| Citation | 46 N.E. 1000,148 Ind. 333 |
| Parties | Smith, Trustee, et al. v. The Wells Manufacturing Company et al |
| Court | Indiana Supreme Court |
Rehearing Denied Sept. 22, 1897.
From the Hancock Circuit Court.
Affirmed in part and reversed in part.
R. A Black, J. N. Doty, J. B. Black, E. B. Pugh, O. B. Jameson, R O. Hawkins and H E. Smith, for appellants.
M. Marsh and W. W. Cook, for appellees.
In the year 1892, the Wells Manufacturing Company, a corporation of Indiana, was indebted to numerous mercantile creditors in the sum of $ 17,000.00, and to the Findlay Window Glass Company in the sum of $ 9,000.00, and, to secure said indebtedness, executed, on the 8th day of March, 1892, a mortgage on its plant and certain of its other personal property to said Findlay Company, and on the 13th day of June, 1892, executed a mortgage to Smith, as trustee for said mercantile creditors, upon said plant. The proceedings herein were upon the consolidation of two suits by said mortgagees, respectively, to foreclose said mortgages, and the questions here presented arise upon a special finding of facts, with conclusions of law thereon.
A question has been discussed as to the ruling of the lower court in overruling a demurrer to the second answer of the Findlay Company to the complaint of said trustee, said answer alleging that the trustee's mortgage was invalid because executed in preference of creditors when the Wells Company was insolvent. The special finding follows the facts alleged in the third answer of the Findlay Company, and the ruling upon said demurrer, if erroneous, was harmless, since a correct statement of the law may be made upon the facts pleaded in the second answer as they are found in the special finding. Woodward v. Mitchell, 140 Ind. 406, 39 N.E. 437; Scanlin v. Stewart, 138 Ind. 574, 37 N.E. 401; Ross v. Banta, 140 Ind. 120, 34 N.E. 865; Walling v. Burgess, 122 Ind. 299, 22 N.E. 419; State, ex rel., v. Vogel, 117 Ind. 188, 19 N.E. 773. This conclusion is conceded, substantially, by the learned counsel for the trustee.
The facts found specially were, that the Wells Company, on the 8th day of March, 1892, was indebted to the Findlay Company upon notes, the amount of which, at the date of the judgment, was $ 12,349.50; that at the same time said company was indebted to Black & Gordon in the sum of $ 2,668.18, to certain mercantile creditors, represented by Smith, trustee, in the sum of $ 17,000.00, the balance whereof, at the time of the judgment, was $ 11,581.07, and to others; its aggregate indebtedness being $ 39,000.00, the larger portion of which was overdue and wholly unsecured, except the sum of $ 3,400.00, secured by a pledge of manufactured goods. At that time the assets of the Wells Company consisted of personal property, stock in trade, notes and accounts of the value of $ 20,300.00, and its real estate and plant, of the value to it of $ 15,000.00, but, for the purposes of sale, of an uncertain value, and said company was insolvent and had then abandoned any hope, prospect or expectation of continuing business as a going concern. At and after that time James A. Wells and wife, and Ulysses G. Baker and wife, severally owned and held a large proportion of the capital stock in both said Findlay Company and said Wells Company, and said James A. Wells and Ulysses G. Baker were directors in each of said companies, the said Wells being the president, and said Baker secretary of said Findlay Company. On said 8th day of March, 1892, the said Wells Company executed a mortgage on all its real and personal property, including its plant, to secure its then existing indebtedness to said Findlay Company and said Black & Gordon, the said Wells then well knowing the condition of said Wells Company, and both said Wells and said Wells Company intending and expecting that said Wells Company should cease and discontinue its business. "Said mortgage, however, was not executed or accepted with any fraudulent intent to use the same as a means or instrument of forcing or compelling a composition settlement with other creditors of said" Wells Company, "or of forcing or compelling the granting by them of extension of time of payment of indebtedness unto them." On the 12th day of March, 1892, said Findlay Company commenced suit to foreclose said mortgage, and for the appointment of a receiver to wind up the affairs of said Wells Company, and on said day the court appointed one Cooper such receiver, and he thereupon qualified, gave bond and entered upon the duties thereof. Very soon thereafter said mercantile creditors employed counsel to represent them in proceedings to attack the validity of said mortgage to the Findlay Company and to protect their interests as creditors of said Wells Company, and they were about to institute suit for that purpose, when, on the 4th day of June, 1892, an agreement was reached between said mercantile creditors, said Wells Company, and James A. Wells, acting as president of said Findlay Company, but without special authority in that behalf, whereby said mortgage to the Findlay Company was released by said Wells, so acting as president, and so without special authority in that behalf; said receiver paid the debt so owing to Black & Gordon, turned back to the Wells Company its property and was discharged; said mercantile creditors extended the time for the payment of their claims, taking each six notes, the notes representing respectively 15, 10, 15, 10, 25, and 25 per centum of the several claims; said Findlay Company was to receive no security for its claim until fifteen per centum of said mercantile claims had been paid, and said mercantile creditors, in the name of the appellant, Smith, as trustee, were secured in their said claims by a mortgage of the real estate and plant of said Wells Company. The several elements of said agreement were completed on June 13, 1892, and the Wells Company resumed its ordinary and regular business, there having then occurred no substantial change in the financial condition of said Wells Company since March 8, 1892, as aforesaid, and said Wells Company then in good faith believed that it would be able to continue its corporate enterprise as a going concern, and did continue thereafter so to do for a period of seventeen months. In the execution of said agreement, and of the mortgage of June 13, 1892, said Wells Company and said trustee intended to "thereby hinder and delay the said Findlay Window Glass Company in the collection of its said debt against the Wells Manufacturing Company for an indefinite period."
Upon the questions as to the authority of Wells to release said mortgage to the Findlay Company, and of the ratification by said company of his action in releasing the same, it was found, in addition to the abstract finding, that he had no such authority, that when the suit of the mercantile creditors, attacking said mortgage was threatened, said Wells, Baker, and Tappan, three of the five directors of the Findlay Company, consulted about the matter, and Wells was directed to go to Greenfield "and do the best he could" about arranging the matter on behalf of the Findlay Company. While he had never before released a mortgage, he had, with the knowledge of the company, habitually, and in the regular course of business and without action of the board of directors, bought and sold goods, executed, endorsed, and transferred promissory notes, and made contracts for and in the name of said company, and had been actively engaged in the management of its business. During all of said time two of the five directors, other than those above named, were mechanics, working in the factory and taking no active part in the business management. It was found also that when Wells went to Greenfield and took the mortgage in favor of the Findlay Company, he did so upon the same general direction, after consulting with Tappan and Baker, that he should go and do the best he could in arranging the indebtedness to said company. In June, 1893, by action of the stockholders, the Findlay Company "determined to go into voluntary liquidation and cease business, and appointed and elected Samuel J. Tappan (a director and vice-president of the company) as trustee, with authority to do all things necessary to that end."
In July, 1893, Wells surrendered the notes, to secure which, said released mortgage had been executed to the Wells Company, and took from it, in lieu thereof, several notes in amounts proportioned to the stock holdings of the stockholders of the Findlay Company, his object being to distribute said notes to the Findlay company stockholders in such proportions as they so held stock therein. Immediately thereafter said Tappan distributed to the stockholders of said company about nine thousand dollars of the notes so taken, endorsing the same in the name of said company.
In November, 1893, Tappan, being president of said Findlay Company, and acting as such trustee, then knowing all of the facts as to the release of said mortgage by Wells, and the execution of said other mortgage to Smith, trustee, and the agreement with reference thereto, took from said Wells Company a single promissory note for $ 11,190.66, payable to said Findlay Company, in lieu of said notes so last taken by Wells for distribution to the said stockholders, he having first procured them from said stockholders. At the same time said Tappan took from said Wells Company a mortgage of the property so theretofore mortgaged to said Smith, trustee, to secure said note of $ 11,190.66. Two days later Tappan had suit brought to enforce foreclosure for said sum...
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Smith v. Wells Manuf'g Co.
... ... V. Hadley, Special Judge.Consolidated suits by Horace E. Smith, trustee, and another against the Wells Manufacturing Company and others to foreclose mortgages. Judgment for defendants. Plaintiffs appeal. Reversed as to appellant Smith; affirmed as to the other ... ...