Spadra-Clarksville Coal Co. v. Kansas Zinc Co.
| Decision Date | 09 January 1915 |
| Docket Number | 18,669 |
| Citation | 93 Kan. 638,145 P. 571 |
| Parties | THE SPADRA-CLARKSVILLE COAL COMPANY, Appellee and Appellant, v. GEORGE E. NICHOLSON et al. (THE KANSAS ZINC COMPANY, Appellant and Appellee) |
| Court | Kansas Supreme Court |
Appeal from Allen district court; OSCAR FOUST, judge. Opinion filed January 9, 1915. Modified.
Judgment affirmed.
SYLLABUS BY THE COURT.
1. CORPORATIONS--Bondholders Take Possession of Corporate Assets--Continue Business--Incur Debts--Purchase Assets at Mortgage Sale--Organize New Corporation--Transfer Property to New Corporation without Consideration--New Corporation Becomes Liable for Debts Incurred by Bondholders. A manufacturing corporation, without having issued any shares of its authorized capital stock, gave a mortgage on all of its property to secure an issue of bonds, with a provision that upon default in the payment of interest the bondholders were authorized to take all the mortgaged property into their possession through the trustee, and operate and manage the business and property as a going concern for the purpose of preserving it as security. The company defaulted on its payments, and at the request of a majority of the bondholders the trustee took possession of all the property and business making one of the principal bondholders its agent, and the business was continued for more than two years by the bondholders in the name of the mortgagor. Thereafter, at the request of the bondholders, the trustee foreclosed the mortgage, and the property was sold under the decree and purchased by the bondholders, who thereupon organized a new company as a holding company to take the title to the property, and the sheriff's deeds were made conveying all the property to the new company, none of the authorized capital stock of which was issued. No consideration was paid for the purchase of the property by the new company, except the interest its incorporators owned as bondholders. In an action by plaintiff to recover for material and supplies furnished to the bondholders while in possession, and which were used for the purpose of preserving the property as security for the bonds, it is held that it would constitute a fraud on the rights of the plaintiff to permit the new company to acquire the title to the property freed from such obligations; that the circumstances surrounding the creation of the new corporation and its succession to the business and property of the old show that there was, in fact, no purchase, but merely a change in the capacity in which the business was conducted. The same persons who conducted the business as bondholders in possession as mortgagees, changed from partners or bondholders to incorporators of the new company, and therefore plaintiff was entitled to judgment against the new company.
2. MOTION FOR NEW TRIAL--Ground "Erroneous Rulings"--Review. In a motion for a new trial it is sufficient to set forth the grounds in the language of the statute, and where such a motion recites "erroneous rulings" as one of its grounds, appellant can have a review of any ruling made on the trial respecting the admission of evidence.
Altes H. Campbell, and John F. Goshorn, both of Iola, for The Kansas Zinc Company.
H. A. Ewing, S. A. Gard, G. R. Gard, all of Iola, and E. D. Mikesell, of Fredonia, for The Sparda-Clarksville Coal Company.
In order better to understand the present case it will be necessary to refer to some facts involved in certain previous litigation.
Many of the facts are recited in detail in the case of Trust Co. v. Zinc Co., 86 Kan. 860, 122 P. 875. In that case the Commonwealth Trust Company as trustee foreclosed a mortgage or deed of trust given by the Cockerill Zinc Company to secure an issue of one thousand two hundred bonds, each for the face value of $ 1000. By the terms of the mortgage the maturity of the bonds was to be accelerated by the default in interest, upon the election of the majority of the bondholders, and there was a provision that upon demand of the trustee the mortgagor should surrender possession, and the trustee or such agents as it should appoint might take possession of all the property, which included three zinc smelting plants and other property located in Allen county and in Wilson county, and also the company's books and accounts. It also provided that the trustee or agent should operate and manage the plants, carry on the business, and make all needed repairs, alterations, additions and improvements, and out of the incomes and profits pay all proper costs and expenses of such taking, holding and managing the properties. There was a default in the payment of the interest on the bonds, and thereafter, on July 12, 1909, A. B. Cockerill, George E. Nicholson and the National Bank of Commerce of St. Louis, who were the holders of 1084 of the bonds, made a written request to the Commonwealth Trust Company of St. Louis to act as substituted trustee and to take charge of the property through Mr. Nicholson, and administer the trust for the bondholders. It was not deemed advisable to foreclose the mortgage at once.
A. B. Cockerill, who was president of the Cockerill Zinc Company, continued for a time in charge of the properties, and one of the main questions involved in the present suit is whether during this time he was under the direction and control of Nicholson, and whether Nicholson represented himself and the other bondholders mentioned; in other words, whether the bondholders were in possession of the property, conducting it from the time of the making of the agreement until February 1, 1910, when the action to foreclose the mortgage was brought by the trust company.
In the case of Trust Co. v. Zinc Co., supra, the question involved the power of the district court in the foreclosure proceedings to create preferential liens upon the mortgaged property in favor of certain interpleaders who furnished labor or material for the benefit of the property and its preservation, and it was held that, notwithstanding the business of the corporation was one in which the public had no interest, it was proper for the court to make the claims for labor and material, furnished to improve and preserve the property and increase its value as security, paramount liens to that of the mortgage, and the judgment was affirmed.
Thereafter the action in the district court to foreclose the mortgage proceeded to a sale, and the property was purchased by a new corporation, the Kansas Zinc Company. In the present action the plaintiff, a coal company, sues to recover $ 4531.21 on account of coal which it claims to have furnished the bondholders in the operation and preservation of the property prior to and during the foreclosure proceedings. In addition to the claim for coal furnished, the plaintiff sues upon several causes of action which have been assigned to it by other creditors and which embrace claims for material and supplies claimed to have been furnished in the same way to the bondholders while in possession and control of the property. The petition sets out the history of the organization of the Cockerill Zinc Company, the execution of the mortgage, the fact that upon the default in interest the bondholders through the trustee and through Nicholson, and A. B. Cockerill acting for himself and for the agents of the other bondholders and trustee, took possession of all the property covered by the mortgage and alleged that they had ever since held possession thereof, and that the coal sued for and the material represented by the other claims had been supplied for the purpose of operating and preserving the smelters, and had been contracted for by Cockerill and Nicholson as the agents and employees of the bondholders.
George E. Nicholson and the Kansas Zinc Company were the only defendants who answered. The answer expressly denies that Cockerill and the Cockerill Zinc Company, or either of them, were the agents of the other defendants, or that either of them was the agent of the Commonwealth Trust Company or any of the bondholders. The answer was verified and put in issue all allegations respecting the agency of any of the parties and their authority to bind the bondholders.
One of the issues at the trial was whether the bondholders of the Cockerill Zinc Company had taken possession of the properties of that company, and incidentally this involved the question of the authority of A. B. Cockerill and George E. Nicholson to bind the bondholders by their acts. One of the principal errors complained of is that the court overruled objections to certain evidence which it is claimed was incompetent, and without which it is insisted the trial court could not have found this issue in favor of the plaintiff. On the other hand, the plaintiff claims that the admission of the evidence was not made a ground of the motion for a new trial, and relies upon Washbon v. Bank, 86 Kan. 468, 121 P. 515, where it was ruled as follows:
(Syl. P 1.)
It is said in the brief that one of the grounds of the motion for a new trial in the Washbon case was "error of law on the trial," and in the present case one of the grounds was stated to be "erroneous rulings." The foregoing quotation from the Washbon case is a general statement to the effect that where the motion for a new trial does not complain of a ruling on the admission of evidence, the question can not be raised in this court; but it was not intended in that case to decide that where a motion for a new trial recites as one of its grounds "error of law on the trial" or "erroneous rulings," an appellant can not...
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