Sturgill v. Lovell Lumber Co.

• Decision Date: 14 December 1948
• Docket Number: (No. 10057)
• Citation: 132 W.Va. 172
• Court: West Virginia Supreme Court
• Parties: Monroe Sturgill, et al. v. Lovell Lumber Company, el al.

132 W.Va. 172

Monroe Sturgill, et al.

v.Lovell Lumber Company, el al.

(No. 10057)

Supreme Court of Appeals of West Virginia.

Submitted September 21, 1943.

Decided December 14, 1948.

1. Debt

A debt owed by an insolvent debtor can not be preferred by means of a transfer of property of such debtor made during insolvency and after the creation of the debt.

2. Property Transfer

The transfer of property made by an insolvent debtor to a creditor in an attempt to satisfy a debt incurred prior to such transfer is void as an unlawful preference and will be held to be for the benefit of all creditors of such debtor; and the property so transferred will be applied and paid pro rata upon all the debts owed by such debtor at the time such transfer is made.

Appeal from Circuit Court, Wyoming County.

Action by Monroe Sturgill and others, all former employees of Lovell Lumber Company, against Lovell Lumber Company and others, to enforce unpaid lien claims for work and labor of such employees against property of named defendant, together with prayer for appointment of a special receiver and an injunction staying further action in a pending attachment proceeding. The plaintiffs filed an amended and supplemental bill of complaint making James 0. Ball, Sr., and James 0. Ball, Jr., who were alleged to be partners trading as Ball Lumber Company, defendants to the suit, and attacking, as an illegal preference, a transfer by named defendant of a quantity of lumber to Ball Lumber Company. From de- cree holding that transfer did not create an unlawful preference, the plaintiffs appeal.

Reversed and remanded.

Kingdon & Kingdon and Arthur R. Kingdon, for appellants.

Paul J. Carr, for appellees.

Haymond, Judge:

Monroe Sturgill and twenty eight other persons, all former employees of Lovell Lumber Company, a corporation, instituted this suit in the Circuit Court of Wyoming County against Lovell Lumber Company, The Bank of Raleigh and Donald Hayhurst, as defendants, to enforce their unpaid lien claims for work and labor as such employees, amounting in the aggregate to approximately S6, 000.00, against the property of the defendant, Lovell Lumber Company, to conserve and administer its assets and to settle its affairs. The original bill of complaint prayed for the appointment of a special receiver, and an injunction against the defendant, Donald Hayhurst, an attaching creditor, and the defendant, The Bank of Raleigh, to stay further action in a pending attachment proceeding and to prohibit the bank from disbursing any money held by it for the account of the company.

The suit was instituted July 14, 1947. On that day the original bill of complaint was filed in court, a receiver was appointed and an injunction, as prayed for, was granted. On August 16, 1947, the plaintiffs filed an amended and supplemental bill of complaint making James O. Ball, Sr., and James 0. Ball, Jr., who were alleged to be partners trading as Ball Lumber Company, defendants to the suit, and attacking, as an illegal preference and as such void as against the plaintiffs and other creditors of the defendant Lovell Lumber Company, a transfer by it on July 1, 1947, of a quantity of lumber to Ball Lumber Company in payment of a debt created by a prior exchange of machinery between them in April, 1947. To the amended and supplemental bill of complaint the defendant James 0. Ball filed his separate answer in which he alleged that he transacted business under the name and style of Ball Lumber Company and denied that the transfer in question constituted an illegal preference. The court determined the issue raised by the amended and supplemental bill of complaint and the answer in favor of the defendant James 0. Ball, Jr., and, by decree entered February 12, 1948, held that the transfer of the lumber did not create an unlawful preference. From that decree an appeal was granted by this Court.

In April, 1947, the vice president and the acting general manager of Lovell Lumber Company entered into an arrangement with James O. Ball, Jr., for the purchase by that company from him of a Diesel engine. In the negotiations it was agreed that the engine was worth $2,700.00 and that a smaller Diesel engine which was badly worn and out of repair, owned by Lovell Lumber Company, would be accepted by Ball at a value of $700.00 and that amount credited on the price for his engine. It was also agreed that the residue of $2,000.00 of the purchase price for the engine should be paid by Lovell Lumber Company in lumber instead of money. At the time Lovell Lumber Company, though still operating, was in financial difficulties and it did not have sufficient funds to enable it to pay the difference in the value of the two engines in cash. This situation, however, was not known to Ball who had previously had satisfactory business transactions with the company. The next day after the agreement was made the engine was delivered to Lovell Lumber Company by Ball and he accepted delivery of the smaller machine. At the time of the agreement Lovell Lumber Company had in its yard a supply of lumber which exceeded in value the residue of $2,000.-00 of the purchase price, but none of the lumber was delivered to Ball or set aside or earmarked for him and no bill of sale or other instrument of title was signed or delivered.

The evidence discloses that the parties did not agree upon any definite quantity of the lumber then in the possession of Lovell Lumber Company to be taken by Ball or fix any time within which he should receive an amount sufficient to pay the residue of the purchase price. The parties to the transaction refer to it as a trade in which Lovell Lumber Company was to receive the delivery of the engine from Ball in exchange for the smaller engine and the future delivery of a quantity of lumber equal in value to the difference between the agreed values of the two machines. The vice president of Lovell Lumber Company testified that he agreed to give Ball lumber for the difference in the price of the two engines because his company did not have the cash to complete the purchase. The acting general manager of the company stated in his testimony that the difference of $2,000.00 in the price of the machines was to be paid in lumber but that no time was specified for its delivery and that Lovell Lumber Company got the engine from Ball about two months before it delivered the lumber which he received. Ball testified that the difference was not to be paid in cash, that there was lumber at the mill of Lovell Lumber Company when the arrangement was made; that it was to be inspected; and that when he received a quantity of lumber of the value of $2,000.00 the difference would be paid. Though he stated that some chestnut lumber was set aside for him, the understanding between him and Lovell Lumber Company at the time of the agreement was, in substance, that he could get the lumber for the difference in prices of the engines whenever he wanted it.

Lovell Lumber Company was unable to meet its pay roll on June 15, 1947, and about June 30, 1947, it ceased to do business as a going concern. According to the testimony of the receiver and the vice president of Lovell Lumber Company, which is not controverted, the com- pany was insolvent on June 30, 1947. As of July 1, 1947, the value of its total assets was between $8,000.00 and $12,000.00 and its total liabilities were between $21,000.-00 and $30,000.00. An appraisement made for the receiver, dated and filed September 15, 1947, showed the total value of all its assets and property to be $7,721.36.

Sometime between June 10 and July 1, 1947, and when Lovell Lumber Company was insolvent, Ball received from the company deliveries of 100, 180 feet of lumber at the current market value of $3,974.16. It delivered part of the lumber to a railroad car at Mullens for Ball and he took the remainder by truck from the premises of the company. The lumber received by Ball included practically all the lumber of the company at the time it was delivered. The quantity taken consisted of lumber at the plant when the agreement was made and a small amount which had been manufactured after the engines had been exchanged. A written receipt for the lumber, dated July 1, 1947, was signed and delivered by Ball to Lovell Lumber Company. It is couched in these terms: "Received of Lovell Lumber Co., $2,000.00 in lumber for difference in full between VD-18 Int. Power units. The difference of the above amount has been settled in full to date." When Ball got the lumber he sold it for S3, 974.16 and, after deducting commissions of $274.22 and haulage charges of $266.03 and retaining the residue of $2,000.00 of the purchase price of the engine, he refunded the remainder of $1,433.91 to Lovell Lumber Company.

The plaintiffs contend that the transaction which resulted in the simultaneous exchange of engines between Lovell Lumber Company and Ball and the delivery of lumber approximately two months afterward was a sale of the engine for part payment of the purchase price and upon credit for the residue of $2,000.00; that this residue, not having been satisfied by the simultaneous delivery of the lumber or by any valid transfer of the title to it at the time, was a debt of Lovell Lumber Company to Ball; and that its subsequent payment by the deduction and the retention of 82, 000.00 of the proceeds of the sale of the lumber by Ball on July 1, 1947, constituted a void and illegal preference in his favor to the prejudice of the plaintiffs within the provisions of Section 5, Article 1, Chapter 40, Code, 1931. On the contrary, the defendant Ball insists that the transaction was not a sale for part payment in cash and on credit as to the residue of the purchase price, but that it was an exchange by means of barter of the engine owned by Ball for the smaller engine and lumber of Lovell Lumber Company; and that the statute relating to illegal preferences among creditors of an insolvent debtor does not...