Tennessee Chemical Co. v. Cheatham

• Decision Date: 05 April 1928
• Docket Number: 3 Div. 822
• Citation: 217 Ala. 399,116 So. 420
• Parties: TENNESSEE CHEMICAL CO. v. CHEATHAM et al.
• Court: Alabama Supreme Court

116 So. 420

217 Ala. 399

TENNESSEE CHEMICAL CO. v. CHEATHAM et al.

3 Div. 822

Supreme Court of Alabama

April 5, 1928

Appeal from Circuit Court, Butler County; A.E. Gamble, Judge.

Bill in equity by the Tennessee Chemical Company against J.A Cheatham, Bertha Cheatham, Jessie B. Black, and the Royal Mercantile Company. From a decree sustaining a demurrer to the bill, complainant appeals. Reversed and remanded.

Bill alleging that defendant failed to discharge duty as director of corporation acting as agent for complainant held demurrable.

The bill as amended alleges that during the year 1923 complainant and the Farmers' Mercantile Company, a corporation entered into a contract, exhibited with the bill, whereby said Farmers' Mercantile Company was appointed "an agent for the sale, on commission and for" complainant's "account, of such quantities and brands of fertilizers as may be mutually agreed upon from time to time on the following terms and subject to the conditions hereinafter mentioned, and you (Farmers' Mercantile Company) hereby accept the appointment and agree to comply with all the terms and to perform all the conditions hereof." The contract sets forth stipulations as to territory, brands, prices, etc. By the ninth paragraph of the contract the Farmers' Mercantile Company agreed "to take cash or promissory notes, in settlement for all fertilizers sold by" it "for" complainant "under this contract, and to remit said cash to" complainant "promptly as received by" it. The Mercantile Company "agree(s) to take said promissory notes representing the proceeds of time sales, upon" complainant's "forms, payable to" complainant's "order, drawn to conform to terms, and to bear interest at the rate designated by" complainant "and to deliver said notes to" complainant "on or before settlement date designated by" complainant "for the selling season during which" the Mercantile Company makes "such time sales." Farmers' Mercantile Company agreed "to remit" complainant "promptly all amounts collected on said notes, and when the amount due" complainant "hereunder is fully paid and discharged," complainant "will surrender" the Mercantile Company's "guaranty notes to" it, "and also transfer to" it "all, if any, uncollected farmers' notes. All fertilizers consigned to" the Mercantile Company "hereunder and the cash, notes accounts, and the proceeds thereof resulting from the sale of said fertilizers, shall at all times be and remain" complainant's "property. All cash received by" the Mercantile Company "on cash sales or collections shall be kept by" the Mercantile Company "separate and distinct and promptly remitted to" the complainant. By paragraph 10 it is provided that the Mercantile Company "expressly guarantee(s) prompt payment, without" complainant's "first exhausting remedies against principal debtors, of all notes and accounts resulting from time sales made by" the Mercantile Company, "and also given to" complainant by the Mercantile Company "as a substitute accounting thereunder." The Mercantile Company "hereby waive(s) demand, protest, and notice of default in payment by principal debtors of said notes and accounts. As evidence of" its "said guarantee," it "agree(s) to execute and deliver to" complainant "on the settlement date designated by" complainant "for each selling season, or sooner if required," its "negotiable promissory note or notes, upon" complainant's "forms, for all fertilizers delivered hereunder and not settled for in cash at the time of the execution and delivery of said note or notes *** Said guaranty note or notes shall be drawn to conform to terms, and to bear interest at the rate designated by" complainant.

The bill alleges that during the year 1926 complainant consigned and delivered to the Farmers' Mercantile Company fertilizers, under the terms of the contract, amounting in the aggregate to $3,000; that pursuant to the terms of the contract the Mercantile Company received said fertilizers delivered to it by complainant as agent, in trust, and agreed, obligated, and bound itself to take only cash or promissory notes in settlement for all fertilizers sold by it for complainant, and to remit such cash promptly as received, and that promissory notes, taken on times sales should be taken on forms furnished, payable to complainant, and to promptly deliver said notes to complainant.

It is further alleged that defendants J.A. Cheatham and Jessie B. Black were the principal stockholders in the Farmers' Mercantile Company, and Cheatham was the managing head thereof, and as such, or acting or professing to so act, committed the wrongs complained of; that is, that it became and was the duty of said corporation, or the managing officers or agents thereof, to comply with the terms of the contract with complainant, and to transmit to it all cash received for such fertilizers as received, and all notes taken on time sales, yet, notwithstanding, said corporation, or Cheatham acting for it in that behalf, with full knowledge of the facts and of the trust reposed in Cheatham by virtue of said contract between it and complainant, sold a portion of said fertilizers for cash and the remainder on time, taking notes or mortgages therefor not on forms provided by complainant, but payable direct to said corporation, all amounting to $3,000 or more; that none of said cash proceeds or notes or mortgages were turned over to complainant, but, in express violation of his duty and trust in the premises, Cheatham wrongfully, unlawfully, and fraudulently converted said fertilizers to his own use or the use of said corporation, or others; that said Cheatham, pretending to act on behalf of said corporation, sold, transferred, or assigned to the Bank of Greenville all or a large portion of said notes or mortgages taken by him from customers for fertilizers sold, so that same were placed beyond the reach of complainant, and wrongfully and unlawfully converted the cash received for fertilizers; that the contract provides that "if you are a corporation, the officer or officers signing this contract on behalf of the same shall be liable to us for the carrying out of all the terms and conditions thereof," and further, that "no fertilizer shall be used or taken by you on your own account, nor be delivered to your tenants unless by special written permission by us," which said contract was violated and disregarded by defendant Cheatham as aforesaid.

As a predicate for a discovery and accounting, it is alleged that a large number of notes and mortgages were taken by the Farmers' Mercantile Company for fertilizers sold, in many instances being taken from customers of the Mercantile Company in gross for such fertilizers and other merchandise sold, and that complainant does not know the exact amount of fertilizers sold nor the amount thereof sold for cash.

It is further alleged that the Farmers' Mercantile Company executed to complainant its several promissory notes pursuant to the terms of the contract, for fertilizers delivered to it...