Turnbull v. Prentiss Lumber Co.

• Decision Date: 19 November 1884
• Court: Michigan Supreme Court
• Parties: TURNBULL v. PRENTISS LUMBER CO.

21 N.W. 375

55 Mich. 387

TURNBULL v. PRENTISS LUMBER CO.

Supreme Court of Michigan

November 19, 1884

Appeal from Alpena.

Turnbull & Dafoe, for complainant.

Clayberg & Sleater, for defendants.

CHAMPLIN J.

On the twenty-first of February, 1884, complainant filed a bill of complaint against defendants, alleging therein that he is a creditor of the Prentiss Lumber Company, a corporation organized under act 187 of the Session Laws of 1875, by filing articles of association on the twentieth of March 1882; that defendants Prentiss, Reid, and Billings were its stockholders and first directors; that soon after their formation the corporation became the owner of certain real estate, and also a large amount of other property connected with its business; that it carried on its business up to or about September 7, 1883; that on or about January 30, 1883 it filed its annual statement showing total assets of $210,127.91, and total liabilities of $86,261.10; that about the middle of June, 1883, the company, through its president said George Prentiss, represented to complainant that it was the owner of a large amount of real and personal property and worth over and above its liabilities $150,000, and that all the property he, Prentiss, formerly owned, and was in any way connected with said business, belonged to the corporation, which was then doing a successful business; that relying upon these representations complainant then sold to the corporation lumber of over the value of $4,200, on three months' credit; that within 60 days Prentiss informed him that the directors of the corporation had mortgaged the entire property of the corporation to certain of its creditors, leaving a large number of its creditors, including complainant, unsecured, but assured him that there was abundant property belonging to the corporation to pay all its debts; that the directors have the books and records of the corporation in their possession and refuse complainant access to the same; that the corporation is insolvent, and has been for a long time; that it has no one honestly looking after its affairs; that Prentiss and Reid are engaged, and have been for several months past, in disposing of the corporate property in their own interest; charges on information and belief that they have taken within six months large quantities of lumber belonging to the corporation, and shipped the same to Ohio, where they have started a lumber-yard; that they have invested money belonging to the corporation in pine lands, and taking the title in their own or others' names, and also charging them with selling and converting other specified property to their own use, of the value of $10,000 or upwards; that the real estate has been mortgaged for over $130,000; that none of the mortgages can be foreclosed in time to interfere with the use of the mill for the sawing season of 1884, and offering to pay $6,000 for the use of the premises for the sawing season of 1884; that February 18, 1884, Reid and Prentiss, assuming to act for the corporation, by quitclaim deed conveyed the mill premises to defendant Churchill; that this conveyance is a fraud upon complainant and the other unsecured creditors of the corporation, and that Churchill participated in the fraud, and received the conveyance upon some secret arrangement between the parties by which the use of the mill was to inure to the benefit of Prentiss and Reid; that no actual consideration was paid, and that Prentiss and Reid are insolvent; that the conveyance was not made in the course of business of the corporation, and is void for want of authority in said Prentiss and Reid to make the transfer; that Prentiss and Reid should be removed from the office of directors of said corporation, and the deed to Churchill canceled, and that all alienations of property made by the said directors contrary to law be set aside, and said directors account for their official misconduct, and pay to the creditors all sums of money and the value of all property that they may have acquired to themselves or transferred to others, or that may have been lost or wasted by any violation of their duties as directors, and that the said stock, property, things in action, and effects of said corporation be sequestered, and a receiver appointed of the same.

In addition to the foregoing, the bill contains the statements and charges of a judgment creditor's bill, and also the appropriate prayer for such bill, including the requisite prayer for a receiver and injunction. It requires the defendants to answer under oath. The defendants appeared and filed separate demurrers to the bill. While these demurrers were pending and undisposed of, the complainant moved on the matter of the bill, unsupported by affidavits, for the appointment of a receiver. In opposition to this motion the defendants filed the affidavits of the defendants Billings, Reid, Prentiss, and Churchill. These affidavits deny the allegations of the bill with reference to the fraudulent disposition of the corporate property, as well as the representations alleged to have been made to complainant. They do not deny the statement made in the bill that the defendant corporation is, and for a long time past has been, insolvent, but Billings says "that to the best of his knowledge the Prentiss Lumber Company has no assets, money, property, debts, or choses in action, or equitable interest of value, which can be applied in the extinguishment of complainant's judgment." Reid says "that the Prentiss Lumber Company has no equitable interests, things in action, or other property, exclusive of all prior just claims thereon, which complainant could not discover and reach by execution, of the value of five hundred dollars, or of any other value;" and he "denies that said corporation has now, or had when said bill was filed, any money, legal or equitable claims or demands, due it from different persons, and that it has a large amount of real estate, contracts in lands, and other interests, legal and equitable, in real estate, boats and vessels, or any interests in the property conveyed to the defendant Churchill, or that it has money and other personal property." Prentiss "denies that said Prentiss Lumber Company has equitable interests, things in action, or other property, of the value of upwards of five hundred dollars, or any value, exclusive of all prior just claims upon the same, which complainant could not discover and reach by execution on his said judgment."

None of the affidavits deny the regularity or validity of complainant's judgment on the return of the sheriff, that the defendant had no goods, chattels, lands, or tenements whereof he could cause to be made the residue of the damages and costs, according to the exigency of said writ.

On the hearing of the motion the court made the following order: "The motion for the appointment of a receiver in this cause having come on to be heard, and solicitors for the respective parties having been heard thereon, now, on motion of Turnbull & Dafoe, solicitors for the complainant, it is ordered by the court that Charles B. Greely be, and he is hereby, appointed receiver of all the property, equitable interests, things in action, and effects of said Prentiss Lumber Company, a corporation, one of the above-named defendants, belonging or in any way appertaining to said defendant [said corporation] at the time of the commencement of this suit, to-wit, on the second day of February, A.D.1884, except such as are exempt by law under the statutes of this state, if any, and vested with all the rights and powers of a receiver in chancery, upon filing with the register of this court a bond for the faithful performance of his duties as such in the penal sum of five thousand dollars, and the approval by this court. And it is further ordered that said Prentiss Lumber Company, and its proper officers, assign, transfer, and deliver over to said receiver, on oath, under direction of the court or the judge thereof, all and singular the property, real and personal, of or belonging to said corporation, said defendants, and the said Prentiss Lumber Company, its officers and agents, forthwith surrender and deliver to said receiver all the assets, materials, tools, machinery, fixtures, effects, and property of every description, nature, and kind of or belonging to said Prentiss Lumber Company; and also all money, drafts, and bills of exchange, checks, or other evidence of indebtedness due and owing to said Prentiss Lumber Company, as well as all books of account, books of record of said corporation, accounts, deeds, bonds, mortgages, certificates of stock, vouchers, and papers of every nature and description belonging to said corporation, and that said receiver, or either or any of the parties to this cause, have leave to apply to the court from time to time for such further order or direction as may be necessary." The receiver qualified, and the Prentiss Lumber Company appealed.

Jurisdiction is conferred upon the court of chancery in behalf of a creditor who has obtained judgment at law, and who has been unable to collect the same upon execution, in whole or in part, to compel a discovery of any property or things in action belonging to the defendant, and of any property money, or things in action due to him or held in trust for him, and to prevent the transfer of any such property, money, or things in action, on the payment or delivery thereof to the defendant, except where such trust has proceeded from some person other than the defendant. How.St. � 6614. The next section provides that the court shall have power to compel such discovery, and to prevent such transfer, payment, or delivery, and to decree satisfaction of the amount remaining due upon such judgment...