Watson v. Proximity Mfg. Co.

• Decision Date: 22 April 1908
• Citation: 61 S.E. 273,147 N.C. 469,147 N.C. 478
• Parties: WATSON v. PROXIMITY MFG. CO.
• Court: North Carolina Supreme Court

61 S.E. 273

147 N.C. 469, 147 N.C. 478

WATSON v. PROXIMITY MFG. CO.

Supreme Court of North Carolina

April 22, 1908

Appeal from Superior Court, Wake County; Long, Judge.

Action by W. L. Watson, trustee in bankruptcy of the W. W. Mills Company, against the Proximity Manufacturing Company. From a judgment granting insufficient relief, both parties appeal. Affirmed.

A buyer under contract to buy goods of a corporation was requested by the corporation to advance money on the contract as an accommodation. The president and treasurer, who was substantially the sole owner of the corporation, called on the buyer and obtained an advancement, giving his personal note and security. On the maturity of the note the amount was, at the direction of the president and treasurer, charged to the corporation as a payment by the buyer on his contract. The buyer acted in good faith, and at the time he and the corporation were both solvent. The transaction was never questioned by the corporation or any member of it during the subsequent dealings with the buyer. Held, that the act of the president and treasurer was adopted by the corporation and its members, so as to bind the corporation and its subsequent trustee in bankruptcy.

Plaintiff's Appeal.

This is a civil action brought by plaintiff as trustee in bankruptcy of the above-named corporation to recover of defendant a large balance alleged to be due on an account for lumber furnished defendant and for damages alleged to have been sustained by the bankrupt for a breach of a part of said contract relating to maple flooring, etc. The cause was referred to R. H. Battle, Esq., who heard it, and made his findings of fact and law, and duly reported the same together with the evidence taken. Plaintiff and defendant filed exceptions to the report which were heard at October term, 1907, of the superior court of Wake county, his honor B. F. Long, judge, presiding, who overruled all the exceptions, confirmed the report, and rendered judgment against defendant for the sum of $1,632.60, with interest from August 1, 1904. Both plaintiff and defendant excepted and appealed. The plaintiff excepted to the ruling of the referee allowing the defendant credit for an item of $10,000 the facts concerning which are stated in the opinion of the court.

R. C Strong and R. N. Simms, for plaintiff.

King & Kimball and J. H. Pou, for defendant.

BROWN J.

It appears from the findings of the referee that on September 3, 1902, the defendant contracted with W. W. Mills for the delivery by said Mills of a large quantity of lumber for the construction of a factory. The defendant shortly thereafter advanced Mills $10,000 to assist him in carrying out his contract, which was repaid by lumber shipped to defendant by Mills and by the bankrupt corporation, after it was created. About the end of the year 1902 W. W. Mills caused to be organized a corporation by the name of W. W. Mills Company, with an authorized capital stock of $200,000. Of this amount $190,000 was issued to W. W. Mills and $5,000 to R. D. Godwin. W. W. Mills was president and treasurer; and in the absence of directors, and when no special meeting was held, he was allowed and did exercise the power of making such contracts as to him seemed wise. No act of Mills was ever questioned by the company. Fifty shares of stock were issued each to Godwin and Woollet without payment, and to qualify them to act as officers of the corporation. Neither ever paid for this stock. Mills conveyed to this corporation his entire lumber manufacturing plant, property, contracts, and business. The defendant making no objection, the W. W. Mills Company undertook to complete the performance of the contract for the delivery of the lumber. There appears to have been much delay upon part of the Mills Company in making deliveries during 1903, occasioned evidently by lack of available money to push its business. On July 28, 1903, the W. W. Mills Company wrote to defendant, and asked as "an accommodation" an advance of "a few thousand by return mail," saying they had to meet calls for $10,000 or $12,000 "first of the week." On the same day W. W. Mills, president and treasurer, in person went to Greensboro to see Caesar Cone, president of defendant. He obtained an advance of $10,000, giving his personal note with stock in the Carolina Trust Company as collateral, to secure this advance. When the note fell due, W. W. Mills, the president and treasurer of his corporation, directed that the amount be charged to said company as a payment by defendant upon the lumber contract. This was done and the note canceled, and the collateral delivered to W. W. Mills. On December 22, 1903, Godwin, secretary for the Mills Company, in a partial settlement with defendant, gave to defendant a statement of account which showed a credit to defendant of this $10,000. The ledger of the W. W. Mills Company showed that defendant was credited January 11, 1904, with $10,000, and it is not denied that this is the disputed item or the "second ten thousand" loaned July 28, 1903. The W. W. Mills Company and W. W. Mills have been adjudicated bankrupts, and the plaintiff W. L. Watson appointed trustee in bankruptcy. Both the referee and the court below held that defendant was entitled to a credit for this $10,000. The correctness of this ruling is the sole point presented by plaintiff's appeal. It is contended by the defendant that the trustee stands in the shoes of the bankrupt, and represents only the creditors in existence at the time of bankruptcy and that the trustee can assert no right which the bankrupt could not assert. Under the authority of well-considered cases we are of opinion that the trustee is estopped by the acts of the bankrupt, and bound by its conduct and agreements to the same extent that the bankrupt would be bound before the adjudication, especially in view of the fact that there is no suggestion, much less evidence, of fraud in the transaction of January 11, 1904, when the defendant was regularly credited on the books of the seller with this $10,000 item. There was not only no purpose to defraud any creditor of the bankrupt, but there appears to be no creditor in existence who extended credit until some time subsequent to that date. Thompson v. Fairbanks, 196 U.S. 516, 25 S.Ct. 306, 49 L.Ed. 577; Hewit v. Berlin Co., 194 U.S. 296, 24 S.Ct. 690, 48 L.Ed. 986; Atchison Railway v. Hurley, 153 F. 503, 82 C. C. A. 453; Loveland on Bankruptcy, p. 436; In re Great Western Mfg. Co., 152 F. 123, 81 C. C. A. 341; Engle's Case (D. C.) 105 F. 893. Therefore it follows, in the absence of any finding of fraud, that if the W. W. Mills Company could not recover the $10,000, and is bound by its act in giving credit therefor, the plaintiff, its trustee in bankruptcy, is likewise bound and cannot recover. We think that the exception of the plaintiff to the ruling of the referee and of the court below confirming it cannot be sustained.

1. Upon the facts found by the referee as well as from the uncontradicted evidence the inference appears to us to be plain that the money was borrowed for the benefit of the bankrupt and not for W. W. Mills personally. The course of dealing in respect to the contract shows that the defendant had advanced $10,000 to W. W. Mills to assist him in performing it, and that when his lumber business was incorporated the corporation took over the contract and repaid a large part of such advance. It is plain from the evidence that the company during the spring and summer of 1903 was in great need of cash to carry on its business. Its secretary writes to the defendant, "We have been running without money recently until we have about dried up, and there is not much left of us. However, we keep trying to go." It was not Mills personally who wrote the letter to defendant of July 28th asking for an advance loan of "a few thousand by return mail," in order to meet urgent demands of the company, but it was the W. W. Mills corporation by its secretary. The matter was so pressing that the president and...