"Wyo. Coal Sales Co. v. Smith-Pocahontas Coal Co.

• Decision Date: 08 May 1928
• Docket Number: (No. 6149)
• Citation: 105 W.Va. 610
• Court: West Virginia Supreme Court
• Parties: "Wyoming Coal Sales Company v. Smith-Pocahontas Coal Company and J. C. Pack

105 W.Va. 610

"Wyoming Coal Sales Company

v. Smith-Pocahontas CoalCompany and J. C. Pack

(No. 6149)

Supreme Court of Appeals of West Virginia.

Submitted May 2, 1928.

Decided May 8, 1928.

1. Corporations Rights of General Creditor in Solvent Corporation's Assets Are Not Essentially Different From Rights of Such Creditor of Individual in Individual's' Property; Solvent Corporation Holds Its Property Free From Creditor Who Has Acquired no Lien.

The rights of a general creditor of a solvent corporation in the corporate assets are not essentially different from the rights of such a creditor of an individual in the property of the latter. A solvent corporation holds its property as an individual holds his free from the grasp of a creditor who has acquired no lien. (p. 614.)

(Corporations, 14a C. J. § 3064.)

2. Same President of Corporation Needing Funds May Lend it Money and Take Lien on Corporation's Property; Where President's Lending Corporation Money and Taking Lien on its Property is Open and Otherwise Free From Blame, it Does Not Constitute Preference if Corporation Later Becomes Insolvent.

It is lawful for the president of a corporation which needs funds, to loan it money and secure the loan by a lien on its property. When such a transaction is open and otherwise free from blame, it does not constitute a preference upon the corporation subsequently becoming insolvent, (p. 614.)

(Corporations, 14a C. J. §§ 1902, 3087.)

3. Equity Ride That Equity Will Retain Jurisdiction Once Assumed, and Dispose of All Matters in Litigation, is Limited to Cases Where Such Jurisdiction Has Been Rightfully Invoked; Equitable Right Must be Both Averred and Proved Before Purely Legal Rights Will be Adjudicated by Chancery Court.

The rule that equity will retain jurisdiction once assumed, and dispose of all matters in litigation is limited to cases where that jurisdiction has been rightfully invoked. An equitable right must be both averred and proved before a purely legal right will be adjudicated by a court of chancery, (p. 620.)

(Equity, 21 C. J. § 123.)

4. Prior Case Distinguished

Gilbert v. Peppers, 65 W. Va. 355, distinguished, (p. 617.)

(Note: Parenthetical references by Editors, C. J. Cyc. Not part of syllabi.)

Appeal from Circuit Court, Raleigh. County. Suit by the Wyoming Coal Sales Company against the Smith-Pocahontas Coal Company and another. Prom a decree for plaintiff, defendants appeal.

Decree reversed; bill dismissed without prejudice as to the named defendant.

McGinnis & McGinnis and Reynolds & Reynolds, for appellants.

File, Goldsmith & Scherer and J. Albert Toler, for appellee. Hatcher, Judge:

The plaintiff was a coal selling agency. The Smith-Pocahontas Coal Company conducted a coal mining operation in Wyoming county. Its property was sold under a deed of trust and purchased by J. C. Pack. The Poca-Pack Coal Company is Pack's grantee of that property. Pack purchased some stock in 1918 in the Smith-Pocahontas Coal Company (hereinafter usually referred to as "the company" or "the coal company"). In 1919 he became a director, and on April 17, 1924, he was made its president. The financial statement of the company for the year ending December 31, 1923, shows an aggregate investment in permanent improvements, real estate, mine equipment and other personal property, less depreciation, of $304,964.17, and notes and accounts payable amounting to $59,818.28. Included in the last list is the entry of $10,345.91 in favor of plaintiff. In the summary of losses for that year is a demurrage charge of $13,359.91. While the books of the company gave no indication of insolvency at that time, the company was badly in need of money, and its plant was deteriorating for lack of funds. On February 4, 1924, the board of directors resolved that it was necessary in order to rehabilitate the plant and reestablish its credit, to negotiate a loan not exceeding $40,000.00. The loan was not secured, and Pack accepted the presidency upon the condition that bonds of the company to the extent of $75,000.00 be sold for the purpose of financing it. On May 1st, the stockholders authorized the issuance of bonds to that extent, and the execution of a deed of trust on all of the property and assets of the company to secure the payment of the bonds. The proceeds of the bonds were to be applied, according to the language of the stockholders' resolution, as follows: '' The said Board of Directors are further fully authorized and empowered to apply the proceeds of a sale of said bonds to the discharge and payment of the existing indebtedness of the Company, so far as necessary, and the residue shall be applied for betterment to the plant and mining operations of the Company and in the conduct of the business as to the Board of Directors may seem to the best interest of the Company." Pack agreed with other directors to undertake the sale of one-half of the bonds, and they assumed a like obligation as to the other half. As there was a short delay in the printing of the bonds Pack advanced the company $40,000.00 on May 1st as a "temporary loan" to satisfy "emergency debts and the payrolls", as he says, taking its note as evidence of the advancement. On May 15th bonds of the par value of $40,000.00 were accepted by-Pack in lieu of the note. The other directors failed to sell any of the bonds, and Pack then purchased the balance of the issue (except $1,000.00) and used the proceeds to improve the plant. No bad management is attributable to Pack. But because of the company's inferior coal and a slump in the coal market, it was unable to meet even the interest on the bonds. Its property was sold under the trust deed on July 3, 1925, and purchased by Pack with the bonds he held against it.

The demands of plaintiff arose as follows: In the summer of 1920, J. C. Sullivan, who was then the managing officer of both the plaintiff and the coal company, anticipating a rise in the price of coal, had the coal company ship a quantity of coal to ports in eastern Virginia on consignment to the plaintiff as its agent. The rise in price did not materialize. Before the coal was unloaded, demurrage was charged to the plaintiff by the railroads, which it paid as follows: to the Southern Railway Company, $7,832.00 in October, 1923, and $3,007.00 on April 16, 1924; and to the Virginian Railway Company, $2,210.00 in October, 1923.

The entries on the hooks of the coal company were made during' Sullivan's management. On January 31, 1924, a check of the coal company for $3,007.00 signed by Sullivan as treasurer was issued to the plaintiff. Sullivan's connection with the company terminated February 21, 1924. On April 15, 1924, J. R. Hancock, a director of the company, wrote the plaintiff calling attention to several changes in the management of the company, which had occurred since January of that year, stating that the affairs of the company were disorganized, and requesting plaintiff to recall the check and accept a ninety-day note in its place. No reply appears to have been made to this letter. The check was returned to the plaintiff on May 16, 1924, by the bank upon which it was drawn, unpaid, with the explanation of "no funds".

The first demand which plaintiff seems to have made of the coal company for payment of the demurrage was by a letter of June 21, 1924. Pack says he did not receive that letter. On July 22nd, H. W. McNeil, acting for plaintiff, again wrote the company. Pack replied on July 24th, stating that he was not as familiar with the claims of the plaintiff as he would like to be, and requested that the matter rest until he could see McNeil and Sullivan. McNeil had a conference with Pack about the 1st of August, 1924. Pack then requested that he be furnished a copy of the sales contract between the plaintiff and the coal company. On August 13, 1924, McNeil informed Pack that no written contract existed and expressed willingness "to go further" into the matter at Pack's earliest convenience. Whether other conferences were had does not appear, but on October 17, 1924, settlement was requested by plaintiff, which was definitely refused by Pack on November 10, 1924.

This suit was brought in 1926 to recover the demurrage payments. Pack was impleaded on the theory that the proceeds of the bond issue was a trust fund to pay the plaintiff; that he as a managing officer of the coal company was a trustee of that fund; that he diverted and misapplied the fund to the detriment of the plaintiff, and is therefore personally responsible. Poca-Pack Coal Company was made defendant on the theory that as Pack's grantee it also is impressed with that trust. The lower court found in favor of the plaintiff against Pack and the Smith Pocahontas Coal Company.

The only witness as to the shipment of coal and payment of the demurrage is McNeil. He was chief clerk under Sullivan during the joint management of the sales company and the coal company. Appellants say that McNeil's evidence is insufficient, and that there is a presumption against the validity of the demands against the coal company because of plaintiff's failure to use as witnesses Sullivan and J. C. Morrison (who was president of the coal company in 1923).

By reason of his official position;, McNeil was fully informed of the affairs of both companies. He made a straight-forward statement of the transaction, lie exhibited no prejudice. We perceive no reason to doubt his testimony. It established a prima facie case against the coal company, and not being denied, other witnesses were unnecessary.

The fact that Sullivan was manager of both the shipper and the consignee of the coal company is immaterial, no bad faith being shown on his part, and both corporations being fully cognizant of his dual agency. Lor. Co. v. Terry, 69 W. Va. 572, 594. The plaintiff, as the agent of the coal company, had the "incontrovertible" right to advance the demurrage due by its principal and to be reimbursed therefor. Flynn v. Y eager, 89 W. Va. 520, 526.

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