Morgan Co. v. Elmes

Kirby, J., (after stating the facts). The undisputed testimony shows that the Veneer Company was indebted for money advanced to it by the Morgan Company at the time of the first transfers; that a statement of its business made to Elmes showed such indebtedness, which statement did not show an indebtedness of the company to him-for $20,500 later claimed to be the company’s debt for -money furnished it, the renewal note being executed by Herman Bomunde-r, individually instead of for the company. The company was insolvent -at, -the time of the execution of the first and all subsequent agreements between Bomunder and Elmes and by these agreements and -conveyances all its property of every kind was -transferred to appellee, Elmes, to -secure the payment, it is true, of said sum already claimed to have been advanced to the company, as well as the advances thereafter made in accordance with’ the agreements. If appellee, Elmes, did not know that t'he company was insolvent when the first agreement and transfer was made, he was bound to know it was thereby rendered -so, and to have known it when the later contracts and transfers, stripping it of every vestige of its property were ■made, all of which recited that they were but supplemental to the first agreement of March 21, referred to, which agreement was not, nor were any of the other agreements recorded. This first agreement provided that if the property -sold for more than the indebtedness mentioned therein, the -surplus should be returned to Romunder, without requiring it paid upon the company’s other indebtedness. The agreement also expressly -stipulated that it should not be -considered as a .mortgage and it was construed by Elmes’ attorney as an absolute conveyance of the property. (1) Taking such a conveyance in accordance with said agreements was calculated to deceive -creditors and lead them to 'believe that no part of the property was subject to their demand, when in fact such was not the ease. “The right to redeem is an interest of value and to reserve it in such a way as leaves it altogether in confidence between the parties enabling them to form a trust between themselves, and a-t their pleasure to deny its existence, and refuse its execution for the benefit -of creditors, is plainly deceptive, and tends to delay, hinder and defraud creditors.” Bump on Fraudulent Conveyances, p. 41; Davis v. Jones, 67 Ark. 122; Waite on Fraudulent Conveyances, Sec. 272. The parties reiterated in -the last agreement that neither of the -agreements should in any manner be construed to in any way create a trust holding of said property by said Elmes or in any way restrict his right of giving absolute -deeds thereto, while the complaint for a foreclosure and the cross-complaint allege that the instruments were but equitabl-e mortgages for the security of -debts and all the answers -of the parties thereto, admitted that such was the case. Appellee admits that it requires all the -said agreements, contracts, bills of -sale and -conveyances to constitute what it now claims to be an equitable mortgage, contrary to the express terms of said instruments, saying in his brief: “The first mortgage consists of -a -deed from Romunder -to lands in Woodruff County, a deed from. Romunder to lands in Prairie -County, a deed from •the company to the mill site, seventeen acres, and a bill of sale from the company to the machinery and some other personal property and a contract signed by Elmes, Bomunder and the company, which provides that Elmes was to advance to the company certain money, which with a note of Bomunder already due and owing to Elmes, would aggregate in all $40,000,” etc. * * * “The second mortgage consists of a bill of sale from the company to Elmes to all of its personal property and a contract which provided that said bill of sale was to secure Elmes for certain advances to be made to the company for the purpose of paying off certain specified debts, * * * was not an agreement of Elmes to pay the company’s debts generally.” Conceding that the proof is sufficient to sustain the chancellor’s finding that the indebtedness shown.by the individual note of Herman Bomunder for ¡the payment of which the property was conveyed on the 21st of March was a debt of the corporation’s for the payment of which its property was liable, it does not follow that the creditor in order to secure his own debt could advance other money to be used by the corporation and for the payment of certain of its debts, excluding the claim of appellant creditor and thereafter consume all the property of the said corporation in the payment of his said debt, leaving the corporation without any assets whatever out of which said creditors could make their debts. ■ (2-3) Insolvent corporations are not allowed to prefer their creditors and a conveyance that has effect to do so is fradulent and void as to them. Sec. 949 Kirby’s Digest; Dozier v. Arkadelphia Cotton Mills, 67 Ark. 11. And since it requires all of said agreements, contracts, and conveyances, the ones first made as well as the last, and all must be considered together to constitute the mortgage appellee is attempting to foreclose, and were in effect but one transaction, effecting the purpose and intention of appellee and the insolvent Veneer Company, to transfer all its assets for the payment of appellees’ debt and of the other creditors preferred, appellants whose claims were attempted thereby to be defeated, were in time in the filing of their suits to protect themselves against said fraudulent transfers. The court erred in not so holding and the decree is reversed and the cause remanded with directions to enter a decree in favor of each of appellants for its pro rata of the fund realized from the sale of the assets of the corporation in proportion as their debts bear relation to the claim of Elmes and the proceeds realized therefrom. It is so ordered.