Acme Lumber Co. v. Hoyt & Bros.

Cooper, J., delivered the opinion of the court. Ve are of opinion that the decree of the court below upon-the principal question involved must be affirmed, but upon grounds different from that upon which the chancellor rested his conclusions. He was of opinion that the deed of trust executed by the Acme Lumber Company was valid upon its-face, but that there was fraud in fact, either in the execution-of the trust-deed and the bonds it was given to secure, or in the use to which the bonds were devoted, and, for this reason, annulled the deed. In our view, the trust-deed was-void in law, regardless of any actual fraudulent intent on the-part of the grantor. The Acme Lumber Company was an incorporated company, organized for the specific purpose of manufacturing lumber. Its property consisted of machinery necessary for the prosecution of its business, and some other personalty, [109] and of timber lands and timber rights upon leased lands. It was indebted to various persons to the amount of between twenty-five and thirty thousand dollars, most of which was overdue, and many of its creditors were prosecuting suits for the recovery of their demands. In this condition of affairs, it executed a trust-deed upon all its property to secure the payment of bonds aggregating -twenty-five thousand dollars, bearing interest from date, and due five years thereafter, with the right reserved of calling in the bonds after two years. Ey express provision of the deed, the right was reserved to the company to prosecute its business in the usual manner, and, upon payment of the interest upon its bonds as it became due, to distribute the remainder of its net income as dividends among the stockholders. As the business of the company consisted in converting growing timber into lumber for sale, it is evident that the effect of the arrangement made would be to convert the most valuable part of its assets — the growing timber — into money, and distribute the same to the stockholder's, to the exclusion of the rights of its creditors. It is well settled in this state that the mortgage of property consumable in its use, with the reservation of possession by the mortgagor, is prima facie fraudulent, and, if the mortgage reserves to the mortgagor the right to use such property, it is per se fraudulent. Farmers’ Bank v. Douglass, 11 Smed. & M., 469; Ewing v. Corgill, 13 Ib., 79; Harman v. Hoskins, 56 Miss., 142. And where a mortgage is void on its face, the beneficiaries thereof cannot occupy the relation of bona fide purchasers. Farmers’ Bank v. Douglass, supra; Johnston et al. v. Dick et al., 27 Miss., 277. We have examined such of the claims of the complainants as have been specially objected to by counsel for appellant, and find no error in their allowance. The decree is therefore affirmed.