Bank of Little Rock v. Frank

• Decision Date: 17 October 1896
• Citation: 37 S.W. 400,63 Ark. 16
• Parties: BANK OF LITTLE ROCK v. FRANK
• Court: Arkansas Supreme Court

37 S.W. 400

63 Ark. 16

BANK OF LITTLE ROCK v. FRANK

Supreme Court of Arkansas

October 17, 1896

Appeal from Pulaski Chancery Court, DAVID W. CARROLL, Chancellor.

Decree reversed and cause remanded.

Dan W Jones & McCain, for appellants,

1. There is no proof that the preferences of Louis and Charles Rudolph were simulated, fictitious, or fraudulent. On the contrary, all the evidence shows their debts were genuine and bona fide,--due for money borrowed to pay creditors.

2. Nor is there any proof that the assignment was made to cheat hinder, or defraud creditors. The deed is in form, and violates no provision of the assignment law. The proof in relation to the statements of Rudolph to the commercial agencies was irrelevant and incompetent. It might have been competent if the action had been to rescind, or to recover the goods sold, on account of fraud; but by bringing their suits for the purchase money appellees waived the fraud. 52 Ark. 458. Even if it had been shown that the assignor was guilty of fraud in purchasing the goods, that could have no bearing. The fraud must be in the assignment itself, and not in some act before or after. 54 Ark. 124, 129; 88 Pa.St. 167; Burrill, Assignments, sec. 351 et seq.; 68 Wis. 442.

3. The charge that possession was delivered to the assignee before the inventory was filed is not sustained. The assignment is a partial one, and contained the inventory of all the property assigned. 53 Ark. 92; 60 Ark. 503.

4. Erb's preference was for services in preparing and perfecting the assignment. There is no fraud in this. 54 Ark 124, 129.

5. Fraud is not presumed, and there is no proof. 4 Ark. 302. See also Acts 1895, sec. 3, p. 163; 86 Ky. 511; 90 id. 249; 94 id. 5.

Joseph Loeb, Morris M. Cohn, Marshall & Coffman and W. E. Atkinson for appellees.

1. The chancellor was justified in finding that fraud existed in the preferences of the assignor's brothers, considering all the circumstances, their close relationship and business intimacy, etc., and the presence of Charles when the false statements were made. 28 F. 792 See 26 F. 70; 28 id. 788; 34 P. 54; 9 Utah 267; Burrill Assign. (5 Ed.) sec. 181; 83 N.Y. 31; 61 Iowa 663; 12 F. 861; 17 F. 705; 58 Ark. 297.

2. The preference of Erb was for future services. 13 So. 248; 12 F. 230; 28 N.Y.S. 265; I Sand. Ch. 83; Sand. & H. Dig. 323. An assignment which contains a fraudulent preference is void in toto where the intent of the debtor controls, as in this state. 144 U.S. 598; 34 P. 54; 9 Utah 267; 60 Wis. 418; 19 N.W. 400; 28 N.Y.S. 265; 1 Tenn.Ch. 384, 388; Meigs (Tenn.) 328.

3. The assignee took possession before the filing of an inventory. 36 Ark. 421; 39 id. 68; 53 id. 88; 13 S.W. 515; 54 Ark. 471; 24 F. 460; 24 id. 465.

4. The assignor contemplated a disposition of the assigned property in violation of the statutes relating to assignments.

BATTLE J. WOOD and RIDDICK, JJ., dissent.

OPINION

BATTLE, J.

On the 22d of December, 1893, Joseph Rudolph, a merchant, assigned certain property to Joseph Griffith for the benefit of his creditors, directing that certain persons to whom he was indebted should be first paid. The deed evidencing the assignment was, on the same day, filed in the office of the clerk of the Pulaski chancery court; and immediately thereafter the Bank of Little Rock, one of the preferred creditors, filed in said court a complaint, asking for the appointment of a receiver to take possession of the property assigned and administer the trust created by the deed of assignment under the orders and directions of the court. In response to the complaint, Joseph Griffith, the assignee, was appointed receiver; and he took the oath, filed bond, and entered upon the discharge of the duties of his office. Then many of the unpreferred creditors of the assignor sued out orders of attachment against the property of Rudolph, and, for the purpose of subjecting it to the satisfaction of their debts, became parties to the action instituted by the Bank of Little Rock, and asked that the deed of assignment be set aside as fraudulent and void for the following reasons: (1) Because the alleged indebtedness to Charles Rudolph and Louis Rudolph, two of the creditors preferred in the deed of assignment, were simulated, fictitious, fraudulent and void. (2) Because the assignment was a fraudulent scheme on the part of the assignor to cheat, hinder and delay his creditors. (3) Because possession of the property so assigned was delivered to the assignee before an inventory was filed by him. (4) Because the preference of Jacob Erb (another creditor) in said assignment was fraudulent, and the amount owing to him was for future services to be rendered by him to the assignor. (5) Because the assignment was made with the fraudulent intent to violate and evade the laws of this state.

These allegations were denied. After a hearing of the evidence adduced by both parties, the chancery court found that the assignment was fraudulent, and set it aside; and the plaintiff, and the assignee, a defendant, appealed.

The facts upon which this decree was based, as they appear in evidence, are substantially as follows: Louis, Samuel, Charles, and Joseph Rudolph are brothers. Charles and Louis did a mercantile business at the corner of Fourth and Main streets, in the city of Little Rock, under the firm name and style of Rudolph & Co., for about sixteen years, Joseph was their clerk for this period of time, and received from $ 50 to $ 100 a month for his services, except the last year, for which he was paid $ 1,500. During the greater portion of the first fifteen years he received $ 100 a month. At the close of the sixteen years Charles and Louis dissolved partnership, and a new firm, composed of Charles and Samuel, was formed. Joseph served them in the capacity of clerk for four years, and was paid for his services at the rate of $ 100 a month. At the end of this time he commenced a mercantile business in Little Rock on his own account and in his own name. Before commencing business he went with his brother, Charles, to the office of the Bradstreet Agency, and stated to the manager that he was about commencing business, and wanted to make a statement of his financial condition, and did so; and then went to Dun's Agency, and made the same statement to its manager. In these two statements he said that he had $ 5,000 in cash to commence business, and had no liabilities. These statements were made as a basis of credit, and were forwarded by the agencies to the respective offices of their companies in the large cities for the benefit of their patrons. After this he went to St. Louis and Chicago, and purchased about $ 5,000 or $ 6,000 in goods, merchants selling to him on the faith of his statements to the agencies. This was in August, 1892. In the spring of 1893 he purchased from the traveling agents of merchants about $ 3,000 in goods, and of the same in the fall following about $ 4,000 in merchandise. In the fall of 1892 and in the spring of 1893 he borrowed of his brother Louis many sums of money amounting to $ 1,150, and of his brother Charles various amounts aggregating $ 1,400, to pay the expenses of his business and a part of the debts contracted by the purchase of goods in the year 1892; and executed to each of them his promissory notes for the amount borrowed. He continued in business about one and a half years, when he failed and made an assignment of property for the benefit of his creditors, preferring, among others, his brothers, Louis and Charles, as to the debts for borrowed money, and Jacob Erb, an attorney at law, who wrote the deed of assignment, for $ 200. At this time he owed between $ 8,000 and $ 9,000, and the assets belonging to his business and assigned amounted to about $ 5,300. Between $ 4,000 and $ 5,000 of his indebtedness was for money borrowed, and the remainder was for goods purchased.

At the commencement of his mercantile business, he had only $ 1,500 or $ 1,600, and while merchandising sold goods at an average profit of twenty per cent. When he closed, his liabilities exceeded his assets about $ 3,700. How much this difference consisted in shrinkage in the value of goods on hand, if any, does not appear.

How much his sales were, how much indebtedness he paid, what stock he had at any time, he was unable to state or even approximate, when called to testify. He kept no book of accounts, merchandise account, bill or cash book.

He accounted for his expenditures, while he was in business on his own account, in part by testifying that his household expenses were about $ 200 a month, and that the expenses of his store, such as rent, clerk hire, lights, and insurance, were about $ 200 a month; and that his individual expenses exceeded $ 30 a month. He paid $ 2.50 a month for shaving, but no taxes. Sometimes he gambled at cards, and lost, but did not know how much.

While in business, he and his brother Louis were very intimate, Louis visiting his store about twenty times a day, and he the store of S. Rudolph & Co. about four or five times daily, and sometimes at night after the close of business. After he failed Louis purchased the property assigned at a receiver's sale, and employed and made him manager of a mercantile business in which he (Louis) was engaged.

In the deed of assignment Joseph Rudolph directed his assignee to pay Jacob Erb the $ 200 for which he was preferred as before stated, before paying any other creditor. This sum of money was to be paid for services to be rendered by Erb in upholding, maintaining, and enforcing the assignment, and for "legal advice" previously given. The services were to be rendered by bringing and prosecuting an action in equity for the enforcement of the trust vested in the assignee, which Erb...