Wilson v. Lucas, 150.

• Decision Date: 22 February 1932
• Docket Number: No. 150.,150.
• Citation: 47 S.W.2d 8
• Parties: WILSON v. LUCAS, Chancellor.
• Court: Arkansas Supreme Court

47 S.W.2d 8

WILSON v. LUCAS, Chancellor.

No. 150.

Supreme Court of Arkansas.

February 22, 1932.

Rehearing Denied March 28, 1932.

Original application by R. S. Wilson for a writ of prohibition to Harvey R. Lucas, as Chancellor of the Fourth Chancery District.

Application denied.

This is an original application for a writ of prohibition by R. S. Wilson against Harvey R. Lucas, as chancellor of the Fourth chancery district, to prohibit the defendant from proceeding further in a case in said chancery court wherein Lozier Lockridge is plaintiff and R. S. Wilson and P. R. McCoy individually, and R. S. Wilson and P. R. McCoy, president and secretary, respectively, of the Stuttgart Rice Mill Company, are defendants.

The material allegations of the complaint may be briefly stated as follows: Lozier Lockridge brought suit in equity, and obtained a decree for $4,427.82 against the Stuttgart Rice Mill Company in the chancery court for the Northern district of Arkansas county. During the pendency of the suit, and before the rendition of the decree in the case, the Stuttgart Rice Mill Company sold certain lots in the city of Stuttgart, Arkansas county, Ark., upon which its rice mill plant was situated. It gave a deed to the purchaser, and took a mortgage back on the real estate to secure the balance of the purchase money. The sale was made without the knowledge or consent of the plaintiff. Prior to the rendition of the decree in said case, R. S. Wilson and P. R. McCoy, respectively president and secretary of the Stuttgart Rice Mill Company, issued a certificate to the secretary of state in statutory form, certifying that the stockholders had voted unanimously to dissolve said corporation. Plaintiff caused an execution to be issued in said case, and the same was returned by the sheriff of Arkansas county "no property found." There are no assets available for the payment of plaintiff's judgment except as above stated. The assets of said corporation have been distributed among the stockholders thereof, including R. S. Wilson. Said R. S. Wilson, as president, and P. R. McCoy, as secretary, of said corporation, had personal knowledge of the action wherein a decree was rendered in favor of plaintiff against said corporation, and they conspired and colluded with each other and with the other stockholders of said corporation to defeat the payment of said decree by alienating the real property of said corporation as above set forth and in disposing of the assets of said corporation without making provision for the payment of said decree. Plaintiff further alleged that this was done to delay or to defeat him in the collection of his debt.

The record shows that service was had upon the defendant P. R. McCoy, who was a citizen and resident of the city of Stuttgart in the Northern district of Arkansas county. Summons was directed to the sheriff of Pulaski county, and was served upon R. S. Wilson, who is a resident of the city of Little Rock in said county. R. S. Wilson appeared for the purpose of quashing the service of process upon him and for no other purpose. The court overruled the defendant's motion to quash the service of summons upon him.

Cockrill & Armistead, of Little Rock, and W. A. Leach, of Stuttgart, for petitioner.

Joseph Morrison, of Stuttgart, for respondent.

HART, C. J. (after stating the facts).

This is an original application for a writ of prohibition to restrain the Arkansas chancery court for the Northern district from proceeding further in a suit by a single judgment creditor of the Stuttgart Rice Mill Company, a domestic corporation, with a return of execution "No property found," to reach equitable assets in the hands of the officers of said corporation in satisfaction of his judgment.

It is contended by counsel for the petitioner that, under our mode of civil procedure, service cannot be had in a transitory action on a defendant in a county other than that of his residence, except where there is service in the county where the action is instituted on a codefendant who is jointly liable. Their contention is that there is no joint liability under the allegation of the complaint in favor of Lockridge against Wilson and McCoy. Hence it is contended that, the liability being several and not joint, the court should have sustained the motion by Wilson to quash the service of summons upon him in Pulaski county, the suit having been brought in Arkansas county. In short, it is claimed that there is no joint liability against Wilson and McCoy, and that jurisdiction could not be obtained over Wilson, a resident of Pulaski county, by joining him in a suit with McCoy, who is a resident of Arkansas county, in a suit brought in the latter county.

The general rule is that the capital stock and assets of a corporation constitute a trust fund for the benefit of creditors, which neither the officers nor the stockholders can divert or waste. This rule was recognized and followed by this court in the case of Jones, McDowell & Co. v. Arkansas Mechanical & Agricultural Co., 38 Ark. 17. In the discussion of the case, the court said:

"The assets of an incorporated company are a trust fund for the payment of its debts, which may be followed into the hands of any person having notice of the trust. This doctrine was invented by Judge Story, in the case of Wood v. Dummer, [Fed. Cas. No. 17944] 3 Mason, 308, and it will constitute not the least enduring of his titles to be considered a great jurist. It has been applied by the Supreme Court of the United States in the following cases: [Citing cases.]"

"The cases in the State courts on this subject are too numerous to cite; but it is sufficient to say that the doctrine has never been denied by any court of last resort in the Union, before which the question has come, and it is as well settled as any legal principle can be."

The court further held that a director of a corporation is conclusively presumed to know its pecuniary condition, and that his purchase of the assets will not be bona fide, and without notice of the trust.

In the case of Wesco Supply Co. v. El Dorado Light & Water Co., 107 Ark. 424, 155 S. W. 518, this doctrine was approved, and the court again held that the assets of an incorporated company are a trust fund for the payment of its debts which may be followed into the hands of any person acquiring them with notice of the...