Wolf v. Erwin & Wood Company

• Decision Date: 20 June 1903
• Citation: 75 S.W. 722,71 Ark. 438
• Parties: WOLF v. ERWIN & WOOD COMPANY
• Court: Arkansas Supreme Court

75 S.W. 722

71 Ark. 438

WOLF v. ERWIN & WOOD COMPANY

Supreme Court of Arkansas

June 20, 1903

Appeal from Union Circuit Court in Chancery, CHARLES W. SMITH Judge.

Affirmed.

Decree affirmed.

H. C Harper. W. D. Jamison, Neill C. Marsh, James Marsh, Jesse B Moore, Morris M. Cohn, for appellants.

The pretended deed of trust was a part of the scheme to defraud. Appellees could not profit by it. 33 Ark. 63; 21 Ark. 22. The directors were trustees of the property of the company for creditors. 33 Ark. 305; 38 Ark. 17. As a director, Albie could not a bona fide purchaser. 130 U.S. 43. He was charged with notice of the fraud. 63 F. 496. The pretended mortgage was not authorized. 55 Ark. 473. The law of Iowa will be presumed the same as ours. 58 Ark. 26; 50 Ark. 237; 51 Ark 459; 17 Ark. 154; 43 Ark. 209. The mortgages were never recorded, and this would make the attachments prior to Albie. 9 Ark. 112; 15 Ark. 73; 18 Ark. 85; 20 Ark. 190; 32 Ark. 598; 37 Ark. 91; 42 Ark. 140. The fraudulent representations defeat the attempt to rely on the mortgages. 1 Big. Fr. 366; 66 Ark. 98; 10 N.H. 413; 6 Vt. 240; 10 Johns. 461; 13 Mass. 51. The attachment was not necessary. Sand & H. Dig. § 3134; 56 Ark. 73; 56 Ark. 476.

Smead & Powell, for appellees.

The burden was upon appellants to show the invalidity of the mortgages. 1 Cob. Chat. Mortg., § 400; 93 Ill. 153. The lex loie contractus will govern the legality of the execution of the deed of trust. 3 Ark. 96; 6 Ark. 142; 7 Ark. 231; 14 Ark. 189; 22 Ark. 125; 25 Ark. 261; 34 Ark. 640; 40 Ark. 423; 44 Ark. 213; 46 Ark. 66; 47 Ark. 54; 61 Ark. 1, 329. A chattel mortgage being valid on its face, the burden of proof is on the attacking party. 2 Cobb Chat. Mortg., § 767; 28 P. 257; 18 Ark. 123; 149 Ill. 635; 77 Ind. 383; 145 Mo. 91; 35 S.W. 807; 39 Ark. 325; 41 Ark. 193.

J. B. Moore, for appellants, in reply.

As to lumber and merchandise, the mortgage was void pro tanto as against creditors. 46 Ark. 122; 41 Ark. 186; 39 Ark. 325; 50 Ark. 289. Albie can not profit by his own fraud. 101 Ind. 293; Mech. Ag. § 743. The board of directors can only act as a board, 52 Ark. 511; 39 N.J. 207; 26 Minn. 43; 42 Mich. 332; 47 Iowa 11; 1 Mor. Priv. Corp. § 531-2; 55 Ark. 475. There was constructive as well as actual fraud in the execution of the deed of trust. 35 Ark. 304; 38 Ark. 17; 59 Ark. 580. The notes and instruments are not sufficient to remove the suspicion of fraud. 68 Ark. 162; 50 Ark. 289, 314, 447, 562; 43 S.W. 763; 64 Ark. 415, 505; 32 Ark. 251; 46 Ark. 542; 47 Ark. 301; 49 Ark. 20; 58 Ark. 446; 60 Ark. 425; 59 Ark. 580, 614. The transaction should be set aside for inadequacy of price. 32 Ark. 251; 55 Ark. 579; 60 Ark. 425; 59 Ark. 581, 624; 64 Ark. 415.

OPINION

BUNN, C. J.

At the October term, 1896, the plaintiffs, Wolf & Bro., a mercantile firm doing business in the city of Little Rock, filed a creditors' bill in the Union circuit court in chancery against the Erwin & Wood Co., C. M. Cook, trustee, and W. T. and J. M. Parnell as garnishees. Subsequently E. W. Albie, intervener in certain prior attachment suits, was made defendant also. The defendants filed their answers, taking issue on all the controverted allegations of the bill. We gather, from statement of counsel in the case, that the only ground for the attachment upon which the bill is based was that the defendant company was a foreign corporation and a non-resident of the state; and such, as we understand it, was the only ground for previous attachments, which had been dismissed on compromise sometime before the later attachments were sued out, as will appear further on.

Having established a sawmill plant at Norphlet, in Union county, of this state, the Erwin & Wood Co. on the 18th of June, 1894, borrowed of E. W. Albie the sum of $ 5,000, for which it gave him its notes, due in twelve months thereafter, and secured the same by its mortgage of even date on all its property in that vicinity situated. The company was then and still is a corporation organized under the laws of the state of Iowa, with its principal office at the city of Dubuque in that state, and doing business at the time at Norphlet as aforesaid.

Albie was then the vice president of the company, and afterwards became its treasurer, as he is still, so far as the record shows. The money thus borrowed was for the purpose of buying iron rails to be laid on the company's tramways from the mill at Norphlet, and was so used, according to the testimony of N. P. Wood, one of the plaintiffs, who had been secretary part of the time, and all the time an employee of the company from the beginning. Wood also testified that the company had borrowed other money in 1895 from Albie, and from the First National Bank of Dubuque, giving a note therefor with Albie as surety. Witness does not state the amount of these loans, or whether Albie paid the surety debt. In other respects, his testimony is in corroboration of Albie and other witness connected with the business of the company.

The mortgage is, in a general and indefinite way, alleged to have been a fraud upon the rights of the plaintiffs, whose claims, however, did not exist prior to September, 1895, about fifteen months after its execution.

There can scarcely be any question as to the bona fides of the debt secured by this mortgage; nor is there any contention that it was executed without authority. It is contended, however, that the property, or portions of it--part of the lumber--was disposed of by the mortgagor company, which was permitted to remain in possession and dispose of the lumber, but required to replace the same lumber there to be manufactured, and that the proceeds of this lumber were not appropriated to the mortgage debt due in June, 1895, as aforesaid. There is meager testimony as to the facts, but on the face of the mortgage the provision referred to above appeared, and this, under the ruling of this court in Fink v. Ehrman, 44 Ark. 310, and Gauss v. Doyle, 46 Ark. 122, made the mortgage technically void, but only pro tanto; that is, as to the property permitted to be disposed of in this way by its terms. The mortgage is valid in other respects, as the same lumber and that substituted for it is embraced in the later deed of trust. Attachment as to that is not available.

The lumber included in the mortgage and that substituted for it was included in the deed of trust dated February 28, 1896. In the latter part of January, 1896, the plaintiffs, or most of them, sued the company on their several debts against it in justice of the peace courts in El Dorado township of Union county, and at the same time sued out the several writs of attachment, on the ground that defendant company was a non-resident. In commencing its business at Norphlet, the company had appointed, under the requirements of the statute of the state, one H. P. Graham as its agent at Norphlet upon whom service of legal process might be made. Early in the month of February, 1896, while these suits in attachment were pending at various stages, the company dispatched their attorney, one Dohs, to Norphlet, to undertake some kind of settlement in the matter. After much negotiation between Dohs and the attorneys for the plaintiffs, acting for their respective clients, an agreement was finally reached, by which the company agreed to pay one-half of the several claims of plaintiffs and the costs of the attachments in cash, and to give its promissory notes, due in ninety days, for the other half of the plaintiffs' several claims. This agreement was carried out, the half of the claims was paid in cash, the costs were paid, and the notes for the other half of the several debts were given, and the pending attachment suits were dismissed as agreed. About the time of the pendency of this settlement, or soon afterwards--the exact time does not appear--the company at Dubuque undertook to make provision for meeting the cash part of the settlement thus made, and for that purpose had to effect a loan of that much, and finally Albie was induced to make it an additional loan of $ 2,000 for that purpose, on condition that the company would secure him not only for that sum, but for all his unsecured and partially secured claims against the company, which at that time amounted to $ 7,500, by a deed of trust on all its property at Norphlet. This was in addition to the sum secured by the first mortgage, and named therein, and the deed of trust was not to affect that mortgage in any wise. The debt thus to be secured amounted in the aggregate to the sum of $ 9,500, which was then embraced in two promissory notes, one for $ 5,000 and the other for $ 4,500, and the deed of trust of even date therewith was executed according to the agreement between them, and placed on record in the recorder's office of Union county, Arkansas, on March 10, 1896.

Upon the non-payment and protest of the notes given in the settlement as aforesaid when they fell due, the attachment suits upon which the bill in this case is based were instituted, and levies caused to be made upon all the personal property of the defendant company at Norphlet consisting of a large quantity of manufactured lumber, the commissary, etc., and writs of garnishment were served upon W. T. Parnell and J. M. Parnell, purchasers on a credit of about twenty head of cattle belonging to the mill of the 'company. Most of these suits were in justice of the peace courts, and one of these was prosecuted to judgment (and by agreement of record all the others were to abide the determination of this one), an appeal was taken to the circuit court by the defendant company, the trustee in the deed of trust, C. M. Cook, who had been properly substituted for Graham, who had declined to act (said Cook as such trustee having all the...