Worthen v. Griffith

• Decision Date: 03 November 1894
• Citation: 28 S.W. 286,59 Ark. 562
• Parties: WORTHEN v. GRIFFITH
• Court: Arkansas Supreme Court

28 S.W. 286

59 Ark. 562

WORTHEN v. GRIFFITH

Supreme Court of Arkansas

November 3, 1894

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

STATEMENT BY THE COURT.

The facts in this case are, in substance, as follows: The F. P Gray Dry Goods Company, a corporation created under the laws of this State, being in failing circumstances and insolvent by its president, acting under the authority of the board of directors, executed, on the 12th day of May, 1891, a deed of assignment to Joseph Griffith for the benefit of its creditors, by which it conveyed to him a stock of merchandise in Little Rock, certain store fixtures, a safe and office furniture, one horse and a delivery wagon, and certain notes and accounts described in a schedule thereto attached. By the terms of the assignment, the assignee was to pay: First, the cost of administering the trust; second, various sums to W B. Worthen & Co. amounting to about twenty-two thousand dollars, to Wolf & Bro. twenty-two hundred and seventy-three dollars and eighty-nine cents, and to the Gazette Publishing Co. three hundred and ninety-one dollars and one cent; third after paying above debts in full, the deed of assignment provided that the residue of the proceeds of the assigned property should be applied equally to the payment of all the other debts of said company, without any preference whatever. At the time this assignment was executed, the stockholders of said company were James A. Gray, F. P. Gray and L. L. Boone. The board of directors was composed of the same persons, and F. P. Gray was president of the company. The assignee gave bond, and took possession of the assigned property. On the same day that the assignment was executed, said company, by its president, acting under authority of the board of directors, confessed judgments in the Pulaski circuit court in favor of W. B. Worthen & Co. and Wolf & Bro. for the amount due each of them respectively. Executions were at once issued on these judgments, and were placed in the hands of the sheriff, either just before or just after the delivery of the deed of assignment. The appellants, W. B. Worthen & Co. and Wolf & Bro., on the same day that said assignment was executed and judgment confessed, filed their complaint in the chancery court of Pulaski county against said Joseph Griffith and the dry goods company, alleging the fact of the assignment, judgments and executions; that the property consisted of a great variety of goods and merchandise, that many of the goods were perishable, that it would be greatly to the interest of all the creditors to have the trust managed under the control and direction of the chancery court, so that purchasers might be assured that they would obtain a good and reliable title to the property sold; and praying that the assignee might be invested with the power of a receiver to take charge of the assigned assets, and, under the order of the court, distribute the proceeds as provided in the deed of assignment, and for other proper relief.

The defendant Joseph Griffith and the dry goods company, on the same day the complaint was filed, entered their appearance and consented to the relief prayed, and thereupon said Joseph Griffith was appointed receiver by the court, and ordered to advertise for bids for the sale of the assigned property.

Afterwards, Burnham, Hanna, Munger & Co. and other creditors filed their intervening petitions, reciting the fact of said assignment, judgment and appointment of a receiver, and alleging that the assignment was fraudulent and void, that, at the time of the assignment, and long before, the said dry goods company was insolvent and unable to pay its debts, that the assignment, judgment and application for a receiver was a part of a general scheme to cover up the assets of the dry goods company; that, for a long time previous to said confession of judgment and assignment, the officers of said company had been fraudulently disposing of its property, and secreting and withdrawing it from the assets of the corporation, and appropriating it to their own use; that Worthen & Co. held the notes of the dry goods company for a portion of the indebtedness claimed to be due them, and that said F. P. Gray and Jas. A. Gray, two directors, were individual indorsers on said notes, and that, for other debts not so indorsed, F. P. Gray had deposited property with said Worthen as collateral security; that, in order to relieve said individual liability of said F. P. and James A. Gray, said dry goods company had purchased large amounts of goods, in order that the same might be included in the assignment, so as to pay off the debts of said preferred creditors; that both James A. and F. P. Gray attended the meeting of the board of directors which authorized said assignment and confession of judgment, and voted for the same. They further alleged that they had brought suit in the Pulaski circuit court against said dry goods company and had caused writs of attachment to issue, which had been placed in the hands of the sheriff of Pulaski county, but that, as the assets were in the hands of a receiver, no levies could be made. They prayed that the assignment, judgment and application for a receiver be declared void, and that a sufficient amount of the proceeds of the sale by the receiver be paid over to the intervenors to satisfy their claims, and for other relief.

The appellants, W. B. Worthen & Co. and Wolf & Bro., filed separate responses to the intervening petitions, admitting that F. P. Gray and James A. Gray, directors, were indorsers on some of the notes due Worthen & Co., and that F. P. Gray had also deposited a small amount of property as collateral security for the payment of those notes, but denying the other material allegations of said intervening petitions, and alleging that the amounts for which they recovered judgment were justly due.

The case was heard on the pleadings, exhibits and depositions. The chancellor found that the assignment was fraudulent, both in fact and law, and declared that the same was void, and ordered the proceeds of assets in hands of the receiver distributed, first, to the payment of the claims of the intervenors who had filed attachment suits, and, after the payment of these claims, the remainder of the funds to be distributed in accordance with the decree. Although the assignment was held void, the chancellor found that debts claimed by Worthen & Co. and the other creditors preferred by the assignment were justly due from the dry goods company and ordered that they be allowed a share in the distribution of the remainder of the proceeds left after paying claims of creditors that had filed attachment. Worthen & Co., Wolf & Bro., and Joseph Griffith appealed from the decree.

Decree reversed and cause remanded.

Rose, Hemingway & Rose and Jacob Erb, for appellants, Worthen, Griffith and Gazette Publishing Co.

1. The fact that two of the directors had endorsed some of the notes, and had pledged individual personal property to secure some of them, does not render the assignment invalid. An insolvent corporation may make an assignment and prefer creditors, just as an individual. 150 U.S. 371; 58 F. 286; 35 id. 167; 84 N.Y. 199; 52 id. 685; 4 Ark. 303; 13 id. 575; 28 id. 82; Ib. 429, and other cases from twenty-six States. Circumstances of suspicion are not sufficient to invalidate it. 38 Ark. 427; 50 id. 47. The motives cannot be inquired into, further than to show a fraudulent intent. Bump, Fr. Conv. p. 189; 22 Tex. 708; 75 Am. Dec. 812; 16 Oh. St. 439; 32 N.Y. 214; 19 Pa.St. 61. All the cases holding a contrary doctrine rely on Mr. Justice Story's dictum in 3 Mason, 308. But later decisions do not sustain the doctrine. 50 N.W. 1117; 102 U.S. 161; 133 U.S. 534; 91 U.S. 589. Review 9 F. 532, where it is held that a corporation cannot prefer a director, and cases following it (25 F. 586; 35 id. 433; 23 Mo.App. 525; 39 id. 139; 5 Sawy. 403; 26 N.W. 186), and contend that the better rule is laid down 52 F. 680; 23 F. 432; 57 id. 375; Burrill, Assignments, sec. 64. Most of the cases holding assignments void where directors of a corporation are secured have taken their cue from 2 Morawetz, Corporations, secs. 802-3. But the courts have not followed him. 102 U.S. 160, and cases supra. The following cases hold that an assignment is not invalidated by reason of directors endorsing the paper, or pledging individual property to secure same. 72 Iowa 666; 1 Spear's Eq. (S. C.) 545; 70 id. 697; 7 A. 514; 16 Iowa 284; 80 Iowa 291; 1 Watts, 385; 60 Pa.St. 314; 78 Va. 737; 47 Conn. 54; 86 Ky. 206; 6 Conn. 233; 90 Mich. 345; 35 F. 161. The last case is an indorsement by directors.

2. The validity of the assignment is not affected by the fact that F. P. Gray took out of the funds money that was not accounted for. If he acted fraudulently, he was acting in his own interest, and not in that of the company; and in such case the corporation had no notice of his acts. 25 Conn. 446; 12 Ala. (N. S.) 502; 22 Pick. 30; 41 Conn. 255; 6 So. Law Rev. 816; 34 F. 727; 70 Wis. 272; 133 U.S. 690. This was only a partial assignment. 122 U.S. 450; 4 U. S. App. 72; Ib. 403. See also 34 N.E. 1088. The same rule applies to subsequent acts of the assignor. 18 Ark. 124; Ib. 172; 54 id. 124.

3. The confession of judgment, deed of assignment, and application for receiver, taken together, do not invalidate the assignment. Cooley on Torts, p. 468; 54 Ark. 129; 18 id. 124; Ib. 172. The receiver was properly appointed. 38 Ark. 439; 54 Ark. 124. Even if the chancery court was without jurisdiction, the interventions supplied the defect. 48 Ark. 312.

Sanders & Cockrill for intervening creditors.

The assignment was fraudulent, in fact, and in law, because:

1. The confession of judgment, the...