Case Name: American Zinc Products Company v. Sanders
Court: Arkansas Supreme Court
Jurisdiction: Arkansas
Decision Date: 1927-10-24
Citations: 175 Ark. 133
Docket Number: 
Parties: American Zinc Products Company v. Sanders.
Judges: Mehaeey, J., not participating.
Reporter: Arkansas Reports
Volume: 175
Pages: 133–142

Head Matter:
American Zinc Products Company v. Sanders.
Opinion delivered October 24, 1927.
James B. McDonough, for appellant.
Warner, Hardin £ Warner, and Hill & Fitehngh, for appellee.

Opinion:
Kirby, J.
If this intervention, as appears to be the case from the allegations of the petition, be considered a proceeding to set aside and cancel the mortgage from the Port Smith Spelter Company to the American Zinc Products Company as fraudulent and giving a preference to the creditors of an insolvent corporation, it must fail, as not having been commenced within 90 days after the execution of the mortgage complained of, as the law requires, since the mortgage sought, to be foreclosed was recorded on June' 24,1924, as alleged in the intervention, which was not filed until October 14, 1925, more than a year after the execution and recording of the mortgage. Sections 1799 and 1800, C. & M. Digest; Nedry v. Vaile, 109 Ark. 584, 160 S. W. 880.
The chancellor held the mortgage void as fraudulent, denied appellant's right to foreclosure thereof, and took charge of the mortgaged property by his receiver, under a $2,000 bond, and directed a sale thereof and that the receiver make prompt report of his action in the matter, and apply for orders with respect to the disposition of the proceeds realized from such sale, and retain jurisdiction to make orders for distribution thereof. The chancellor was without authority to order a sale of the property for winding up its affairs, as an insolvent corporation attempting, by the execution of the mortgage, to give preference to one of its creditors, as he held to be the case, since the law relating to the dissolution and winding up of an insolvent corporation, under such conditions, does not apply to a foreign corporation authorized to do business in the State. Dickey v. S. W. Surety Insurance Co., 119 Ark. 17, 273 S. W. 398, Ann. Cas. 1927B, 634; Macon v. LeCroy, 174 Ark. 228, 295 S. W. 31.
The evidence not only does not support the court's findings that the mortgage was executed without consideration and to hinder and delay creditors in the collection of their debts and in the enforcement of their rights, but is contrary thereto, the great preponderance thereof being against such finding. The testimony is voluminous, but, notwithstanding strenuous efforts made to show that improper motives prompted the execution of the mortgage between the two corporations, we do not find anything in the evidence warranting the conclusion that the transaction was tainted with fraudulent intention, or that the effect of it was to hinder and delay creditors of the mortgagor corporation. It was not shown that there were any other creditors, or that the mortgagor corporation was indebted except to the mortgagee. The intervener was not a creditor of the mortgagee corporation in fact, but only had an alleged claim for damages to his lands, because of the operation of its plant, and for securing the enforcement of any judgment recovered an attachment had been levied, after the execution and recording of the mortgage, upon the mortgaged property. His claim was only for $16,000, and upon the first hearing thereof a mistrial resulted. Certainly the court could not have found necessity for denying the foreclosure of appellant's mortgage, under the circumstances, and the sale of the mortgaged property, of the probable value of a half million dollars, and the taking charge of such property for selling it by a receiver, for the protection of an alleged claim for damages to the intervener, that might never be reduced to judgment, and could not exceed $16,000 in any event. The attachment issued would have protected any valid claim the intervener could have against the property attached, if the allegations of the intervention were true relative to its fraudulent conveyance, without any seizure and sale by the court's receiver in this proceeding.
Neither do we agree with the contention that the mortgage of the Port Smith Spelter Company to the American Zinc Products Company was void, as not having been executed in fact by the spelter company, but rather by the zinc products company, as mortgagee, to itself. The entire instrument, as recorded and exhibited to this court, shows unmistakably that it was intended as a mortgage by said spelter company to the zinc products company, given to secure the payment of the note executed for advancements of money to said mortgagor, the note being correctly described in the recitals of the mortgage as the indebtedness of the spelter company, which the mortgage was executed to secure, the mortgage, in fact, being signed by the president and acting secretary of the mortgagor corporation, who, by obvious mistake, signed the name of the zinc products company instead of the spelter compa*ny, as the evidence discloses should have been and was intended to be done. The seal of the mortgagor corporation was attached with the signature, the indentation or impression showing it to. be such and containing the words "Port Smith Spelter Company," and the certificate of acknowledgment shows that it was executed by the president and the acting secretary of the Fort Smith Spelter Company, who acknowledged that they had executed it in their respective official capacities by authority of the corporation for the Fort Smith Spelter Company, etc.
The recording of the mortgage, as executed, the whole of the writing, and the certificate of acknowledgment, showing conclusively that it was, in fact, executed and acknowledged by the proper officers of the corporation, who intended to, but by obvious mistake did not, sign its name as mortgagor, was sufficient to put third persons upon inquiry and give notice to all persons of its existence, and constituted a lien upon the mortgaged property.
The undisputed testimony established the fact that the directors of the two corporations were not always the same, that the stockholders were never the same, and, when this mortgage was executed, although C. W. Martin was president and treasurer of both companies, and C. H. Stewart was secretary of the spelter company and vice president of the zinc products company, the two companies remained separate corporations, and, even though they were so connected by the officers and directors, that fact did not make the transaction between the corporations fraudulent. They could have dealings and lend money to each other. Jones Lbr. Co. v. Wisarkana Lbr. Co., 125 Ark. 65, 187 S. W. 1068; Twin Lick Oil Co. v. Mabury, 91 U. S. 587, 23 L. ed. 328.
Both of the corporations were organized under the laws of Ohio, where it appears the Fort Smith Spelter Company was a de jure as well as a de facto corporation, as would have been held to be the case under our court's ruling, and where a de facto may act as though it were a de jure corporation, and its corporate existence cannot be attacked in an action by or between private individuals. Perun v. Cleveland, 43 Ohio St. 481, 3 N. E. 357; Arlington Hotel Co. v. Rector, 124 Ark. 90, 186 S. W. 622.
Sanders having brought his suit in the Federal court against the Fort Smith Spelter Company as a corporation and his intervention in the chancery court alleging it was a corporation, he has elected to treat such company as a corporation, and should not be allowed to deny its existence. Petroleum v. Ware, 27 Ohio St. 343.
There is no reason in law why, under the circumstances of this case, there being no evidence tending to show that the mortgage was made to defraud or injure intervener and other creditors, the spelter company could not borrow money from the zinc products company and secure the payment thereof by a valid mortgage. Goodbar v. Locke, 56 Ark. 314, 19 S. W. 924; Galkins v. Lockewood, 16 Conn. 276, 41 Am. Dec. 143.
If the spelter company was insolvent at the time, and there was no real evidence to show that it was, the borrowing of $250,000 more, for which it executed said mortgage to secure the payment of, could not have proved injurious, in any event, to the intervener nor rendered the corporation insolvent. Cain v. Lane, 165 Ark. 205; 263 S. W. 399; McKee v. Hendricks, 165 Ark. 369, 264 S. W. 825, 952.
It follows that the chancellor erred in not reforming the mortgage as prayed, and in holding it a fraudulent conveyance, executed to hinder and delay creditors in the collection of their debts, and also in sustaining the intervention, which should have been dismissed for want of equity, and in appointing a receiver to take charge of and sell the mortgaged property. The decree is accordingly reversed, and the cause remanded with directions to reform the mortgage and foreclose same and sell the property for the payment of the indebtedness, and to dismiss the intervention for want of equity, and for all further necessary proceedings in accordance with the principles of equity and not inconsistent with this opinion.
Mehaeey, J., not participating.