Case Name: Scoggin v. City National Bank
Court: Arkansas Supreme Court
Jurisdiction: Arkansas
Decision Date: 1927-11-21
Citations: 175 Ark. 461
Docket Number: 
Parties: Scoggin v. City National Bank.
Judges: 
Reporter: Arkansas Reports
Volume: 175
Pages: 461–475

Head Matter:
Scoggin v. City National Bank.
Opinion delivered November 21, 1927.
Evans $ Evans and Cravens $ Cravens and Webb Covington, for appellant.
James B. McDonough, for appellee.

Opinion:
Humphreys, J.,
(after stating the facts). In making a statement of the case we did not attempt to set out the pleadings at length, or the substance of the testimony of each witness introduced, or the decree in extenso. Had we done so, it would have unduly lengthened the statement. We confined ourselves to la statement of the issues joined, our conclusion of facts, after a careful reading and analysis of the testimoiry, and the substance of the decree.
The issues joined did not involve the solvency or insolvency of either the Model Window Glass Company or the Magnolia Window Glass Company, nor did the evidence adduced raise that issue. The case was not tried upon the theory that the Model Window Glass Company was solvent in so far as having ample property to pay its commercial debts and to sustain the value of its capital stock. Its capital stock was $75,000, and the value of its plant ivas sufficient to obtain $135,000 insurance before it was destroyed by fire. It had been rebuilt, and was practically new at the time of this transaction, and it may be reasonably inferred from the testimony of C. P. Zenor, Sr., that he expended ia large amount of the insurance money in the reconstruction of the plant. It had $6,761 of unpledged assets, and only owed about $16,000 when absorbed by the Magnolia Window Glass Company, in addition to the amount it owed the City National Bank, which was amply secured by glass 'and accounts receivable. In fact there was a margin of $10,000 or $15,000 between the glass pledged and the debt it was. pledged to secure. With a little backing from Scoggin and Hill, the real estate and plant of the Model Window Glass Company was taken over on August 7, 1924, by the Magnolia Window Glass Company, that had no money of its own, and operated at a nice profit until the testimony was being taken in this case. We arrive at that conclusion from Scoggin's statement that the Magnolia Window Glass Company had sold $130,000 worth of glass, including what he and Hill had redeemed from the pledge to the bank, and had on hand glass worth $50,000, material worth $4,000 and accounts receivable of the value of $6,005, and only owed $2,100 to Hill, $600 to himself and $35,000 to the Merchants' National Bank, leaving a margin of $22,305, to say nothing of the value of the real estate and the plant.
The court's decree dissolving the corporations and appointing a receiver to wind up their affairs on the ground that they were insolvent was outside and beyond the issues joined or raised by the testimony. It was also erroneous 'because an individual creditor of a stockholder has no right to bring a suit to dissolve a corporation and wind up its affairs upon the ground of insolvency. That is a right conferred by our statutes on creditors and stockholders of a corporation. Sections 1820 and 1821, CraAvford & Moses' Digest. None of the creditors or stockholders of either corporation are parties plaintiff to this suit; the only parties plaintiff to this suit are creditors of C. P. Zen or, Sr. Creditors of stockholders in a corporation do not stand in the shoes of a stockholder until they obtain a judgment against the stockholder, and levy upon Ms stock and buy it in at the sale. Then, and not until then, would they have a right, under § 1820' and 1821, to proceed to dissolve and wind up the affairs of an insolvent corporation. It is urged by appellees that § 4873 and 4874 of Crawford & Moses' Digest are authority for maintaining this suit as a creditors' bill. We do not think other persons mentioned in § 4873 embraced individual creditors of a stockholder in a corporation, but, if it does, we think appellees are estopped by transactions they had with Scoggin and Hill from maintaining a suit to set aside the sale of the real estate and plant of the Model Window Glass Company to the Magnolia Window Glass Company.
Again, appellees are clearly estopped from complaining of the sale of the real estate and plant of the Model Window Glass Company to the Magnolia Window Glass Company. They had record notice in August, 1925, of the incorporation of the Magnolia Window Glass Company and the conveyance to it by the Model Window Glass Company of its real estate and plant for a nominal consideration of $10. The City National Bank thereafter, and prior to the institution of this suit, accepted the personal indorsement of J. S. Hill and A. H. Scoggin, two of the incorporators of the Magnolia Window Glass Company, on an indebtedness of over $33,000 which the Model Window Glass Company owed it, and released glass valued at $35,000 to $38,0*00, so that the Magnolia Window Glass Company would have glass to sell in the ordinary course of trade. The glass was moved back to the plant of the Model Window Glass Company, which had been taken over by the Magnolia Window Glass Company. J. B. McDonough collected a claim against the Model Window Glass Company on an acceptance signed by A. H. Scoggin and J. S. Hill, two of the incorporators of the Magnolia Window Glass Company. Scoggin and Hill tried to g'et him to take the acceptance of the Magnolia Window Glass Company in payment of the debt, and he refused to do so. We think the record notice and these transactions were sufficient to put appellees upon notice that the real estate and plant of the Model Window Glass Company was being taken over by the Magnolia Window Glass Company, and they are estopped, after securing these debts by obtaining the personal indorsement of A. H. Scoggin and J. S. Hill in furtherance of the transaction, to complain about the transfer of the real estate and plant. Both the City National Bank and McDonough must have known that Scoggin and Hill did not pay $37,500 into the treasury of the Magnolia Window Glass Company, and that Miller did not pg.y a like amount into the treasury of the corporation, else they would have insisted upon a payment of their debts in cash rather than obtain security for same by the indorsement of Scoggin and Hill. By inquiry they could readily have ascertained the real consideration agreed to be paid bv Scoggin and Hill for the transfer of the real estate and plant of the Model Window Glass Company to the Magnolia Window Glass Company.
We do not think the City National Bank is estopped to collect its claim -against C. P. Zenor,'Sr., because it allowed the maker of the notes, Zenor Bottling Company, through the solicitation of C. P. Zenor, Sr., to move its machinery out of the State after the fire. C. P. Zenor, Sr., moved it out of the State, and it certainly does not lie in his mouth to say that the favor it granted to his corporation had the effect of releasing him from making hist indorsement to the hank good. The most that appellees were entitled to, under the allegations of the complaint and the testimony introduced in support thereof, was to follow the stock of C. P. Zenor, Sr., into the Magnolia Window Glass Company, and to subject it to the payment of their claims, provided that it was a voluntary gift to Miller, or provided it is held by Miller in trust for C. P. Zenor, -Sr. The testimony has convinced us that the stock was issued to Miller without consideration and for the purpose of enabling the Magnolia Window Glass Company to get insurance on the plant; that Miller was not a bona fide purchaser thereof for a valuable consideration. The carelessness with which his note was handled indicates that its execution was' a matter of form only, and that it was issued, if issued at all, as a subterfuge to cover up Zenor's property and stock and prevent his creditors from reaching it. Scoggin and Hill claim and insist that they held $31,500 of Miller's stock as collateral to secure them against any loss they might sustain by reason of indorsing the notéis of the Model Window Glass Company to the City National Bank, and any loss they might sustain by reason of other indorsements made in the operation of the Magnolia Window Glass Company. The testimony reflects that.they have received ample property to protect them against loss on account of all their indorsements, except to the Merchants' National Bank for $35,000, and that the glass on hand is more than sufficient to pay the debt the Magnolia Window Glass Company owes the Merchants' National Bank.
The assignment of $31,500 of the Miller stock in the Magnolia Window Class. Company was properly canceled by the court. The Zenor Bottle Company is not entitled to any judgment against the City National Bank on its cross-complaint. The City National Bank made an effort to renew the old insurance policies as they expired, and was unable to do so. The record reflects that it was impossible to get insurance on property in which C. P. Zenor, Sr., Was interested.
On account of the errors indicated, the decree is reversed, in so far as it sets aside the sale of the real estate and plant of the Model Window Glalss Company to the-Magnolia Window Class Company and dissolved them and appointed a receiver to wind up their affairs; and affirmed in so far as it sets aside the assignment of $31,500 of the stock carried in Miller's name for the Magnolia Window Class Company, and impressed same with a lien to isiecure appellees' judgments.
The case is therefore remanded, with directions to the chancery court to order the stock sold, amounting to $31,500, carried in Miller's name in the Magnolia Window Class Company, free from any claim of Sooggin and Hill, to satisfy appellees' judgments.