Court Opinion

ID: 6549638
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:22:59.93272+00
Date Added: 2024-06-11T15:56:04.411472
License: Public Domain

Hart, J., (after stating the facts). It may be said at the outset that a director of a corporation stands in the relation of a trustee to the stockholders and creditors of the corporation. Some of the authorities hold that a purchase by a director of all the assets of the corporation is absolutely void, without regard to the good faith of the transaction, and that the property belongs to the corporation the same as it did before such sale. Our court has held, however, that such sale is only to be voided at the instance of some party in interest for fraud. Jones, McDowell & Co. v. The Arkansas Mechanical & Agricultural Co., 38 Ark. 17; Wesco Supply Co. v. El Dorado Light & Water Co., 107 Ark. 424. In the last mentioned case, the court held (quoting from syllabus): “When one corporation of which A is the president, manager and owner of all the stock, sells all its assets to another corporation of which A. is also president and manager and owner of four-fifths of its stock, and the new company issued its stock directly to A. in payment for the transfer, and A. knew that the old company was indebted to the plaintiff, and knew of the insolvent condition of the old company, held, the new company is not an innocent purchaser of the assets of the old company and is bound to the payment of the creditors of the old company to the extent of the value of the assets received therefrom, whether it agreed to assume the obligations of the old company or not.” In that case, however, it appears that the president and principal owner of the stock of the old corporation as well as the purchasing corporation was also the principal creditor of the old corporation, and that the assets of the old corporation were chiefly used for the payment of his debt, and the court held that under all the circumstances of the case the sale was fraudulent and could be set aside by a creditor of the corporation. Here the facts are essentially different. It is true that John Vaile was surety on the debt due the First National Bank, which was the principal creditor of the company, but he was not primarily liable for the debt. The testimony clearly shows that the Fort Smith Automobile & Supply Company was actually indebted to the bank in the amount claimed by it, and the mere fact that Vaile was surety for the debt is not sufficient to make the transfer of the assets of the corporation to him fraudulent. Vaile testified (and his testimony in this respect is not contradicted) that he paid the fair market value for all the assets of the company which were conveyed to him., and that the assets were conveyed to him, under resolution passed by the board of directors for the purpose of enabling him to pay the debts of the company, which he did pay, and which are listed in the statement of facts. These claimants were all bona fide creditors of the company, and the company actually owed them the amounts paid to them by Vaile. Vaile sold one of the lots conveyed to him by the automobile company for $10,000, and he said this was the fair market value of the lot. So-it will be seen from the statement of facts that Vaile lost $2,000 in the transaction and reaped no personal benefit from it. It is true that when placed upon the stand by the plaintiffs, the record shows that he stated that the money borrowed from the First National Bank was used in paying for cars consigned to the company, and that, he does not know what became of the cars or the proceeds of sale thereof. When placed upon the stand by the defendants, however, he testified that some of the money arising from the sale of cars was used in paying the running expenses and the commercial debts of the corporation. He testified that he made an inventory of all the assets of the company and has accounted for these assets and the disposition he made of them. If it was thought or believed by the plaintiffs that assets belonging to the company had been concealed by Vaile or the other defendants, an effort should have been made by them to develop that fact. The present suit is not predicated upon the fact that any of the assets of the company were not accounted for, but is based solely upon the fact that the sale to Vaile was in fraud of the rights of the creditors, and on the further fact that under the laws of this State insolvent corporations can not prefer creditors. It will thus be seen that no attempt was made by plaintiffs to develop the fact, if such be a fact, that assets of the corporation were concealed by the directors and not accounted for. Hence, under all the circumstances, we think that the finding of the chancellor that the sale to Vaile was made in good faith for the purpose of paying the commercial debts of the corporation, and that the same was free from fraud, was not against the preponderance of the evidence. ' Section 949 of Kirby’s Digest provides that no preference shall be allowed among the creditors of .insolvent corporations, except for the wages and salaries of laborers and employees. Section 951 provides, in substance, that every preference obtained, or sought to be obtained, by any creditor of such corporation, whether by attachments, confession of judgment, or otherwise, and every preference sought to he given by such corporation to any of its creditors, in contemplation of insolvency, shall be set aside by the chancery court if complaint thereof be made within ninety days after such preference is given or sought to be obtained. In the case of Dozier v. Arkadelphia Cotton Mill, 67 Ark. 11, the contention was made that the preference by a board of directors of an insolvent corporation was not objected to within ninety days after the same was given, as required by section 951. The court held that the objection was not well taken, because the preference was made in secret and without knowledge of the party aggrieved, and that therefore there was no point of time from which to measure the ninety days. In that case, the directors of the corporation, by a resolution, provided for the sale of its assets and paid certain creditors to the exclusion of others, but there was nothing in the proceedings or transactions by which the creditor who was not paid could have ascertained that the corporation had disposed of its assets, and on this account the court held that the preference was made in secret and that there was no point of time from which to measure the ninety days, so far as outsiders were concerned, and no showing made that the plaintiffs in the action had notice of the distribution or payments made to the other creditors. Here the facts are essentially different. The corporation, by resolutions complying with the statutes, formally surrendered its charter, and after the plaintiffs had obtained a judgment in the circuit court and the case had been appealed to the Supreme Court, no supersedeas bond having been given, they caused an execution to be issued on the 3d of July, 1911, and the sheriff, on the 9th day of August, 1911, returned said execution unsatisfied, for the reason that he was unable to find anything to levy on. The present suit was not commenced until November 23,1911. Under the authority of Papan v. Nahay, 106 Ark. 230, the plaintiffs were creditors of the corporation, but because they did not bring suit within ninety days after they had notice that the corporation had disposed of its assets to its other creditors, they are barred from setting aside the sale under sections 949 and 951 of Kirby’s Digest. The decree will be affirmed.