Court Opinion

ID: 3274913
Source: CourtListenerOpinion
Date Created: 2016-07-05 16:43:29.611829+00
Date Added: 2024-06-11T13:59:36.394056
License: Public Domain

STATEMENT BY THE COURT.
On the 22d day of December, 1926, the Paragould Trust Company, a banking corporation located at Paragould, Arkansas, became insolvent, and its affairs were taken over by the Bank Commissioner of the State of Arkansas.
Walter E. Taylor, State Bank Commissioner, filed his complaint in the chancery court of Greene County, Arkansas, against Joseph Bertig, S. Bertig, and the administrator of the estate of A. Bertig, deceased, and other parties, seeking to foreclose a pledge agreement executed by A. Bertig, S. Bertig and Joseph Bertig, on the 18th day of September, 1926, whereby the said Bertigs pledged to the Paragould Trust Company certificate No. 8 for 667 shares, certificate No. 9 for 667 shares, and certificate No. 10 for 666 shares of the capital stock of Richards Land Company, said stock being pledged to secure certain indebtedness owing by A. Bertig, S. Bertig *Page 620 
and Joe Bertig, and certain corporations in which the Bertigs owned stock, to the Paragould Trust Company.
The Paragould Trust Company held a note executed by B. M. Kitchens for $5,000, and which constituted part of the indebtedness for which the stock above described was pledged. Kitchens was made defendant to this suit, along with a number of other parties, but there were no allegations against Kitchens, other than the fact that his note constituted part of the indebtedness for which the stock was pledged, and no judgment was sought against Kitchens, the only relief asked in the complaint being for foreclosure of the pledge agreement and sale of the stock, and application of the proceeds upon the indebtedness for which it was pledged. Kitchens filed an answer, which is found at pages 21 to 24 of the transcript. Demurrer was filed to his answer, and it was dismissed for want of equity.
W. A. Shannon and a number of other parties filed an intervention, alleging that they were creditors of various corporations, which corporations they in turn alleged were owned and controlled by Bertig Brothers, a partnership. They also alleged that in the year 1920 Bertig Brothers, a partnership, became very heavily involved, and that this condition continued until the year 1924, when the partnership of Bertig Brothers, then composed of A. Bertig, S. Bertig and Joseph R. Bertig, fraudulently devised to conceal themselves from personal liability and falsely pretended to organize a parent corporation known as the Bertig Realty  Investment Company, with a capital of $500,000, fully paid up, and to organize other corporations; that no capital was in fact paid into the said Bertig Realty  Investment Company; that the affidavits as to the payment of capital stock were false; that no corporate function was ever performed, except the election of pretended officers; that all the powers purported to be granted to said Bertig Realty Investment Company by its certificate of incorporation were ultra vires, and without and beyond the power of the State to confer, for the reason that the purposes and *Page 621 
objects of said corporation as set out in its charter are not authorized under the statutes of Arkansas. That said pretended corporation had in fact no capital stock, except such as the members of Bertig Brothers, a partnership, pretended that they had conveyed to or given it; that in many instances said property was not in fact conveyed to or given to said pretended corporation; that the affidavits as to subscriptions to said corporation's capital stock were in fact false and fraudulent; that the members of the partnership of Bertig Brothers, acting solely as individuals, controlled, conveyed, transferred, pledged, sold and otherwise dealt with the apparent property of said several corporations as freely as though no such corporate entities existed, or as though they did not pretend to exist.
The interveners in their intervention conclude by praying that plaintiff's complaint be dismissed, and that the court find that all the property of the various corporations thereinbefore mentioned be the property of Bertig Brothers, a partnership, and distribute it among the various creditors of the various corporations mentioned in interveners' intervention.
To this intervention appellees filed a demurrer, which was by the court sustained and the intervention dismissed. Decree was then rendered foreclosing the pledge agreement pledging the stock of the Richards Land Company to Paragould Trust Company, and ordering the stock sold and its proceeds applied upon the indebtedness to secure which the stock was pledged, and from this decree this appeal is prosecuted.
(after stating the facts). It is insisted that the court erred in sustaining the demurrer to the intervention of Shannon and others, and also in sustaining a demurrer to the answer of B. M. Kitchens and dismissing it for want of equity. The attorney for interveners insists that but one issue is presented, and that an issue of law, by the appeal as to whether a common unsecured *Page 622 
creditor has the right to intervene in a foreclosure suit and dispute the title of the Bank Commissioner, having in charge the affairs of the pledgee, to the property pledged. The Bank Commissioner, in charge of the Paragould Trust Company, insolvent, sought by this suit to foreclose a written pledge agreement or assignment executed to the insolvent trust company by A. Bertig, S. Bertig and Joe R. Bertig, on September 18, 1926, and to sell the stock certificates of the Richards Land Company, described in the pledge agreement, it being alleged that 667 shares were owned by A. Bertig, 667 by S. Bertig, and 666 shares by Joe R. Bertig, and pledged to secure an aggregate indebtedness of approximately $160,000 due by the Bertigs individually and by various mercantile, gin and land corporations composing the Bertigs' interests, including all indebtedness of $15,500 due the Paragould Trust Company by the Bertig Realty and Investment Corporation, and a note of B. M. Kitchens for $5,000 indorsed by Joe Bertig.
The Richards Land Company, a corporation, was organized in 1906, before the organization of the Bertig Realty and Investment Corporation and the other corporations designated in the intervention. There is no contention that it was fraudulently organized or that it was insolvent. The interveners alleged that its assets were worth $75,000 or $80,000 more than its indebtedness.
At the time of the execution of the pledge agreement in the suit, the stock in the Richards Land Company was held by the Bertigs, and the old stock certificates were surrendered and new certificates issued for the same amount of stock held by each of the said Bertigs to the Paragould Trust Company as trustees. The interveners alleged that they were creditors of the various corporations, which they allege were owned and controlled by Bertig Brothers, a partnership, which in its dealings ignored the separate corporate entities and treated the various corporations as Bertig Brothers, a partnership. They alleged further that the corporations of which they were creditors, designating them, had been *Page 623 
adjudged bankrupt, that petitions in bankruptcy had been filed against Bertig Realty and Investment Company, a corporation, and Bertig Brothers, a partnership. These allegations were true, and the realty company and the Bertig Brothers partnership were each adjudged bankrupts before the hearing. There is no allegation in the intervention that either Bertig Brothers, a partnership, or Bertig Realty and Investment Company, a corporation, or any of the trustees of the corporations adjudged bankrupt, had been requested to intervene in the suit and had refused to do so. Certainly the interveners, creditors of the corporations already adjudged bankrupt and for whom trustees had been appointed, could not intervene in this suit to protect the assets and enforce the collection of the debts of the bankrupt corporations without alleging the failure or refusal of the trustees, after request so to do, to take the required action; and although Bertig Brothers, partnership, and the Bertig Realty and Investment Company, a corporation, had not been adjudged bankrupt at the commencement of the suit by the Bank Commissioner, the interveners alleged that they had been either adjudged bankrupts or that petitions in bankruptcy had been filed against them, and their adjudication in bankruptcy related back to the filing of the petition, which was subsequent to the filing of the Bank Commissioner's complaint and prior to the filing of the intervention.
The creditors of an insolvent corporation in the hands of a receiver or trustee in bankruptcy cannot maintain an action for property belonging to the bankrupt or insolvent corporation without allegations showing the failure or refusal of the trustee or receiver to protect the assets and their interests. Creamery Pkg. Mfg. Co. v. Wilhite, 149 Ark. 576, 233 S.W. 710; 8 Fletcher on Corporations, pp. 9250-9251.
The interveners alleged that the stock pledged was the property of Bertig Brothers, a partnership, composed of A. Bertig, S. Bertig and Joe Bertig, and that each of said persons who composed the partnership had *Page 624 
pledged his shares of the corporation. It was also alleged that the stock so pledged was the property of Bertig Realty  Investment Company, but the allegation of the complaint is undisputed that the original certificates were issued to A. Bertig, S. Bertig and Joe Bertig, and that it was pledged to the bank by each of said Bertigs, and the stock certificates were duly reissued by the corporation to the pledgee as trustee to secure the indebtedness specified in the pledge agreement, which was exhibited with the complaint of the Bank Commissioner for foreclosure.
It is true Kitchens, the maker of the note, was sued by the Bank Commissioner along with the other debtors of the Paragould Trust Company, in order to foreclose the lien of the pledge given as collateral security for payment of his note specified in the agreement, but no judgment was prayed against him, nor could have been rendered under the allegations of the complaint upon the indebtedness and his answer, admitting that, although he had executed the note for securing the payment of which the pledge of the stock had been made by the Bertigs individually, the note in fact evidenced an indebtedness of Bertig Brothers, the amount of the loss incurred by them in the operation of a subsidiary partnership, and that he was not indebted thereon at all. If the allegations of the answer were true, it would not have prevented the granting of the relief to the Bank Commissioner foreclosing the lien against the stock pledged and applying it to the note specified, for security of the payment of the note for which it was pledged, even though the note was found to represent in fact all indebtedness of the Bertigs instead of the maker, since, so long as it was not a simulated claim, the Bank Commissioner would have had the right to apply the proceeds realized from the sale of the stock pledged to its payment.
The judgment of dismissal under the circumstances did not preclude the maker of the note from interposing the defense set up in his answer herein to a suit for *Page 625 
collection of the note from him, which was not attempted to be made in this proceeding.
The answer and intervention not having stated a cause of action nor defense, the demurrer thereto was rightfully sustained, and the decree is accordingly affirmed.