author: Wood, J.

text:
    Consumers’ Ice & Coal Company v. Security Bank & Trust Company.
    Opinion delivered February 22, 1926.
    1. Corporations—suit by minority stockholder.'—Where a majority of the managing hoard of a corporation have betrayed their trust, and are guilty of acts ultra vires, or fraudulent acts, and are thus perverting the purposes of the corporation, or where a majority of the stockholders and directors are diverting the assets of the corporation to their own personal use and benefit, to the injury of the corporation and in fraud of the rights of the other stockholders, then any stockholder may bring suit in his qwn name against the delinquent officers and majority stockholders for the benefit of himself and other injured stockholders.
    2. Corporations—suit by minority stockholder—relief granted. —Where a minority stockholder brings suit on behalf of himself and other injured stockholders to set aside fraudulent or ultra vires acts of the directors and majority stockholders, he will be treated as the representative of the corporation, and through him the corporation will be granted any relief to which it may be entitled.
    3. Corporations—powers of directors.—A resolution adopted on a ' vote of interested directors is voidable at the option of the corporation, and this rule is equally applicable where the interests . of other persons, not directors, are affec-ted by the resolution.
    4. Corporations—powers op directors—personal interests.—A director cannot vote in a board meeting upon a proposition in which he is interested in a different way from the stockholders in general.
    5. Corporations—fraud in procuring loan.—Where the directors of a corporation borrowed money to use in buying in the shares of certain complaining stockholders at a time when the corporation had on deposit with its president more money than the amount borrowed, the transaction was a fraud upon the minority stockholders.

      6. Bills and notes—innocent purchaser—purchase after maturity.—One who purchases a note after maturity is not an innocent purchaser.
    Appeal from Jefferson. Chancery Court; John M. Elliott, Chancellor;
    affirmed.

      Mike Danaher, Palmer Danaher and W. B. Sorrels, for appellant.

      Rowell & Alexander, for appellee.
   Wood, J.

This action was instituted by the Security Bank & Trust Company and Gr. L. Both, hereafter called appellees, against the Consumers’ Ice & Coal Company, hereafter called ice company, and S. B. Morgan, E, E. Mclndoo, F. J. Dove, A. Gr. Miller, M. B. Morgan, Bepublic Bower & Service Company and Fred A. Goller, hereafter called appellants. The appellees alleged that the ice company was a corporation, and that they were stockholders thereof; that they instituted the action for the benefit of themselves and all other stockholders, and for the benefit of the creditors of the ice company. They alleged in substance that for ten or twelve years the corporation paid annual dividends of ten per cent, to its stockholders; that in the year 1919 S. B. Morgan and other directors, who were his agents and employees, acquired a controlling interest in the corporation, and since that time they have not paid any dividends; that in 1921 S. B. Morgan entered into a conspiracy with other 'stockholders by which $17,000 of the treasury stock passed into the hands of Morgan. They allege that Morgan did not pay for this treasury stock, and asked for an accounting. They allege that it was a part o,f the conspiracy to pass the assets of the ice company to their individual use, and to that end there was a reorganization and transfer of stock in the Bine Bluff Delivery Company to one E. E. Mclndoo. They set out specifically various acts of alleged misconduct in the management of the affairs of the ice company by Morgan and the directors who were in the alleged conspiracy with him, and alleged that the directors had not attempted to direct and control the business of the corporation for the benefit of its stockholders.

Among other things, it was alleged that the Republic Power & Service 'Company, a Delaware corporation of which S. R. Morgan was president and A. Gf. Miller secretary, they being likewise directors ,of the ice company, entered into a conspiracy to diyert the proceeds of the ice company to the Republic Power & Service Company by leasing the plant of the ice company to the Republic Power & Service Company for a period of five years at a wholly inadequate rental, which was but a scheme to deprive the plaintiffs of a just return on their invest-, ment in the ice company. They asked that this rental contract be canceled. They alleged that, prior to March 4, 1921, the Pine Bluff Delivery Company was a partnership, the assets of which were owned equally by the ice company and C. H. Ahrens, -or the Arkansas & Texas Consolidated Ice & Coal Company, and on that day the Pine Bluff Delivery Company was incorporated, and the directors of the ice company had 24.9 shares of the capital stock of' that company issued to E. E. Mclndoo. They alleged that this stock belonged to the ice company, and they asked that this stock be canceled, and that Mclndoo be required to account for all dividends collected on the stock, and be required to transfer the stock to the ice company, and that the Pine Bluff Delivery Company be also required to account for the money, the proceeds of the sale o.f ice.

Following these allegations, the complaint alleged that on January 26, 1922, S. R. Morgan, as president, and F. J. Dove, as secretary, executed a mortgage on all the property of the ice company to one Fred A. Coller of St. Louis, Missouri; that on that day Morgan purchased certain stock of the ice company, and that Coller was in Pine Bluff at the time Morgan was negotiating* for the purchase of the stock. They alleged that 'Coller had no money invested in the mortgage, but that he held the stock in lieu thereof; that the hoard of directors had no authority to execute the mortgage, and that it was ultra vires; that a foreclosure of the mortgage would result in the stockholders losing the entire plant and property of the ice company. They asked that Coller be made a party, and that the mortgage be canceled. They alleged that Morgan and the other directors were insolvent, and that the stockholders not in conspiracy with Morgan were powerless to protect their rights.

The complaint concluded with a prayer that a receiver be appointed at least temporarily, and that all of the assets of the ice company be placed in his hands, and that if, upon a final hearing, the court found that the ice company was insolvent, and found it to be to the best interests of the stockholders, its assets be sold and distributed among the stockholders as their interests might appear, and that the $17,000 worth of stock issued to Morgan be canceled; that the contract with the Republic Power & Service Company be canceled; that the mortgage to Coller be canceled, and the stock of the Pine Bluff Delivery Company be designated the property of the plaintiffs and the trustee designated to hold this stock and to sell the same if need be for the benefit of the creditors and stockholders of the ice company; and finally, that a general accounting be had, and judgment be rendered against each of the defendants as might be found just and proper, and that S. R. Morgan and all the directors be enjoined from interfering with the property in any way, and that the receiver under directions of the court be given authority to employ auditors and do all other things necessary to conserve the assets of the ice company for the benefit of the stockholders and creditors.

The receiver was appointed temporarily, and qualified and took charge of the property, and afterwards his appointment was made permanent.

The answer denied all the material allegations of the complaint. After other proceedings were had, which it is unnecessary here to set forth, the Republic Power & Service. Company and M. R. Noack, trustee, on January 3, 1924, filed a cross-complaint against the ice company, setting up' the mortgage executed by the ice company on January 26, 1922, and alleging- that the ice company had borrowed of Fred A. Coller $36,500, evidenced by its promissory notes due six months after date, alleging that these notes were secured by the deed of trust to Noack, trustee, on the plant of the ice company in Pine Bluff, Arkansas, and alleged that the Republic Power & Service Company had purchased these notes after maturity oí same for value, and praying for a foreclosure of the deed of trust. On April 17, 1924, the receiver answered the cross-complaint, denying its allegations and alleging that the mortgage or deed of trust executed was not binding on the ice company; that there was no legal meeting of the board of directors of the ice company authorizing the directors to execute the deed of trust, and that the act of the board of directors in authorizing such mortgag-e or deed of trust was ultra vires, alleging that Coller did not advance to the ice company $36,500, and that the attempted assignment of the deed of trust to the Republic Power & Service Company was a fraud on the ice company. Among other subsequent proceedings, an auditor was appointed by the court to audit the books of the ice company for the year 1921, and he filed his report on May 12, 1924, giving in detail the transactions between the ice company and Morgan, and concluding his report as follows: “as per above debits and credits S. R. Morgan & -Company is overdrawn $37,476.42.”

Of the issues raised by the pleadings in the cause all were heard by consent of parties and disposed of by decree of the court entered on May 30, 1923. By that decree the court ordered that the Pine Bluff Delivery Company cancel $24,900 of its capital stock and reissue same in the name of Jo Nichol, trustee, for the benefit of the ice company, subject to the further orders o-f the court. The court also entered a decree canceling the note of $12,500 which had been executed by Morgan to the ice company and indorsed by that company’s secretary and treasurer to one Kinard. The court also entered a decree canceling the lease from the ice company to the Republic Power &.Service Company. The court also made various minor orders in this decree, from none of which has any appeal been taken, and after entering this decree it reserved jurisdiction to “further determine the rights of all parties to any and all matters that may arise affecting them.”

After this decree was entered, there was still left in the cause the matters of the accounting of the defendants, the directors of the ice company, and of foreclosing or canceling the mortgage alleged to have been executed by the ice company to Fred A. Coller. The court on that day heard these issues on all the pleadings, the reports of the receiver, and all the testimony and exhibits that had been filed in the cause. The court found, among other things, that S. R. Morgan, E. E. Mclndoo, F. J. Dove, A. Gf. Miller and M. B. Morgan were the directors in charge of the Consumers’ Ice & Coal Company during the years 1920 and 1921, and up to March 4, 1922; that during that time no -dividends were paid to the stockholders ; that the directors mismanaged the affairs of the company, and also withheld the earnings of the company from the -stockholders; that the indebtedness incurred by the directors during the period they had charge of the plant was not paid, as evidenced by the report of the receiver and the interventions of claimants, creditors of the ice -company; that the franchise tax due the State was not paid; that the income tax for the years 1920 and 1921 was not paid; that the reports of the receiver show that, by conserving the assets of the company, after paying the debts incurred by the directors above mentioned during their administration, the receiver still had a large amount of money in his hands. After making certain other special findings and setting forth brief excerpts of the evidence upon which these findings were predicated, the court reached the conclusion that the defendants, S. R. Morgan, E. E.'Mclndoo, F. J. Dove, A. G-. Miller and M. B. Morgan were indebted to the ice company in the sum of $80,264.96, with interest at the rate of six per cent, from March 4,1922, the day the court found the amount was due, and demand made for the payment thereof. The court also found that the Republic Power & Service Company was due the ice company the sum of $10,266.67. The court rendered a decree according- to its findings, and directed that the judgment against the Republic Power & 'Service Company, when paid, be credited on the judgment against the directors. The court found that the mortgage alleged to have been given by the ice company to Fred A. Coller was without consideration, and that the directors had no authority to execute the same, and that the same was fraudulent and void. The court thereupon entered a decree dismissing the cross-complaint of the Republic Power & 'Service ’Company for want of equity. To these findings and decrees of the .court the defendants duly excepted, and prayed and were granted an appeal to this court.

1. It appears that, by agreement of all parties, one Fred T. Rucker was appointed by the court as master, and directed to audit the books of the ice company for the year 1921. His report is in part as follows:

“I find that the. book balances as far as it goes is correct. However, the book furnished me to audit is only a cashbook and journal combined. I had no vouchers or canceled checks to verify the receipts from the Pine Bluff Delivery Company, and find that all the money received from that source was accounted for. I had no way of verifying the cash received at the plant. As I understand, the object of this audit is to ascertain the amount due the ice company by S. R. Morgan and other directors.” He then sets out the various items of debit and credit as per the book, and concludes as follows: “As per debits and credits S. R. Morgan & Company is overdrawn $37,476.42. ’ ’

Rucker testified that the book from which this report was made was the only book turned over to him. It consisted of a cashbook and journal combined. It would be very unsatisfactory bookkeeping. It is all right as far as it goes, but there should be a ledger to carry the entries to, and there was no ledger. The book started January 1, 1921, and ended December 32, 1921. Witness had no book from December 12, 1921, to March 4, 1922, and had no book for 1920. Witness was asked to tell the court as to whether or not that is good business for a concern of the magniture of the ice company, and answered: “Well, I don’t believe you will find another set of books like this in the 'country. This is all there is to it—from a capital of $100,000.” He was asked: “Does this book give a fair statement of the business assets and liabilities'?” and answered: “No sir, it does not.”

On cross-examination the witness reiterated that the manner of keeping the books was unsatisfactory, and stated that he never knew of a business not keeping a ledger. He referred to certain entries, and stated they were not correctly made, but were erroneous and very unsatisfactory. He couldn’t understand from an entry to which his attention was called as to what happened.

Learned counsel for the appellants do not, on this appeal, challenge any of the findings of the court -except as to the amount found to- be due the ice company and the findings and decree as to the mortgage. Counsel argue “that the books of the company are not shown b-y any witness to have been incorrect in any particular,” and they say that “Morgan testified that they were correct and reflected the exact amount of the earnings of the ice company during the time he was in charge of the company, and that -the $37,47-6.42 which was deposited with him by the company was the total amount of the earnings of the company for the years 3920 and 1921.” They concede that the above amount is due by Morgan to the ice company, but say that “the court ignored these correct and certain figures shown by the books, and received instead the testimony of one H. H. Crowder, who had nothing to do with the keeping of the books, and upon this flimsy basis alone entered its decree for $80,264.96.”

Crowder testified in substance that he was an engineer for the ice company in 1921, and as such he kept an account of the ice that was produced. There were 12,601 tons that year. The companj'' did not >do as well in 1920. The witness thought that for the year 1920 it would average 10,000 tons. For the year 1921 the very highest amount paid for labor and fuel would not exceed $30,000, and possibly not quite so much in 1920. "Witness had a report when he left the plant showing what the amount of the counter sales were for 1920 and 1921, but he had misplaced the same, and could not tell what it was. Witness knew exactly what the counter sales were in 1923 until he left the plant. It was something like five or six thousand dollars. It was a hard matter to keep it straight for 1921. Witness thought it would go quite a good deal more than $5,000 in 1921. With reference to the books, the witness said that some of them—he didn’t know how many—certain parties took out and put in an automobile after the receiver took charge. Mclndoo took some of the books upstairs and hid them under his bed. Witness, on cross-examination, stated that he didn’t know a whole lot about the financial transactions of the firm. He was around there when Mcliidoo was manager, but didn’t have anything to do with their books and financial affairs. Witness actually believed from his knowledge, and from being around the plant, that the plant didn’t owe one cent. Witness didn’t see how they paid out anything when they left the plant $15,000 in debt, but witness couldn’t tell what Morgan had paid out 'after he went there. Didn’t know anything’ about it.

O. H. Ahrens, the president and manager of the Pine Bluff Delivery 'Company, testified that the ice company and the Pine Bluff Delivery Company entered into the contract by which the ice company agreed to sell ice to the delivery company beginning March 1, 1921, and to continue for a term of five years for the purpose of supplying- the latter’s trade in Pine Bluff and surrounding- territory, and the delivery company agreed to purchase ice from the ice company. Under the orders of the court witness made out a statement of the ice 'bought from the ice company for the years 1920 and 1921. The hooks of the Pine Bluff Delivery Company and a statement of the account of the ice company with the Pine Bluff Delivery Company show that during the years 1920 and 1921, and up to February 28, 1922, the delivery company paid to the ice company the sum of $162,429.34.

Boane testified that he was a stockholder in the ice company in 1920 and 1921, and was also a director of the Citizens ’ Bank. No dividends were paid to the stockholders during that time. There was a letter in evidence from one of the officers of the ice company dated November 9, 1922, in which it was stated, as a reason why no dividends had been paid for the year 1920, that the company had invested $15,000 in ice cans. It was further stated that the actual value of the assets of the ice company was $50 per share. There is in the record an intervention of the Ohio Galvanizing & Manufacturing Company setting- up a claim for these cans, alleging that same had not been paid for, and there was in evidence a letter signed by the president of the company, dated January 15, 1921, in which he states “the net profits last year ran about $20,000, which we regard as very, very poor. We have had extremely poor operating conditions for the past year, which condition has never obtained with us before, and we hope will not obtain in 1921.”

The books of the ice company for 1920 were not produced. After the receiver took charge, his reports show that from March 23, 1922, to February 25, 1923, the total receipts were $81,327.81; the total operating expenses $45,177.18; that there were net earnings during that period of $36,150.63, out of which claims had been allowed against the ice company aggregating $18,983.82, leaving a cash balance in his hands of $17,166.81. His report from February 25, 1923, to January 25, 1924, showed total receipts of $73,399.15, and total disbursements of $47,884.58, leaving cash on hand of $25,519.13.

Bottomed upon the above facts, the trial court found and recites in its decree the following:

"Viewing the matter most favorable to the directors, in the court’s opinion, there was a net earning for the year 1920' of the sum of $20,000, and for the year 1921 there were 12,600 tons of ice sold. The Pine Bluff Delivery Company paid to the Consumers ’ Ice & Coal Company $80,317.29 from January 10, 1921, to December 21, 1921, and from January 16,1922, to February 28, 1922, the sum of $4,946.67. The counter sales for 1921 were $5,000, making a total cash money received for the year 1921 of $90,264.96.. The receiver, as shown by the reports, paid most of the labor and other debts for the year 1921. The testimony shows that the expense was not exceeding $30,000 for the year 1921, leaving $60,264.96 of the money in the hands of the directors for the year 1921 belonging to the stockholders of the Consumers’ Ice & Coal Company. This amount, with the $20,000 for 1920, makes a total of $80,264.96 due the Consumers ’ Ice & Coal Company stockholders by the directors above mentioned. In arriving at this conclusion, the court has given the defendants the benefit of every doubt for the year 1920, and positive proof shows the earnings of 1921, and also that the directors did not pay out very much money received by them, and the receiver was forced to pay debts incurred during the years 1920 and 1921 out of the earnings of the plant for the succeeding years. ”

Now, the audit by the master of the books of the ice company for the year 1921 showed that Morgan owed the ice company $37,476.42, but the testimony of the master himself as above set forth showed that the books were very unsatisfactory. While Morgan concedes that he owed the above amount, we do not discover from an examination of this voluminous record where he testified that the books were correctly kept. Qn the contrary,.the testimony of the master himself, who made the audit, shows clearly that the bookkeeping was very defective, and that the audit was very unsatisfactory. Thus we find that there is far more testimony in the record to sustain the findings of the trial court than simply the testimony of the witness Crowder. His testimony shows positively that the ice company made 12,601 tons of ice in 1921, and certainly .justified the finding of the court to this effect. His testimony further justified the trial court in finding* that the counter sales for 1921 were at least $5,000, and it occurs to us that the court was justified in finding, from his testimony and the other testimony in the record, that the expenses of operating the plant' for the year 1921 did not exceed the sum of $30,000. The positive statement of one of the officers -of the company was to the effect that the net profits for the year 1920 were $20,000, and the books of the delivery company and the testimony of Ahrens show conclusively that the delivery company paid to the ice company -during* the year 1921, and up until February 28, 1922, inclusive, the amount of $90,264.96. Therefore, we conclude- that all of the finding’s of the chancellor on the issue of accounting were supported by a decided preponderance- of the- evidence. Certainly it cannot be said that these findings are clearly against -a preponderance of the evidence

2. On the 23d of January, 1924, the Republic Power & Service Company, hereafter called service company, and M. R. Noack, trustee, filed a cross-complaint, as already stated, against the ice company, alleging that the ice company borrowed from Fred A. Coller $36,500 for which it executed a promissory note and deed of trust conveying the property therein described, which consisted of the lots and refrigerating -and ice plant thereon, and all appurtenances thereunto belonging*. The cross-complaint alleges that, after the maturity of this note, the service company purchased the same from Coller, paying full value therefor. The prayer was for judgment on the note and a foreclosure of the mortgage. Coller by name was not made a party to the -cross-complaint. The ice company answered the cross-complaint, denying all of its allegations, and set np that the mortgage was ultra vires and a fraud.

There is in 'the record what purports to be minutes of a special meeting of the board of directors of the ice company held at four o’clock p. m. January 26, 1922, at the office of S. R. Morgan & 'Company, 123 West 'Second Street, Little Rock, Arkansas. The recitals of these minutes show that there were present at the meeting S. R. Morgan, A. G-. Miller, M. B. Morg*an and F. J. Dove, being all of the directors of the ice company. The minutes recite that there were outstanding accounts of the ice company necessary to be taken care of, and it was resolved that the president of the company, S. R. Morgan, be authorized to- negotiate for a loan not exceeding $10,000. The meeting was adjourned until eight o’clock, on the same day, and there is in the record the purported minutes of the meeting held at the same place at 8 o’clock p. m. in Little Rock, January 26, 1922. The minutes recite that the business before the -meeting- is the securing of Fred A. 'Coller for -money furnished the ice company on that day. The minutes recite that Coller had inspected the property of the ice company at Pine Bluff, and had loaned the company on that day the sum of $36,500, which the board had used to purchase stock of the complaining stockholders, and for other needs of the company. The minutes recite that it was resolved that the- president -and secretary be authorized to execute to Coller a note for that sum, and a first mortgage on all real and personal property of the company to secure the same. It was further resolved that the secretary be instructed to cancel the shares of stock purchased for the company, and to put the -same in its treasury.

-S. R. Morgan testified in substance concerning the alleged execution of this deed of trust that he was president of the ice company and of the service company; that Coller had been the fiscal agent of the service company, and had been successful in delivering large sums of money to that company. The ice company was in need of large sums of money to take up stock of complaining stockholders of the ice company, and to take the same out of the hands of a receiver, and witness asked Miller to negotiate with Coller for the money. He did so, and, as a result of the negotiations, Coller loaned the money to the ice company, which money was used by the witness to acquire 704 shares of stock. The stock was delivered to witness by the attorneys of the complaining stockholders, and witness paid to them the purchase money of the stock, and he and the secretary of the ice company executed the mortgage to Coller. Witness testified fully, explaining how the money was expended by the ice company. He stated that, after the mortgage was recorded, it was sent to Miller, in St. Louis, who closed the settlement with Coller. None of the $36,500 borrowed from Coller had been paid. The note evidencing that amount is a valid and outstanding obligation against the ice company. Witness stated that in March, 1922, the ice company had deposited with S. R. Morgan & Company $37,476.42, and that amount had never been paid to the company’s receiver.

Miller testified that he was a director of the ice company in 1921 and 1922, and is still a director. He negotiated with Coller at Morgan’s request for the loan of $36,500. That sum was to include the $12,500 which Coller had already advanced to the witness on certain stock of the ice company early in January, 1922. The mortgage was delivered to 'Coller by witness after 'Coller had already paid $22,000 in the middle of January. At the time the ice company executed the mortgage to Coller he had advanced a total of $36,500. The $22,000 thereof was used for acquiring stock of the ice company, which was turned into its treasury. At the time of the negotiations witness was "the secretary of the Republic Power & Service Company. When the mortgage was executed, witness got cash for his stock. Witness stated he thought lie was in Little Rock on January 26, 1922, with some other directors of the ice company, but didn’t remember all of them. They had a stock meeting of the directors. He had a copy of the notice of the meeting, but didn’t remember when he got it; didn’t remember whether he was in Pine Bluff on January 26, 1922, or not. The note and mortgage in controversy was never paid to the ice company. Witness negotiated the purchase of the note for the service company from Coller in August or September, 1922. The service company was a Delaware corporation, and witness filed annual reports for the com■pany. The note was not listed in Ms report filed. It may have been listed in the total assets. 'Coller was fiscal agent for the service company, and would sell its preferred stock and turn the proceeds over to the service company. Witness in turn would indorse back to Coller, and in that way the proceeds were applied on the note of the ice company. It was checks of other people given to him, and witness presumed that he deposited them in the bank. That covered a period of three of four months until Coller was paid in full. The service company was originally named Morgan & 'Company. Witness was friendly with Coller and saw him frequently. Witness’ testimony corroborated the testimony of Morgan as to the disposition of the funds loaned by Coller to the ice company. When the witness negotiated the loan with Coller, he told Coller personally that he would see that it worhed out to Colter’s satisfaction. It was in pursuance of that promise that thé service company took over the note and mortgage. The service company paid 'Coller the entire $36,500.

Coller testified that he loaned the ice company $36,500 on January 26, 1922, and took the note and mortgage in controversy, which were identified by him, and these were introduced in evidence. He sold the note to Miller, who. represented some corporation, and turned same over to 1mm after he was paid in full. The note was indorsed to the service company. Witness, at the time of giving his testimony, was a director and stockholder in that company, bnt was not at the time he sold to it the note and mortgage. He was a stockholder at that time. Witness actually advanced the money by checks for which the note was given. He had some of the canceled checks, bnt in the hnrry to get away he didn’t get them all. He had moved his office about a year ago, and had misplaced some of them. The canceled checks he had amounted to something like $31,000. The checks showed different dates from October, 1921, to January, 1922, all given to A. Gr. Miller or made payable to witness ’ order and indorsed by witness. Witness made a small loan to A. Gr. Miller, taking up small securities which were afterwards turned over to the company. Witness had been an investment banker for six years under the name of Coller & Company. He had an office on the same floor with A. Gr. Miller; had been in the brokerage and real estate business for six years. Witness didn’t inherit any money. He left school in 1914. He owned the house in which he lived, but no other real estate. He was the fiscal agent for the service company for a year and a half. S. R. Morgan was president, M. B. Morgan, vice president, and A. Gr. Miller, secretary and treasurer. Witness was in Pine Bluff about the middle of January to look over the property with a view to making the loan. He turned over $22,000 of the money to the ice company on the twelfth or thirteenth of January, and the remainder he had advanced in different sums before that, amounting to $12,500. Two thousand was loaned afterwards to take care of small obligations. The $12,500 was loaned to Miller on his own personal security. Witness thought these securities were stock of the ice company. Witness stated the $22,000 was paid to Morgan. Witness got $22,000 by putting up some of his own security. He couldn’t remember what it was. He stated he would furnish a list to the court, but he didn’t do so. He didn’t put up the mortgage at 'any bank. The money was borrowed by witness just before the mortgage was executed to witness. The $22,000 was paid by drafts dated January 7, 1922. The drafts were made payable to witness, and signed by Anthony Coller, cashier. The $22,000 was advanced about January 17, and witness got the mortgage on the 26th of January. He advanced $2,000 at the time he got the mortgage. The $12,500 that Miller had obtained from witness was paid back by the delivery of the mortgage. Witness didn’t have the check for the last $2,000 advanced. Witness did not see the note and mortgage until after they were recorded. There were no revenue stamps on the note. Witness sold the mortgage to the service company after it matured about August, 1922. He indorsed the drafts, and also indorsed the note to the service company. The two signatures didn’t look alike. Witness' signed all the papers exhibited to him. The signatures are not all alike in appearance, but they are all made by the witness. He changed the character of his signature because it was slow, and he was trying to get a fast signature. Witness didn’t know who had the mortgage recorded, but it was recorded before it came to witness, and bore the indorsement “Mail to S. R. Morgan &'Company, 123 W. Second Street, Little Rock, Arkansas.” When a warning order was issued for witness, and an attorney ad litem appointed to represent him, and the attorney wrote to witness, witness didn’t answer, and had never filed any pleadings in the case.

Jo Nichol testified that the first receivership was settled on January 26, 1922, between 3:30 and 4:00 o’clock. Morgan and Mclndoo represented themselves, and Rowell & Alexander represented the other parties .and the witness as receiver. Morgan and Mclndoo left Pine Bluff about four o ’clock. They were all that were there, so far as witness knew. Witness was in the banking business. He had been in that business for twenty-one years, and was familiar with signatures and handwriting. He had' examined the signatures of Coller on the checks that were introduced in evidence, and also on the note in controversy. The same man did not write them. The same man wrote the checks who indorsed the two drafts on Chicago and New York. The $36,500 note was never presented to witness as receiver. Witness, as receiver, warned everybody to appear and file their claim within ninety days. Coller never presented any claim. Nor did the service company.

Crowder testified that on January 26, 1922, he was at the ice plant until about seven o’clock. He left the plant, and, while passing the Hotel Pines, he was called in by Mclndoo, who said that Morgan was in there. He went in and had quite a talk, and witness supposed that it was seven-thirty or eight o’clock when they left. Witness didn’t see any one else with them.

The above is substantially the testimony upon which the trial court found that the mortgage was a fraudulent instrument; fhat it was without -consideration; that it w-as given for the sole purpose of defrauding the stockholders of the ice company out of their property; that the directors had no authority to execute the same; that no valid meeting of the board of directors was held authorizing the same; that the ice company did not receive the benefit of any money by virtue of said mortgage; that Coller had notice of the fraud, and that the service company did not pay any valid consideration for the note and mortgage, and had knowledge that -the note was fraudulent, without consideration, and void.”

In Redbud Realty Company v. South, 153 Ark. 380, we said: “Where a majority of the managing board of a corporation has betrayed their trust, and are guilty of acts ultra vires, or fraudulent acts, and are thus perverting the purposes of the corporation; or where a majority of the stockholders and directors are diverting the assets of the corporation to their own personal use and benefit, to the injury of the corporation and in fraud of the rights of the other stockholders, then any stockholder may maintain an action in a court of chancery in his own name against the delinquent officers and majority stockholders for his own and the benefit of other injured stockholders. ” That is the doctrine invoked by the appellees in this case, and under it they must be treated, for the time being, and for the purposes of the litigation, as the trustee and real representative of the corporation, instead of its offending directorate, and majority stockholders. Through him, and against them, the corporation itself is granted genuine reparation by way of damages, restitution, or, if need he, dissolution of the corporation; in fact, all the relief to which the corporation would be entitled under the circumstances, were the action brought in its name. ’ * Red Bud Realty Co. v. South, supra. ‘ ‘ The trust relation,*’ says Mr. Thompson, “existing between the corporation and its directors is such that equity will not allow them to deal with the corporation for their individual benefit.” Thompson on Corporations, § 1233, p. 179.

We have set forth the salient features of the evidence in this record bearing upon the execution of the mortgage in controversy to Coller, and its transfer to the service company. The facts speak for themselves. After a careful reading of the testimony in the entire record, we are convinced that-the execution and transfer of the mortgage in controversy to the service company was hut a part of the scheme of Morgan and his associates by which all stockholders who were not satisfied with the conduct of the affairs by the managing hoard, as at, that time constituted, should be closed out to their detriment, and for the individual benefit of Morgan, the president of the ice company, and his associates of the managing board. Morgan and Miller were the outstanding figures in the negotiations, and Coller was but a figurehead and intermediary through whom Morgan and Miller conducted their negotiations resulting in the execution and transfer of the mortgage to the service company, and which were finally to end in the sale and transfer of the entire plant of the ice company by foreclosure of the mortgage. It occurs to us that such end was contemplated from the beginning. Unless it was intended from the beginning that he should have no responsibility in the end, it is unbelievable that one of real business acumen, in a transaction of this magnitude, when sued to set aside a mortgage which he had transferred to another would be utterly indifferent to the action, as the testimony of Coller himself shows that he was, by not answering the letter of the attorney ad litem appointed to represent him in the litigation.

The law is well settled that “a resolution adopted on a vote of interested directors is voidable at the option of the corporation, and this rule is equally applicable where the interests of other persons, not directors, are affected by the resolution.” A director “cannot vote in a board meeting upon a proposition, in which he is interested in a different way from the stockholders in general.” See §§ 1227-1229, 1232, 1233, 2 Thompson on Corporations, and numerous cases cited in notes.

Miller had four hundred shares of the stock of the ice company which he sold at a handsome profit by virtue of the mortgage executed to Coller. This fact alone rendered the mortgage voidable at the instance of the corporation and its injured stockholders. The service company was not an innocent holder, as the allegations of its cross-complaint and the uncontroverted proof show that it acquired the note and mortgage after the note had matured. I Daniel, Negotiable Instruments, § 782. The testimony is uncontroverted that, for five or six years continuously before the management of the ice company passed into the hands of the appellants, the stockholders were paid a dividend of at least ten per cent, per annum on their investment. Nichol, the receiver, testified that .the ice company was “a money-making proposition, and ought to pay the stockholders fifteen per cent, annually year in and year out.” But the proof is that, after the appellants took charge, no more dividends were paid to the stockholders. No good reason is found in the record for this sudden and radical change in the financial conditions, except that it was attributable to a change in the directorate, and to their mismanagement of the affairs of the ice company. Hence, it naturally followed that stockholders, aggrieved at the management which had proved so disastrous to their financial interests, would seek, as some of them did, to have the affairs of the ice company taken out of the hands of the appellants, and to have them account in damages for their mismanagement. The wisdom of tills course is amply demonstrated by decrees in favor of the corporation from which there was no appeal, and by the decree herein for damages, which we find must be affirmed.

The recitals of the minutes of the purported meeting of the directorate at which the execution of the mortgage was authorized, show that the purpose of the mortgage, as stated by Morgan, was to secure Coller for the money which he had advanced, and which had been used to purchase the stock of the complaimng stockholders, and in order to take the ice company out of the receivership. Thus, it conclusively appears that the primary purpose of Morgan and his associates was to buy their peace from the complaining stockholders, and to have the management of affairs restored to the directorate. By paying the then dissatisfied stockholders a liberal premium on the par value of their stock, they succeeded temporarily in regaining- the lost control and in escaping, for the time, the action and impending liability for damages. If this arrangement had only been permanent and binding on the corporation and all of its stockholders, the appellants, individually, would have been immensely benefited financially. The directors had no authority to mortgag-e the plant of the ice company for such purpose.

It is not perceived how the corporation and its creditors and stockholders would have been benefited by the restoration of authority to a directorate that had been “weighed and found wanting,” and which was liable to the ice company in a large sum on account of its mismanagement. Moreover, even if the directors had authority to mortgage the plant of the ice company “to purchase the stock of the complaining stockholders,” the exercise of such authority, under the circumstances, was fraudulent. Morgan admitted that ‘ ‘ at the time this mortgage was executed the ice company had on deposit with him $37,476.” This fact, “trumpet-tongued,” challenges the good faith of the transaction. Because, if the directors had been actuated by a bona fide purpose to conserve the interests of the ice company, rather than their individual interests, it is inconceivable that they would have plastered a mortgage on its plant when there were ample funds in the treasury to purchase the stock of the then complaining stockholders, and the stock of director Miller, leaving’ a respectable balance for “present needs.”

We need not pursue the subject further. The trial court correctly appraised the testimony and ruled correctly in holding that the directors had no authority to execute the mortgage under the circumstances, and that such mortgage was a fraud on the appellees, of which the service company had to .take- notice, and which appellees had the right to set aside and cancel.

3. In the court’s decree we find the following: ‘ The court also finds that the Republic Power & Service Company, under lease contract, had charge of this plant from October 1, 1921, to March 4, 1922, and it collected from the Pine Bluff Delivery Company the sum of $10,266.68, and, although this lease contract was declared null and void by this court, the Republic Power & Service Company has not delivered the money collected by it from the Pine Bluff Delivery Company to the receiver.” Upon the above finding the court rendered a decree in favor of the receiver. The appellants, upon whom the burden rests to show error in the findings and decree of the trial court, have not brought into their abstract any proof that the court erred in its findings and decree in this matter. The decree is correct throughout, and is therefore affirmed.


source: Caselaw Access Project

author: Hart, J.,

license: Public Domain

text:
    Davis v. Arkansas Land & Lumber Company.
    Opinion delivered February 22, 1926.
    1. Railroads—federal control—substitution of parties.—'Where, upon a cause of action growing out of the Government’s operation of the railroads, plaintiff, intending to sue the authorized agent, named one who had previously acted as such and procured service ¿fe required by the -Transportation Act, it was not error to permit the plaintiff to substitute the agent who succeeded the agent named in the complaint.
    2. Appeal and error—former decision as law of case.—A former decision of this court upon a Federal question is the law of the case until overruled toy the Supreme Court of the United States.
    Appeal from Hempstead Circuit Court; J. H. Mc-Collum., Judge;
    affirmed.
    STATEMENT OF FACTS.
    This is the second appeal in the ease. It appears from the former appeal that the Arkansas Land. & Lumber Company sued the' Missouri Pacific Railroad Company, 'St. Louis-San Francisco Railway Company and John Barton Payne, Director General of Railroads, and John Barton Payne, Federal Agent of the United States, to recoyer damages in the sum of $582.58 on account of the conversion by the defendants of a certain carload of lumber shipped by the plaintiff over said lines of railroad from Malvern, Arkansas, to Blackwell, Oklahoma. The cause of action arose on July 23, 1918, and suit was filed on July 9, 1921. On the 10th day of October, 1921, the plaintiff filed a motion to substitute James C. Davis, Federal agent of the United States under the Federal Transportation Act of February 28, 1920, as defendant, for John Barton Payne as such Federal agent. The court allowed the substitution to be made. James C. Davis, as such Federal agent, pleaded that the plaintiff had no right to make him a party defendant after the expiration of three years from the time the cause of action accrued. The circuit court sustained -his contention and rendered judgment dismissing the complaint of the plaintiff.

      Upon appeal to this court, it was held that, while the cause of action was against the Federal agent, who was the person appointed by the President under the act of Congress to defend ,the suit, the substitution of James C. Davis for John Barton Payne as such agent was not the bringing of a new suit, but was merely correcting a mistake in the name of a party, in furtherance of justice under § 1239 of 'Crawford & Moses ’ Digest.
    The cause was remanded with directions to overrule the plea of James C. Davis, as such Federal agent, and for further proceedings according to law. Arkansas Land <& Lumber Go. v. Davis, 155 Ark. 541. Upon the remand of the case James C. Davis, as such Federal agent, interposed the plea that the suit had not been commenced against him within the period of time authorized for bringing such actions. His plea was overruled by the circuit court. The cause then proceeded to trial before the circuit court sitting as a jury, upon the pleadings and an agreed statement of facts, which tended to establish the allegations of negligence alleged in the complaint against the railroad companies within the period of time when the roads were operated by the Director General of Railroads. Judgment was rendered in favor of the plaintiff, and the case is here on appeal.

      King, Mahaffey & Wheeler, for appellant

      E. F. McFaddin, for appellee.
   Hart, J.,

(after stating the facts). On the facts proved the defendant was liable. The only ground relied upon for a reversal of the judgment is that the court erred in allowing James C. Davis, as agent designated by the President under the Transportation Act, 1920, to be substituted as such Federal agent in the place, of John Barton Payne.

Reliance for a reversal o.f the judgment is had upon the principles announced in James C. Davis, Agent, v. L. L. Cohen & Co., 268 U. S. 638, 45 S. C. Rep. 633. In that case, suit was brought by the shipper against the railroad company for damages to a carload of scrap iron shipped over the railroad in 1918, when _it was under Federal control. The railroad company was described as a corporation “operated and controlled by the United States Railroad Administration,” and the writ was served upon the railroad company alo'ne. In September, 1922, the writ and declaration was amended by striking out the name of the railroad company and substituting the name of James C. Davis, Agent, as defendant. Davis defended the suit on the ground that the court had no jurisdiction over him because the proceeding against him had not been commenced within the time prescribed by § 206 of the Transportation Act.

The court sustained the contention of Davis on the ground that the service of the 'original writ upon the railroad company did not bring him before the court. This holding is in accord with our own opinion in Davis v. Chrisp, 159 Ark. 335. In regard to a similar contention in that case, it was held that the effect of the substitution was to change the action from one against the railroad corporation to one against the United States, and that the substitution was not a mere change of representatives as in the case of a change from the •director general to the Federal agent. Hence it was held that the Federal agent was not bound to take cognizance of an action against the railroad corporation, even though service was had on the same local station agent, and even though the complaint stated a cause of action for damages sustained during government control.

In the case at bar the facts are essentially different. While the original action was brought against the railroad companies and John Barton Payne, as Director General of Railroads, John Barton Payne was also sued as agent duly designated by the President of the United States against whom all causes of action might be brought for matters arising out of the operation by the United States of the railroads of any carrier. The cause of action in favor of the plaintiff accrued in July, 1918, while the railroads were under the control and operation, of the Director General of Railroads; but the suit was not brought until after the termination of Federal control. Service of summons was had upon the station agent designated by the Transportation Act, 1920.

Section 1239 of Crawford & Moses ’ Digest provides that the court may at any time, in the furtherance of justice, amend any pleading or proceeding by correcting a mistake in the name of a party. The plaintiff intended to sue the agent designated by the President in the Transportation Act of 1920, and we do not think the substitution of James C. Davis in the place of John Barton Payne as such Federal agent introduced a new party into the action. iW-e think the substitution was merely a correction of a mistake in the name of the defendant, which was authorized by the section of our practice act referred to above. At least such is the effect of our holding upon the former appeal. Arkansas Land & Lumber Co. v. Davis, 155 Ark. 541. This decision is the law of the case until overruled by the Supreme Court of the United States, because our construction of our practice act is deemed repugnant to § 206 of the Transportation Act, 1920. Miller Lumber Co. v. Floyd, 169 Ark. 473, and eases cited.

It follows that the judgment must be affirmed.


text:
    First National Bank of Helena v. Solomon.
    Opinion delivered February 22, 1926.
    1. Guaranty—absolute undertaking.—An agreement to indemnify a bank against any loss it may sustain by extending credit within a certain limit to a designated company is an absolute undertaking, which renders the indemnitors liable on the failure of the company to pay the debt evidenced by a note or renewal thereof, and it was not essential that suit be commenced against the principal debtor and the claim reduced to judgment.
    2. Guaranty—right to notice.—The guarantor of a promissory note whose name does not appear on the note is bound without notice where the' maker of the note was insolvent at its maturity, unless he can show that he has sustained some prejudice by want of notice of a demand on the maker of the note and notice of nonpayment.

      Appeal from Phillips Circuit Court; J. M. Jackson, Judge;
    reversed.
    statement by the court.
    This was au action in the circuit court by appellant against appellees to recover on a contract of guaranty which is as follows:
    “Know All Men by These Presents: Whereas, the undersigned are jointly interested in the Arkansas Crushed Stone Company, and whereas, it is necessary for the conduct of the business of the said Arkansas Crushed Stone Company that moneys be borrowed, and whereas arrangements have been made with the First National Bank of Helena, Arkansas, for a line of credit not to exceed the total amount of fifteen thousand dollars ($15,000) to be evidenced by note or notes, executed in the name of the Arkansas Crushed Stone Company by Amos Jarman, its president:
    “Now, therefore, in consideration of the premises, and extension of such credits by the said First National Bank, we and each of us hereby indemnify said bank from any loss it may sustain by reason of the extension of said credit, and hereby and herewith bind ourselves jointly and severally for the payment of any note or notes or renewals thereof executed to the said First National Bank for the Arkansas Crushed ’Stone Company by the said Amos Jarman, its president, together with interest thereon as specified in said notes.
    “Provided only, that the total amount of our liability at any time shall be only fifteen thousand ($15,000) with interest thereon as may be specified in the notes evidencing said amounts, but intending this guaranty to constitute a continuing guaranty for the amount of fifteen thousand dollars and interest as above set out. In witness whereof we have affixed our hands this the 27th day of January, 1920.
    (Signed) “Amos Jarman, R. B. Campbell, B. D. Schrantz, J. I. McRee, D. Solomon, E. D. Morton.”

      Pursuant to the terms of the guaranty contract, on the 2d day of February, 1920, the Arkansas Crushed Stone Company, by Amos Jarman, executed to the First National Bank a note for $15,000, payable four months after date, with interest at the rate of 8 per cent, per annum until paid. On May 2,1920, renewal note was executed, signed “Arkansas Crushed Stone Company, by Amos Jarman.” The renewal note was not paid at maturity, and on September 3, 1920, another renewal note for $15,000 was signed, “Arkansas Crushed Stone Company by Amos Jarman.” Thisnote was also payable four months after date, with interest at the rate of 8 per cent, per annum until paid. Amos Jarman died in November, 1920, before this note became due. Subsequent to his death renewal notes for said indebtedness were executed and signed, “Arkansas Crushed Stone Company, by R. B. Campbell.” The last of these renewal notes was dated October 31, 1921, and due ninety days after date. None of these notes were ever paid, and the amount for which they are executed represents a loan made by the First National Bank to the Arkansas Crushed Stone Company. There is now due the bank the sum of $15,000 and interest from November 1, 1921, at 8 per cent, per annum. The bank did not know whether the Arkansas Crushed Stone Company was a corporation or a joint stock association. The loan was made upon the contract of guaranty. Neither the note executed by Amos Jarman nor the one executed by R. B. Campbell for the Arkansas Crushed Stone Company has been paid, and both of these notes are now in the hands of the bank. R. B. Campbell has died since the execution by him of the renewal note of October 31, 1921. The estates of R. B. Campbell and Amos Jarman are insolvent.
    According to the evidence, David Solomon, John I, McRee, B. D. Schrantz, and E. D. Norton signed the contract of guaranty, at the request of R.- B. Campbell and Amos Jarman. Campbell and Jarman were promoters of a corporation which was to be organized, and the signers of the guaranty were subscribers for stock in the proposed corporation. The corporation was never organized, and B. B. Campbell and Amos Jarman carried on the business for which it was to be organized, and none of the signers of the contract of guaranty authorized the First National' Bank to accept the note of the Arkansas Crushed Stone Company, signed by B. B. Campbell. The signers of the guaranty contract did not receive any notice of the claim of the First National Bank under the contract against them until in May, 1922. The First National Bank was not notified that there were any conditions whatever attached to the contract of guaranty.
    At the conclusion of the testimony the court instructed the .jury to return a verdict for appellees; and, to reverse that judgment, this appeal has been prosecuted.

      Breiver £ Cracraft and W. G. Dinning, for appellant.

      Moore, Walker £ Moore and J. G. Burke, for appellee.
   Hart, J.,

(after stating the facts). Appellant was the plaintiff in the circuit court, and its counsel asks for a reversal of the judgment on the ground that the circuit court erred in not instructing a verdict in its favor.

In this contention we think counsel ^ are correct. Under the rule announced in Friend v. Smith Gin Co., 59 Ark. 86, and Bank of Morrilton v. Skipper, Tucker & Co., 165 Ark. 49, the contract of guaranty was absolute, and carried with it all the liability of an original undertaking. It follows that, the contract of guaranty being an original undertaking by the signers thereof to pay the debt of the Arkansas 'Crushed Stone Company, the liability of the signers matured upon the failure of the Arkansas Crushed Stone Company to pay the note” <?r the renewals thereof which it executed to the First National Bank, and it was not essential that suit be commenced against the Arkansas Crushed Stone Company and the claim reduced to judgment before, suit could be brought against the guarantors.

Amos Jarman and B. B. Campbell were insolvent, and the record shows that they had entire charge of the business of tlie Arkansas Crushed Stone Company. They had intended to organize it as a corporation, and the other signers of the contract of guaranty were subscribers of stock in the contemplated corporation. It is not important for the purposes of this decision to determine whether all of the signers of the contract of guaranty became partners in the business 'conducted under the name of the Arkansas Crushed Stone Company, for their liability in the present case is measured by the terms of the contract of guaranty.

In making the loan to the Arkansas Crushed Stone Company, the First National Bank relied entirely upon the terms of the guaranty. The names of the guarantors were not signed to the note, and the contract of guaranty which was signed by them was written upon a separate piece of paper before the note was ever executed. So it will be seen that the circumstances under which the contract of guaranty was executed makes it an original obligation and the liability of the signers absolute and unconditional.

The rule is well settled that the guarantor of a promissory note, whose name does not appear on the note, is bound without notice, where the maker of the note was insolvent at its maturity, unless he can show that he has sustained some prejudice by wantmf notice of a demand on the maker of the note and notice of nonpayment. Reynolds v. Douglas, 12 Pet. (U. S.) 497.

In the case before us there is no pretense that appellees have sustained any injury from the neglect of appellant to sue the maker of the note sooner. The facts of this case bring it within the general rule that mere delay by a creditor to collect of the principal debtor, or to proceed against a fund pledged by him for the payment of the debt, will not exonerate the surety or affect his liability. There is nothing in the contract of guaranty which required the bank to proceed with diligence to collect from the principal debtor. The contract of guaranty was not entered into for the benefit of the Arkansas Crushed Stone Company or the signers thereof, but was executed for the benefit of the First National Bank. By the terms of the contract of guaranty, appellees bound themselves absolutely to pay any note or notes to the amount of $15,000, which might be executed to the First National Bank for the Arkansas Crushed Stone Company by Amos Jarman. It is true that, after the death of Amos Jarman, a renewal note was executed in the name of the Arkansas ¡Stone Company by B. B. Campbell, but the bank still retained the note signed by Amos Jarman for the Arkansas Crushed Stone Company, and the execution of the renewal note by B. B. Campbell did not have the effect to discharge the original indebtedness. The contract of guaranty was to pay the note or notes of the Arkansas Crushed Stone Company to the First National Bank, and it did not make any difference whether that concern was a corporation or a partnership composed of Amos Jar-man and B. B. Campbell, or a joint stock association composed of all the signers of the contract of guaranty.

The result of our views is that the court erred in not directing a verdict for the appellant, and for that error the judgment must be reversed, and the cause remanded for a new trial.


author: Hart, J.

text:
    Lesieurs v. State.
    Opinion delivered February 22, 1926.
    1. Conspiracy—sufficiency of evidence.—In a prosecution for murder, evidence of a conspiracy between accused and another to kill deceased held sufficient to admit evidence of what each of the conspirators did towards carrying out their common design.
    2. Conspiracy—admissibility of evidence.—Any act done or declaration made by one of two' conspirators in furtherance of the conspiracy, though in the other’s absence, may be shown in evidence against the other.
    3. Conspiracy—statements of conspirator.—Statements of a fellow conspirator, made in defendant’s absence, immediately after defendant killed deceased, and when the attendant circumstances show that the criminal enterprise was not ended, were admissible as part of the unlawful enterprise,' where they tended to explain the connection and joint action of the conspirators in the premises.
    4. Criminal law—separation of jury—prejudice.—Where, in a murder case, the court first told the jurors that they would be allowed to separate, but afterwards directed that they be kept together, the ruling of the court will not be reviewed if it does not appear that prejudice to defendant resulted, or if no objection to the ruling was saved.
    Appeal from Poinsett Circuit Court; W. W. Bandy, Judge;
    affirmed.

      J. T. Kelley, Marvin Watkins and Denver L. Dudley, for appellant.

      E. W. Applegate, Attorney General, and Darden Moose, Assistant, for appellee.
   Hart, J.

Fred Lesieurs was indicted for murder in the first degree charged to have been committed by shooting Tom Euss. The jury found the defendant guilty of murder in the first degree, as charged in the indictment, and fixed his punishment at life imprisonment in the State Penitentiary. To reverse the judgment and sentence imposed upon him, the defendant has duly prosecuted an appeal to this court.

According to the undisputed evidence, Fred Lesieurs shot Tom Euss with a pistol in the town of Truman, Poinsett County, Arkansas, in July, 1925, and Euss died as the result of his wounds in a very short time. The killing occurred on the main street of the town, between six and seven o’clock in the evening, and several persons witnessed the killing. One of the witnesses for the State lived about three and a half miles from Truman, and testified that on the day of the killing Fred Lesieurs and Crip Martin came to her house in a Ford car, and Lesieurs had a- pistol lying in the seat by his side. She did not remember how long they stayed.

Another witness for the State testified that immediately before the shooting she saw the defendant walking down the sidewalk at a medium gait. When he was about fifteen feet from the place of business where Crip Martin stayed, she heard the latter say in substance: “They are going to fight. ’ ’ She did not know who first started the shooting. She turned around after the first shot, and saw Russ and Lesieurs both shoot. [When Russ fell, Lesieurs hit him over the head with a pistol once or twice. When cross-examined, the witness stated that she had no idea whom he meant when she heard Crip Martin say, “They are going to fight.” When he made the remark Martin was looking in the direction- that Lesieurs was going, and Lesieurs was going to the place where he and Russ commenced shooting at each other.

According to the testimony of other witnesses for the -State, Fred Lesieurs came to where R. H. Martin, Wert Criss, and Tom- Russ were standing talking. He pushed R. H. Martin out of his way, and Russ then raised his hand and said to Lesieurs, “Don’t start anything.” Lesieurs then shot Tom Russ twice with his pistol, and Russ then commenced to shoot at Lesieurs. Tom Russ sank down on the ground, and then Lesieurs shot him twice more. Russ got up, and Lesieurs hit him'twice on the head with his pistol. After Lesieurs had shot at Russ two times, the latter said, “Don’t shoot me any more; you have killed me.” Lesieurs shot at him twice more, and took Russ’ gun out of his hand and threw it on the sidewalk.

Ty Luttrell was one of the principal witnesses for the- State. According to his testimony, he saw Fred Lesieurs walking pretty fast down the street, unbuttoning his shirt. Lesieurs walked up to where R. H. Martin, Wert Criss and Tom Russ were talking, at the edge of the sidewalk. Lesieurs pushed Martin out of the way, and Russ began to -back away, saying, “Don’t do that; Fred, don’t do anything.” Lesieurs shot twice with his pistol at Russ, and the latter kept backing away. After Lesieurs had fired twice at him, Russ pulled his gun and fired two shots at Lesieurs and Lesieurs then shot at Russ. He turned to run, and Lesieurs shot at him again. Russ crumpled up and fell to the ground, and it was then that he said, “Don’t shoot me any more; you have killed me.” Lesieurs replied, “By God, I aimed to.” Lesieurs then changed ends with his pistol, and started hitting Buss. A short time before the witness saw the defendant coming up the street unbuttoning his shirt, he saw him and 'Crip Martin coming along the street in a Ford car, and, as they passed the place where Buss and the other men were standing talking, Crip Martin' pointed over that way. They then stopped the car before the business house where Crip Martin worked, and Lesieurs started towards where Buss and the other men were. Crip Martin called him back. Lesieurs went back into Crip’s place, and when he came (back out he went down towards the place where the shooting occurred. After the shooting started he heard Crip Martin hollering up at his place. After the defendant had been arrested by a deputy marshal and his pistol taken from him, Crip Martin said that it was his gun, and that he was going to stay with the defendant. While the shooting was going on, he heard Crip Martin hollering, “Shoot him,” or “Kill him.”

According to the testimony of Mrs. Jewell Buss, she heard Fred Lesieurs make threats against her husband on the 8th day of March preceding the killing, after they had had*a fight. She communicated these threats to her husband.

According to some of the witnesses for the defendant, Tom Buss commenced shooting first, and after he had shot at Fred Lesieurs once or twice, the latter commenced shooting at him. Some of the witnesses for the defendant testified that they did not hear Tom Buss call out during the shooting, “Don’t shoot me; you have killed me,” and they did not hear the defendant say that is what he intended to do when Buss told him not to shoot any more, that he had killed him.

The jury were the judges of the credibility of the witnesses, and from its verdict it evidently believed the testimony of the witnesses for the State. The evidence for the State was sufficient to warrant a verdict of guilty of murder in the first degree. Viewed in the light most favorable to the State, it tended to show that the defendant had formed the design to kill the deceased, and walked to where he was standing talking with two other ■men for that purpose. He pushed one of the men out of the way and shot at the deceased twice before the latter pulled out his pistol and fired at him. After the deceased had told the defendant not to shoot at him any more, that he had already killed him, the latter replied with an oath that this was what he intended to do. He hit the deceased once or twice over the head with his pistol after he had mortally wounded him by shooting him with it.

One of the witnesses for the State testified that there were four bullet wounds in the body of the deceased, and that one of them was in his back. His skull appeared to be crushed. Another witness testified that the skull of the deceased was crushed in, and- that there was a gash you could lay your finger in.

The pistol used by the defendant was a 38-caliber Smith & Wesson, and that by the deceased a 32-20 caliber.

It is not contended by counsel for the defendant that the evidence is not sufficient to support the verdict. Their chief reliance for a reversal of the judgment is that the court erred in allowing to go to the jury certain evidence in regard to a conspiracy between the defendant, and 'Crip Martin to kill the deceased,-and in instructing the jury that they could consider this evidence. In the first place, it is contended that the evidence is not sufficient to show any conspiracy between the defendant and Crip Martin to kill the deceased. We-cannot agree with counsel in this contention. On the day of the killing the defendant and Crip Martin drove out into the country ■about three and a half or four miles from Truman, about one o’clock in the afternoon, and stayed there- for some time. The defendant had a pistol on the seat by his side. A short time before the killing they were seen to drive a Ford car past the place where the killing occurred, and where Buss was standing talking to two other men. As the car passed this place, Crip Martin pointed over towards it. When they reached Crip Martin’s place of business, the defendant got out and started down towards the place where Buss was talking to the other men. Crip Martin called him back, and they went into Martin’s place of business together. The defendant came out of Martin’s place of business and again started towards the group of men in which Buss was standing. When the shooting started, Crip Martin was on the outside of his store, and commenced to hollo, “Shoot him” or ‘ ‘ Kill him. ’ ’ Immediately after the shooting, a deputy town marshal arrested the defendant and took away from him the gun with which he did the shooting. Crip Martin’s father was trying to get him back into the store, and Crip Martin stated that he was going to stay with the defendant, and asked the deputy marshal to turn the pistol over to him, saying that it 'belonged to him. This testimony was sufficient to show that there was a conspiracy between the defendant and Crip Martin to kill the deceased, and the evidence of what each of the conspirators did towards carrying out their common design was admissible to go before the jury.

It is well settled that any act done or declaration made by one of two conspirators in furtherance of the conspiracy, though in the other’s absence, may be shown in evidence against the other. McGuffin v. State, 156 Ark. 392, and cases cited; Burns v. State, 155 Ark. 1, and Stroud v. State, 167 Ark. 502.

It is also insisted that the court erred in allowing the witnesses for the State to testify that Crip Martin claimed the pistol with which the shooting was done, and said that he was going to stay with the defendant. They claim that the conspiracy had ended, and that the testimony was inadmissible on that account, because the defendant was not present when the declaration by Martin was made. When the connection of two or more individuals to do an unlawful act is shown, every act and declaration of each member of the conspiracy in pursuance of their concerted plan is in law the act and declaration of them all, and on tlmt account is original evidence against each of them. .Hence it is necessary that the acts. and declarations thus admitted be those only which were made and done during’ the pendency of the criminal enterprise and in furtherance, of its object. Under the authorities cited above, if they took place at a subsequent period of time after the conspiracy had ended, they would be merely a narrative of a past occurrence, and should be rejected as hearsay evidence.

,A narrative of a past event has no necessary connection with the act done, and does not tend to explain it. It can not be ‘ said, however, that the testimony referred to was the narrative of a past event and had no connection with the killing. It will be remembered that the defendant left the place of business of Crip Martin immediately preceding the killing and walked to where the deceased was standing talking to some other men a short distance away and in plain sight of Martin’s place of business. When the altercation between the defendant and the deceased eommeuced, Crip Martin, who was standing in front of his place of business, cried out, “Shoot him” or “Kill him.” He was close enough to have been heard by the defendant. As soon as the shooting was over, the defendant was arrested by the deputy town marshal, and the pistol with which he did the shooting was taken away from him. Crip Martin’s father was trying to get him to go in the store, but Crip refused to go. He claimed the pistol with which the shooting was done as his own, and said that he was going to stay with the defendant. He was still excited, and all of the attendant circumstances show that the criminal enterprise was not ended, so that his statements should, be considered as the narrative of a past event. On the other hand, the attendant circumstances under which the statement was made show that it was a part of their unlawful enterprise, and tended in a measure to explain their connection and joint action in the premises.

■Complaint is also made that the court refused to instruct the jury not to consider any testimony as to the declarations and conduct of Crip Martin in the absence of the defendant, and in instructing the jury that they might consider any testimony as tending to show that the defendant and Crip Martin had entered into a conspiracy or agreement that the defendant should kill the deceased.'

We do not deem it necessary to set out either the refused instruction or the one given by the court on this point. As we have already seen, the evidence was sufficient to warrant the jury in finding such a conspiracy, and the court was correct in submitting to the jury as a question of fact whether or not the evidence was sufficient to establish such conspiracy. Complaint was made of the instruction given that there was no evidence upon which to base it. Therefore we hold that this assignment of error is not well taken.

The court in other instructions fully and fairly submitted to the jury the respective theories of the State and of the defendant, and we find no prejudicial error in the record in: giving or refusing instructions.

Counsel for the defendant also insists that the court erred in keeping the jury together during the progress of the trial. Under § 3187 of Crawford & Moses’ Digest, the separation of the jurors before a case is submitted to them may be 'allowed in the discretion of the court. Counsel for the defendant contend that the discretion of the court was abused under the particular facts of this case as shown by the record.

It appears from the record that the court first told the jury that it would be allowed to separate under the usual instructions and admonition given to it by the court. Before the jury was allowed to separate, however, at the request of the prosecuting attorney, the court reconsidered its ruling and ordered they be kept together. In the first place, it may be said that there is nothing in the record tending to show that any prejudice resulted to the defendant from the action of the court in changing its ruling in respect to the separation of the jurors. In the second place, no objection was made by the defendant to the action' of the court in this respect, and, under our rules of practice, this assignment of error can not be considered on appeal. Even in a capital case it is necessary to object to the ruling of the court at the trial in order to present a question for review in this court. Sullivan v. State, 161 Ark. 19.

We do not find any prejudicial error in the record, and it follows that the judgment must be affirmed.


author: Smith, J.

text:
    Sager v. American Investment Company.
    Opinion delivered February 22, 1926.
    1. Trial—time for trial of equitable actions.—In equitable actions a cause does not stand for trial until ninety days after issues joined.
    2. Judgment—premature entry.—A decree prematurely rendered will be set aside on appeal.
    3. Infants—decree against, by default.—A decree toy default against minors is erroneous.
    4. Usury—acceleration of payments—unearned interest.— Where a debt, including both principal and interest, which are payable in installments, is free from usury if paid according to the terms of the contract, though the lender exercises its option to declare the whole sum due upon default in payment of an installment, there would still toe no usury, but in such case equity would treat the stipulation for accelerating payments as a penalty, and refuse to enforce except upon a cancellation of the unearned interest notes.
    Appeal from Arkansas Chancery Court, Southern District; John M. Elliott, Chancellor;
    reversed.

      George G. Lewis, for appellant.

      Thomas J. Moher, for appellee.
   Smith, J.

The American Investment Company, hereinafter referred to as the company, brought this suit to foreclose a second mortgage given it by William Sager and Ms wife to secure sixteen notes aggregating $1,760. The Sagers borrowed from the company $5,500, to be repaid in ten years, with interest at ten per cent. A principal note for $5,500 was given, due ten years after date, with interest at six per cent, per annum until paid ; this note and the interest thereon being secured by a first mortgage. The other four per cent, of interest is represented by notes calling for the payment of $220 each year for the period of the loan. Two of the last-mentioned notes, one for $165 and the other for $55,' became due, but were not paid. Two notes for like amounts would become due on each July 1 thereafter until the series was exhausted. The mortgage securing these notes contained the clause that, if any of the notes were not paid when due, the company should have the right to declare them all due. Default in paying the two notes which had matured was alleged, and all the notes representing the four per cent, interest were for that reason declared to be due.

It was alleged in the complaint, which was filed July 15, 1924, that both Sager and his wife were dead, and the suit was brought against his heirs, one of whom, Andrew Sager, a son, filed a separate answer on September 22, 1924.

In this answer it was set up that the prayer for acceleration and precipitation of payment of the notes representing the four per cent, of interest which were not past due would, if granted, result in imposing a penalty, and would enable the company to collect a greater rate of interest than ten per cent, and would render the entire loan usurious. The note for the $5,500 and the six per cent, interest thereon were not involved in the litigation, as- the suit was brought for the purpose only of- collecting thp additional four per cent.

The company demurred to the answer on the day it was filed on the ground that it did not state facts sufficient to constitute a defense, and on the following day the demurrer was sustained, and, defendant refusing to plead further, a decree was rendered foreclosing the mortgage. The court found the amount sued for should be reduced to $1,348.24, and a decree was rendered for that amount, and a commissioner was appointed to sell the land in satisfaction of this indebtedness, and appellant, one of the heirs of the mortgagor, has appealed.

Upon the authority of the case of Harnwell v. Miller, 164 Ark. 16, it is conceded that the decree was prematurely rendered, for in the case cited it was held that in equitable actions the cause does not stand for trial until ninety days after the issues are joined. But upon the authority of the case of H. G. Pugh & Co. v. Martin, 164 Ark. 423, it is insisted that the error was harmless for the reason that the answer tendered no defense. It was held in the case last cited that a decree of sale would not be set aside unless a valid defense was shown, although the petition to vacate was filed at the same term of the court at which the decree was rendered. But in the case of Old American Insurance Co. v. Perry, 167 Ark. 198, it was held that it was error to render a premature judgment, and that the remedy in such case was by appeal. Here the decree was prematurely rendered, and an appeal has been prosecuted from that decree. Some of the defendants were minors, and it was the duty of the guardian representing them in the litigation to deny all the allegations of the complaint and to require strict proof thereof, and a decree was rendered before that was done.

In addition, the complaint filed sought the foreclosure of a mortgage given to secure interest on the original loan, and the relief• prayed was that the maturity of the-notes representing a part of this interest be accelerated, and this relief was granted. Only $220' of the interest was due, yet a decree was rendered for $1,348.24, and, if the payment of all this unearned interest should now be enforced, it is obvious that more than ten per cent, interest would be paid, as the first mortgage itself bore interest at the rate of six per cent. The doctrine announced in the ease of Eldred v. Hart, 87 Ark. 534, applies here. In that ease, Hart, the mortgagor, borrowed the sum of $2,500, evidenced by two notes of a thousand dollars each, and one for five hundred dollars, payable on or before July 1, 1907, and bearing interest at the rate of 5y2 per cent, from date until paid, payable semi-annually January 1 and July 1. The mortgagor, at the same time, also executed ten notes for $31.25 each, payable semi-annually, and each bearing interest at six per cent, after maturity. The notes for the $2,500 were secured by a first mortgage, the others by a second.

The interest coupons due on the notes aggregating $2,500 were paid, and the first of the ten notes due at that time was also paid on January 1, 1903, and shortly after the next interest coupons on the $2,500 and the second note for $31.25 became due the mortgagor paid them with the interest to the time of payment, and also paid the principal sum of $2,500. The remaining eight notes of $31.25 each were not paid. The mortgage securing these unpaid notes contained an acceleration clause, and there was default in paying one of them, whereupon the mortgagee declared them all due, and brought suit to foreclose the mortgage securing them.

It was held by the court below that the notes and mortgages constituted one transaction and were a loan of $2,500 at eight per cent, per annum, payable on or before five years from date, and that the payment of the $2,500 of notes with eight per cent, interest discharged the entire indebtedness represented by all the obligations executed by the mortgagor, and that the eight notes there sued on were thus paid and discharged, and were not enforceable for want of consideration, and that, if the eight notes were considered separate obligations and enforceable after the payment of the principal obligation, the contract would be usurious and void. It was there said: “Where a debt, including both principal and interest and due by installments, if paid according to the terms of the contract, is free from usury, the transaction is not rendered usurious by the voluntary payment of the debt in full before some of the installments matured, although as a result the creditor would receive, in the aggregate, a sum amounting to more than the principal and the maximum legal rate of interest. ’ ’ (Citing authorities).

After thus announcing the law, it was further said: “If the lenders had exercised their option to declare the whole indebtedness due for failure of the borrower to fulfill a certain stipulation of the deed of trust, still there would have been no usury, 'but in such a case a court of equity would treat the stipulation as a penalty, and refuse to enforce it except upon a cancellation of the unearned interest notes, as was done in the case, cited by appellees, of Dugan v. Lewis, 14 S. W. (Tex.) 1024. This salutary rule was applied in this court ini the case of Chaffee v. Landers, 46 Ark. 364, and in earlier cases cited therein.”

So here, the notes secured by the two mortgages were not usurious because, if the debt had been paid according to the terms of the loan contract, only ten per cent, interest would have been paid. Both mortgages represented a single loan. The company was therefore not entitled to accelerate and precipitate the payment of the unearned interest and ask now a foreclosure of the entire interest, and the decree of foreclosure should not have been rendered for the unearned interest. The unearned part of the interest should have been declared a penalty, and the relief of foreclosure for the earned interest should have been decreed only upon the cancellation of the unearned interest.

It appears therefore that a valid defense against the relief prayed was interposed, and the decree rendered was an improper one.

The decree rendered cannot be treated as a decree for the foreclosure of the $220 due. A redemption might have been effected had the decree not been for an excessive amount. It appears that the land has been sold under this decree. There remains therefore nothing to do except to reverse the decree because it was rendered for an excessive amount, and the cause will be remanded for further proceedings in accordance with this opinion.


text:
    Holloman v. Missouri Pacific Railroad Company.
    Opinion delivered February 22, 1926.
    1. Appeal and error—presumption in favor of judgment.—Where no appeal was taken from an order setting- aside a verdict in favor of the plaintiff, on a subsequent appeal by plaintiff from an adverse judgment the Supreme Court, in the absence of the evidence, will presume that the prior verdict was contrary to the preponderance of the evidence.
    2. Railroads—instruction—duty to keep lookout.—In an action against a railroad company for negligently running over a dog, it was not error to refuse to instruct as to the duty of the railroad company to keep a lookout for persons and animals on its track where there was neither allegation nor proof of a failure to keep a lookout.
    3. Railroads—duty to keep lookout.—In an action against a railroad company for negligently killing a dog, where there was no allegation of a failure of defendant’s trainmen to keep a lookout, it was not error to amend an instruction as to defendant’s duty to blow its whistle, etc., by adding the words, “after discovering the peril of the dog.”
    Appeal from Phillips Circuit Court; E. D. Robertson, Judge;
    affirmed.

      A. D. Whitehead, for appellant.

      Thomas B. Pryor and Daggett & Daggett, for appellee.
   Smith, J.

Appellant, the plaintiff below, brought suit in the Phillips Circuit Court on April 7, 1923, to recover the value of a dog killed by one of the defendant railroad company’s trains. On May 2, 1923, the defendant filed a motion to make the complaint more specific. This motion was confessed, and the complaint was amended, and the defendant was given twenty days in which to file an answer. The answer was not filed within the time limited nor until the first day of the ensuing term of court, at which time the plaintiff moved to strike the answer from the files. This motion was granted, and the answer was stricken from the files, but later that order was set aside and the answer was filed, and a trial was had before a jury, which resulted in a verdict for the plaintiff for the sum of $75. The defendant filed a motion for a new trial, which was granted, and at a subsequent term of the court there was a second trial before a jury, which resulted in a verdict and judgment for the defendant, from which is this appeal.

For the reversal of the judgment it is insisted that the court erred in. setting aside the first verdict, and in giving and in refusing to give certain instructions, and in the admission of certain testimony.

Considering these assignments of error in the order stated, it may be first said that no appeal was taken from the judgment of the court granting a new trial upon the first trial. It may be further said that the motion of the defendant, upon which the order granting a new trial was made, assigned, among other errors, that the verdict of the jury was contrary to the evidence in the case. This evidence is not ¡before us, and so far as the present record shows the court may have properly concluded that the verdict was, in fact, contrary to the evidence.

In the case of Washington v. Hamer, 166 Ark. 273, we said that “this court will not reverse the ruling of the lower court, in setting aside a verdict, where there is substantial conflict in the evidence upon which the verdict was rendered, but will leave the triaj. court to determine the question of preponderance.”

It follows therefore that we could not reverse the present judgment, on account of the action of the court in granting a new trial, even though the evidence was before us, if there was a substantial conflict in the testimony, and that presumption must be indulged, especially so as no appeal was taken from the order granting a new trial.

Notwithstanding the fact that the motion had been sustained to make the complaint more definite and certain, the only acts of negligence alleged were (a) failure to give warning of the approach of the train by opening the cylinder cocks in order to frighten the dog from the track; (b) failing to blow the whistle or ring the bell; (c) failure to stop the train after the presence of the dog on the track was discovered.

The engineer in charge of the train which killed the dog was not present at the trial, but it was stipulated that if he were present he would testify that at the time the dog was killed the fireman was putting in a fire and was not keeping a lookout, but the witness, the engineer, was keeping a lookout, and the dog came on the track from the fireman’s side about forty or fifty yards in front of the train, which was running about thirty miles per hour; that as soon as witness saw the dog he knew the train could not be stopped, so he blew two or three short blasts of the whistle in an endeavor to scare the dog off the track, but the dog ran a short distance with the train and was struck and killed, and there was nothing else which could have been done to prevent striking the dog. Witnesses for the plaintiff testified that the whistle was not blown.

Plaintiff requested an instruction to the effect that it was the duty of the defendant company to keep a constant lookout for persons and animals upon its tracks. This is, of course, the law, as it is the duty of a railroad company to keep this lookout for dogs as well as for other property. St. L. I. M. & S. R. Co. v. Rhoden, 93 Ark. 29. But there was no allegation in the complaint that the defendant railroad company had failed to keep a lookout, nor was any testimony offered that a lookout was not kept, and it was not error, therefore, to refuse to submit an issue not raised by the pleadings.

Plaintiff asked an instruction which told the jury that it was the duty of the servants and agent's of the railroad company in charge of the train to use ordinary care to avoid killing the plaintiff’s dog, by blowing the whistle, etc. The count modified this instruction by adding the words, “after discovering the peril of the dog”, and error is assigned in thus modifying the instruction.

Under the allegations of the complaint this modification was not error, for the reason, as has been stated, that it was not alleged that there was any failure to keep a lookout, and if a proper lookout were kept—-and there is no allegation to the contrary—there could have been no negligence until the presence of the dog was discovered, and the instruction given required the defendant to exercise care from that moment.

When the agreed statement as to what the testimony of the absent engineer would be was offered in evidence, plaintiff objected to its introduction, for the reason that the answer did nof allege that the train was running at a speed of thirty miles per hour or that any effort was made to scare the dog off the track. The answer did deny, however, that the defendant railroad company was guilty of any negligence, and we think the testimony of the engineer was competent as tending to support that allegation and to rebut the statutory pre¡sumution of negligence arising from the fact that the dog was killed in the operation of a train.

We find no error in the record as made, and the judgment is therefore affirmed.