McIntosh Mining Co. v. Red Cloud Zinc Co. , 122 Ark. 45 ( 1916 )

Wood, J.,

(after stating the facts). First. The first and principal question to be determined is whether or not the mortgage of January 4,1911, executed by the Red Cloud Zinc Company, of Arkansas, to Sam W. Williams, as trustee for Martin W. Littleton, to secure the sum of $25,000, was executed for the purpose of enabling Little-ton to raise a fund of $25,000 for the benefit of the general creditors of the Red Cloud Zinc Company, of Arkansas, or whether it was for the purpose of indemnifying Little-ton individually against 'any loss that he might sustain on account of a loan he had been instrumental in procuring for the Red Cloud Zinc 'Company of Arkansas, and which he had personally guaranteed. This was an issue of fact.

Witness Williams, who drew the mortgage of January 4, 1911, testified concerning it substantially as follows: Jesse M. Littleton and ¡Capt. Charles LeVasseur were present and gave witness the information from which to draft the mortgage. Littleton stated to him the purpose for' which the mortgage was drawn in the presence of LeYasiseur. Witness did not know anything about that mortgage having been intended for the purpose of securing any person other than Littleton. The first that witness heard of such a purpose “was a short time before Mr. Allyn Smith filed this suit, in which he claimed it. ’ ’

Jesse M. Littleton testified on this issue us follows: “On the 4th of January, 1911,1 was president of the Red Cloud Zinc Company, of Arkansas, and director in said company and owned the majority of the stock in said company. . On said date the Red Cloud Zinc Company, of Arkansas, did execute to Sum Williams, trustee, for the benefit of Martin W. Littleton, a mortgage on its real and personal property in Arkansas, iand my means of knowing that said mortgage was executed is that I was present at the .stockholders and directors meetings authorizing the execution of the note and mortgage, and as president of the company I executed it for the company. The purpose of the execution of the mortgage was to secure payment to Martin W. Littleton of the sum of $25,000, he having advanced to the company, through me, $15,000 and I having borrowed and paid in to the company $10,000. It was to secure the two amounts.” After explaining that his brother had furnished to the company of which witness was president, the sum of $15,000, and that he himself had advanced the .company the sum of $10,000, he then reiterates, “it (the mortgage) was executed for the purpose of securing him (Martin W. Littleton) for the sum that bad .already been advanced and which every officer of the company knew had been advanced in cash, and there was no thought of the general creditors being protected under the mortgage at that time, and there was no hint of it and no intention of it.”

Martin W. Littleton testified concerning this as follows : “I procured for the Red 'Cloud Zinc Company, of Arkansas, a loan of $15,000 from the Trust Company of America, the payment of which obligation I guaranteed and this mortgage was executed to secure me against loss on accóunt of my guaranteeing said loan. ’ ’

On behalf of the appellants Charles LeYasseur testified concerning this issue substantially as follows: He was a stockholder and secretary of the Red Cloud Zinc Company, of Arkansas. As the Red Cloud Zinc Company, of Arkansas, at the beginning of 1911 was indebted to its general creditors in excess of $25,000, to protect its general creditors it executed to Martin W. Littleton, for no other consideration, a mortgage for the sum of $25,-000. At the time of the execution of the mortgage the Red Cloud Zinc Company, of Arkansas, did not owe Martin W. Littleton anything. The amount due its general creditors was a large amount. It was understood that the object of the $25,000 trust deed to Martin W. Little-ton was to raise money to pay the general creditors of the Red Cloud Zinc Company, of Arkansas. Martin W. Littleton did not pay any money to the Red Cloud Zinc Company, of Arkansas, at the time of the execution of the trust deed to him on January 4,1911.”

George DeBurghen testified that ‘ ‘ at the time of the execution of the trust deed of January 4, 1911, for $25,-000, the Red Cloud Zinc 'Company, of Arkansas, was not indebted to Martin W. Littleton in any .amount.” Witness was present at a general meeting of the stockholders and it was understood and agreed at the time of the execution of this $25,000 mortgage, of January 4, 1911, that if Martin W. Littleton failed to raise money thereon he was to hold said trust deed for the benefit of and to secure the general creditors of the Red Cloud Zinc Company, of Arkansas. Martin W. Littleton did not pay one cent to the Red Cloud Zinc Company, of Arkansas, at the time of the execution of the $25,000 trust deed to him. ’ ’

It will thus be seen that there was a sharp conflict in the evidence on the issue as to whether or not the deed of trust of January 4, 1911, was executed for the benefit of general creditors of the Red Cloud Zinc Company, of Arkansas, or whether it was.executed for the purpose of securing Martin W. Littleton individually from loss on account of a loan which he had obtained for that company and for which he had become personally liable. The deed of trust or mortgage itself shows on its face that it was executed to Sam W. Williams as trustee for Martin W, Littleton. The testimony of the draftsman of the instrument shows that such was its purpose, and the testimony of J esse M. Littleton, who was representing his brother, Martin W., and Martin W. himself, was to the same effect. While the testimony of LeVasseur and DeBurghen tended to show to the .contrary, the preponderance of the evidence clearly shows that the instrument was what it purports to be, towit, a deed of trust to Sam W. Williams, in favor of Martin W. Littleton.

Second. The next question is whether or not the mortgage executed by the Bed Cloud Zinc Company, of Delaware, on the 12th day of January, 1912, to Charles M. Green, trustee, and the Bed Cloud Mining ¡Company, of Bush, Arkansas, of the personal property mentioned therein, .and in controversy here, gave to the Bed Cloud Mining Company of Bush, Arkansas, and Charles M. Green, trustee, a first lien on such property.

It appears that on the 16th day of June, 1911, the Bed Cloud Zinc Company, of Arkansas, sold its property, including the personal property in controversy, to the Bed Cloud Zinc 'Company, of ’ Delaware (hereinafter called the Delaware Company), and ¡as a part of the consideration of that sale the Delaware Company assumed and agreed to pay the indebtedness due to the Bed Cloud Mining Company, of Bush, Arkansas. The mortgage of January 12,1912, was executed in pursuance of an agreement between the Bed Cloud Mining Company, of Bush, Arkansas (hereinafter called the Bush Company), and the Delaware Company, ¡and Martin W. Littleton, who was one of the principal stockholders in the latter company.

The indebtedness due the Bush Company which ¡the Delaware-Company had assumed was long past -due, and in order to procure an extension of time of payment an agreement was entered into by the Delaware Company and Martin W. Littleton, on the one hand, and the Bush Company, on the other, to the effect that the Delaware Company would pay to the Bush ¡Company the -sum of $8,000 upon the indebtedness due and that the Delaware Company would execute its notes for the balance due in lieu of the notes of one Koehler and one Wheeler, evidencing the original indebtedness to the Bush Company, and as a further consideration for this extension of the time of payment that the deed of trust executed to Sam Williams, trustee for the benefit of Martin W. Littleton, on January 4, 1911, should be released, ¡and the personal property included therein should be embraced in the new mortgage to be executed by the Delaware Company to the Rush Company. This arrangement was carried out on the part of the Rush Company by its surrendering the notes of Koehler and Wheeler and accepting the $8,000 cash paid and the notes ¡and mortgage of the Delaware Company, and on the part of the latter company by the execution of the notes and mortgage to the Rush Company 'and on the part of Littleton by releasing the deed of trust given for his benefit.

Since the deed of trust of January 4, 1911, as we have found, was executed for the benefit of Martin W. Littleton individually, ,and not tb him as trustee for the benefit ef the general creditors of the Red Cloud Zinc Company, of Arkansas, it follows as a necessary corollary to such finding that Littleton was the owner of this deed of trust and had the right to do with it .as he pleased. The general creditors of the Red ¡Cloud Zinc Company, of Arkansas, among whom were the appellants, had no rights in that deed of trust,' apd hence they had no right to object to the release of such deed of trust by Martin W. Littleton. The agreement which he and the Delaware 'Company entered into with the Rush Company was one which they had a right to make, and gave to the Rush Company .a first lien on the personal property included in its mortgage, and the chancery court was correct in its finding to that effect.

Third. In view of the above findings, it is unnecessary to discuss the question as to whether the Red Cloud Mining ¡Company, of Rush, Arkansas, was an innocent holder for value, .and also the question as to whether or not the appeEants were estopped. These interesting questions, ably presented in briefs of counsel, necessarily pass out under the conclusion which we have reached on the principal issue of fact ¡above mentioned.

The decree is in ,aE things correct, and it is therefore affirmed.