| Ark. | Jul 11, 1910
(after stating the facts). It could serve no useful purpose to discuss in detail the evidence upon which the court based its findings of fact. It suffices to say that these findings are sustained by the evidence.
Appellants contend that, at the time they filed their answer as garnishees herein, they were not, and had not been for -more than three years, indebted in any sum whatever to the gin company. Appellants say this is so for the reason that their stock in the gin company was sold in July, 1905, and that thereafter appellants had no further interest in or connection with the gin company. But appellants’ contention can not be sustained.
The court found, and the evidence tended to support' that finding, “that at the time the stock of appellants in the gin company was sold or attempted to be sold to satisfy the unpaid subscription thereon said corporation was hopelessly insolvent.” This being true, conceding for the present that there was a sale and purchase of the stock, the transaction was nevertheless void as to creditors of the corporation.
Mr. 'Cook, in his excellent work on Corporations, says: “If the corporation is insolvent at the time of the purchase, it is clearly an invalid transaction, and will be set aside. The rule goes still further, and declares that if a corporation, by a purchase of shares of its own capital stock, thereby reduces its actual assets below its capital stock and debts, such purchase may be set aside, and the guilty corporate officers, as well as the vendor of stock, may be rendered liable thereon at the instance of a corporate creditor.” Cook on Corporations, § 311, pp. 849-850, and cases cited in notes 3 and 1 of above pages. The corporation in which appellants owned shares of capital stock for which they had not paid being insolvent, the sale and purchase by it of these shares of stock was but tantamount to a voluntary release by the corporation to appellants of the balance due by them for their shares of capital stock. But the corporation could not do this. It 'has no right to enter into any arrangement with the stockholder himself, or to engage in any transaction on its own motion, the effect of which would be to release from liability those who owed for capital stock in the corporation. The capital stock of a corporation is a trust fund that must be devoted to the payment of its debts. Neither the corporation nor the individual stockholder can divert it, directly or indirectly, from this purpose. Carter v. Union Printing Co., 54 Ark. 580.
In the above case this court quoted from the Supreme Court of the United States as follows: “Unpaid stock is as much a part of this pledge, and as much a part of the assets of the company, as the cash which has been paid upon it. Creditors have the same right to look to it as to anything else, and the same right to insist upon its payment as upon the payment of any other debt due to thé company. As regards creditors, there is no distinction betwen such a demand and any other asset which may form a part of the property and effects of the corporation.” Sanger v. Upton, 91 U. S. 60, 61.
There is therefore no merit in the contention of appellants that, when appellee sold its machinery to the gin company, it 'had no right to deal with the gin company in the belief that appellants’ subscription to the capital stock of that company was an asset of the company at that time. The reverse is true, in view of the fact .that the gin company was insolvent when the stock was sold and purchased by the gin company, conceding that it was.
But the purchase of the stock by the president of the company without any previous authority from the board of directors to do so, and without any subsequent ratification of his unauthorized act, as was the case here, rendered the transaction void. The stock never passed by that sale out of appellants. They still owned and owed for if at the time the debt herein sued on was contracted, and at the time the writ of garnishment was served on them.
It is next contended by appellants that, they not being parties defendant in the suit, and no relief having been asked against them, and no judgment prayed, the court was without authority to render judgment against them.
Since the passage of the act of April 8, 1889, in reference to judicial garnishments, and the amendatory act of April 19, 1895, “it is no longer necessary to commence a separate action against the garnishee in order to authorize the court to render a final judgment against him, but in.cases covered by these acts final judgments may be rendered against the garnishee upon default made by him, or when on a trial the court finds that he is indebted to the defendant in the original judgment.” Norman v. Poole, 70 Ark. 128. The writ of garnishment in the present case summoned appellant to answer what “property of the defendant they had in their possession,” and “further to answer what sums of money they, or either of them, owe the defendant Tuxora Gin & Manufacturing Company.” Appellee had obtained judgment against the gin company, and the writ of garnishment served on appellant gave the court jurisdiction to hear and determine the issue raised by the allegations contained in the writ. Appellant appeared and answered the writ, denying the allegations and interrogatories which the writ itself contained (which were sufficient), making the distinct issue that “it did not owe the gin company any sum whatever.” In Little Rock Traction & Electric Company v. Wilson, 66 Ark. 582" date_filed="1899-10-07" court="Ark." case_name="Little Rock Traction & Electric Co. v. Wilson">66 Ark. 582, 587, this court, through Judge Battue, said:
“The writ of garnishment gives the person -therein named as garnishee notice of the object of its issue, and commands him to appear at its return day, and answer what goods, chattels, moneys, credits and effects he may -have in his hands or possession belonging to the defendant. To this extent it serves as a summons and a pleading. The allegations and interrogatories call his attention tó, specify and remind him of the goods, chattels, moneys, credits and effects supposed to be in his possession, touching which he is required to answer. If they had not been required by the statutes, there could be no necessity for their filing. The fact that the proceeding instituted by the writ may, so far as it affects the garnishee, be in the nature of an action against him does not render the filing of the allegations and interrogatories a prerequisite to the investiture of the court or justice of the peace with jurisdiction.”
Appellants insist that appellee is barred of any right to maintain this suit by the three years statute of limitation. But appellants did not plead limitation in the lower court. They could have done so. Rood on Garnishment, § 376. They can not be heard here on this plea for the first time.
The judgment is correct. Affirmed.