The opinion of the court was delivered by: John E. Miller, District Judge.
This is a suit instituted by plaintiff on March 16, 1954, in
which she seeks a recovery against the defendant, Royal A.
Rice, hereinafter referred to as R. A. Rice, based upon certain
judgments heretofore obtained by plaintiff against the said
defendant in the State of New York. In her original complaint
plaintiff sought to recover the sum of $12,008.19, being the
amount of a judgment obtained by plaintiff against R. A. Rice
on February 24, 1954, in the Supreme Court of the State of New
York, Westchester County, in the City of White Plains.
Plaintiff further alleged that R. A. Rice owned an interest in
the Montgomery County Insurance Agency, and also owned certain
shares of stock in the Bank of Montgomery County, said shares
having been transferred by R. A. Rice to the defendant, J. A.
Rice, for the purpose of hindering, delaying and preventing the
collection of plaintiff's New York judgment. Plaintiff sought
judgment against R. A. Rice in the sum of $12,008.19; that the
transfer of the stock be set aside; and that the assets of J.
A. Rice be marshalled to free the certificates of stock owned
by R. A. Rice from the lien of a pledge of a portion of the
said stock to the defendant, Commercial National Bank.
On April 7, 1954, the defendants, R. A. Rice, J. A. Rice, Bank
of Montgomery County, and Montgomery County Insurance Agency,
filed an answer admitting the recovery of the $12,008.19
judgment by plaintiff, but denying that the Court had
jurisdiction to render said judgment. The said defendants
denied that R. A. Rice owned any interest in the Montgomery
County Insurance Agency and denied that he had transferred any
stock in an effort to prevent the collection of plaintiff's
The defendant, Commercial National Bank, on April 10, 1954,
filed its answer alleging that it had a valid lien upon the
311.4 shares of stock of the Bank of Montgomery County that had
been pledged to it by J. A. Rice.
On September 17, 1954, plaintiff amended her complaint to
include three additional judgments she had previously obtained
against R. A. Rice, making the total amount sued for
$19,821.08. Plaintiff also alleged that R. A. Rice was the
owner of an undivided one-half interest in certain lands in
Montgomery County, Arkansas, and prayed that said interest be
made subject to the payment of plaintiff's judgments. Plaintiff
further prayed that R. A. Rice be declared to be the owner of
434 shares of the stock of the Bank of Montgomery County, and
that said stock be subjected to the payment of plaintiff's
Upon these issues, the case was tried to the Court, without a
jury, on October 18, 1954, and at the conclusion of the trial
the Court took the case under advisement pending receipt of
briefs from the attorneys for the respective parties.
The briefs have been received, and now the Court, having
considered the pleadings, ore tenus testimony of the witnesses,
depositions, exhibits, stipulations, and briefs of the parties,
makes and files herein its findings of fact and conclusions of
law, separately stated.
The plaintiff is a citizen and resident of the State of New
York. The defendants are all citizens and residents of the
State of Arkansas. The amount in controversy, exclusive of
interest and costs, exceeds the sum of $3,000.
The plaintiff and the defendant, R. A. Rice, were married in
1910 in the State of New York. They lived together until 1936,
when they separated, and on October 16, 1940, plaintiff
obtained a decree in the Supreme Court of Westchester County,
awarding her separate maintenance in the sum of $10 per week.
On August 3, 1943, the decree was modified by increasing the
award to $15 per week. On August 4, 1951, the decree was again
modified and the award was increased to $100 per week.
The defendants, R. A. Rice and J. A. Rice, are brothers, and
prior to 1944 had been engaged in business together. On May 20,
1944, the said defendants, together with their mother, Mrs.
Lula V. Rice, entered into a partnership agreement which
purportedly gave the parties the following respective
interests: Lula V. Rice, 50%; Joel A. Rice, 40%; and Royal A.
Rice, 10%. This agreement, of course, was entered into
subsequent to the time plaintiff obtained her decree in 1940,
as well as the modification in 1943. The parties operated as a
partnership styled Rice Bros. Mfg. Co. until June 15, 1945, at
which time they purchased the controlling interest in the Bank
of Montgomery County in Montgomery County, Arkansas. The sum of
$25,050 was paid for 501 shares of the stock of said bank, the
total number of outstanding shares being 1,000. The money was
paid by check drawn upon the account of Rice Bros. Mfg. Co.
The 501 shares were first issued to R. A. Rice and J. A. Rice
jointly. In December, 1946, the stock was divided as follows:
R. A. Rice, 244 shares (evidenced by Certificate Nos. 132 for
43 shares; 134 for 52 shares; 140 for 136 shares; and 13 shares
of Certificate No. 136, which originally contained 43 shares
but was divided at that time); J. A.
Rice, 244 shares (evidenced by Certificate No. 130 for 227
shares; and 17 shares of Certificate No. 136); and Mrs. L. V.
Rice, 13 shares (being taken from Certificate No. 136). On
December 16, 1946, R. A. Rice executed a promissory note,
payable to J. A. Rice on demand, in the sum of $10,935, without
interest, purportedly executed in consideration of the transfer
of "243 Shares Bank Stock." During this time, or shortly
thereafter, Mrs. L. V. Rice purchased an additional 7.2 shares
of stock, making her total ownership 20.2 shares.
After the purchase of the stock by the Rice family, a
controversy developed between them and the Bank officers,
culminating in the case of Rice v. Beavers, 213 Ark. 656,
212 S.W.2d 30. The decision in that case left the way clear for the
Rice family to take over the management of the Bank, which they
did on August 3, 1948. At that time the officers were: R. A.
Rice, President; J. A. Rice, Vice President; Amos Horn,
Secretary-Treasurer and Cashier. Mrs. L. V. Rice became a
director and remained in that capacity until her death in 1950,
at which time her 20.2 shares were transferred to Sam G. Smith
and he became a director.
As reflected by the annual reports made by the defendants, R.
A. Rice and J. A. Rice, to the State Bank Commissioner,
together with the testimony of Oscar W. Luebben, Certified
Public Accountant, the stock ownership of the said Rice
brothers remained substantially the same from December, 1946,
until July 17, 1952. In the meantime, plaintiff had obtained
two judgments against R. A. Rice in the Supreme Court of
Westchester County, New York, one in the amount of $1,179.02
rendered on October 26, 1951, and one in the amount of
$2,320.22 (including costs) rendered on January 8, 1952. On
January 3, 1952, plaintiff instituted an action in the Circuit
Court of Garland County, Arkansas, upon the judgment entered by
the New York Court on October 26, 1951. Then, on February 13,
1952, plaintiff filed suit in the Circuit Court of Garland
County upon the New York judgment rendered on January 8, 1952.
While R. A. Rice was faced with the efforts of plaintiff to
collect the judgments she had obtained against him, he had a
conversation with Amos Horn, Secretary-Treasurer of the Bank,
about the matter. Horn advised him to attempt to settle the
controversy with plaintiff, but R. A. Rice stated that he did
not intend to pay anything else to plaintiff, and that he
intended to transfer his stock to his brother, J. A. Rice.
During this time, R. A. Rice and John Beavers, with the
assistance of Beavers' attorney, Alfred Featherstone,
negotiated for the purchase by the Rice brothers of 323.4
shares of the Bank stock still owned by the Beavers family and
their friends. This negotiation resulted in the sale to the
Rices of the 323.4 shares in July of 1952. At that time the two
suits against R. A. Rice were pending in the Garland County
Circuit Court, and the Rice brothers evidently thought it would
be wise to have everything possible placed in the name of J. A.
Rice rather than R. A. Rice.
On July 15, 1952, R. A. Rice and J. A. Rice issued a joint
financial statement to the Commercial National Bank of Little
Rock, Arkansas, said statement showing ownership of 509 shares
of Bank stock and a Net Worth of $72,700. This financial
statement was signed "R. A. & J. A. Rice, by R. A. Rice." On
July 16, 1952, a note in the sum of $12,936 was executed by J.
A. Rice and R. A. Rice, payable to the Commercial National
Bank. The note appears on its face to be the joint note of the
said Rice brothers, but the records of the Commercial National
Bank indicated that the Bank considered R. A. Rice's signature
on the note to be an endorsement. However, both R. A. Rice and
J. A. Rice were equally interested in the purchase of the
stock. The note was secured by the pledge of certain stock of
the Bank of Montgomery County then in the name of J. A. Rice.
The purchase price of the 323.4 shares of Beavers' stock was
paid on July 17, 1952,
with the money obtained from the Commercial National Bank, and
said shares were placed in the name of J. A. Rice. On the same
date, R. A. Rice, without consideration, transferred all his
stock to J. A. Rice, who, in turn, re-transferred 20 shares to
R. A. Rice in order that he would still be qualified to serve
as an officer and director of the Bank.
In an effort to make the records reflect a bona fide
transaction, on July 20, 1952, R. A. Rice executed a note in
the sum of $1,000, payable to J. A. Rice, without interest,
said note purportedly being in consideration of the transfer of
20 shares of the Bank stock from J. A. Rice to R. A. Rice.
Also, upon the back of the note in the sum of $10,935 executed
by R. A. Rice on December 16, 1946, payable to J. A. Rice, the
following penciled notation appears: "Paid 7/1252 J. A. Rice."
As a result of these transactions, as of December 31, 1952, the
annual report made to the State Bank Commissioner revealed that
789.4 shares of the Bank stock were in the name of J. A. Rice
and only 20 shares were in the name of R. A. Rice.
Early in 1953, Amos Horn learned that he could purchase 72.4
shares of the bank stock then owned by the Whittingtons,
although they would not sell the stock to the Rices. Horn
conferred with R. A. Rice and was advised to lose no time in
purchasing the said stock. On or about April 9, 1953, Horn
purchased the 72.4 shares of stock with money secured from the
Commercial National Bank upon the execution by Horn of a note
in the sum of $3,620, payable to said Commercial National Bank.
The note was secured by the pledge of the 72.4 shares of stock.
On May 4, 1953, Horn resigned from his position with the Bank
of Montgomery County. At that time he agreed with R. A. Rice to
turn over his 72.4 shares of stock to the Rices if they would
execute a new note to the Commercial National Bank in lieu of
his note then held by said Bank. On May 11, 1953, a note in the
sum of $3,620 payable to the Commercial National Bank was
executed by J. A. Rice and endorsed by R. A. Rice, and upon the
same date the note previously executed by Horn in the same
amount was marked paid by the Commercial National Bank. The
72.4 shares of stock were then placed in the name of J. A.
R. A. Rice continued as President of the Bank of Montgomery
County until February 1, 1954, when he resigned. On that date
he transferred his remaining 20 shares of stock to J. A. Rice,
without consideration. In keeping with the effort to make the
records reflect a bona fide transaction, the following notation
was placed upon the $1,000 note ...