(after stating the facts.) The assignment in question in this case is assailed on several grounds. We will first consider the question whether the evidence is sufficient to support the contention that F. P. Gray, president of the F. P. Gray Dry Goods Company, while contemplating an assignment by said company, purchased large quantities of goods, with a view to include them in said assignment, so that the preferred debts might be paid in full, and thus relieve himself of liability on his indorsement. Outside of the fact that the dry goods company was in an extremely insolvent condition at the time of the assignment, and that Gray, who was himself insolvent, and of no worth, financially, was an indorser on some of its preferred notes, the only evidence directly bearing on this point was the testimony of witnesses Boone and Lambert. Boone was the secretary of the company. He testified that he had a conversation with Gray when he started for New York in March before the assignment was made; that Gray said that he intended to buy very few goods ; that afterwards, while in New York, he bought about twenty-two thousand dollars worth of goods, including a bill he had ordered from Kansas City just before he started for New York. When asked, on cross-examination, whether the amount bought was material^ larger than witness expected him to *570buy, he replied: “I am not a judge of that, but I am satisfied in my own mind, from what I heard him and the clerks say, that he did not need near the goods.” On the other hand, Lambert, who was a manager of two-of the departments of the company’s store, testified- that it was the custom of Gray to ask the heads of the different departments what goods were needed, before going on to purchase them ; that, before leaving for New York, in March previous to the assignment, Gray had, as usual, asked him to state the amount of goods needed for his departments. In the conversation, Gray instructed witness ‘‘to make the order as small as possible, and not to order any goods unless they were absolutely needed.” He further testified that Gray only purchased about half the goods he requested him to purchase. Gray returned from New York the latter part of March, and the assignment was made on the 12th of May following —about a month and a half after his return.
We do not think this evidence sufficient to show that Gray contemplated the assignment at the time the goods, were purchased, or that he made the purchase with the intention not to pay for the goods. But if such an intention on the part of Gray was shown, it is doubtful if any one, except the creditors from whom such goods were purchased, could complain, and there is nothing in the pleadings or the proof to show us from whom goods were purchased at that time.
i. As to withholding assets tom assign-
The evidence does show that when the company . became hopelessly insolvent, and it was apparent that a failure was inevitable, Gray, a few days before the assignment was executed, and with a view of making the assignment in question, withdrew about seven hundred dollars of cash from the assets of the company, and appropriated it to his own use. Did this make the assignment void? It was said, in the case of Hill v. Woodberry, 4 U. S. App. 72, a case involving the validity of an assignment. *571made in this State, that “a fraudulent disposition of property invalidates a subsequent assignment for the benefit of creditors only when the deed of assignment is part of a scheme to defraud creditors, and the provisions of the deed are calculated to promote that object.” The assignment executed by the dry goods company was only a partial assignment. It did not pretend to convey to the assignee all the assets of the company, and the funds appropriated by Gray were not included in the assets conveyed by it. We do not see that the assignment tended in any way to promote or cover up the acts of Gray in reference to the withdrawal of such assets, and we hold that its validity was not affected by such acts. Excelsior Mfg. Co. v. Owens, 58 Ark. 561.
2. intent to evade statute of assignment,
It is further contended that the confession of judgment, the deed of assignment, and the application for a receiver, constituted the assignment in fact, and that they were in violation of the statute regulating assignments for the benefit of creditors, and were therefore void. Of the five cases cited by counsel to support this contention, three of them (White v. Cotzhausen, 129 U. S. 329, Preston v. Spaulding, 120 Ill. 208, and Hahn v. Salmon, 20 Fed. 801) are cases which arose under statutes forbidding preferences in assignments by insolvent debtors. These cases were controlled by the rule, which seems to be well established,, that where such statutes exist, an insolvent debtor, contemplating a general assignment, will not be allowed to evade the statute by executing a mortgage or confessing a judgment in favor of one or more of his creditors whom he wishes to prefer. Such a preference in a general assignment being in those States forbidden by the letter of the law, it is properly held that preferences by a mortgage or judgment made in contemplation of an assignment are equally against its spirit and void, for, to quote from the opinion in one of those cases, “courts are not to be *572misled by mere devices or baffled by mere forms.” In the case of Richmond v. Mississippi Mills, 52 Ark. 30, the court only announced the general rule that courts will look, not only at the name, but at the substance of the instrument, and the intention of the parties, in order to determine what the instrument is. In Mackie v. Cairns, 5 Cow. 547, the other case cited by counsel, the deed of assignment contained a provision that the trustees should pay the grantor for his support, out of the proceeds of the property assigned, a sum not exceeding two thousand dollars per annum. Afterwards, the assignor, being apprehensive lest the assignment should be held void on account of this reservation in his favor, confessed a judgment in favor of the trustees named in the assignment for the benefit of the preferred creditors. It was held that an insolvent debtor can make no assignment of any part of his property in trust for himself, and that if the security for the benefit of creditors contain such a provision, or be intended to come in aid of another security containing such a provision, it is void. The assignment was therefore declared void because of this reservation in favor of the grantor, and the judgment was also held to be void because the court found that the object and intention of it was to carry out and sustain an illegal assignment.
These cases can have but small weight here, for the assignment before us does not reserve any benefit to the grantor, and it does not contravene the policy of our law, for we have no statute forbidding preferences. In this State the debtor, having the absolute right to prefer one or more of his creditors, may do so by assignment, mortgage or judgment, or in any other legitimate way. If, at or about the time he executes an assignment preferring certain creditors, he also confesses judgment in their favor, the court may properly scan such acts of an insolvent debtor closely, to see that no fraud is *573perpetrated under the pretense of securing a debt. But. when it is founc^ that the judgment is based on a valid debt, which is also preferred in an assignment executed, in due form, and otherwise legal, then, to declare them void, we are forced to hold that although, standing alone, each would be valid, yet, taken together, both would be-bad. To such a conclusion we cannot come.
But it is said that, at the time the assignment was-executed and the judgments confessed, the parties interested intended to apply to the chancery court for the appointment of a receiver that the goods assigned might, be sold on terms prohibited by the statute, and that this intention made the assignment in law fraudulent and. void. The question whether the chancellor erred in appointing a receiver, and in taking jurisdiction over the-assets assigned, is not before us in this case. The appellees appeared, and, by proper petitions, became parties to the action, and, without any demurrer or objection to the jurisdiction of the court, submitted the case on its-merits, and it is not necessary now to determine the question of the regularity of the appointment of the receiver. But if it be conceded that the appointment of a receiver was, under the circumstances, unauthorized, still we cannot adopt the view that the intention to-bring an unauthorized suit is such a fraud as will invalidate an assignment in other respects valid. We do not think that an intention, based on a mistaken view of the-law, should be followed by such severe consequences.
This brings us to the question whether the assignment was rendered invalid by reason of the fact that If. P. and James A. Gray, two of the directors of the dry goods company, were interested as indorsers on some of the notes to Worthen & Co., which constituted a portion of the indebtedness preferred by the assignment. It will be necessary, therefore, to consider the question of the-powers of corporations to make assignments, and to pre*574fer creditors, under the laws of this State. In the old case of Ex parte Conway, 4 Ark. 304, this court first considered the question whether a corporation has, unless restrained by its charter, or some statute, the same power of disposing of its property by assignment as an individual under like circumstances has, or, in other words, quoting the language of the court, “whether the law places natural and artificial persons upon the same footing in regard to such assignments?” The conclusion reached by the court in that case was that a corporation has the same power of disposing of its property by assignment, and of preferring its creditors, that a natural, person has, under like circumstances. In the later case of Ringo v. Biscoe, 13 Ark. 575, the same question was considered by the court, and the doctrine that an insolvent corporation has the same right to execute an assignment and make preferences among its bona fide creditors that a natural person has, under like circumstances, was re-affirmed in an opinion by Chief Justice .Watkins. That a corporation in failing circumstances has the right to make an assignment and prefer one or more of its •creditors has, in this State, never been doubted or questioned since the determination of those cases. But, outside of this State, the rule seems to be well established, .and Mr. Burrill, in his work on Assignments, quotes with approval the language of Chancellor Walworth, in De Ruyter v. Trustees of St. Peter's Church, 3 Barb. Ch. 119, that “it appears to be settled, by a weight of authority which is irresistible, that a corporation has the right to make an assignment in trust for its creditors ; and may exercise that right to the same extent and in the same manner as a natural person, unless restricted by its charter or some statutory provision.” And he ■concludes the same section by saying that, “apart from statutory provisions, no distinction exists between an individual and a corporation in regard to the exercise of *575the power to make preferences.” Burrill on Assignments (6 ed.), sec. 45, pp. 64 and 65, where the authorities are collated.
If it be true that an insolvent corporation may prefer its creditors, and if it be also true that the debt due Worthen & Co. was an honest and bona fide debt, which the dry goods company had the right to contract, and that the indorsement by the directors was legitimate, then, upon what logical or reasonable ground, can we conclude that the dry goods company could not prefer this debt in making the assignment ?
3. The “trust fund, doctrine” considered,
There are quite a number of cases decided by differ- . ent courts that hold that the assets oi an insolvent corporation constitute a trust fund, and that the directors will be treated as trustees holding this fund for the benefit of the creditors of the corporation. It is apparent that where this rule is adopted in its full extent, no preferences to any creditor can be made by an insolvent corporation, and so it has been held. The Supreme Court of Wisconsin, after laying down the rule that the directors and officers of an insolvent corporation are trustees for the creditors, says: “The directors are then trustees of all the property of the corporation for all its creditors, and an equal distribution must be made, and no preference to any one of the creditors, and much less to the directors or trustees as such.” Haywood v. Lumber Co. 64 Wis. 646. This seems to be the logical and consistent result of' what is known as the “trust-fund doctrine.” To assert that the directors of an insolvent corporation hold its property as trustees, that it is a trust fund in their hands for the benefit of the creditors of the corporation, and at the same time to admit that they may prefer one creditor or one class of creditors, to the exclusion of others equally deserving, would seem to be both illogical and inconsistent. If the directors hold the assets of the corporation as trustees *576for the creditors, then each creditor has a right to his. share in the proceeds of the assets of the corporation, and the directors cannot defeat this right. So soon as-we admit that the director may prefer one creditor or class of creditors, and thus defeat the right of another creditor to his share in the assets, we come irresistibly, to the conclusion that the directors are not trustees for the .creditors, nor the assets a trust fund, within the ordinary meaning of such terms, for the two positions are inconsistent and contradictory.
As the rule is firmly established in this State that a corporation, even though insolvent, may make preferences among its creditors, it is evident that it cannot be said that the property of a corporation in this State is a trust fund in the hands of its directors, in the strict and technical sense of such words. There may be a qualified meaning in which, at times, the assets of a corporation may properly be termed a trust fund, and this may be well illustrated by reference to certain opinions of the Supreme Court of the United States, in which the question has been considered. In the case of Graham v. Railroad Co. 102 U. S. 148, Mr. Justice Bradley, after referring to the contention that the corporation was a mere trustee holding its property for the benefit of its stockholders and creditors, said: “We do not concur in this view. It is at war with the notions which we derive from the English law with regard to the nature of corporate bodies. A corporation is a distinct entity: Its affairs are necessarily managed by officers and agents, it is true ; but, in law,, it is as distinct a being as an individual is, and is entitled to hold property (if. not contrary to its charter) as absolutely as an individual can hold it. Its estate is the same, its interest is the same, its possession is the same.” The learned judge then proceeds to say that when a corporation becomes insolvent, a court of *577equity may, at the instance of the proper parties, take charge of its assets, and administer them as a trust fund for the benefit of its stockholders and creditors. “The court,” he says, “will then make those funds trust-funds which, in other circumstances, are as much the absolute property of the corporation as any man’s property is his.” In other words, as we understand that opinion, until a court, through its officers, takes charge of the property of the corporation, it has, even though insolvent, as complete control thereof as an individual would have over his property under like circumstances. In the late case of Hollins v. Brierfield Coal & Iron Co. 150 U. S. 385, Mr. Justice Brewer, reviewing the cases on this question, illustrates the sense in which the term “trust fund” has been used by the court in speaking of the assets of a corporation. “ The same idea of equitable lien and trust,” he says, “exists to some extent in the case of partnership property. Whenever, a partnership becoming insolvent, a court of equity takes possession of its property, it recognizes the fact that in equity the partnership creditors have a right to payment out of those funds in preference to individual creditors, as well as superior to any claims of the partners themselves. And the partnership property is, therefore, sometimes said, not inaptly, to be held in trust for the partnership creditors, or that they have an equitable lien on such property. Yet all that is meant by such expressions is the existence of an equitable right which will be enforced whenever a court of equity, at the instance of a proper party and in a proper proceeding, has taken possesion of the assets. It is never understood that there is a specific lien or direct trust.” It is only in this limited and qualified sense that the assets of an insolvent corporation may in this State be properly said to be a trust fund for its creditors, for our *578decisions that such a corporation may make preferences among its creditors is inconsistent with the idea of any specific lien or direct trust.
4. Ri?ht of corporation to rectora?55 ai'
But it is contended that the funds of an insolvent corporation are in the hands of the directors to be disbursed on their unbiased and impartial judg'ment, and that when personal interest or individual gain is an element subserved through their preference, it should be set aside as being in contravention of sound equitable principles. To support this contention, counsel cite, among other cases, the well considered case of Mallory v. Mallory-Wheeler Co. 38 A. & E. Corp. Cases, 120. In that case the directors of a corporation undertook to use their official position for their own benefit, and to increase their salary, to the injury of the interests of the corporation. The familiar rule that no one acting in a fiduciary capacity shall be permitted to make use of that relation for his own benefit, at the expense of the interests of his principal, was invoked by the corporation, and applied by the court. There can be no doubt that the rule was properly applied in that case, for the directors are agents, and, to a certain extent, trustees of the corporation. They will not be allowed to enter into engagements in which they have a personal interest conflicting with the interests of their principal, whose interests they are bound to protect. The rule is of wide application, and applies, as was held in that case, to agents, partners, guardians, executors, and to trustees generally, as well as to the directors and managing officers of corporations. If personal engagements hostile to the interest of their principals are entered into by persons holding such fiduciary relations, they are not, in law, absolutely void, but voidable at the election of their principals. We do not see how that rule can apply in this case, for the party cómplaining here is not the corporation, but certain creditors of the *579corporation. The directors of a corporation are neither trustees nor agents of the creditors, and they do not occupy a fiduciary relation towards them, and therefore the rule does not apply.
Although there are expressions in many of the cases cited by counsel that seem to support the contention that, even when an insolvent corporation may make preferences, the directors of such corporation must be free from personal bias in disbursing its assets and making such preferences, yet we do not believe that such a rule has any sound reason to rest upon. The very fact -that preferences are made shows always that the party making them is biased more or less towards the person in whose favor they are made. As long as preferences .are allowed to be made by insolvent debtors, they will be dictated more or less by the personal bias of the person making them. The individual debtor, when insolvent, and forced to make an assignment, generally prefers his friends, and often members of his own family. The home creditor and neighbor is preferred at the expense of the non-resident one, perhaps equally deserving. So, when this dry goods company came to make an assignment, it is not strange that, in making preferences, it should favor the home creditors. The contention that the estate of an insolvent debtor should be disbursed by some one acting without bias or personal interest would apply almost as well to the case of an assignment by an insolvent individual or partnership as to that of a corporation, and, if adopted, would result in forbidding all preferences in assignments by insolvent debtors, a result that might be productive of much good, but it is one that the courts must leave to the wisdom of the legislature to accomplish; for, to quote the language of Judge Caldwell, in Gould v. Railway Co., the right to make preferences “is too firmly imbedded in our system of jurisprudence- to be overthrown by judicial decision, and it can *580no more be overthrown by the courts in its application to corporations than to individuals.” Gould v. Railway Co. 52 Fed. 684. That was a case that arose in this State, and was controlled by the laws of this State, and, after an examination of the authorities, the court held that an insolvent corporation of this State may prefer its creditors, whether they be officers of the corporation or strangers. “The doctrine established by the best-considered cases, and by the Supreme Court of the United States,” says Judge Caldwell, in his opinion in that case, “is that the mere fact that creditors of a corporation are directors and stockholders does not prevent their taking security to themselves as individuals to secure a bona fide loan of money previously made to such corporation, and used by it in conducting its legitimate business.” The same question came in a recent case before the United States circuit court of appeals for the sixth circuit, and the same conclusion was reached. “It may be conceded,” said Judge Taft, who delivered the opinion of the court, “that the trust relation justifies and requires courts of equity to subject preferences by an insolvent corporation of its own directors to the closest scrutiny, and places the burden upon the preferred director of showing, beyond question, that he had a bona fide debt against the corporation; but we do not see why, if a corporation may prefer one creditor over others, it may not prefer a director who is a bona fide creditor. Preferences are not based on any equitable principle. They go by favor, and as an individual may prefer, among his creditors, his friends and relatives, so a corporation may prefer its friends.” Brown v. Grand Rapids etc. Co. 58 Fed. 286. The following cases sustain this position : Buell v. Buckingham, 16 Iowa, 284; Garrett v. Plow Co. 70 Iowa, 697; S. C. 29 N. W. 395; Bank of Montreal v. Salt & Lumber Co. 90 Mich. 345; S. C. 51 N. W. 512; Hospes v. Car Co. 48 Minn. 174; *581S. C. 50 N. W. 1117; Planters Bank v. Whittle, 78 Va. 739; Hallam v. Hotel Co. 56 Iowa, 179; S. C. 9 N. W. 111; Smith v. Skeary, 47 Conn. 47; Wilkinson v. Bauerle, 41 N. J. Eq. 635; Whitwell v. Warner, 20 Vermont, 425; Duncomb v. Railway Co. 84 N. Y. 190.
The Supreme Court of Iowa, in Garrett v. Plow Co., supra, after discussing at some length the question whether an insolvent corporation can prefer a debt due one of its directors, and deciding that it may do so, then considers the exact question • involved in this case, that' is, whether such a corporation may prefer a note to a person having no connection with the corporation, but upon which note a director is indorser, and disposes of it in the following words : “ The note held by the savings bank presents a different and less difficult question. It was not given to a director or member of the corporation. Rand and other directors are indorsers or guarantors of the note. We know of no principle of law which will compel the bank to proceed against the indorsers or guarantors, and surrender the property it holds to other creditors.”
A corporation will not, any more than an individual, be allowed to convey its property to defraud its creditors, but in the case at bar the evidence is conclusive that the debt due Worthen & Co. was an honest and bona fide debt for a large sum of money, which they in good faith loaned the dry goods company. They had no interest in ■or connection with the dry goods company, either as •stockholders or directors. They had a perfect right to ■make the loan, and it was entirely legitimate for a director to indorse the notes as a personal guaranty that the money should be repaid. As the proof shows that E. P. Gray, who was the indorser on two of the notes for $3000 each, was insolvent, and that James A. Gray, who was the indorser on another one of the notes for $5000, had but little property in this State, it is plain that, in *582making the loan, Worthen & Co. relied mainly on the faith and credit of the dry goods company. In other words, they expected to be paid by the dry goods company, and not by the indorsers.
While there is not wanting eminent authority to-support the decree of the learned chancellor in this case,, yet, after a consideration of the above authorities, and also of the cases cited by counsel for appellee, we have reached the conclusion that, the dry goods company having the right to make preferences, and Worthen & Co. having advanced it in good faith over twenty thousand dollars to be used in its business, that the fact that two> of the directors were endorsers on notes for a portion of this sum did not, under the laws of this State, render the assignment preferring the debt due Worthen & Co., invalid.
Had we reached a different conclusion, it is doubtful if the equitable principle of,equality could in this case have been applied in the distribution of the proceeds of the assets of the insolvent corporation. Such a conclusion, under the former adjudications of this court, would probably only have resulted in giving priority to a dif— erent set of creditors, not more meritorious or deserving than those preferred by the assignment. Many eminent text writers have severely condemned a state of law that admits of preferences by insolvent corporations, but their reproaches, in the language of counsel,, “ must fall on the legislative, not on the judicial, branch! of the government.” Our own legislature is no longer subject to such criticism, for the act of 1893 forbids suck preferences by insolvent corporations, and this opinion, so-tar as it deals with the question of preferences by such corporations, is only declaratory of what the law was before the passage of that act.
*583The decree of the chancellor is therefore reversed, and the case remanded, with an order to distribute the proceeds of the assets of the dry goods company in accordance with the priorities named in the assignment.
Mr. Justice Battle dissented.