Backhaus v. Sleeper

27 N.W. 409, 66 Wis. 68, 1886 Wisc. LEXIS 8

Opinion

Cassoday, J.

The plaintiff was a creditor of the assignor. The amount of his claim was nearly $4,000, due on express contract. He commenced this action at the time named against the assignor, and also the assignee as garnishee. The garnishee answered the assignment, and claimed the assignor’s property under it. The liability of the garnishee depends entirely upon- the validity of that assignment. Such validity is the only question here involved. Undoubtedly the assignee must be considered in a position to represent the rights and interests of creditors as against all transfers and conveyances fraudulent or void as to them. Ch. 170, Laws of 1882; Batten v. Smith, 62 Wis. 97, 98. He had the right to bring and maintain actions to avoid such fraudulent conveyances and transfers the same as creditors formerly could have done. Ibid. These things are, in effect, r.e-enacted in sec. 2, ch. 849, Laws of 1883. By that act every execution levy under judgment confessed or entered upon judgment note,' and eveíy sale, mortgage, hy-pothecation, lien, or other security made, given, or executed by an insolvent debtor, within sixty days prior to the making of any such assignment, and in contemplation thereof, or of insolvency, is void and of no effect, in case the person benefited thereby, or receiving such mortgage, pledge, lien, or other security, knew or had reasonable cause to believe, such debtor insolvent.

True, as this court has heretofore indicated, the manifest purpose of these enactments was to uphold general assignments, and to prevent all preferences (except for labor) through the active agency of the debtor, either by direct or indirect methods, at any time during the sixty days immediately preceding the assignment. "Where, during such time, illegal preferences have been given, instead of having the effect of avoiding an honest assignment without preference, executed according to the statutes, they may themselves be invalidated by the assignee under the assignment. In such a case, it may well be said that instead of the assignment being made with the intent to defraud creditors, it is made by a repentant debtor to obviate the consummation of his own frauds as against most of his own creditors, and to secure an equal distribution of all his property, including such as he had illegally mortgaged, pledged, etc., among all his creditors. Such liberal construction of the statutes is indulged, however, for the very purpose of securing such equal distribution among all the creditors of the insolvent debtor. Such equality is equitable and just. Rut such rule of construction is wholly inapplicable whenever it is manifest, from the whole transaction, that one of the purposes of making the assignment was to prevent such equal distribution and secure such illegal preference. It was to prevent such illegal preferences that the statute was enacted. Ch. 349, Laws of 1883; Lang v. Simmons, 64 Wis. 525. So, where an assignment is made with the intent to hinder, delay, or defraud creditors, it is null and void as to the persons thereby aggrieved. Vernon v. Upson, 60 Wis. 418; Willis v. Bremner, 60 Wis. 622; Gere v. Murray, 6 Minn. 305.

Does this assignment “ contain or give any preference to one creditor over another creditor,” within the meaning of the statute? Was it made with the intent to hinder, delay, or defraud any of the creditors of the assignor? The chattel mortgage of October 6, 1883, for $7,384.20, was given only thirty days prior to the assignment. That the assignor was then insolvent there can be no reasonable doubt. That he was then in contemplation of making such assignment, or, at least, of such insolvency, seems to be certain. ■ The claims covered by that mortgage were also secured by warehouse receipts for 4,000 bushels of barley. Warrants of attorney to enter judgment were given with two of the notes at the time of making the mortgage. Did the parties receiving such warrants of attorneys, warehouse receipts, or the mortgage, or the persons to be benefited thereby, have reasonable cause to believe the debtor to be then insolvent? The $1,000 note covered by the mortgage had been unsecured for more than two years, and was then nearly four months past due. The $3,000 note to Sleeper’s firm had run for about six weeks without security, and had six weeks more to run before becoming due. The mortgage was not filed until October 29, 1883, and the judgments were not entered upon those notes and warrants of attorney until October 31, 1883. These facts were necessarily known to all the parties benefited by the mortgage. October 16, 1883, the notes and mortgage to the son-in-law of $12,000 on real estate were given. They are said to have been given in lieu of two notes of $3,000 each, given to the daughter at the time of her marriage two or three years before. No other consideration is claimed for those notes and that mortgage, and they are not mentioned in the list of creditors. October 29, 1883, the day on which the above chattel mortgage was filed, another chattel mortgage of $9,126 was given by the assignor to secure a note then given to the same son-in-law for $3,486, and another note then given to his book-keeper, IToeper, for $6,240. That was done just a week before the execution of the assignment in question, and two days before judgments were entered upon two of the notes covered by the chattel mortgage to the bank.

About the time of executing the second chattel mortgage, and of filing both chattel mortgages, according to the testimony of the assignor, completed papers for an assignment were 'drawn by Mr. Gardner, an attorney at Watertown. But they were never executed, because the assignor could not then get any one to act as assignee. The precise time when Mr. Gardner drew that assignment does not appear. The assignor testified that it was several days before the assignment in question, — • might have been three, four, or five days; he could not tell exactly. It appears that Mr. Gardner witnessed the chattel mortgage executed and filed October 29, 1883. From the facts stated, and other testimony in the record, and what subsequently occurred, we think it may be fairly inferred that Mr. Gardner drew that mortgage at or about the same time he drew the papers for the assignment, and with the view of their speedy execution. The singular coincidence that the chattel mortgage drawn more than three weeks before, was filed on the same day as the second chattel mortgage, and followed two days afterwards by judgments being entered upon two of the notes covered by it, indicate a concert of action between the parties to be benefited by the securities and with reference to the assignment. This is strengthened by what subsequently occurred. The assignment in question was drawn by Mr. Mulberger, who witnessed, and probably drew, the mortgage to the bank, of .October 6, 1883. He was interested in the bank claim, and was himself a creditor through the bank. He was attorney for two of the parties who had filed liens. He was requested to draw the assignment by Mr. Sleeper, the assignee. Mr. Sleeper was requested to act as such assignee some days previous to the assignment by Mr. Miller, who was interested in and represented the bank, and was a witness to the chattel mortgage given to the bank. That mortgage covered and secured a $3,000 note to the assignee, Sleeper, and his brother. There were present at the time Mr. Mulberger drew the assignment, on the evening of November 5, 1883, the assignor, the assignee, I)r. Werner, and Mr. Hoeper,— all, unless it was the as signor, pecuniarily interested in preserving the securities and liens obtained by virtue of the mortgages and judgments. Those parties fixed the amount of the bond on the assumption that the assignee was only to take and account for what might be left after the mortgages were all satisfied out of the mortgaged property. In so doing, Mr. Mul-berger testified that he merely acted as their clerk. The assignor, according to his testimony, seemingly acquiesced in whatever was suggested, and signed whatever papers were requested, regardless of their significance. It is upon this theory that he attempts to account for his affidavit to the effect that the nominal amount of assets mentioned and referred to in the assignee’s bond, and embraced in the assignment, was $26,000, after having sworn that the- brewery itself was worth from seventy to seventy-five thousand dollars. One óf the chattel mortgagees, IToeper, joined with him in making the affidavit, and also witnessed the assignment.

Prior to the execution of the assignment, but on the same-day, Charles R. Feld, as attorney for said Werner, Hoeper, and Auers, entered up three judgments in their favor, respectively, and against said assignor, on three judgment notes given on that day, aggregating $11,254. On the two of said judgments in favor of Werner and IToeper, respectively, aggregating $9,131, executions were issued by said Feld as such attorney, and delivered to the sheriff about 5 o’clock in the afternoon of that same day; and about 9 o’clock of that same evening the sheriff levied the same upon the lands of the assignor not exempt. Just about the time such levy was being made, said Charles R. Feld acted as circuit court commissioner in the execution of the assignment, and the acceptance, certification, and approval of the bond.

Thus it appears that the active agencies in counseling and inducing the assignor to make the assignment were those for whose benefit be bad, within sixty days prior thereto, given mortgages, judgment notes, and collateral securities. These things can only be reconciled on the theory that the participants had not, in fact, learned of the enactment of ch. 349, Laws of 1883. Under that act, and upon the assignment being completed, it at once became the imperative duty of the assignee to commence actions to set aside any and all mortgages, liens, and securities made, given, or executed by the debtor within sixty days prior to the making of the assignment in contravention of that act. We are not aware of any more subtle method of attempting, in advance, to prevent such action by an assignee, than to secure one who has himself taken from the assignor such security to a large amount within such sixty days. The question before us is not whether the assignee was thereby induced to refrain from attacking any of such illegal mortgages or liens in order to preserve the mortgage given in part for his own benefit, but whether there was such an intent in making the assignment. Parties must be presumed to have intended the natural and probable result of their own conduct. That the assignor and assignee, in making the assignment, both expected and intended that the mortgages should be first paid out of the mortgaged property, and the balance only be distributed to the general creditors by the assignee, is manifest from the reference in the assignment to the inventory verified and certified by them, in which the amount of the chattel mortgages was deducted from the valuation of the personal property there given, and the amount of the real estate mortgages from the valuation of the real estate there given. The inventory was an essential part of the assignment, and the latter must be construed in connection with it. Bates v. Simmons, 62 Wis. 77; Haben v. Harshaw, 59 Wis. 403.

By such references, and in the light of surrounding circumstances, the intent to preserve, perpetuate, and enforce the mortgages is manifest. In a sense, such mortgages were thereby imported into the assignment, which is to be construed in connection with them as one transaction. Berry v. Cutts, 42 Me. 445; Perry v. Holden, 22 Pick. 269; Housatonic, B. & L. B. v. Martin, 1 Met. 294. It is not the case O'f a prior fraudulent security wholly independent of, and disconnected from, the assignment. The question is not as to any mistake in leaving property out of the inventory, but the intent thus expressed of having the illegal mortgages thus paid. Such intent manifestly was to hinder, delay, and defraud the general creditors, and to secure illegal preferences to such secured creditors. This is strengthened by the admission of the assignor under oath to the effect that the amounts stated as due to his son, Ferdinand, his son-in-law, Werner, and some others, as appeared in the verified list of creditors, were each largely fictitious. Besides, he squarely admitted that he made the assignment so as to get a compromise with his creditors,— in order that the assignee should settle with them.

Upon the whole record we must hold that (1) where, as here, an insolvent debtor, within sixty days prior to his making an assignment, and in contemplation thereof or of his insolvency, gives mortgages or other securities upon pre-existing debts, to creditors then having a reasonable cause to believe him insolvent, and then makes such assignment to one of such secured creditors, and therein recognizes such mortgages and other securities as valid, subsisting liens, the assignment must be regarded as made with the intention of giving a preference to such secured creditors, and thereby to hinder, delay, and defraud general creditors; (2) especially as some of such secured claims, and others in the list of creditors, are wholly or in part fictitious, and the assignment is made with the confessed purpose of forcing a .compromise with creditors. The view taken renders it unnecessary to consider the sufficiency of the bond, or what occurred subsequently to the making of the assignment.

By the Gourt.— The judgment of the circuit court is reversed, and the cause is remanded for further proceedings according to law.