Ellis v. A. S. Valentine & Son

65 Tex. 532, 1886 Tex. LEXIS 704

• Court: Texas Supreme Court
• Decided: February 23, 1886
• Docket: Case No. 2188
• Status: Published

Opinion

Stayton, Associate Justice

Under the evidence in this case, there can be no doubt that Ross & Russell sold their entire stock of goods to L. A. Ellis, and that, as the consideration, the latter can-celled a debt of $7,611.80, due to him by them, and contracted to pay, and actually did pay, on the indebtedness of Boss & Bussell to the Texas Banking and Insurance company, the sum of $19,996.68. Some of the money owing to the bank was past due, and the residue soon maturing. By the terms of the contract, Ellis was not to pay to the bank, indebtedness for which it held collateral securities.

The evidence further shows that Boss & Bussell were greatly in debt at the time they sold to Ellis, and that they had, as part of their assets, other than the goods sold to Ellis, claims amounting to over $100,000, Whether such assets would ultimately be sufficient to pay their entire indebtedness cannot be determined from the record before us.

The questions which are presented for our consideration arise mainly upon the action of the court below in giving charges, and in refusing to give charges which were asked. The appellees claim that the goods were liable to seizure and salé, under their attachment, on the ground that the sale by Boss & Bussell to Ellis was made with intent, upon the part of the former, to hinder, delay or defraud their creditors, which intent, they claim, was known to Ellis at the time he bought.

The views of the court below will be illustrated by the charges given and refused. The court gave a charge, without request, which consisted of four paragraphs, the first of which embraces the leading proposition of law which runs through the whole. That paragraph is as follows:

“An insolvent debtor may lawfully prefer one or more creditors, if he does not make such preference to hinder or delay other creditors, but, if done with intent to hinder or delay other creditors, and the preferred creditor, at the time of the attempted preference, had notice of such intent, then the attempted preference would be illegal and void.”

Appellants asked the following charge: “If the sale to Ellis was made by Boss & Bussell in good faith, and without any reservations of benefit in themselves, and for the purpose of paying a bom fide debt due by them to Ellis, and also bom fide debts owing by them to the Texas Banking and Insurance company, and the proceeds were so applied, and Ellis paid a reasonable and fair price for the goods, considering the character of the stock and its value at the time, then you will find for plaintiffs.”

The court refused to give this charge, but struck out the last six words, “then you will find for plaintiffs,” and added the following, “then the sale and delivery to Ellis would pass the title to Ellis, unless made to hinder or delay creditors by Boss & Bussell, with notice on the part of Ellis of such intent,” and gave the charge as modified.

Appellants duly excepted to the refusal of the court to give the charge as asked, and to its giving the charge as so modified.

The court, at the request of the defendants, gave fourteen separate charges, to the sixth, thirteenth and fourteenth of which no objection is urged, but objection is made to all the others. The substance of the propositions of law contained in these several charges, except the fourth, is found in the first, second, third, fifth, seventh and twelfth charges given, which are as follows:

“1. If you believe that, on December 20, 1884, Boss & Bussell were insolvent, and that, on or about that date, they disposed of all their merchandise to L. A. Ellis, to pay their debts to Ellis and the Texas Banking and Insurance company, in preference to their other creditors, and retained in their possession and control only such assets as could not be reached by execution ,• if you believe that the latter assets were, at or nearly at the time, disposed of to pay other preferred creditors, and that by such disposition of their estate the general creditors of Boss & Bussell were hindered, delayed, defeated or defrauded in the collection of their claims, and that this result was designed by Boss <& Bussell, and that L. A. Ellis had notice of such design, you will find for defendants.”

“2. If you believe that Boss & Bussell, in selling out to L. A. Ellis, intended to dispose of all their property subject to execution, and to obtain possession and control of property not subject to execution, in order to delay, hinder or defraud their creditors in the collection of their claims, or to dictate terms of extension or settlement to their creditors, and that Ellis knew, or had reason to believe, that such was their purpose, the sale to Ellis was void as to creditors, notwithstanding it may have been made for a valid consideration, and that the proceeds were all applied to the payment of preferred claims, and you will find for the defendants.”

“3. If you believe that in the sale to Ellis, Boss & Bussell intended to remove all their property from liability to seizure, either by execution, attachment or garnishment, so that they could dictate such terms to their creditors as they might find best for their own interest, and that Ellis knew of this intention, or was sufficiently acquainted with their affairs to suspect it, the sale was void as to creditors, notwithstanding it may have been made for a valid consideration and the proceeds applied to the payment of preferred creditors, and you will find for the defendants.”

“5. If the jury believe, from the evidence, that Boss & Bussell were in embarrassed circumstances, and were being pressed by their creditors to pay their debts, and they could not, and L. A. Ellis knew their condition, or upon reasonable inquiry could have ascertained it; and if you further believe, from the evidence, that the intention of Boss & Bussell, in selling their entire stock of goods to L. A. Ellis, was in order to pay what they owed to L. A. Ellis and the Texas Banking and Insurance company, so that thereby Boss & Bus-sell might hold the balance of their assets in such a manner as to hinder or delay their creditors from collecting their debts, then you are charged that the sale to L. A. Ellis of the stock of goods was a fraud on the creditors of Boss & Bussell, and void, provided L. A. Ellis had reasonable grounds to believe that such was the intention of Boss & Bussell.”

“7. If this alleged sale was made by Boss & Bussell to Ellis, with intent to hinder or to delay, or to defraud, their creditors, and Ellis had notice of such intent, then your verdict must be for the defendants, whether Ellis paid any money or not. ‘To hinder’ and ‘to delay ’ is to do something which is to put some obstacle in the path, or to interpose something, unjustifiably, before the creditor can realize what is owed out of his debtor’s property. Express notice or knowledge on the part of Ellis that it was the intent of Boss & Bus-sell, in making the alleged sale, to hinder, or to delay, or to defraud, their creditors, or any of their creditors, is not required in order to prevent a recovery by the plaintiffs. If the circumstances attending this alleged sale by Boss & Bussell to Ellis were such as would have led a man of ordinary prudence to make inquiry, and such inquiry would have shown reasonable grounds for believing that the sale was being made for the purpose of hindering or delaying, or defrauding, the creditors of Boss & Bussell, then the transaction was fraudulent in law, and the plaintiffs cannot recover. To refrain from inquiry, when the circumstances are such as to put a man of ordinary prudence on inquiry, is, in judgment of law, a want of good faith.”

“ 12. Boss & Bussell had the right to prefer one or more of their creditors over the others in the appropriation of their assets to the payment of their debts, provided their purpose was simply to pay one or more, rather than the others, and such purpose was unmixed with an intention, by the same act, to directly or indirectly impede or prevent, or hinder or delay, their other creditors in forcing the payment of their claims. If, in making the transfer to Ellis of their stock of goods, Boss & Bussell intended not merely and simply to pay some of their creditors in preference to others, but also intended by that act to directly or indirectly impede, delay, hinder or prevent any of their creditors from forcing the payment of their claims, and Ellis had knowledge of, or reasonable ground to suspect, such intention, then the transfer was void as to creditors of Boss & Bussell, and you will return a verdict for defendants.”

By the seventh charge, given at the request of the defendants, the jury were instructed as to the meaning of the words “hinder” and “ delay.” In that charge it was said that “to hinder and to delay is. to do something which is to put some obstacle in the path, or to interpose something, unjustifiably, before the creditor can realize what is-owed out of the debtor’s property.” This definition is defective and. too loose to be given to a jury, in that it fails to inform what character of obstacles or interpositions in the way of the creditor’s reaching the property of the debtor are in law unjustifiable. That was left to the determination of the jury, which would have been less likely to have been misled had no charge at all been given attempting to define the words “hinder” and “delay,” unless the law be that every act of the debtor, by which his property is transferred or otherwise disposed of, is an unjustifiable obstacle or interposition in the way of subjecting the debtor’s property to the payment of one or more creditors. The jury, doubtless, looked to the other charges to ascertain what state of facts would render the sale to Ellis invalid, but it was to this charge to which they would very naturally look to ascertain what the particular words, in their connection, meant as used in other parts of the charge.

If we look at the first charge given by the court, we perceive that the jury were, in effect, told that a preference given to one or more creditors, if given with intent to hinder or delay other creditors, would be an obstacle in the way of a creditor, or creditors, not preferred, which would be so far unjustifiable as to render the conveyance, by which such preference was given, void, if the preferred creditor knew of the intent of the debtor.

If the words “hinder” and “delay” were used in the statute in their broadest sense, then every preference given by an insolvent debtor would have the effect to hinder or delay the non-preferred creditor in subjecting the property of his debtor to sale for the payment of his debt. The effect of a preference given to one or more creditors by an insolvent debtor is necessarily to “hinder” or “delay ” other creditors, if those words are used in their broad and popular sense. The law presumes that every sane man intends to do what necessarily and inevitably results from his act; hence, if the propositions contained in the first charge were correct, every preference given by an insolvent debtor would be an unjustifiable obstacle or interposition placed in the way of other creditors. Such a holding, in the absence of a law forbidding preferences, finds nothing in the past rulings of this court, or any other, to sustain it.

The charge asked by the appellants, as qualified and given by the court, informed the jury that, notwithstanding the goods may have been sold by Boss & Bussell in good faith, absolutely and without any reservation of any interest to themselves, for a fair price, and to discharge bona fide debts due to the purchaser and others, such a sale would be void, even though, in accordance with the terms of the sale, the purchase money was applied to the payment of the debts, by the purchaser, if the intent of the sellers was to hinder or delay their creditors, such intent being known to the buyer. There was a strange inconsistency in the charge as qualified.

The charge, as asked, contemplated good faith in Boss & Bussell in Selling to pay, and in the actual payment of, bona fide debts, with the proceeds of the goods sold for a reasonably fair price. The qualification left the jury to understand that good faith might exist in the sale, that the sale might be made for a fair price and for a lawful purpose, and that the price might be appropriated by the buyer directly to that purpose; and, yet, that there might be, within the meaning of the law, an intent on the part of the sellers, known to the buyer, to hinder or delay other creditors. The proposition contained in the charge, as asked, was based on facts which would, if found to exist, preclude an intention to hinder or delay other creditors. The one is based on good faith and fair dealing, which does not consist with the other, based on fraud.

The hindrance and delay contemplated by the statute has in it the element of fraud, and if a hindrance or delay be found in any case to be free from this element, then it is not of that character which, under the statute, vitiates conveyances. Bump, on Fraud. Conv., 20.

This confusion doubtless arises from the fact that the court used •the words “hinder” or “delay” in their popular, and not in their legal sense, and thus left the jury to understand that a sale, made in good faith, for a fair price, and for a lawful purpose consummated, was “ to do something which is to put some obstacle in the path, or to interpose something, unjustifiably, before the creditor can realize what is owed out of his debtor’s property.”

It is well to have a fair understanding of the true meaning of the terms used in the statute, and of their relations, that we may know whether the act permits or forbids a given line of conduct. The statute is but declaratory of the common law, and, it is probable, would accomplish the purpose intended were the words “hinder” or “ delay ” eliminated, and a fair construction put upon the word “defraud.” Under the statute, an intention to hinder, delay or defraud must exist, but the mere intention can have no effect, if considered alone, in determining whether a conveyance is lawful or not. The intent must be coupled with a conveyance, which has the effect, if permitted to stand, to hinder, delay or defraud creditors, or it does not become a matter affecting private right, as mere intent, however wrongful, interposes no obstacle to the successful assertion of any right a creditor may have to enforce payment of a debt through the sale of the debtor’s property.

Ho creditor, without lien, has the right to have the debt due to him paid out of any particular property of the debtor. All creditors have the same right to have their debts paid out of the property of the debtor, unless, by contract with the debtor, or by legal process, one or more acquire a right to be paid out of the proceeds of some particular property, or to have some particular thing, by way of sale, in satisfaction of his or their debt. The right of any bona fide creditor in good faith to acquire rights in reference to the debtor’s property, which the general creditor has not, is recognized in all civilized countries.

The acquisition of a lien on a part or the whole of an insolvent’s property, to secure a debt, necessarily has the effect to hinder another creditor in the enforcement of the payment of a debt due to him by a sale of the entire interest in the property on which the lien is given; but if the lien be to secure a bona fide debt, it is valid, even though, the debtor gave it with intent to secure to the favored creditor an advantage over other creditors, and, thus, to hinder, delay, or even to defeat the collection of their debts. This is so, simply because the property is devoted to a lawful purpose, and while withdrawn from one or more creditors, there is no fraud in so doing, for it is lawful to pay any debt, or to secure its payment, unless there be some law in force looking to the distribution of an insolvent’s estate, without preferences.

Every payment of a debt by a person unable to pay all his debts, whether the payment be made in money or property, tends, in a popular sense, to hinder or delay, or, it may be, even to defeat, other creditors in the collection of their debts, the extent of the effect, whether to hinder, delay or to defeat, depending on the amount of indebtedness and value of the debtor’s property; but it has never been held that a payment, either with money or property, by an insolvent debtor, in the absence of a law declaring preferences invalid, was within the meaning of the law, to hinder, delay or defraud other creditors. What it is lawful to do cannot become unlawful by reason of thq fact that it is done through a motive, or with an intent, not friendly to all creditors ; a hindrance or delay, which does not operate as a fraud upon other creditors, is not that prohibited by law. Every debtor has the legal right to pay one or more of his just debts with any money or property he has, though, thereby, he withdraws from the reach of other creditors property which they might subject to the payment of their debts, equally just, as has every creditor the legal right to so receive payment, and the right of neither is affected by the fact that the debtor is insolvent.

If, for such a purpose, the debtor conveys to a creditor property at a fair valuation, or sells to some other person for a fair price, to raise money to pay debts, which, by the terms of the sale, the purchaser is bound to see, and does see, is at once appropriated to such purpose, then it cannot be said that the sale, within the meaning of the law, is made to hinder, delay or defraud other creditors who may not receive of the proceeds. In such a case, no obstacle is interposed between the property of the debtor and the right of other creditors to subject his property to the payment of their debts, which, in law, amounts to to a hindrance or delay.

In such a case, it cannot be said that a sale was made “ with intent to delay, hinder or defraud creditors, purchasers or other persons of or from what they are, or may be, lawfully entitled.” E. S., art. 2465.

To vitiate a sale, the intent of the seller must be to hinder, delay or defraud his creditors, and such intent cannot exist if the purpose be to appropriate the property or its proceeds, at its fair value, to the payment of one of more just debts, in a manner and at time satisfactory to the'creditors to be paid. “The notice to the grantee must be a notice of an intent on the part of the debtor to delay, hinder or defraud, in the legal sense of those terms, as used in the statute.” If the intended and necessary effect of a transfer be to discharge one or more just debts of the seller by a present application of the full value of the property, in a manner agreed to by the creditors, it would seem that the purchaser would stand on ground as favorable as though he were a purchaser for the sole purpose of securing a debt due to himself.

In the one case, as in the other, the property is applied to the seller’s debts—no interest or reservation of benefit is left in the grantor. That is done indirectly which the seller had the right to do, and, in some cases, might not be able to do by a sale directly to the creditor. These matters are illustrated by a number of cases. Ford ».Williams, 3 B. Monroe 557; Brown v. Foree, 7 B. Monroe, 357; Gregory v. Harrington, 33 Vt. 241; Bedell v. Chase, 34 27. Y. 386 ; Wood v. Shaw, 29 Ill. 444; Wheaton v. Neville, 19 Cal. 46 ; Hall v. Arnold, 15 Barb. 600; Uhler v. Maulfair, 23 Pa. St. 484; Bank v. Carter, 38 Pa. St. 446; Johnson v. McGrew, 11 Ia. 152; Hartshorn v. Eames, 31 Me. 98; Gassett & Co. v.Wilson & Brown, 3 Fla. 258-261; Covanhovan v. Hart, 21 Pa. St. 500; Dana v. Stanford, 10 Cal. 274; Worland v. Kimberlin, 6 B. Monroe 609; Bank v. Fitch, 48 Barb. 354; Banfield v. Whipple, 96 Mass. 14; Giddings v. Sears, 115 Mass. 507; Bank v. Nelson, Cold. 189; Lowry v. Howard, 35 Ind. 170; Wait on Fraud. Conv., sec. 11, p. 390; Bump on Fraud. Conv., sec. 21, pp. 205, 206, and citations. No Texas case exists which, read in the light of the facts of the particular case, announces such a rule as is contained in the charges we have considered. Mosely v. Gainer, 10 Tex. 387 ; Edrington v. Rogers, 15 Tex. 195; Hancock v. Horan, 15 Tex. 511; Greenleve v. Blum, 59 Tex. 126; Schneider v. Sansom. 62 Tex. 203; Gus Lewy & Co. v. Fischl, 65 Tex. 311.

Fraud or no is ordinarily a question of fact, but, if the facts be admitted, whether they constitute fraud within the meaning of the statute, becomes in many cases a matter of law.

If the facts which the charge asked by the appellants made necessary to the validity of the sale, were, by a special verdict, found to exist, a court might, as a matter of law, hold that the sale to Ellis was not made with intent to hinder, delay or defraud creditors.

The words “hinder ” or “ delay,” used in the charges given at the request of the defendants, were doubtless understood by the jury in the sense in which, from the charges already considered, it was intended by the court and the defendants they should be, and what has already been said renders it unnecessary to consider these charges separately. Some of them, but for their tendency to mislead in the respect already referred to, would have been proper charges, if the facts of the case required such charges, a question which we need not now consider. We deem it proper, however, to say that knowledge by the purchaser that the debtors intended, after paying debts with a part of their property, to apply a part or the whole of the residue to the payment of other just debts, even by way of preferences, would no more vitiate the sale than would the knowledge of the intent to giye preferences through the first sale. ,

The burden of proof was on the defendants to prove the illegality of the sale to Ellis, and the court should have given the charge asked upon this subject. The declarations of Jenkinson, not made in the presence of Ross, Russell or Ellis, and not shown to have been authorized by Boss or Bussell, should have been excluded. The other assignments need not be considered.

For the errors mentioned, the judgment of the court below will be reversed and the cause remanded.

Beversed and Bemanded.

[Opinion delivered February 23, 1886.]