First National Bank v. Bertschy

9 N.W. 534, 52 Wis. 438, 1881 Wisc. LEXIS 179

• Court: Wisconsin Supreme Court
• Decided: June 4, 1881
• Status: Published

Opinion

Taylor, J.

Upon the findings of fact, to which the respondent took no exceptions, we think it must be held that the court based its judgment against the appellants solely upon the ground that both the mortgage and conveyance from Leona/rd to John Bertsehy were without consideration, and for that reason fraudulent and void as to the creditors of the said Leona/rd.

There is certainly nothing in the findings of fact which charges John Bertschy with any intent to defraud the creditors of Leonard, except such intent as may be deduced as a conclusion of law from the fact that he took a conveyance of a valuable estate from Leonard without giving any consideration therefor, knowing that such estate was all the estate the said Leonard owned, and knowing that he was indebted to a considerable amount at the time the conveyance was made and accepted by him. "We think it must be admitted that the evidence clearly establishes the following facts: That at the time Leonard Bertschy gave the mortgage for $6,000, and after-wards the deed, to John Bertschy, John kne,w that Leonard was indebted, or had contracted liabilities, for a considerable sum of money, which he might ultimately be compelled to pay; that the estate mortgaged and conveyed was the greater part of all the estate which said Leonard owned; and that, unless this estate were subjected to the payment of such lia-, biiities, the said Leonard would be wholly unable to pay said claims against him. "We think there was sufficient evidence of fraud in fact to avoid the mortgage and deed in favor of -the creditors, if the mortgage and deed were given without -any consideration. The rule upon such a state of facts is very clearly stated in the opinion of Chief Justice Shaw in the case of Marden v. Babcock, 2 Met., 99, 104. He says: “ In a voluntary absolute conveyance, the fact that no consideration is paid is, of course, known to both parties. Tf the grantor was in debt.at the time, as such conveyance must necessarily tend to defeat the rights of creditors, and as all persohs are presumed to contemplate and intend the natural and probable consequences of their own acts, the conclusion is irresistible that such conveyance was intended to defeat the creditors, and is therefore fraudulent.” The judgment in this case must be affirmed if the evidence sustains the finding of fact that the mortgage and deed “ were without any valuable or other consideration.” If this finding is sustained by the evidence, then it is clear that the evidence shows they were fraudulent and void as to creditors.

It is said by the learned counsel for the appellants, that the deed was not without consideration, because the property conveyed was subject to a mortgage of $5,000, which John, Bertschy assumed to pay. We do not think such assumption alone could sustain the deed. It is conceded on the part of the appellants, that the property conveyed is of far more value than the mortgage which John Bertschy assumed to pay. The assumption of the mortgage, which is a charge upon the estate, and which the estate is amply sufficient to pay, cannot, as to creditors of the grantor, be deemed a sufficient consideration to sustain the conveyance. Such a transaction is nothing more nor less than a conveyance of the interest of the mortgagor in the estate mortgaged, without any consideration therefor. The creditors of the mortgagor have the right to his interest in the mortgaged estate, and he has no more power to give that interest away to their prejudice than he has to give away a part of his estate not mortgaged.

We must, therefore, look into the evidence to determine whether there was any other consideration for the mortgage and deed. The only other consideration for them grows out of the following state of facts: John Bertschy had loaned to Leonard, Bertschy, March 19, 1874, $3,000, upon which he was to receive interest at ten per cent; in September, 1871, he loaned to Oily Hammond, a son-in-law of Leonard, Bertschy, $1,000; to George Bertschy, in September, 1874, $500, and a few months after $400; and to Perry H. Bertschy, June 10, 1874, $2,000, and September 1, 1874, $1,000. George and Perry H. were sons of Leonard Bertschy. It is claimed by the learned counsel for the appellant, that all these loans were made by the said John, Bertschy with the understanding that Leonard Bertschy was to be ultimately liable for their repayment to him in case the sons and son-in-law failed to make payment, and that the mortgage in the first instance, and the deed subsequently, were given to secure the repayment of tbe several sums so loaned by the said John JBertschy to them.

As to the loan of $3,000 to Leoncord Bertschy, there is no dispute as to its being a tonco fide loan, for the repayment of which said Leonard was both legally and equitably bound. The evidence shows that, previous to the giving of the mortgage and deed in question, Leonard had paid upon that loan the following sums: April 10, 1875, $300; May 16, 1876, $200; February, 1878, $3,000 ($1,000 in cash, and $2,000 in note and mortgage of Jacob Bertschy). The amount of this loan, with interest from the date at ten per cent, to the time when the last payment was made, February 1, 1878, would be $4,158, very nearly; deducting the amounts paid, $3,500, there would remain unpaid on this loan the sum of $658. As to this item there does not seem to be any reasonable doubt. The fact that it does not appear that there was any written agreement as to the amount of interest, cannot alter the case. It appears that the first year’s interest was paid at the rate of ten per cent.; and if that was the verbal understanding between the parties, it would be no fraud upon the other creditors if it was finally paid at that rate by the borrower, Leonard Bertschy. After applying these payments there would still be due upon this loan, when the deed was given, the sum of $658, which formed part of the consideration for the mortgage and deed.

The claim made by the appellant John Bertschy that Leonh-ard Bertschy was under obligation to pay the loans made by him to the son-in-law and sons of Leonard, and that the mortgage and deed were given to secure or pay such sums, rests upon the following evidence: John Bertschy testifies “that twenty-five years ago Leonard Bertschy was living at Woodstock, Illinois, and was worth about $65,000 or $75,000; that about twenty-two years ago he loaned Leonard Bertschy, Jr., a son of Leonard, who was then keeping a store, the sum of $3,000; that when Leonard Bertschy saw him, just after he made the loan, he scolded about it, hut said, ‘ I don’t want you to lose anything on my boys, any way,’ and about a year after-wards Leonard Bertschy, Sr., paid John the $3,000 so loaned to his son; that he made no more loans to the sons of Leonard until 1871, when he loaned to Oily Hammond $1,500, September 11, 1871, $500 of which was afterwards paid by Hammond; and that afterwards, in September, 1873, he loaned to George Bertschy $500, and four to six months afterwards $400; and June 10, 1874, $2,000, and September 1, 1874, $1,000 to Perry II. Bertschy. In regard to these loans he says: “Ho note or any other evidence of indebtedness was taken from any of the persons to whom they were made. Saw the old gentleman once in two or three months, and whenever I loaned any money to the boys I would tell him of it as soon as I saw him. He would tell me I was too liberal with the boys, and always said I should lose nothing by them. Every time I made these loans, the old gentleman used the same expressions. . After I had made the loan to George, in February, 1873, the first time Leonard Bertschy met me he said: ‘Ton know, the first thing, I have to pay for these things.’ The general purport of the conversations was, that the boys were getting all the property from the old man; that he was getting old, and feared to get poor, and could not see, if it kept on like this, how he could pay me and keep alive. After I made the loan to George Bertschy, I saw the old gentleman and spoke to him about it. He scolded about it, that he would have to pay, saying: ‘ Lhnow in the end I will have to pay it;’ that 1 should not lose anything hy what I let the hoys have. About two or three months after I loaned the money to Perry H. Bertschy, 1 saw the old gentleman, and he said, '•John., I feel very much pleased that you helped him. I feel satisfied that he will do well after this, and, if worse comes to worse, I toill pay it.’ ” In regard to the loan to Perry IT. Bertschy, he himself testified: “I talked the matter over with my father before I applied to John for the loan, and asked his opinion about it, and as he (father) did not chave the money, he ordered me to ash John for the loan, promoting I thought I could mahe a success of the business and ‘pay it, and I remember his stating at different times that if I made a failv/re of it of course he would home to pay it. "Within thirty or sixty days after I talked with my father about it, I got the loan of JohnP Leonard Bertsehy, Sr., testified as to the loan to Perry IT. Bertsehy as follows: “ I remember Perry Bertsehy got of John Bertsehy $3,000. Perry came to me and said: ‘Father, can you help me?’ I told him I could not. I told him to go to John. I would pay him if I could. If I couldn’t pay him with money, I would pay him with something else. That is the answer I gave Perry. He got the money. I knew when he got it. He said, ‘Father, I got the money; it’s all right.’”

John Bertschy testified further that Leonard Bertsehy said nothing personally to him before the money was advanced to Perry, or any of the other boys, upon the subject of making the loans. He says: “I helped them along as a relative, and the whole family looked to me as having cash, and I helped in case of necessity. On this basis I made all these advances. Leonard Bertsehy had nothing to do with them at the time they were made.” John Bertsehy was a son-in-law and nephew of Leonard Bertsehy. The evidence showing the reason for giving the mortgage and deed is stated by John Bertsehy as follows: “I had seen the old gentleman a short time before the mortgage for $6,000 was given. I went to Appleton to see him.' I was hard up, and told him things had reversed, and told him I felt kind of blue; told him my whole circumstances; and, after I got home, he sent me the mortgage and notes, and I put them in my safe and was thinking what I should do with it, because I should not use it against the old man under any circumstances. About the ninth of September he deeded the property to me. He said, John, I am getting old and may die any day, and should like to see you paid. I intend to deed you my stores, so that I can rest easier.’ I said I did not insist on anything; that I would not pull his head, off, and that I would leave it all to him. He said it was all he had; that he wanted to put me in possession; that he would rather have me in possession, so that, in case he should die, I could not lose my money. I understood he deeded the property to me to pay me all owing me by himself and his boys. He knew every dollar of the loans made by me at the time. We did not foot up or make any figures about it. He just deeded me all that land in full of those sums. I let him do just as he was a mind to about it.”

Leonard Bertsohy testified on this subject as follows: “I went to John four or five times, and stayed with him about a month. John had lost about $30,000 by his brother. I said, ‘John, you shan’t lose a cent by my folks. I’ll try that you get your pay for it.’ I told "him, ‘You must not be scared; I’ll pay every cent that my folks owe you.’ I talked to him about the loan to George. I told him, ‘Now I will make that thing good; you know I will pay it.’ He said, ‘You do as you please.’ I said, ‘No; I don’t do as I please; I pay every cent that my boys got from you; what my family got from you.’ ”

It will be seen from the evidence that the loans to Hammond and George Bertschy were made by John Bertsohy without any knowledge on the part of Leonard Bertsohy, at the time the loans were made, that they had been applied for, or that John intended to make the loans; and if John had any reason to expect that Leonard would repay them if the boys to whom the loans were made failed to do so, such expectation must have been based upon the general statements made by Leonard, that he should not lose anything by what he let the boys have, and from the fact that eighteen or twenty years before he had in fact repaid a loan of $3,000, which John had loaned to his son Leonard, Jr.- We are all of the opinion that if these loans were made without any expectation on the part of John Bert-sehy that Leonard Bertsehy would pay the same, and without his knowledge or request, then there would be no legal or moral obligation on the part of Leonard Bertsehy to pay the same or any part thereof; and that a subsequent promise to pay such loans, made without any request on the part of the persons borrowing the money, that he should guaranty the payment of the money to John Bertsehy in order to get further day of payment, would be a promise made without any consideration, and would be void, whether made in writing or by parol. And the transfer of Leonard's property in fulfilment of such void promise would rest on no sufficient consideration as against his creditors.

As to the loans made to Hammond and George Bertschy, we cannot find any sufficient evidence that they were made with any reasonable expectation that Leonard would pay the same if the borrowers failed. The only ground for any such expectation was the fact that a loan made under similar circumstances to another son eighteen years before had been paid by the father. This we deem too slight a circumstance on which to ground any conclusion that in making these loans any credit was given to the father, or that there was any thought at the time of holding the father responsible for the loans. Ve are, however, of the opinion that the loan made to Perry H. Bertschy was made under different circumstances, and under such previous assurances that John Bertsehy had the right to suppose the'father held himself responsible for the amount loaned, and would refund the same if loaned by him. The loans made to Hammond and George were made when they were living far away from the father, and under such circumstances that he would not be likely to- know anything of the loans being made, or of the fact that they had been applied for. The loan made to Perry H. Bertschy was made when he was residing in the same city with his father, and doing business there. It was in fact made by the direction of the father, and with the promise of the father, to his son at least, that he would see that Jolvn should get bis pay. This loan was also made after, and but a short time before Leonard, had repeatedly told John that “he should not lose anything by what he let the boys have.” Although it is not shown by the evidence that it was communicated to Jolvn at the time the loan was made to Perry H. that his father had directed him to apply for the loan, and had made an express promise to pay if his son should not, we think there is sufficient in the evidence to show that the loan was made by Jolvn JBertschy believing that it was known and approved of by the father at the time it was made, and with the expectation that the father would see that it was paid. The others were made without the knowledge of the father, and consequently without any expectation on his part of being called upon to make the same good, and under circumstances which would not give much assurance that the lender placed any reliance on the father’s credit. In the case of the loan to Perry H., the father not only knew of the loan, but directed the same to be applied for, and at the same time promised the borrower if he could not pay for it he would, :and the lender had previous assurances, on the strength of which he had the right to expect the father would make the loan good to him in case the son was unable to do so.

We do not think the evidence sufficient to sustain an action .at law to recover the amount loaned from Leotiard, for the reason that the promise was not in writing, and because it was a collateral promise to pay the debt of another. The promise was not to pay absolutely, but to pay in case the son failed to pay. In such case the debt is the debt of the son, and the father stands in the light of one who is surety for the payment and not a principal debtor. The contract is, therefore, void under the statute of frauds. It is urged by the learned counsel for the respondent, that, because the promise of the father was void under the statute, such void agreement does not furnish any sufficient consideration for the mortgage or for the deed as against the creditors of Leonard. This we think is an erroneous view of the law on this subject. If there was an agreement upon sufficient consideration to support an action, were it not for the statute of frauds, then the debtor has undoubted right to waive the statute and pay the debt, and such waiver and payment is not a fraud upon his other creditors. The other creditors cannot insist upon the debtor interposing the statute against the claims of one having his promise to pay grounded upon a sufficient consideration, in order to protect their rights. If in equity the debtor owes the demand, a court of equity will not declare its payment a fraud. The decisions of the courts fully establish this point.

This court, in Hyde v. Chapman, 33 Wis., 391, held that when a conveyance was made by a debtor, of real estate which he held in his own name, but the consideration for the purchase of which had been paid by another, and the deed taken in the name of the debtor, and for the use, benefit and accommodation of the person paying the consideration, such debtor had the right to consider the equitable claim of the person paying the purchase money, and that such conveyance of the estate to the person paying for the same was not voluntary or fraudulent as against the creditors of the person holding the title. Under the facts presented in that case, neither a court of law nor one of equity could have compelled the debtor to make the conveyance to the person paying the purchase money, the statute having declared that in all such cases no trust should result in ' favor of the person paying the purchase money, but that the absolute estate should vest in the person to whom the estate was conveyed. That case clearly holds that where a conveyance is made by a debtor, of property to which he has the legal title, but as to which another has an equitable claim, though such equity is not enforceable in any court, such debtor may recognize such equitable claim, and convey the estate to the claimant, without being guilty - of any fraud as against his other creditors. The present chief justice, who delivered the opinion in that case, says: “B. A. Chapman (the debtor) was tbe absolute owner in law and equity, and no trust resulted in favor of James A. Chapman in consequence of his paying such consideration. This may be conceded. Still, if B. A. Chapman recognized James A. Chapman’s equities, and actually conveyed the property according to the original understanding and arrangement, we apprehend there would be nothing in the transaction which a court of equity would condemn.” There can, we think, be no doubt as to the soundness of the decision in that case upon the facts stated. Possibly there might be circumstances under which such a transfer would not have been upheld. If the person paying the purchase money had permitted the original grantee and debtor to enter into possession of the estate, and receive the rents and profits thereof for a considerable length of time, and credit had been given to the party in possession upon the strength of such apparent ownership and use, an equity might have arisen in favor of the creditors which would outweigh the equity of the person paying the original consideration; but no such fact was presented or relied on in that case. Upon the facts, the equities were in favor of the grantee. That case is fully sustained by Sackett v. Spencer, 65 Pa. St., 89. The latter case was similar to the one above cited, and the court, in disposing of it, say: “Having received the title without the payment of any consideration by himself, it was no fraud on the rights of creditors to fulfill the understanding upon which he received the title. . . . The question of mortgage or not, or trust or not, concerned Foreman alone, so long as the title was uncontrolled by the lien of any judgment. It was in his power, if there were no lien's to prevent it, to carry out honestly and in good faith the agreement under which he took the title, without payment of any consideration on his part.” The same ruling was made in Gallman v. Perrie, 47 Miss., 131, and Clark's Adm’r v. Rucker, 7 B. Monroe, 583.

It is also held that a mortgage or other security given by a debtor to secure the payment of a debt of a third person, when given upon the request of such third person and of the person to whom the debt is due, is not voluntary and fraudulent as to the creditors of such debtor. Ex parte Hearne, Buck’s Bankruptcy Cases, 165. This case was similar to the case at bar. The father, at the request of the son, gave a mortgage to secure his debt, to the amount of £1,700, and the mortgage was held good as against the creditors of the other. To the same effect is the case of Marden v. Babcock, 2 Met., 99. It is also held that a conveyance of property to pay a debt barred by the statute of limitations or discharged in bankruptcy is not fraudulent as to the other creditors of the person making such conveyance. Wilson v. Russell, 13 Md., 494-529; Clark's Adm’r v. Rucker, 7 B. Monroe, 585; Geer v. Archer, 2 Barb., 420-424. Parsons, in his work on Contracts, says: “The morality of the promise, however certain or however urgent the duty, does not of itself suffice for a consideration. In fact, the rule amounts at present to little more than permission to a party to waive certain positive rules of law which would protect him from a plaintiff claiming a just and legal debt.” 1 Parsons on Contracts, 434. These cases seem to establish the rule that a conveyance or security given for a debt or in fulfilment of a contract which could have been recovered or'enforced in an action were it not for some legal maxim or statutory provision which prevents such recovery by reason of the contract not being in the form prescribed by the statute — or, in other words, not being evidenced in the manner prescribed by law, — is not a voluntary conveyance or security, and therefore fraudulent and void as to creditors, if the evidence shows that there was a sufficient consideration for the debt or promise to support the same were it not for the statutory requirements. As we understand the evidénce in the case at bar, there was a sufficient consideration to support the promises of Leonard to pay the loan made to Perry IT. by John Bertschy. The loan having been made with the promise that Leonard would see that the same was paid, the reliance of John upon that promise in making tbe loan was a sufficient consideration to support an action against Leonard for tbe amount loaned, were it not for the statute which requires such promise to be in writing to make it enforceable. This statutory objection to the validity of the contract, Leonard had the right to waive in favor of honesty ánd good morals; and such waiver is not evidence of an intent to defraud his other creditors. Both equitably and morally there are often more potent reasons for securing the payment of a debt so promised to be paid, than for the payment of other debts "for the payment of which the debtor was bound by all legal formalities.

The cases of Livermore v. Northrup, 44 N. Y., 107, and Keen v. Kleckner, 42 Pa. St., 529, cited by the learned counsel for the appellants, and especially the case of Livermore v. Northrup, seem to go much further than we are disposed to go in this case. In that case it would seem to have been held that a debtor might assume the payment of the debt of a third person without any proof of any previous promise to pay such debt, and without any request on the part of such third person, or the person to whom his debt was due, that he should secure the payment of the same. It is, perhaps, probable that the facts of that case showed that the assumption of the debt of such third person was at the request of the parties interested, and for the purpose of securing the same, and was within the principles of the case of Marden v. Babcock, 2 Met., 99, above cited. The case of Keen v. Kleckner, supra, decides simply the point involved in the case at bar, “ that the verbal assumption or agreement to pay an indebtedness, which under the statutes could not be enforced at law, is, nevertheless, a good consideration for the confession of a judgment for the amount of such indebtedness, and such judgment so confessed is not fraudulent and void as to the creditors of the person confessing the same.”

There being no actual intent to defraud the creditors of Leonard by the giving of the mortgage or deed, found by the court or shown by tbe evidence, except such as would flow necessarily out of the transaction if it were made without any valuable or other consideration, we are -inclined to hold that the appellant should have the benefit of the conveyances as security for the amount remaining unpaid on the loan made to Leonard himself, and also for the amount of the loan made to Perry H. Bertsohy, with interest thereon at the rate of seven per cent, per annum. Under the evidence and the authorities, we think the grantee in the deed, John Bertsohy, may avail himself of the deed as security for the amount which was equitably due to him from Leonard at the time the same was given, notwithstanding it may have been’ intended as security or payment for other claims which Leonard was under no legal or equitable obligation to pay.

May on Fraudulent Conveyances, 235, says: “A deed of sale for an inadequate consideration may be set aside as far as it purports to be an absolute conveyance, and may stand as security only for the money actually advanced.” So in this case, although the deed was given as security or in payment of several claims, some of which it was the duty of Leonard to pay, and others he was under no obligation to pay, as to such as he was not obliged to pay the deed should be declared void, but as to those which he was obliged to pay it should stand as security for the payment thereof, and not as an absolute conveyance. The transaction having been made in good faith, and without any fraudulent intent, there is no reason for holding the whole transaction fraudulent and void in favor of the other creditors. Leonard having the right to prefer John Bertsohy over his other creditors, as to the debts he was under obligation to pay, such preference should be upheld by this court.

By the Court.- — The judgment of the circuit court is reversed, and the cause remanded with directions to the circuit court to enter judgment declaring that the deed to John Bert-sehy be held by him as a mortgage upon the real estate therein described, to secure to bim tbe payment of tbe sum of $4,625, with interest tbereon from tbe date of said deed at the rate of seven per cent, per annum, that being tbe amount unpaid upon tbe loan of $3,000 made to Leonard, Bertsehy, and tbe amount of tbe $3,000 loaned to Perry H. Bertsehy, with tbe interest thereon to the date of said deed at the rate of seven per cent, per annum; and that said John Bertsehy be charged with all sums which may have been actually received by him for the rent of said premises since the date of said deed, over and above what he has expended in the payment of taxes, insurance and necessary repairs; and that said real estate be sold subject to the aforesaid claim of John Bertselvy, and the proceeds of such sale be applied towards the payment of the judgment of tbe said plaintiffs against Leonard Bertsehy.