Mansur-Tebbetts Implement Co. v. Ritchie

60 S.W. 87, 159 Mo. 213, 1900 Mo. LEXIS 214

• Court: Supreme Court of Missouri
• Decided: December 18, 1900
• Status: Published

Opinions

In Division One.

VALLIANT, J.

This is a controversy between the plaintiff, who is an attaching creditor of defendants Ritchie and Hudson, on the one part, and F. E. Bruton, trustee for the Sturgeon Savings Bank, who claims the goods attached, on the other part.

This is the second appeal to this court in the same cause. A full statement of the case by Marshall, J., is contained in the report of the former appeal, Mansur-Tebbetts Imp. Co. v. Ritchie, 143 Mo. 585, a reference to which will render only a very brief statement necessary at this time.

On May 10, 1894, defendant Ritchie, who was then engaged in mercantile business, made his note to defendant Hudson for $2,224.75, and executed a deed of trust conveying to interpleader Bruton, as trustee, his whole stock of goods to secure the note. Hudson immediately transferred the note to the 'Sturgeon Savings Bank, in payment of nates of his held by the bank, and the deed was recorded that day. Bruton took possession of the goods on May 11, and the next day, May 12, plaintiff had them seized under its attachment and they were sold, under order of the court, for $2,593.05. Bruton filed an interplea in the attachment suit, claiming the goods attached by virtue of the deed of trust. Plaintiff answered attacking the note and deed of trust on the ground of fraud, averring that Ritchie and Hudson were partners and that the note and deed were made without consideration, executed for the purpose of hindering, delaying and defrauding their creditors and that the Sturgeon Savings Bank took the note and deed with the knowledge of that purpose, and with the intent to aid them in it.' Issues were joined and the cause was tried by the court, a jury being waived. There was testimony tending to prove that Ritchie and Hudson were partners in trade, and that they had purchased goods from plaintiff on credit when they were insolvent, had made a false statement of their financial standing to obtain the credit, and that the goods obtained from plaintiff were included in those covered by the deed of trust in question; that at thp date of the deed of trust Ritchie and Hudson were insolvent, owing over $5,000 of merchandise accounts, besides considerable individual debts, and this deed of trust covered practically all they had that was available to their creditors. Plaintiff’s testimony also tended to show that the cashier of the bank who transacted' this business was the father of defendant Ritchie and was cognizant of his business affairs.

On the part of the interpleader the testimony tended to prove that Hudson had borrowed money from the bank to buy out a former partner of Ritchie, for which he had given the bank 'his note, and lrad also given the bank his note for part of an overdraft that Ritchie owed the bank. Just what the relations of Ritchie and Hudson were after the latter bought out the interest of Ritchie’s former partner, he did not very clearly show, but his testimony did tend to show that in March, 1894, Ritchie assumed to pay Hudson for the debt that he had incurred with the bank, and gave him his note for the amount, and a chattel mortgage to secure it, and thus became, if he had not been before, the sole owner of the business, and that note and chattel mortgage Hudson had given to the bank as collateral to his notes. But in May, 1894, they were advised that the chattel mortgage was not valid and in order to secure his debt to Hudson, Eitcbie executed tbe note and deed of trust in suit with tbe purpose of having Hudson transfer them to tbe bank and take up his paper there; tbe bank was also cognizant of this purpose. Accordingly, immediately on tbe execution of tbe note and deed, Hudson transferred them to tbe bank, and tbe bank surrendered to him bis notes and tbe collateral it bad formerly held.

Tbe court gave a number of instructions, bo'tb for plaintiff and for tbe interpleader, but as tbe correctness of only two of those given is challenged, it is necessary to copy only those two here. They are tbe second and fourth instructions given for tbe plaintiff, and are as follows:

“2. Tbe court declares tbe law to be that direct and positive evidence is not required to establish or prove fraud, but it may be gathered and inferred from all tbe facts and circumstances in tbe case; and if tbe court believe from all tbe facts and circumstances in evidence in this case that J. J. Eitcbie gave tbe note and deed of trust read in evidence to S. P., Hudson with tbe intent to binder, delay or defraud bis creditors, and that said J. S. Eitcbie, cashier of tbe Sturgeon Savings Bank, tbe assignee and beneficiary in said deed of trust, bad knowledge of said fraudulent intent, and aided or in any manner abetted or assisted him in carrying out said fraudulent intent, then tbe verdict must be for tbe Mansur-Tebbetts Implement Company on this issue between it and tbe interpleader.

“4. The court, sitting as a jury, declares the law to be that if it believes from the evidence that the Sturgeon Savings Bank took an assignment of 'the deed of trust put in evidence upon the stock of goods of J. J. Ritchie to secure the payment of a debt actually owing to-it, yet if the court also believes from the evidence that the Sturgeon Savings Bank or J. S. Ritchie, its cashier, intended, in taking said deed of trust, not only to secure the debt of the bank but also to assist Ritchie, or Ritchie and Hudson, or either of them, or did assist them or either of them to hinder, delay or defraud any of the other creditors, then the verdict must be in favor of the plaintiff in this case and against the inter-pleader.”

There was a finding and judgment for plaintiff, from which, after his motions for new trial and in arrest were overruled, the interpleader has appealed.

I. Without intending to express any opinion as to which side, on any of the questions involved, the evidence preponderates, we deem it sufficient to say that the testimony on the part of the plaintiff tended to prove that the note and deed of trust in question .were executed by Ritchie and Hudson, with the intent to hinder, delay and defraud their creditors and that the bank took the note with knowledge of that intent on their part. If there was any testimony tending to prove that the bank had any other purpose in the matter'than to selfishly secure its own debt, it was 'the inference only drawn out of the fact that the cashier was intimate with the business affairs of his son. There is no doubt that Hudson justly owed the bank, and the testimony tended to prove that Ritchie justly owed Hudson the full amount of the note, which in fact stood for money the bank had advanced to Hudson to buy out Ritchie’s partner, and to Ritchie on his overdraft, one-half of which Hudson assumed. There was no direct evidence, even if there was any of inferential character, to show that the bank .agreed or intended to assist any fraudulent purpose that Ritchie and Hudson might have by devoting any part of the proceeds of the note and deed of trust to their use.

It is not claimed by the counsel for the plaintiff, that the transaction as far as the bank is concerned, would be rendered invalid because the note and deed were executed by Ritchie and Hudson with intent to hinder, delay and defraud their creditors, even though the bank knew that such was their purpose, nor though the bank'knew that the. taking of the deed would necessarily defeat other creditors. But it is conceded that to break down the deed in the bank’s hands, it must be shown that the bank had some other purpose in view in taking it than merely securing its debt; that is, that the bank had the purpose to assist the debtors in their fraudulent scheme. Yet in the second instruction it is declared that the deed would be invalid if executed with that purpose on the part of Ritchie, and if the cashier of the bank “had knowledge of said fraudulent intent, and aided or in any manner abetted or assisted him in carrying out said fraudulent intent.” Would not the mere taking of the deed, knowing Ritchie’s purpose, be assisting him in carrying out that purpose?

In the fourth instruction it is said that the verdict must be for plaintiff if the deed was executed .by Ritchie for the purpose of defrauding his creditors, and if the bank or its cashier “intended, in taking said deed of trust, not only to secure the debt of the bank, but also to assist Ritchie or Ritchie and Hudson, or either of them or did assist either of them to hinder, delay,” etc. That is to say, the deed is invalid if the bank intended to assist in the fraudulent purpose, or whether it intended to do so or not, if in point of fact it did assist them or either of them, in accomplishing their purpose. Unquestionably, if Ritchie’s purpose Avas as plaintiff thinks it was, the bank, by merely taking the deed, did assist in carrying that purpose into effect. This court has often held that a creditor may take security for his debt, though he may know that it will defeat other creditors, and though he may know that his debtor intends thereby to defraud them. [Shelly v. Boothe, 73 Mo. 74; Holmes v. Braidwood, 82 Mo. 610; Albert v. Besel, 88 Mo. 150; Frederick v. Allgaier, 88 Mo. 598; Alberger v. White, 117 Mo. 347; Crothers v. Busch, 55 S. W. 149.]

Instruction two above mentioned was contained in the record in the former appeal, it was there designated as instruction seven; but the only objection then urged against it was that it failed to require the jury to find a fraudulent intent on the part of Hudson. The point now made was not then called to' the court’s attention and was not decided. ’

Instruction four was also in the former record Avith one very material difference. In the form in which it was then before the court it directed a verdict for the plaintiff, if the jury should find that the deed was executed by Ritchie for the purpose of hindering, etc., his creditors, and that the bank “intended in taking said deed of trust not only to secure their oavu debt, but also to assist J. J. Ritchie or" Ritchie and Hudson, or either of them, and did assist them or either of them in hindering,” etc. That is, that the bank took the deed not alone to secure its debt but intending also to assist Ritchie and Hudson in their fraudulent purpose and did so. In that form the intention to assist in the fraud is joined with the act and the- instruction was entirely proper, but as we now have it it is disjunctive in form; it means that the mere act of taking the deed Avill fill the requirement Avithout the intent to defraud. There is nothing in any of the other instructions to cure this error. Each of these instructions is on the whole case, and directs a verdict for the plaintiff if facts are found as therein propounded.

The distinction between the act of accepting a deed with the intention of assisting the grantor in carrying .out his fraudulent design, and accepting it merely knowing his fraudulent purpose and knowing what the result will be, but intending only to take security for one’s own debt, is a distinction that the average juror is not liable to observe. A jury is also apt to fail to distinguish between the fraud of the grantor and that of the grantee in such a case and to visit the fault of the one on the head of the other. The duty is on the trial court to carefully enlighten the jury on these intricate points.

The second and fourth instructions above mentioned were erroneous in the particulars named.

II. A large part of the record is taken up with the question whether or not Hudson was a partner of Ritchie, and it is contended here that since the evidence shows that relation to have existed between them, the court should as a matter of law declare the deed of trust invalid.

The fact that Hudson was a partner of Ritchie, if he was, is a circumstance to be considered among all the other surroundings as bearing on the question of fraud in their dealings with each other, but it is not the all-important and conclusive fact in the case. A member’s interest in the property of the firm is his share of what remains after the partnership debts are paid, and the rights of his creditor are no greater than his own. A member, without the consent of his partners, can not assign any of the partnership property to secure his individual debt. But the partnership creditors have no lien on the partnership property, and it is lawful for the firm, or for one member with the assent of the other members, to assign partnership property for the security or payment of the debt of a member, if the transaction is without fraud.

The facts in Priest v. Chouteau, 85 Mo. 398, were that De Bar, one of the firm, without the consent of the others, had given a deed of trust on his individual interest in the-partnership property to secure a debt he owed to Priest; it was held that Priest’s security was postponed to rights of the partnership creditors. The theory involved is that each partner owns, not a particular part of the firm’s property, but an interest in all of it, and has a right to have it applied to the payment of the debts in which he is concerned. The equities of the firm creditors are worked out through the-members of the firm.

In Reyburn v. Mitchell, 106 Mo. 365, Mitchell, a member of the firm, had given two mortgages, one to Kilgour and one to his mother, each on “his right, title and interest” in the property. There was evidence tending to show that Robertson, the other partner, acquiesced in these mortgages, but there was also evidence tending to show that they and the-mortgagees understood and intended t'he mortgages to be subordinate to the payment of the firm debts; that was a question of fact in the case. This court, per Macfarxane, J., said: “It is well settled in this State, as well as in other jurisdictions, that one partner can not transfer the partnership property for the satisfaction of his individual debt without the consent or acquiescence of the other partners. Each partner has the right, in equity, to have the property of the firm applied to the payment of the partnership debts. Through these equities among the partners, firm creditors derive the right to have the partnership assets appropriated to the satisfaction of their debts in preference to creditors of the individual partners. The rights of the firm creditors, being derived through the equities of the partners among themselves, can necessarily only exist so long as the partnership itself continues. It necessarily follows that a bona fide waiver of their equitable rights by the partners cuts off the derivative equities of the creditors. These principles are announced in the following recent decisions: Sexton v. Anderson, 95 Mo. 381, and cases cited; Huiskamp v. Wagon Co., 121 U. S. 310; Purple v. Farrington, 119 Ind. 164; Pepper v. Peck, 20 Atl. Rep. 16; Coakley v. Weil, 47 Md. 277; Bank v. Klein, 64 Miss. 141; Sickman v. Abernathy, 23 Pac. Rep. 447; Caver Gin & Machine Co. v. Bannon, 85 Tenn. 712; Woodmansie v. Holcomb, 34 Kan. 35. If by his mortgages to Kilgour and his mother, Mitchell understood and intended in good faith to withdraw from the partnership its property for the purpose of appropriating it to the payment of his individual debts to them, and Eobertson at the time gave his assent, or afterwards acquiesced thereto, the mortgages would have defeated the rights of the firm creditors to have the property first applied to the payment of their debts. But we do not think such was the intention of the partners as evidenced by their conduct, nor do we think the mortgages themselves can be given such construction.” '

In Goddard-Peck Gro. Co. v. McCune, 122 Mo. 426, the insolvent firm before its assignment gave the firm notes for the individual debts of its members. This court, per Burgess, J., said: “No principle of law is better settled than that, in the administration of an insolvent partnership estate, the assets of the firm must be applied to the satisfaction of the firm creditors to. the exclusion of the creditors of the individual partners. [Hundley v. Farris, 103 Mo. 78; Bank v. Brenneisen, 97 Mo. 148, and cases cited in each.] The principle we think is equally well settled by the more recent decisions of this court, as well as by the weight of judicial authority in other jurisdictions, that the assets of an insolvent firm, before dissolution, may, with the consent of all the partners, be applied to the satisfaction of all the individual debts of the members of the firm, when done in good faith. [Sexton v. Anderson, 95 Mo. 380; Reyburn v. Mitchell, 106 Mo. 365, and cases cited in each; Seger’s Sons v. Thomas Bros., 107 Mo. 635.]”

A large number of authorities, outside of this State, are cited in that decision, including decisions of the Supreme Court of the United States, which fully sustain the doctrine there laid down.

What is now here said on this point is not entirely in accord with what was said on the subject when this cause was here on the former appeal. But then the point was not advanced by counsel, as it is now, nor discussed in their briefs; it was not then insisted as it now is that the deed of trust was invalid because it attempts to appropriate partnership property to the security of the debt of an individual.

If, therefore, it be conceded that Ritchie and Hudson were partners in trade, at the time of the execution'of the deed of trust, and that it was given to secure Hudson’s individual debt to the bank, having been executed with the consent of both partners, it would be perfectly valid, if it was accepted by the bank in good faith for the sole purpose of securing the debt. The trial court did not err in refusing the instruction asked by the plaintiff on the theory that the deed was void because given to secure the individual debt of a member of the firm. The only errors we find in the record are those above pointed out in instructions two and four given for the plaintiff. Eor those errors the judgment should, in the opinion of the miter, be reversed and the cause remanded for re-trial. But as a majority of the court are of the opinion that the judgment should be affirmed, it is so ordered.

The views of Robin-son and Marshall, JJ., are expressed in. a separate opinion by Marshall, J.

In Banc.

PER OURIAM. — In the foregoing opinion by Yallianl, J., in Division No. One, Gantt, G. J., concurs. Brace and Robinson, JJ., concur in paragraphs I and II, but do not concur in the result. The views of Brace, J., on the result are expressed in a separate opinion by him. The views of Sherwood, Robinson and Marshall, JJ., are expressed in the separate opinion by Marshall, J. Burgess, J., absent. The majority of the court being of the opinion on the result that the judgment of the circuit court should be affirmed, it is so ordered;