State ex rel. Peirce v. Merritt

70 Mo. 275

• Court: Supreme Court of Missouri
• Decided: October 15, 1879
• Status: Published

Opinion

Henry, J. —

1. Attachment: intervention of bankruptcy proceedings: jurisdiction court of State court. We fully concur with the court of appeals that the jurisdiction-of the State court over .the subject matter of the suit, was not determined by the proceedings in bankruptcy against Brock, Rogers & Co., and we deem it unnecessary to add anything to the able 'argument of' Judge Gantt on. that subject, which'we refer to and adopt.

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2. fraud: sale out of the usual course of business. The court did not err in refusing to instruct the jury, at the close of the plaintiff’s evidence, that- upon -it he-not recover. Conceding that the sale was not made in the usual and ordinary course of business of Brock, Rogers & Co.; and that such fact is prima facie evidence of fraud, it was for the jury to determine whether the evidence offered by plaintiff did not overcome that prima facie case.

3. -: change of possession. The defendants asked the court to give the following instruction : “ Unless the jury are satisfied from the evidence that Peirce had actual possession of the goods in question, and that the change of possession was visible, continued and exclusive as against Brock Rogers & Co.; such a change of possession as to indicate to purchasers at large that said Brock, Rogers $ Co. no longer had possession or control over said goods, then said.sale was fraudulent and void as against creditors-, even though the jury believe from the evidence that said sale from Brock, Rogers § Co. to Peirce was made in good faith and for a valuable consideration.” It was refused as asked, and given omitting the italicized clauses. The instruction, as refused, was an exact copy of one asked and refused in the case of Claflin v. Rosenburg, 42 Mo. 447, which this court held should have been given, remarking, that “the vendee must take actual possession, and the possession must be open, notorious and unequivocal, such as to apprise the community, or those who are accustomed to deal with the party, that the goods have changed hands, and that the title has passed out of the' seller into the .purchaser.” The same doctrine was announced in Burgert v. Borchert, 59 Mo. 85 . There was no instruction given which was equivalent to this, and the evidence in relation to the change of the possession of the goods was of a character to justify the demand of that instruction by defendants.

4. Fraud : opportunities of discovering The seventh and eighth instructions asked by defendants were properly refused. They either assume it to be the duty of every purchaser of goods and ^ chattels, upon making a purchase, to inquire into the motives of the vendor for making the sale, or that from the evidence, Peirce had notice of the fraudulent purpose of the vendors, or of such facts as to put him to inquiry in regard to their financial condition. If the first assumption was correct as a legal proposition, the sale and transfer of personal property would be hampered to an extent which would be detrimental to commerce and subversive of the policy which encourages a free and untrammeled traffic in such property.

5. -: insolvency of seller. The second assumption would have been an invasion by the court of the province of the jury as declaring that as established, which the jury should have been, as they were, left to find from the other facts proved. Fraud in a sale cannot be inferred from the mere fact that the seller was in debt. That, in connection with other facts, may affect the purchaser with notice of a fraudulent intent on the part of the vendor, although notice may not be directly proved. Even the fact of insolvency alone, if known to the purchaser, may be sufficient to put him upon inquiry; but certainly without some notice of such intention, he is not required, before he purchases personal property, to inquire whether the seller is making sale of the goods in order to defraud his creditors.

6. parties: partnership: attachmeet bond. The court did not err in refusing defendant’s ninth instruction. The bond was for the benefit of O. 'W. Peirce, He was the only person claiming the goods ° when .the bond was executed. He was m possession of the goods when they were seized and taken. They were sold to him individually, whether he was .an honest or a fraudulent purchaser. If his partners in Indiana bad any interest in the property they were not known in the purchase or named in the bond.

7. bankruptcy: acts assignee affecting creditors. We cannot conceive why the petition in the suit of John Ronaldson, assignee of Brock, Rogers & Co., against O. W. Peirce, in the district court of the United States, was offered as evidence by the plaintiff or admitted by the court. It charged, in several counts, that the sale of the goods in question to Peirce, was made by Brock, Rogers & Co. with the intent to defraud their creditors, and that Peirce was a participant in the fraud. It certainly could have been of no advantage to plaintiff, that the assignee of Brock, Rogers & Co. had deliberately charged him with aiding and assisting that company to defraud their creditors by a fraudulent purchase of the goods in question. Plaintiff’s counsel contend that it was competent in order “ to show that" the creditors had disaffirmed the sale, and were not suing Peirce, as they might have done, for the purchase money.” The creditors of Brock, Rogers & Co. had the option to sue Peirce for the purchase money, or to seize the goods under attachment or execution, and after a portion of the creditors,- before proceedings in bankruptcy were commenced against Brock, Rogers & Co., chose the latter course by a proceeding in the State court, the fact that the assignee in bankruptcy sued Peirce for damages in the district court of the United States, is of no consequence in this case. Neither his affirmance nor disaffirmance of the sale could affect plaintiff’s right to redress, if he had any, for the seizure of the property in question in the attachment proceedings. The evidence was irrelevant and should have been excluded, but as it could not have prejudiced the defendant, the judgment should not for that error alone be reversed.

8. Sale out of ordinary course: evidence: fraud: bankrupt law not administered by State court. The third instruction for the defendant should not have been given. Section 35 of the bankrupt act makes a trans-^er property out of the ordinary' course of business of the debtor, prima facie evidence that it is fraudulent, and in proceedings in bankruptcy, or in a suit in the Federal court to recover property fraudulently transferred by the bankrupt, such instruction would be proper; but this is a suit between individuals in the State courts, and the matters in dispute are to be determined, not by the bankrupt'law, but by the common law and the statutes of the State. That a sale was made out of the ordinary course of business, as was 'remarked by the court of appeals, is a circumstance tending to prove fraud, but is no more prima facie evidence of fraud than any other fact tending to' prove it, and it was, therefore, error to single out that fact and give it prominence over other facts tending in the same direction. That the sale was hurriedly made, that it was kept a secret from the salesmen of Rrock, Rogers & Co., that the business 'sign of Brock, Rogers & Co. was not taken down — either of these facts could as properly have been singled out and declared prima facie evidence of fraud. Every fact tending to prove fraud is not of itself prima facie evidence of fraud. A circumstance of but slight significance, standing alone, may, in connection with other circumstances, equally insignificant, separately considered, suffice to fix the charge 'of fraud in a transaction ; and the jury should be left free 'to determine from all the facts proved whether there was fraud in the transaction or not. The judgment of the court of appeals, reversing that of the* circuit court, is affirmed. * All concur.

Judge Gantt, delivering the opinion of the court of appeals, said: It is claimed by the appellants that the jurisdiction of the State court on the.subject matter of this suit was determined by the proceedings in bankruptcy. In this connection the facts are these : Brock, Rogers & Co. being insolvent, made a sale of a large part of their stock, perhaps the whole of it, to Peirce on the 7th day. of October, 1874. A creditor of Brock, Rogers & Co. sued them by attachment on the 9th day of October, 1874, charging this'sale to have been fraudulent; the attachment was levied on the stock sold. Peirce claimed the stock as purchased. The creditor gave the sheriff an indemnifying bond arid directed him to' hold the property as belonging, when attached, to Brock, Rogers & Co. Thereupon Peirce sued the creditor on the bond, and before the end of the month proceedings' were commenced in the United States district court under which Brock, Rogers & Co. were adjudicated bankrupts on the 14th day of November, 1874, and their assignee, on the 31st day of December, 1874, claimed the property from the sheriff. That official delivered it to the assignee without a contest; and it is claimed by the creditor who is appellant here, that these circumstances defeated the action of Peirce against him. We cannot perceive the reasonableness of this claim, and think that the creditor has no more ground for making it than he would have had if, after seizing the goods by attachment and removing them to a warehouse of his own selection, they had been consumed by fire. By this action he estopped himself to say when the goods were demanded by the assignee that they were not the property of Brock, Rogers & Co. The sheriff, of course,' was in the same position, and it was, therefore, the necessary consequence of the action of the creditor that if proceedings in-bankruptcy were commenced and prosecuted to judgment within a given period after the attachment, these goods must without a possibility of dispute, pass into the hands of the assignee in bankruptcy of Brock, Rogers &.Co. If the same proceedings having been commenced in bankruptcy, no attachment had intervened and the assignee of Brock, Rogers & Co. had shed Peirce as the fraudulent purchaser of these goods, the latter might have'had difficulty in vindicating his right to them under the sale shown by this record; but at any rate he would have been at liberty to aver and prove that sale, and if he could, to uphold its fairness. But no such questions as would- then have been legitimately discussed between Peirce and the- assignee were, possible between that assignee find the attaching creditor. Undoubtedly the attaching creditor,-in such a case occupies a position of peculiar embarrassment. By his action he has so narrowed the issues that he must either maintain-, in a controversy with the purchaser, the invalidity of the sale by which that purchaser claims the goods, or he must respond to him for their full value. If he succeed in maintaining this invalidity he gains only a trifling advantage when the goods have been seized by the assignee in bankruptcy. All which victory yields to him in that event, beyond immunity from the claim of the pretended purchaser, will be a slightly increased dividend from the estate of the bankrupt, which, by his exertions, he has augmented. This seems hard, but the law is clear. The hardship is due to his own misdirected enterprise, and not to the operation of the statute. If instead of attaching and seeking to gain a priority over the other creditors, he had invoked the aid of the bankrupt law to enforce an equal division of the property of the insolvent, and to sot aside fraudulent conveyances of it, he would probably' have been more successful in impeaching the transfer, which is alleged to be fraudulent and certainly would have run no risk of the disastrous consequences which may possibly flow from the adoption of the more direct and energetic course of attachment. Moreover, he would have had in the courts of the United States the benefit of some rules of evidence which, as we conceive, have no place in the State courts.

What we mean by this is, that whereas the bankrupt act declares that certain facts shall be taken as establishing a certain prima facie legal presumption, thus assuring to the assignee in bankruptcy seeking to collect the assets of the bankrupt, the benefit of a rule, which, unless positively encountered and overthrown by countervailing evidence, will be conclusive, no such artificial effect can be claimed for the same facts by either party to a contest not looking to enforcement of the bankrupt act. If a party being insolvent, or in contemplation of bankruptcy, makes a transfer or conveyance of any part of his property to a person having reasonable cause to believe him to be insolvent, &c., the transfer, &c., if assailed under the provision of the bankrupt law, will be void, and the fact that such transfer, &c., is not made in the ordinary course of business of the debtor ¡mail be prima facie evidence that it is fraudulent. (§ 85 of the bankrupt act as amended in 1874.) The circumstances here instanced by the statute as constituting fraud prima facie are of a nature to induce suspicion without reference to the statute, and between A and B conducting- a controversy respecting the property transferred, either party desiring to show the fraudulent nature of the transfer, will be at liberty to adduce the fact that the transfer was not made in the usual and ordinary course of business of the debtor. Such evidence will he admissable for that purpose as evidence of any other relevant fact will be admissible. Yet in administering justice in the State courts between two parties, neither of whom is attempting to enforce the bankrupt act, it would, we conceive, be erroneous for the courts to single out this circumstance and tell the jury what it, unconnected with other circumstances, would establish, and perhaps, also, if this and nothing more was the evidence on the charge of fraud, it would be error for the court to tell the jury that it, without more and unexplained, would amount to proof of fraud. At most it would be a circumstance from which the jury would he at liberty to reach a different conclusion. The State courts do not sit to administer the bankrupt law. So far as Congress in the exercise of its unquestionable power to pass a general bankrupt law forbids, and, therefore, renders unlawful any particular act of any individual, it will he unlawful everywhere in the United States. But when in carrying into effect the provisions of such a system it prescribes a mode of procedure and artificial rules of evidence, the operation of these must be confined, (if not to the forums especially charged with the execution of the bankrupt law,) to cases in which the enforcement of that law is sought.

See infra, page 286.