Walker, Evans & Cogswell v. Bollmann Bros.

22 S.C. 512, 1885 S.C. LEXIS 46

• Court: Supreme Court of South Carolina
• Decided: April 22, 1885
• Status: Published

Opinions

The opinion of the court was delivered by

Mr. Chiee Justice Simpson.

The prominent features of this proceeding, taken from the voluminous “Case,” and the statements in thé decree of his honor, the Circuit judge, may be presented as follows:

The defendant, A. Schafer, sometime previous to November 8, 1881, rvas doing business as a merchant at Little Rock, Marion County, under the name, A. Schafer & Co., the defendant, Lizzie Sternberger, and one Wieselthier being his partners. Sometime in 1878, the two last named retired from the business, and the defendant, H. Sternberger, the husband of Lizzie, took their place, the business still continuing under the name of A. Schafer & Co. On November 8, 1881, it appears from the papers then executed, and hereinafter mentioned, that H. Sternberger sold out to Schafer for $2,785, payable in two equal annual instalments, the first on November 8,1882, and the second November 8, 1883, with interest from the date of sale, payable annually until the whole amount is paid. Upon this sale Schafer executed a bond in the sum of five thousand dollars, and a mortgage of the stock of goods then on hand, with such other supplies and additions as he might from time to time make thereto in the course of his business, to secure the payment of the purchase money, one of the conditions expressed in the mortgage being that, until default be made, the said Schafer was to remain in possession, with power to sell, renew, and recruit the same, unless the said H. Sternberger, his executors, administrators, or assigns, shall sooner choose demand the same, and, until such demand, the possession of the said Schafer to be deemed the possession of an agent for the sole benefit of the said H. Sternberger, his duty being to sell, renew, and to recruit the said stock of goods and merchandise, as may be required by, and appertain to, the business of a country merchant, applying the profit of the same to the mortgage debt. This mortgage, after probate, was duly recorded in R. M. C., Marion County, on November 16, 1881. At the time that Schafer executed the bond and mortgage aforesaid, which are the papers now in controversy, Schafer had no other creditor, or at least none other has presented himself. On January 3, 1882, H. Sternberger assigned the said bond and mortgage to his wife, Lizzie Sternberger, at its full value as it is 'alleged, less 12 per cent., who afterwards, in March, 1882, assigned them to the defendants, Bollmann Bros., as collateral to secure the payment of three notes of hers to the said Bollmann Bros., one for $1,000, one for $1,500, and the other for $2,000. After the execution of .these papers, Schafer continued in business at the old stand under the name of A. Schafer, until about the commencement of this suit, and during this time he contracted the debts claimed by the plaintiifs.

In January, 1884, some two months after default of the mortgagor to pay the last instalment of purchase money secured by bond and mortgage, Bollmann Bros., who then held the mortgage as assignees of Lizzie Sternberger, sent up their chief clerk, the defendant, E. Iseman, to seize the stock of goods, who immediately took possession and advertised them for sale, after taking stock. The plaintiffs, becoming alarmed at this state of things, instituted suit before a trial justice, and having shown sufficient grounds for apprehending the loss of their debts, if judgments were delayed the usual time, the trial justice rendered judgments at a shortened period — all of which was resisted strenuously by the defendant Schafer.

These plaintiffs, immediately after obtaining judgments, made application, based on affidavits, for supplementary proceedings before Judge Hudson, who granted an order requiring the said A. Schafer, Bollmann Bros., E. Iseman, and H. Sternberger, to appear before A.- Q. McDuffie, Esq., master for said county, on a certain day therein named, *for examination as to the property of the said Schafer & Co , at the same time granting an injunction restraining the said A. Schafer, Bollmann Bros., and E. Iseman from assigning, or in any way disposing of, said property until the further order of the court, upon condition, however, that plaintiffs should give the bond ordered within ten days. Upon the report of Mr. McDuffie, with affidavits, the plaintiffs then made a motion, after notice, before Judge Cothran, for the appointment of a receiver, until such time as plaintiffs could commence action, who, hearing the motion on February 23, 1884, passed an order directing the sheriff of Marion County to take possession of the property and proceed to sell, for cash, on the 26th inst., at the store in Little Rock, at which time and-place they had already been advertised to be sold by Bollmann Bros., under the mortgage, and that he hold the proceeds subject to the further order of the court. And he further ordered that the judgment creditors of A. Schafer, for their own benefit, and of all creditors who may come in and contribute to the expenses, have leave to commence their- action against A. Schafer, H. Sternberger, L. Sternberger, Bollmann Bros., and E. Sternberger, or any of them, or others as they may be advised, for the purpose of testing the validity of the mortgage given by Schafer to H. Sternberger, and the assignments thereof; and also for the recovery of certain other property alleged to have been placed in the hands of E. Sternberger by Schafer. Whereupon the action below was commenced.

The complaint alleges in substance: 1. That the plaintiffs are judgment creditors of Schafer, with executions returned unsatisfied. 2. That after November 8, 1881, the mercantile business at Little Rock, though carried on in the name of A. Schafer, was really the business of H. Sternberger, L. Sternberger, and the said A. Schafer, as co-partners, and that the debts due the plaintiffs were contracted under the firm name of A. Schafer, for the firm, with many other debts. 3. The execution of the bond and mortgage in question is admitted, but it is alleged that they were pretensive, and the incipient steps of a scheme of fraud. Further, that the assignment thereof by H. Sternberger to his wife was without consideration, and for the purpose of fraud. But if the assignment was valid, the same°has been paid so- far as Bollmann Bros., are concerned, the three notes of L. Sternberger having been fully paid by Mrs. Sternberger. That Bollmann Bros, knew this when they attempted to foreclose the mortgage by seizing the goods, which therefore was aiding' the fraud. 4. That the defendants conspired to foreclose the mortgage when a full stock of goods had just been brought in, at the expense of plaintiffs and other creditors who furnished the goods. 5. That just before the seizure of the goods, A. Schafer had turned over to E. Sternberger certain property of the value of $300, not covered by the mortgage, by way of preparation and consummation of the fraud intended.

Upon this complaint judgment was demanded: 1. That the bond and mortgage, together with the assignments thereof, be declared invalid, fraudulent, and void. 2. If not invalid and void ab initio, that they be adjudged paid and satisfied. 3. That the net proceeds of the sale be paid over to the creditors herein. 4. That defendants, Bollmann Bros., be required to make up the difference between the net proceeds of sale and the value of the goods as inventoried. 5. That it be adjudged that H. Sternberger, L. Sternberger, and A. Schafer are, and have been, partners under the name of A. Schafer, and that plaintiffs’ judgments be decreed to have lien against them as such. 6. That the defendant, E. Sternberger, be ordered to surrender the property turned over to him, or to account for its value. And lastly for costs and disbursements.

All of the defendants answered — some with demurrer, and others by answer alone. The demurrers, however, were withdrawn, and the case went to trial upon the issues raised in the pleadings, all of the defendants having emphatically denied the charges of fraud.

As to the alleged partnership between Schafer and the Sternbergers, to use the language of the decree, the judge “was unable to reach the conclusion that there was any partnership after the alleged dissolution between the parties,” November 8, 1881. As to the purchase, by E. Sternberger, of the live-stock and other property, said to have been turned over to him by Schafer just before the seizure of the stock of goods, he held that the proof was insufficient to impeach its bona fides. As to the validity of the bond and mortgage, he found : “That the execution of these papers by Schafer to H. Sternberger, and by him assigned to Lizzie Sternberger, and by her to Bollmann Bros.,- was fraudulent.” That the transfer of the same to Bollmann Bros, was without fraud, so far as they are concerned, but the three notes made by Lizzie Sternberger, and signed by them as accommodation endorsers, were paid by them with her funds, &c.; and that this payment having been made by the application of such funds by the creditors, any further application was at rest. As to the demand that Bollmann Bros, should make up to the creditors the difference between the appraised value of the stock of goods, and the amount realized at the sale, he held that while Bollmann Bros, were not blameless in the use of the mortgage in the hands of Iseman, yet they were without fraud in the transfer, and therefore this claim could not be allowed.

The appeal of the defendants raises several questions : 1. As to the competency of certain testimony, which well be considered if necessary, as we get further along. 2. That his honor erred in entertaining this action, in which parties who were not creditors of Schafer until ■ some year or more after the execution and recording of the bond and mortgage in question are attempting to impeach them for fraud. 8. In holding said papers fraudulent and void ab initio. 4. That he erred in entertaining the question of the validity of the assignment by II. Sternberger to his wife, raised by parties who were not creditors of either, and in holding that said assignment was fraudulent and void. 5. That he erred in holding that Bollmann Bros., even if the three notes mentioned have been paid, could not still continue to claim the mortgage as collateral to other debts of L. Sternberger, and in refusing to allow defendants to introduce evidence to show that such was the understanding of the parties, and in refusing to permit defendants to amend their answers so as to make such evidence competent. 6. That he erred in ordering the bond and mortgage to be delivered up and cancelled, instead of allowing L. Sternberger to claim under it, if Bollmann Bros, had lost the right to do so.

The main question in the case, and the one around which all the others cluster, is as to the validity of the bond and mortgage. This meets us at the threshold and will be first considered in connection with the subsidiary question, whether these plaintiffs being subsequent creditors with notice can impeach these instruments. We do not think, that the complaint should have been dismissed upon this latter ground. We mean to say that there is no authority for the position that a subsequent creditor with notice can, under no circumstances, assail a prior deed of his debtor. On the contrary, we think that this might be done under certain circumstances (Iley and Wife v. Niswanger, 1 McCord Ch., * 531; Henderson v. Dodd, Bail. Eq., * 139, to be more particularly referred to hereafter); and therefore that the Circuit judge was not in er.ror in refusing to dismiss the complaint solely on that ground.

The question, however, now arises, when and under what circumstances can such attack be made by a creditor occupying such a position towards his debtor? This perhaps will be better understood by considering when and under what circumstances an existing creditor or a subsequent creditor without notice can resort to equity for such purpose. Deeds and mortgages or other conveyances may be executed by one in debt without consideration and therefore voluntary, and yet be bona fide. Or they may be executed without consideration, with the view to hinder and delay creditors, by putting the property beyond the reach of creditors. Or, again, they may be executed upon a sufficient and valuable consideration and yet be not bona fide, being induced by some benefit obtained by the debtor as the price of the preference given to the special creditor.

Those of the first class are not void ab initio, but they may be avoided afterwards by existing creditors, if, after establishing their debt and exhausting their legal remedies, they find it necessary to resort to the property conveyed on the ground that all of a debtor’s property being liable for his debts he must be just before he is generous. It is a misnomer, however, to attach the term fraudulent to such a deed, as such deeds are often made upon the highest and most praiseworthy motives and as absolutely free from fraud as any deed, though based upon the most valuable consideration. But while this is so as to existing creditors, subsequent creditors with notice .can certainly have no such right. The property having passed to the donee before the creditor has become a creditor, he can have no claim upon it either in law or morals.

Those of the second class are void ab initio as to subsisting creditors with or without notice; but if there be no subsisting creditors, such a case could not arise, as the condition suggested is that the deed be voluntary and made to hinder and delay creditors, which could not take place if there were no creditors to be delayed or hindered. The same may be said as to the last class, because, if there-be no voluntary creditors, such a deed and for such purpose could not be made. There is still another principle which applies to all deeds and instruments which are required to be recorded, and this brings in subsequent creditors, the law holding such deeds, if unrecorded, void as to subsequent creditors without notice.

The case at bar does not belong to either of these classes. It does not fall under the first for the reason that the plaintiffs were not existing creditors at the time of the execution of the bond and mortgage, a fact which is not denied. It does not fall under the second or third because there were no existing creditors to be hindered or delayed, and therefore these papers could not have been executed for that purpose. Nor does it fall under the last, because the mortgage was duly recorded, and therefore the plaintiffs had legal notice.

It would seem, then, that where a deed or other instrument has been executed by one not in debt at the time and the deed is founded upon a sufficient consideration, it is invulnerable as to subsequent creditors with notice as well as to all others. Nor as a general rule can a voluntary conveyance, made under such circumstances, be avoided by subsequent creditors with notice. Lord Hardwicke said in the case of Russel v. Hammond (1 Aik., 19), “that a voluntary settlement is not fraudulent where the person making is not indebted at the time, nor will subsequent debts shake such settlement.” This court, through Nott, J., said the same in the case of Iley and Wife v. Niswanger, supra, and such no doubt is the law for obvious i-easons. Judge O’Neall, in the case of Eigleberger v. Kibler (1 Hill Ch., 121), said: “If he is a creditor at all, he is a subsequent one with notice, and as such he can have no ground upon which he can say that the gift is a fraud upon him, upon the conclusive ground that all the right of the debtor to the property has passed to his donee long anterior to the debt, and therefore that the creditor could have no ground, either legal or equitable, on which he could found a claim for relief.”

This, beyond doubt, is the established general rule, but as with most general rules there are exceptions. Lord Hardwicke, in the case of Stileman v. Ashdown (2 Atk., 481), said: “It is not necessary that a man should actually be indebted at the- time he enters into a voluntary settlement to make it fraudulent; for. if a man does it with a view to his being indebted at a future time, it is equally fraudulent and ought to be set aside.” Judge Nott, in the case of Iley and Wife v. Niswanger, supra, speaking of voluntary settlements, said: “Such a settlement or transfer, I take it, cannot be impeached by a subsequent creditor unless made with a view of future indebtedness or attended with some circumstance of fraud other than what arises from its being voluntary.” See, also, the, case of Henderson v. Dodd, Bail. Eq., * 140, to the same point. Before, then, subsequent creditors can attack a settlement or transfer of a party made when not indebted, he must show that the same was voluntary and was made with reference to future indebtedness or prove circumstances of fraud other than what arises from its being voluntary.

Now, the question arises, did the plaintiffs here bring themselves under this principle? We do not know upon what precise grounds the Circuit judge declared the mortgage in question void. He said in general terms that he had reached the conclusion that it was fraudulent, null, and void, and he ordered it on that account to be delivered up and cancelled. But whether upon the ground that it was voluntary, and had been executed with a view -to future indebtedness, or was accompanied with other insignia of fraud than such as would arise from its being voluntary merely, does not appear. Now, waiving the question whether these plaintiffs, coming in as acknowledged subsequent creditors to attack a deed of their debtor made when he was free from debt, and on that account occupying an exceptional position, should not have made charges in their complaint of a specific character warranting such an attack, we are disposed to look at the case as we now find it and to consider it as if the necessary averments were in the complaint, applying the principles laid down above. First, then, is there any sufficient evidence that the bond and mortgage were without consideration and therefore voluntary? Second, if so, were they executed by Schafer with the view' of future indebtedness? Or was their execution attended with circumstances of fraud other than what arises from their being voluntary ?

In the examination of the testimony bearing upon these questions we do not feel ourselves governed by the usual rule, when a finding of fact by the Circuit judge is brought up for review, for the reason stated above, that we are unable to determine what precise questions of fact were found by the Circuit judge, as involved in the general finding of fraud. In other words, we do not know, from the decree, whether or not his honor considered this case as one by subsequent creditors, attacking a voluntary deed of their debtor made when he was not in debt, and therefore bound to prove that the deed was voluntary, and that it was made with a view to future indebtedness, or was attended with other circumstances, showing a fraud upon such subsequent creditors; or whether he interpreted the testimony, under the principles of law applicable to a deed executed with existing creditors at the time above referred to. Had the Circuit judge found upon these questions distinctly, then the rule referred to would be applicable; but in the absence of such distinct finding, the questions are open, and we must necessarily draw our conclusions from the entire testimony as original questions. To what conclusions does this testimony lead us?

1st. Was the bond and mortgage without consideration, and therefore voluntary ? It seems to be conceded that, early in 1878, A. Schafer commenced merchandising at Little Rock, with L. Sternberger and one Wieselthier as his partners, under the firm name of A. Schafer & Co. This concern continued in business but a short time, a few months only, when L. Sternberger and Wieselthier retired, and H. Sternberger took their place. Wieselthier had put in no capital, but Schafer and L. Sternberger had invested something over $900 each. II. Sternberger bought out the share of his wife at $977.93, as he testifies, just what she put in, when the business continued under the same name until November 8, 1881,-when a notice was put up at the door of a dissolution, and the papers in question were executed, and Schafer continued thereafter in his own name. Judge Cothran has found that there was no partnership after that date.

Now, in the face of these facts, of which there is positive testimony without contradiction, can it be said that the bond and mortgage had no consideration ? Before the dissolution H. Sternberger had an interest as partner; after the dissolution A. Schafer retained possession of the entire stock, and executed the bond and mortgage, H. Sternberger having executed to him a bill of sale of his interest in the goods, &c. There is no intimation from any quarter that, before November 8, 1881, Schafer was sole owner. He was sole owner, however, immediately afterwards. How did he become so, except in the transaction referred to? For what other reason could these papers have been executed? They certainly on their face consummated a sale of H. Sternberger’s interest, if he had any, and in the absence of'all testimony showing that he had no interest, we-must conclude that there was a purchase by Schafer, which constituted the consideration of the bond and mortgage. It is true the sum agreed to be given was not clearly explained. There was some confusion as to the mode of ascertaining this amount; but whether it was too much or too little, how could parties, who were not creditors of either at the time, complain ?

These papers, then, having been founded upon a consideration, and there being no existing creditors interested, is not that an end of the case? Is there any law which allows subsequent creditors with notice, to attack, and set aside for fraud, a conveyance founded upon a consideration satisfactory to the parties, and made at a time when the grantor was free from debt ? We know of none. The ground upon which such conveyances are subject to attack, either at common law or under the statute of Elizabeth, or under the recent assignment act, is that some unlawful preference has been given to some creditor; but how can there be a preference when there are no creditors?'

Assuming, however, that we are mistaken in the conclusion that the bond and mortgage were based upon a consideration, does the testimony show that they ivere executed with a view to future indebtedness by Schafer, or was the execution attended by any other circumstance showing fraud? We do not well see how there could have been any view of future indebtedness by Schafer. The mortgage was immediately put upon record in the proper office, and the proper county. There was no evidence of any concealment. An advertisement was posted on the door of the store, that a dissolution had taken place. There is nothing whatever, in the testimony, showing that Schafer was preparing to enlarge his credit, by contracting new debts in the future. On the contrary, by the terms of the mortgage, which covered not only the stock on band but all subsequent accretions, and which, was published to the world by its record, it would rather seem that he could not have expected to buy in the future on a credit, with no property himself, except that covered by mortgage, and with a statement put upon a public record that all he might acquire afterwards would also go under this mortgage, and be first liable for its payment. If he was preparing for future indebtedness, and fixing a trap for his’ future creditors, he certainly neither screened its entrance, nor enticed them by any device to walk in; and if any have been deceived and caught,they can hardly lay the blame on the mortgage.

Were there any circumstances ’ attendant on the execution of the mortgage showing fraud? We have found nothing unusual in connection with this execution. It was properly attested, and was probated on the same day, and recorded within a few days thereafter. There was a good deal of testimony as to Schafer’s conduct about the time, and a short time before the seizure of the goods by Bollmann Bros., in reference to the house being-built on the store lot, the paints and other materials for this house; but all this was a year or more after the execution of these papers, and while they reflect upon Schafer and the Sternbergers, with reference to these matters, they have no reference to the question now under discussion. And there is some suspicion, too, growing.out of the rapid and frequent change of partnerships, transmissions of goods and books and accounts .from Darlington to Little Rock, back and forth, varied with the assignment of these important papers, first from H. Sternberger to his wife, Lizzie, and-from her to Bollmann Bros. But when all this is fully analyzed, we have not been able to find sufficient evidence upon which to say that the bond and mortgage were executed without consideration, or with the view to future indebtedness, or rvith attending circumstances shoAving fraud upon these plaintiffs, who were not then in existence as creditors. Therefore we think there was error in the finding of his honor below, that they were fraudulent and null and void.

As to the assignment of these papers by H. Sternberger to his wife, and by her to Bollmann Bros. Since Ave have reached the conclusion that the evidence is not sufficient to invalidate said original papers, as between Schafer and IT. Sternberger, we cannot see Iioav the plaintiffs, who are neither creditors of the Sternbergers nor of Bollmann Bros., can have any interest in the question. ' The creditors of IT. Sternberger existing at the time of the assignment to his Avife, if any, might be interested, but how the creditors of Schafer could call in question the transaction is not apparent.

Nor, in that view, does it make any difference Avhether the notes of Lizzie Sternberger given to Bollmann Bros., and which were secured by her assignment of the bond and mortgage as collateral, had been paid by her funds, or the funds of Bollmann Bros.; because, Avhether paid by the one or the other, the mortgage Avould still exist. Nor can the plaintiffs complain that Bollmann Bros, have attempted to enforce it. They are in possession, and whether thus in possession as a security for the money which they claim to have paid to Pelzer, Rodgers & Co. on the notes, or as security for the accounts against Lizzie Sternberger on their books, might be a question for Lizzie Sternberger, but she is before the court and does not deny, the right of Bollmann Bros.

The Circuit judge found that there Avas no partnership existing between any of these parties after November 8, 1881. This finding has not been appealed from by the plaintiffs; therefore the question urged in argument, that the claims of plaintiffs should be established against Schafer, H. Sternberger, and Lizzie Sternberger, is not before us. Nor can the more serious question, whether under the terms of the mortgage Schafer was not in possession simply as agent of H. Sternberger, and therefore all debts contracted by him in filling up the store were Sternberger’s debts, be properly considered by us.

The plaintiffs taking the other view that these debts were Schafer’s debts, and that the property embraced in the mortgage was Schafer’s property, harm sought to brush aside the mortgage and to enforce their claims established against Schafer through the property which they claim to be his; and it is too late now in this proceeding to change front and make a new attack.

If there was any undue haste, or any suspicious delay on the part of Bollmann Bros, in seizing the property, or any purpose to.sacrifice it at an inauspicious sale so as not to reach beyond the mortgage to plaintiffs’ claims, such object has been met and thwarted by the order of the Circuit Court putting the property in the hands of an officer of the court and ordering the sale to be made by him. This, under the circumstances, seems to have been proper, and should not now be disturbed. The proceeds of sale are now in the hands of the court, and should be paid out— first, in satisfaction of the mortgage; and then, if any over, to be distributed pro rata amongst the plaintiffs and such other creditors of A. Schafer as may present and prove their demands under the reference ordered. And to this end the judgment below in conflict with this should be reversed.

It is not necessary to discuss the question as to the competency of certain testimony admitted by the Circuit judge or any other than those already passed upon.

It is the judgment of this court that the judgment below be reversed, except as to the reference ordered, and that the case be remanded to be carried out in accordance with the opinion herein above.

Mr. Justice McIver concurred,