Lehman, Durr & Co. v. Kelly & Bro. , 68 Ala. 192 ( 1880 )

STONE, J.

In Crawford v. Kirksey (55 Ala. 282, 293), speaking of sales upon a new consideration, and not in payment of a debt, we, after mature consideration, announced the following proposition : “If the seller be insolvent, or in failing circumstances, and. the purchaser knows, or is in pos-sesion .of information reasonably calculated to stimulate inquiry, and which, if followed up, would lead to the discovery that the purpose of the seller is to put his property beyond reach, or otherwise to delay, hinder or defraud his creditors; then, a purchase under these circumstances, though Ml consideration is paid, is invalid as against creditors. But, if the purchase be made without such knowledge, and without such information as reasonably to put him on inquiry, he acquires a good title, no matter how fraudulent the intent of the seller.”

In Covanhovan v. Hart (21 Penn. St. 495), C. J. Black declared the principle in the following language : “If a debtor, with the purpose to cheat his creditors, converts his land into money, because money is more easily shuffled out of sight than land, he, of course, commits a gross fraud. If . his object in making the sale is known to the purchaser, and he, nevertheless, aids and assists in executing it, his title is worthless as against creditors, though he may have paid a full price.”

In Hopkins v. Langton (30 Wisc. 379), a case of alleged sale of goods to defraud creditors, the judge below, in instructing the jury, had said: “I mean, you should not charge the plaintiffs with notice of the fraudulent intent of the Red River Company, so as to avoid the sale, unless they had before them, at the time these goods vrere purchased, good and substantial evidence of it, such as sends conviction home to the mind, and establishes a well-founded belief — nothing short of this would be sufficient to charge them with knowledge, so as to defeat their recovery in this action.” The revising court said: “This instruction * * must be regarded as a modification of all the others, and was, in substance, informing the jury that, to charge the plaintiffs with notice of thefraud-ulent intent of their vendors, or to put them upon inquiry which, if omitted, was equivalent to notice, the plaintiffs must have had, at the time of the purchase, actual knowledge of the fraudulent intent, Or such evidence of it before them, as would have been sufficient to establish the fact in a court of •justice. A proposition so wide from the true rule of law governing in such case, requires no argument to elucidate it.” That court, in the same case, had previously said, it was sufficient, if the proof showed “knowledge by the vendee of the fraudulent intent, or the existence within his knowledge of other facts and circumstances, naturally and justly calculated to awaken suspicion of it in the mind of a man of ordinary care and prudence ; thus making it his duty to pause and inquire, and a wrong on his part not to do so, before consummating the purchase.”

It will be seen that, under these authorities, a sale, such as we are considering, is fraudulent and inoperative, if intended by an insolvent seller to delay, hinder, or defraud his creditors, and that intent be known to the purchaser, or if he be in possession of information reasonably calculated to stimulate inquiry, and which, if followed up, would lead to a discovery of the seller’s fraudulent purpose. The underlying morals, on which this sound principle of law rests, are, that it is the legal duty of every debtor to keep his property open to the claims of his creditors, and to make no effort to secrete it, or to sell it, otherwise than for the honest purpose of paying his debts, or some of his debts. If he secrete his property, or if he sell it with the intent or purpose of delaying, hindering, or defrauding his creditors — either one of the three purposes stamps his conduct as fraudulent, even if he sell for the full value; and the purchaser, although paying full value, acquires no valid title against the vendor’s creditors, if he aid him in consummating the fraud. He renders sufficient aid to invalidate his purchase, when he knows the seller’s fraudulent intention in making the sale, or has knowledge of facts and circumstances, naturally and justly calculated to awaken suspicion in the mind of a man of ordinary care and prudence, of the fraudulent intent of the seller. The cases of Brown v. Force (7 B. Monroe, 357), and Brown v. Smith (lb. 361), can not be followed. Neither is the language of Mr. Bump on this question—Chap. 8, paragraph 2—sufficiently accurate to be made a test or guide.

In Borland v. Mayo (8 Ala. 104, 114-5), is this language : “If a debtor, in failing circumstances, makes a transfer of his property to a third person, which is intended, both by the vendor and vendee, to prevent what they considered a sacrifice by sale under execution, and thus enable the vendor afterwards to give a preference to his own proper creditors, over those to whom he was liable as a surety, such transaction is a fraud upon the creditors who are hindered or delayed in the collection of their demands. There can be no question that an assignment, made under such circumstance, is inoperative.” This court, arguendo, added: “If the vendor had reserved to himself, by a stipulation on the face of the deed, the right to direct the appropriation of the money, such stipulation would have been void against judgment creditors ; and the legal conclusion must be the same, although the deed is silent upon the subject, if the sale is the result of a fraudulent combination between a failing debtor and a third person, to defeat the creditors of the former.” There is evidently a verbal inaccuracy in the above. The context proves it. Where it is said, “such stipulation would have been void,” the language, to convey the idea intended, should have been, ‘such stipulation would have rendered the conveyance void.’

There can be no doubt that this is a correct principle. If a debtor, either insolvent, or in failing circumstances, sell his property — particularly, if he sell it on credit — having at the time the purpose or intention of giving a preference in the subsequent use of the proceeds, as he might.elect; and if his insolvency and intentionally reserved election be known to the buyer, or if the buyer have such information as to put him on inquiry, which, if followed up, would lead to the discovery of such intention, this would both delay and hinder the creditors not preferred; and the purchaser, as against such creditors, would acquire no valid title, even though he promised and paid full value for the property. Such loss is visited on the purchaser who thus buys, by reason of the fraud he has enabled the seller to perpetrate; enabled, by purchasing his property, with knowledge, actual or constructive, of .the seller’s fraudulent purpose. But, if the purchaser buy in good faith, pay a fair and reasonable price, without knowledge, or such information awakening suspicion, as, if followed up, would lead to knowledge of the seller’s fraudulent purpose; then such sale would be valid, no matter how fraudulent the seller’s purposes may be. And this is right, alike in morals and in law. It protects the purchaser, who innocently pays his money for another’s goods, in ignorance of the seller’s wicked purpose to delay, hinder, or defraud his creditors. It visits deserved punishment upon him, if, knowing the fraudulent purpose of his vendor, he aids him by becoming the purchaser of his goods. In the one case, he acts in good faith, and must be protected. In the other, he acts in bad faith and bad neighborhood, by enabling the seller to defraud his creditors; and the law extends him no mercy.

Applying the principles stated above to the rulings in the present case, we will first consider the charges given at the request of the .claimants. Charge No. 1 was erroneous. The sale — two-thirds of it — was on time. This necessarily had the effect to delay creditors. The charge ignores this, and, in effect, instructs the jury, that notwithstanding Wechsler’s intent was to delay his creditors, yet, “if he made the sale to prevent a sacrifice of his property by a sheriff’s sale under execution, and his intent in selling to Kelly Brothers was.to get the value of the property for the purpose of paying it to his creditors, then the sale was valid, although Kelly & Brother knew his intent.” The hypothesis of this charge, as we interpret it, is, that although Wechsler, in making the sale, had the intent to delay his creditors until the maturity of the purchase-money obligations, and to hinder them in procuring a sale under legal process, and although Kelly & Brother knew this was his intent; yet, if his purpose was to pay the proceeds of the sale to his creditors, the sale was valid. Such is not the law. Shall not delay, hinder, or defraud — either of the three — is the language of the statute. Code of 1876, § 2124. This charge is, also, subject to criticism in this ; that it allows to an insolvent vendor an undefined discretion, or caprice, in the future direction of the proceeds of his goods, even when sold for the purpose of raising a fund to apply to his debts.—Borland v. Mayo, supra.

Charge No. 3 is objectionable, for the same reason. No. 5 is erroneous. No. 7 is faulty, because it requires too much. If the intent be to defraud one or more creditors, that is enough. It is not necessary that the fraudulent intent should embrace his creditors generally, or all his creditors. If Wechsler’s intention, in making the sale, was to delay, hinder, or defraud his creditors, or some of them, and if the proof charges Kelly & Brother with knowledge of that intent; then, the fact that the sale was open and notorious, and for a fair and full price, should exert no influence in the determi-_nation of the cause.

The court erred in giving charge B. This is not of the class of cases, to which the principle invoked applies. If the testimony tended to show that Kelly & Brother purchased, or pretendedlo purchase, that they might hold in secret trust for Wechsler, then openness and notoriety, and full price paid, would be circumstances the jury should weigh, in determining whether or not there was a secret trust.

Charges D and E are substantially correct. Bo is charge 4, as given at the instance of claimants. If they were calculated to mislead, that was a subject for an explanatory charge. Charge 6 is not assigned as error, and we will not consider it.

The 3d charge asked by plaintiffs is objectionable in form, and was calculated to confuse the jury. The hypothesis is based, partly, on facts to .be found, and partly on declarations alleged to have been made by and to the claimants. Moreover, it pretermits all mention of some facts the testimony tends to prove. The facts supposed are each of an indeterminate character, though, each and all, if true, tended to excite suspicion, if, by any fact or facts, or circumstances, out of the usual routine, claimants were reasonably informed, or their suspicions aroused, that the purpose of Wechsler was to prevent Ms goods from being sold by the sheriff, he being in failing circumstances, and that for this purpose he was selling them on credit, that he might realize a better price, and leave him free to appropriate the proceeds as he might afterwards determine; then, if such in fact was Wechsler’s intent, Kelly & Brother would not acquire a good title by their purchase. Pacts, not documentary, or of record, but simply in pais, will not justify a stronger statement of the rule.

Charge No. 5, asked by plaintiffs, would be correct, if it did not contain the word “ dearly,” in defining the measure of proof, necessary to a proper separation of the goods. This is a civil action ; and all that is necessary to establish any proposition for plaintiffs or claimants, is reasonable conviction. On the hypothesis of this charge, the duty would be cast on the claimants of furnishing the means of separating goods clearly theirs, from those sought to be made subject to Wechsler’s debt. A charge, thus framed, would be free from error.—Bond v. Ward, 7 Mass. 123; Shumway v. Rutter, 8 Pick. 443; Taylor v. Jones, 42 N. H. 25.

The question put to Wechsler on cross-examination, and ruled out, was permissible. It tended to show the conduct and purpose of the seller. It would not affect Kelly & Brother, unless brought to their knowledge before they purchased.

The court should have suppressed that part of the answer of claimants to the 3d interrogatory, which is in the following language: “ Said agent expressed himself well satisfied

with the offer and conduct of said Wechsler.” It was not responsive to; nor explanatory of any part of the interrogatories propounded.

Reversed and remanded.