Werner v. Zierfuss

Opinion by

Mr. Justice Mitchell,

It was said by Chief Justice Black in Covanhovan v. Hart, 21 Pa. 495, the leading case in this state on conveyances in fraud of creditors, that “ 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 commits a gross fraud,” and if the purchaser knowing his object assists in it, “ his title is worthless against the creditors although he may have paid a full price.” In such case the intent to cheat, common to both parties, enters into the whole transaction and makes it fraudulent from the beginning.

But, as the Chief Justice continues, “ The rule is different when property is taken for a debt. One creditor of a failing debtor is not bound to take care of another. It cannot be said that one is defrauded by the payment of another. In such cases if the assets are not large enough to pay all, somebody must suffer. It is a race in which it is impossible for every one to be foremost. He who has the advantage, whether he gets it by the preference of the debtor, or by his own superior vigilance, is entitled to what he wins, provided he takes no more than his honest due.”

To the same effect are Uhler v. Maulfair, 23 Pa. 481; York Co. Bank v. Carter, 38 Pa. 446; Walker v. Marine Bank, 98 Pa. 574, and Lake Shore Banking Co. v. Fuller, 110 Pa. 156; and it may be considered as the established result of our cases that if a creditor takes a judgment, or conveyance, or payment in any form, to secure an actual debt, the transaction will be valid against other creditors, although he knew (1) that the effect would be to postpone the others; (2) that the debtor intended it to have that effect; and (3) although he took it to aid that intent as well as to protect himself. The criterion is not the effect but the fraudulent intent. Without that the transaction cannot be impeached.

A corollary of the foregoing rule is that where there is an actual debt, the jury cannot be permitted to infer a fraudulent intent from the mere fact of payment or preference given to it. Quoting again from Covanhovan v. Hart, “ the judge said in his charge that little room is left to attribute fraudulent motives when a debt is actually due from the vendor nearly equal to the value of the property. He should have said there is no room at all. We are not permitted to assign a bad motive to an act which is not wrong in itself or in its necessary consequences.” So in York Co. Bank v. Carter, supra, it is said by Strong, J.: “A jury is not at liberty to deduce fraud from that which the law pronounces honest.” See also Bear’s Est., 60 Pa. 430, 436.

It would seem to follow necessarily from the foregoing, that where there is payment of an actual debt there can be no question of fraud in fact for the jury without additional evidence of something which may be considered, either in itself or in its connection with the circumstances, a badge of fraud. What evidence will be sufficient for that purpose will of course depend on the circumstances of each case. It may be of excess in amount in a judgment, of inadequate price in a conveyance, of reservation of advantage to the grantor as in Bentz v. Rockey, 69 Pa. 71, or of giving the debtor a weapon to force other creditors to a compromise, as in Bunn v. Ahl, 29 Pa. 387, or the more common case of delajdng or hindering them altogether. The forms and devices of fraud are legion, and it would be vain to attempt to enumerate or define them, but it may be said as a general rule, that to impeach the payment or securing of an actual debt there should be evidence tending to show either, first, some other advantage or benefit to the debtor beyond the discharge of his obligation; or, secondly, some other benefit to the creditor, beyond mere payment of his debt; or lastly some injury to the other creditors beyond mere postponement to the debt preferred.

Turning now to the case in hand, in the light of these principles, we find that an important if not the principal question was whether there was any bona fide debt of Gross to Zierfuss, or, if any at all, whether it was not very much less than the amount of the judgment. This was submitted to the jury in terms which are not complained of, but the appellant argues strenuously that the judge applied the rule which obtains when the judgment or conveyance is contemporaneous with the payment of the consideration, to the case of a pre-existing bona fide debt, and allowed the jury to find a fraudulent intent from the legal act and its necessary effect. Whether the charge is justly open to this criticism depends on the evidence. The rule given to the jury which is complained of is expressed most tersely in the third assignment of error: “ Even though there may have been an honest indebtedness for cash advanced by Zierfuss yet if at the time he took this judgment he took it for the purpose of assisting Gross to defraud or hinder his other creditors, it was a fraudulent judgment and would be void.” This was followed immediately by calling the jury’s special attention to the distinction between the intent to hinder, and the necessary effect of a preferred payment. The effect, said the learned judge, “ would be of course to hinder any other creditors and prevent their getting their money, but I would have the right to do that, and you would have the right to take the judgment; but where a judgment is confessed not for the purpose of protecting me, but where the intention is to defeat the other creditors and not for the protection of my debt, there the judgment would.be void.” This is the language of all our cases. None of them afford any basis for the.contention that payment of an actual debt closes inquiry into the fraudulent intent of such payment, but only that such intent cannot be found without additional evidence. Bunn v. Ahl, 29 Pa. 387, was decided on this exact point. Was there sufficient evidence-here to justify the submission to the jury ? As already said the main contention was that there was no bona fide debt,, or one much less than the judgment. It was admitted that the judgment was for more than was actually due, the surplus being claimed to be represented by a contingent liability as surety, though it was not clear that this was in such form-as to be binding in law. The facts therefore had to go to the-jury. The plaintiff’s theory was that Zierfuss had loaned Gross a small amount, just sufficient to enable him to get an initial credit on which to buy goods ; that even this small amount had been repaid, but the appearance of debt kept open to meet the-contingency which finally happened. There was evidence that Zierfuss was frequently at the store, and kept the run of Gross’s-business, making his bank deposits, etc., that he knew Gross was misrepresenting his assets and his debts, one witness testifying to Zierfuss’s presence when Gross made a false statement to two creditors who were urgent, both as to his debts and as-to his not giving judgments to any one; and that Zierfuss’s judgment was transferred to his wife, and entered up with knowledge of the fact that plaintiffs were consulting counsel with a view to proceeding against Gross. These facts, while not perhaps of much weight singly, went to show that the relations of Zierfuss and Gross were very close, and their transactions proper for investigation. We cannot say that they were not sufficient to justify the court in putting the whole law on the subject before the jury. Whether the verdict was in accordance with the weight of the evidence is not for us to determine.

The appellant is in no better position than her husband. If he was her agent in procuring the judgment she would be bound by his acts in such matter, and if she took it partly as a gift and partly for an antecedent debt she would still take it cum on ere.

The point refused in the sixth assignment of errors was bad, as it assumed facts which were in dispute. It was not admitted that the Werners had accepted the notes offered them by Gross.

The trial was upon a feigned issue directed by the court to try the validity of Zierfuss’s judgment. No question of the right of the parties, under the case of Artman v. Giles, 155 Pa. 409, to raise that issue, appears upon the record.

Judgment affirmed.