California Consolidated Mining Co. v. Manley

AILSHIE, J. — This action was commenced in the district court to enjoin the defendant sheriff from selling at éxecution sale a thirteen-sixteenths interest in the California lode claim. In the year 1893, the Coeur d’Alene Bank became insolvent, and at the instance of Yan B. DeLashmutt and George B. McAulay, a receiver was appointed to take charge of the property and effects of the insolvent bank. At the time the bank went into the hands of the receiver, McAulay and DeLashmutt were indebted to the institution in the sum of $46,523.67 on overdrafts. This indebtedness from McAulay and DeLashmutt was never paid, and in the' meanwhile both debtors left the state. In 1900, the receiver commenced an action and attached a thirteen-sixteenths interest in the California lode claim, which was then owned by McAulay. Service of summons was had by publication, and on March 12, 1901, a judgment was entered for something over $51,000. On the twenty-fourth day of June, 1901, the receiver procured an order from the district judge authorizing him to enter into a contract for the release of his judgment lien against the California lode claim for the sum of $6,000, and such other conditions and terms as to assessment work, and the care and protection of the property as the receiver might see fit to impose, and in pursuance of such order,' and on the same day, the receiver entered into an agreement with J. P. Keane whereby Keane obtained an option to purchase the — 794 — judgment lien for the sum of $6,000 within six months and cause the annual assessment work to be done prior to the 1st of September following, and also to proceed with due diligence to secure a patent for the claim. Thereafter, and on the fifth day of July following, Keane secured a deed from McAulay to all of McAulay’s interest in the California lode claim. This deed recites the consideration as being: “The sum of one dollar ■and other good and valuable consideration, gold coin of the United States.” On the 26th of September following, Keane proceeded in the name of the defendants, McAulay and DeLash-mutt, and appearing specially in the district court, moved to dissolve the attachment and vacate the judgment previously entered in the ease of the receiver against McAulay and De-Lashmutton the ground that the affidavit for attachment was defective and that the attachment was invalid and void, and that the service having been made by publication, no personal judgment could be entered against the defendants. That motion was sustained by the trial court and the receiver prosecuted .an appeal, and the judgment of the lower court was affirmed in Kerns v. McAulay, 8 Idaho, 558, 69 Pac. 539. The receiver thereafter commenced a new action against McAulay and De-Lashmutt in the district court for Shoshone.county, and secured a writ of attachment and caused the same to be levied upon the thirteen-sixteenths interest in the California lode claim, standing on the records in the name of Joseph P. Keane. Such proceedings were thereafter had that on the first day of June, 1903, a judgment was entered in favor of the receiver and against the •defendants for the sum of $58,950.76. On this judgment execution was issued and placed in the hands of the sheriff, directing him to sell the attached property, and he thereupon proceeded and gave notice that on the twenty-ninth day of .June, 1903, he would sell the thirteen-sixteenths interest of the ■California lode claim, standing on the records in the name of Keane, to satisfy such judgment. On the twenty-fifth day of .June, and four days prior to the date on which the sale was -to be made, Keane executed a deed for such property to the California Consolidated Mining Company, a corporation, for a .consideration stated in the deed to be two hundred and sixty-six — 795 — thousand six hundred and sixty-six and two-third shares of the capital stock of the corporation. The deed was acknowledged before Albert H. Featherstone, Keane’s attorney, and one of 'the directors of the California Consolidated Mining Company. The deed was recorded on June 26th, and on the same date this action was commenced against the sheriff to restrain and enjoin the execution sale. On order of the court the receiver was made a party defendant, and he answered setting up the history of the transaction and alleging that the transfers from McAulay to Keane and from Keane to the Consolidated Mining Company were fraudulent transfers made for the purpose of hindering and delaying McAulajf’s creditors, and especially the receiver of the Coeur d’Alene Bank. The case went to trial before the court, and he found for the plaintiff and entered his judgment perpetually enjoining and restraining the sale of the property on execution, from which judgment the defendants appealed within sixty days and bring the case here on a statement and bill of exceptions. The contention of the appellants is that these several transfers and transactions between McAulay, Keane and the Consolidated Mining .Company were fraudulent and void as to Mc-Aulay’s creditors. There is practically no conflict in the evidence in this case. The real controversy is as to what conclusion should be drawn from the facts and circumstances shown in the case. McAulay was largely indebted — $58,000—to the receiver of the Coeur d’Alene Bank, and was not meeting these obligations; was trying to purchase through his apparent agent, Keane, obligations held against him at from twenty to forty per cent of the face value thereof; had no tangible property within the state of Idaho, except his interest in the California lode claim; left the state and avoided the service of process, and accordingly prevented the entry of a personal judgment against him in the state of Idaho; allowed the attachment proceeding against the California lode claim to go by default and a judgment in rem to be entered for exceeding $58,000, and took no steps to pay the same, but allowed execution to be issued thereon. These things were all personally known to Keane, who in the — 796 — meanwhile secures a contract whereby he acquires the right to purchase the judgment lien for the sum of $6,000, and then turns around and secures a deed from McAulay to the same property, reciting a consideration of $1 “and other good and valuable consideration,” and in the face of this state' of facts claims that he is an innocent purchaser for a valuable consideration. No attempt was made by the plaintiff to show what the “other good and valuable consideration” was. The recital of the money consideration of $1 explains itself, but the further recital as to “other good and valuable consideration” means nothing, and would be given no weight in the absence of evidence explaining the nature and character of that consideration. It is peculiar that Keane would have on June 24th considered the property worth his paying $6,000 for the release of the receiver’s judgment lien, and in ten daj^s thereafter would consider $1 an adequate consideration for the property, if it was not in fact agreed between him and,t the vendor that either the payment of this judgment should be a part of the purchase price for the property, or else it was their joint purpose to defeat the payment of this claim entirely. Belief in either of these conclusions would be fatal to the plaintiff’s right of recovery, but it would be much the more charitable view to say that the payment and discharge of this judgment lien was really intended to be a part of the consideration for the execution of the deed from McAulay to Keane. On this point we have the 'evidence of Keane himself as follows: “On about August 22, 1902, I made an agreement with Mr. McAulay that if I ever made anything out of the California, I would take up the outstanding claims and settle them against the bank for twenty cents on the dollar. And since then I have advertised for and purchased several claims under that agreement even though I have not made anything out of the California up to this date. Q. Well, are 3ou doing this as a matter of charity to Mr. McAulay? A. No; Mr. McAulay said when he transferred the California to me that part of the consideration was that I would pay up those claims. I told him that if he so understood it, that if I ever made anything out of the California over and above what it really cost me at that — 797 — time, I would so settle them up, and I have published advertisements in the ‘Wallace Press’ to take them up. Q. Why don’t you file them .with the receiver ? A. I can’t answer that question as I would like to. That’s the only answer I can give. Q. Then, as a matter of fact, you have been acting for Me-Aulay? A. No, sir.” It is contended by the respondent that the evidence fails to show that MeAulay was insolvent at the time he made the transfer of this property to Keane. We think, however, that the presumption to that effect raised by the record is so strong that such a conclusion could not be avoided in the absence of evidence showing to the contrary. A man is legally insolvent when he becomes unable to pay his debts as they mature in the ordinary course of the business in which he is engaged. (Cases cited in 16 Am. & Eng. Ency. of Law, 2d ed., p. 636, note 2.) If he is able to pay them, but will not do so,'and his creditors cannot discover the property out of which to make the claims, the creditors and the courts have a right to proceed against him under the rules of equity applicable to insolvents, and he who would refute the presumption thus raised against him should be required to produce the evidence which is easily within his reach. That he was not paying his debts as they became due is evident, and that he had no property other than the California lode claim in the state of Idaho out of which collections could be made, is conceded. There is injected into this record some rumor that at about the time of this transaction MeAulay was reported to have made a large sum of money out of some mining speculation in British Columbia, but the plaintiff did not attempt to prove any such fact. It is true that Keane at one place in his testimony said MeAulay was solvent, but that is a mere conclusion, and without the facts on which it was based could have but little weight as evidence. We think, however, that in a case like this, where the transaction has taken place within this state, and the obligations and liabilities have arisen in this jurisdiction, and the creditor is seeking to enforce the obligation under the laws of this jurisdiction, and he establishes the inability of the debtor to respond so far as his property or assets within the state are concerned, that he has — 798 — then succeeded in establishing at least a prima facie case of insolvency. A creditor cannot be compelled to exhaust the remedies of foreign jurisdictions and incur the risk’ of there meeting the pleas of statutes of limitations and other perhaps more-burdensome and exacting remedies before he can be said to-have established the fact of his debtor’s insolvency. Under the facts in this case it is clear to our minds that: Keane was not an innocent purchaser of this property in good faith, and for a- valuable consideration, unless it be that the-balanee of the consideration to be paid for the property was-to be the payment of this judgment, and in that event he has-not paid the consideration, and should not be allowed to enjoin, its collection. The plaintiff, the California Consolidated Mining Company,, a corporation, is only another name for Keane, so far as this-transaction was concerned. He was the promoter, principal in-corporator, manager and resident director of the company, and notice to him was notice to his alter ego, the corporation. Aside-from all this there was no delivery of the deed to the corporation,, prior to the commencement of this action. Keane executed the-deed and caused his attorney, who was also a director of the-corporation, to have it recorded, but no other officer had any-knowledge of the transfer, and no action of the corporation! was taken in the matter,' either as to the transfer or the commencement of this action. In fact, it appears that the shares-of stock recited' as the consideration for this deed have never been delivered to Keane, but were held in escrow pending his-clearing the title to the California Lode. With reference to his-connection with this company he testifies: “I was one of the incorporators of the California Consolidated Mining Company; I have been acting as manager of the company since its organization; a resident director; at the immediate time I deeded that thirteen-sixteenths interest to the corporation plaintiff, I did not consult with the president of the corporation in regard to that deed. I made the deed to> the corporation voluntarily, and no stock was delivered or issued to me at the immediate moment; as soon as the deed was recorded it was forwarded to the president of the corporation; — 799 — the deed was forwarded to James Viles, room 809, 150 La Salle St., Chicago, Illinois. I have no knowledge of any action by the board of directors of the company to institute this suit, or authorizing the issuance to me of any stock. If the board had taken any such action I should know. The only officer of the company I consulted was Mr. Featherstone. Mr. Featli-erstone is my attorney and also a director in the company; the board of directors is composed of five members; Mr. Viles is president, and was at the time the suit was brought. I wrote to Mr. Viles as soon as I had brought the suit. I did not ask of him any authority to bring the suit. The California Consolidated Mining Company has had no other managing officer in this county, except myself since its organization; authority was given me as manager to look after the entire interests of the company. I do not remember positively that there is a record of any authority.” Keane has been the chief actor and moving spirit in all the steps taken by McAulay and the California Consolidated Mining Company, looking to the transfer of this California Lode. He seems to have been, if not in fact the agent, the confidential of McAulay, and Kerns testified that when he would write to McAulay about any of the claims of the insolvent bank against him, that the answers to his letters would come from Keane. This was very strong evidence that a close and confidential relation existed between these two men. With all of these relations established and attended with the foregoing circumstances, and many things which have not been recited herein, considered in connection with the result which would be accomplished by means of these transactions, if a court should hold them reasonable and fair, we cannot avoid the conclusion that the plaintiff has no standing in this case in a court of equity. It is claimed that as a matter of fact no fraudulent intent has been shown in this case, but we think it has clearly been done in contemplation of law. It is generally impossible to ascertain'the actual intent that was in the mind of the debtor when he transferred his property, and courts of equity do not undertake to ascertain that intent. It is rather the inference of intent which the law — 800 — draws from the acts of the debtor viewed in the light of circumstances and conditions under which he acted, and the result accomplished by those acts. In other words, it is the motive which the law imputes to him irrespective of his actual intent. (Potter v. McDowell, 31 Mo. 62; Belford v. Crane, 16 N. J. Eq. 265, 84 Am. Dec. 155; Cole v. Tyler, 65 N. Y. 73; Hunters v. Waite, 3 Gratt. 32; Patten v. Casey, 57 Mo. 118; 2 Bigelow on Fraud, 376 et seq.) A conveyance for a mere nominal consideration as this appears to have been from McAulay to Keane should be subjected to the same rules applicable to voluntary transfers. (Worthington v. Bullitt, 6 Md. 198; note to Hagerman v. Buchanan, 14 Am. St. Rep. 739.) Respondent argues that appellants have no standing in court on the allegations of fraudulent transfers as contained in the cross-complaint, for the reason that they did not make the grantors, McAulay and Keane, parties and 'bring them into the case.. There is some apparent conflict among the authorities as to whether a fraudulent grantor is a necessary party to an action by a creditor to set aside such conveyance, but the better reason seems to be in favor of the position that while he may be a proper party, he is not a necessary party. (Potter v. Phillips, 44 Iowa, 353; Coffey v. Norwood, 81 Ala. 512, 8 South. 199; Blanc v. Paymaster Min. Co., 95 Cal. 537, 29 Am. St. Rep. 149, 30 Pac. 765.) In the last case cited a demurrer was interposed on the ground of defect in the parties defendant, in that the grantors were not made parties, and the supreme court held that they were not necessary parties, and that the demurrer was properly overruled. We are satisfied that the point is not well taken in this ease. Besides, the plaintiff could have secured an order from the court bringing these parties into the case, if for any reason plaintiff had desired them to join issue in the case, or be bound by the judgment. The judgment in this case must be reversed, and it is so ordered, and the perpetual injunction is dissolved and the cause is remanded, with directions to the trial court to make findings — 801 — and enter judgment in accordance with the views herein expressed. Costs awarded to appellant. (June 6, 1905.) Stoekslager, C. J., and Sullivan, J., concur.