Warner Glove Co. v. Jennings

F. B. Hall, J. Henry E. Haskell, being insolvent and having been threatened with suits by his creditors, sold his entire stock of goods for cash and placed $500 of the avails of the sale in the hands of the defendant. At the time of the sale Haskell was indebted to his merchandise creditors in about the sum of $2,350 ; to relatives and friends, for money loaned, in about $3,150 ; and was liable as joint maker with his wife, upon a note of $600, fully secured by mortgage upon his wife’s property; which note and mortgage were owned by the defendant. Said sum of $500 was placed in the defendant’s hands under the following circumstances and agreement:—Haskell was to place in the defendant’s hands twenty-three per cent, of the sum due his merchandise creditors ; the defendant was to send to these creditors a statement of Haskell’s affairs, offering them twenty-three per cent, in full of their claims; to pay that percentage to such of them as would accept the same in full; to pay therefrom his own fees and disbursements, and to apply the balance, if any remained, upon said note of $600. Haskell was to personally settle with the creditors whose claims were for money loaned. Under this agreement the defendant received the $500 and deposited it in the bank with his own funds. On the 6th of February, 1888, the defendant sent to the plaintiffs, and to Haskell’s other merchandise creditors, a statement of all Haskell’s debts (excepting said note due the defendant), amounting to $5,500, and of his assets, described in the statement as “ about $1,300 cash on hand now in his” (Haskell’s) “ possession.” Accompanying each statement was a letter signed by the defendant, as attorney at law, stating that Haskell had placed in his hands the money to pay twenty-three per cent, of his debts, as shown by the statement, asking each creditor if he would accept twenty-three per cent, in full of his claim, stating that, if he would, the writer would send him a check for that amount, and that — 81 — if he would not, insolvency would follow, which meant nothing for the creditors. Acting upon the information thus gained, the plaintiffs, on the 21st of March, 1888, commenced suit against Haskell, and garnisheed the defendant, who then disclosed to the officer that he was not indebted and had no funds of Haskell in his hands. At the time of the service of the copy, twelve of the merchandise creditors had accepted the compromise offer, and the defendant had paid them by his check $256.09. The others had refused to accept the offer. Upon these facts the plaintiffs, in the action of scire facias based on the factorizing process, claim— First, that the agreement or arrangement between Haskell and the defendant was fraudulent, and that therefore, at the time of the service of the copy in foreign attachment, the entire $500 was subject to attachment in the defendant’s hands. Second, that if not chargeable with the'entire $500, the defendant should be held to have been indebted at that time to the amount of the sum remaining in his hands, that is, to the amount of the difference between $500 and $256.09 already paid by the defendant to the assenting creditors. Third, that by reason of the statements in the letter of February 6th, the defendant is estopped from denying that $1,300 was in fact placed in his hands by Haskell. The Court of Common Pleas sustained the first of these claims, and rendered judgment for the plaintiffs for $280.14 and costs. Whether the transaction in question was fraudulent is upon the finding of the court a question of law. Having fully set forth the facts the language of the finding is—“ I find that the arrangement was calculated to, and did in fact, delay the plaintiffs and other non-assenting creditors, and was calculated to place Haskell’s property beyond their reach and to defraud them.” This must be regarded as a legal conclusion upon the facts found, and not a finding of actual fraud from the proof presented to the court. The facts forming — 82 — the alleged fraudulent transaction having been fully stated, and no corrupt motive, no fraudulent purpose, having been found, the inquiry whether the transaction itself was fraudulent becomes one of law. Beers v. Botsford, 13 Conn., 153; Pettibone v. Stevens, 15 id., 25. “ This is not,” said Williams, C. J., in the case last cited, “ a question of actual fraud, but whether the transaction is not one of the kind calculated to delay, hinder or defraud creditors;” that is, calculated in law to so delay, hinder and defraud creditors. The Court of Common Pleas having failed to find that the arrangement in question was entered into with the object or purpose of placing Haskell’s property beyond the reach of his creditors, or of in any manner delaying or defrauding them, this court cannot presume such fraudulent design, but must, upon the facts found, treat the arrangement as a business transaction entered into b} the parties in good faith. Weeden v. Hawes, 10 Conn., 54; Sisson v. Roath, 30 id., 16. Assuming then that there was no actual fraud, no inten- . tion to cheat the creditors of Haskell, is the transaction fraudulent in law ? It is true that by the arrangement Haskell intended to prefer the assenting over the non-assenting creditors to the extent of twenty-three per cent, of their claims, and to prefer the defendant by paying to him the shares of the non-assenting creditors, and that the effect would be, at least after the assenting creditors had been paid by the defendant, and he had appropriated the shares of those refusing, to place the funds of Haskell beyond the reach of his creditors, and to hinder them in the collection of their claims. But a debtor on the eve of insolvency may prefer one or more of his creditors by payment of their claims, either in money or by the transfer to them of property, if such payment is made in good faith. In the absence of proceedings under the insolvent law, neither the knowledge of the creditor of his debtor’s insolvency, nor the fact that such acts are calculated to place the property of the debtor beyond the reach of his creditors and hinder them in the collection of their claims, will of themselves render such bond fide trans — 83 — actions void or fraudulent in law. Meade v. Smith, 16 Conn., 358; Kirtland v. Snow, 20 id., 27. To quote the language of this court in Kirtland v. Snow— “ There is no more objection to a creditor’s purchasing his debtor’s property and applying it in payment, than there is to securing himself by legal process. The fact therefore that the effect of this transaction was to put the property beyond the reach of other creditors is of itself of no importance.” Were the plaintiffs by the present action to succeed in collecting their claim, the result would be to remove Haskell’s funds from the reach of the remaining creditors, and" hinder them in the collection of their claims. By the arrangement in question Haskell intended to immediately devote the entire sum placed in the defendant’s hands to the payment of his creditors. Upon the refusal of creditors to accept twenty-three per cent, in full, the portion of such refusing creditors, less the reasonable expense of executing the trust, which is properly allowed, was to be immediately appropriated by the defendant and applied upon his valid claim against Haskell, exceeding in amount the entire sum placed in the defendant’s hands. Haskell had parted with all control over the money. The facts disclose no secret trust or reservation for the benefit of Haskell, no contingency upon the happening of which any part of the money would revert to him. As the defendant was in this case himself a creditor, we think, upon these facts, that the transaction cannot be regarded as fraudulent in law, so as to enable the plaintiffs in this action to recover after a full performance by the defendant, in good faith, of the terms of the arrangement. Regarding the effect of such an agreement a different question would be presented had the defendant been copied before payment of the assenting creditors, or had such a fund' been garnisheed in the hands of an assignee or trustee not himself a creditor of Haskell. The case before us differs materially from Hawes v. Mooney, 39 Conn., 37, cited by the plaintiffs. The law is in that — 84 — case expressly applied to a case of “ actual and contemplated fraud, participated in by tbe defendant.” The second claim of the plaintiffs, that the defendant is chargeable with the sum remaining in his hands after payment of the assenting creditors, we think cannot be sustained. The event which gave the defendant a right to retain this sum, as part payment of his claim, had happened before service of the factorizing process upon him, and the defendant had actually appropriated the money. The finding shows that before the service upon the defendant, all the non-assenting creditors had refused to accept the compromise, and that the defendant had deposited this money in the bank as his own funds. It is true the court finds that the defendant claimed the right to apply some part of the balance remaining in his hands in payment for services which he claimed to have rendered Haskell, but it is not found that any sum was due him for such services. "We think the finding clearly shows that the defendant, having by the terms of the agreement the right to apply the balance of the fund in his hands in part payment of a valid claim against Haskell, had in fact availed himself of that right before service of the copy in foreign attachment. Upon the plaintiffs’ third claim, that the defendant is es-topped from denying that thirteen hundred dollars was placed in his hands by Haskell, it may be questioned whether the defendant made such a representation by the letter of February 6th. By the letter it would appear that the entire sum of thirteen hundred dollars was in the defendant’s hands, while by the statement which was inclosed and referred to in the letter it would seem that the thirteen hundred dollars was in the hands of Haskell. But regarding the letter and statement as intended to convey the impression that the defendant held Haskell’s funds to the amount of thirteen hundred dollars, there is no evidence that the plaintiffs, by having believed this statement, have lost any remedy, or suffered any injury beyond the expense of the service of the copy upon the garnishee. At that time the defendant disclosed that he had no funds of Haskell’s in — 85 — his hands. An estoppel is intended as a protection against loss, and not as a means of gain. Townsend Savings Bank v. Todd, 47 Conn., 190. The injury sustained by the expense of the service of the copy in foreign attachment is not a sufficient one to warrant the application of the doctrine of estoppel and to create a cause of action in the plaintiff’s favor. This subject, and the authorities sustaining this conclusion, are fully and ably discussed in the case of Warder & others v. Baker, 54 Wis., 49. There is error in the judgment of the Court of Common Pleas, and it should be reversed. In this opinion the other judges concurred; except Andrews, C. J., who thought the plaintiffs were entitled to a judgment for the amount the defendant had in his hands at the time that service in the original suit was made upon him.