Molaska Manufacturing Co. v. Steele & Walker

Gill, J. — Of the errors complained of, we shall only notice one, as we do not regard the other matters of any substantial merit. Instruction numbered 4, given at the request of the garnishees, did not, we think, correctly advise the jury as to the law of this case. Said instruction reads as follows : “4. The court instructs the jury that if they find from the evidence that the property mentioned in the bill of sale read in evidence was delivered to defendant, and that in consideration thereof said defendant paid said witness Davis the sum of one thousand dollars by satisfying debts held by them, and one Willman to that amount, to which said Davis agreed, and that said sum was the reasonable value of said property, and that said Steele and Walker, by reasonable efforts, were unable to realize more than one thousand dollars for said property upon sale thereof, then the verdict must be for defendant, even if the jury find from the evidence that there was a verbal agreement on the part of Steele and Walker to pay Davis, or his wife, any surplus arising from the sale of such property, above the amount of the debts aforesaid.” The practical effect of this instruction was to declare to the jury that although they may believe that the transaction as related by the debtor Davis, yet if the goods so transferred did not realize and were not worth more than the one thousand dollars, as stipulated in the bill of sale, then the verdict should be for' the garnishees. In other words, even though the jury should believe, as stated by Davis, that Steele and Walker were to take the goods (which he Davis estimated worth eighteen hundred dollars) and pay therefor one thousand dollars (in satisfying their own claim of eight hundred [503] and seventy dollars and paying off Willman’s claim of one hundred and thirty dollars), and that Steele and Walker took an absolute bill of sale of the store, but with the private agreement made at the time to carry on the business and run the store until reimbursed for said one thousand dollars and then return the remainder to said Davis (or to his, Davis’, wife), yet, if it turned out, on the disposition of said goods, that they were not in fact worth more than one thousand dollars, and that this was all that Steele and Walker could, by proper effort, realize from their sale, then the transaction was legal and binding as to this plaintiff and other neglected creditors. It is the settled law of this state that a creditor may, in good faith, purchase the goods of his debtor, and thereby secure the payment of his claim, even though in so doing he may absorb the whole estate, and leave other creditors unprovided for, provided such transaction is for the sole purpose of securing the creditor’s claim, and provided there shall not be an effort thereby to keep the debtor’s assets from other creditors. See Hanna et al. v. Finley, 33 Mo. App. 645, decided at the last term of this court, and authorities there cited. However, “a sale of goods, in order to be considered as made tona fide, with respect to the creditors, must be made without any trust whatever, either express or implied. “It is not permitted to a debtor to convey away his goods, by sale, with any secret understanding between him and the vendee, that the goods shall be holden for the benefit of the vendor, in any way whatever. The nature of the benefit, reserved in the sale, is immaterial. Any thing of this kind is a trust and what the law denominates a fraud. Nor are the grounds, on which this doctrine is founded, unsatisfactory. All conveyances, with secret reservations for the benefit of the [504] vendor, tend directly to hinder and delay creditors. They hold out false colors and false appearances, and mislead and deceive creditors. “They give to the property of the vendor the appearance of belonging wholly to another, when in truth, he has an interest in it, concealed under the trust. “It is for this reason that a trust of this kind is, in law, a fraud. As the obvious tendency of these reservations and trusts is to deceive and defraud creditors, the courts do not stop to inquire as to the particular motives in each case, but, relying on the presumption that every man intends the consequences of his own acts, have at once pronounced all these trusts frauds, not only within the meaning of the statute but at a common law.” Coburn v. Pickering, 3 N. H. 424; Parker v. Patte, 4 N. H. 178; Connelly v. Walker, 45 Penn. St. 449. The law condemns such secret trusts as fraudulent, and avoids the entire transaction, regardless of the actual good faith' of the parties thereto. Reed v. Pelletier, 28 Mo. 177; State to the use of v. Tasker, 31 Mo. 448. It is immaterial, too, whether the whole agreement may appear in the writing itself, or that on its face it may appear entirely fair, and the impeaching facts attached by extrinsic evidence, as the same legal consequences follow, from the facts, regardless of the manner of proof. Bullene v. Barrett, 87 Mo. 189. Neither will the creditor, acting as the secret trustee for the benefit of the insolvent debtor, be saved from the consequences, by a showing that his claim equalled, or exceeded in value, even, the property so taken in trust. Passamore v. Eldridge, 12 Serg & R. (Pa.) 198; Parker v. Patte, 4 N. H. 176. In 12 Serg & R., supra, at p. 201, this exact point was made, and in the consideration thereof the eminent judge uses language peculiarly applicable to the case at [505] bar. “But, it is said, that other creditors had no concern in the property conveyed, because its whole amount was not equal to the debt due to the Robinsons. In answer to this, however, it is to be observed, that at the time of executing the deed, it was supposed by the parties that there might be a surplus, because that event is provided for,” etc. So here, if the evidence of the debtor Davis is to be credited, he insisted that his property was several hundred dollars in excess of the claims of these garnishees and Willman’s combined, and urged them to agree to pay off others. They did not do this, however, but did agree, as Davis testifies, that they would continue to run the store until out of the proceeds the one thousand dollars was paid and then turn over the surplus to Davis. The substance then of that agreement was, as detailed by Davis, that it should appear to be on its face an absolute sale of the goods for one thousand dollars, but that there was a secret understanding that Steele and Walker should continue the business, out of the proceeds pay the one thousand dollars, and return the remainder to Davis. If this was the true state of the agreement, then it was such as the law condemns as fraudulent and void, and the jury should have been so instructed, and that, too, regardless of the outcome of the venture, whether there was anything left to give back to Davis or not. For the reason then that the court erred in giving said instruction number 4, the judgment must be reversed and the cause remanded for a new trial. All concur.