Bank of Elkhart v. Western Lumber Co.

Ellison, J. The case here arises on a plea in abatement to an affidavit in attachment wherein it was alleged that defendant (who was a dealer in lumber) had fraudulently conveyed its property so as to hinder and delay its creditors. The result in the circuit court was in favor of defendant and plaintiff has appealed. The instructions given at the trial were upon the theory that, although the conveyances of property shown to have been made by defendant were fraudulent, yet, unless defendant was at the time insolvent or became insolvent by the conveyance, it did not justify the attachment. In other words, the theory entertained and enforced at the trial was that, though the transfers were fraudulent, yet, if the defendant had other property which might have been subjected to the payment of his debts, then the creditors could not have been hindered or delayed and an attachment would not lie. We feel compelled to dissent from this proposition. The statute is that whoever “has fraudulently conveyed or assigned his property or effects, so as to [322] hinder or delay his creditors” shall he liable to have his property attached. The argument supporting the theory advanced by the defendant is that there must be not only a fraudulent conveyance but that the fraudulent grantor must also be insolvent; otherwise, it is said, there is no hindering or delaying. We do not believe this to have been the understanding of the bar; certainly such theory has not found practical application in the courts as is evidenced by reported cases. Issues arising on pleas in abatement have been determined in the courts without reference to the solvency or insolvency of the fraudulent grantor. Such a construction would lead to this—that a creditor would in all cases of fraudulent conveyance or concealment, stand by until he ascertained that the conveyances had reached the point of insolvency. In other words, under the seventh, eighth, ninth and tenth causes for attaching there can be no attachment, under this view, except the debtor is insolvent. Insolvency would thus be the chief hazard to be run by the attaching creditor and would become the chief issue in the great body of attachment cases. So that instead of proving the specific fraudulent conduct of the debtor with reference to his property, the creditor would be compelled to go into the delicate measurement of values of assets as compared with the total indebtedness of the fraud feasor, and if the. balance should turn in favor of the assets the creditor would be mulct in damages to his fraudulent debtor. Whenever a debtor fraudulently conveys or conceals his property he is, in theory of law, doing that, the tendency of which is to hinder or delay his creditors, notwithstanding he has other property out of which the claim could be made. There is certainly a hinderance as to that part of the property so disposed of and which the creditor had a right to have appropriated (in the absence of voluntary pay [323] ment by the debtor) to the liquidation of his claim. The scope of the attachment statute shows that it was not enacted with a view of being confined within the limits of insolvent debtors. For instance, it is cause for attachment that the debt was fraudulently contracted, however solvent -the fraudulent debtor may be. So, if the debtor has failed to pay for property ■on delivery as agreed. So if the debtor became such by reason of committing a felony or seducing a female, his property becomes liable to be attached without reference to his ability to meet his obligations. The statute justly assumes that if the debtor fails or refuses to pay and practices the frauds specified in those portions of the statute under discussion and to which we have referred, it is time for the creditor to become alarmed for his safety and to set about to secure himself. The argument advanced and authorities cited supporting voluntary conveyances and gifts- where the donor is solvent and free from substantial debt, are not in point. Such conveyances of property are not fraudulent, except from the fact (speaking generally) that the effect of them would be to deprive the donor of the ability to discharge his debts. The question which has been presented here was not before the supreme court in Reed v. Pelletier, 28 Mo. 173, but the language used in that case can be appropriately adopted here. It is there said: “If the attachment is based on either the seventh, eighth, ninth or tenth clauses, it will be sustained on proof that the defendant fraudulently had done, or was about fraudulently to do, any of the prohibited acts; and whether the act be fraudulent will depend on the judgment which the law pronounces upon it.” Taking out of the case this element which controlled its disposition below, we find that the chattel [324] mortgage executed by defendant to the Union National Bank was a fraudulent transfer of defendant’s property and justified the attachment. The mortgage to-secure $27,569 was executed on the twenty-fifth day of February, 1891, and not recorded until the sixteenth day of June thereafter, the day after the levy of the attachment.. No possession was turned over to the bank. The defendant was left in full control and possession, so far as was evidenced tojthe public, just as it was before the transfer. It carried on the business, and dealt with the public without giving any outward indication of a change in the control, or ownership, until after the attachment when the bank took possession. It is true the mortgage itself provided that the-proceeds of sales were to be turned over to the bank. But nevertheless defendant replenished the stock by-purchases which were paid for out of proceeds of sales; other sales were made on credit. Though a portion of the proceeds of sales was turned over to the bank as inquired by the mortgage, yet, besides replenishing-the stock with proceeds of sales, a horse was purchased and taxes paid on defendant’s property which was not included in the mortgage. There was evidence showing that when the mortgage was executed the bank engaged the secretary and yard manager of defendant to look after its interest, and, as expressed by some of the witnesses, to take charge of the yard for the bank. The acts which we have enumerated were done with his knowledge. These facts, or substantially these, being undisputed, the court should have directed a verdict for plaintiff sustaining the attachment. The result of the foregoing is that we reverse the judgment and remand the cause with directions for the circuit court to enter judgment sustaining the attachment. All concur. [325] ON MOTION BOB EEHEABING-.