Mapes v. Burns

Gill, J. [415] STATE~VXENT. [414] This is a controversy over the title of a quantity of flour, feed, and other property, attached by [415] the plaintiff Mapes as the property of the defendant Burns, and interpleaded for by Piggott as trustee in a deed of trust executed by said Stephen J. Burns for the benefit and security of the National Bank of St. Joseph and Ayr Lawn Company. These two corporations may now as well be identified as that of the well known Burnes family of St. Joseph, and Calvin F. Burnes was at the dates hereinafter named the head and manager of both institutions. Defendant Burns is in no way related to the family just mentioned, and the names are differently spelled. For more than ten years prior to February 10, 1892, the defendant, Stephen J. Burns, under the name of Burns & Company, had been engaged in the wholesale flour and feed business at St. Joseph, Missouri. He began in a small way, but from time to time enlarged his business, so that at the date this controversy arose, and his failure occurred, he might be considered an operator on a large scale. He seems to have purchased largely from numerous mills over the country, and had in storage at his failure something over $40,000 worth of flour. In addition to buying and selling flour at wholesale, he had also erected and was operating a mill for the manufacture of oat and corn mea]. During the entire course of his business, said Stephen J. Burns was a customer of theNational Bank of St. Joseph, and at times borrowed large sums of money from the same as well as from the Burnes family corporation known as the Ayr Lawn Company. This indebtedness, according to the interpleader’s showing, aggregated on February 10, 1892, about the sum of $57,000. With the exception of an overdraft of something over $8,500, this indebtedness was evidenced by nine promissory notes executed by said Stephen J. Burns and payable to said bank and Ayr Lawn Company. These notes grew out of loans made at different [416] times and renewed during the period from 1888 to 1892. During the first part of February, 1892, Galvin F. Burnes, as the representative of the St. Joseph bank and Ayr Lawn Company, seems to have become uneasy as to Stephen Burns’ condition and demanded of said Burns that he reduce his indebtedness to said corporations or give security therefor. This resulted in said Stephen Burns transferring certain warehouse receipts for flour stored at different places in St. Joseph, to the Ayr Lawn Company, and the further execution of a deed of trust covering flour, etc., on hand to the interpleader Piggott for the benefit of both the bank and said Ayr Lawn Company. Another deed of trust was also made covering the mill and machinery. These conveyances, together with the assignment of some accounts, had the effect in fact of pledging all the property belonging to said Stephen J. Burns for the security of the $57,000 he then owed to the Burnes corporations. Immediately following this, the plaintiff in this action, together with several other millers throughout the country who had claims for flour sold to said Stephen J. Burns, brought various attachment suits and levied on the flour and other property which had theretofore been transferred for the security of the bank and Lawn Company. The latter corporations at once gave forthcoming bonds for the property and in due time by their trustee filed their interplea. To this the plaintiff in effect answered that the said transfers to the inter-pleader were fraudulent; that the claims of said bank and Lawn Company were in part, if not all, fictitious; that said conveyances in trust were made to hinder, delay, and defraud the plaintiff and other creditors, and that the beneficiaries therein had knowledge thereof and participated therein. [417] At the trial of these issues between the plaintiff and the interpleader, the court at the close of plaintiff’s evidence directed a verdict for the latter, and from a judgment in accordance therewith plaintiff, has appealed. Apracttce;Eeffect curlence añd°nThis is one of a number of cases involving about the same state of facts. It seems that a few days after the deeds' of trust made for the security of the St. Joseph bank and Lawn Company had been executed and the interpleader had taken possession of the property, not only this plaintiff, but sixteen other creditors of ' Stephen J. Burns, unprovided . for, attached, and the same issues were raised regarding the good faith and validity of said preferences. One of these (called the Stokes case) was tried, resulting, as this, in a peremptory instruction for the interpleader, and plaintiff appealed to the supreme court, where the judgment was affirmed (132 Mo. 214). But since in that case there "was no opinion by the court as such, we have nothing from that source to aid us in the case at liar. Judge Robinson, it is true, in an opinion of some length, sets out the reasons that controlled his judgment in the matter; but no other judge seems to have agreed with him — at least the case as reported fails to show it. All the judges of the division (No. 1) concur in affirming the judgment — “concur in the result” — but we have no right to assume that any except Judge Robinson indorse the views of the opinion published. What was said then by the learned judge in that case (beyond the declaration that the judgment ought to be affirmed) we are not justified in treating as controlling authority. More than this, we are not in this record authoritatively advised as to the full extent of the evidence in the Stokes case, and must [418] then even lose the benefit of a fair comparison of tho two cases. In deciding the controversy in hand then, we can get no light from the Stokes case or from Judge Robinson’s opinion, except that respect which' is due to the writings of a learned and impartial lawyer. EVIDENcE. As will be seen from the foregoing general statement, the plaintiff, in his controversy with the inter-pleader, assails the validity of the transaction whereby all the property of the common debtor was, on February 10, 1892, turned over for the security of the notes and overdraft held by the National Bank of St. Joseph and the Ayr Lawn Company. The question is, was there any evidence adduced at the trial tending to prove this to have been a transfer fraudulent within the meaning of our statute on fraudulent conveyances? The lower court held there was no such evidence; and from a careful inspection of the record, we are forced to the same conclusion. The particular charge is, that in the fall of 1891, and some three or four months before Burns’ failure, Calvin F. Burnes and Stephen J. Burns, being satisfied of the latter’s insolvency and failing condition, entered into a conspiracy to get into the hands of Stephen J. all the flour the latter could purchase on a credit; that said Stephen would never pay therefor, but the same should then be transferred to the bank and Lawn Company represented by said Calvin F. Burnes. We find in the record no evidence to justify this charge of conspiracy to defraud creditors. The nearest approach to evidence tending in that direction is that during the few months preceding the execution of the deed of trust to the bank and Lawn Company, Stephen J. Burns did make large purchases of flour and did increase his stock much beyond that usually carried. He stated, however, as a reason for these large pur [419] chases, that he thought it a favorable time to invest in flour and that he often bought largely at that particular season because flour was then low, and it paid to invest and hold for a later market. But whatever may have been the design of Stephen J. Burns, there is nothing whatever in the evidence tending to implicate the bank, the Lawn Company, or its officers. Further attention is called to the fact that during these several months preceding Stephen J.. Burns’ failure, the bank and Lawn Company continued to loan and advance more money to said Burns, and it is reasoned therefrom that the purpose of said corporations was thereby to bolster up the credit of said Burns until he could secure large and additional amounts of flour, etc. It seems to us that this is a rather improbable and remote inference. It is true that from October 1, 1891, to the date of failure in February, 1892, these beneficiaries in the deeds of trust did continue to accommodate Stephen'Burns with some $18,000 additional loans. But is it reasonable to infer therefrom that the bank’s purpose in so doing was to strengthen the credit of a known insolvent debtor and allow him to'impose on other creditors'? Is it not more reasonable to suppose that the truth was, as all the direct evidence tended to prove, that Calvin F. Burnes, representing the bank and Lawn Company, had even then implicit confidence in the financial ability and business integrity of Stephen J. Burns, and that said Calvin believed, as he told some of these attaching creditors, that Stephen J. was good for his obligations. Said Calvin F., when called as a witness 'for the plaintiff, testified that at the time he thought Stephen J. solvent and a successful business man. And his conduct and indulgence shown in past transactions covering a series of years tended to support this measure of good opinion; for the evidence shows that Stephen J. had on [420] many other occasions during the four or five preceding years borrowed large sums of money from the Burnes bank, and on two occasions at least, the aggregate indebtedness had run up to about as it was just prior to the failure. • These loans, too, were made to said Stephen J. without the requirement of any security. Counsel for plaintiff say that it was absurd and therefore 'unreasonable that Calvin E. Burnes (whom they characterize as a shrewd financier) should have loaned Stephen J. so large an amount of money, and that, too, without any tangible security. But are we to pronounce the $57,000 claim a mere fiction because its creation seems to have been unbusinesslike or ill-advised? If this is a reasonable inference, then in like manner may it be inferred that these attaching creditors have not just or valid claims against the insolvent? As we now look back “through the hind sights” it is easy enough.to see that Stephen J. Burns was not at any time entitled to the credit extended. ^conveyances: erencesf * pref‘ We are unable to discover in these various matters, and others alluded to in the record, anything from which the jury could reasonably infer that the debt secured was fictitious or dishonest, or that there was anything in the nature of a fraudulent scheme or conspiracy to defraud creditors entered into between said Stephen J. Burns and the bank, Lawn Company or its officers. Plaintiff’s counsel speak truly when they say that in the investigation of the alleged fraudulent transactions of men they have the right to call attention to every significant circumstance; that fraud may be shown, not only by direct proof, but by circumstances, and that the jury may infer fraud, etc. But it must be still borne in mind that he who alleges fraud must prove it — either by direct and positive evidence, or by the establishment of such facts and cir [421] cumstances from which fraud may be reasonably inferred. Right acting is presumed; fraud must be shown. The jury will not be allowed to find fraud from mere conjecture or suspicion.’ And it seems to us that this whole theory of a fraudulent conspiracy charged against the beneficiaries personated by the interpleader is based wholly on suspicion. In this race between the creditors of Stephen J. -Burns, the law will' recognize the speed of the swift, the active, and diligent; and so long .as he shall confine his efforts to the payment or security of his honest debt, the preferred creditor will be allowed to enjoy the fruits of his effort, even if it results in appropriating the entire assets of the insolvent debtor. TeltonkSLiferred^creditor. Interpleader’s counsel have well urged, also, that even if Stephen J. Burns intended a fraudulent purchase of goods and the subsequent appropriation thereof to the satisfaction of the claim represented by the interpleader, yet this would not impair the title of such interpleader under the facts of this case. It has been the recognized doctrine of Missouri courts since Shelley v. Boothe, 73 Mo. 74, was decided, that “A creditor has a perfect right to take security for an honest debt from his debtor, although he may know that the debtor thereby intends to hinder, delay or defeat his other creditors, provided always the creditor so preferred does not participate in the fraudulent purpose or intent of his debtor.” Alberger v. White, 117 Mo. 347, and cases cited. And in a case somewhat similar to this it was said (we quote the syllabus):1 “Where the creditor of a firm in failing circumstances made such false representations to a third party as to induce him to sell goods to the debtor upon credit, and the original creditor afterward obtained these goods in payment of a pre-existing debt, held, that although a clear case [422] of liability in a direct action thus arises against him, he is not therefore incapacitated to purchase the goods.” State to use of Steinberger v. Schulein, 45 Mo. 521. On authority, .then, of this case, it maybe well contended that, even admitting that the managing officer of these preferred creditors may have fraudulently misrepresented the financial standing and solvency of Stephen J. Burns, and that creditors were thereby induced to sell goods, yet the preference might be upheld. ~aifer!chment: In this connection, also, a further question arises: Can this plaintiff, in this particular action, attack the validity of the sale of his flour to the debtor Stephen J. Burns? This is not a suit for the recovery of property fraudulently purchased, but it is an action for the recovery of the purchase price of that property. The plaintiff does not come into court complaining that said Burns made a purchase of flour intending not to pay therefor and asking a rescission of the contract of sale, but he occupies the attitude of affirming the sale and seeks to recover the price agreed to be paid. “A sale of goods which has been procured through fraud is not void ab initio, but is voidable only at the election of the vendor.” Lapp v. Ryan, 23 Mo. App. 436, and authorities cited. See, also, 1 Bigelow on Fraud, 73. He had the right, if defrauded, to disaffirm the sale in a reasonable time and recover back the goods. The sale was not void till affirmed, but rather was valid until disaffirmed. Upton v. Englehart, 3 Dill. loc. cit. 504. Plaintiff, and vendors in like situation, “had their election to disaffirm such sales (if fraudulent) and invest themselves with the rights and entitle themselves to the remedies the law affords in such cases; or they might affirm the sales and have the rights and remedies of other creditors. The commencement of [423] the attachment suits was at least a prima facie affirmance of the sales and waiver of the fraud, and all rights resulting from it. The appellant (plaintiff) now asserts his rights in affirmance of the sale, and while thus asserting them he can not insist upon rights which he would have had if he had disaffirmed the sale and was asserting rights resulting from such dis-' affirmance.” This is quoted from a very learned opinion by Judge Beckwith in Gray v. St. John, 35 Ill. loc. cit. 239. And it would seem, in all reason, that it can make no difference in this form of action what fraudulent practices Stephen J. Burns may have adopted to secure plaintiff’s flour, nor what may have been the knowledge of the interpleader or those he represents. This could be important only in a suit following a disaffirmance and rescission of the sale and to recover back the particular goods sold. As said in another case: ‘‘While a creditor of whom the debtor had bought goods, not intending to pay for them, but to use them in preferring other creditors, may doubtless dissaffirm the sale and recover his goods, unless re-sold to an innocent purchaser, yet, by bringing an attachment suit against his debtor, he affirms the sale and takes the place of an ordinary creditor, entitled to impeach the sale on no ground which was not equally available to any other creditor.” O’Donald v. Constant, 82 Ind. 212. These authorities draw additional force from the fact that in these cases the attachments were levied on the flour and other property formerly belonging to defendant Burns and without regard to whether such goods came from such attaching creditors or other parties. For aught that appears, it may be that the flour seized on the writ issued at the suit of this plaintiff may have all been purchased from other creditors not suing. [424] We think, then, Judge Robinson was correct in principle, when in the Stokes case (132 Mo. loc. cit. 224) he says: “The plaintiff, by suing upon his account, waived the fraud in the sale and treated it thereby as the property of defendant (Stephen J. Burns) with the same power of disposition in defendant over it as of any other property owned by him.” But by this statement the learned judge did not mean that such fraudulent purchase could not be used as a ground for attachment. Plaintiff’s counsel have, in the effort to show its unsoundness, carried the doctrine beyond the limit intended by Judge Robinson. Unquestionably, attachment will lie “where the debt sued for was fraudulently contracted,” because the statute so provides. R. S. 1889, sec. 521. But the point is, that though such fraudulent purchase by the debtor may serve as grounds for attachment, yet when the writ goes out it may be levied on the property fraudulently purchased just as with other propérty belonging to the defendant in the suit, provided it has not in the meantime been disposed of by the fraudulent vendee. When the vendor sues for the purchase price, he waives the fraud to the extent only of conceding title in the fraudulent vendee, but the vendor does not waive the fraudulent act of the vendee in so far as it furnishes ground for attachment. But as already said, even conceding that Stephen J. Burns had a fraudulent purpose in buying the flour, and intended at the time not to pay therefor, we think there were no facts or circumstance shown from which the jury might have legitimately inferred that the interpleader' or those he represented were parties thereto. [425] IRt^outstanding [424] In order to understand a further point made, it is necessary to state that when the failing debtor Burns [425] turned over his property for the security of the bank and Lawn Company, .the claims 'of the latter, as aleady stated, were evidenced by nine promissory notes theretofore executed and amounting to $48,000, and also an overdraft of more than $8,500. In liquidating this overdraft the debtor Burns at that time made an additional note for $9,000. Burns’ account was credited with that amount, which not only paid the overdraft, but left $469.45 to his credit. This furnishes the basis for the contention that to the extent of this credit the deed of trust was made for the use and benefit of the common debtor Stephen J. Burns. If, now, there was any proof that this $469.45, or any considerable portion thereof, was paid over to the debtor, then the insistence of plaintiff’s counsel would be of some avail — notwithstanding its insignificance when compared with the magnitude of the transaction. For the law is well settled that while the creditor may accept from the debtor sufficient of the latter’s goods to satisfy his claim, yet in doing so he must not use the occasion to cover up and conceal other property that might be reached by the unpreferred creditors. And if he should do so, the entire transaction will be invalidated. This would be a conveyance to the use of the grantor and void under the statute of fraudulent conveyances. But the weakness of this point is manifest from the consideration of other conceded facts and the utter absence of any evidence to prove that Stephen J. Burns received any part of this $469.45. The burden of so showing rested on the plaintiff. In his behalf the bank’s officers were called as witnesses and the books introduced, and therefrom the proof was, that at the date of the transaction (February 10, 1892) there were outstanding against this account numerous checks, and [426] they were presented by and paid to other banks, through the clearing house; and besides, the debtor Burns had theretofore drawn on certain parties in California and Joplin exceeding $600; these drafts had been indorsed to the bank and credit taken therefor; they were then unpaid and chargeable back to said Burns. These were more than sufficient to and did exhaust said credit. And the testimony shows 'that this credit was intended and used for that purpose. We think there is no merit in this point. As to the extent and genuineness of the debt which Stephen J. Burns owed the bank and Lawn Company, it would seem, ought not to be a matter of serious dispute. Plaintiff introduced the books of the bank and all the parties likely to be informed, and I undertake to say that they prove beyond all question the debt existed to the full limit named in the deeds of trust providing for the preference. The notes uncanceled and in the hands of these beneficiaries, the testimony of all the parties, the books used to record the various business transactions, all go to show this, and that, too, without any substantial contradiction. It is true that Stephen J. Burns, while on the stand, testified that he thought perhaps he at some time in January or February before the failure paid off some note of $4,000 or $6,000, but there is not a scintilla of evidence to support this guess or uncertain statement, and in his; own evidence he unqualifiedly admits the full amount of the debt as claimed. The evidence in this respect is so overwhelming and conclusive that if the jury had found that any of the notes had been so paid, it would have been the plain duty of the court to set such verdict aside as unsupported by any substantial evidence. This being so, then the court was authorized in advance to treat such allegation as unproved, and instruct accordingly. [427] After a patient consideration of this large record and the very able and elaborate briefs and arguments of counsel, we feel bound to sustain the action of the trial judge in peremptorily instructing the jury to find for the interpleader. It discloses a case of legitimate preference obtained by bona fide creditors of a failing concern. Like a great many other seemingly prosperous enterprises, the wholesale milling and flour business of the defendant Burns was a great failure, and for years, doubtless, before the collapse, he was entirely unworthy the large credit extended by these various parties. These creditors who obtained the deeds of trust and assignment of the assets did not take an excessive preference, for the evidence is undisputed that there was not sufficient realized by nearly $13,000 to satisfy their legitimate demands. The judgment of the circuit court must be affirmed. All concur.