Magovern & Co. v. Richard

The opinion of the court was delivered Mr. Chief Justioe Simpson. These two cases were heard together below and also in this court, but they have no necessary connection with each other, nor are they governed by the same principles; therefore, though embraced in the same opinion, they have been considered and determined separately, as will appear below. The object of the action in each case ivas to annul and set aside a chattel mortgage executed in 1883 by the defendant, Richard, to his co-defendant, Bollmann Brothers. In the first named case the ground of the assault was that the alleged mortgage was really intended as an assignment, in which a preference was given to the said Bollmann Brothers, and therefore void under the assignment act, general statutes ; that of the second, was that said mortgage was void under the statute of Elizabeth. The plaintiffs in the first action had not reduced their claim to judgment, but those in the second had. In the first action his honor, Judge Hudson, on ex parte application of plaintiffs, granted a preliminary injunction restraining Bollmann Brothers from enforcing their mortgage. This injunction, on proper notice of motion thereto, was dissolved by his honor, Judge Kershaw, at his chambers, his honor holding that the mortgage in question could in no sense be regarded as an assignment with preference. From this order there was no appeal. But on the hearing of the case afterwards by Judge Cothran, the ground upon which Judge Kershaw had dissolved the injunction was reversed, and the mortgage was held an assignment and executed in violation of the spirit, at least, of the assignment act, and therefore null and void. The same holding was held by his honor, Judge Cothran, in the second case, and also that the said mortgage was fraudulent and void as intended to delay, defeat, and defraud the creditors of the said Richard. — 284 — From the decree rendered below, embracing the two cases, the appeal is now before us, in which error is alleged to said decree in the first case: 1st. Because his honor, Judge Cothran, reviewed and reversed the ruling of Judge Kershaw. And, 2d. That if Judge Cothran had jurisdiction of the matter ruled by Judge Kershaw, that then he erred in holding the mortgage an assignment with preference, and therefore void under the assignment act. In the second case — -that he erred in holding the mortgage void, whether his said holding was based on the idea that the mortgage was an assignment, or in fraud, or a contrivance to defeat, delay, &e., creditors, and therefore void under the statute of Elizabeth. Now, applying our remarks to the first above named case, we are compelled to say that we do not find in the testimony anything more than an ordinary mortgage executed by- a debtor— insolvent, no doubt, at the time — covering a large portion of his property in favor of one creditor over other creditors ; this done in the exercise of a right which has been recognised almost time out of mind in this State and elsewhere in numerous cases still standing unoverruled, and which, until they are overruled, are authority upon this court. See numerous cases in our own reports. The recent cases of Wilks v. Walker1 and Austin, Nichols & Co. v. Morris2 have not touched this principle. Nor did the assignment act intend to touch it; or, if such was the intention, it does not appear in the language used in said act. That act was intended to meet an evil, which, at the time of its passage, was in existence, and was growing in the commercial world, to wit: the practice of making general assignments ostensibly for the benefit of all creditors, but yet preferring in said assignment some creditors to others ; and the purpose of the act was to cut up this practice root and branch, which it was hoped could be accomplished by simply declaring that the preference given should in itself, whether fraudulent or not, avoid the instrument or assignment. There was not a word or an intimation that the long established right of securing one creditor over others by mortgage, judgment, or sale of property was stricken at. On the contrary, in the second section of that act, as Judge — 285 — Kershaw very forcibly says in his decree dissolving the injunction : “The distinction is there clearly drawn between the two kinds of instruments in this, that a mortgage or other conveyance to a creditor, whereby such creditor is secured by the debtor, is made void, if the debtor was at the time insolvent, and if the creditor knew of such insolvency, in case the debtor should, within ninety days thereafter, make an assignment for the benefit of creditors.” There the act itself distinctly recognized the difference between a 'mortgage to secure a creditor, even by an insolvent debtor, and known to be so by the creditor himself, and an assignment for the benefit of creditors generally; and it impliedly, at least, sustains a mortgage given under such circumstances, provided it is executed longer than ninety days before the assignment. As the law now stands under our decided cases, these two things, to wit: the right of a debtor to give a preference by mortgage, judgment, or other paper, to one creditor over others, and his inability to do so in an assignment for creditors, are separate and distinct matters, and they cannot be confounded or , intermingled. Bach case must stand upon its own facts. If these show simply a mortgage, and that it was executed with no general assignment following it within ninety days, although the debtor may be insolvent at the time with the knowledge of the creditor, it must stand, because the creditor, under long established law, has obtained vested rights thereby which no court can divest, except in the exercise of legislative functions, which no court in this State is authorized to do. If, on the contrary, the facts show a preference given in an assignment for the benefit of creditors, or the execution of a mortgage within ninety days before such an assignment by an insolvent debtor, and known to be so by the mortgagee, then it is obnoxious to the act, and will be declared void. The case of Wilks v. Walker, supra, does not conflict with these principles, because the court there held that the defendant had admitted by his demurrer the charges in the complaint that an assignment had been made rvith a preference, and in that case provision ivas made in the papers in contest for the payment of another creditor besides the mortgagee or vendee. But especially the court relied on the admission by the defendant of. — 286 — the charge that he had executed an assignment in violation of the assignment act. In the case now before the court there seems to be no doubt that Bollmann Brothers held a valid claim on Richard. They had a right to sue and obtain judgment, or they had a right to procure a mortgage or any other security. The law encourages vigilance, and we know of no legal obligation resting upon a creditor to notify the world, that he intends to make, or is making, an effort to secure his debt. It is true, it might be high morality and distinguished abstract fairness and justice for a creditor to give up this right and refuse to take any security for his debt, unless all creditors are brought within the same protection ; but the law does not require this, and such unselfish and disinterested benevolence and fairness has seldom been practised. We concur with Judge Kershaw, that there ivas nothing in the facts of this case to avoid Bollmann Brothers’ mortgage under the assignment act. Inasmuch as we have thus concurred in the general result of Judge Kershaw’s holding, it is not necessary to dis.cussthe question whether his decree dissolving the injunction was reviewable by Judge Cothran. This brings us to the second case. It does not clearly appear whether his honor annulled the mortgage in this case as in violation of the assignment act, or as void under the statute of frauds. If the former, then what we have said above applies. And, besides, such an issue was not raised in the pleadings in this case, and a decree based upon that ground would be beyond the issue. Was the mortgage void under the statute of frauds? To be void under said statute, or at common law, it should be made to appear that it was either without consideration, or that it was mala fide, one or both. In other words, for a paper of the kind to be invulnerable, it should be based upon a valuable consideration and be a bona fide transaction. Now, there can hardly be a doubt, in fact, it is not denied, that Bollmann Brothers held a large claim on Richard, which this mortgage was intended to secure, so that one of the elements necessary to sustain it is present. Was it bona fide ? or was it mala fide as to both parties to the instrument? because this is necessary to avoid it. What is mala fides ? It must be an intent, not simply to assert — 287 — one’s own rights, but, in addition thereto, to defeat the rights of another, participated in, as we have said, by both parties to the instrument. A good illustration is found in the old case of Lowry v. Pinson,1 where Pinson bought a tract of land paying full value for it, but one of the objects of the purchase was to enable his vendor to leave the country so as to escape the consequences of an action for damages against him by Miss Lowry for breach of marriage contract. Here Pinson was exercising a right of purchase, a right which belongs to every one. He paid full value for the land, but yet one object he had in buying it was to enable his vendor to defeat the action of Miss Low'ry. The court very properly held that here was mala fides. Now, is there any testimony in the case before us that Bollmann Brothers, while asserting their right to obtain a security for their claim on Richard, intended also to enable Richard to defeat, delay, and hinder his other creditors ? The mortgage may have that effect, to the extent of the property mortgaged, but was this one of the intended effects? Did Bollmann Brothers conspire with Richard to use their claim for the fraudulent purpose of defeating the other creditors? Was there any secret trust, benefit, or advantage secured to Richard in consideration of the mortgage? We. see nothing in the case but that Richard was insolvent, and that he embraced in his mortgage his entire visible goods and chattels in his store, and that it was the understanding that the mortgage was not to be recorded for forty days. This latter fact; though really of no harm to the creditors, is the only circumstance that has an appearance of the want of frankness and open, fair dealing. But this, in itself, cannot be held sufficient evidence of a fraudulent intent. Bollmann Brothers had the right to withhold their mortgage-from the record, and we do not see that the creditors could be prejudiced in any way thereby, and consequently there could have been no. such intent. In the discussion of this case we have not been unmindful of the fact that the findings of a Circuit Judge below on questions of fact will not be disturbed if they are sustained by the manifest weight of th.e testimony. — 288 — It is the judgment of this court, that the judgment of the Circuit Court be reversed. Mr. Justice McIver concurred. Mr. Justice McGowan dissented. 22 S. C., 108. 23 S. C., 393. 2 Bailey, 324; 23 A. D., 140.