Porter v. Stricker

The opinion of the court was delivered by Mr. Chief Justice McIver. [188] The facts of this case are so fully stated in the report of the referee as to render any restatement of them here unnecessary, inasmuch as such report, together with the decree of the Circuit Judge, will be incorporated in the report of this case. The object of the action was to set aside a chattel mortgage given'by the defendant, Stricker, to his codefendant, M. J. Coleman. While the mortgage was assailed in the complaint upon two grounds — 1st, that it was void under the Statute of Elizabeth; 2d, it was void under the assignment law — yet, as the attack on the first ground utterly failed, the only question for consideration now is, whether the [189] mortgage is void under the assignment law. See section 2146, Rev. Stat. In order to sustain this ground, it is necessary to show that the transaction in question, though taking the form of a mortgage, was, in fact, intended as an assignment with preferences, and thus, while in form a violation of the letter, was really in violation of the spirit and true intent of the act. This has been the uniform construction which this court has placed upon that feature of the assignment law (see. 2014 of the Gen. Stat. of 1882, now sec. 2146 of 1 Rev. Stat. of 1893), from the case of Wilks v. Walker, 22 S. C., 108, the first case in which this subject was considered, down to the case of Mitchell v. Mitchell, 42 S. C., 475, the last utterance of the court upon the subject. In the case of Wilks v. Walker the question was considered as arising on a demurrer to the answer, in which it was alleged that the transactions there assailed were entered into in pursuance of an intent to assign all of the insolvent debtor’s property to certain of his creditors, in preference to, and exclusion of, all his other creditors, and this allegation being admitted by the demurrer, the transactions there assailed were obnoxious to the assignment law, for there the intent was admitted. In Austin, Nichols & Co. v. Morris, 23 S. C., 393, the Circuit Judge found as a fact, that the mortgages there assailed were in fact intended as an attempt to evade the provisions of the assignment law, and this finding of fact being accepted and approved by this court, the legal conclusion followed, that the mortgages were in fact, though not in form, an assignment, and, therefore, void under the provisions of the assignment law. In Lamar v. Pool, 26 S. C., at page 446, the late Chief Justice Simpson, in delivering the opinion of this court, after laying down the universally conceded doctrine, that even an insolvent debtor may, by a bona fide mortgage which is intended merely as a security, prefer one creditor, uses the following language: “So that in all of these cases, where the instrument assailed as contrary to section 2014 [now section 2146] does not, in its form, violate that section, having ear-marks that cannot be mistaken, the question must hinge upon the intent of the parties. Is the paper a bona fide mortgage intended as [190] a security, which the law allows? Or was it intended as an assignment, in which the particular creditor is preferred — the form of the paper having been adopted to evade the act? This question, in such a case, becomes a question of fact, and such is the case now before the court.” The court then goes on to consider this question of fact, and agreeing with the Circuit Judge that there was no such intent, sustained the mortgage.. In Meinhard v. Strickland, 29 S. C., at page 496, the court, in considering a case like the present, used the following language: “It is plain, then, that in cases of this kind the question is mainly one of fact as to the intention of the parties. If the instruments employed were bona fide intended merely as security, and not as a means of evading the provisions of the assignment act, then they do not fall within the purview of that act. But if, on the contrary, the instrument resorted to, whatever may be their form, were intended, not merely as security, but as a means of transferring the debtor’s property to the favored creditor to the exclusion of others, with a view to evade the provisions of the assigment act, then they must be regarded as null and void under the provisions of that act.” And the court goes on to notice the cases of Verner v. McGhee, 26 S. C., 248; Lamar v. Pool, supra, and McGovern v. Richard, 27 S. C., 272, where the attack upon the transactions there assailed failed because of the failure to show any such intent in either of those cases. As it is well expressed in Verner v. McGhee, supra: “The assignment act has no application, unless there is either an actual assignment, or a state of facts, fully proved or admitted, which, in conscience and equity, are tantamount to an assignment with unlawful preferences.” In Putney v. Friesleben, 32 S. C., 492, the same doctrine was fully recognized and acted upon. To the same effect, see McIntyre v. Legon, 38 S. C., where, at page 463, in delivering the opinion of the court, Mr. Justice McGowan lays down the rule in the following language, quoted with approval from the separate opinion in Austin, Nichols & Co. v. Morris, supra: “I do not doubt that an insolvent debtor may, by a bona fide mortgage, which is intended merely as a security, prefer one creditor; yet if the mortgage is designed, [191] not as a security, but as a means of transferring his property to one or more of his creditors in preference of others, it seems to me that it is, in effect, though not in form, an assignment, and comes within the mischief intended to be suppressed by section 2014 of General Statutes.” After thus laying down the rule, the learned justice proceeds as follows: “Taking this as our guide, let us apply the rule to this case. The question is really one of fact. The referee found that the mortgages were not intended by Legón to operate as an assignment of his property, but were honestly executed for the purpose of protecting Catherine Legón, as a bona fide creditor. The Circuit Judge concurred in this finding, and, under the well known rule of this court, it will not be disturbed,” &c. And the mortgages were sustained. To same effect, see Monaghan Bay Co. v. Dickson, 39 S. C., 146. The case of Mann v. Poole, 18 S. E. Rep., 145, reported, also, in 49 S. C., p. 1, comes next in order. That case seems to be relied on by counsel for respondents, as shaking, or at least qualifying, the doctrine uniformly recognized in the series of cases above cited, by laying down as the true test in all such cases as the present, the result of an inquiry whether it was the intention of the insolvent debtor, in giving the mortgage assailed, honestly to secure one or more of his creditors, or was it his purpose thereby to give one or more of his creditors a preference over other creditors. This view is based upon a partial quotation from the opinion of Mr. Justice Pope in that case; but when the whole passage is read, and especially, when the real nature of that case is considered, together with the subsequent remarks of the learned justice, it will at once be seen that such view is based upon an entire misconception, and that the decision in that case in no wise conflicts with or qualifies any of our former decisions. The entire passage in the opinion reads as follows: “It is no longer profitable, in the light of the repeated adjudications of this court on the subject, to consider the right of an insolvent debtor to give a mortgage to one or more of his creditors, when it is intended that such a mortgage or mortgages shall operate as mere securities to secure such creditor or creditors bona fide. In the light of our de [192] cisions, whenever ifc becomes necessary to canvass the transactions of insolvent debtors with their creditors, who are preferred by receiving a lien upon such insolvent debtor''s prtiperty to the exclusion of all other creditors, so as to determine whether such preferences are obnoxious to the provisions of chapter 72 of our General Statutes, the crucial test is this: was it the intention of the insolvent debtor to honestly secure the debt of one or more of his creditors, by giving a judgment, ora mortgage, or an assignment of certain choses in action, or was it his purpose thereby to give one or more of his creditors a preference over other creditors'? Thus the intention of the insolvent debtor must be ascertained, and this presents a question of fact:” Now, when it is remembered that whenever an insolvent debtor gives to one of his creditors a mortgage upon the whole, or even a part of his property, he necessarily gives such creditor a preference over his unsecured creditors; and as a man is always presumed to intend the necessary consequence of any act which he may do, it is very obvious that the question of fact mentioned in the foregoing quotation never could arise, if the language there found should be construed as counsel for respondent claim it should be; for as soon as it appeared that the insolvent debtor had made a mortgage to one of his creditors, it would at the same time appear that he had preferred one of his creditors; and.hence, the question of fact, whether he had made the mortgage with intent to prefer a given creditor, never could arise. It is obvious, therefore, that the true meaning of the passage quoted is that in all such cases the question is just what it is stated to be in the foregoing cases, there manifestly referred to, though not named: Was it the intention of the insolvent honestly to secure one of his creditors, or was it his purpose thereby to prefer one of his creditors, in violation of the assignment law, by resorting to a mortgage instead of a formal assignment, and thus to evade the provisions of that law1? This, it seems to us, is shown by the language in the quotation which we have italicized, as well as by the express recognition of the preceding cases; for otherwise we would be compelled to infer that the intention was to overrule such [193] cases, and this certainly could not be said with the least show of propriety. Our view of the true meaning of that decision is still further confirmed by the fact, that Mr. Justice Pope, after laying down the law as above quoted, proceeds to inquire whether the mortgages then in question, made just about ninety-one days before the execution of the deed of assignment by Dr. Poole, the insolvent debtor, were not parts of the same scheme, culminating in the deed of assignment, whereby Dr. Poole attempted to prefer his wife and grand-children at the expense of his other creditors, and showing clearly that such was the fact, announces his conclusion in the following emphatic terms: “To expect any man to believe that Dr. Poole did not systematically contrive this result is asking too much of human credulity.” Now, if it was intended by that decision to declare that, to declare the law to be that, the only question in such a case would be whether the mortgages were given with intent to prefer one or more creditors — a question which, as we have seen, is no question at all — then where would be the necessity or even the propriety of entering upon the inquiry to which we have just referred1? It is clear that the case of Mann v. Poole does not in any way conflict with any of the previous decisions, and was not designed to controvert or even qualify any of the principles established by such decisions. The last case upon the subject is Mitchell v. Mitchell, 42 S. C., 475. In that case a mortgage was attacked upon two grounds: 1st. That it was given with intent to hinder, delay, and defeat other creditors, in violation of the Statute of Elizabeth. 2d. That it was intended to be a transfer of the whole, practically, of the insolvent debtor’s estate to the mortgagee, who was the wife of the debtor, and, therefore, void under the assignment law. The facts necessary to sustain both of these grounds were found both by the Circuit Judge and by this court, and, therefore, the mortgage was held void upon both grounds. It is obvious, therefore, that Mitchell’s case, in which the opinion was delivered by the same justice who prepared the opinion in Mann v. Poole, supra, is in line with all the previous cases hereinbefore cited; for in that case one of the points upon which the question [194] turned, as to whether the mortgage was invalid under the assignment law, was whether the mortgage was given to secure an honest debt, or whether it was intended as a means of transferring the whole, or practically the whole, of the debtor’s property to the mortgagee, to the exclusion of other creditors. From this review of the cases upon the subject in this State, the following propositions, applicable to the case under consideration, are clearly deducible: 1st. That an insolvent debtor may, by a bona fide mortgage, which is intended merely as a security for a just debt, prefer one of his creditors. 2d. That if the mortgage is really designed to operate not as a security merely, but as a means of transferring the debtor’s property to the favored creditor, in preference of the other creditors, then it is void under the assignment law. 3d. That the question as to what was the intention is a question of fact. 2 Applying these propositions to the case under consideration, it seems to us clear that the conclusion reached by the Circuit Judge cannot be sustained. There is no finding of fact, and testimony upon which such a finding could be based, that the mortgage was.intended to operate as a means of transferring the debtor’s property to the mortgagee. On the contrary, the referee finds the other way, and his conclusion is abundantly sustained by the testimony. This finding of fact by the referee is not overruled by the Circuit Judge, though he does differ with the referee as to his conclusion of law. All that he says upon the subject is: “I hold and adjudge that said mortgage was an assignment by Eobert W. Strieker, made to the defendant, M. J. Coleman, with intent to prefer her over Strieker’s other creditors, and was in violation of section 2014 of the General Statutes of this State, and is null and vojd.” But his honor did not find, as a fact, that the mortgage was intended to operate as a transfer of the debtor’s property, and we do not see any testimony which would warrant any such finding. On the contrary, it seems to us that the whole testimony points clearly to the conclusion that the sole object of giving the mortgage, was to secure an honest debt due to a very indulgent creditor, for a part of which she held a superior lien, and another part of which was for money then loaned to [195] the debtor to carry on his, business. The subsequent conduct of the parties negatives the idea that there was any intention that the mortgage should operate as a transfer of the property, for the conceded fact is, that the debtor was permitted to retain the possession and use of the mortgaged property for more than three months after the maturity of the mortgage debt. The judgment of this court is, that the judgment of the Circuit Court be reversed, and the complaint dismissed.