First National Bank of Pana v. Havens & Geddis Co.

Mr. Justice Boggs delivered the opinion oe the Court. The cross-motion interposed by the sheriff to strike from the files appellees’ motion to vacate the judgments was properly overruled. A judgment creditor may, by motion in a court of law, attack a prior judgment against his debtor on the ground it is void for want of jurisdiction or authority to enter it, or is fraudulent or collusive as to him. Black on Judgments, Sec. 290-293; Freeman on Judgments, 4th Ed., Vol. 2, Dec. 557. Courts of law exercise equitable jurisdiction over judgments by confession in vacation, and if there is an absence of authority to confess, or the judgment is fraudulent, a subsequent judgment creditor injured thereby will not be forced into a court of chancery to obtain relief, but may move to set aside the judgment in a court of law. Farwell v. Husted, 151 Ill. 246. Such a motion is substituted for a proceeding in chancery and relief is granted under it upon equitable doctrines. The general equitable principle is, relief against a judgment will be granted to the extent only it appears the judgment debtor has a defense, legal or equitable, to the debt upon which the judgment is founded. Farwell v. Husted et al., 151 Ill. 239; Coleton v. Leitch, 110 Ill. 504; Farwell v. Husted, supra; Atwater v. Exchange Nat. Bank, 152 Ill. 606; Martin v. Judd, 60 Ill. 83; Freeman on Judgments, 2d Ed., 516. To this general rule there is an exception in favor of a subsequent judgment creditor who may have relief against a prior judgment, though rendered in part for a debt honestly due, if it includes also an amount not bona fide due, added for the purposes of fraudulently conveying the debt- or’s property, or hindering and delaying or defrauding his creditors. • The law will deal with such a judgment as with any other fraudulent contrivance and will postpone its payment until the subsequent judgment creditors it was designed to defraud have been paid in full. Atwater v. Amer. Nat. Ex. Bank, supra; Young v. Clapp, 147 Ill. 176. Where, however, the only purpose of the prior judgment creditor was to obtain security for himself, and he did not intend or endeavor to defeat, hinder, delay or defraud other creditors, the prior judgment will be sustained and enforced to the extent it is founded on a Iona fide indebtedness. Young v. Clapp, supra. The warrants conferring power to confess the judgments in the cases at bar authorized the confession of a sum “ for attorneys’ fees” in addition to the amount due upon the principal and interest of the notes. Such a.stipulation rests upon a good and valuable consideration, and is lawful unless entered into in fraud of the rights of other creditors. Judgment thereon might have been entered in open court upon proof of the reasonable value of the services of counsel. Weighey v. Matson, 125 Ill. 64; Ball v. Miller, 38 Ill. 110. Had the amount to be added for such services been fixed in the warrant, a lawful judgment could have been entered by the clerk of the court in vacation, unless the stipulation operated fraudulently as to other creditors; but as a clerk has not power to hear testimony and judicially determine what would be the reasonable value of services of an attorney, and as it would be manifestly unjust to permit the attorney to fix the amount of his fees, it was not lawful to include a sum for attorneys’ fees, in the judgments rendered in vacation. Campbell v. Goddard, 117 Ill. 252. For this reason so much of the judgments as were for the fees of counsel are inoperative. What further effect had the inclusion of such amounts ? The position of counsel for the appellee is, it rendered each judgment in its entirety, void as to subsequent creditors, upon the ground it tainted them all in fraud as a matter of law. This position, it is said, is supported by Hulse v. Mershon, 125 Ill. 52; Young v. Clapp et al., 147 Ill. 176; Atwater v. American Exchange Bank, 152 Ill. 606. In Hulse v. Mershon, the facts were that Hulse, who was insolvent, desired to prefer certain of his creditors. He informed them he was insolvent and it was arranged between them he should and he did execute to each creditor, a note for the amount due, and attached to each note a power of attorney to confess judgment thereon for the amount of the debt, and a certain sum in addition for attorneys’ fees. The notes were prepared by attorneys, who caused judgments to be confessed thereon for the amounts due and attorneys’ fees as stipulated. The total amount included for attorneys’ fees was $1,258. The judgments were collected. Mershon and others, non-preferred creditors of Hulse, filed a bill in chancery to recover the amount collected for attorneys’ fees, making the attorneys to wfiom the fees had been paid also parties defendant. The only question presented was whether the amounts collected for attorneys’ fees could be retained as against the other creditors. The court said: “ When the judgment notes were given, and also when the judgments were entered up and when the creditor’s bill was filed, these attorneys knew Hulse was insolvent and that the judgment notes were given for the purpose of preferring creditors to the extent of their just claims, and that when such notes were paid in full, the assets of Hulse would be nearly or quite exhausted, and that the complainants and other creditors would be unable to collect their claims.” The court held that under the circumstances the attorneys’ fees were to be regarded as but gifts or voluntary donations made by Hulse to the attorneys, while he was insolvent and indebted to others; that he had no right to make such gifts to the injury of existing creditors; and ruled that the subsequent creditors were entitled to recover the amount collected from the property of Hulse for such fees. The proceeding did not seek to otherwise interfere with the amount collected under the judgments and no question as to the right to do so was raised or decided. The right of a debtor in failing circumstances to prefer one creditor to the exclusion of others, if he does so in good faith, was re-announced, and the decision rested solely on the ground the attorney fees were but gifts and fraudulent, because Hulse’s property, to the amount of the fees, was thereby put out of Hulse’s hands without consideration, and to the injury of his creditors, and into the hands of others who had full knowledge of the wrong thus accomplished. The facts in Young v. Clapp et al., supra, were, the insolvent firm of Clapp & Davis preferred eight of its creditors by giving each a judgment note for the amount due him or them respectively, and included in each note an attorney’s fee for taking judgment, amounting in the aggregate to $1,600. In the course of the opinion the court said: “As the judgment debtors, Clapp & Davis, were insolvent when the notes, were given, the fees therein included were gifts to preferred creditors, and must be regarded as fraudulent and void as against other creditors.” But the court did not hold the judgment rendered upon the notes were void except to the extent of the amount included for such fees. Upon the contrary it is said in the opinion: “ But the money realized from sales and collections by the receiver was not applied to the payment of such fees and was only applied upon such portions of the judgments as remained after deducting the fees. * * * As no part of the funds in the receiver’s hands has been used to pay the fees, the facts they were included in the judgment would not of itself justify a reversal in this case. * "x" * The whole testimony, fairly considered, shows the object of the preferred creditors was to obtain security for themselves and not to assist the judgment debtors. We do not think the preferences given were fraudulent and void as being within the statute of frauds.” The judgment under consideration in the Atwater case, supra, was confessed by an insolvent corporation in favor of one of its stockholders for a debt partly due to him, and partly to two of its directors, and it was held void upon the ground it was entered and had been used for the fraudulent purposes of hindering and delaying other existing creditors of the corporation. The legal principles controlling the case are thus stated in the opinion. “ Where a judgment is confessed and execution levied for such an amount (in excess of the real debt) that subsequent creditors find nothing to levy on, a combination being proven, fraud will be established. A judgment may be founded upon an honest debt, yet it may be obtained under such circumstances, and used for such purpose as to make it a fraud.” “ Where such a judgment is entered up -as a fraudulent cover to protect defendant’s property, or to put it in the hands of creditors who have no right to appropriate it to their own debts, courts will deal with it as with any other fraudulent contrivance.” “ If a creditor permits a judgment rendered in his name for a large amount due to parties who have no right to the entry of such judgment in their favor to be used for a fraudulent purpose as against subsequent creditors he will be postponed until they are paid, even though a portion of the debt embraced in the judgment is honestly due to him.” We find nothing in either of the cases relied upon supporting the contention that a judgment confessed by a failing debtor for a debt Iona fide due, and also for a sum for attorneys’ fees, is to be deemed fraudulent as matter of law and void in toto, simply because such attorneys’ fees are included. In the Hulse case it was said (125 Ill. p. 56): “ It is undoubtedly true a debtor in failing circumstances, and who does not seek the benefit of the general assignment act, may prefer one creditor to the exclusion of others when he does so in good faith.” Such preference, it is said in Clapp v. Young, supra, maybe given by the execution of a judgment note resulting in the entry of a judgment thereon. Our conclusion is, such a judgment is good and valid if confessed for a debt bona fide due, and that the inclusion of an attorney’s fee does not of itself warrant a court in holding the entire judgment inoperative as to subsequent creditors. Unless actual fraudulent intent upon the part of the judgment plaintiff appears, his judgment should be upheld to the extent of the debt bona fide due to him, provided of course the statutory prerequisites for entering judgment by confession are complied with. It was abundantly proven in the case at bar, Seitz & Craddick, and Seitz, were actually indebted to the bank in the amount of the principal and interest of the notes upon which the judgments against them respectively were founded. The indebtedness of Seitz & Craddick was of long standing, and was evidenced by three notes with powers of attorney to confess judgment attached, executed June 8, 1893, falling due respectively December 8, 1893, January 8, 1894, and March 8, 1894. Judgments were confessed upon them November 14,1894, nearly a year and a half after the notes had been given and long after all of them were due. The individual indebtedness of Seitz to the bank was of more recent origin, but was confessedly bona fide. It consisted largely of overdrafts upon his bank account. On November 12, 1894, he gave a judgment note therefor, with power to confess judgment thereon at any time thereafter. It was lawful to enter judgment thereon at any time, without regard to whether the days of grace allowed by law had expired. Farwell v. Huston, 151 Ill. 239. We find nothing in the evidence to indicate, nor do we understand it is contended, anything appeared tending to show the appellant bank, in taking the judgment, was actuated by any improper motive, as against other creditors, or was in any way acting in collusion with the debtors, to hinder, delay, or defraud other creditors, or was moved by any consideration other than that of securing the debt actually due to it, and we can not agree with the contention of the appellees, fraud is conclusively imputed to it, because it caused attorney’s fees to be included in the judgment. It had lawful right to obtain a preference by way of a judgment, by confession, for the amount bona fide. The contract for attorney fees, to quote from Wrigly v. Matson, 125 Ill. 67, “ rests upon a good and valuable consideration. It is not in the nature of a guaranty, but a contract by which the debtor, in part consideration of the credit given him, agrees to indemnify his creditor against the consequences of his neglect or refusal to pay’” etc. As against existing creditors, such contracts, under certain circumstances, may be deemed, in law, gifts of the debt- or’s property, and therefore not enforceable; but it does not follow in such cases, that a judgment, including such fees, is to be deemed fraudulent m toto as to other creditors. That result only follows when the judgment plaintiff is guilty of actual fraudulent intent. A declaration, warrant of attorney to confess the judgment, with proof of its execution by the debtors, a cognovit, and the notes of the debtor, were filed in each case, and judgment entered thereon by the clerk, in compliance with the rule announced in Gardner v. Bunn, supra. The allegation that the notes, with powers of attorney to confess judgment against the firm of Seitz & Craddick, were executed by Seitz, without the knowledge or consent of Craddick, was clearly/ disproved by the testimony. The charge that the execution of the powers of attorney was procured by means of false and fraudulent representation of the cashier of the appellant, made to the debtors, was not sustained by the proof. Had it been established it could not have been urged by the appellees. It is no ground for the intervention of third parties that fraud was practiced upon the debtor. “ It must be fraud practiced by the debtor and the plaintiff, to the injury of the complaining creditor, that may be set up in avoidance of a confessed judgment.” Black on Judgments, 294. The statement in certain of the judgments entered by the clerk, “it is ordered and adjudged by the court, the plaintiff have judgment,” and the other statement that the other judgment was rendered upon “ a note payable to the order of the plaintiff,” when, in fact, the note was given payable to one Hunter, and by him assigned to the order of the plaintiff, are at most but irregularities, not affecting the jurisdiction or authority to enter the judgments, and having no bearing to render the judgment fraudulent as to the appellees. Ho evidence was produced tending to support the charge; the executions were issued before the judgments were entered of record by the clerk, and nothing on the face of the record or executions gave color to it. The only objections remaining to be noticed are, in substance, that judgments were confessed in each instance for an amount in excess of the sum actually due the plaintiff upon the principal and interest of the notes set out in the declaration. It appears from the' declarations, cognovits, and notes filed with the clerk, and judgments entered thereon, an amount in excess of the sum due plaintiff upon the notes was included in each case as being the value of the “ reasonable fees” of counsel who prepared the papers and rendered legal services in and about procuring the rendition of the judgments. We have examined the contention of the appellee that an amount above such attorney’s fees was included. The excess claimed in this respect is insignificant in amount, in no instance more than seventy cents being the difference in calculations of interest upon the indebtedness. The Circuit Court regarded the excess as being composed of amounts allowed for attorney’s fees, and we accept its conclusion. The judgment and orders of the Circuit Court, that the judgments confessed in favor of the appellant bank be modified by striking therefrom the amount included for attorney’s fees, is affirmed. But we do not agree payment of such judgments should be postponed to the judgments confessed in favor of the Havens & Geddis Co., and thp Terre Haute Shoe Co., but are of opinion appellant’s judgments and the-executions thereon, after excluding the amount included for attorney’s fees, should be deemed and held valid, and the executions thereon so reduced declared to be liens upon the debtor’s property from the day they came into the hands of the sheriff. The judgments and orders of the Circuit Court as to appellant’s judgments are, therefore,, affirmed in part, and in part reversed, with directions to enter orders in each case in compliance with the rules here announced. Affirmed in part and reversed in part with directions.