Baker v. Kinnaird

JUDGE PRYOR delivered the opinion of the court. This appeal is brought here from a judgment of the Adair Circuit Court, adjudging that certain transfers of property, real and personal, by W. M. Hamilton, were within the act of 1856, and operated to pass the estate to his creditors. That Hamilton, at the date of the first transfer of certain notes and accounts to John M. Robinson and others as collaterals, to secure his indebtedness to them, was much involved in debt, more than three times the value of his assets, as appears from the testimony, and that his creditors were making a race — 10 — of vigilance in obtaining securities for their respective claims, the written conveyances of his land and assignments of his personalty, found in this record, clearly evidenced. If there is such a thing as bringing a case within the equity of this statute, and to carry into effect its purpose, this is the case, and there are top many reported cases sustaining the validity of this statute and its equitable provisions to now bring the matter in question, and no stronger case has ever been presented to this court than the one before us. This debtor, in his insolvent condition, on the second of October, 1888, assigned to Newman & Co. and to Robinson & Co. a large part of his notes and accounts (he being a merchant) as collaterals to secure the payment of certain debts he owed. On the sixth of the same month, within four days from this transfer, he ■executed a mortgage to Sutcliffe & Owen on twenty-one mules and other property to secure their debt. On the eighth of the same month he- executed a mortgage to Bamberger, Bloom & Co. and other merchants on several tracts of land and some cattle to secure an indebtedness to each firm, and on the same day he executed to James Baker and William Hamilton a mortgage to secure a debt to the Bank of Columbia. This was on his homestead and store-house and other property. In November he executed a mortgage to Keith & Barlow on some of the same property, and a mortgage to a Cincinnati firm on his stock of goods, &c., and finally the debtor made an assignment of all his estate for creditors on the 22d of February, 1889. His creditors were not only seeking a preference, but — 11 — the debtor was willing to gratify them, and with a view of giving the preference, and in contemplation of insolvency, he executed the assignments and mortgages as already stated. The testimony as to the object in view is irresistible, and the testimony of the debtor and creditors combined, to the effect that no such purpose was contemplated, would not be sufficient to repel the presumption arising from the acts of the parties that the purpose of the creditors was to obtain the preference, and that -of the debtor to give it, and in contemplation of insolvency. It is needless to discuss the facts of the case. The bare statement is sufficient to sustain the judgment below. The action was brought originally by the assignee, J. W. Kinnaird, to have the various transfers and conveyances to operate as an assignment to creditors. The action was brought on the 8th of March, 1889. On the 28th of March, 1889, Shuttleworth and others, the assignee among them, instituted an action as individual creditors to have these various transfers declared as acts of insolvency, making the same averments as was made by the assignee. The action by the assignee was dismissed on the ground that he had no right to maintain such an action, or on the ground that two actions, one by the creditors and one by the assignee, could not be maintained. The parties elected to abide by the creditors’ action, and under that this proceeding was had. It is, therefore, not necessary to decide whether the action could have been maintained by the assignee, the estate of the debtor having passed by operation of law to the creditors. It was the duty, however, of the — 12 — assignee, under the circumstances, to have the question settled, as the appellants were claiming, in their independent actions, that the property belonged to the debtor, and, if so, it devolved upon him to see that the creditors were protected, and to administer the estate under the assignment. The creditors had filed their independent actions, and were asserting their right to enforce their liens upon all the mortgaged property, and to have the collateral paper held by them as security for their debts sold. The assignee set up the fact, and particularly in the case of Mason, &c., the non-residents, to the effect that the transfers- and mortgages were in contemplation of insolvency,, and with the design to prefer, and without objection the cases were all consolidated with the action by the creditors. It is now claimed that as they were not warned as non-residents, and had not made an actual appearance to the. creditors’, bill, they were not before the court. They were seeking to subject, in an independent action, property they claimed belonged to the debtor, and in the creditors’ suit was claimed to belong* to the creditors. The assignee of the debtor, by an answer, had set up the same facts as alleged in the creditors’ petition, for the purpose of having determined to whom this property belonged, and when the case is decided adverse to the appellants they complain that they had not appeared in the action or been summoned. This is a technical view of the question, and is too late, even if available, to be made here. The assignee had made the question directly by his answer; the evidence, without objection, had been heard in the consolidated cases, was considered by — 13 — the court, and that an appearance must be regarded under the circumstances admits of no doubt. The petition filed by Grauman & Shuttleworth was dismissed by them, but before the dismissal Kinnaird and Hamilton, who were both creditors, were made plaintiffs with them by an amended petition. This amended petition was filed on the same day the original petition was filed and process issued. There was a motion to quash the summons, because it was blank. No blank summons appears here, nor is there any thing showing that the summons issued before the amended petition was filed. The petition, however, by Grauman & Shuttleworth inured to the benefit of all the creditors, and any creditor had the right to proceed under it, and whether the amendment was filed or not is immaterial. An order was entered' to the effect that the dismissal was not to affect Kinnaird and Hamilton. Kinnaird was a creditor, if Hamilton was not, and the case was permitted to progress as it should have been for all the creditors; and the act of insolvency occurring on the 2d of October, 1889, all the transfers of real and personal estate and collections made from and after that date by reason of - the transfers and in payment of these debts passed to the creditors. The only question to be considered in this case is as to the priority allowed the Bank of Columbia or James Baker for the fourteen hundred dollars embraced in the renewal note to the bank for paper past due. This mortgage to the bank, or to. James Baker, was made when act after act of insolvency had been committed. The execution of the mortgage and the pledges of collaterals were known to the bank when the mortgage to James Baker was executed. — 14 — James Baker lived in the same town with the debtor —they were friends — indorsed for each other, and there-was no reason for James Baker going oh this paper, or when going npon it requiring security in the way of mortgage, except to secure himself on‘the six hundred dollar note for which he was already liable. The president of the bank had left his town and gone to-the village in which the debtor lived, demanding security on the over-due paper; prepared a mortgage that James Baker knew but little about, and reciting that it was to enure to the benefit of the bank. Baker, after this, renews the note to the bank in his own name and assigns the mortgage to thé bank without even recollecting that he had done so, showing an utter indifference to this assumed liability that was evidently resorted to for the purpose of placing the bank on a secure footing. That this was a race by creditors to obtain precedence and secure their debts owing by an insolvent debtor, is too apparent from the testimony to be controverted, and equally manifest that the transaction with James Baker-and the debtor was to secure the bank’s debt by a -renewal, that brings that case clearly within the purview of the act of 1856, if it stood alone in this controversy. There was no actual fraud on the part of the bank president and James Baker, but such an effort as every creditor of a failing débtor will resort to for the purpose of saving his debt; but such acts as the law now stands only places the creditor on an equality with all the rest, and to prevent such preference the statute was enacted. The money that has been paid to the creditors on — 15 — collaterals must be refunded or credited on the claims, if tlie amount does not exceed the sum to which the creditor collecting it is entitled. We are aware of the cases cited df Southworth v. Casey, reported in 78 Ky., 395, and Fuqua v. Ferrell, 80 Ky., 69. In the first case the debtor, before suit was brought, sold some of his property to a bona fide purchaser, and obtained the money, and this court held that parties who purchased in good faith could not be compelled to surrender the property, because the statute provides that the court shall compel every person acquiring by purchase, assignment or otherwise, property or effects of the debtor after the suit contemplated by that act shall be instituted, to surrender the same to the receiver. The question decided in that case does not arise here, for the reason that none of the estate of the debtor was purchased in good faith; but all the collaterals and mortgages taken to secure antecedent debts by an insolvent debtor with the design to prefer, and the sums of money collected by the creditor from the collaterals is the money the chancellor requires refunded. The debtor has paid no money, as in the case of Fuqua v. Ferrell, but the creditor has collected it from the pledged estate, which pledge was an act of insolvency within the statute. In other words, there are no bona fide purchasers in this case, and while they are bona fide creditors, they have brought themselves within the statute by obtaining the preferences already referred to. Bona fide creditors are not protected unless the debt and mortgage are simultaneously created and executed before suit brought, without knowledge of the contemplated — 16 — insolvency and tile design to prefer. So these cases have no application here. The judgment below is affirmed on the original and reversed on the cross-appeal as to James Baker and the bank. They must come in like any other creditor, except as to the homestead; this the debtor had the right to dispose of.