Bank of Commerce v. Windmuller

JUDGE DuRELLE delivered the opinion of the court. For several years after 1881, Andrew Brown was a dealer in lumber in Buffalo, N. Y., and, through agents, was engaged in removing the timber from a tract of land owned by him in Carter county, Ky. The timber upon that tract having been exhausted, he purchased, in 1885, the timber upon another tract belonging to appellee Gregory and Mrs. Clara E. Smith, and removed his machinery to that tract of land. His business in this State was transacted entirely through agents. In the spring and summer of 1889 be had drawn a number of drafts for sales [402] of. lumber upon Gorton & Co., of Buffalo, and Pagenstecher & Co., of New York City, in favor of himself, which were accepted by the drawees, and by them made payable at designated banks in the city of New York, and were then endorsed in blank by Brown and sold through brokers to raise money to carry on his business. He was, and has for a number of years been a depositor with the Bank of Commerce of Buffalo, appellant here. On August 15, 1889, one of the drafts on Pagenstecher & Co. matured, and was dishonored. Upon August 19, 1889, Brown executed to the appellant a mortgage upon the tract of land owned by him in Carter county, recited to be to secure the payment of $10,000. It appeared that, in December, 1885, he had conveyed this land to one Frank F. Brown, his second cousin and employe, who, on September 10, 1889, conveyed it to appellant. He also executed a bill of sale on the same date of all timber, machinery, and other personal property owned by him in Kentucky, and the benefit of all contracts held by him with the Eastern Kentucky Railway Company, which was recited'to be for a valuable consideration. Fifteen days afterwards, appellee Windmuller filed his petition in equity upon three drafts, — two drawn on Pagenstecher & Co., aggregating $11,000, and one upon Gorton & Co., for $3,000; setting up the mortgage and bill of sale referred to, alleging that th.ey were made with intent to defraud creditors, and (to hinder and delay them in the collection of their claims, and were executed in contemplation of insolvency, and with the design to prefer one or more creditors, to the exclusion, in whole or in part, of other creditors; praying for a judgment against the property, that the bill of sale be set aside as fraudulent, and that the mortgage be adjudged to operate as an assign [403] ment for Abe benefit of creditors, under the act of 1856. Similar suits were instituted by various other creditors, appellees herein, upon similar paper; a similar suit was instituted by appellee Gregory for $1,000, alleged to be due him upon a contract; and the cases were consolidated, and judgment rendered. By the judgment, the demurrers to the petitions were overruled. The deeds from Andrew Brown and Frank F. Brown, and from the latter to appellant, and the mortgage and bill of sale to appellant, were adjudged to be fraudulent and void as to the creditors and Andrew Brown, to have been made in contemplation of insolvency, and in order to prefer appellant upon a preexisting indebtedness to it, and to operate as an assignment to appellant for the benefit of all the creditors of Andrew Brown. The case was referred to the commissioner to hear proof and audit claims against Brown; and appellant was ordered to pay into court $14,000, upon the bond executed by it for the release of the property. It is urged that the court erred in overruling the demurrers, in adjudging the conveyances fraudulent and void, in adjudging that the transfer was made in contemplation of insolvency, and to prefer appellant in a pre-existing claim Ao the exclusion of other creditors, in directing a reference to the master to hear proof and audit claims, and in requiring it and its surety to pay into court the $14,000. Upon an examination of the record, -there appears no sufficient evidence to support the charge of actual fraud. But it seems sufficiently apparent that the -transfers were made in contemplation of insolvency, and with the design to prefer the appellant bank. At -the time of the transfer, Brown owed the bank over $100,000; and, while the bank a few days later advanced him some $20,000 more, that appears to have been done with a view to enable him to rea [404] lize upon the property included in <the transfer. The bank does not sufficiently show — and the burden was upon it to do so — that the transfers were made to secure it for the advances thereafter made. That there was a design to prefer appears from the evidence of the appellant’s cashier. But it does not follow that the appellees are entitled to the relief they sought. It must first be ascertained whether they have debts against Brown; and, second, whether the transaction in New York operates as an assignment for their benefit. Waiving, for the purposes of dhis opinion, the question of the sufficiency on demurrer of the petitions, and assuming that there is no contest over the claims of any appellee but Gregory, the question arises whether the Kentucky act of 1856 affects the New York transaction so as to make it operate as an assignment for the benefit of the New York creditors. All the appellees but Gregory are non-residents of this State. The transaction must be assumed to have been valid according to the laws of New York, for preferences were lawful at common law; and the common law is presumed to prevail in States where the contrary does not appear. It follows that the transfers will be treated by this court as valid, so far as the citizens of other States are concerned. Said this court, through Judge Holt, in Matthews v. Lloyd, 89 Ky., 629, [13 S. W., 107]: “At common law, a debtor had a right to prefer a creditor either by a payment or an express preference in a deed of assignment. He has a right to pay his debt, and it is only by virtue of statutory law that such a payment can be held invalid, and the creditor be compelled to surrender his advantage. In the absence of any showing of the existence of such a statute in another State, it must be presumed that the [405] common law is in force there. Miles v. Collins, 1 Metc., (Ky.), 308; Honore v. Hutchings, 8 Bush, 687.” And again pages 630, 631, 89 Ky., [and page 107, 13 S. W.]: “The rules of the common law govern the transaction, and, when so considered, it is not invalid, because a payment of a pre-existing debt in view of coming insolvency is not forbidden by them. It is urged that such a preference is contrary to the statute of this State, and will not, therefore, he upheld by its courts. It is true, comity does not require one State to violate its own laws to enforce those of another. Such a preference is not fraudulent or void, however, under our statute. Upon the contrary, it operates as an assignment, not only of the particular property embraced by the preference, but of all the debtor owns for the payment of his debts pro rata, provided advantage be taken of it in the manner and within the time prescribed by the statute. It merely inures to the benefit of all the creditors, if they, or any of them, so ask in proper time and manner. It is a privilege given them. If an assignment, made in another State, and valid there, be contrary to the law or the settled policy of «this State, it will not be enforced here, to the prejudice of our own citizen creditors.” See also, Johnson v. Parker, 4 Bush, 1s49. All the appellees, except Gregory, being confessedly citizens of other States, it follows, therefore, that, in the present state of the record, the statute can not be held to operate in their favor. The validity of the claim >of Gregory is in dispute, and the judgment makes no mention of his claim. As to his claim, therefore, there is nothing for us to act upon. The judgment is reversed, with directions for further proceedings consistent herewith, allowing appellees to amend, if desired, both as (to the1 New York law and as to demand and protest upon the bills of exchange sued upon.