Horstmann v. LaFargue

SMITH, J. This suit was filed by appellee, E. B. LaFargue, on March 12, 1917, in the Arkansas Chancery Court against Henry Horstmann, Sr., Henry Horstmann, Jr., and Annie Horstmann, the wife of Henry Horstmann, Jr., to recover damages for personal injuries and to uncover certain real estate alleged to have been mortgaged by Henry Horstmann, Jr., in fraud of his creditors. Horstmann, Sr., who lived with his son as a member of his family, died before the rendition of the final decree, but the cause was properly revived against his administrator and judgment was rendered against all the defendants for the amount sued for and the conveyances attacked by appellee were canceled as having been executed in fraud of creditors. This appeal raises no question that the damages recovered were excessive or that the testimony did not support the finding of liability, but a reversal is asked upon two grounds, first, that the evidence is not sufficient to sustain the finding that the mortgagor was insolvent at the time the mortgages were executed, and, second, that the chancery court did not have jurisdiction to hear and determine the personal injury case involved here. (1) Upon the question of insolvency, it may be said that the answer contained no denial of that allegation, and it was therefore unnecessary to prove it. Slayden-Kirksey Woolen Mills v. Anderson, 66 Ark. 419. However, the chancellor found that allegation was supported by the testimony, and we can not say that the finding to that effect was clearly against the preponderance of the evidence. The personal injury for which compensation was asked grew out of the shooting of appellee in May, 1916, by one Peters as the result of a conspiracy to which the Horstmanns were shown to have been parties. The Horstmann who was the mortgagor in the conveyances attacked had been cast in a suit in replevin for the costs of the suit and was much aggrieved at that judgment and announced his purpose never to pay these costs. Appellee was at the time the sheriff of the county, and after failing in his efforts to induce Horstmann to pay these costs, undertook to make a levy under a fee-bill on a horse belonging to Horstmann and was shot while attempting to do so. The two mortgage conveyances here attacked were each dated December 28, 1914. One recited a consideration of $3,960 and the other $10,800. The- mortgagee was Fritz Horstmann, a brother of the mortgagor and a nonresident of this State. The attorney appointed to represent the nonresident mortgagee applied to the mortgagor for the postoffice address of his brother and this information was refused, the statement being made at the time that counsel had been employed by the mortgagor to defend the suit. It appears to be reasonably certain that there was no consideration for the execution of these mortgages, yet the consideration recited was much greater than the value of the land. Horstmann, the mortgagor, encumbered his personal property with a chattel mortgage on September 28, 1914, and with a second chattel mortgage on the same property on January 1, 1915. A mortgage on a portion of the lands in question securing $1,200 was executed on June 14,1912, to the New England Securities Company, and the validity of that mortgage was not questioned.- The debt there secured was not paid, and there was a decree of foreclosure, and at the sale thereunder the lands sold for a sum in excess of the mortgage debt and that excess has been impounded by the decree here appealed from. Six days before these mortgages were executed a suit was brought against Horstmann by the "Weber Implement Company for a debt of $1,600 due upon a sale of machinery, and a decree for that sum was finally rendered and the machinery ordered sold, and at its sale brought $625, which was credited.on the decree of sale. The balance has not yet been collected. On November 17, 1914, C. W. Waters brought suit against Horstmann for a settlement of their partnership farming operations, and witnesses speak of other suits, the particulars of which are not given. Horstmann admitted that he had no property out of which creditors could secure satisfaction except the- lands conveyed by the mortgages. (2) We think this testimony warranted the. finding made by the court below that Horstmann was insolvent at the time of the execution of the mortgages and that they were executed for the purpose of defrauding his creditors. We are thus brought to the decision of the question of the jurisdiction of the court to render a decree for damages. Authority for this suit is said to be found in section 6297 of Kirby’s Digest, which reads as follows: ‘ ‘ Section 6297. In suits to set aside fraudulent conveyances and to obtain equitable garnishments, it shall not be necessary for the plaintiff to obtain judgment at law in order to prove insolvency, but in such cases insolvency may be proved by any competent testimony, so that only one suit shall be necessary in order to obtain the proper relief.” (3) From what has been said it appears that this is a suit to set aside fraudulent conveyances and to obtain an equitable garnishment of the sum remaining in the hands of the commissioner upon a sale under the decree of foreclosure of the mortgage in favor of the New England Securities Company, and it will be noted that the statute says that in such suits “it shall not be necessary for the plaintiff to obtain judgment at law in order to prove insolvency, * * *” etc., thus indicating that the character of the suit in which the relief is asked is immateral, and the words, “the plaintiff,”'must be interpreted as if they read any- plaintiff. The benefits of the statute are conferred upon any one who, before the statute, would have had the right, after his cause of action had been reduced to judgment, to sue to set aside the fraudulent conveyances. In the case of Davis v. Arkansas Fire Insurance Company, 63 Ark. 412, Mr. Justice Riddick, in construing the statute, said: “Formerly, the rule was that the creditor must first recover judgment at law, and have execution issued and returned nulla bona, before he could come into equity to ask that a transfer of property made by his debtor should be set aside as fraudulent. The courts of equity required the creditor to show in this way that the ordinary legal remedies were inadequate. The statute of 1887 dispenses with the necessity of obtaining a judgment before commencing a suit to set aside a fraudulent conveyance, and provides that in such cases ‘insolvency may be proved by any other method.’ Sections 3134 and 5919, Sandels & Hill’s Digest. The former decisions requiring judgment, execution and return of execution unsatisfied were based on the rule that equity will not lend its aid when the remedy at law is full and adequate. It would therefore seem that, following the same reason, it is still necessary to show that the remedy at law was inadequate, by showing that the debtor has not other sufficient means from which the claims of the creditor may be satisfied, or showing other facts sufficient to call for the interference of a court of equity. ’ ’ Again interpreting this statute in the case of Euclid Avenue National Bank v. Judkins, 66 Ark. 486, the court said: ‘ ‘ The design of this act was, not to do away with the necessity of showing insolvency to entitle one to equitable relief, but only to broaden the methods of proving it. The statute makes unnecessary the expense and delay incident to obtaining judgment and the issuing and returning of process thereon when insolvency — the ultimate fact to be established — may be proved by other and more direct methods. Riggin v. Hilliard, 56 Ark. 481. The old and familiar rule that, before one can seek relief from a court of equity, he must show that he does not have a complete and adequate remedy at law, still prevails in this State.” This statute had previously been given effect and relief awarded under it in the cases of Riggin v. Hilliard, 56 Ark. 451, and Rudy v. Austin, 56 Ark. 69. Later cases in which the plaintiff has been given complete relief in a single suit under this statute are Fluke v. Sharum, 118 Ark. 229, 237, and Davis v. Beauchamp, 99 Ark. 404. The more recent case of Martin v. Manning, Emerson & Morris, 124 Ark. 74, was one in which the chancery court fixed an attorney’s fee in a suit quantum meruit and in the same suit uncovered certain lands which had been fraudulently conveyed. (4-5) As pointed out by Judge Riddick in the case of Davis v. Arkansas Fire Ins. Co., supra, it is still necessary to show that the remedy at law is inadequate, by showing that the debtor has no other sufficient means from which the claims of the creditor may be satisfied, or showing other facts sufficient to call for the interference of a court of equity. So that; in effect, the statute is a declaration of the doctrine that, when the chancery court has acquired jurisdiction of a matter in suit for one purpose, all matters in issue will be adjudged and complete relief afforded. We have numerous oases in which chancery courts, when giving the equitable relief to which the parties have shown themselves entitled, have, at the same time, adjudged matters otherwise cognizable only in the courts of law hut which were disposed of as incidents in the cases. For instance, in the case of Nichol v. Stewart, 36 Ark. 612, Mr. Justice Eakin, speaking for the court, said: “It is true that, in an equity case involving matters appropriate to chancery jurisdiction, damages from malfeasances, misfeasances or nonfeasances regarding the subject-matter, may he estimated incidentally, for the purpose of closing all litigation in one suit. They are not of themselves, however, proper subject of chancery jurisdiction when they constitute the whole, or principal ground, of the relief sought. They should in all cases he affirmatively shown with some tolerable degree of certainty, or they should not he taken into the adjustment of matters arising from contract, or affecting property. Jurisdiction to award compensation for damages has been assumed by courts of equity with great caution, and manifest reluctance.” Appellants state their position as follows: “The damage did not come out of, nor was it an incident of any matter which was alleged as an equitable claim.” The answer to that contention appears to be that the statute makes the amount due ‘ ‘ an incident of a matter which is alleged as an equitable claim. ’ ’ (6) Chancery courts have always had jurisdiction to set aside conveyances made in fraud of creditors and this statute was enacted, as was said in the cases set out above construing it, to prevent circuity of action by directing the court to ascertain the sum due upon the plaintiff’s demand — whatever the nature of the demand may be— and to render judgment for that sum as an incident to the awarding of complete relief and closing out the litigation. Of course it is essential; as said by Judge Riddick in the opinion quoted from above, that chancery courts have jurisdiction of the subject-matter before granting this incidental relief, and that jurisdiction exists in the instant case only because it appears from the testimony that a fraudulent conveyance was made which in equity should be set aside. The case of Carpenter v. Osborne, 7 N. E. 823 (a decision of the Court of Appeals of New York), was a suit to cancel fraudulent conveyances. Part of the demands in suit were liquidated and in judgment, while some of the demands had not been reduced to judgment. It does not appear that there existed in that State (New York) a statute like our section 6297 of Kirby’s Digest set out above. The plaintiff there had recovered judgment in the court below for certain installments of income due her on articles of separation which were not in judgment when the action was commenced, as well as certain installments which had been reduced to judgment; but the court there said: “We are, however, of the opinion that the court, having acquired jurisdiction to decree such conveyances fraudulent and void as to judgments previously recovered, was authorized to grant such further relief, within the scope and meaning of the issues made, as the parties might be equitably entitled to in connection with the transaction under investigation.” And, as its authority for that action, the court said: “The rule relating to the subject is comprehensively stated by the author of the most recent work on Equity Jurisprudence, as follows: “ ‘If the controversy contains any equitable features, or requires any purely equitable relief which would belong to the exclusive jurisdiction, or involves any matter pertaining to the concurrent jurisdiction, by means of which a court of equity would acquire, as it were, a partial cognizance of it, the court may go on to a complete adjudication, and may thus establish purely legal rights, and grant legal remedies, which would otherwise be beyond the scope of its authority.’ Pomeroy, Eq. Jur., § 181; Rathbone v. Warren, 10 Johns. 596; Hawley v. Cramer, 4 Cow. 717; Crane v. Burnell, 10 Paige 333; Bradley v. Bosley, 1 Barb. Ch. 152. “This principle has been applied in many cases in awarding judgment for pecuniary damages, even when tbe party bad an adequate remedy at law, if tbe damages were connected witb a transaction over wbicb tbe courts bad jurisdiction for any purpose, although for the purpose of collecting damages merely they would not have bad jurisdiction. Bradley v. Bosley, supra; Clarke v. White, 12 Pet. 188; Franklin Ins. Co. v. McCrea, 4 Greene (Iowa), 229; Brooks v. Stolley, 3 McLean 523.” (7-8) It is not questioned by appellant that appellee became a creditor upon receiving bis injury, and if such denial were made it is swept away by tbe decision of this court in tbe case of Papan v. Mahay, 106 Ark. 230, in wbicb we held that claimants for damages arising from torts are within tbe protection of statutes against fraudulent conveyances and are regarded as creditors within tbe meaning of such statutes. So we conclude that appellee was a creditor who bad tbe right to sue to set aside the fraudulent conveyances, and, as an incident to this right, section 6297 of Kirby’s Digest, quoted above, gave tbe court jurisdiction to adjudicate appellee’s claim and to reduce it to judgment, and it follows, therefore, that tbe decree of tbe court below must be affirmed, and it is so ordered.