Brown v. Scheffer

BUCK, J. This is an appeal from a judgment of the district court of Faribault county entered in said county upon the findings of fact by the trial judge. The evidence is not returned, and the sole question is whether the conclusions of law are justified by the facts found. On March 8, 1897, and for-a long time prioi thereto, one John F. Franke was a harness maker, and engaged in such business at Blue Earth City, in this state, and kept a stock of goods of the kind usually kept by harness makers, of the value of $2,000, which stock is the personal property in controversy in this action. On said last-named day said John F. Franke was indebted on account of said business to a large number of persons, including the defendants, and to the latter he owed the sum of $1,518.22. At such time Franke was wholly insolvent, and on that day, for the purpose of avoiding the payment of said debt, he sold said stock of goods to his brother Mike G. Franke, by a written bill of sale, and took in payment therefor the promissory notes of his said brother Mike G. Franke, for the sum of $3,500, payable to said John F. Franke; that being the amount he was to pay for said stock of goods. Mike G. Franke took possession of said stock of goods and conducted said business up to March 16, 1897. The sale was made by John F. Franke to his brother Mike G. Franke for the purpose, on the part [30] of both of them, of enabling said John F. Franke to avoid the payment of said debts, said Mike G. Franke well knowing of the insolvency of his brother at the time of such sale. This sale was not made, however, by John F. Franke with a view to give any of his creditors a preference over any other of his creditors. While said Mike G. Franke was in possession of said stock of goods and conducting said business, and on March 16, 1897, he, together with his mother, Koline Franke, for the purpose of paying and settling the defendants’ claim of $1,518.22 against John F. Franke, executed to defendants their promissory note for that amount, payable on demand, and’ defendants accepted said note in full settlement and payment of said claim. Thereafter, but on the same day, the defendants purchased from said Mike G. Franke the said stock of goods now in controversy, in payment for which the defendants canceled and delivered to said Mike G. Franke the said note of $1,518.22, and thereupon the defendants immediately took possession of said stock of goods. At the time of this transaction the defendants knew that said stock of goods had previously been sold by the said John F. Franke to Mike G. Franke for the purpose of assisting the said John F. Franke in. avoiding the payment of his just debts and liabilities, and that said John F. Franke was then insolvent. On March 20, 1897, the said John F. Franke, who had thus continued to be and was then insolvent, made an assignment to the plaintiff, in due form, of all his property not exempt for the benefit of his creditors. The plaintiff, as such assignee, replevied said stock of goods, and has the same in his possession, save such portion thereof as he may have sold. This proceeding was instituted upon the theory that the defendants obtained the payment of their debt against John F. Franke with intent to obtain a preference over the other creditors of said Franke, and that both Frankes were parties to the transaction. Unfortunately for the plaintiff’s contention, the trial court found that, while John F. Franke sold said stock of goods to Mike G. Franke for the fraudulent purpose of avoiding the payment of his debts, yet the sale was not made with the view to giving a preference to any of his creditors. That the transaction between the brothers was a fraudulent one [31] must be conceded, and, while it doubtless might have been set aside by the proper parties and by proper proceedings, yet, as between the Frankes, it was valid, however fraudulent it might have been as to creditors. New Prague v. Schreiner, 70 Minn. 125, 72 N. W. 963. While Mike G. Franke held the title to this property as between him and his brother, he turned the same over to these defendants, who were creditors of John F. Franke, in full payment of his indebtedness to them, and upon an indebtedness existing when he sold the property to Mike G. Franke. If John F. Franke had turned the property over to the defendants while he still owned it, in payment of this indebtedness, without intent to give them a preference, the sale would have been valid. And if the defendants had attached this same property while in the hands of Mike G. Franke, upon the ground of its fraudulent sale from John F. Franke to his brother, about which there cannot be any reasonable doubt, then why did they not have the right to take the same in payment of a just debt which they held against John F. Franke? Under the finding of the court, John F. Franke intended to cheat, hinder, and delay all of his creditors, not any particular one. If creditors other than these defendants had been vigilant, and taken steps to avoid the sale between the brothers, the property would doubtless have been secured and applied pro rata among them in payment of their debts, but this they did not do. If the defendants have been fortunate in securing full payment of their claim, it was because they were vigilant, and not because the debtor gave them a preference. At least the court so found, and there is no evidence in the record to show error in the finding. We do not wish to be understood as holding that, if any creditor had attached these goods in the hands of Mike G. Franke, under the insolvent law other creditors could not have taken steps to have a' receiver appointed, the attachment dissolved, and the property applied pro rata to the payment of the debts of the creditors of John F. Franke. But such steps‘were not taken, and instead thereof the assignee seeks to recover from these creditors the goods which they took in payment of their just debts without the debtor intending to give them a preference. It may be that in fact John F. [32] Franke did through the transaction with his brother intend to give defendants a preference over other creditors, but the evidence is not returned, and the trial court found otherwise, and by that finding we must abide. As we have already stated, the sale was valid as between the brothers, and, while it might have been voidable as against the legal process of creditors, yet the doctrine which we find from authorities seems to be that a fraudulent vendee can do with the property all that the vendor might have done had he retained the goods. See Butler v. White, 25 Minn. 432; Webb v. Brown, 3 Oh. St. 246; Dolan v. Van Denmark, 35 Kan. 304, 10 Pac. 848. If the rights of other creditors seem to conflict with this rule, our answer is that ordinarily the diligent creditor is entitled to the fruits of his diligence. John F. Franke might himself have turned this identical property over to the defendants in payment of their debt, if done without any intent to give them a preference. There is a. moral, as well as a legal, obligation upon the part of a debtor to pay his just debts; and when he does so out of his own means, or through a fraudulent vendee, without intending to give one creditor a preference over another, upon sound principles it ought to be held valid. Judgment affirmed.