Davis v. Cobb

LOVELY, J. This action arose on an appeal from the disallowance of a claim by the assignee of the insolvent estate of A. F. Kelley. The trial court allowed the claim, upon which judgment was duly entered. The assignee appeals to this court. A. F.. and L. E. Kelley were partners, and carried on the business of loaning money for outside investors, one of whom was Alice B. Davis, the respondent. The Kelleys also as a firm made an assignment in insolvency. About a month previous to the assignment of the firm, an indebtedness of such firm to respondent was estimated upon a past-due- and open account made up of mortgages and notes collected, and amounted in round numbers to $7,000. A. F. Kelley, in settlement with Mrs. Davis, gave her a note of the firm for its outstanding obligation, which was also signed by him individually. At this time the firm and both members were hopelessly insolvent, and respondent knew, or at least had reasonable cause to believe, such to be the fact. This note, with the additional security which. A. F. Kelley’s name gave to it, was, under the findings of the court below, received by Mrs. Davis in contemplation of such insolvency. [172] Tbe note was first filed as a claim against tlie estate oí A. F. & L. E. Kelley, and Mrs. Davis was allowed ber proportion tbereon. The balance thereof was then filed against the individual estate of A. F. Kelley, and it is the allowance of this balance against such individual estate of the latter, over proper objections, that presents the only question for our determination on this appeal. The court below declined to find the intent of A. F. Kelley in giving this note, for the reason that it was of the opinion that no preference in law could be created by the additional personal signature of one of the members of the firm. The court also found that the note was given in payment of the partnership debt to Mrs. Davis. At the time of the execution of the note, A. F. Kelley owned a large amount of real and personal property, which passed to his assignee, but neither the firm nor the individual creditors will receive dividends from the respective insolvent estates sufficient to pay their claims in full. It is contended on the part of appellant that the execution of the firm note with the name of the individual partner amounted to an actual fraud, and should be set aside. This view, under claim of counsel, is supported by several cases which hold that under the same circumstances the application of firm property to pay the debts of a member, or the assumption by the firm of obligations due from any one of them, would amount to a fraud upon the partnership creditors, for the reason that the firm’s obligations should be first paid from the firm-property, as held in Hawkins v. Mahoney, 71 Minn. 155, 73 N. W. 720. Such a case is Phillips v. Ames, 5 Allen, 183; but we are unable to apply this rule to the converse of the situation, or to hold that the giving of further credit by a personal member of the firm to a partnership debt constitutes a legal fraud. It is apparently a benefit, rather than an injury, to the firm; and if an individual member wishes to give his own property to pay the. firm’s debts, or lends the use of his name to the firm for the purpose of extending its credit in the regular course of business, without any dishonest arrangement between himself and the debtor, it is impossible to discover any constituent element of legal fraud in the transaction. Until A. F. Kelley made an assignment in insolvency, .and in the conduct of his business continued to give and receive [173] credit, his indorsement of the note in the usual course of business could not, as a matter of law, be held to be a fraud. Gallagher’s Appeal, 114 Pa. St. 353, 7 Atl. 237. With reference to the effect of the indorsement of the note by the individual member as affecting the estate of A. F. Kelley, there is not sufficient evidence to show a fraudulent knowledge or connivance on the part of Mrs. Davis with such individual member to defraud creditors in the collection of their claims, and to support the contention that such act was in itself fraudulent it must appear that the party to be benefited was privy to that design (Wait, Fraud. Conv. § 199; Jaeger v. Kelley, 52 N. Y. 274; Prewit v. Wilson, 103 U. S. 22, 24). It only remains to be considered whether, under G. S. 1894, § 4243, the indorsement of A. F. Kelley to the note was an unlawful preference. This statute applies, by its terms, to “conveyances and payments made, and securities given, by any insolvent debtor, or a debtor in contemplation of insolvency, within 90 days of making of an assignment,” which are declared to be invalid, and will be set aside as illegal preferences. If the execution of the note by A. F. Kelley was, under the statute, an illegal preference against his own creditors, it should be set aside for the reason solely that the statute prohibits such a preference; and the consideration of this question simply requires a construction of that statute, for without the restraint of the statute debtors may prefer creditors, and, in the absence of actual fraud, such preferences are valid, and will be upheld. Mackellar v. Pillsbury, 48 Minn. 396, 51 N. W. 222. There is no doubt that the effect of A. F. Kelley’s individual signature was within the mischief of the statute, and the fact that he was insolvent; as well as the firm, and known to be so, could not but have been supposed to give the person taking the note, who was a partnership creditor, an advantage over individual creditors of A. F. Kelley. But it does not follow that it was an unlawful preference, for, as we have seen, preferences without actual fraud are prohibited solely by statute; otherwise they are legal, and will be upheld, and the question whether this transaction should be set aside depends, as we have seen, entirely upon the statute, and we are com [174] pelled to say that it does not coyer this case. It relates, by its express terms, to “conveyances and payments made, and securities given” by an insolvent. Clearly, this indorsement was not a conveyance, and, although the court held that the signing oí the note by A. F. Kelley was in payment of the debt, yet the payment referred to in the statute must be held to be an application of the funds of the estate of the debtor, rather than the indorsement of a note in the ■ way of business; and, while it is difficult to see any substantial reason why this statute should not have been extended to meet a case like the one at bar, yet we cannot, by any latitude of construction, so interpret it. The expression of certain well-defined cases in the act, which constitute preferences by a familiar rule, excludes any other. “Expressio unius exclusio alterius.” And in the absence of a general provision covering all preferences, the indorsement was clearly excluded under any construction we can apply to it, and we must hold it not to be a preference. The judgment is affirmed.