Hilliard v. Cagle

Simkall, J.: W. P. Baggett was a large merchant and cotton dealer, doing business at Brookhaven, having intimate relations with Summers & Brannin, cotton factors at New Orleans. The latter, according to the course of the dealings, advanced money and credit to Baggett to keep up his stock of merchandise, and to supply funds with which in part to buy cotton to be shipped to and sold by them. In December, 1866, a large cash balance was due to Summers & Brannin, subject, however, to credit by the proceeds of cotton then in hand, but not sold. In view of a continuation of the business on the same scale, and to provide for the ultimate security of these factors, it was insisted upon by them and acceded to by Baggett that he should execute to them a deed in trust covering his plantation and stock thereon, his storehouse in Brookhaven, and his merchandise. Accordingly on the 19th of December, 1866, Baggett made his note for $40,000, payable at the Canal Bank, New Orleans, ninety — 337 — days after date, and the trust deed to secure it. At the same time a contemporaneous written agreement was made explanatory of the transaction, and, in addition thereto, to the effect that the note was given to represent the indebtedness then due, and the balance, as it might be, at its maturity. The business, however, to continue as heretofore by the purchase and sale of merchandise, buying cotton to be sent to these factors in New Orleans, and sold for account of Baggett. Baggett, at this time (and so did Summers through whom the negotiations and business was conducted), believed that he was entirely solvent. But he insisted that the deed in trust should not be recorded (in Lawrence county) until the last of January, assigning as a reason (as stated by Summers) that it would injure his collections, according to another witness because it would injure his credit. Whichever be the correct report of his “reason” it is manifest that he wanted the deed withheld from registration, because, if recorded, it might impede and embarrass his business. It would seem that all or nearly all the means realized by Baggett from the sale of goods, as well as money supplied by his factors, were placed in cotton. The course of the market was downward, and it is inferable that the insolvency which overtook him, within less than sixty days after making this note and deed is referable to the decline in the value of cotton, curtailing a loss upon the cotton purchased, and diminishing his collections from those to whom he had credited out his goods. The testimony does not convince us that the arrangement was made, with a fraudulent scheme and purpose, to defeat existing or future creditors. This was not the primary motive. Summers & Brannin desired that Baggett should continue his business as before, but at the same time they were anxious that they should be protected at all events, and in any contingency. If misfortune and calamity should fall upon him, their purpose was to be secure. It was not designed that the execution of the deed should in any wise interfere with and change Baggett’s business. — 338 — He was to sell and replenish his stock of merchandise as before, and buy all the cotton that he could control. If it became necessary to make the deed available, by a sale under it, it would apply to and embrace the goods in the storehouse at Brookhaven, at the time the trustee took possession. The interval between the date of the note and its maturity embraced the best business season of the year, the period for collections, cotton sales and active business in merchandise. In ascertaining the motive, we look through the conduct, and from it make the deduction and inference. Generally, this is the only mode of conducting the inquiry. A man must be conclusively taken to intend the natural and logical results of his acts. Upon this principle rests his accountability for the violation of criminal laws. It is equally applicable in civil affairs. If one is actually misled to his prejudice and loss, by the conduct of another, the injury to him is just the same as though the thing were done for the very purpose of deceiving. Thus, too, if one maintains silence, when, in equity, he ought to speak or act, equity will debar him from speaking or acting when conscience enjoins silence. So, if by words or acts, another is fairly induced to believe the existence of a certain state of facts, and acts on that belief, so as to alter his previous condition (as by advancing money or property), the former is concluded from averring a different state of facts, as existing at the time. Green v. Price, 1 Mumf. 449; Wilson v. Kimball, 7 Fost. 300, afford illustrations of the principle; also, 2 Mad. Ch. 282. A few days prior to the date of the deed in trust, Mr. Summers had made a full examination into the business of Baggett. While he thought that he was solvent, his partners, on consultation with them, insisted upon security for their debt. His ultimate condition depended upon the price of cotton and his success in making collections. It was because of the confidence of Mr. Summers in his solvency that he was induced to withhold the deed from registration. — 339 — It is shown that Baggett had the confidence of the community in his integrity and solvency, so much so, that he was able to’ buy cotton, in some instances, on credit, and in others, to ship for planters on his own account, to pay over the proceeds on return of sales. Such continued to be his estimate until it was discovered that he had incumbered his property, all of it (except a small fraction of land), for the benefit of Summers & Brannin. The “ natural” and logical effect of a knowledge, by the public, of the existence of this deed, would be to destroy his credit and stop his business, except for liquidation. He could not purchase further supplies of goods to keep up his stock of merchandise, nor could he deal in cotton with the same facilities, and to the same extent, as heretofore. Moreover, his other creditors would become alarmed and uneasy, and would press for some sort of satisfaction. A concealment of the deed, on the other hand, would enable him to prosecute his business. He could buy merchandise on credit, keep his store-house full, and deal largely in cotton. He might be able to pass through the active business season with unshaken credit, and come out successful. At all events, the explosion would be postponed until the speculative experiment had been tried. But at whose risk was this to be done ? It is not to be supposed that the New Orleans creditors would have filled his orders for any goods and groceries, or that Cagle and G-artman would have sold cotton on credit, or that they would have loaned him money, if they had known that his property had been assigned to Summers & Brannin. If these lien creditors have, by their conduct and acts, willfully contributed to give to Baggett a credit that he was not entitled to, although they did not meditate a wrong or injury to others, then they are debarred from setting up any advantage they may have against those who have been drawn in to risk their property or money. The mind' cannot escape the conviction that those creditors who dealt with Baggett, subsequent to the 19th of December, did so upon — 340 — the assumption that he was the owner, absolutely, of his merchandise and cotton. If Summers & Brannin willfully aided and contributed to hold him out in that capacity, thereby inducing the complainants, or some of them, to alter their condition by becoming his creditors, they ought in conscience to be estopped from averring a different state of facts as existing at the time the credit was given. To apply the principle to the facts; if Summers & Brannin concealed and suppressed their assignment of Baggett’s property, from the nineteenth of December until the thirtieth of January, for the purpose of giving to him all the advantages of a merchant having a large business in buying and selling goods and trading in cotton, as being the apparent owner of all his property, thereby causing others to deal with him and trust him, in the belief that the apparent was the real condition of things, they ought not, as against these creditors, to be permitted to take the benefit of their security. To come to this result it is not necessary to hold the deed itself to be fraudulent in its inception, for as declared (in 1692) by Lord Commissioner Hutchins, in Hungerford v. Earle, 2 Vern. 261, “ a deed, not at first void, may become so by being concealed or not. pursued, by which means creditors are drawn in to lend their money. ’ ’ The case was: A father made a voluntary settlement to raise money to pay his debts, a portion for younger children, reserving £50 per annum for himself; the plaintiff was a creditor for money lent twelve years after making the settlement; the settlement was void because the father continued in possession. So in Wendell v. Van Rensselaer, 1 Johns. Ch. 352, the deed was set aside because it was concealed from the knowledge of the world, whereby false colors were held out, and the public were permitted to consider the property as belonging to the testator, and to treat with him as owner. Cognate to this is that other principle, equally founded in considerations of equity and utility, which affirms that, if one man knowingly, though passively, looks on and suffers another to purchase property and spend money, under an — 341 — erroneous opinion of title, without making known his claim, he shall not be allowed to assert Ms legal right against such person. It would be fraud and injustice, and he would be put under an equitable estoppel. East India Co. v. Vincent, 2 Atk. 83; Jackson v. Cator, 5 Ves. 688; Dann v. Spurrier, 7 ib. 231. It is because of the necessary tendency to mislead and deceive the public, that a retention of possession, after an absolute sale, is a badge of fraud as against the creditors of the vendor. In Lear v. Freedland et al., 45 Miss. 559, the creditor was denied satisfaction out of the estate of the decedent, because he had assented to an arrangement by which the devisee was held out .as ostensible owner of the property, had obtained credit, and made an incumbrance to secure it. But the retention of possession by the mortgagor or grantor in the deed of trust is not fraudulent per se. It is consistent with the deed, and cannot deceive. But, in order that the possession may be innocent, the deed must be recorded, or notice of it brought home to the party before he has the dealings with the mortgagor or grantor. Bogart v. Gardley, 4 Smedes & Marsh. 302; Harvey v. Park, ib. 229. Such conveyances operate to give notice from the date of registration. There is nothing upon the face of the deed to make it void per se, as held in 42 Miss. 781, where tMs instrument was under consideration.. It is entirely legitimate to give a. mortgage for a sum certain named in the deed, when that sum is intended to cover future advances. To the amount named the security is valid as to third parties, but not beyond it. 1 Hill. on Mort. 318. Under the statute (which was substantially a transcript of 13th Elizabeth), prior to the code of 1857, a majority of the court, in Bullit, Miller & Co. v. Taylor & Richardson, 34 Miss. 740, held that the statute had reference only to creditors existing at the date of the fraudulent deed. The language is, that the “ deed operates to transfer the title to — 342 — the property, but transfers it with, the incumbrance of the grantor’s debts then existing.” “It is void as to all wbo were at the time of its execution in a situation to be injured by it, but valid as to all others.” This view is manifestly in conflict with the former adjudications. Bogard v. Gardley, 4 Smedes & Marsh. 310. In Henry v. Fullerton, 13 ib. 634, the chief justice states the rule to be, “that if the subsequent creditor can show that the conveyance was made to avoid future debts about to be contracted, and to defraud existing creditors, it is void, not only as to present but as to subsequent creditors also ; ” quoting largely the English and American cases. Wills v. Treadwell, 28 Miss. 726; 14 Smedes & Marsh. 130. Art. 3, p. 359, Code of 1857, puts the question at rest, by declaring “that the act shall not extend to subsequent creditors, unless made with intent to defraud them, and a conveyance or contract may be deemed void as to prior creditors, but shall not on that account be void as to subsequent creditors.” The complainants, being subsequent creditors, do not establish, under this article, a right to relief, by showing that the conveyance and agreement was made to defraud existing creditors, only, but they must make it appear “ that it was done with intent to defraud them.” 42 Miss. The case before us, in its leading facts, is like that of Gill v. Griffith & Schley, 2 Mad. Ch. 282. There the question was, whether the mortgagor can keep possession of the goods, retain the conveyance from record for an indefinite period in' order to save the mortgagor from the mortification of giving publicity to his embarrassments, and then record and hold the goods as against subsequent creditors. The statement of the proposition seemed so emphatically to indicate what the answer should be, that the chancellor said, “such certainly should not be the' law,” and nothing but controlling authority would induce him so to decide. This judgment, condemning the deed, was affirmed by the court of appeals. In that case the same result ensued as evinced in this record (which would have been avoided if — 343 — the registry laws had been obeyed), to wit: credit upon the faith of property of which the party was ostensibly the owner. It is not perceived how such an arrangement can operate otherwise than injuriously to creditors, or put them in great risk and hazard. Baggett was to purchase goods as usual (and the testimony shows that it was upon a credit); the deed in trust took effect upon all goods put in the house, or rather upon those in the house when the trustee might take possession. These creditors might watch their opportunity until there was a large stock on hand, much larger than when the deed was made, and, through the trustee, seize upon them, thereby destroying the very means which gave Baggett credit to make the purchases. It was part of the scheme that Baggett should work off, as far as possible, the goods into cotton, which would go to the credit of his account with his factors. They agreed to advance $70 per bale on cotton, then worth $120, thus leaving them a surplus on each bale of $50. The residue to pay for the cotton in the country was made up out of the store in goods or cash, so that the resources of his merchandise business were largely absorbed in these cotton transactions. How were the debts to his mercantile creditors to be met, in such course of business ? Not from the sale of goods. The only mode was a payment of them by Summers & Brannin ; whether they paid or not depended upon the state of accounts between Baggett and themselves. There was no agreement to pay future debts, only some New York creditors, whose demands would shortly mature. When it is borne in mind that, at the date of this transaction, there was a large balance due Summers & Brannin, which was to be liquidated by cotton, which cotton was to be bought in part with goods and their proceeds,.'it is evident that merchandise thereafter to be bought upon a credit was largely to be absorbed in'cotton, which would go to the credit of this .balance and other advances. The evidence is, that about $25,000 worth of goods were bought and put in the store after the conveyance was made. Such transactions — 344 — gave large advantages to these factors over mercantile creditors, having the effect to use the goods sold by dry goods and grocery merchants to Baggett to pay his debt to Summers & Brannin. Commercial dealing and credit rest upon the predicate that the proceeds of the goods shall be applied to pay the parties from whom they were bought, the profits being the excess of this and expenses. The arrangement between Baggett and Summers was antagonistic to the regular and usual course of business, tended to break down commercial confidence and credit, and to entail losses upon those who trusted their goods and property to the retail merchant. When this aspect of the subject is looked at in connection with the fact, that the transfer for the use of Summers & Brannin was to be kept secret, to be produced and take effect or not as his business might prosper, or be unfortunate ; the conclusion is irresistible (however intended in the minds of the parties), that it was fraudulent as to subsequent creditors. The arrangement between Summers & Brannin is materially different from that in Foster v. Manufacturing Company, 12 Pick. 451. Here the assignment was of all the property, real and personal, of a manufacturing company, which left the property with the company until the trustees chose to take possession, but there was this provision, “ that the proceeds of after acquired property should be applied to after contracted debts for stock and materials, and labor, and for the ordinary expenses of the company in carrying on their operations.” It would seem that this was ample security for subsequent creditors. Commenting on this stipulation the court says : “It was obvio nsly necessary to enable the company to go on with its business, as it is not to be presumed persons would be willing to furnish supplies to a company avowedly insolvent without some such provision.” It was declared however, that the fact of not taking possession of personal property, made the deed fraudulent, provided the attachments had been served before a — 345 — transfer of possession. We understand tlie rule to be in .Massachusetts, that a mortgage of movable property is void against creditors, unless possession passes with the deed. In the case at bar, as we have seen, so far from provision being made for subsequent creditors, who became such in the ordinary course of Baggett’s business, whatever goods or cotton they supplied to him went in effect to liquidate the debt to Summers & Brannin. The case of Foster v. Manufacturing Co. turned on the fact that the non-delivery of the personal effects made the deed fraudulent. But, inasmuch as the trustees got possession before the creditors attached, they had lost their opportunity, and could not complain. According to our law, the grantor may retain the property until after default made in paying the debt, and no presumption against the fairness of the transaction, arises from that fact alone. Indulgence after that may or may not be fraudulent as to other creditors according to the special circumstances. There was testimony to the effect that Summers actively promoted the sale of goods to Bag-gett, after the deed was executed and before it was recorded; and induced the belief that he would accept a bill for their payment. We are of opinion that the natural and logical effect of the agreement and assignment, and the conduct of the parties thereto was to mislead and deceive the public, and induce credit to be given to Baggett, which he could not have obtained if the truth had been known, and therefore the whole scheme was fraudulent as to subsequent creditors, as much so as if it had been contrived with that motive and for that object. It follows that the decree of the chancellor must be affirmed.