Harman v. Hoskins

Simeall, C. J., delivered the opinion of the court.. The motion to dissolve the injunction was made on the face of the bill. The trustee and the creditor of Harman had procured an injunction restraining the express company and the sheriff from selling property which had been levied on under a judgment and execution in favor of the Southern Express Company, against Harman. The goods were merchandise,. and embraced in the deed of trust. The Southern Express Company affirms that the deed of trust is fraudulent, and that the intent “ to hinder, delay, or defraud existing creditors” is apparent from the deed itself. That is the single-question argued by counsel: whether the deed is fraudulent on its face. The assignment, or conveyance, must be “devised and contrived of malice, fraud, cOvin, collusion, or guile,” with “ intent to hinder, delay, or defraud ” those injured thereby.. The intent must exist. The “ intent” maybe vicious,though the deed is fair and regular on its face, and a full price may have been paid. Such intent must be proved aliunde. In. all. — 145 — instances where the transaction on its face is fair, if it sprung from the motive to “ hinder, delay, or defraud,” that is purely a question of fact, to be established by testimony. • But there are also conveyances which, on inspection, are esteemed fraudulent in law. Perhaps no more is meant by the term “fraudulent in law,” when applied to such instruments, than that the terms of it — its conditions, stipulations, and reservation — are such that the inference will be drawn by the court that it was contrived to hinder, delay, or defraud creditor's. The effect and operation of a written instrument is a question of law, and where the natural and necessary consequence of its provisions is to delay, hinder, or defraud creditors, the court will so declare. The intent is|gathered from the instrument, and no external aid is necessary to develop it. A party will be held as “intending” the natural and inevitable effects of his acts. If his deed necessarily operates to interpose unreasonable hindrance and delay to creditors, or to defeat them altogether, the intent will be a conclusion of law. A deliberate act, which produces naturally and inevitably a certain result, must, in law, be held as contrived and done to carry out and consummate that result. The court, in such a case, arrives at the conclusion, by construction of the instrument, that such is its direct and inevitable effect, and it results, as matter of law, that the statute is satisfied. Though the act, in a moral view, was entirely fair, suggested by affection, and though the real purpose was to pay all debts, yet if the convej'auce be of the character and operation just described, it will not stand against creditors. If it were otherwise, the statute would he evaded, which condemns any contrivance to hinder, delay, or defraud creditors. Sturdevant v. Davis, 9 Ired. 363; Briggs v. Mitchell, 60 Barb. 288. The deed of trust was executed by Harman on March 22, 1877, and recites an indebtedness of Harman to White of §8,764.91, as follows: On open account, due January 1, 1876, §1,039.69; on a note due December 1, 1873, for — 146 — $3,333.26, andón another note for the like sum, due December 1, 1874. This indebtedness, with interest, was agreed by White to be extended for three years, and a note embracing the entire amount, viz., $8,764.91, of even date with the deed, was made by Harman, to fall due on March 22, 1880. It also recites that White is to advance $10,000 per year for the two years 1877 and 1878, to enable Harman to buy goods and general merchandise for his business at Goodman. To secure this indebtedness, White conveys to Gwin, trustee, two or three parcels of land ; and also all his stock of merchandise, of whatever kind, owned by Harman, and in his store-house at Goodman ; also all the liens, mortgages, notes, book-accounts, and evidences of debt, of every sort, then owing to him; also all the goods and merchandise, of every sort, which he may thereafter acquire and place in his store‘house, or in connection therewith; and also each and every debt, of all kinds and descriptions, that may accrue to him after the date of the deed until the maturity of his note, in 1880. Harman may “ carry on the business, and continue in possession of the lands and goods and choses in action, under the direction of the trustee, until he shall take possession of the same.” The conditions are, that if Harman shall promptly pay his indebtedness the deed shall be void; but if he shall in any way fraudulently dispose of any of the property, or shall fail to pay his indebtedness when due, the deed shall be executed by taking the property into possession and sale by the trustee. The scheme, as delineated in the trust-deed, was this: that if Harman would create a security embracing all the merchandise then on hand, and all other goods which he might thereafter put in the store, and also all the debts then due him, and all that accrued to him up to the 22d of March, 1880, then White would extend the large indebtedness for three years, and would supply $20,000,— $10,000 in 1877 and $10,000 in 1878, — with which to replenish and keep up his stock; but if he (Harman) acted — 147 — fraudulently, the trustee would interpose before default made in payment of the debts. If these stipulations had the direct and inevitable effect to hinder and delay other creditors, then the conclusion of law is that the deed was made with that “ intent.” The intent is deduced from a construction of the instrument, and therefore no other fact need be inquired into or found. If the deed should be valid, the effect would be that White held a shifting lien, which took hold of the goods on hand, and as these were sold off it separated itself from the effects in the hands of Harman’s customers, but at once fastened upon the note, or book-account, owing by the buyers; and when the merchandise was brought into the store, it at once became impressed with the lien; from the merchandise it passed to the debts of the customers who bought it. And thus the plan was that the business should revolve in this cycle, the subjects of the lien undergoing mutations from goods to debts, for the space of three years. In the meantime the other creditors must stand the varying fortunes of the venture, without power or right to move against the goods or the credits of Harman, for White’s security attaches to both, as they may be severally acquired. Other creditors are excluded from the goods at any time on hand, and from the debts that have accrued to Harman; so that there is absolutely nothing that can be reached before 1880, if White, the beneficiary, does not sooner close out. Under this deed the goods on hand, goods afterwards acquired, and the profits of the business are reserved for White, and there is nothing for other creditors ; they must wait till the experiment of gain or loss has been tried, and may be required to wait for three years, and that is an unreasonable time, Farmers’ Bank v. Douglass, 11 Smed. & M. 469. The general rule, supported by authorities of greatest weight and sustained by the best of reason, is,-that where a mortgage is made of an entire stock of goods, which includes all other articles of like nature that may be put in the store — 148 — and be on hand when default is made, the mortgagor remaining in possession, and selling in the usual course of business, and making purchases to replenish the stock, it is fraudulent as to creditors. The subject is ably considered in Robinson v. Elliott, 22 Wall. 513, and Collins v. Meyers, 16 Ohio, 547. See also Simmons v. Jenkins, 76 Ill. 479; Freeman v. Ransom, 5 Ohio St. 1; Hutman v. Osgood, 51 N. H. 192. Many other cases might be cited. If the arrangement fairly deducible from the trust-deed was, to allow the grantor to retain possession and make sale of the goods for his own benefit, the security will not avail against creditors. Simmons v. Jenkins, 76 Ill. 479; Horton v. Williams, 21 Minn. 187. Precisely what is included in the deed is the stock of goods then in the store-house, and future acquisitions of like goods put there, the debts then due Harman, and all other debts that maybe created and be owing, from the date of the deed until the 22d of March, 1880. The parties intended that this retail store should be conducted as was customary. Nothing is said about cash sales, or money thus derived. The lien expressly applies to the merchandise and the credits. If a pote, or other form of credit, represents goods sold, the deed reaches them ; and the intendment is, that the lieu does not follow the goods, but shall operate on the credit. But the parties have not expressly stipulated as to the money received from cash sales. That is subject to the control and disposition of Harman. The hope and expectation of Harman and White was that the profits of the business within the three years would pay the indebtedness to White, or greatly reduce it; and their contract was framed on the idea of excluding other creditors from intermeddling until the experiment had been fully tried. The contract clearly discloses that idea and motive. The benefit to Harman would have been great, for it would enable him to retain and sell and replenish, until out of the profits he might pay his indebtedness to White, without hindrance from other creditors. That would be a — 149 — most substantial benefit to him. If the mortgagor is to l’eap benefit by a business continued in that mode, the security would be invalid against a judgment-creditor. Gardner v. McEwen, 19 N. Y. 123; Eagill v. Hast, 3 Seld. 213; Russell v. Winne, 37 N. Y. 594. There has been much discussion, of late years, as to the extent a debtor may encumber future acquisitions, to secure his creditor. The subject was considered in Everman & Co. v. Robb, 52 Miss. 657. That it may be done to a limited extent, and upheld against other creditors, the authorities undoubtedly teach. We do not think that a mortgage of a stock of goods remaining with the mortgagb^for sale and replenishment, so as to make it attach to the substituted goods, and the notes, and accounts, and other forms of credit for which they may be sold, is valid in law. There are a class of cases which hold that if the mortgage includes an existing stock, and replenishments from time to time made, it may be good if the mortgagee takes possession before the lien of a creditor is acquired. Hunt v. Bullock, 23 Ill. 323; Simmons v. Jenkins, 76 Ill. 483. But with that class of cases we have no concern. If the deed of trust is void, because of its provisions, in respect of the goods and the credits, it is void as to every other kind of property embraced in it. Goodrich v. Downs, 7 Hill, 439; Jackson v. Packard, 6 Wend. 415; Russell v. Winne, 37 N. Y. 595, 596. Judgment affirmed.