Kickbusch v. Corwith

WiNslow, J. A previous creditors’ bill seeking to set aside as fraudulent the mortgage and subsequent deed of Leahy's half of the sawmill property was before this court in the case of Collins v. Corwith, 94 Wis. 514. It was there held, in accordance with the decision of the trial court upon evidence less full than that now before us, that the mortgage was fraudulent as to creditors, because withheld from record for years pursuant to agreement of the parties, for the purpose of giving Leahy a false financial standing, and that the deed of December 3, 1890, to Charles R. Corwith was simply one part of an entire transaction which constituted an assignment for the benefit of creditors and was void because not executed as required bylaw; following the rule laid down in Winner v. Hoyt, 66 Wis. 227, and subsequent cases along the same line. While this former decision is in no sense res adjudícala in the present case, it concerns the same transaction, and is founded upon much the same evidence, and is entitled to considerable weight. Certainly, if a different conclusion is now to be reached, it should be because a substantially different case is presented by the evidence. Instead of this, however, the evidence now before us makes the fraudulent character of the mortgage in 1886 plainer than before. The agreement not to record the mortgage was made in writing. It was observed for more than four years. The reason was, according to Leahy’s own statement, that if recorded it would injure his credit in the matter of hiring men and teams in the woods and at the mill. The reason given is — 646 — an entirely consistent and probable 'one, and in fact about-the only probable reason for such a course. The testimony of the various plaintiffs shows that they gave Leahy credit-on the strength of his apparent ownership of the mill, and that they had no knowledge of the mortgage. We perceive no escape from the conclusion that the mortgage was withheld from record by agreement of the parties for the very purpose of giving Leahy a false financial standing, and to deceive persons dealing with him, and hence was, under well-settled principles, fraudulent as to creditors so deceived. Blennerhassett v. Sherman, 105 U. S. 100; Collins v. Corwith, 94 Wis. 514; Evans v. Laughton, 69 Wis. 138. This mortgage, then, being void as to the plaintiffs, we come nest to the consideration of the real-estate and chattel mortgages of November 13 and 21, 1890, to McGrossen and Corwith, and the transfer of the boom stock of November 22, 1890. While the consideration for these transfers was attacked in the plaintiffs’ complaint, the evidence showed beyond dispute that the indebtedness which they were given to secure was bona fide, and the court so found. The court also found that these mortgages and transfers were all made in good faith and with no intent to defraud or delay creditors. While it may be true that there was evidence in the case pointing to a different conclusion, still we are unable to say that the conclusion reached by the court is against the clear preponderance of the evidence. The facts that the mortgages were made to secure bona fide debts; that the creditors had 'a right to collect or secure such debts, even though Leahy was insolvent; that they at once recorded their mortgages,— are all cogent facts in favor of the conclusion reached by the trial court, and doubtless had great weight. For the reasons already stated, we are compelled to affirm the conclusions of the trial court as to the validity of the transactions of November 13, 21, and 22, 1890, including the transfer of the boom stock. — 647 — But, whatever hope Leahy may have had in November of continuing his business and discharging his obligations in the usual way, that hope evidently disappeared when he arranged the meeting of December 1st following. This meeting was attended by Gorwith, Ross, McGrossen, Leahy, and two friends of Leahy. At this time it was recognized by all that Leahy's affairs were in such a desperate situation that he could continue business on his own account no longer; and the question presented was, how could the business be conducted, and Gorwith and MoGrossen paid, and have something left for Leahy. Large advances of money would be necessary, and it was evident that Gorwith was the only person who was able to make the advances. The result of this conference was the execution of the tripartite agreement, and the deed of the undivided half of the mill property to Gorwith. That the execution of the deed last named was part and parcel of the transaction is to us clearly evident from the testimony, although the trial court found that it was an independent transaction. Every indication points to the conclusion that the whole transaction was one,— the situation of the parties, the problem which they were endeavoring to solve, the joining of both interests in the tripartite agreement, the close proximity in point of time, and many other facts too numerous to mention in de-. tail. Again, Leahy so testified upon the trial of the Collms and Gorwith Gase, and, although he changed his testimony somewhat upon the present trial, he was obliged to admit substantially in this case that the deeding of the mill was' part of the talk; and, while both Leahy and Gorwith now deny that it was agreed that Leahy should have the mill back after the Gorwith debt was paid, they both admit that it was understood that he [Leahy) should have the first chance to purchase it, but no price was fixed. Giving the testimony all reasonable weight so far as it tends to support the conclusion of the trial court on this — 648 — point, we still conclude that the overwhelming weight of the direct evidence as well as of the circumstantial evidence shows that the transactions of December 1st, 2d, and 3d were all one. Eeaching this conclusion, there can be no doubt of the legal inference which must follow, and that is that the entire transaction constituted a voluntary assignment for the benefit of certain creditors, which is void because not executed as the statute requires. The terms of the tripartite agreement are too plain to admit of reasonable controversy on this point. There was a transfer of some, though not all, of the debtor’s property. There were certain trusts named in the transfer. There were trustees. There were creditors besides Oorwith and MoOrossen to be paid, namely, the holders of judgments and liens and tax claims. There was provision for the reversion of the surplus to Leahy. This combines all the elements of a voluntary assignment. It was not necessary that all of the debtor’s property should be conveyed. Jameson v. Maxcy, 91 Wis. 563. But it is said that the transaction was not attacked on this ground in the complaint, but only on the ground of actual fraud, and hence that it cannot be set aside, even if it be in violation of the assignment law, because no such issue has been raised. While the complaint does not charge in so many words that the transaction constituted an unlawful voluntary assignment, it sets forth the tripartite agreement in full, and contains the general allegation that all the said transfers were executed as parts of one transaction, with the intent and purpose of having all the property held, in trust for the use and benefit of said Leahy contrary to law; and we think this allegation amply sufficient to cover the proposition. The transfers of December 2 and 3, 1890, were therefore constructively fraudulent and void as to creditors, although not tainted with actual fraudulent intent. But it is said that by delaying the commencement of this action for nearly five — 649 — years after the transfer, during which time the property has been sold and disposed of, the plaintiffs have been guilty of laches which should equitably bar this action. The argument would be strong, had the plaintiffs had any knowledge or means of knowledge of the character of the transaction of December 2 and 3, 1890. The tripartite agreement was never recorded. The deed of the undivided half of the hull was recorded, but contained no hint of the real transaction. It is true that the defendants McCrossen and Gorwith were in possession of the real and personal property mortgaged in November, 1890, but they had recorded mortgages covering such property, and there was nothing to inform the plaintiffs that they were in possession in any other capacity than as mortgagees. The tripartite agreement did not become known to any of the plaintiffs until it came out in the course of the testimony of Mr. Leahy taken in the case of Collins v. Corwith, some time in the year 1893 or 1894. At that time, of course, the Gollins Case, involving similar issues, was as yet undecided. After the discovery was made, reasonable diligence seems to have been used in the commencement of this action. The number of transactions involved, the difficulty of obtaining facts in the control of adverse parties, and the fact that both Charles R. Corwith and John Gorwith were nonresidents of the state and rarely here, all tended to embarrass and delay the plaintiffs in commencing their action; but it was finally commenced in September, 1895, and we cannot say that the delay constituted laches under the circumstances. The fact that the transfers attempted to be made by the tripartite agreement are void does not, however, avoid the prior valid mortgages. The fraudulent agreement being set aside, the grantees are restored to their legal rights under the mortgages. Bump, Fraudulent Conveyances (4th ed.), § 484. From these conclusions it necessarily results that the plaintiffs were entitled to an accounting at the hands — 650 — of the mortgagees of the disposition made by them of the' mortgaged property, to the end that the equity of redemption therein may be reached and applied to the satisfaction of the plaintiffs’ judgments. But it is said that the court has found that this equity.was of no value. It is true that there is a finding to the effect that sufficient evidence was-introduced to prove the fact that the business was conducted in the ordinary way of business, and that Corwith and Mo-Crossen made a Iona fide effort to obtain from the property as much as possible over and above necessary expenses, and that the net proceeds were all applied towards the payment of the indebtedness to MeCrossen, and it is a fact that such-proceeds were insufficient for that purpose; but it further appears that the parties agreed that it would be premature-to go into a detailed account of the moneys received or expenses incurred until after the question of the right to an accounting was settled, and that therefore no accounting was in fact had and very little testimony introduced. We cannot' regard this summary disposal of the question upon-mere general statements as to the manner of conducting the business as in any way conclusive or satisfactory.1 Such statements are easily made, and very intangible and hard to meet. The evidence showed that both Leahy and the mortgagees considered the property of greater value than the-amount of the claims for which it was transferred, at the-time the transfer was made, and that there would be a substantial residuum for Leahy. The plaintiffs are entitled to a full and fair accounting to ascertain what the facts are,, and this they have not had. It may not be wise or practicable to lay down exact rules-in advance upon which the accounting is to be conducted,, but, the action being in equity and the defendants not being chargeable with actual fraudulent intent, equitable principles must prevail. Generally it may be said that they will be chargeable with the property which they received, and — 651 — which has been retained by them without sale, at its reasonable value; and, as to such property as they have sold, they should be charged such sums as' in a diligent prosecution of the business they realized, or ought to have realized, therefrom. Their duty certainly was to realize all from the property sold that could be realized by prudent business men in the course of a reasonably diligent management of the business. They will be entitled to credit for the sums necessarily paid to preserve the property and relieve it from liens,, as well as the expenditures reasonably and necessarily incurred in the management of the business in the manner above stated. If, as the evidence seems to show, any sums have been paid to Leahy from the proceeds, they will not be entitled to credit therefor, unless it appear that Leahy actually earned the same by services rendered for the defendants in the proper management of the business. Under these general rules, it is not believed that there can be serious difficulty in the proper statement of the account. As to the claim that the Mortenson Lumber Gompa/ny purchased the undivided half of the mill with notice- of the claims of the plaintiffs, and hence that their conveyance can be set aside in this action, we find no occasion to set aside the conclusions of the trial court in that regard, to the effect that said company purchased in good faith with out notice. No claim had been made by any of the plaintiffs against this, property at the time of their purchase. It is true that when the company purchased the property the Collins suit was. pending, brought to set aside the Corwith mortgage and deed as fraudulent as against creditors, and that a lis pen-dens was then on file, and that their abstracts showed the filing of the lis pendens, describing the action as an action to set aside the mortgage. These facts the company’s officers knew. The object of the Collins suit was simply to set aside the Corwith mortgage and deed to an extent sufficient to satisfy Collins’s judgment against Leahy, amounting to — 652 — about $1,600. Of course, the Mortenson Lumber Company took the risk of any recovery in the Collins action, because they had actual notice of the pendency and purpose of the action, and their conveyance was recorded after the filing of the Ms pendens. But (as the court found on sufficient evidence) they had no actual notice of any claims by these plaintiffs as to the property; and so the question is, Did the filing of the Us pendens in the Collins Case, or the actual knowledge of that case possessed by the company, constitute such notice of the possible claims of other possible creditors that they could not acquire a good title as against such creditors? We think this must be answered in the negative. The lis pendens itself is constructive notice only of the proceedings in the action in which it is filed, and of the rights of the parties to that action. Stats. 1898, sec. 3187; Stout v. Philippi M. & M. Co. 41 W. Va. 339. Did the actual knowledge which the Mortenson Compcmy had that Collins had brought action claiming that the Cor-with deed was fraudulent as matter of law prevent the company from becoming purchasers in good faith? Certainly the fact was competent proof on the subject, and might, in connection with other facts, constitute notice which should have put the purchaser upon inquiry, but we do not think that it can be held conclusive. The fact that the company immediately spent at least $8,000 in improvements on the mill is a circumstance properly to be considered on the question of good faith, as well as the fact that they were advised by their attorneys who examined the abstract that the title was good. Upon the whole case we are unable to say that the finding of the court upon this question is erroneous. But Corwith, having received $6,000 for the undivided half of the mill upon sale thereof to the lumber company, and having no valid lien thereon or title thereto as against these plaintiffs, must be held liable to account for the same in this action,'except for such part thereof, if any, as he has paid to discharge the Collins debt. — 653 — As to the transfer of the city lots to Henry McOrossen, we are unable to say that the conclusions of the trial court were contrary to the evidence. A discussion of the evidence on this point would scarcely be profitable. By the Court.— As to the defendants Corwith, James McCrossen, and J. E. Leahy, the judgment is reversed, and the action remanded for further proceedings in accordance with this opinion, with disbursements and clerk’s fees to be taxed against said respondents, but no attorney’s fees. As to the remaining defendants the judgment is affirmed, without costs. BaRdeeN, J., took no part.