Fernhaber v. Stein

Jones, J. It is-claimed by counsel for appellants that the answer of the jury to the effect that the consideration of the $1,500 mortgage from Werner Stein to his father was approximately $180 should be set aside. The testimony as to the relations of the parties; the fact that although it was claimed that books of account had been kept and the original — 66 — books were not produced, and the unsatisfactory testimony that any such indebtedness existed on the part of Werner to his father as was claimed, fully justified the jury making the answer given. But it is also claimed that the further answer that the father, August Stein, participated in the intent of Werner Stein to hinder, delay, and defraud creditors, was wholly inconsistent with the answers to the fourth and fifth questions in which the jury found that the father had no actual knowledge of the fraudulent intent of Werner and that he had no knowledge of such facts as should have put him upon inquiry. It is argued that no change in the situation took place between the 22d day of August, when the mortgage was signed by the father, and on the 26th, when it was recorded, and that it must be presumed that it was delivered on the 22d. The testimony shows that between those dates .the mortgage was executed by the partner of Werner after they had discussed it and after .the partner had taken the advice of his, attorney. What other conversations or transactions may have taken place between father and son during the interval does not appear. The court found that the evidence warranted the conclusion that the chattel mortgage was delivered on August 26th; that in view of the fact that August Stein, the father, placed on record and afterward enforced a mortgage which had been given for. a grossly inadequate consideration, and from the other facts and circumstances, there was no inconsistency between the findings already mentioned. It is true that under the statute, sec. 2323, Stats. 1917, the conveyance or charge cannot be adjudged fraudulent as against creditors or purchasers solely on the ground that it was not founded on a valuable consideration. But it does not follow that gross inadequacy of consideration is not — 67 — a circumstance in connection with other facts to prove the fraudulent intent. The jury found that Arnold Stein at the time of the foreclosure sale did not participate in the intent of Werner Stein to defraud creditors. The trial court set aside the finding of the jury; finding that Arnold Stein was not an innocent purchaser for a valuable consideration, and stated in the finding: “The only evidence of any value passing from Arnold to August W. Stein was the latter’s statement, by way of conclusion only, that he owed some $700 debt to the former, but the actual facts with reference thereto were not related nor was any tangible evidence of the.alleged indebtedness produced. There was no evidence of an actual cancellation, or surrender, of this debt at any time.” Arnold Stein was made a defendant in this action, but seemed to manifest but little interest in it, as he was not present at the trial and his deposition was not taken. The question was not submitted to the jury to find whether the Cream City Cartage Company was a bona fide purchaser without notice, and the court, pursuant to sec. 2858m, Stats., found that it was not. It is contended by counsel for appellants that there was no evidence that the corporation had notice of any fraud when it received the bill of sale of the truck in consideration for issuing stock to Arnold Stein and August Stein; that notice to the stockholders was not notice to the corporation; and that this was especially true so far as concerned the rights of Mrs. Schattschneider, since the jury exonerated her from participation in any intent of Werner Stein to defraud creditors. To support this finding of the court, respondent’s counsel rely on the evidence showing the utter insolvency of Werner Stein when the mortgage to his father was given, the finding of the jury as to his fraudulent intent, the succession of suits brought against Werner Stein after — 68 — the mortgage was given, the giving of the mortgage to Mrs. Schattschneider, his mother-in-law, during- the pendency of these actions, which mortgage included other property and was a second mortgage on the truck in question. They rely on the foreclosure of the mortgage by August Stein with 'the consent of Werner, and the foreclosure of her mortgage by Mrs. Schattschneider long before it was due, and the formation of the corporation immediately afterward, and the fact that after the formation of the corporation Werner Stein continued to drive the same trucks and conduct the same business as an employee of the corporation. Counsel for respondent further argue that these and other facts disclosed suspicious circumstances surrounding the formation of the corporation, and that it was a family corporation organized to protect Werner in his fraudulent plan. On this subject the court found: ‘"'Doubtless, also, the Cream City Cartage Company was not a bona fide purchaser without notice, for it was legally chargeable with the knowledge of August W. and Arnold Stein, if not also with that of Werner Stein. Moreover, the entire transaction attacked by the plaintiff, commencing with the making of the fraudulent mortgage and ending with the turning in of the truck to the Cartage Company, with continued use and operation of the truck by Werner Stein, was a family arrangement carried out by parties whose relations were so close that, upon all the facts and circumstances, the court should now supplement the verdict with its findings consistent with the above conclusion.” Since we conclude that the finding of the court should be sustained, we shall not detail the testimony on which the finding rests, nor enter into a discussion of the subject whether notice to most of the stockholders and to the president and directors constituted notice to the corporation of the frauds which are claimed to have vitiated its title to the truck. On the facts found by the court the case is distinguished from those relied on by appellants’ counsel. Counsel for appellants argue that the sale of the truck — 69 — on foreclosure and the subsequent sale to the corporation in exchange for stock precluded the trustee from questioning the title of the corporation, and they cite the following cases: Salter v. Bank of Eau Claire, 97 Wis. 84, 72 N. W. 352; Excelsior M. Co. v. Hanover, 102 Wis, 309, 78 N. W. 737. We do not think these cases apply to a situation like that which the court found to exist in the present case. The court came to the conclusion that the mortgage was fraudulent; that the foreclosure sale was collusive; and that the formation of the corporation was only one step in a plan to defeat the rights of creditors. “A collusive and fraudulent sale under, foreclosure of a mortgage or deed of trust on real or personal property, either under a power therein or by legal proceedings, will be set aside at the suit of creditors of the mortgagor or grantor. Fraud on creditors perpetrated by judicial procedure, as a mortgage foreclosure, is as impotent as any other imposition, whatever the scheme, as equity looks to substance.” 27 Corp. Jur. 458, 459, and cases cited. Nor are the rights of creditors defeated merely because property has been conveyed to a corporation. “A very usual form of fraudulent conveyance consists of the shifting of the assets of a debtor to a corporation frequently formed for. that specific purpose, by which means the only assets from which creditors could expect to be paid are placed beyond reach of their process. The courts look askance at such transactions, whether the debtor be an individual, a partnership, or another corporation, and, if the proper elements are present, will subject the property so transferred to the claims of the creditors of the trans-feror. The fact that the persons controlling the vendee corporation are substantially the same persons as those making the transfer is a matter strongly indicating fraud.” 12 Ruling Case Law, 480, and cases cited. In weighing the testimony on the controverted questions which have been discussed the trial judge could properly consider the well established fact that Werner Stein ex — 70 — ecuted the mortgage to his father with the intent to defraud creditors, the close relationship of the other parties with him, the probability that they were not ignorant of his financial condition under all the circumstances, in connection with other circumstances to show that there was willingness on their part to shield him from his creditors. The court had the right to draw legitimate inferences from the facts proven and we should not disturb those inferences unless they are clearly wrong. Ripon H. Co. v. Haas, 163 Wis. 592, 158 N. W. 330, and cases cited there. Appellants’ counsel'argue that the damages found by the jury are-excessive; that they should have been limited to interest on the value of the motor truck for the reason that the trustee was in no situation to use the property, and they cite authorities for this position. These authorities referred to the assessment of damages in cases where the property consisted of stocks of merchandise or similar property which could not have been used to produce a revenue. The plaintiff elected to take judgment under the statutes for the recovery of the property with damages for its detention. The defendants filed the necessary bond and kept possession of the truck and continued to use it during the litigation. We see no reason why the trustee might not have derived revenue from the property during the litigation if it had been in his possession, by renting it, although it might have been necessary to obtain the permission of the bankruptcy court. The jury assessed the damages on undisputed testimony and their finding should stand. By the Court. — Judgment affirmed.