Kurtz v. Lewis Voight & Sons Co.

BOND, J. This is a suit brought by the purchaser of a portion of this stock of an insolvent merchant, the remainder of whose stock was assigned for the benefit of creditors. The purchaser gave a chattel mortgage on the goods to secure the price, which was nine notes of $100 each. After a credit of about $50 was put upon these notes to reduce them to the amount of goods purchased at the agreed charge, they were indorsed without recourse by the payee to his brother Leopold Schorle. An attachment suit was instituted by a creditor of the vendor, which was levied by defendant Troll as sheriff upon the said goods., which were subsequently sold and applied to a judgment on the merits and also sustaining the attachment which was entered upon the written offer to that effect of the attachment defendant. The present suit is against the defendant sheriff, and the sureties on the attachment bond for an alleged conversion of the goods seized under the writ of attachment. Defendants gave evidence tending to prove that the goods sued for were fraudulently conveyed by the defendant in the attachment suit, and that plaintiff purchased them with knowledge of and participancy in said fraud. This was, however, denied by plaintiff, who claimed further that his notes for the purchase money had been transferred by the vendor in payment of a debt due the brother of his said vendor. It was further shown that the note evidencing this indebtedness was not surrendered nor delivered up when plaintiff’s notes were assigned to the holder. It is not claimed that the market value — 653 — of the goods exceeded $850. The jury returned a verdict for $1,500, of which plaintiff remitted $650, whereupon the court overruled defendants’ motion for a new trial, and they perfected an appeal to this court. I. Upon the theory that the notes for the purchase money of the goods were to be transferred by the vendor to pay or secure his indebtedness to his brother, the court instructed the jury that the sale to plaintiff was valid, notwithstanding it was made for the purpose of hindering, delaying or defrauding the creditors of the vendor, and notwithstanding the further fact that the plaintiff (the vendee) knew of and participated in such purpose and intent, unless it firrther appeared that the transferee of the notes also knew of and participated in such purpose and intent, and that this latter fact was also lenown to plaintiff. It is not believed this view of the law can be sustained. The difference in the legal status of a volunteer purchaser and the creditor of an insolvent vendor in a sale or conveyance made by him to defraud his creditors has been so often and so clearly drawn by the decisions in this State and elsewhere that it needs only to be stated to be thoroughly accepted without a citation of precedents. In the case of a sale or conveyance of goods with a fraudulent design on the part of the vendor, a creditor receiving the same in payment or security of a bona fide indebtedness at a reasonable value or price will not lose the preference thus given him, although he is aware that the transaction itself hinders or delays other creditors in seeking redress against said goods, and that such was the purpose of the debtor, provided the creditor does not further participate in such purpose than by the taking payment of his claim or a proper security therefor. On the other hand, a volunteer purchaser who gets title to'goods sold or conveyed to hinder, delay or defraud creditors of the vendor in the enforcement of their claims, can acquire no right to the property against such creditors, if he either knew of, or participated in, — 654 — the purpose of his vendor when the transaction was consummated, and this too, irrespective of the fact that he may have paid full value for the goods. Nor could he acquire a valid title, if, after such a sale, but before payment of the price, he learned of said fraud and failed to withhold payment, provided his obligation to pay had not become so fixed by a transfer of negotiable paper evidencing it or otherwise, that he could not legally resist- its enforcement. It needs only a simple application of these principles to settle the rights of the parties to this suit. The hypothesis upon which the court instructed the jury presupposed proof of fraud by the seller and participancy therein by the buyer, but no proof of fraud by the third party, a creditor of the seller, to whom the notes for the price were assigned in payment or security of a demand against the seller. It follows that the transaction, as far as the seller and purchaser were concerned, was in direct defiance of the statute forbidding sales to hinder, delay or defraud creditors. As to these two parties there was a shifting of the title to the goods with intent and purpose on the part of both, to put the property beyond the reach of creditors’ process. Such a transaction was necessarily voidable at the instance of creditors, irrespective of the payment by the buyer of the full value of the goods, and also irrespective of the fact that the vendor assigned the notes which he received for the price of the goods. to the holder of a valid demand'against himself. As to the latter party it is true 'that he could not be compelled to account to other creditors as trustee for their benefit, except upon proof of participancy in the fraud of the vendor of the goods. But this exemption on his part does not extend to the other two parties, the buyer and seller of the goods. As to the seller, fraud sufficing to sustain an attachment of his property was shown, when proof was made of his intent to fraudulently dispose of any part thereof. Bank v. Lumber Company, 59 Mo. — 655 — App. 317; Bank v. Powers, 134 Mo. loc. cit. 447-448; Bank v. Russey, 79 Mo. App. 651; Glacier v. Walker, 69 Mo. App. 288. Now, when this intent was communicated to a stranger, who at once intentionally aided and assisted in its consummation, did he not thereby necessarily subject the property so taken to the same processes to which it would have been exposed if it had been found still in the hands of the fraudulent vendor? In other words, how did the vendee acquire any higher rights to the property than the fraudulent vendor, if both cherished the same fraudulent purpose in the transfer of the title ? The only answer to these questions is that the property was equally open to the suit of a creditor, whether in the hands of a fraudulent vendor or fraudulent vendee. Any other view would set at naught the statutes conditioning the validity of sales of property, as against creditors, upon good faith on the part of the purchaser, as well as the payment of a valuable consideration. R. S. 1899, sec. 3398; Van Raalte v. Harrington, 101 Mo. 609. II. Neither does the fact, that the transferee of the price of the goods could hold it as a valid preference of his debt under certain circumstances, enure to the benefit of the volunteer purchaser. The only theory upon which the creditor could retain for himself, money so received, is that it was taken in payment or security of a bona fide demand, and that he did not further participate in the fraud of the debtor, for if he did' this, he could not retain the money against the suit of other creditors. Now, the assumption of the instructions in this case is, that the volunteer purchaser actually shared in the fraud of the debtor. If this had been done, even by the creditor, he would have been compelled to disgorge what he had received with that intent. How then can the mere outside purchaser be placed upon a more advantageous ground? It is not believed such a conclusion can be reached by any valid — 656 — course of reasoning, nor that it can find support in any well-considered case in this State. Rubber Mfg. Co. v. Supply Co., 149 Mo. loc. cit. 551; McDonald & Co. v. Hoover, 142 Mo. loc. cit. 494-495, and cases cited; Hall v. Goodnight, 138 Mo. loc. cit. 587; Martin v. Estes, 132 Mo. 409; Rinehart v. Long, 95 Mo. loc. cit. 397; Dougherty v. Cooper, 77 Mo. loc. cit. 532; Esselbruegge Mercantile Co. v. Troll, 79 Mo. App. 558-332. It follows that the instructions given by the learned trial judge were radically erroneous. Some countenance for the theory -expressed by them may be found in what is said by the Kansas City Court of Appeals in Sammons v. O’Neill, 60 Mo. App. 530. Eut the facts in that case were unlike the facts in the one at bar. . In that case, it appears that the consideration of a fraudulent sale was paid by the purchaser directly to a creditor of the vendor. In the case at bar, the consideration of the sale was expressed by notes executed by the purchaser directly to the vendor, who subsequently assigned them to a creditor. The two cases may be thus distinguished as to the points in judgment. It is argued, under the authority of some general .remarks in that case, that the plaintiff in the case at bar only enabled his vendor to do indirectly what he would have Had the láwful right to do directly by transferring the goods themselves to a creditor in payment of a bona fide demand. This argument rests upon an entire misconception of what was in fad done in the present case. In this case the evidence tends to show that the plaintiff bought the goods with a positive intent to assist the seller in defrauding his creditors. The title thus passed. The price paid was turned over by the seller to one of his creditors, who was only entitled to retain it, as he would only have been entitled to retain the goods themselves had they been given to him at their reasonable value, in payment or security of his-demand, provided he did not further assist or participate in the fraudulent design of his debtor. He could retain whatever he took only in payment of his debt, whether it was goods — 657 — at a fair price, or their representative in money after they had been sold. To the extent of giving his creditor the price of the goods instead of the goods themselves, the debtor might indirectly vest the creditor with a title to the price as he could have directly transferred the title to the goods themselves, and if the argument of the learned counsel for respondent had gone to this extent only, it might have had some force, but his contention does not stop at that point, he insists that the debtor was also entitled to make a fraudulent sale to a mere purchaser, who was cognizant of that intent and actively assisted in its accomplishment, and thereby vest a valid title to the goods, as against creditors, in such purchaser, provided the notes given for the price of the goods were indorsed, under an agreement with the purchaser, to one of the creditors of the vendor. This is vastly more than doing indirectly what the debtor might, have directly done. It must he kept steadily in mind that the whole theory upon which the law permits a creditor to retain money or property received in payment of his demand, is not from any leniency to the debtor who uses fraudulent means to effect such payment, but only from a want of complicity in such fraud on the part of the creditor other than in receiving payment of his debt. In all such cases, fraud on the part of the debtor, if shown, entitles his other creditors to any remedy available against him. It is a necessary corollary of'this proposition that a remedy available against a fraudulent debtor is equally available against any mere transferees of his title, in privity of estate with him by reason of participancy in his fraudulent designs. So in the case at bar, the general creditors of the vendor of plaintiff upon proof that he was 'about to fraudulently dispose of his property, might have intercepted it by attachment before the consummation of the fraud. When the fraud in question was effectuated by a transfer to plaintiff, with full knowledge and participancy therein, he certainly — 658 — could acquire no higher right to the goods than was possessed by his vendor. This is but an application of the salutary rule which avoids, as to creditors, a sale of their debtors’ property resting upon mutual fraud of the seller and volunteer purchaser. It is the essence of this right of relief that it annuls accomplished, as well as intended frauds, irrespective of the consideration paid, and it would fail of this achievement if it stopped short of any of the guilty participants. The argument of respondent does not meet the facts shown in this record, nor can we agree to all of the remarks expressed by the learned court in the case cited, nor are we inclined to follow anything said in that case which is opposed to the conclusions heretofore stated by us. We also experience some difficulty in reconciling the views expressed by our learned brothers, in the case last cited, to the full recognition by them in a later case (Haase v. Nelson Distilling Company, 73 Mo. App. 1. c. 58, and cases cited) of the principle, that in a conveyance in trust to pay creditors, fraud on the part of the grantor and trustee without any participation therein on the part of the secured creditors, will vitiate the conveyance. The judgment herein is reversed and the cause remanded. Judge Bland concurs; Judge Biggs dissents and expresses his views in a dissenting opinion.