Bamberger v. Schoolfield

Me. Justice White, after stating the case, delivered the opinion of the court. In the discussion at bar the plaintiff in error has devoted much of the argument to demonstrate that the trial court erred in declining a request by him made to instruct the jury to’ render a verdict in his favOr, if they believed the testimony, but this request was manifestly rightly refused. . It involved a finding by the court as to weight of evidence and practically asked it to usurp the province of the jury, by determining the proper inference to be drawn, from the evidence and deciding on which side lay the preponderance of proof. In so far as this request asked the court to instruct that under any hypothesis of fact, as a matter of law, the attaching creditor was entitled to a verdict, it can be more properly considered in reviewing the exceptions taken to the instructions given at the request of *158 the one* and the consequent refusal- to give the converse , propositions asked by thg other party. It would lead only to confusion and repetition to follow the various assignments of error and review them separately. They group themselves under six headings: First, assertion of error in the charges given as to the legal effect of the sale to the Memphis firm; second, error in the instructions as to the general assignment; third, error as to the ruling with reference to the burden of proof to establish fraud; fourth, error in the charge as to the effect of the employment of Warten after the sale and the resale to Mrs. Warten ; fifth, error as to the effect of having included - in the debt for which the sale was made the note dated June 10 for $2500; andj sixth, error as to the bearing on the rights of the parties, of the letter written by the Memphis firm to the Louisville.firm, and the settlement had by the latter with Warten ‘after the letter was received. - The consideration of the controversies under, these various headings will embrace all the errors assigned, and will dispose of every question in the-case, except the twelve errors asserted to have been committed in the admission or rejection of testimony. - First. The validity of the sale to the Memphis firm. ' The court charged that, under the law of Alabama, a debtor had the right to prefer a creditor, and that, if the sale ‘ was real and was made in good faith fór a fair price — was honestly executed to extinguish the debt, and did extinguish it, and contained no reservation of any interest or "benefit in favor of the vendor — it was valid and passed the property to the vendee; that the sale, if it possessed these enumerated qualities, would-be legal, although any of the following facts might be found by the jury to have existed: (a) that the vendor was insolvent-to the knowledge of the vendee; (b) even although there was a fraudulent intent on the part of the vendor to defeat his other creditors, because, if the sale possessed the attributes, necessary to make it valid,' as the law permitted the preference .under the conditions stated, the mere intention of the vendor to defraud his other creditors by giving a preference to one would not render .the- sale invalid; and (o) although its known effect and *159 necessary consequence was that the remaining creditors of the vendor would be unable to obtain the payment of their debts. The- correctness of these instructions, depends necessarily upon the law of Alabama as interpreted and construed by the Supreme Court of that State, whose rulings in this regard will be followed here. Union National Bank v. Bank of Kansas City, 136 U. S. 233; Peters v. Bain, 133 U. S. 670. It was in consonance with this rule that in a given case we enforced the law of the State of Illinois, White v. Cotzhausen, 129 U. S. 329, and in another that of the State of Iowa. Etheridge v. Sperry, 139 U. S. 267. The instructions given as above recited were in direct accord with the settled law of Alabama. In Pollock v. Meyer, 96 Alabama, 172, it was held that: “ If the property conveyed by an insolvent debtor in payment of preexisting debts does not materially exceed in value the amount of indebtedness actually owing and paid, by the conveyance, and no benefit is reserved to the grantor, the conveyance is lawful as against his other creditors, regardless of the motives of the' parties to the conveyance or of badges of fraud in the transaction.” On page 175 the court cites approvingly from the decision in First National Bank of Birmingham v. Smith, 93 Alabama, 97, as follows: “ An insolvent debtor may select which of his creditors, one or more, he will pay, and pay them in full, and thus disable himself to pay the others anything; arid it makes no difference if the one or more preferred creditors know the effect of the transaction will be to deprive the debtor of all means with which to pay his other debts. Nor is .the wish, motive, or intention of the debtor a material inquiry, if the requisite conditions exist. Those conditions, in a case like the present, are: First, the debt must be Iona fide and enforceable, not simulated ; second, the payment must be absolute, and, if made in property, must not be materially in excess of the debt.; , third, no pecuniary benefit or consideration of value, other than thé liquidation of the debt, must inure or be secured to the debtor. *160 . . . The true inquiry at last is, did the creditor bargain for and receive overpayment, or payment in excess of his just demand ? ” The court further observed, on page 176, as follows: “ The principle of law settled by the decisions of this court is, that the payment of an antecedent debt by an insolvent debtor, by a conveyance of his property, rests upon entirely different grounds than when a cash or present consideration is'paid. It matters not whether the grantor alone, or grantor and grantee both, devised and intended to get the advantage of other creditors, if, in fact, the effect of the transaction was solely to pay a debt honestly due, and the property was received by the creditor in payment of his debt at a fair and adequate price, and no interest or benefit reserved to the grantor debtor. ‘ If the transaction is not assailable on- one of these grounds, fraud has no room-for operation.’ As was said in Hodges v. Coleman, 76 Alabama, 103: ‘What injury can the motive do to a non-preferred credito r The act, as we have seen, is lawful. Can human tribunals set aside a transaction, lawful in itself, because the actors had an evil mind in doing it ? Can there be fraud in doing a lawful act, even though it be prompted by an evil malice or badges of fraud ? ’ ” Second. The effect of the general assignment. The error alleged to exist in the charge of the court as to the legal consequences of the general assignment and its effect on the sale to the Memphis firm, which was made a few hours before the general assignment, is equally unfounded. The instruction given substantially was that if the sale to the Memphis firm was valid, the making of the general assignment on the same day did not render it illegal. The decision of the Supreme Court of Alabama in Ellison v. Moses, 95 Alabama, 221, is decisive of the correctness of this instruction. In that case creditors of a partnership sought to have several conveyances which had been' executed by the partnership declared parts of a general assignment subsequently executed. The court held, however, that: “An insolvent debtor having, under repeated decisions of this court, the right to sell and convey property in absolute *161 payment of an existing debt, provided the price is fair and reasonable, and no use or benefit is reserved to himself, such absolute sale and conveyance will not, at the instance of other creditors, be declared and treated as part of a general assignment executed soon afterwards (Code, 1737), though executed in anticipation of it; and with notice on the part of the creditor that the debtor intended to make a general assignment.” In its opinion the court further said (p. 221): “ The law of this State permits an insolvent debtor to make preferences among his creditors in the payment of his debts, by an absolute sale or transfer of his property in' discharge of such debts. He may convey the whole or any part of his property in payment of an antecedent debt, and if the price is reasonably fair, and there is no reservation of a benefit or trust in his favor, the sa)e is valid and will be sustained, whatever may have been the debtor’s intentions, and though the preferred creditor knew of such intentions, and that the sale would leave the debtor unable to pay his other debts. That such preferences are allowable is settled by numerous decisions of this court. Chipman v. Stern, 89 Alabama, 207; Hodges v. Coleman, 76 Alabama, 103; Crawford v. Kirksey, 55 Alabama, 282; 3 Brick. Dig. 517. The statutory prohibition against preferences in general assignments (Code, 1737) does not operate upon an absolute and unconditional sale of a debtor’s property to his creditors in payment of the debts due to them. This question, also, is'well' settled by the former decisions of this court. The general assignment, in which preferences or priorities of payment given to one or more creditors over the others are prohibited, implies the idea of a trust, under the operation of which there is a possibility of a reversion to the debtor of some interest in the proceeds of a sale of the property assigned. No such idea is involved in an unconditional sale of property in absolute payment and discharge of a debt. Here the debt , is extinguished, and the debtor is stripped of all interest in the property sold. Such a sale is not within the purview of the statute, and if a preference is thereby effected, it is not such a preference as the statute prohibits. Otis v. McGuire, 76 Alabama, 295; Danner v. Brewer, 69 Alabama, 191; Comer v. Constan *162 tine, 86 Alabama, 492. The result is, that the law as it now stands permits an insolvent debtor to prefer one or- more of his creditors over the others in the payment of debts by a sale of property in satisfaction thereof, and prohibits preferences or priorities of payment in a general assignment by the debtor for the benefit of his creditors. Only the legislature can make the prohibition against preferences equally operative in both classes of cases. The courts must recognize and enforce the law as it exists. They cannot ignore distinctions created by the law-making power.” By recent legislation in Alabama the provisions of section 1737 of the .Alabama- code, upon which these rulings were made, have been amended, so that a conveyance substantially of all a debtor’s property in payment of prior debts is put upon the same footing with conveyances for the security of debts'. Strickland v. Gay, 16 South. Rep. 77, 78. The questions, however, here are obviously to be determined by the law of Alabama existing at the time the transactions occurred. Third. Burden of ¿roof to establish fraud. The instruction complained of on this subject was that if the proof showed that the Memphis firm had an honest debt, and they purchased the stock at a fair and reasonable price in payment of that indebtedness, the burden was on the plaintiffs to show that a benefit' or interest in the sale was reserved to "Warten; in other words, that the transfer was fraudulent. It is urged that this instruction ignored the rule of evidence as to the presumption of law which arises from proof of circumstances of suspicion and badges of fraud, which, it is asserted, were shown in'this case by the evidence offered in behalf of the Louisville firm. In Curran v. Olmstead, 101 Alabama, 692, it was said (page 694): “ When the transaction is assailed by an antecedent creditor, the burden rests on a creditor who has been preferred to' prove the existence, amount, and justness of his claim, and when paid in property he must also prove that the property was taken at a price not materially below its fair market value.” The burden of proof to show fraud and notice of fraud was *163 on the party alleging fraud. Hodges v. Coleman, 76 Alabama, 103; Pollak v. Searcy, 84 Alabama, 259. See also Jones v. Simpson, 116 U. S. 609, 615. In Poliak v. Searcy, supra, the court said: “ If the facts of indebtedness and that the goods were' sold in payment of such indebtedness at their reasonable fair value are established to the satisfaction of the jury, and if it be contended, in avoidance thereof, that the trade was simulated, that there was a secret trust or benefit reserved to the debtors, the burden was then on the contesting creditor to establish it.” . So in Roswald v. Hobhie, 85 Alabama, 73, it was held that: “ As against creditors of an insolvent debtor, the one claiming as a purchaser must prove that he paid a valuable and adequate consideration, but is not bound to negative the reservation of a benefit to a debtor.” Fourth. As to the effect of the employment of Warten after the sale and the resale to Mrs. Warten. The charges given by the court on this subject were as follows: “ If the jury find from the evidence, under the instructions given by the court, that Schoolfield, Hanauer & Go. made a valid purchase of the stock of goods in controversy from Henry Warten, then Schoolfield, Hanauer & Co. had a legal right to employ Warten for their benefit to assist in winding up the business, and turning the goods into money as promptly and economically as possible.” “ If the jury find from evidence that prior to the 13th day of January, 1890, Henry Warten had been engaged for several years in an established and extensive business at Athens, Ala., and that he sold his stock of goods to Schoolfield, Hanauer & Co. iñ a valid way, it is but reasonable that Warten might be employed by Schoolfield, Hanauer & Co. as a clerk to assist in the winding up of the business for the benefit of School-field, Hanauer & Co. Such circumstance is not of itself fraudulent.” “ If the jury find from the evidence in this cause, under the instructions given by the court, that the sale by Henry Warten *164 to Schoolfield, Hanauer & Co. is valid, then Schoolfield, Hanauer & Co. had the legal right to give the stock of goods' to Mrs. Warten or sell the same to her on such terms as they desired.” In considering the correctness of these instructions, we necessarily assume the bona fides of the sale made to the Memphis firm and its validity, except in so far as its legality may have been affected by the employment of Warten and the-subsequent sale to his wife. But the proof on the subject of the circumstances which gave rise to the employment of War-ten and the resale to Mrs. Warten was conflicting. The fact of the employment and resale, no question being made as to the reality of the transfer, could at best have been only competent evidence to be considered by the jury in determining. whether or not a secret benefit was reserved to the debtor in the original transaction, which was the issue on this branch of the case. Certainly, if nothing else appeared but the mere employment of Warten, subsequent to the sale, to assist in the disposition of the goods and the getting in of the book accounts, such fact would not be a, circumstance in itself sufficient to prove within the meaning of- the Alabama law, that the transaction was fraudulent. Even if, at the time of the sale, there had been- an agreement to employ, such fact would not of itself have necessarily implied a reservation of benefit in favor of the seller so as to have rendered the sale invalid under the Alabama law. Murray v. McNealy, 86 Alabama, 234. Such also is the general rule. Smith v. Kraft, 123 U. S. 436; Burrell on Assignments, 6th ed. p. 411, § 343, and authorities there cited. Indeed, under the rule as announced in Alabama, the court could have affirmatively instructed that the employment of the vendor in a clerical capacity could not affect the validity of the sale. Kichardson v. Stringfellow, 100 Alabama, 416, 422. The instruction that if the original sale by Warten was valid the purchasers had a legal right to dispose of the. property to Mrs: Warten, is within the principle of the decision in Young v. Dumas, 39 Alabama, 60, 62, where the court said — speaking of a-gift, by a father to his daughter, of property *165 which the father had received from his son-in-law in payment of an indebtedness due from the son-in-law to the father — as follows “Mr. Horn'had the clear right to collect his demand, which we have seen was just, from' his son-in-law, Mr. Dumas ;• and after he thus became the owner of thé property, his right to give that property to the sole and exclusive use of. his daughter, Mrs. Dumas, cannot be successfully controverted by the creditors of Mr.'Dumas. As to them, the gift was harmless. That the effect may have been to ’ delay, and, possibly, defeat all other creditors in the collection of their demands, cannot, of itself, avoid the sale.” It is argued that whilst these charges may not have been intrinsically erronepus they were yet illegal, because they singled out some of the strongest badges of fraud upon which the plaintiff relied, and weakened, impaired, or destroyed their force and weight as evidence; that they were argumentative deductions, the necessary effect of which was to obscure the force of the inferences of fraud which the jury might have deduced from the fact of the employment and the resale, and, therefore, practically prevented the jury in drawing its conclusions from giving due consideration to these matters. But it nowhere appears that the court instructed the jury that they might not, in reaching a determination upon the ion a fides of the sale by Warten to the Memphis firm, and the question whether a secret benefit was reserved in his favor, consider such facts as the subsequent employment of W arten, and the sale thereafter to his wife. As a' matter of fact, the portions of the general charge of the court set -forth in the record make it clear that the question of reservation' of a secret benefit to Warten in the sale, was particularly called to the attention of the jury, as necessary to be considered by them in arriving at a conclusion as to the validity of the transfer. We are unable to see that the charges in question had a tendency to cause the jury to regard the fact of the employment of Warten and the sale to his wife as not important to be weighed by them in passing upon the iona fides of the sale to the Memphis firm. *166 Fifth. Error as to the effect of hawing .included in the debt for which the sale was made the note dated June 10, for two thousand five hundred dollars. The three following instructions on the subject were asked and refused: .“ 83. If any part of the debt claimed-by Sehoolfield, Hanauer & Company against Warten as the consideration of the transfer of the goods to them is simulated or pretended, that fact would. vitiate the whole transaction. If the jury find from the evidence that part of the consideration is composed of the note of Warten for $2500, which was due and payable to the Sehoolfield Hanauer Company, a corporation under the laws. of Tennessee, and that said note was taken from the account of said corporation and placed upon the account of the claimants for the purpose of increasing the account of. Sehoolfield, Hanauer & Company, that account to the extent of said $2500 would be simulated, and this would vitiate the transaction, and if .the jury so find, their verdict should be for the plaintiffs. “ 34. If part of the consideration of the transfer from War-ten to the claimants is a note for $2500, payable to the School-field Hanauer Company and owned by them, and if the said note was transferred to the account, of Sehoolfield, Hanauer & Company, and if said transfer was made :for the purpose of increasing the firm’s debt against Warten, so as to make it equal in amount to the value of the goods and, property transferred by Warten to the claimants, the consideration for such transfer to the extent of said note for $2500 would be simulated, and this would vitiate the transfer, and if the jury so find the facts, their verdict must be for the plaintiffs.” “ 36. If the jury believe from the evidence that the promissory note for $2500, made by Henry Warten'on June 10th,. 1889, payable to the order of Sehoolfield, Hanauer & Company, at the office of the Sehoolfield Hanauer Company, four months after date, and endorsed ‘The Sehoolfield Hanauer Company, p’r W. W. Sehoolfield, treasurer,’ was taken and endorsed by said corporation, and it let said Warten have the amount thereof, less discount, being $ — -, by crediting his *167 account with said corporation for $-, as shown by said statements of said accounts in evidence in this case, then said draft became the property of said corporation, and it was an indebtedness due by said Warten to it; and if the jury further believe from the evidence that said indebtedness was transferred from the account of said Warten with said corporation to the account of said Warten with said firm on or about the 11th day of January, 1890, for the purpose of evading the law of the State of Alabama, which prohibits foreign corporations from doing business in the State of Alabama without known ■ place of business and authorized agent therein, the jury would be authorized to find that said indebtedness was the property of and due to said corporation, and not said firm, when said alleged transfer of the stock of -goods in dispute in this suit to said firm by said Warten was made, and should they so find,in that event' their verdict should be for the plaintiffs.” - They were rightly refused. There was no proof of any kind even tending to show the simulation of the note. It was certainly, under the undisputed proof, due by Warten; it was drawn to the order of the Memphis firm, who were, as endorsers, necessary parties to its negotiation. That firm had an obvious right, with the consent of the company by whom the paper had been discounted, to use it as a debt due them, and thus protect their endorsement. Nor was the sending of a note to Tennessee for discount, and its discounting in that State by the Memphis company, carrying on business in Alabama by the Memphis company. The second section of the fourteenth article of the constitution of Alabama, and the act of the legislature of 1886-7, pp. 102, 104, relied on by the plaintiff in error, have been held by the courts of Alabama not to have been intended to (as of course they could not) interfere with matters of commerce between the States, and to have no application to transactions such as that here under consideration. Ware v. Hamilton Shoe Co., 92 Alabama, 145; Cook v. Rome Brick Co., 98 Alabama, 409. Sixth. Error as to the bearing on the rights of the parties, of the letter written by the Memphis firm, a/nd the settlement ■ had by the latter with Warten after the writing of the letter. *168 Much stress is placed by counsel on this proposition. The contention is that the Louisville firm having been induced to give an extension on the faith of the letter written them by the Memphis firm, the latter could not receive payment by sale, from the debtor, which created a preference, without operating a fraud upon the Louisville firm. To support this contention authorities are cited holding that when creditors have jointly agreed, each upon the faith of the other’s promises, to extend the indebtedness of their co-debtor for a fixed and definite period, a party to such an agreement who secures an advantage to himself out of the mutual debtor’s property, ■during such extended period, may be compelled to account for the property received and permit the other creditors to share fro rata with him. But the fallacy, is not in the legal proposition, but in its application to the facts here considered and consists in treating the Memphis firm as consenting to and being bound by the terms of the extension granted to Warten by the firm in Louisville. There was no evidence even tending to so prove. The only connection of the Memphis firm with' the settlement, even if all the disputed questions of fact were determined in favor of the firm at Louisville, was the-letter from the Memphis firm, presented by Warten when the extension was made. But the letter could not. give rise to the obligations contended for, since the extension granted by the Louisville firm was in conflict with the obvious intent of the letter. It stated that Warten, “through we believe no fault of his own, but owing to disastrous failure of crops in his own section, finds himself forced to ask for extension,” and expressed a willingness to grant the extension provided the Louisville firm would do likewise. The extension referred to must necessarily have meant an extensión to the next crop year, otherwise the letter was meaningless. The disaster calling for the extension was the crop failure, and the substantial results, of the crop being realized by the end of December, it was self-evident that the extension proposed, and which the Memphis firm was willing to give, in conjunction with the Louisville firm, was one which would carry the debtor to another crop. This becomes more manifest when it is *169 considered that the extension was only to be asked of three creditors, the Louisville firm, the Memphis firm, and one other, leaving the other debts unextended. But the extension granted by the Louisville firm did not accede to this proposal, since it embraced short time acceptances for three thousand dollars, which they could only hope to be paid out of the avails of the disastrous failure of the crop which had by the terms of the letter given rise to the necessity for the extension. Doubtless it was this view of the relation of the parties which caused the court to instruct the jury that if the Louisville firm took short time paper from War ten in the hope of obtaining an advantage over the Memphis firm, they would have no right to complain because the Memphis firm overtook them. in the race of diligence. Whether, however, this iristruction was" given because the court took this view of the letter and the legal effect of its unaccepted proposal, is immaterial.' The entire charge is not in the record. The court may have expressed itself in this matter to the jury, in connection with observations possibly advanced in argument by counsel for plaintiffs in error upon their claim that the Memphis firm in the letter in question had sought to gain an advantage. And if such were the case, it was not error for the court to call the attention of the jury to the opposing view of the transaction. These conclusions dispose of all the errors assigned which relate to the instructions given by the court, and leave only the exceptions taken to rulings admitting or rejecting testimony. They are twelve in number. We have examined them all, and content ourselves with saying that we find them either not well taken or of such a character on account of their immateriality as to create no reversible error. Affirmed.