Avery v. Wilson

• Decision Date: 11 July 1896
• Parties: AVERY et al. v. WILSON et al.
• Court: South Carolina Supreme Court

25 S.E. 286

47 S.C. 78

AVERY et al. v. WILSON et al.

Supreme Court of South Carolina

July 11, 1896

Appeal from common pleas circuit court of York county; Townsend Judge.

Action by B. F. Avery & Sons and others against W. B. Wilson, Jr. assignee for benefit of creditors of John Gelzer and others. From the judgment, defendants appeal. Affirmed in part and reversed in part.

The following is so much of Judge Townsend's decree as is necessary to understand the questions involved:

"From all the evidence I conclude as matter of fact:

"(1) That John Gelzer was a resident of Charleston county, state of South Carolina, when he gave the mortgage to J. J. Wescoat, trustee, on the 17th day of August, A. D 1892, and had been a resident of said county of Charleston continuously for about ten years prior to the date of the execution of said mortgage. John Gelzer was insolvent when he executed this mortgage, and he knew it; and in the light of all the testimony I am constrained to find that J. J. Wescoat was also, at the date of the execution of this mortgage aware of John Gelzer's insolvency. The mortgage was taken in the sum of $700, when, according to the testimony of J. J. Wescoat himself, only the sum of $300 was advanced to Gelzer to enable him to buy the claim of his partner, Jenkins, in the business of Jenkins & Gelzer; and I find as a fact that the said mortgage was taken for $400 in excess of the true amount of money loaned to Gelzer. This mortgage covered the entire tangible property of John Gelzer, has never been recorded in Charleston county, and was not recorded in York county until the 10th day of January, A. D. 1894. After maturity of the mortgage, the mortgagor was allowed to retain and use the mortgaged property as his own, and thereby to deceive his creditors into selling him goods they otherwise would not have done. The real reason for not recording the mortgage sooner, I find, was an understanding between the mortgagor and the mortgagee to that effect, in the form of a request from the mortgagor and an acquiescence on the part of the mortgagee.

"(2) At the date of the execution of the mortgage by John Gelzer to John L. Ancrum on the 1st day of September, 1892, Gelzer was insolvent, and a resident of Charleston, in the county of Charleston, S. C., and had been continuously prior to said date for a period of nearly ten years. The mortgage covered the entire tangible property of John Gelzer, has never been recorded in Charleston county, and was not recorded in York county until the 31st day of January, 1894. The money for which this mortgage was given was actually advanced at the time of its execution, and I am not satisfied that John L. Ancrum was then aware of the insolvency of Gelzer. He was, undoubtedly, careless and negligent about making proper inquiry into the financial condition of John Gelzer, and allowed Gelzer to induce him to agree to withhold the mortgage from record. One of the motives that induced Ancrum to enter into an agreement with Gelzer not to record the mortgage appears on the face of the mortgage itself, wherein it was provided that John Gelzer 'is to continue his present business of buying, selling, and delivering goods to the purchasers thereof, provided that the sales, moneys, notes, accounts, and choses in action given in payment of said goods shall be held by John Gelzer as trustee for the said John L. Ancrum.' With this arrangement, Ancrum became careless and indifferent as to the rights of others, and, by failing to record, and permitting Gelzer to remain in possession of the stock of goods, and to hold them out to the world as his own, from September 1, 1892, to January 31, 1894, when he recorded the mortgage in an improper county, shows that he felt no concern about having enabled Gelzer to deceive the plaintiffs into becoming his creditors.

"(3) On the 21st day of January, 1893, when John Gelzer executed the mortgage in the sum of $2,000 to the Savings Bank of Rock Hills, S. C., he possessed nothing in the world but his stock of goods at Rock Hill. Gelzer himself swore, 'I had everything I possessed then in my store at Rock Hill.' The mortgage, as matter of fact, covered his entire property, and was intended not only to operate as security for such advances as the bank might make, but, knowing himself to be insolvent, John Gelzer, by means of this mortgage, which became due only one day after its date, intended to prefer the savings banks in a manner forbidden by law. He intended to evade the assignment law of the state of South Carolina by the device of a mortgage, thereby hoping to accomplish by this means what he could not possibly do by a formal deed of assignment. The officers of the bank swear that they were not aware of Gelzer's insolvency. They are truthful and reliable gentlemen, and I must accept what they say as the truth, but the testimony forces me to the conclusion that they should have known of his insolvency, and had reasonable cause to believe that he was insolvent. There was sufficient evidence in their possession, considering Gelzer's proximity to them, and the claims they had against him for collection through their bank, to put them on their guard, and to invoke inquiry, which would have disclosed to them Gelzer's insolvency. There are also additional circumstances surrounding this mortgage which should have sounded the alarm in the ears of the officers of the bank. The mortgage matured in one day,--that is, the bank was put in a position to step in at once and seize the mortgaged property, if a crash came in Gelzer's affairs. The mortgage was withheld from record for nearly one year, and in the meantime Gelzer was suffered to use the mortgaged goods as his own, and, by holding them out to the world as his unincumbered property, to obtain credit upon them, and to deceive and defraud each of the plaintiffs to this action into becoming his creditors, which they would not have otherwise done. Gelzer requested the officers of the bank not to record the mortgage. He particularly desired it to be withheld from record, because he desired to hold out to the world that the goods were his own, free of incumbrance, and thereby get credit from others who would know nothing of the mortgage. The bank acquiesced in this, and thereby enabled Gelzer to deceive and defraud the plaintiffs and his other unsecured creditors to the aggregate amount of $9,000. Another significant act on the part of the bank was the conduct of its cashier, Mr. J. M. Cherry, on the 5th day of January, 1894. On the 2d day of January, 1894, one of the plaintiffs wrote to the cashier, inquiring into the financial condition, responsibility, and character of John Gelzer. On the 5th day of said month and year the cashier replied to said letter: 'Mr. G. is an energetic, live young business man; has a very nice hardware store, and has been doing a very nice business, considering the times. On account of the dull trade he is asking indulgence on some of his paper at present.' On the very day that the bank rendered this report of John Gelzer, in which the mortgaged indebtedness to the bank was studiously suppressed, the bank caused the two mortgages executed by Gelzer to the bank, aggregating the sum of $5,100, to be recorded in the office of the register of mesne conveyance for York county. Even at this late date the bank was willing to allow Gelzer to still hold himself out to the world as the owner of the stock of goods in his possession, and to obtain further credit on the strength of such appearances. Knowing, however, that the inquiring creditor would, no doubt, act upon his report, the cashier deemed it prudent to record the mortgages he was careful not to mention in his report of the condition of Gelzer. That secrecy, deep and profound, was the object of both the bank and John Gelzer, when both of the mortgages by Gelzer to the bank were executed, is appearent from the fact that, although J. M. Cherry represented the bank on both occasions, and was the officer to whom the mortgage, when signed and sealed, was delivered, he was also the sole and only subscribing witness to each of said mortgages.

"(4) All that has been said and found concerning the mortgage to the bank dated January 21, 1893, is of equal application to the mortgage to the said savings bank dated December 2, 1893. All the facts found concerning the motives and the intentions of the said bank and Gelzer appear with emphasized force and clearness in this latter transaction. On the 2d day of December, A. D. 1893, when John Gelzer executed the mortgage to the Savings Bank of Rock Hill, S. C., in the sum of $3,100, ostensibly to secure notes, mostly past due, aggregating said amount, he possessed no other property but his stock of goods. This mortgage, therefore, like the previous one, dated January 21, 1893, covered the entire property of John Gelzer. John Gelzer, being insolvent from some time before the 17th day of August, 1892, had become hopelessly insolvent on the 2d day of December, 1893, and clearly saw that there was no hope for him, although, by means of representations made in his letters to his creditors, written shortly before and about this time, he had induced them to accept his worthless notes in settlement of their claims, and thus, for a time, tided over the inevitable crash. All this time John Gelzer was preparing to prefer the bank in some manner that he hoped would not be obnoxious to the laws of this state. Accordingly, on the 2d day of December, 1893, he executed to the Savings Bank of Rock Hill, S. C., not a renewal mortgage, but an additional mortgage, in the sum of $3,100. Thus, while John Gelzer never did owe the bank but $3,100, he executed two mortgages, aggregating $5,100, which was $2,000 more than the true amount the bank

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