Capital Lumber Co. v. Saunders

• Decision Date: 17 October 1914
• Citation: 26 Idaho 408,143 P. 1178
• Parties: CAPITAL LUMBER CO., a Corporation, Respondent, v. HEZEKIAH SAUNDERS et al., Appellants
• Court: Idaho Supreme Court

143 P. 1178

26 Idaho 408

CAPITAL LUMBER CO., a Corporation, Respondent, v. HEZEKIAH SAUNDERS et al., Appellants

Supreme Court of Idaho

October 17, 1914

INSOLVENT DEBTOR-ATTACHING CREDITORS-ASSIGNMENTS-DEEDS HELD MORTGAGES-INSOLVENCY PROCEEDINGS-NATIONAL BANKRUPTCY LAW-COMMON-LAW ASSIGNMENTS-FRAUD.

1. S an insolvent debtor, executed and delivered several warranty deeds in form to a corporation to which he was largely indebted at the time to secure the debt, and certain attaching creditors of S. appeared in an action wherein said corporation prayed to have said deeds declared mortgages and foreclosed, and alleged the deeds to be fraudulent as to them, and asked that they be set aside; held, under the evidence that they were valid and in effect mortgages.

2. Held, that title 12 of chapter 17, Rev. Codes, was suspended and superseded by the national bankruptcy law of 1898.

3. Held, that sec. 5932 is a necessary part of said title 12 and not now in force.

4. Held, that assignments in conformity with the common-law rules relating to them are not void under sec. 3169.

5. Held, that under sec. 3171, Rev. Codes, the question of fraudulent intent as to transfers of property is one of fact.

APPEAL from the District Court of the Third Judicial District for Ada County. Hon. Chas. P. McCarthy, Judge.

This action was commenced and prosecuted by respondent as plaintiff in said district court to have certain instruments in form warranty deeds, declared to be mortgages and foreclosed as such. Judgment for plaintiff. Affirmed.

Judgment affirmed, with costs to respondent.

Martin & Cameron, for Appellants.

The deeds in this case from the insolvent Saunders to the Capital Lumber Company were not intended to be or to operate as mortgages.

Such a transaction does not constitute a mortgage, but an assignment for the benefit of two creditors and the debtor. (White v. Cotzhausen, 129 U.S. 329, 9 S.Ct. 309, 32 L.Ed. 677; Selz v. Evans, 6 Ill.App. 466; Northern Nat Bank v. Weed, 86 Wis. 212, 56 N.W. 634; Watkins v. Jenks, 24 Ga. 431; Sabichi v. Chase, 108 Cal. 81, 42 P. 29; Stout v. Watson, 19 Ore. 251, 24 P. 230; Kickbusch v. Corwith, 108 Wis. 634, 85 N.W. 148; Marshall v. Livingstone Nat. Bk., 11 Mont. 351, 28 P. 312.)

Such an assignment as made by Saunders was illegal and void as to the other creditors of Saunders, under sec. 5932, Rev. Codes. (Chever v. Hays, 3 Cal. 471; Adams v. Woods, 8 Cal. 153, 68 Am. Dec. 313; Groschen v. Page, 6 Cal. 139; Cohen v. Barrett, 5 Cal. 195; Barnett v. Kinney, 2 Idaho 740, 23 P. 922, 24 P. 624.)

There was shamefaced fraud and connivance in this transaction between Saunders and these two creditors. (California Consol. Min. Co. v. Manley, 10 Idaho 786, 81 P. 50.)

Intent to defraud is not necessary under sec. 3169. Intent to delay is sufficient to make such a transaction as the one at bar void and of no effect under the terms of that statute. (Van Nest v. Yoe, 1 Sand. Ch. (N. Y.) 4.)

This court in Johnson v. Sage, 4 Idaho 758, 44 P. 641, has held that a transaction such as was planned by Saunders in this case was void as to the other creditors, as it violated the terms of sec. 3019, Rev. Stats., now 3168, Rev. Codes.

Saunders by his secret oral agreement with Ketchen, of the Capital Lumber Co., practically made these creditors trustees of a surplus fund to be sent out of the state to him when they had sold his property and first paid themselves. (Bryant v. Young, 21 Ala. 264; Sims v. Gaines, 64 Ala. 392, 397; Campbell v. Davis, 85 Ala. 56, 4 So. 140; Chenery v. Palmer, 6 Cal. 119, 65 Am. Dec. 493; North v. Belden, 13 Conn. 376, 35 Am. Dec. 83; Moore v. Wood, 100 Ill. 451; Best v. Fuller etc. Co., 185 Ill. 43, 56 N.E. 1077; Beidler v. Crane, 135 Ill. 98, 25 Am. St. 349, 25 N.E. 655; Macomber v. Peck, 39 Iowa 351; Rice v. Cunningham, 116 Mass. 466; Sutherland v. Bradner, 116 N.Y. 415, 22 N.E. 554; Coburn v. Pickering, 3 N.H. 415, 14 Am. Dec. 375; Newell v. Wagness, 1 N.D. 62, 44 N.W. 1014; Smith v. Conkwright, 28 Minn. 23, 8 N.W. 876; Walkin v. Horswill, 24 S.D. 191, 123 N.W. 668; McCulloch v. Hutchinson, 7 Watts (Pa.), 434, 32 Am. Dec. 776; Adams v. Dempsey, 35 Wash. 80, 76 P. 538; Watkins v. Arms, 64 N.H. 99, 6 A. 92; Neubert v. Massman, 37 Fla. 91, 19 So. 625; Halcombe v. Ray, 23 N.C. 340; Molaska Mfg. Co. v. Steele, 36 Mo.App. 496; Winkley v. Hill, 9 N.H. 31, 31 Am. Dec. 215; Lukins v. Aird, 73 U.S. (6 Wall.) 78, 18 L.Ed. 750; Bernhardt v. Brown, 122 N.C. 587, 65 Am. St. 725, 29 S.E. 884; Geary v. Porter, 17 Ore. 465, 21 P. 442.)

Karl Paine, for Respondents.

This is the test: If a transaction resolve itself into a security, whatever may be its form, and whatever name the parties may choose to give it, it is in equity a mortgage. (Brown v. Bryan, 6 Idaho 1, 20, 51 P. 995; Bergen v. Johnson, 21 Idaho 619, 123 P. 484; Boyer v. Paine, 60 Wash. 56, 110 P. 686; 20 Cyc. 502, notes 70, 71; Hudkins v. Crim (W. Va.), 78 S.E. 1043.)

The act of preference being lawful, there is nothing from which fraudulent motives can be inferred, and any fraudulent motives the parties may have are wholly immaterial. (20 Cyc. 592; Dana v. Stanfords, 10 Cal. 269.)

When the paramount jurisdiction of Congress has once been exercised in the enactment of a bankruptcy law, all state insolvency laws are suspended in so far as they relate to the same subject matter and affect the same persons as the bankruptcy law. (5 Cyc. 240.)

The right of an insolvent debtor to prefer one or more creditors over others is not an open question in this state. (Wilson v. Baker Clothing Co., 25 Idaho 378, 137 P. 896, 50 L. R. A., N. S., 239.)

If the preference is otherwise unobjectionable, the particular form of the transaction by which it is made appears to be immaterial so far as the rights of other creditors are concerned, except where some positive statutory prohibition intervenes. (20 Cyc. 580, 581, note 96; Ross v. Duggan, 5 Colo. 85; McClure v. Smith, 14 Colo. 297, 23 P. 786; Haseltine v. Espey, 13 Ore. 301, 10 P. 423.)

Such conveyances, where given in good faith and to secure an actual indebtedness, are not constructively fraudulent. (Samuel v. Kittenger, 6 Wash. 261, 33 P. 509; Ritz v. Rea, 155 Iowa 181, 135 N.W. 645; Merchants' State Bank v. Tufts, 14 N.D. 238, 116 Am. St. 682, 103 N.W. 760; McCormick Harvesting Machine Co. v. Caldwell, 15 N.D. 132, 106 N.W. 122.)

The rule relied upon by appellants to the effect that a mortgage cast in the form of an absolute deed is void per se as to existing creditors is universally rejected in those states having a statute similar to sec. 3171. (Huntley v. Kingman & Co., 152 U.S. 527, 14 S.Ct. 688, 38 L.Ed. 540; Dana v. Stanfords, supra.)

TRUITT, J. Sullivan, C. J., concurs.

OPINION

TRUITT, J.

The respondent is a corporation engaged in the business of selling lumber and building material in the city of Boise, Idaho, and had been so engaged for a long time prior to the commencement of said action. Hezekiah Saunders for some years before July 1, 1912, had been a builder and contractor in said city and was at that time engaged in said business, and on account of lumber and other building materials purchased he became largely indebted to the plaintiff corporation, so that as found by the lower court the defendants, Hezekiah Saunders and Lucy Saunders, were indebted to the plaintiff in the total sum of $ 3,077.21 on July 1, 1912. Said Lucy Saunders is the wife of defendant Hezekiah Saunders. For the purpose of securing this indebtedness as contended by respondent, said Hezekiah Saunders and his wife, Lucy Saunders, on July 2, 1912, executed and delivered to respondent the certain instruments in question in this case. They were in form warranty deeds, but respondent, as plaintiff below, brought action to have them declared mortgages and foreclosed as such. The other defendants who appealed, at the time said instruments were executed and delivered to respondent, were also creditors of Saunders, and on or about December 31, 1912, they commenced an action against him and his wife, Lucy Saunders, to collect the amount due and owning to them. At the time of commencing said action, a writ of attachment was issued in their favor and the real property conveyed by said instruments to respondent was duly levied upon. Said appellants are attaching creditors, and they appeared in the court below as defendants. They prayed in their cross-complaint that said deeds be declared fraudulent and void as against them, and asked that they be set aside. The trial court, however, found these deeds to be mortgages and declared a foreclosure of them and entered judgment accordingly. From this judgment respondents appeal.

A number of very interesting legal questions are submitted by the briefs and arguments of counsel, and we have therefore given them as careful consideration as our time would afford. The appellants' brief shows much research and care in its preparation, and in deciding the case we find it logical and convenient to consider the points of argument on the several questions presented as arranged in the brief. There are eight alleged errors presented, based upon findings of the court at the trial, but these are included in and presented quite fully by the four points of argument urged as grounds for the reversal of said judgment, which are as follows:

(1) "The deeds in this case from the insolvent Saunders to the Capital Lumber Co. were not intended to be or to operate as mortgages."

(2) "This transaction was a voluntary assignment by an insolvent debts to two creditors with a secret interest reserved for himself."

(3) "Such an assignment as made by Saunders was illegal and void as to the other creditors of Saunders under section 5932, Idaho Revised Codes; and

(4) "That such transaction as...