Coblentz v. Driver Mercantile Co.

• Decision Date: 28 June 1894
• Docket Number: 497
• Citation: 10 Utah 96,37 P. 242
• Court: Utah Supreme Court
• Parties: JOSEPH COBLENTZ AND OTHERS, APPELLANTS, v. THE DRIVER MERCANTILE COMPANY, A CORPORATION, AND W. H. REMINGTON, ASSIGNEE, RESPONDENTS. [1]

37 P. 242

10 Utah 96

JOSEPH COBLENTZ AND OTHERS, APPELLANTS, v. THE DRIVER MERCANTILE COMPANY, A CORPORATION, AND W. H. REMINGTON, ASSIGNEE, RESPONDENTS. ^[1]

No. 497

Supreme Court of Utah

June 28, 1894

APPEAL from the district court of the third judicial district, Hon Charles S. Zane, Judge.

Action by Joseph Coblentz and others, against the Driver Mercantile Company, and others, to set aside a deed of assignment and for the appointment of a receiver. From the judgment for defendants, plaintiffs appeal.

Reversed and remanded.

Messrs Sutherland & Howatt, Mr. Frank B. Stephens, Messrs. Booth Lee & Gray and Mr. Walker T. Gunter, for appellants.

The lower court found that the claims of Remington, assignee, and Clute were fictitious and fraudulent. This is a finding of fraud in fact as contra-distinguished from fraud in law. "Undoubtedly, the rule is that a transaction void in part for fraud in fact is entirely void." Crawford v. Neal, 144 U.S. 598; Burrill Assign. (5 ed.) 352; Vernon v. Upson, 60 Wis. 418, 19 N.W. R. 400; Peters v. Bain, 133 U.S. 670, 10 S.Ct. 354; Mayer v. Hellmann, 91 U.S. 496; Estes v. Gunter, 122 U.S. 450; Smith v. Sipperly, 9 Utah, 267; Emerson v. Senter, 118 U.S. 1. There is a distinction between fraud on the part of the grantor in an absolute conveyance where the grantee pays a valuable consideration and is innocent, and fraud on the part of the assignor in a voluntary conveyance or assignment where neither the assignee nor creditors participate in the fraud. In the latter, neither the assignee nor the creditors are purchasers for a valuable consideration. It is not necessary that notice of the fraud should be brought home to them to render the conveyance void. Kaiser v. Heavenrich, 5 Kan. 324; Hargrove v. Millington, 8 Kan. 480, Burrill Assign. supra; Farlin v. Sook, 30 Kan. 404; Pearson v. Wood, 2 Mich. 445. The assignee does not stand in the position of a bonafide purchaser for valuable consideration. Flanagan v. Lampman, 12 Mich. 60. The intent governs. U. S. v., Amstead, 15 Peters, 594; Lloyd v. Fulton, 91 U.S. 485; Waite Fraud. Con. §§ 10, 13, 320; Craft v. Bloom, 59 Miss. 69; 42 Am. Rep. 351; Savage v. Knight, 92 North Carolina, 493 (53 Am. Reps. 423); Hunt v. Winner, 39 Ark. 75; 2 Pom. Eq. Jur. § 749; Hahn v. Salmon, 20 F. 801; Bank v. Hofheimer, 23 F. 13.

Mr. S. H. Lewis, Mr. W. H. Dickson and Mr. H. S. McCallum, for respondents.

This case must be affirmed on the authority of Pettit v. Parsons, 9 Utah, 223. Where the assignee or creditors do not participate in the fraud of the assignor, the conveyance is not necessarily void, because its effect is to hinder and delay creditors. Hempstead v. Johnson, 18 Ark. 123; Emerson v. Senter, 118 U.S. 3; Governor v. Campbell, 17 Ala. 566; Truss v. Davidson, 7 So. 812; Cornish v. Dews, 18 Ark. 172; Meyer v. Kinsie, 26 Ill. 36; Strouse v. Rose, 59 Md. 325. Assignments for the benefit of creditors are made for valuable consideration. Bump. Fraud. Con. (3 ed.) 178, 352 and 360; Burrill on Assign. (5 ed. Sterling) § 236, note. The lower court did not find that the assignment was made with intent to defraud creditors, but only that the claim of Remington was fictitious, invalid and fraudulent. A fictitious claim cannot avoid an assignment for the benefit of creditors. Burrill Assign. (5 ed.) § 117; Pinneo v. Hart, 30 Mo. 569.

SMITH, J. MERRITT, C. J., and MINER and BARTCH, JJ., concur.

OPINION

SMITH, J.

: This was an action commenced by the creditors of an insolvent mercantile corporation for the purpose of having a deed of assignment for the benefit of creditors set aside, and for the appointment of a receiver, and the distribution of the insolvent estate. The assignment was attacked on the ground that it was made with the intent to hinder, delay, and defraud creditors. The complaint specifically set out certain fraudulent preferences in the deed of assignment; among others, one to the assignee, W. H. Remington, for $ 2,225. Remington was made a defendant, and answered. The court appointed a receiver, but, upon the hearing of the case, rendered judgment for defendants, discharged the receiver, and directed the receiver to deliver the property in his hands to Remington, assignee, to be distributed under the deed of assignment as changed and modified by the court. Among other things, the court found that the preference in the deed of assignment in favor of W. H. Remington for $ 2,225 was not a valid claim against the insolvent estate, and that Remington was entitled to nothing under the deed of assignment; that this claim was included in the deed with the fraudulent intent on the part of the assignor to defraud its creditors, but that this intent was not known to Remington.

These findings, apparently squarely in conflict, would be inexplicable if the facts were not fully disclosed by the record. The record, however, shows the following history of the transaction relative to the preference of Remington, assignee: "That said indebtedness to W. H. Remington is invalid, because said indebtedness is evidenced by a note which was given by the Driver Mercantile Company for $ 2,000 of a $ 5,000 note signed by said Remington and Clute to Wells, Fargo & Co., and upon which $ 5,000 note said Clute realized $ 5,000, and appropriated the whole of the same to his individual use. The said Remington signed said $ 5,000 note apparently as a joint maker with said Clute, but, so far as he, Remington, was concerned, he was an accommodation maker only. The said Remington signed said $ 5,000 note upon the representations of said Clute that $ 3,000 of the $ 5,000 so realized was to go to said Clute's individual use, and $ 2,000 thereof to the use of the Driver Mercantile Company, and not otherwise. That said Remington understood and acted upon the belief that the said $ 2,000 so realized was to go to and for the use and benefit of said Driver Mercantile Co., and that the same was being borrowed for its benefit, and for no other purpose; and said Remington did not know, nor was he informed, of said Clute's appropriating all of said $ 5,000 to his, said Clute's, individual use; and that said Remington did not at any time knowingly aid or abet said Clute in appropriating said $ 5,000 to his (Clute's) individual use, or any part thereof, save $ 3,000 thereof." It is clear from this finding that Remington had actually paid nothing out for or on behalf of the insolvent corporation. He had become surety on the personal note of E. R. Clute for $ 5,000. There is no finding that he had even paid any part of this note, or that it was unpaid, or that Clute was insolvent. Under such circumstances, we are at a loss to know how Remington, as assignee, could in good faith accept a deed of assignment in which he was preferred for a large sum of money to the exclusion of other creditors of the corporation, when he had never, so far as the record shows, had any dealings of any kind with the corporation. It would seem from the facts found, that Remington must have participated in the fraudulent acts of the corporation in making this assignment, but we are not called on to decide this question.

Respondents rely on the case of Pettit v. Parsons, 9 Utah 223, 33 P. 1038, and claim the case at bar comes within the decision in that case. An examination of the case of Pettit v. Parsons will show that it has no application to this case; that was an action by the assignee against the United States marshal, who had seized the assigned property at the suit of attaching creditors. The defendant offered on the trial evidence of the execution of a chattel mortgage and bill of sale made prior to the assignment, and of which the assignee and beneficiaries under the assignment had no knowledge. The court sustained an objection to this testimony. It was this ruling that was before this court in that case. We affirmed the ruling on two grounds: First--There was no allegation of fraud set up in the answer of the marshal. We held that the party relying upon a charge of fraud must allege and prove it. Second--There was no claim that the creditors or assignee had any knowledge of the fraudulent making of the chattel mortgage or bill of sale, being independent and antecedent transactions. We held that a participation in them by the assignee or beneficiaries was necessary in order to avoid the assignment. The latter proposition was not necessary to a decision of that case, but we now hold that it correctly declared the law. There is no conflict between the case of Pettit v Parsons and that of Smith v. Sipperly, 9 Utah 267, 34 P. 54. In this last case...