Drake v. Steadman

• Decision Date: 28 March 1896
• Citation: 24 S.E. 458,46 S.C. 474
• Parties: DRAKE v. STEADMAN et al.
• Court: South Carolina Supreme Court

24 S.E. 458

46 S.C. 474

DRAKE v. STEADMAN et al.

Supreme Court of South Carolina

March 28, 1896

Appeal from common pleas circuit court of Barnwell county; Ernest Gary, Judge.

Action by Charles M. Drake, for himself and other creditors, against J. E. Steadman and others, to avoid several mortgages and confessions of judgment of defendant Steadman as in fraud of creditors. From a judgment declaring the mortgages void, and judgments confessed valid, the several parties adversely interested appeal. Affirmed.

The following was the decree of the lower court:

"The complaint in this action seeks to set aside a chattel mortgage executed by the defendant J. E. Steadman to the defendants McGahan, Brown & Evans, a mercantile firm doing business in the city of Charleston, on the 20th day of February, 1894; also, a mortgage of the real estate of the said Steadman, executed to the said McGahan, Brown & Evans at the same time. It also seeks to set aside various confessions of judgment, described in the complaint, made by the said J. E. Steadman to various creditors, upon the ground that the same are void under the statute of Elizabeth, and upon the additional ground that the two mortgages and the confessions of judgments to Marshall Wescoat & Co., C. Wulbern & Co., Johnson, Crews & Co., S R. Marshall & Co., and the Imperial Fertilizer Company were one and the same transaction, and were void under the assignment of law. See section 2146 of Revised Statutes. In other words, it is contended, by plaintiffs, though the instruments are in form a chattel mortgage, a mortgage of real estate, and the confessions of judgment, yet they were intended as an assignment with preference. After the issues were framed by the proceedings, it was referred to the master of Barnwell county to take the testimony and report the same to the court. The master has reported the testimony, and the cause was heard by me on the testimony reported by the master, together with other testimony taken by consent of counsel, and the pleadings in the case. It should be remembered that the confessions of judgment alluded to are subsequent in date to the two mortgages above mentioned. All the cases bearing upon this subject in this state have been collated and carefully considered by Mr. Justice McIver in the recent case of Porter v Stricker (S. C.) 21 S.E. 635. In this case the court says: 'From this review of the case upon the subject in this state, the following propositions applicable to the case under consideration are clearly deducible: (1) That an insolvent debtor may, by a bona fide mortgage which is intended merely as a security for a just debt, prefer one of his creditors. (2) That if the mortgage is really assigned to operate, not as a security merely, but as a means of transferring the debtor's property to the favored creditor, in preference to the other creditors, then it is void under the assignment law. (3) That the question as to what was the intention is a question of fact.' Testing this case by the above propositions of law, I am of the opinion, and I so find as a fact, that the two mortgages executed to Messrs. McGahan, Brown & Evans were intended more than as a security to secure them the amount of their claim, but that the same were intended as a means to avoid the assignments act of this state, and were an undue preference over the other creditors; and, consequently, I hold the same to be null and void. With reference to the judgments, which are assailed upon the same ground, I fail to find one fact or circumstance, in the conduct of the parties to the same, that would warrant me in concluding that they were made for any such purpose. On the contrary, their claims seem to have been past due, and were bona fide outstanding obligations against the defendant J. E. Steadman. They had a legal right, either to the payment of the amount due them, or to recover a judgment on proper proceedings. So the act of the said Steadman in making the confessions gave them. Besides, as stated above, the judgments were confessed at a time subsequent to the execution of the mortgages. It is therefore ordered, as to said judgments, the complaint be dismissed, without prejudice to any attack upon their validity, in a direct proceeding for that purpose, on the ground on any defect or any irregularity in form that may appear in the same. It appearing, from the records in the cause, that a receiver has been heretofore appointed of the property, real and personal, etc., of the defendant J. E. Steadman, and as I am unable to ascertain from the records before me what is the exact status of said estate, I have thought it advisable not to undertake to give any directions in this decree, but to leave the same open, in order that all parties interested may apply hereafter for such order as will enable said receiver to disburse whatever funds he may have in his hands, in accordance with the terms of the same."

The defendants McGahan, Brown & Evans submitted the following exceptions to the decree:

"(1) Because his honor, Judge Gary, erred in holding that the mortgages executed by the defendant Steadman to McGahan, Brown & Evans were intended 'more than as a security to secure them the amount of their claim, but that the same were intended as a means to avoid the assignment act of this state, and were an undue preference over the other creditors,' and therefore null and void, as there was absolutely no testimony to sustain such finding. (2) That said finding was contrary to the overwhelming weight of the testimony in the cause, as the evidence shows conclusively that the said Steadman executed the said mortgages to the said McGahan, Brown & Evans, and the same were accepted by the said McGahan, Brown & Evans, in good faith, for the purpose of enabling the said J. E. Steadman to continue his business by the advancement of money and supplies, as provided for in the said mortgages, and under said mortgages large advances were actually made by the said McGahan, Brown & Evans to the said J. E. Steadman. (3) That his honor should have held, from the overwhelming weight of the evidence in the case, that the true intention of the said McGahan, Brown & Evans was to promote the business of the said J. E. Steadman and all of his creditors, and not for the purpose of assisting the said J. E. Steadman in avoiding the assignment act, as held by his honor. (4) That, under the law in this state, a creditor has the right to be secured by his debtor for past advances, as well as for future advances to be made upon the strength of the security; and his honor committed error in not sustaining the mortgages given in this case, under the law, where the evidence in the case shows, without contradiction, that, at the time the said mortgages were given, the said Steadman was largely indebted to the said McGahan, Brown & Evans, and that said mortgages were given to secure said indebtedness and future advances, which said future advances were made upon the strength of the same in a very large sum. (5) That his honor committed error in setting aside the mortgages, and thereby depriving the said McGahan, Brown & Evans of their security for the advances bona fide made to the said J. E. Steadman upon the strength of the same. (6) Because his honor has failed to note any finding of fact as to the amount which the testimony shows was actually advanced upon the strength of the said securities, or of the amount that was due by the said J. E. Steadman to the said McGahan, Brown & Evans at the time the mortgages were executed. (7) That his honor, having found, as matter of fact, that the confessions of judgment in this case were bona fide made by the defendants Steadman, and not as a part of a scheme with the defendants McGahan, Brown & Evans to aid the defendant Steadman in avoiding the assignment act, should have also found, as matter of fact, from the weight of the evidence, that the mortgages were likewise bona fide, and intended merely as security for a debt already contracted, and for future advances to be made. (8) That the minds of both the mortgagor and the mortgagee must meet in common intent to commit an unlawful act, before a transaction can be held to be void, and there is actually no evidence in this cause to show any such intent upon the part of the said McGahan, Brown & Evans; but, on the contrary, the evidence plainly shows that they acted in good faith throughout, and his honor committed error in not having so held. (9) That the evidence plainly shows that there was no intention upon the part of the mortgagor or the mortgagee to transfer the legal title to the property covered by the mortgages, which would necessarily have to appear in said evidence to render the mortgages void under the assignment act. (10) That his honor committed error in not having ruled out the testimony of the defendant J. E. Steadman, taken before B. T. Rice, special referee, under an order of his honor, Judge J. J. Norton, upon this defendant's exceptions, for the following reasons: First. Because the order of the said judge was granted upon an ex parte application, without the knowledge of these defendants, and the said testimony was taken without the knowledge or consent of these defendants. Second. Because the testimony of a mortgagor against his mortgage is not admissible, unless a prima facie case of fraud has first been made out. (11) That his honor committed error in not having ruled out, as incompetent, the evidence of the said J. E. Steadman relating to these mortgages, taken before the master, inasmuch as a prima facie case of fraud had not been made out against said mortgages, and hence the evidence of the mortgagor against the mortgages was inadmissible. (12) Because his honor, Judge Norton, had no authority

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