Durham Fertilizer Co v. Same

Decision Date06 March 1896
PartiesDURHAM FERTILIZER CO. v HEMPHILL et al. ALLISON et al. v. SAME.
CourtSouth Carolina Supreme Court

Fraudulent Conveyances—Partnership—Mortgage op Individual Property — Assignment for Creditors—Reservation of Homestead.

1. A mortgage of a partner's individual property to the firm, executed for the purpose of increasing the firm's credit with a bank to which it owed a bona fide debt, was transferred to the bank within 10 days after its execution, —both parties being then solvent, —and two years later the firm made an assignment for the benefit of creditors. Held, that such transfer was not invalid as to subsequent creditors of the firm, though it was not recorded until the assignment.

2. Rev. St. 1893, § 2147 (Gen. St. 1882, § 2015), declaring void a mortgage by an insolvent person, to one who has reasonable cause to believe the mortgagor is insolvent, within 90 days prior to the making of an assignment by such mortgagor for the benefit of creditors, does not affect a partner's mortgage of his individual property to secure a partnership debt within such period prior to a general assignment by the firm.

3. A partner's mortgage of his individual property to secure a bona fide partnership debt is not invalid as an attempt to "hinder, delay, or defraud" firm creditors.

4. The invalidity of a mortgage executed by an insolvent within 90 days prior to his assignment for the benefit of creditors, in violation of Rev. St. 1893, § 2147 (Gen. St. 1882, § 2015), or the fact that a mortgage executed by the insolvent before he assigned was tainted with actual fraud, does not affect the validity of the assignment itself.

5. An assignment of a firm's property for the benefit of creditors is not invalidated by the unnecessary reservation therein of a right of homestead by the partners in their individual property.

Appeal from common pleas circuit court of Chester county; Benet, Judge.

Separate actions by the Durham Fertilizer Company against J. J. Hemphill and another as assignees of the Bank of Chester, and George W. Gage and another as assignees of Grey & Sandifer, and by Allison & Addison against the same defendants, to set aside, as fraudulent, certain conveyances by Grey & Sandifer to the Bank of Chester. The causes were heard together, and from a decree for plaintiffs defendants appeal. Reversed.

The decree of the circuit court was as follows:

"The above-entitled two actions were simultaneously brought against the assignees of the Bank of Chester and the assignees of Grey & Sandifer for the purpose of setting aside and vacating a deed of assignment executed by Grey & Sandifer to G. W. Gage and A. M. Titman on the 2d of January, 1894. The plaintiffs assail the said assignment on the ground of fraud and collusion, and also as being in violation of the assignment act. By consent the two causes were heard together before me at the March term of the court for Chester county, 1895. Upon the pleadings, and upon testimony taken at the trial, it appears that Grey & Sandifer, the assignors of the deed in question, were merchants doing a general business at Lowryville, in Chester county, in 1893. The firm consisted of Samuel W. Grey and Rufus T. Sandifer. Grey was possessed of considerable real estate, consisting of his house and lot and store buildings, which he valued at $3,800. Sandifer owned a house and lot at Lowryville, which amounted to a homestead. In February, 1892, Grey had mortgaged all his real estate to the firm of Grey & Sandifer for the purpose of giving the firm a basis of credit with the Bank of Chester, to which at that time the firm was largely indebted. The said mortgage was pledged by the firm to the bank as collateral security. This mortgage was not placed on public record for a long time, but it remained in the possession of the bank as a pledge. On the 0th of January, 1893, the plaintiff the Durham Fertilizer Company entered into a written contract with Grey & Sandifer to furnish them with certain fertilizers, at prices specified and upon terms set forth in the said contract; and Grey & Sandifer gave to the said fertilizer company two notes for the amount contracted for, —notes to fall due on 15th November 1893, and 1st December, 1893, respectively. On one of those notes the sum of $75 was paid. On the same day, Grey & Sandifer entered into a similar written contract for the purchase of fertilizers with the plaintiffs Allison & Addison, to whom two notes were given, also, on each of which a payment of $125 was made, leaving an unpaid balance of $200 Early in the summer of 1893 both sets of notes were placed in the hands of the Bank of Chester for collection according to the usual course of banking business. The bank accepted the trust thus imposed, made collections on said notes, and was paid its usual commissions. Grey & Sandifer retained possession of the notes and accounts of the farmers given and contracted for the said fertilizers, and belonging, according to the terms of the aforesaid contracts, to the plaintiffs. Grey & Sandifer also collected nearly all that was due on those notes and accounts, and did not remit the money. In the fall of 1893 the firm of Grey & Sandifer became embarrassed, and very soon thereafter insolvent, and nothing more was paid on the notes due the plaintiffs. During this confessed insolvency, namely, on 30th December, 1893, Grey, the moneyed member of the firm and the managing partner, executed a mortgage directly to the said bank for $800 upon the same real estate, and pledged this second mortgage to the bank as collateral security for the general indebtedness of Grey & Sandifer. Immediately thereafter, on 2d of January, 1894, both the $3,000 mortgage and the $800 mortgage were put on record with the register of mesne conveyances for Chester county. The $3,000 mortgage had been kept off the record for nearly two years. On the same day on which the two mortgages were recorded, namely, on 2d January, 1894, Grey & Sandifer made a general assignment for the benefit of their creditors, to G. W. Gage and A. M. Titman. The deed of assignment contained the following reservation: 'But the homestead of either party hereto in any individual assets he may possess is not intended to be hereby conveyed away.' Some two months later, on 12th March, 1894, the said the Bank of Chester also made a general assignment for the benefit of its creditors to J. J. Hemphill and J. Lyles Glenn. The plaintiffs in these two causes refused to accept the terms of the deed of assignment of Grey & Sandifer, and they proceeded to recover, and did recover, judgment against that firm as follows: The Durham Fertilizer Company for $203.88, and Allison & Addison for $208.36 and $13.75 costs. Executions were issued, and returns of nulla bona made. The assignees of Grey & Sandifer accepted the trust under the deed of assignment, proceeded to administer the same, collected the assets, and declared and paid out a dividend of 22 per cent. It seems that originally these two sets of plaintiffs brought their action together, in one joint suit. A demurrer for misjoinder was sustained, and then the plain-tiffs severed, and the two causes came on for hearing. The plaintiffs charge that the said transactions between the Bank of Chester and Grey & Sandifer must be upset on two grounds: (1) Because they were fraudulent and void, and intended to defraud and hinder and delay the other creditors of Grey & Sandifer. (2) Because the said transactions were intended to secure a preference to the Bank of Chester, in violation of sections 2014, 2015, of the General Statutes; and because the preference given was within 90 days prior to the assignment of Grey & Sandifer. At the trial of the cause, after all the testimony was in, the counsel for the plaintiffs moved the court for leave to amend the two complaints so as to allege that the assignment of Grey & Sandifer was void because of the reservation of the homestead of the individual property of both of the partners therein, and for other causes which appeared in the testimony. It seemed to me proper, and leave was granted, and the amendment appears in the order passed. Consequent upon the amendment thus allowed, plaintiffs' counsel submitted a third ground, whereon he urged that the deed of assignment should be vacated, namely: (3) Because of the reservation in the deed of assignment out of the partnership assets.

"It would incumber this decree unnecessarily to set forth in detail all the facts proved in the trial of these two causes. The oral testimony fills 30 pages of typewriting, and it is proper to note here that a painful accident to the official stenographer of the Sixth judicial circuit prevented his furnishing me with his notes of the evidence for several months. This accident to an officer well known for his promptness and efficiency accounts for the seeming delay in filing this decree, and also the decree in several other causes heard by me on the Sixth circuit. A careful reading of the testimony five months after hearing it f;-om the lips of the witnesses on the stand only confirms the impressions produced on my mind during the trial, namely, that the transactions by and between Grey & Sandifer and the Bank of Chester in the matter of the two mortgages —especially the $800 mortgage—were collusive and fraudulent, that they were intended to secure an unlawful preference to the Bank of Chester at the expense of the other creditors of Grey & Sandifer, and that the reservation of the homestead in the deed of assignment vitiated that deed. When it is remembered that the $800 mortgage was made and delivered on the 30th of December, 1893, when not only Grey & Sandifer were hopelessly insolvent, and just two days before they made their assignment, but that the Bank of Chester, the mortgagee, was notoriously embarrassed, and resorting to every possible shift to conceal its bankrupt state, virtually living from hand to mouth, and even failing to remit...

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