Fish v. East

• Decision Date: 04 September 1940
• Docket Number: 2023.,2005,1968,2007,No. 1925,1955,1925
• Citation: 114 F.2d 177
• Parties: FISH et al. v. EAST (four cases). TIGER PLACERS CO. v. COHEN et al. BLUE RIVER CO. v. EAST.
• Court: U.S. Court of Appeals — Tenth Circuit

114 F.2d 177 (1940)

FISH et al. v. EAST (four cases). TIGER PLACERS CO. v. COHEN et al. BLUE RIVER CO. v. EAST.

Nos. 1925, 1955, 1968, 2005, 2007, 2023.

Circuit Court of Appeals, Tenth Circuit.

June 29, 1940.

Rehearing Denied September 4, 1940.

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Warwick Downing, Richard Downing, and Frederick P. Cranston, all of Denver, Colo., Donald M. Hill, of Boston, Mass., and W. W. Grant, of Denver, Colo. (Donald M. Hill, Jr., of Boston, Mass., on the brief), for appellants.

John W. Shireman and Thos. K. Hudson, both of Denver, Colo. (Norma L. Comstock, of Denver, Colo., on the brief), for appellees.

Before PHILLIPS, BRATTON, and WILLIAMS, Circuit Judges.

WILLIAMS, Circuit Judge.

Six separate appeals, as above numbered and styled, are hereinafter considered and determined.

At date of filing petitions in bankruptcy Richard Downing was vice-president and director of Royal Tiger Mines Company, and also president of the Tiger Placers Company. Warwick Downing and Richard Downing have been attorneys for the Mines Company since 1928. They have represented Fish since November, 1936. They organized the Placers Company, and have represented it since its organization in 1932. The Downings, John A. Traylor, president of bankrupt, and an engineer connected with the Securities Commission of Illinois drafted the contract (October 22, 1932) between the Mines Company and the Placers Company. The Downings and John A. Traylor organized the Blue River Company for Fish and Usher, II, and formulated and drafted the contract between the Placers Company and Blue River Company of August 13, 1937. After said voluntary (bankruptcy) petition was filed (February 26, 1938), and prior to order of adjudication, Fish and Usher, II, attempted to procure the issuance of a sheriff's deed, without succeeding, on the Whatley certificates whereby the Mines Company's property would be conveyed to Fish. Fish purchased the Scott and Whatley certificates a week after the adjudication.

Fish participated in the organization of the Placers Company and was a director of the bankrupt throughout the active business life of the Placers Company. He refused to stand for re-election in April of 1936 and began purchasing claims against the said Mines Company in November, 1936, using the company's attorneys as his attorneys for that purpose. He was a director of the Mines Company during the period in which two of the judgments on which he now bases his own claims were taken against the bankrupt, and the labor claims in the Scott case, represented by the two sheriff's certificates of purchase, were incurred during his directorship. No taxes were paid on the Mines Company's real property after 1928, nor during all the time Fish was a director of the bankrupt, although some money had been available which could have been so applied. Fish purchased the Summit County tax sale certificates on the Mines Company's property outstanding in November, 1936, using in part the bankrupt's money in such purchase.

Another judgment entered on foreclosure of mechanic's liens was assigned to and is still held by Western Development and Realization Corporation, which is the Downings' personal holding company.

John A. Traylor, president of the said Mines Company, until August, 1937, also the president of the Placers Company, was the dominant force in both companies. He was also potentially manager of both companies. At all times during the history of the bankrupt he had sufficient proxies to name the personnel of its board of directors, and this condition existed with the Placers Company until 1935.

Samuel Usher, II, was a director of and in charge of the Boston office of the bankrupt for sixteen years, being its assistant secretary, and also assistant secretary of the Placers Company, as well as director of Blue River Company. He attempted to procure sheriff's deed to Fish on March 1, 1938. Gaspar Bacon was a director of the Placers Company and is now a director of the Blue River Company. Horace Hildreth was vice-president and director of the Placers Company and now director of the Blue River Company.

The directors of the Blue River Company, shortly after its organization, were Fish, Hildreth, Donald M. Hill, Bacon and Usher.

The court found that an additional object of making that lease and organizing the Placers Company to receive the grant or demise as lessee was "to hinder and delay creditors" of the Mines Company, direct evidence of such fact being found in the minutes of the meeting of the board of directors of the bankrupt held November 2, 1932, at which a resolution was adopted to the effect that the stock of the Placers Company should be issued to Edward Cunningham, Erland F. Fish, and John A. Traylor, as trustees for the Mines Company, and the president of the Placers Company, stating that one of the reasons for this arrangement was that it was desired to have the stock "out of the name of Mines Company, so it could not be attached." In re Holbrook Shoe & Leather Co., D.C., 165 F. 973; In re Looschen Piano Case Co., D.C., 261 F. 93; Shapiro v. Wilgus, 287 U.S. 348, 53 S.Ct. 142, 77 L.Ed. 355, 85 A.L.R. 128.

At time the Placers Company was formed, no conveyance of property to it — neither deeds nor bills of sale — was delivered, and the contract between the two companies was not recorded until May 21, 1933. Neither change in possession was made nor any such intention indicated.

Under statutes of Colorado relating to conveyances in fraud of creditors, it is provided:

"Every conveyance or assignment in writing or otherwise, of any estate or interest in lands, or in goods or things in action, or of any rents and profits issuing thereupon, and every charge upon lands, goods or things in action, or upon the rents and profits thereof, made with the intent to hinder, delay or defraud creditors or other persons of their lawful suits, damages, forfeitures, debt or demands, and every bond or other evidence of debt given, suits commenced, decree or judgment suffered with the like intent, as against the person so hindered, delayed or defrauded, shall be void. (G.S., § 1526; G.L., § 1267; R.S., p. 340, § 17; L. '61, p. 245, § 17; R.S. '08, § 2671; C.L. § 5116.)" 1935 Colo.Stat.Ann., ch. 71, § 17. (Italics supplied.)

"Every sale made by a vendor of goods and chattels in his possession or under his control, and every assignment of goods and chattels, unless the same be accompanied by an immediate delivery, and be followed by an actual and continued change of possession of the things sold or assigned, shall be presumed to be fraudulent and void, as against the creditors of the vendor, or the creditors of the person making such assignment, or subsequent purchasers in good faith, and this presumption shall be conclusive. (G.S., § 1523; G.L., § 1264; R.S., p. 339, § 14; L. '61, p. 244, § 15; R.S. '08, § 2668; C.L., § 5113.)" 1935 Colo.Stat.Ann., ch. 71, § 14. (Italics supplied.)

"The term `creditors,' as used in the last section, shall be construed to include all persons who shall be creditors of the vendor or assignor, at any time whilst such goods and chattels shall remain in his possession or control. (G.S., § 1524; G.L., § 1265; R.S., p. 340, § 15; L. '61, p. 245, § 15; R.S. '08, § 2669; C.L., § 5114.)" 1935 Colo.Stat.Ann., ch. 71, § 15. (Italics supplied.)

The fact that Traylor and the other directors of the Mines Company may have honestly believed that large profits could be made by placer operations does not change the illegality of the contract by which they attempted to divert assets of the corporation to the Placers Company away from its creditors. Not only is a conveyance illegal if made with an intent to defraud the creditors of the grantor, but also equally illegal if made with an intent to hinder and delay them. Many an embarrassed debtor holds the genuine belief that if suits can be staved off for a season, he will weather a financial storm, and pay his debts in full. Shapiro v. Wilgus, 287 U.S. 348, 53 S.Ct. 142, 77 L.Ed. 355, 85 A. L.R. 128, 131; Means v. Dowd, 128 U.S. 273, 281, 9 S.Ct. 65, 32 L.Ed. 429. The belief, even though reasonably well founded, does not clothe such debtor with a privilege to build up obstructions that will hold his creditors at bay.

In Curran v. Rothschild, 14 Colo.App. 497, 60 P. 1111, the debtor conveyed his property to a corporation in return for its stock, for the purpose of delaying his creditors in enforcing their claims, though not for the purpose of defrauding them in the sense of nonpayment, on the contrary, with an honest belief that by such action the interest of the creditors would be benefited, and without any present or future benefit to himself. The transfer was held to be fraudulent because made with intent to delay creditors.

Under Colorado decisions, a conveyance intended to defraud creditors not only is voidable to existing, but also as to future, creditors. A person need not have been an existing creditor at the time the conveyance was executed in order to invoke the protection of the section. House v. Johnson, 19 Colo.App. 524, 76 P. 743.

Such intent must be participated in by both parties, grantor and grantee, or mortgagor and mortgagee, but when such is the case, it is settled that the conveyance or mortgage is null and void. Livingston v. Swofford Bros. Dry Goods Co., 12 Colo. App. 331, 56 P. 355.

Whether the intent be to hinder and delay creditors or to defraud them, the legal effect is the same. Italian-American Bank v. Lepore, 79 Colo. 466, 246 P. 792.

A sale of property, though for a full consideration, may be void if made by the owner with intent to hinder, delay or defraud his creditors, if the vendee participated in any such intent, and such intent may be inferred from facts and circumstances. Helm v. Brewster, 42 Colo. 25, 93 P. 1101.

The right of the trustee as the representative of a creditor under Sec. 70, sub. e of the...