Gutta-Percha R. Mfg. Co. v. Kansas City F. D. Supply Co.

• Decision Date: 28 March 1899
• Citation: 50 S.W. 912,149 Mo. 538
• Parties: GUTTA-PERCHA RUBBER MFG. CO. v. KANSAS CITY FIRE DEPARTMENT SUPPLY CO. et al.
• Court: Missouri Supreme Court

50 S.W. 912

149 Mo. 538

GUTTA-PERCHA RUBBER MFG. CO. v. KANSAS CITY FIRE DEPARTMENT SUPPLY CO. et al.

Supreme Court of Missouri, Division No. 2.

March 28, 1899.

FRAUDULENT CONVEYANCES — CONTINUING BUSINESS FOR BENEFIT OF CREDITORS — PREVENTING ATTACHMENTS — VALUE OF PROPERTY — REVIEW — APPEAL.

1. A manufacturing company executed a deed of trust on its property for the protection of a creditor. Subsequently the trustee took possession, and with the consent of both the creditor and debtor continued the business as before, buying new goods and raw material, which was manufactured. It was so run to help the debtor, and the creditor expected to get his money out, and turn the property back to the debtor, and the intention was to run in that way until enough was realized to pay the creditor. Held, that such possession was fraudulent as to other creditors.

2. Where a debtor executes a deed of trust for the benefit of a creditor with an understanding that the trustee is to take possession and continue the business indefinitely to prevent other creditors attaching the property, such conveyance is fraudulent as to such creditors.

3. Where a trustee takes possession of property conveyed, and sells it, and uses the proceeds, not to pay the notes for which the deed of trust was given to secure, but to buy other goods with which to continue the business, with the consent of the debtor and a creditor, such deed of trust is void as to other creditors.

4. Where appellant submitted no declaration on a question in the circuit court, and saved no exception, the point cannot be reviewed.

5. A creditor cannot still claim his preference to attached property after the court finds that he has been a party to a fraudulent scheme to delay other creditors.

6. Where a debtor conveys his property to a trustee, who is to continue the business indefinitely until the creditor for whose benefit it is made is paid, when it is to be reconveyed to the debtor, the conveyance is void as to other creditors, whether or not the property is of less value than the creditor's claim.

7. Facts which would render a conveyance void if expressed on its face will also render it void if found by the court aliunde to have constituted a part of the transaction.

Appeal from circuit court, Jackson county; C. L. Dobson, Judge.

Action by the Gutta-Percha Rubber Manufacturing Company against the Kansas City Fire Department Supply Company, principal defendant, and James C. Rieger, garnishee. From a judgment against the garnishee, he appeals. Affirmed.

J. W. Garner and Wm. H. Wallace, for appellant. Gage, Ladd & Small, for respondent.

GANTT, J.

Plaintiff began an action against defendant by attachment on April 6, 1894, and on the same day garnishment was served on James C. Rieger, the appellant herein. The attachment was sustained, and judgment rendered against defendant for $3,628.02. Subsequently the issue between plaintiff and the garnishee was tried, and judgment rendered against the garnishee on April 11, 1896, for $3,892.86. From that judgment this appeal is prosecuted.

The issue arises upon the usual interrogatories propounded to the garnishee, to which he answered at great length "that on the 12th day of December, 1891, James H. Casey, doing business under the name and style of the Kansas City Fire Department Supply Company, delivered to garnishee, as trustee, a deed of trust of that date, which was duly recorded on that day, to secure the payment of notes amounting to $10,000; that afterwards said Casey and others incorporated said business under the name of the Kansas City Fire Department Supply Company, and afterwards, on December 13, 1892, said incorporation made and delivered to garnishee, as trustee, its certain other deed of trust to secure $4,000, which was duly recorded; that both of said deeds covered and conveyed all the stock, furniture, fixtures, and machinery at the place of business of said corporation, No. 2932 Fairmount avenue." The answer then proceeds: "That on the 10th day of February, 1893, the indebtedness secured by said trust deeds amounted to fourteen thousand five hundred dollars ($14,500.00), and on that day the said Kansas City Fire Department Supply Company was owing George C. Hale royalties on his patented articles manufactured by said company about three thousand five hundred dollars ($3,500.00), and was owing the American National Bank, on account of a protested check, drawn without funds to meet it, the sum of two hundred and seventy dollars and seven cents ($270.07), and the American Express Company seventy-one dollars and five cents ($71.05); all of which had to be immediately adjusted or provided for, and all of which, at the time of the assignment of the book accounts to the said bank, hereinafter mentioned, the said company requested the trustee and the Missouri National Bank to pay out of said book accounts, which it agreed to do. Said company was also owing labor claims amounting to about one thousand eight hundred dollars ($1,800), upon which said company, on said February 10th, requested said bank and said trustee to pay whatever they could, which it agreed to do. That on said 10th day of February, 1893, the Missouri National Bank of Kansas City, Missouri, being the owner and holder of said claims secured by said trust deeds, a portion of them being past due, and said bank realizing that it had not ample security, and deeming itself insecure, demanded that said trustee take possession of said property described in said deeds, and proceed to realize thereon, to pay such indebtedness. That at or about such time said bank demanded of said company additional security. That said company, by authority of a resolution of its board of directors, transferred, sold, and assigned unto the said bank, as additional security, all its book accounts, claims, and demands. That on said 10th day of February, 1893, the property covered by said deeds, and the account, claims, and demands of said company, were not sufficient in value by several thousand dollars to pay said indebtedness to said bank, and said labor and royalty claims, and the said claims of the American National Bank and the American Express Company. That said trustee on that day demanded of said company the possession of said property, and said company delivered same to him. That said company was organized for the express purpose of manufacturing George C. Hale's water tower, swinging harness, and other fire department supplies, and was almost useless for other purposes. That there were on hand, in process of construction, for different cities of the United States, water towers and other supplies, which, unless finished, would be almost a total loss. That in consideration of said facts the said company, by resolution, authorized and requested this garnishee to keep the said plant running under his supervision, and in his name as trustee, but said trustee made several efforts to dispose of said property without great sacrifice, and, failing in this, he did keep said plant running under said authority, and for the purpose as stated, until the 18th day of May, 1894, first having to enter into a contract with Geo. C. Hale for the privilege and right to manufacture under his patents. That during said time a settlement was agreed upon between said company and Geo. C. Hale at and for the sum of twenty-five hundred dollars ($2,500.00), which was paid him, as hereinbefore stated. That the claims of the American National Bank and of the American Express Company were also paid, as stated, and there was paid on labor claims eight hundred and thirty-eight dollars and seventy-seven cents ($838.77). That prior to said 18th day of May, 1894, George C. Hale, unbeknown to this trustee, made a disposition to Chicago parties of the most important of his patents, and thereby rendered a further continuation of the business an injury and a loss to all parties concerned; whereupon the said trustee made further efforts to dispose of said mortgaged property at private sale, and, failing in this, advertised the same in the Kansas City Mail for sale at public auction to the highest bidder for cash, describing the property, and giving the date, time, terms, and place of sale; and on said 18th day of May, 1894, in pursuance of said advertisement, he did offer said property for sale at public auction, first offering to sell any portion of said property, if there were bidders for any portion thereof. There being no bidders for a part of said property, this garnishee, as such trustee, offered all of said property for sale at public auction, and did sell the same at and for the price and sum of three thousand nine hundred and eighty dollars ($3,980), it being the best and last bid therefor; said property being described as follows. [Setting forth a minute description of the personal property:] Which said sum of three thousand nine hundred and eighty dollars ($3,980) was applied to the payment of expenses and said mortgage debts, and thereafter on the ____ day of May, 1894, all the unpaid book accounts were sold for the sum of seven thousand five hundred dollars ($7,500), and on the same day the two unfinished towers were sold, subject to the five hundred dollars ($500) royalty on each, for the sum of five thousand dollars ($5,000), making a total of sixteen thousand four hundred and eighty dollars ($16,480) realized from the sale of the mortgaged property, book accounts, and two unfinished towers, the twelve thousand five hundred dollars ($12,500) of which was also applied to the payment of the balance of the debts secured by the trust deeds, amounting, on May 25, 1894, to thirteen thousand two hundred and sixty-four dollars ($13,264), and to the payments by the bank of the balance of money advanced out of the book accounts on the claims hereinbefore referred to; and to the expenses, charges, and costs of handling, operating, and managing the said business, and in disposing of said...