Heineman v. Hart

• Decision Date: 15 October 1884
• Citation: 55 Mich. 64,20 N.W. 792
• Court: Michigan Supreme Court
• Parties: HEINEMAN v. HART.

20 N.W. 792

55 Mich. 64

HEINEMAN v. HART.

Supreme Court of Michigan

October 15, 1884

Appeal from Marquette.

SHERWOOD J., dissenting.

Ball &amp Hanscom, for defendant.

CAMPBELL, J.

This suit in equity was brought by complainant, as receiver, under an insolvent assignment made January 29, 1883, by the firm of Leopold & Co., (consisting of Asa F. Leopold and Albert Austrian,) to Robert Hart, who resigned the office of assignee. Its object is to set aside a chattel mortgage purporting to have been made on the nineteenth of the same month, by Leopold & Co. to defendant, as fraudulent against creditors. The court below gave a decree in favor of complainant, setting aside the mortgage. From this decree defendant appealed. It was claimed, on the argument, that the assignee could not attack the conveyances or other transfers of his assignors for fraud, and that the receiver stands in the same disability. However this may have been under the old system of voluntary assignments, our present statutes (chapter 303, How.St.) have intervened to regulate the whole subject, and by section 3 it is declared that the assignee may recover any property or equity which would be reached by creditors. This removes any difficulty, and authorizes such a suit as this.

Upon the case as presented by the record there is not much involved, except a conflict of testimony. Upon the material questions, the two partners are the chief witnesses, and contradict each other upon many facts. Upon others, which are quite important, they do not differ. The witness Leopold made out a plain case which, if true, would leave no doubt of the fraudulent character of the chattel mortgage in a legal point of view. Austrian's testimony does not give the same account of the later transactions. The circuit judge, who heard the testimony and saw the witnesses, was persuaded of the wrongful character of the dealings. We should feel disposed, in a conflict of testimony, to hesitate before disregarding his conclusions. Upon a careful examination of the record we feel satisfied with his determination. It will not be necessary to discuss the facts at length, beyond indicating in a general way the character of the controversy.

The firm of Leopold & Co. was formed in the spring of 1882, and was at first composed of Leopold and one Runkle, who were equal partners, and each put in $5,000. Leopold borrowed his funds of his father, Aaron F. Leopold. In July, 1882, Runkle sold his share to Albert Austrian for $5,339.78. No inventory was made, but it seems to have been thought a good bargain for Austrian. The latter borrowed of Emil Hart, the defendant, $6,000, a part of which he paid Runkle to make up the entire price left after applying some other funds, of about $1,900, already turned over, and the balance, it is claimed, he put into the firm. This loan of $6,000 was in two notes,--one on demand, and one, indorsed by Austrian's brother, which matured a week or two before the mortgage in controversy.

On the nineteenth day of January, 1883, Leopold & Co. gave their firm chattel mortgage to defendant for this entire sum of $6,000, with interest at 10 per cent., payable the next May. This mortgage was recorded on the twenty-third of January. Some questions arose concerning the date of delivery, but in the view we take they are of minor importance. At the same time they executed a mortgage to Aaron F. Leopold for the $5,000, which his son borrowed of him. Aaron Leopold does not appear to have asked or desired this, and has not claimed it, but has given it up. A few days after these mortgages were given, Albert Austrian went to Chicago for the express purpose of trying to get extensions from creditors there, in which he did not succeed. He thereupon returned, and the assignment was at once made. There is a conflict of testimony as to how far this assignment had been contemplated previously, in case no extension should be granted, and also as to the supposed pecuniary condition of the firm. Austrian claims they were neither insolvent nor supposed to be, and that all of their difficulty grew out of failures to collect claims which were not supposed to be in peril when he went to Chicago. Leopold contradicts this very fully. There was an inventory taken by Robert Hart afterwards, the assignee, in January, 1883, which, at the full prices at which he then valued the assets, made them amount to $44,844.39. This included debts due the firm of $17,890, which consisted chiefly of a large number of small accounts. The cash on hand was $2,136.93, and the goods in stock were put at $19,407.06. The remaining assets, $5,408.02, consisted of store, warehouse, and barn, horses, store fixtures, and the contents of the barn. The liabilities were summed up at $32,844.39. This left an apparent balance of $12,003.32. The partners, as between themselves and the firm, seem to have stood on nearly the same footing, so as to be about equally interested, Leopold having about $520 more than Austrian. After the assignment the same Robert Hart made an inventory in which he reduced the value of the same articles largely, appraising the goods at a reduction of about $3,400, and the accounts, of nearly $8,000. The whole amount of assigned assets which came into his hands was, by his estimate, about $23,000.

It will be seen from this that at the highest valuation, and making no discounts from the accounts, the firm, in January, 1883, was worth just about $12,000; which would give each of them $6,000, if their accounts were even, but which left Austrian, by the books, worth a few hundred dollars less. Any shrinkage in values would, of course, reduce this balance of assets over liabilities. Under these circumstances, on the nineteenth of January, 1883, if that is the true date, these partners gave to defendant a firm liability and chattel mortgage for $6,000, to secure an individual debt of Austrian. Assuming as true the contradicted statement that it had been all along understood that the firm would be willing to do this, it is quite clear that up to this time it had not been done, and equally clear that there was no consideration moving to the firm to support it. It covered all, and more than all, of Austrian's interest in the firm, at the largest estimate made, without shrinkage.

At the same time a $5,000 mortgage was made to Aaron Leopold for the debt due him by the other partner. The effect of this was to reduce the firm property to within a small amount of the nominal excess of asssets over debts, and to put the available assets in the store out of reach of creditors, if the mortgages were to stand.

It was under these circumstances that Austrian went to Chicago to get an extension, and says that he had no idea of insolvency, although making the assignment a few days subsequently. In our judgment his story is not probable, and if it were it would not remove some very serious facts. No man in his senses could imagine that there could be no risk of shrinkage in so large a body of scattered accounts, and no one could safely trust to meeting over $30,000 of debts out of a mortgaged stock, and the real estate, horses, and barn stock in the inventory. The direct effect of these mortgages was to withdraw nearly $12,000 from the partnership funds, to which creditors had a right to look for the personal benefit of the partners. That all this was done, and the stock tied up by mortgages, under which it could be at once taken into the possession of the mortgagees, with no suspicion of insolvency, and no purpose of depriving creditors of their security, does not seem to us credible. The facts, in their best aspect, were such as to put it in the power of the mortgagees to wind up and destroy the business at any time. If we consider what most business men would have thought of the available character and value of such assets thus incumbered, the result would be unmistakable insolvency.

We have not thought it necessary to enlarge upon the details of testimony. The leading facts are so significant that they seem inconsistent with any theory that would support the transaction complained of.

We think the decree should be affirmed.

COOLEY, C.J., concurred.

CHAMPLIN J.

There are but two questions of fact in this case, namely: (1) Was the mortgage to Emil Hart given to secure the individual debt of one of the members of the firm of Leopold & Co. at a time when the firm was insolvent? (2) Was the mortgage given to secure to Emil Hart a preference over the other creditors of Leopold & Co., contrary to the statute forbidding preferences in common-law assignments?

The facts to be determined under the first question are, was the mortgage given for the individual debt of Albert Austrian? and, if so, was the firm solvent at the time? In looking at the testimony I am strongly impressed that there must be some mistake about Albert's borrowing from defendant two sums of $3,000 each. Albert testifies that he borrowed $6,000 from defendant for the express purpose of purchasing Runkle's interest in the firm of Leopold & Runkle, which was agreed upon at $5,339.78. He says, also, that he had about $2,000 of his own means, which he used in the purchase, and gave his notes to Runkle; one for $1,000, payable July 15th, and one for $2,339.78, payable September 1, 1882. Now it will be seen that he needed only to borrow $3,000 to pay Runkle, aside from his own means, and that was the sum he asked for and obtained from defendant for that purpose. This amount was not obtained from defendant until September, at which time the amount going to Runkle matured, and Runkle swears it was paid according to agreement. Why, then, should Albert Austrian borrow from defendant, in October, another $3,000 to pay Runkle?

Both defendant and Albert swear...