Lellman v. Mills

Decision Date18 December 1906
Citation87 P. 985,15 Wyo. 149
PartiesLELLMAN ET AL. v. MILLS
CourtWyoming Supreme Court

ERROR to the District Court, Uinta County, HON. CHARLES E CARPENTER, Judge.

Stephen A. Mills, as trustee in bankruptcy of the estate of Fred Lellman, a bankrupt, brought the action against the bankrupt and another to cancel a chattel mortgage executed to the latter by the former upon property alleged to be property of a partnership composed of said bankrupt and one James Hackman. From a judgment in favor of the plaintiff the defendants prosecuted error. The facts are stated in the opinion.

Affirmed.

J. H Ryckman and S. T. Corn, for plaintiffs in error.

The petition was insufficient, and the demurrer should have been sustained for the reason: (1) That the representative capacity of the plaintiff was not sufficiently alleged. (Judah v. Fredericks, 57 Cal. 389; 22 Ency. Pl. & Pr., 193; R. Co. v. Schmidt, 4 O. Cir. Dec., 538; Wilson v. Polk Co., 112 Mo. 126.) (2) That the mortgagee was not a creditor of the bankrupt was not alleged nor the names of the creditors or the amounts due them, nor whether there were in fact other creditors of either the bankrupt or partnership. (Rowland v. Collman, 45 Ga. 204.) (3) The mere allegation that the mortgage was fraudulently executed without showing the existence of creditors was insufficient. (Leasure v. Forquer, 27 Ore. 334; Emery v. Yount 7. Colo. 107.) (4) The facts supposed to constitute the fraud were not set out. A general allegation of fraud is a mere conclusion of law. (5 Ency. Pl. & Pr., 567; 9 id., 686, 687.) (5) The insufficiency of the funds in the trustee's hands was not alleged. (Mueller v. Bruss, 112 Wis. 406; Deland v. Miller, 119 Iowa 369.)

The motion to amend the petition after judgment was improperly granted, first, because no notice of the motion had been given the defendant as required by the statute. (R. S. 1899, Secs. 3610, 3597, 3598; Nance v. People, 54 P. 633; 21 Ency. L., 583; 12 O. Cir., 4; 18 id., 313; 5 O. Cir. Dec., 335; 10 id., 180.) Second, there was nothing to amend, for the petition failed to state a cause of action, and was, therefore, not amendable. (1 Ency. Pl. & Pr., 510; Smith v. Jackson, 2 Paine, 486; Fisher v. Rutherford, 1 Baldw., 188.) The power to amend after judgment must be sparingly exercised. (48 Ohio St. 443; 1 Ency. Pl. & Pr., 605.) The amendment was one of substance and should not have been allowed except upon condition of payment of costs and consent to a new trial. (1 Pl. & Pr., 605.) The judgment should have been vacated to allow the defendant to controvert the new matter. (Id., 607; Jaggar v. Cunningham, 8 Daly, 511.) The numerous defects of the petition were not curable by verdict.

The action is not maintainable without allegation and proof that the mortgagee had notice of the fraud or defects in the mortgage. (Prewit v. Wilson, 103 U.S. 22; 14 Ency. L., 270; Seeleman v. Hoagland, 19 Colo. 231; Burdsall v. Waggoner, 4 Colo. 256; Myers v. Kinzie, 26 Ill. 38; Willis v. Thompson, 93 Ind. 62; Ball v. Barnett, 39 Ind. 53; Lipperd v. Edwards, 39 Ind. 165; Johnson v. Johnson, 3 Metc., 65; Ruhl v. Phillips, 48 N.Y. 125; Sheeley v. Boothe, 73 Mo. 74; Herring v. Wickham, 29 Gratt., 628; Kenny v. Daw, 10 Mart., 577; Maginac v. Thompson, 7 Pet., 348; Fifield v. Gaston, 12 Iowa 218.) If Lellman owed the mortgagee he had a right to give her security, no matter how much he owed others.

When a retiring partner sells to the other partner or to a third person, his equity is gone, and the derivative equities of the creditors are at an end. (Case v. Beauregard, 99 U.S. 119.)

Statements by partners to friends and creditors to the effect that the partnership is dissolved are admissible in evidence by them to show dissolution. (Emerson v. Parsons, 46 N.Y. 560.) Dissolution is proved in the same manner as the formation of a partnership. (Gilbert v. Whidden, 20 Me. 368.) The evidence established the fact of dissolution prior to the mortgage, and the jury should have been instructed that the partnership had ceased before the execution of the instrument in controversy. (Grew v. Walker, 17 Ala. 824.) Public notice is not essential to dissolution. It may be effected by mutual consent by merely ceasing to do business as partners and dividing the property. (Lovejoy v. Spafford, 93 U.S. 441; Richardson v. Gregory, 126 Ill. 166.) Notice is only necessary to revoke the agency of the partners as to third persons. (22 Ency. L., 177; Wardwell v. Haight, 2 Barb., 549; Bank v. McChesney, 20 N.Y. 240.) An instruction not based upon pleadings or evidence is error. (1 Blash. Instr., 83; 11 Pl. & Pr., 158; Hughes Instr., 80.)

B. M. Ausherman, for defendant in error.

A general demurrer does not raise the question of the legal capacity of the plaintiff to sue; and hence the demurrer in this case which assailed the petition on the sole ground of the insufficiency of its statement of facts to constitute a cause of action was not a proper objection to the alleged insufficiency of the allegations as to the representative capacity of the plaintiff. (R. S., Sec. 3535; Walsh v. Byrnes, 39 Minn. 527; Radabaugh v. Silvers, 35 N.E. 694; Sanborn v. Hale, 12 Neb. 318; Viburt v. Frost, 3 Abb. Pr., 119; Murray v. McGarigle, 69 Wis. 483; James v. James, 77 P. 1082; Maxwell's Code Pl., 371; Bliss Code Pl., 409a.)

This is not a case alleging merely the fraudulent conveyance of property, but an unlawful mortgage. The petition stated sufficient facts to constitute a cause of action for the cancellation of the mortgage illegally executed by a single partner. The mortgage was void for the reason that it covered partnership property and was not signed by each partner. (R. S., Sec. 2808.) The trustee in bankruptcy is presumed to represent the creditors of the bankrupt, and the burden is upon those denying his authority. (Oliver v. Hilgers, 86 Minn. 35.) The right of action on the part of the creditors to set aside a conveyance of the bankrupt passes to the trustee. (Bankrupt Act, 1898, Sec. 70a.)

The first suggestion that the petition failed to allege the insufficiency of the funds in the hands of the trustee came from the defendants below at the argument of the motion for new trial. Thereupon, application was made to amend if the court should entertain any doubt about the matter. Counsel for plaintiff believed the petition to be sufficient in that respect, and the proof amply covered the question. The amendment was properly allowed. (R. S., Sec. 3588; Redman v. Ry. Co., 3 Wyo. 678; Ramsey v. C. C. Co., 13 P. 247; 3 Cyc., 294.)

The agency of either partner cannot be terminated nor liability to creditors and persons doing business with the firm avoided, until due and legal notice is given. (Lindley Part., 214; Wagon Co. v. Rummell, 14 F. 155, and 12 F. 658; Arnold v. Hart, 52 N.E. 936; Band, &c., v. Watson, 45 L. R. A., 547.)

The partnership being unable to pay its debts, or having been at the time of giving the mortgage, it was insolvent. (In re Ramazzina, 42 P. 970; Washburn v. Huntington, 21 P. 305; Sacry v. Lobree, 23 P. 1088.) A mortgage given under such conditions as surround this case, involving all property of every kind, even though signed by the proper parties, is void and fraudulent as against creditors, there being no preference authorized by the statutes of our state. (In re Hemstreet, 139 F. 958.) Fraud is vividly stamped upon every act of the defendants in this proceeding and the court and the jury have not permitted it to go unnoticed. It is the acts of the bankrupt and the circumstances surrounding them that furnish the evidence of fraud. The continual existence of the partnership up to the date of the execution of the mortgage was clearly shown by proof of the conduct of the parties.

POTTER, CHIEF JUSTICE. SCOTT, J., and MATSON, District Judge, concur. MR. JUSTICE BEARD having announced his disqualification to sit in the cause, HON. RODERICK N. MATSON, Judge of the First Judicial District, was called in to sit in his stead.

OPINION

POTTER, CHIEF JUSTICE.

This is an action brought by Stephen A. Mills as trustee in bankruptcy of the estate of Fred Lellman, a bankrupt, against the said Fred Lellman and one Mary M. Guild (his daughter) to set aside a chattel mortgage given to the latter by Lellman December 14, 1901, covering the furniture and other personal property located in the Daly Hotel in the town of Diamondville, Wyoming. The petition alleged the appointment and qualification of the plaintiff as trustee of the estate of said Lellman, a bankrupt; that the mortgaged property belonged to a partnership composed of said Lellman and one James Hackman, under the firm name of Lellman and Hackman; that at the time of the execution of the mortgage and during the existence of the partnership the said Lellman and said partnership were insolvent, which fact the said defendants knew at the time of the execution of the mortgage; that Hackman, the other member of the partnership, had in the course of the administration of said bankrupt estate filed with the referee in bankruptcy consent and authority for the said plaintiff as trustee to include in the administration of the affairs of said estate the property of said partnership; and that the chattel mortgage aforesaid was given without consideration and with intent to hinder, delay and defraud the creditors of Lellman and the partnership. By amendment permitted on the trial without objection it was further specifically alleged that on the date of the execution of said chattel mortgage and for many years prior thereto a partnership had existed between said Lellman and Hackman; that it had not been dissolved and that it existed at the time of the filing by Lellman of his petition in bankruptcy. By further amendment permitted by the...

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