Reynolds v. Johnson

• Citation: 16 S.W. 124,54 Ark. 449
• Parties: REYNOLDS v. JOHNSON
• Decision Date: 25 April 1891
• Court: Supreme Court of Arkansas

16 S.W. 124

54 Ark. 449

REYNOLDS v. JOHNSON

Supreme Court of Arkansas

April 25, 1891

APPEAL from Washington Circuit Court, O. W. WATKINS, Special Judge.

Winchester & Bryant for appellants.

1. The damages awarded are excessive, for more than were proved.

2. A firm cannot appropriate firm assets to the payment of individual debts, to the injury of firm creditors. Bump, Fr Conv., p. 389, and notes 2 and 3, and pp. 229-230; 24 Ark 16., 222; 31 id., 666; ib., 314; Bigelow, Fraud, 476-478.

3. The mortgage was vicious on its face. It puts the property out of the reach of creditors for an indefinite time. Bigelow Fraud, Vol. 2, 296; 21 N.Y. 168-9; 13 id., 215-20; 2 Bigelow Fraud, 299, note 3, 306-8, note 1; 8 Md. 418; 2 Kent, Com., 533.

T. M. Gunter for appellee.

1. The mere preference of individual debts, by mortgage to secure them, over partnership debts is not such a fraud upon partnership creditors that a court of equity will set it aside. Jones, Ch. Mortg., sec. 44; 20 N.J.Eq. 13; 23 Hun (N. Y.), 494. But all these debts were assumed by the firm, and hence were partnership debts.

2. The mere overstating the debt by mistake was not even a circumstance to show fraud. Jones, Ch. Mortg., 339; 7 N.W. 300.

3. Creditors may proceed to collect their demands from the property if its value exceeds the amount secured by the mortgage, without waiting for the party who holds the mortgage to cause a sale. Bump, Fr. Conv., 39-60; Jones, Ch. Mortg., sec. 354; 31 Ark. 429.

OPINION

HUGHES, J.

This is an appeal from a judgment in favor of appellee in a suit upon a bond of indemnity executed by appellants to a constable, who, at the instance of appellants, levied an execution on a stock of goods as the property of the firm of Johnson Bros., which was composed of T. B. and J. F. Johnson. The goods were, at the time of the levy, in the possession of the appellee, and were claimed and held by him under a mortgage executed by said firm to him. They were sold to satisfy the execution in favor of appellants, and the appellee recovered a judgment for $ 200 damages.

The mortgage was for $ 200, while the real amount of appellee's demand was only $ 180. It is contended that this was evidence of fraud. Unexplained it would be, but it was shown that the real amount of the indebtedness of Johnson Bros. to appellee was not known at the time, and that the amount was fixed in the mortgage at $ 200, to cover what was due. If the amount was overstated by mistake, this was not evidence of fraud. Jones on Chattel Mortgages, 339; Kalk v. Fielding, 7 N.W. 296.

The mortgage provided: "Now the said party of the second part [appellee] is to take possession and control of said goods and convert the same into cash, either at wholesale or retail, as soon as possible, consistent with the most profitable disposition that can be, under the circumstances, made in the premises." It is contended that the effect, of this clause was to put the property out of the reach of creditors for an indefinite time, and that as against them it was fraudulent. Such a provision is not fraudulent per se, but only evidence of fraud to be left to a jury. Marks v. Hill, 56 Va. 400, 15 Gratt. 400; Williams v. Lord, 75 Va. 390; Cunningham v. Freeborn, 11 Wend. (N.Y.) 241; Woodward v. Marshall, 22 Pick. 468; 2 Bigelow on Fraud, p. 299, n. 4, and cases.

The evidence tended to show that the debts, which the mortgage was made to secure, were in part debts of the firm of Johnson Bros. and in part the individual debts of members of the firm. It is contended that the firm could not appropriate the partnership property to the payment of the individual debts of members of the firm, in preference to partnership debts.

Bump on Fraudulent Conveyances, p. 389, does indeed lay down the rule broadly that "An appropriation of firm property to pay the individual debts of one of the partners, is, in effect a gift from the firm to the partner, and the attempt to assign partnership property to pay the private debts of one of the partners, before the firm debts are paid, when the firm is insolvent, affords a conclusive presumption of an actual fraudulent design on the part of the debtors." See authorities referred to in note 2 to said page. A majority of adjudicated cases on this question, outside of this State, perhaps sustain the rule as laid down by Mr. Bump.

But the court laid down a different rule upon this question in Jones v. Fletcher, 42 Ark. 422, adhering to the doctrine of the Supreme Court of the United...