Ries v. Rowland

• Decision Date: 27 April 1882
• Parties: RIES and another v. ROWLAND and another. [1]
• Court: U.S. District Court — Eastern District of Missouri

11 F. 657

RIES and another v. ROWLAND and another. ^[1]

United States Circuit Court, E.D. Missouri.

April 27, 1882

Bill in equity, filed by and on behalf of judgment creditors of defendant W. J. Johnson, for the purpose of subjecting to the payment of their judgments an alleged balance in the hands of defendant Rowland, the proceeds of the sale of a stock of goods and merchandise formerly belonging to said Johnson. The material facts are as follows:

In the year 1880, Johnson, who had prior to that time been engaged in business as a merchant at Hot Springs, Arkansas, became insolvent. Certain of his creditors, and among them defendant Rowland, who did business in the name of D. P. Rowland & Co. instituted suits by attachment against him, by virtue of which a large stock of merchandise at Hot Springs was attached. There were several attachments levied prior to that of Rowland. While the goods were in the hands of the marshal an agreement was entered into between Rowland and Johnson whereby it was understood that Rowland should purchase the goods at the marshal's sale for the lowest possible price and should then place them in the hands of Johnson, as his agent, to be sold and disposed of to the best possible advantage; and that after the payment to Rowland of his debt and expenses the balance should be turned over to Johnson. Accordingly an order of court was obtained for the sale of the goods, and at the sale Rowland, acting through one W. B Moore, as his agent for that purpose, bid in the entire stock, which was sold in bulk for the sum of $4,250.

Johnson was placed in possession of the goods, and proceeded to make sales thereof from time to time reporting to Rowland and remitting the proceeds of such sales, until the entire stock was sold and all the proceeds remitted. The contention of the complainants is that the sum realized by Rowland exceeded the amount due from Johnson to him and his expenses, and that the balance is held by Rowland in trust for Johnson, or his creditors; and that, Johnson being insolvent, the complainants are entitled to subject the balance in his hands to the payment of their debts by the proceeding in equity.

Robert Crawford and M. H. Cohn, for complainants.

Hayden & Glover, for respondent Rowland.

McCRARY C. J.

The weight of the evidence clearly establishes that defendant D P. Rowland, as D. P. Rowland & Co., entered into an agreement with defendant Johnson, whereby he (Rowland) was to bid in the stock of goods at the marshal's sale at the lowest price possible, and was to place Johnson in charge of the stock to make sales, and that after receiving from the proceeds of such sales the amount of his debt and expenses, any balance left should go to Johnson or his creditors. There is some testimony tending to show that improper and unlawful means were employed for the purpose of preventing competition among the bidders at the marshal's sale, and obtaining the goods for less than their value; but the view the court takes of the case renders it unnecessary to decide the question whether this is established by sufficient evidence. The complainants do not seek to set aside the marshal's sale, but only to hold the defendant Rowland as a trustee for Johnson's creditors for the amount of any balance in his hands as the proceeds of the sales of the goods after paying the amount of his debts and expenses, including the sum paid on his bid to prior execution creditors. To support this claim it is not necessary to establish the charge of fraud or conspiracy, and hence not necessary to show that improper means were employed to prevent competition.

We may, for the purpose of this case, assume that there was no impropriety in the agreement to buy in the stock for as low a price as possible, and to give to Johnson the benefit of any balance that might be left after paying Rowland's just claims, for it is clear that such an agreement, if made and carried out, constituted Rowland a trustee as to any such balance when it came into his hands. Such a transaction constitutes a secret trust. 'If any secret, substantial advantage is secured to the debtor from the use of the property, or from its proceeds, this constitutes a secret trust. ' Bump, Fraud. Conv. (2d Ed.) 213; Rice v. Cunningham, 116 Mass. 466; Coburn v. Pickering, 3 N.Y. 415.

An agreement between the purchasers at the sale and the judgment debtor that the former will allow the latter to sell the property as his agent, and to have all he can make beyond a sum agreed upon between them, undoubtedly secures an advantage to the debtor, to which a creditor may (the debtor being insolvent) in equity be subrogated. If it were a private sale it would be void as in fraud of the rights of creditors, (Grant v. Lewis, 14 Wis. 487,) and where the sale is public or judicial it is at least so far voidable that the creditors of the insolvent debtor may subject his beneficial interest in the property, or the proceeds thereof before they pass into the hands of an innocent party, to the satisfaction of their just demands. A public judicial sale may be wholly set aside as fraudulent on the ground that there has been a combination between the purchaser and the debtor to have the property sold for less than its value in order that the debtor may derive some advantage therefrom, 'when the property...