Shotwell v. Nicollet Nat. Bank

• Decision Date: 02 June 1890
• Citation: 43 Minn. 389,45 N.W. 842
• Parties: SHOTWELL ET AL. v NICOLLET NAT. BANK ET AL.
• Court: Minnesota Supreme Court

43 Minn. 389

45 N.W. 842

SHOTWELL ET AL.vNICOLLET NAT. BANK ET AL.

Supreme Court of Minnesota.

June 2, 1890.

(Syllabus by the Court.)

1. To constitute a fraudulent concealment, incumbering or disposal of property by a debtor with intent to cheat and defraud his creditors, within the meaning of section 10 of the insolvent law of 1881, so as to entitle creditors to share in the assets without filing releases, the act must have been committed with an actual corrupt and dishonest intent to cheat and defraud creditors. The mere fact that the debtor may have retained and used property which he had no legal right to retain or use, and that the effect of such act may have been a fraud on creditors in the sense that it deprived them of the benefit of assets to which they were equally entitled, is not, in the absence of such corrupt and dishonest intent, sufficient to entitle the creditors to share in the assets of the debtor without filing releases.

2. The finding of the court construed, and held not to amount to a finding of a fraudulent concealment or disposal of property with intent to cheat and defraud creditors, and hence insufficient to support the order appealed from.

3. While a dishonest disclosure, or a refusal to make a full disclosure, by an insolvent debtor may justify the conclusion that he has fraudulently concealed or disposed of his property with intent to cheat and defraud his creditors, yet it is not the dishonest disclosure, or the refusal to disclose, but only the fraudulent concealment or disposition of his property, which is made the ground for permitting creditors to share in the assets without executing releases.

Appeal from district court, Hennepin county; LOCHREN, Judge.

In the matter of the assignment of Shotwell, Clerihew & Lothman.

Selden Bacon, for appellants.

Shaw & Cray, for respondents.

MITCHELL, J.

In June, 1888, the appellants here executed, pursuant to the provisions of the “Insolvent Law,” (Gen. Laws 1881, c. 148,) a general assignment of all their non-exempt property (both partnership and individual) for the benefit of their creditors. In January, 1889, one of the creditors of the firm, in behalf of itself and other creditors, seasonably petitioned the court to order, pursuant to section 10 of the act, that the property of the assignors be distributed among their creditors without their filing releases. The matter was referred to a referee to take and report the evidence, and from the evidence reported by him the court found the following facts: “(1) That the insolvents, just before making the assignment, and in contemplation thereof, by mutual agreement, each took the sum of $600 of the partnership moneys then on hand to be used by himself for his own anticipated personal needs, and caused the same to be charged against himself upon the books of the partnership, and has kept and used the same, and has turned over no part thereof to the assignee; that such taking was done with the knowledge of the bookkeeper of the firm, and not secretly, and with no other intent or purpose than to provide for the anticipated wants of said insolvents and their families immediately following such assignment, and until other means of subsistence could be attained or provided. (2) That, upon the examination of the insolvents before the referee in this matter, divers questions were propounded to each of them by counsel for the petitioners, as to whether, upon a prior examination before the municipal court, he had not testified to certain matters concerning his participation in making an alleged statement to an agent of a commercial agency in January, 1888, concerning the then financial standing of the firm, representing that it then had assets to the extent of $288,000 over and above all liabilities; that they, and each of them, refused to answer any and all such questions, acting therein upon the advice of their counsel.” Upon these findings of fact the court made an order directing that the creditors be permitted to receive their respective dividends from the estate of the insolvents without making or filing releases of their claims.

Much of the examination before the referee, and much of the argument of counsel here, has reference to the alleged discrepancy between the financial condition of the firm as shown by their statement in January, 1888, and as shown by the schedules to the assignment made in the following June; the petitioners claiming that the comparison showed a large amount of assets unaccounted for. As the court has made no finding upon this, it is neither necessary nor proper for us to inquire whether the evidence was or was not sufficient to establish what petitioners claim for it. The order of the court below must stand or fall exclusively upon the findings as made.

The here material part of the insolvent law is section 10, which, after providing that only those creditors shall share in the estate of the debtor who have filed releases of their claims, contains the following: “Provided, however, that when any creditor of such insolvent debtor *** alleges, by complaint made to the judge, that such debtor has fraudulently concealed or fraudulently incumbered or disposed of any of his property with intent to cheat and defraud his creditors, such judge (after notice) may hear such legal evidence as he may deem pertinent, relating to such fraudulent concealment, incumbrance, or disposal; and after such hearing said judge may, in his discretion, order or direct that all of the debtor's property and assets, not exempt by law, be distributed among the creditors, upon their filing such releases, or without their filing releases, as aforesaid.” The language of the last part of this proviso is quite peculiar. But it certainly cannot mean that the judge shall hear evidence merely for amusement, and then decide the matter according to his own arbitrary caprice. What we think it must mean is that, if the petitioner's allegations against the debtor are proven, he shall grant the petition; otherwise deny it.

Two questions are therefore presented: (1) What constitutes a frauduent concealment, incumbering, or disposal of property by the debtor with intent to cheat and defraud his creditors, within the meaning of the statute? and (2) do the facts stated in the first finding of the court constitute such a fraudulent concealment or disposal; or, otherwise stated, does the finding amount to a finding of such a fraudulent concealment or disposal?

In Re Gazett, 35 Minn. 532,29 N. W. Rep. 347, it was held that the words, “with intent to cheat and defraud,” must be given the meaning ordinarily belonging to them, and therefore a mere preference of creditors by a debtor was not a fraudulent disposal of his property, within the meaning of the statute, although in violation of its policy, and the effect of it to deprive other creditors of their just share of the debtor's estate....