Smith v. Schwed

• Decision Date: 01 November 1881
• Citation: 9 F. 483
• Parties: SMITH and others v. SCHWED and others.
• Court: U.S. District Court — Western District of Missouri

9 F. 483

SMITH and others v. SCHWED and others.

United States Circuit Court, W.D. Missouri, Western Division.

November, 1881

This is a bill in equity brought to set aside a judgment rendered in the circuit court of Jackson county, Missouri, on the twenty-sixth day of January, 1880, in favor of respondent Heller, and against respondents Schwed & Newhouse, for $9,512.50. The judgment was by confession, and it appears upon its face to have been upon a promissory note given by said Schwed & Newhouse to said Heller. The bill charges that the judgment was confessed without consideration, and by fraud and collusion, for the purpose of hindering, delaying and defrauding creditors. Schwed & Newhouse were, for some time prior to the rendition of said judgment, engaged in business as wholesale jewelers in Pittsburgh, Pennsylvania, and at Kansas City Missouri. Their store at Kansas City was established as a branch of their business in Pittsburgh. In the course of their business they borrowed money, from time to time, from the respondent Heller, and made numerous payments on account of such loans; but whether, at the time the judgment was confessed, there was a balance due, as claimed by respondents in the case, is one of the questions in dispute. On the same day in which the said judgment in the circuit court of Jackson county, Missouri, was confessed, another judgment for $5,009.33, was confessed by Schwed & Newhouse in favor of Heller, on another note, in the court of common pleas in Allegheny county, Pennsylvania. It appears that the alleged balance due from Schwed & Newhouse to Heller was divided into two notes,-- one for $5,000, and the other for $9.000,-- dated, respectively, December 22, 1879, and February 8, 1879, and each due one day after date, and on the former judgment was confessed in the Pennsylvania court, and upon the latter in the Missouri court. Executions were issued at once on both judgments, and the stores at Pittsburgh and Kansas City were simultaneously closed by the sheriffs.

Complainants, who are creditors of Schwed & Newhouse, instituted this suit in the state court to enjoin the execution of the judgment of the circuit court of Jackson county, Missouri, and to set the same aside as fraudulent. They also brought in the state court suit, by attachment, on their respective claims, and caused the Kansas City stock of jewelry to be attached. These attachment suits have been prosecuted to judgment in the state court. Since the institution of this suit the property attached (the stock of watches and jewelry) has been sold under an order of the state court, by the sheriff of Jackson county, Missouri, to one O. W. P. Bailey, who is made a party defendant herein, and and the sum of $8,250 was realized therefor, which sum is now in the hands of said sheriff to abide the final result of this litigation. The complainants pray for decree to set aside said judgment as fraudulent and void, and also for distribution of the fund in the hands of the sheriff among the several judgment creditors of Schwed & Newhouse.

This case was removed from the state court on the ground of the citizenship of the parties. The further facts, so far as necessary to be considered, are stated in the opinion.

Botsford & Williams and Scarrett & Riggins, for complainants.

Bryant & Holmes and Tichenor & Warner, for respondents.

MCCRARY C. J.

I will consider the several questions of law and fact in this case in the order in which they have been argued by counsel.

1. It is insisted on the part of the defence that proof of fraud in the confession of the judgment in Pennsylvania, and in the sale of the Pittsburgh stock under execution thereon, is not admissible to show fraud in the judgment in Missouri. The true rule upon this subject is this: It is not competent, for the purpose of showing fraud in a particular transaction, to show that the same party has been guilty of fraud in another separate and independent transaction, not in any way connected with the matter in controversy. Courts will not go into such extraneous matters. But if the transaction sought to be shown in evidence can be connected with the transaction in controversy, as evidence of a connected scheme of fraud, it is admissible. Clark v. White, 12 Pet. 193.

Judged by this rule, I think the evidence tending to show fraud in the Pennsylvania transactions is admissible. The two transactions were manifestly but parts of one scheme; whether honest or fraudulent, is to be considered presently. They were between the same parties. The balance claimed by Heller as due him from Schwed & Newhouse was divided into two notes, and the collection of the sums due on said notes, respectively, was the ostensible purpose of the confession of the two judgments. They were rendered on the same day, and unquestionably in pursuance of an understanding between the parties. The two notes were, in fact, parts of the same debt. The two stores were branches of the same business, and the two judgments were, therefore, so connected together as to be justly regarded, for the purposes of this question, as parts of one transaction, to-wit, a scheme by which it was intended to procure judgments and executions in favor of Heller, and sell all the stock of Schwed & Newhouse, both in Kansas City and in Pittsburgh. There is also testimony tending to show that it was the purpose of the parties to prevent competition at both sales, so as to enable Heller to purchase the property for less than its value. Of this evidence I will speak in another connection. I mention it now only as bearing upon the question whether there was a connection between the transactions at Kansas City and Pittsburgh; and I say, without hesitation, that it is the duty of the court, under the circumstances of the case, to consider the whole transaction, embracing the proceedings at both places, in determining the question of fraud in the Missouri judgment.

2. Looking thus at the transactions, can it be said that fraud on the part of Heller is established by such a preponderance of proof as the law requires? This depends upon facts and circumstances shown in the evidence. The goods seized were worth largely more than the claim of Heller. The stock at Kansas City was worth at least $14,000, and that at Pittsburgh probably as much. This circumstance of itself would have but little weight, for a bona fide judgment creditor has a right to levy upon property of his debtor of a value greater than his judgment; but the value of the goods seized in this case is significant, in view of the further fact, which is clearly established, that there was a systematic effort both at Kansas City and at Pittsburgh to prevent the sale of the goods at their full value.

At Pittsburgh, the stock was levied upon and advertised for sale as 'two large safes and contents, a large lot of clocks lot of watchmakers' tools, one desk, four tables, three chairs, a lot of shelving,' etc.; certainly, a very imperfect description of the valuable stock of watches and jewelry to be disposed of, and not well calculated to invite competition in bidding. At the sale only two bidders appeared, who were not there, apparently, in the interest of the defendants, and these were deterred from bidding by statements made to them by persons acting in the interest of Schwed, Newhouse, and Heller, to the effect that the goods were to be purchased for a friend of theirs, and that it was desired that outsiders should not interfere. Heller, who was personally present at the sale, requested one Koemer, who was present, not to bid, and offered him his choice of several articles of jewelry to desist from doing so. The sale was made in a hurried manner,-- large lots of jewelry being sold in a lump,-- and the whole stock, excepting a very few articles, was bid in by Heller, who never took possession of it, but left it with Schwed & Newhouse, who at once resumed business, with no change in the style of the firm, except to have printed on their sign, in very small letters, the word 'Agts.' It is claimed by respondents that Heller gave the stock to his sist...