Sunday Creek Coal Company v. Burnham

• Citation: 72 N.W. 487,52 Neb. 364
• Decision Date: 06 October 1897
• Docket Number: 7406
• Parties: SUNDAY CREEK COAL COMPANY v. S. H. BURNHAM ET AL
• Court: Supreme Court of Nebraska

72 N.W. 487

52 Neb. 364

SUNDAY CREEK COAL COMPANY v. S. H. BURNHAM ET AL

No. 7406

Supreme Court of Nebraska

October 6, 1897

ERROR from the district court of Lancaster county. Tred below before STRODE, J. Affirmed.

AFFIRMED.

Cornish & Lamb and A. S. Tibbets, for plaintiff in error:

A purchaser of goods from a debtor, knowing or chargeable with notice of the debtor's fraudulent intent, is not a purchaser in good faith, and such a sale is void as to creditors. (Bollman v. Lucas, 22 Neb. 813; Temple v. Smith, 13 Neb. 513; Jones v Lorce, 37 Neb. 816; Beidler v. Crane, 22 Ill.App. 538.)

A purchaser's knowledge of the seller's intent to defraud creditors need not be positive information or notice of such fact, but may be inferred from knowledge of facts sufficient to raise such suspicions as to put him, as a reasonably prudent man, on inquiry in relation thereto. (Rindskopf v. Myers, 57 N.W. [Wis.], 967; Grimes v. Shaffer, 41 Neb. 112; Burggren v. Reid, 39 Neb. 645; Stephens v. Rogenstein, 89 Ala. 561.)

Sawyer Snell & Frost, contra:

The knowledge, or notice that would lead to knowledge, of a creditor who accepts property from his debtor in satisfaction of a pre-existing debt, that the debtor makes the transfer with the intent to defraud other creditors, does not invalidate the transfer where the creditor does not participate in the fraudulent purpose of his debtor. (Bleiler v. Moore, 69 N.W. [Wis.], 164; Smith v Whitfield, 2 S.W. [Tex.], 822; Shelley v. Boothe, 73 Mo. 74; Rice v. Wood, 33 S.W. [Ark.], 637; Gray v. St. John, 35 Ill. 222; Kohn v. Clement, 12 N.W. [Ia.], 551; Chase v. Walters, 28 Iowa 469.)

The case of Bollman v. Lucas, 22 Neb. 796, cited by plaintiff in error, does not control. (Jones v. Lorce, 37 Neb. 816; Grosshans v. Gold, 49 Neb. 599; Pollock v. Meyer, 96 Ala. 176; Bamberger v. Schoolfield, 160 U.S. 149; Smith v. Craft, 123 U.S. 436.)

OPINION

The opinion contains a statement of the case.

HARRISON, J.

It appears herein, from the allegations of the petition filed that the plaintiff recovered a judgment in the district court of Lancaster county against Gorham F. Betts and William H. Weaver, partners in business under the name and style of Betts & Weaver, for a sum stated in the petition; that such proceedings were had to collect said judgment, that the defendants appeared in court and made answers as garnishees in regard to property, etc., of the firm of Betts & Weaver in their possession or under their control, which answers were to the plaintiff unsatisfactory, and this suit was instituted for it, the further allegations of the petition being as follows: "That at the time said garnishment summons was served upon said defendants and each of them, and at the time said answers were made, said defendants were possessors of and had under their control personal property, money, rights in action, real estate, leases, good-will of the firm of Betts & Weaver and creditors of the said Betts & Weaver, and coal, wood, notes and accounts of the said Betts & Weaver of the value in excess of the amount of plaintiff's said judgment, and that the said defendants were then and are now owing and indebted to the said Betts & Weaver in the sum of money in excess of said judgment, to-wit, in the sum of $ 2,500, and said defendants were in possession of said property and credits, choses in action at the time said summons in garnishment was served upon said defendants and each of them, and acquired said possession and held the same in fraud of the rights of the creditors of Betts & Weaver and of this plaintiff herein, done on the part of Betts & Weaver and on the part of the defendants for the purpose of hindering, delaying, and defrauding the creditors of Betts & Weaver." The answer of defendants contained an admission of their appearance in court in obedience to a summons in garnishment proceedings, and that they answered that they had neither property nor credits of the firm of Betts & Weaver in their possession or under their control. The further answer was a general denial of the other allegations of the petition. A trial of the issues resulted in a verdict and judgment favorable to defendants. The plaintiff asks a review in this court of the proceedings during the trial.

The bill of exceptions containing a transcript of the evidence adduced during the trial was, on motion in this court, having such purpose in view, quashed; hence the evidence is not before us for consideration in connection with any of the alleged errors. The transaction between the defendants and the firm of Betts & Weaver, to the extent we can gather its nature from the pleadings in the action, was a sale, by a debtor to a creditor, of property, the consideration moving to the debtor being the extinguishment of his pre-existing indebtedness to the purchaser, and which sale was attacked by the plaintiff as fraudulent and void as to the rights of plaintiff and other creditors of the firm.

The trial court in its charge to the jury stated that if the sale was made with the intent on the part of the firm of Betts & Weaver to defraud creditors, that such intent existed would not render the sale void unless the intent was shared by or participated in by the creditor to whom the sale was made. To each paragraph of the charge in which the foregoing proposition was embodied, the plaintiff duly excepted and made a separate assignment of error. For the plaintiff there were prepared and presented several instructions in which was set forth that if it appeared that the debtor in making the sale had a fraudulent intent in reference to the rights of creditors other than the one to whom the sale was made, and the latter had notice or knew of such intent, or had notice of facts which tended to show a fraudulent purpose sufficient to put a person of ordinary prudence on inquiry, then the sale was invalid as to the rights of other creditors. These the court refused to read in the charge to the jury, and its action in regard to these requests is presented here by proper assignments of error.

It is well established in this state that a debtor in failing circumstances may prefer any one or several of his creditors to the exclusion of others, if the transaction from which such preference results be bond fide. (Costello v. Chamberlain, 36 Neb. 45, 53 N.W. 1034.) It has also been decided that "A mortgage taken by a creditor to secure a pre-existing debt will not be held void merely because the creditor, when he took the mortgage, had notice of an intent upon the part of the mortgagor to hinder, delay, or defraud his creditors. In order to avoid such mortgage the creditor must have participated in such intent." (Jones v. Loree, 37 Neb. 816, 56 N.W. 390; see, also, Grosshans v. Gold, 49 Neb. 599, 68 N.W. 1031.) The question arises: Is the foregoing rule applicable to a transaction of sale between an insolvent or failing debtor and one of his creditors, whereby, in extinguishment of the debt due from the former to the latter, property of the former is sold and transferred to the latter, resulting in his preference as a creditor? The general rule doubtless is that where property is sold with a fraudulent intent, and the purchaser has knowledge of the intent or of sufficient facts to put a person of ordinary prudence upon inquiry, the sale is a fraudulent one. But it might be said that there is an exception to this of which the case at bar furnishes an example,--where the sale is made in payment of a pre-existing debt due the purchaser. A direct purchaser is a stranger, or volunteer, with no pre-existing reason for his purchase, while the creditor has a motive other than the direct purchase of the property,--that of obtaining payment of that which is due him, which right the law accords him, and notwithstanding his grantor or vendor may have a fraudulent purpose in making the sale to the knowledge of the creditor purchaser, the latter is not a party to it and charged with its consequences unless he participates in it.

The case of Bleiler v. Moore, 94 Wis. 385, 69 N.W. 164 was one in which a son in embarrassed circumstances was indebted to his father and in payment of the indebtedness conveyed his real estate and personal property to the father. Other creditors of the son procured executions to be levied on the personal property as belonging to the son. In an action of repletion by the father to recover possession of the property levied, the issue presented was whether the sale to him by the son was fraudulent and void as against the son's creditors. In the opinion appears the following: "The appellant complains that the trial court...