Tefft v. Stern
| Decision Date | 14 April 1896 |
| Docket Number | 348. |
| Citation | 73 F. 591 |
| Parties | TEFFT et al. v. STERN. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Niram A. Fletcher, and George P. Wanty, for plaintiffs in error.
Howard & Roos and Boudeman & Adams, for defendant in error.
Before HAMMOND, J., and BARR and SEVERENS, District Judges.
This was a proceeding by the plaintiffs in error against the defendant in error, under a writ of garnishment, under a Michigan statute, to make the garnishee liable to the plaintiffs' judgment for the sum of $3,728.19, upon the theory that a chattel mortgage, executed on the 18th of September, 1893, by Charles Livingston and Henry Block partners, under the firm name of Livingston & Block, to the defendant in error, Henry Stern, was fraudulent and void. The issue was tried before Judge Lurton and a jury, and a verdict found, under his instructions, for the defendant in error. A judgment was rendered upon that verdict against the plaintiffs in error for the usual legal costs; but subsequently, on motion of the defendant in error, Stern this judgment for costs was amended, and he was allowed his attorney's fees, together with his personal expenses arising out of this litigation, amounting to $1,201.50. Plaintiffs in error have filed many assignments of errors which are unnecessary to consider, as the real questions involved are whether or not the trial judge was correct in instructing the jury peremptorily to find for the defendant in error, Stern, and whether the judgment for costs should have been amended so as to allow him his attorney's fees expenses, and costs.
This chattel mortgage was in the usual form, and there is nothing on the face of it which makes it a void instrument. It was given to Henry Stern, trustee, to secure certain debts, which were evidenced by notes and all of which were valid debts, so far as the record shows. These debts are as follows: One to the Michigan National Bank, Kalamazoo, for $7,500; one to the Kalamazoo National Bank for $2,500; one to Caroline Nathanson, who was a sister of Charles Livingston, for $3,000; one to Daniel Goldstein for $1,500; one to Benno Desemberg for $3,114; one to Aaron Livingston, brother of Charles Livingston, for$2,620.18; one to Sigmund Livingston for $100; one to Herman Goldstein for $1,500; one to R. Livingston, brother of Charles Livingston, for $1,971.71; and also to secure the liability of B. N. Desemberg for $3,000 on said debt to the Michigan National Bank, and S. Stern on same debt for $1,000, Herman Stern on said debt for $1,000, and Jacob Levy on said debt for $2,000; and Herman Goldstein, as surety on note to the Kalamazoo National Bank, for $2,500.
After a careful consideration of the evidence presented to the jury, we concur with the trial judge that there was no evidence which tended to prove that the trustee, Stern, had any knowledge of, or participated in, any intended fraud, if there was such an intention upon the part of the mortgagors, Livingston & Block, in making said mortgage, or any knowledge of or participancy in any conduct of said Livingston & Block, previous to the making of said mortgage, which would indicate a fraudulent intent upon their part, either in buying an excessive amount of goods, or in secretly selling or shipping goods to their creditors or others before the execution of said chattel mortgage; and that there was no evidence, sufficient to go to the jury, which proved or tended to prove that the officers of the Michigan National Bank, or the officers of the Kalamazoo National Bank, or Benno Desemberg, or Caroline Nathanson, or Herman Goldstein, or S. Livingston had any knowledge of, or participated in any way in, the fraudulent acts or purposes, if there were such, of Livingston & Block, Daniel Goldstein, Aaron Livingston, or Resiel Livingston. We think it may be fairly assumed, as was assumed in the charge by the trial court, that there was sufficient evidence to go to the jury upon the question of whether or not these three creditors, Aaron Livingston, Resiel Livingston, and Daniel Goldstein, and Livingston & Block, had a fraudulent purpose in paying part of said creditor's debts by secretly shipping to them goods out of their stock of goods a short time prior to the execution of said chattel mortgage, and to determine whether or not, as to them, the execution of said chattel mortgage was fraudulent.
This raises the question, if it be assumed that Livingston & Block and their three said creditors had a fraudulent intent, which was executed in part by the execution and delivery of this chattel mortgage, whether that made the entire mortgage void, and prevented the property in the hands of the trustee, Stern, from being applied to the payment of the valid debts which were held by these other parties who were entirely innocent.
The theory of the plaintiffs in error, as stated in their brief, is:
'That Livingston & Block, in the summer of 1893, became aware that they had lost money during the prosperous preceding year, and were convinced that they must within a short time fail, and they then commenced the fraudulent scheme of getting into their possession, without paying for them, a large quantity of goods from every available source, and selling as many of these goods as they could for money, which they kept, and, when it became necessary, execute the chattel mortgage in question for the purpose of keeping off the creditors, and place the trustee in the possession of their stock, and selling it to one of Livingston's brothers, thus defrauding their merchandise creditors, and still having possession of the goods.'
This theory, however, is not sustained by the evidence, in that it is not shown that they kept the money which they received for their goods, nor is it shown that the purchase of the remainder of the stock by one of Livingston's brothers, six months after the execution of the chattel mortgage, was to defraud merchandise creditors. On the contrary, the sale to Resiel Livingston, in February, 1894, was at public auction, after selling at retail had ceased to be profitable, and his bid was kept open for several days, to give all parties in interest an opportunity to object or to advance upon his bid. The price paid, though low, was not inadequate, under the circumstances. So that we think the only question is whether or not the court erred to the injury of the plaintiffs in error in not submitting the question of fraud or no fraud in regard to the three creditors mentioned. This mortgage was made to a third party as trustee, who was innocent of any fraud, or knowledge of any intended fraud, to secure nine creditors, three of whom might, by the finding of a jury, have been secured with a fraudulent intent. The other six were entirely innocent of any knowledge of or participancy in this fraud. This being the case, we concur in the view that the mortgage as to the other six creditors was valid. We think the mortgage to this trustee should be regarded as if it were a separate mortgage for the benefit of each of the creditors.
It is insisted that this case must be governed by the Michigan rule on this subject. This is true, we believe. Etheridge v. Sperry, 139 U.S. 277, 11 Sup.Ct. 565. And it is insisted that by this rule the fraudulent intention, if there was any, between Livingston & Block and the three creditors (the two Livingstons and Goldstein), made the entire mortgage invalid. We think the Michigan cases do not sustain this contention.
In Walker v. White, 60 Mich. 430, 27 N.W. 554, it was said:
.'
The court in that case declared the mortgage valid which was given to a trustee of partnership assets to pay partnership creditors, and included therein a personal debt owing by one of the partners. The fact that it was a personal debt was known to the trustee when the mortgage was executed, and the court held that, notwithstanding this debt was included and the knowledge of the trustee, the mortgage was valid to the extent of the firm creditors.
The case of Adams v. Niemann, supra, which case is referred to as sustaining the plaintiffs' contention, was unlike the case at bar in that it was not to a trustee, but the mortgage was given to Niemann & Jochem jointly. It was claimed that it was fraudulent as between the mortgagor and one of the mortgagees. The court below said...
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