Treusch v. Ottenburg

• Decision Date: 06 February 1893
• Docket Number: 50.
• Parties: TREUSCH et al. v. OTTENBURG et al.
• Court: U.S. Court of Appeals — Sixth Circuit

54 F. 867

TREUSCH et al. v. OTTENBURG et al.

No. 50.

United States Court of Appeals, Sixth Circuit.

February 6, 1893

Niram A. Fletcher and George P. Wanty, for plaintiff in error.

A. R Rood, for defendants in error.

Before JACKSON and TAFT, Circuit Judges, and HAMMOND, District Judge.

JACKSON Circuit Judge.

The defendants in error, as partners under the firm name and style of S. Ottenburg & Bros., having brought suit in the circuit court on several claims and demands contracted in the spring and summer of 1891 by Jacob Lustig for goods and merchandise sold him, and, having obtained judgment thereon against said Lustig for the sum of $7,623.90, together with the costs of suit, thereafter applied for and caused to be issued a writ of garnishment against the plaintiffs in error citizens of Michigan, and residents of Grand Rapids, in said state, for the purpose of reaching and subjecting to the payment of their said judgment funds and property, or the proceeds thereof, which it was claimed said garnishees either owed to said judgment debtor, or held by title or conveyance void as to his creditors, and which, under the laws of Michigan, was property applicable to the satisfaction of their judgment. No question is raised as to the correctness of the judgment against the principal debtor, nor as to the regularity of the garnishment proceeding, which conform to the statutes and practice of the state, under and by virtue of which the affidavit on which the garnishment is based constitutes the declaration or complaint, and the answer of the garnishee the defense, thus forming the issue for trial between the judgment creditor and the garnishee. While the matters or issues presented by the garnishment proceedings are triable at law before a jury, they are not limited or confined to strictly legal demands and remedies, but may involve and include rights and relief of an equitable character, such as reaching the proceeds of property which may have been acquired and appropriated by the garnishee fraudulently as against the creditors of the person from whom the same was received.

The statute of Michigan relating to the subject provides that 'if any person garnished shall have in his possession any of the property aforesaid of the principal defendant, which he holds by a conveyance or title that is void as to creditors of the defendant, or if any person garnished shall have received and disposed of any of the property aforesaid of the principal defendants, which is held by a conveyance or title that is void as to creditors of the defendant, he may be adjudged liable as garnishee on account of such property, and for the value thereof, although the principal defendant could not have maintained an action therefor against him.' 3 How.St. § 8091, enacted July 3, 1889. The supreme court of Michigan, in the case of Heineman v. Schloss, 83 Mich. 157, 47 N.W. 107, had occasion to construe this statute, and held that it enabled the creditor, by and through the agency of a garnishment proceeding, to reach and subject to the payment of his judgment against the principal debtor property or the proceeds thereof which the garnishee might hold by conveyance or title that was fraudulent as to creditors of such debtor, and that its effect was not to enlarge the liability of garnishees, but to render them liable at law in all cases where they could be reached in equity.

The garnishment proceeding in the present case was based upon that construction or view of the statute, and sought to charge the plaintiffs in error with the value or proceeds of property, consisting of tobacco and cigars, which it was claimed that Jacob Lustig, the principal debtor, had, in 1891, sold and transferred to them fraudulently as against his creditors. The sales and transfers of tobacco and cigars specially attacked as fraudulent amounted to about $13,199.00, and extended over a period of about four months; that is, from the latter part of March to the middle of July, 1891. There was a verdict and judgment against the garnishees, to reverse which the present writ of error is prosecuted.

The issues of fact presented were: First, whether in making said sales the principal debtor, Jacob Lustig, intended to defraud his creditors; and, secondly, whether the plaintiffs in error were so connected with such fraudulent intent as to render said sales or the title acquired by them void as against the vendor's creditors. Upon the first question there is little or no controversy. The testimony, with all the attendant facts and circumstances, leaves no room to doubt that said Lustig, both in making his purchases of goods on credit and in selling the same to plaintiffs in error, intended to defraud his creditors. Neither the charge of the court below on this branch of the case, nor the finding of the jury thereon, is complained of. But the errors assigned relate to the second issue of fact, and to the instructions given by the court to the jury in connection therewith. When the testimony was closed, the garnishees moved the court to direct a verdict for them. This the court declined to do. This refusal is assigned as error; the plaintiffs in error, by their counsel, insisting that the evidence did not warrant the court in submitting the case to the jury. A careful examination of the testimony as set out in the bill of exceptions fails to satisfy or convince us that this action of the court was erroneous. The evidence, with the inferences that might be legitimately drawn therefrom, fairly presented such a case or questions of fact as should have been submitted to the jury under proper instructions from the court. Without undertaking to set forth in detail all the facts and circumstances disclosed by the testimony which constituted such badges or 'indicia' of fraud on the part of plaintiffs in error as made it proper for the jury to pass upon the case, it will suffice to state by way of general outline what the evidence either established or tended to prove. The plaintiffs in error, under the firm name of Treusch & Bro., were wholesale cigar and tobacco merchants at Grand Rapids, Mich. Jacob Lustig, the principal debtor, was their brother-in-law, and was taken into their employment in 1885 at a salary of $10 per week. This employment at said wages continued until January, 1888, when the plaintiffs in error started a branch business in their store, called the Lustig Cigar Company, in which said Lustig was given or allowed one third of the net profits in consideration of his management and attention to the business of said company, the capital of which, consisting chiefly of tobacco and cigars, was furnished and supplied by the continued in existence until January 29, 1889, when the plaintiffs in error sold out the business to said Lustig, who thereafter conducted the same as sole proprietor. For the year it was in business prior to said sale the company seems to have made a net profit of $1,064.86. In order to enable Lustig to make said purchase, he was allowed the whole of said profit, less his overdrawn account, was loaned by one of plaintiffs in error the sum of $3,500, which, together with about $2,800 held by them for Lustig's wife, or in her name, was applied on the purchase price or consideration to be paid by him, and, in addition thereto, he executed his two notes for $1,000 each, due at 30 and 60 days. This transaction was entered upon the books of said Lustig and of plaintiffs in error in such way as to present the appearance of a purchase chiefly, if not entirely, for cash, and was calculated to create the impression that Lustig was worth and had invested in his business about $8,000. It is, however, shown that he was without means, that he had little or nothing, and that the plaintiffs in error knew this fact. After Lustig's purchase and the commencement of business as sole proprietor of the Lustig Cigar Company, one of the plaintiffs in error, upon being asked for information concerning Lustig's financial condition by a representative of Bradstreet's Commercial Agency, exhibited a statement of said transactions as shown by their books, and on which said agency based its report of said Lustig's means and standing. This representative of the Bradstreet Agency states that 'the substance of what Treusch told me was that Lustig was worth in the Neighborhood of $8,000, which he had invested in his business,' which was substantially what the statement they furnished showed, and upon which said agency gave Lustig a rating of $5,000 to $10,000, by which was meant that he was estimated to be worth five to ten thousand dollars above his debts. The appellants are subscribers for and take the book of said agency, which they use in their business to get the commercial rating of parties with whom they deal or do a jobbing trade. In making said statement and report of Lustig's financial condition to said agency, the plaintiffs in error did not disclose the actual facts of the transaction. They failed and omitted to state that Lustig had or purported to have borrowed from one of them $3,500, and from their firm about $2,800, which they held for his wife, to enable him to make the alleged purchase; and, further, that he was in fact worth nothing, although the transaction as entered on their books and furnished said agency showed that he was worth, and had invested in his business, fully $8,000. One of said firm further represented to said agency in June, 1891, that they were willing to extend said Lustig such credit as he might ask, which statement, the evidence tends to show, was not made in good faith.

Lustig after making said alleged purchase, and commencing business on his own account, made still stronger representations as to his financial condition to the local manager of the R. G. ...