Wole et al. v. McGugin et al. -

• Decision Date: 28 January 1898
• Citation: 37 W.Va. 552
• Parties: Wole et al. v. McGugin et al. -
• Court: West Virginia Supreme Court

37 W.Va. 552

Wole et al.

v. McGugin et al.-

Supreme Court of Appeals of West Virginia.

Submitted January 16, 1898.

Decided January 28, 1898.

1. Insot.vency.

A person is insolvent within the meaning of section 2, c. 74, Code 1891, when all his property is not sufficient to pay all his debts, (p. 556.)

2. Insolvency Preferences-Notice.

Notice of such insolvency on the part of a creditor receiving a preference in the estate of an insolvent debtor is not necessary to avoid such preference under said section, (p. 559.)

3. Insolvency Preference.

The form of the instrument or act, by which the preference forbidden by the statute, whether by deed of trust, assignment or sale is accomplished, is not material, so that it results in such a preference, it being the design of the statute to prevent an insolvent debtor from devoting his property to work a preference among his creditors, (p. 561.)

4. » Insolvency Preference.

Where it is necessary to do so to defeat such preference, and apply the debtor's estate to the ratable payment of all his debts, a court of equity will take charge of the property transferred or charged contrary to the statute, and administer it for such ratable payment to all creditors, (p. 562.)

5. Dismission Injunction Construction of Statutes.

Under section 18, c. 133, of the Code, as it reads in the edition of 1891, when an injunction is wholly dissolved, the bill does not stand dismissed as of course, but it requires an order of dismissal, (p. 564.)

Merrick & Smith for appellants:

I. Who is a creditor? 2 Big. Fraud, 143 note 4, 145 note 1, 146 notes 1, 2, 3, 4, 5 and 6; 128 Mass. 102; 37 N. J. L. 300; 2 Root (Conn.) 261; 28 Conn. 103; 9 Cush. 482; Bov. Law Diet.; And. Law Diet. 291-2; 11 Bush (Ky.) 353.

II. McGugin was unable to pay his debts in the ordinary course of business and was therefore insolvent. 11 Am. & Eng. Ency. Law 168; 112 Pa! St. 294; 36 Minn. 364; 16 Wall. 277, 308; 9 N. Y. 594; 2 Big. Fraud 196 note 1; 5 Law v. Rep. Ann. 765 note; And. Law Diet. 562; 13 Wall. 47; 21 Wall. 338; 125 II. S. 90; 94 II. S. 557.

III. Not necessary that the purchasing creditors should have notice of insolvency. Code c. 4, S. 2.

IV. Any facts which would, put a prudent man on inquiry would be notice of insolvency. 2 Big. Fraud 603 notes 3 and 4; 49' N W. Rep. 191; 95 U. S. 342; 94 IT. S. 557; 16 Wall. 308; 13 Wall. 40; 54 Md. 362; 119 Mass. 245; 101 Mass. 262.

W. A. Parsons for appellees:

I. Insufficiency of verification. 10 Am. & Eng. Ency. Law

1004", & n. 4; 5 W. Va. 579; 12 W. Va. 667, 679

II. Bill not good. 6 Am. & Eng. Ency. Law 754, n. 4; 5 W. Va. 579; 12 W. Va. 667; 10 Am. & Eng. Ency. Law 1002, n. 2.

III. Appellants fail to show themselves creditors as against Armstrong and Brown. 16 W. Va. 108, 154, 155; 20 W. Va. 169;' 7 W. Va. 474.

IV. McGugin's answer can not be read against Armstrong and Brown. -2 Wheat. 380; 6 Cranch 8; 9 Craneh 153; Matthew's Guide 53; 9 Wheat. 738.

V. Fraud per se. 29 W. Va 702; 22 W. Va. 356; 25 W. Va. 596, 597; 32 W. Va 34.

VI. Fraud in fact. -22 W. Va. 356.

VII. Right of debtor to make preferences prior to amendment. 22 W. Va. 356.

VIII. What not general assignments, what not preferences, sales. 1 Am. & Eng. Ency. Law 846; 76 Ala. 295 and cases cited in n. 1; 1 Am. & Eng. Ency. 846; Burrill on Assignments, § 161, n. 3, 162; Idem, § 3 and 4; 7 Pa. St. 449; 26 Pa. St, 92; 60 Am. Rep. 783; 3 Sumn. 350; 5 Neb. 531; 11 So. Rep. 347; 39 Am. Rep. 481; 28 Am. Rep. 704; 77 Am. Dec. 137; 84 Am. Dec. 508; 15 S. E. Rep. 48.

IX. As to who are creditors. 5 Am. & Eng. Ency. 179.

X. Armstrong and, Brown stand in shoes of Oil Well Supply

Co., and BK. 85 Ky. 574; 11 Bush 353; 44 Fed. Rep. 467; 9 S. Ct. 309.

XL McGugin's admissions of indebtedness to appellants not received, against Armstrong and Brown. 1 Greenl. § 190.

XII. Amendment not to prevent fraud. 2 S. E. Rep). 322.

XIII. Can not attack as fraudulent and as giving preferences in same suit. 2 S. E. Rep. 325.

R, F. Fleming for appellees Armstrong and Brown:

I. A conveyance made in fraud of creditors to a creditor, who is a bona fide purchaser, is good; an el such purchaser is protected to the extent of money advanced (i. e. paid, or that hehas bound himself to pay). 10 Fed. Rep. 125 (N. Y.).

II. Where there is nothing on the face of the deed to indicate that it was made for any other purpose than in good faith, $c. proof is required, Sec. 6 Sup. Ct, Rep. 982.

III. The subsequent employment, of McGugin not evidence of fraud. 10 Fed. Rep. 101, p't 6 (N. Y.).

IV. There is nothing suspicious or inconsistent with honesty and fair dealing in a provision in a deed of trust allowing the grantor to continue to sell under the supervision and control 'of the trustee. -23 Fed. Rep. 421 (North Carolina).

V. However, the trustee not being a party to the bill of complaint

as modified, and acted, on, the deed of trust cannot be attacked as fraudulent.

Brannon, Judge:

On August 20th, 1891, E. R. McGugin made a deed, by which he sold to J. L. Armstrong and E. W. Brown a stock of goods, with which McGugin had been carrying on the business of a hardware merchant, and selling wagons, buggies, etc., the deed reciting the consideration to be two thousand and seventy two dollars, and that for it Armstrong and Brown were to discharge three negotiable notes amounting to one thousand four hundred dollars, which had, prior to the date of said deed, been made by McGugin to said Brown, and indorsed by Brown, and three notes of same date with said deed of two hundred and twenty four dollars and fifty three cents each, made by McGugin to said Brown and Armstrong, and indorsed by them to the Oil Well Supply Company in discharge of a debt due it from McGugin.

Afterwards, on September 7, 1891, Wolf, Lane & Co. presented their bill to the judge of the Circuit Court of Jackson county, setting out that McGugin owed them a debt existing prior to the date of the sale of said property; that when he made said sale he was insolvent; that said deed of sale gave preference to the creditors therein named over the plaintiffs and other creditors of said McGugin, and was therefore void; and praying that said Brown and Armstrong be enjoined from selling the goods and other property transferred by said deed, and that a special receiver be appointed to take charge of and sell the same, and that said deed of sale be avoided so far as it gave preference of payment to the notes in it specified over the debts of plaintiffs and other creditors; that the three firstmentioned notes be disregarded in distribution of the proceeds of the goods, and Armstrong and Brown be required to account for the goods sold, and that the whole be applied pro rata to all debts of McGugin. An injunction was granted, and a special receiver appointed, but afterwards an order wTas made dissolving the injunction and discharging the receiver, but going no further; and from this action the plaintiffs appeal.

The plaintiffs contend that their suit is sustained by that clause of section 2, c. 74, of the Code (Ed. 1891) that "every gift, sale, conveyance, assignment, transfer or charge made by an insolvent debtor to a trustee, assignee or otherwise, giving or attempting to give a priority or preference to a creditor or creditors of such insolvent debtor, or which provides or attempts to provide for the payment, in whole or in part, of a creditor or creditors of such insolvent debtor to the exclusion or prejudice of other creditors, shall be void as to such priority, preference, or payment so made or attempted to be made; and all such gifts, sales, conveyances, assignments, transfers, and charges shall be deemed void as to such priority, preference, or payment; and every such gift, sale, conveyance, assignment, transfer, or charge shall be deemed, taken and held to be made for the benefit of all the creditors of such debtor, except as hereinafter provided; ami all the estate, property, and assets given, sold, conveyed, assigned, transferred, or charged as aforesaid shall be applied upon the debts and paid to the creditors of such insolvent debtor pro rata."

At common-law a man though insolvent, until a lien became fixed in some way upon his property, might without fraud convey or transfer it in trust and prefer one creditor over another, even though it left no estate to pay other creditors. Harden v. Wagner, 22 W. Va. 356; Skipwith's jEx'r v. Cunningham, 8 Leigh 271. But the statute above referred to makes a change from the common-law rule as to insolvent debtors. The power to give preference among a debtor's creditors is taken away from insolvent debtors by the statute, and therefore, to fall under it, the person giving the preference must be insolvent.

Who, then, is insolvent within the meaning of the statute? Under bankrupt and insolvent acts considerable difference of opinion has existed as to the definition of in- solvency. It is not a matter capable of exact definition by general rule for all cases, as each case must rest on its own facts, and on the statute or purpose for which we would define it. A man might be, under such laws, insolvent, if doing business in a commercial city, and not so if in a country village; and a trader might be branded as insolvent on account of defaults for which a farmer would not. Insolvency, in common parlance, is the inadequacy of one's property to pay his debts; while in another sense, for purposes of the bankrupt laws, it is the state of a person who, from any cause, is unable to pay his debts in the ordinary and usual course of trade. Burrill, Assignm. § 62; Too/ v. Martin, 13 Wall. 40, 47; Wait, Insolv. Corp." § 29; 11 Am. & Eng. Enc. Law 168; Bump. Bankr. 398, 793.

Which of these two definitions shall we apply to the statute in question? 1 think we must apply the former; that is, that to render a person insolvent under the statute lie must be one whose whole property will not pay all his debts. To say that simply because a party, though a trader, fail to meet all his...