October 10, 2012

Diamond Coal Co. v. Carter Dry-Goods Co., Laurel, 1899

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DIAMOND COAL CO. v. CARTER DRY-GOODS CO.

COURT OF APPEALS OF KENTUCKY

49 S.W. 438; 1899 Ky. LEXIS 489; 20 Ky. L. Rptr. 1444


February 11, 1899, Decided

PRIOR HISTORY:  [**1] 

Appeal from circuit court, Laurel county.

Action by the Carter Dry-Goods Company against C. W. Michler and others to have certain transfers declared to be a preference of creditors, and to operate as an assignment under the statute. Judgment denying the claim of the Diamond Coal Company to certain of the property in controversy, and it appeals.

DISPOSITION: Reversed.

COUNSEL: Tinsley & Faulkner, E. K. Wilson, and H. C. Edwards, for appellant.

Alcorn & Craft and J. A. Craft, for appellee.

JUDGES: HOBSON, J.

OPINION BY: HOBSON

OPINION

 [*438]  HOBSON, J. Appellee filed this suit in equity in the Laurel circuit court on October 7, 1895, against C. W. Michler and others, alleging that Michler was indebted to it, for goods sold to him, in the sum of $158.70, and that on October 1, 1895, Michler, with a fraudulent intent to cheat his creditors, sold his  [*439]  stock of goods to John Watkins, who was also made a defendant to the petition. In another paragraph it was alleged that, about October 1st, Michler, being insolvent, had made transfers to two of his creditors, with a view of preferring them to his other creditors, and in contemplation of insolvency. In this paragraph the plaintiff sought to have these transfers adjudged to operate as an assignment of  [**2] all his property for the benefit of all of his creditors. The appellant, the Diamond Coal Company, was, on its motion, made a defendant to the action, and set up the fact that it had bought the stock of goods in contest of John Watkins, in good faith and without notice of any infirmity in his title, and that Watkins was also a purchaser in good faith from Michler.

A motion was made for plaintiff to elect which paragraph of the petition he would prosecute, he having taken out an attachment under the first paragraph, and asking the appointment of a receiver under the second; but this motion was not seasonably made, and was properly overruled, as it was a matter of abatement, and must be presented by the party at the threshold of the action, before any other defense is made.

The court appointed a receiver, and ordered him to take charge of the stock of goods; it appearing that it had been attached in a number of other actions in the same court. He was ordered first to have it appraised, and then to go on and sell it, unless the appellant gave bond with good security, in double the value of the property, to the effect that it would perform the judgment of the court in all these actions,  [**3] or have the property forth-coming, in which event he was ordered to deliver the property to appellant; it being then in the possession of the sheriff, who had taken it from appellant under the attachment levied upon it by him as the property of Michler. The receiver had the property appraised, and, appellant having executed the bond as provided by the court, lie surrendered possession of the stock of goods to it, and returned the bond with his report. Complaint is made of this action of the court, because he had no power under the statute to appoint a receiver before judgment, under the second paragraph of the petition, when its allegations were denied. But he had this power under section 218 of the Civil Code of Practice, as the property had been attached, and was in the hands of the sheriff, and, under the circumstances, some disposition had to be made of it.

After full preparation on both sides, the case was submitted for final judgment, and the court held both paragraphs of the petition to be sustained by the proof. Appellant was ordered to pay into court the amount that the stock of goods was appraised at, and a reference was ordered to settle up the estate of Michler, upon the  [**4] ground that the two transfers set out in the petition operated as an assignment of his property for the benefit of his creditors. The propriety of this part of the judgment will be considered first, and after this the question of the validity of appellant's purchase of the stock of goods.

There is little dispute in the evidence in regard to the two transactions relied on to operate as an involuntary assignment. Michler owed Owen, Wolfolk & Payne $490. On September 27, 1895, he paid their agent $105.11. On September 30th, he paid their traveling man $30. The drummer employed an attorney, W. L. Jackson, to assist him in the collection of the claim, and the money was collected by him and Jackson. The payments were made in the usual course of business, and when Michler was pressed for the money, not only by the parties and their agent, but by their attorney. If such payments are within the statute, the collection of debts is a much more dangerous operation than has been supposed, and there will be no reward for vigilance by creditors. There is no scintilla of proof that there was any intention on Michler's part to give a preference to these creditors. He then owed about $2,600. He had a  [**5] stock of goods that was appraised later at $3,100, and something like $500 or $600 lent out on mortgages. He paid these creditors between 25 and 30 per cent, of their debt. To hold such a transaction within the statute would be to violate both its letter and its spirit. The other transaction is equally clear. Voorheis, Miller & Co., September 28, 1895, shipped from Cincinnati, to Michler, at London, Ky., $650 worth of clothing, but, becoming suspicious, the goods were stopped by them in transitu, and were held by the agent of the railroad company at London, under directions not to deliver them. Michler then executed a mortgage on his stock of goods to secure the money due for this clothing, which was accepted by their attorney at London, subject to their approval; but, before they approved it, this trouble came up, and Michler said he would not take the goods. So the attorney had them returned to the consignors. There was no preference of Voorheis, Miller & Co. in this transaction. They had a right to stop the goods in transitu. They did stop them, and the title to the goods never vested in Michler. The arrangement about the mortgage was inchoate, and was never perfected. It had no  [**6] effect on the legal status of the parties. But, if it was valid, it would not help appellees, because, in that event, Voorheis, Miller & Co. would be entitled to receive their money out of the mortgaged property, and appellees would be no better off than they are. The mortgage was not executed to give Voorheis, Miller & Co. any advantage over the other creditors of Michler. It was simply an ineffective effort to get possession of more goods. There was no other ground alleged or proven to sustain the charge of preference by Michler of some of his creditors over others, and the judgment of the court on this point is unsupported by the evidence.

 [*440]  On the other point the evidence is conflicting, and the question is much more doubtful. It is perfectly clear that Michler sold the stock of goods to Watkins for the purpose of putting money in his pocket, and defrauding his creditors, and it is insisted that there was collusion between Watkins and appellant's general manager, and that Watkins' purchase was only colorable, and to cover up the real transaction, which was, in effect, a transfer from Michler to appellant, and that both Watkins and appellant's general manager knew of Michler's insolvency  [**7] and fraudulent design. Watkins and Thompson, the general manager, both deny all collusion. Their testimony is supported by other facts in the record, and on all the evidence we do not think the presumption of fair dealing on this point has been overcome. When appellant bought, it paid in cash $1,100 for the stock of goods, and assumed the payment of three attachments levied on the goods by Michler's creditors, amounting to $400 or $500. As to the amount paid on these attachments, appellant is clearly entitled to protection, for the reason that the money was paid, not to Michler, but to his creditors. As to the other $1,100, we have had great difficulty, but have finally concluded that, as to this, the presumption of fair dealing should prevail, as appellant assumed the payment of all the debts known to it, and Michler, though insolvent in fact, was then regarded as good, and appellant was not apprised of the circumstances which have since been disclosed by the proof in this action. But the fact remains that appellant got the goods at about one-half of their cash value according to the itemized appraisement, as shown by the undisputed proof in the record, and Michler's other creditors  [**8] have been left empty-handed to a great extent. On all the evidence, we think appellant's purchase was constructively fraudulent at least.
In Wood v. Goff's Curator, 7 Bush, 63, this court said: "Conceding that the deed to Gilbert was fraudulent and void as to the creditors of the grantor, an essential inquiry is presented whether it was actually or constructively fraudulent; for, if it was fraudulent in fact, it could not stand, even for the purpose of reimbursement or indemnity, while, if it was only legally or constructively fraudulent, it should have been upheld, in favor of the grantee, to the extent of securing restitution of the amount of the actual consideration given or paid by him, and only the excess of the property should have been subjected to the plaintiff's debt. Short v. Tinsley, 1 Metc. (Ky.) 397; Whitaker v. Garnett, 3 Bush, 402; Boyd v. Dunlap, 1 Johns. Ch. 478. It sufficiently appears, from the declarations of Goff, as well as the inadequacy of the consideration of the deed and other circumstances, that the deed was actually fraudulent on his part; but the evidence fails to satisfy us that it was so on the part of Gilbert, and we are of opinion that, so far as he  [**9] was concerned, it should have been treated only as constructively fraudulent." We think this rule should be applied in this case Appellant should be credited on its bond for the amount it actually paid out for the stock of goods, as of the date of the bond, and should be required to pay into court the balance of the appraised value of the goods, so far as it may be necessary to satisfy the attachments set out in the bond, which it was given to secure. Michler's other property should also be subjected under the attachments which have been levied on it.
In the lower court Mrs. Eliza Michler tendered her petition, claiming that the mortgages attached belonged to her, and asking that she be made a party defendant and allowed to litigate this question. The court overruled her motion, and of this she complains; but her petition was not made a part of the record by an order of the court or by a bill of exceptions, and so no questions as to the propriety of this order can be determined here.

The judgment of the court is therefore reversed, with directions to dismiss absolutely so much of the petition as sought to have the transfers complained of adjudged to operate as an assignment, of all Michler's  [**10] property for the benefit of his creditors, and for further proceedings on the other branch of the case in conformity with this opinion.

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