Drake & Son v. Steadman

The opinion of the Court wás delivered by

Mr. Chief Justice McIver.

The plaintiff brought this action in behalf of himself and all other creditors of the defendant, J. E. Steadman, who shall elect in due time to come into this action, and contribute to the expense thereof, for the purpose of setting aside certain mortgages executed by the said Steadman to certain of his creditors, and also for the purpose of setting aside certain judgments confessed by said Steadman to others 'of his creditors. For convenience the creditors of Steadman ma3¡- be divided into three classes, and will be designated in this opinion as follows: 1st. Creditors holding mortgages on the property of Steadman. 2d. Creditors holding judgments confessed by Steadman. 3d. Suing creditors, who have obtained judgments against Stead-man in ordinary proceedings at law. The plaintiff and certain of the defendants, who, by their answers, practically unite with the plaintiff in seeking the relief demanded in the complaint, belong to the third class. The defendants, Marshall, Wescoat & Co., C.Wulbern & Co., Johnston, Crews & Co., S. R. Marshall & Co., and the Imperial Fertilizer Co., belong to the second class; and the defendants, McGahan, Brown & Evans, belong to the first class. These last named creditors hold two mortgages, both executed on the 20th of February, 1894, to secure a note payable on the 15th of November, 1894, and also such advances as may be made during that year, b3? the mortgagees to the mortgagor, to an amount not exceeding the sum of $5,000, which were likewise pa3'uble on the 15th of November, 1894. One of these mortgages covers all of the real estate of said Steadman, situate in the several counties of Barn-well, Orangeburg, Aiken, and Lexington. The other was a chattel mortgage covering all of the personal property of said Steadman. Both of these mortgages are in the usual form of such instruments, except that in the real estate mortgage the mortgagees are invested with power to sell the mortgaged premises upon breach of the condition of the mortgage, and that the chattel mortgage contains the following provision: “And it is further understood and agreed by and between the said parties that, in the event of any suits brought against the said J. E. Steadman, or any judgments recovered against him, and any effort being made to levy thereunder upon any of the personal property herein covered by this mortgage, that then and in such case the mortgage shall immediately mature and become en-forcible in the same manner as is provided herein upon the breach of any of the other conditions of this mortgage.” These mortgages are assailed by the plaintiff in his complaint upon two grounds: 1st. Because they practically amount to an assignment with undue preferences. 2d. Because they were executed with intent to hinder, delay, and defeat the other creditors of Steadman, and are, therefore, void, under the Statute of Elizabeth. The judgments by confession are assailed upon the same grounds, and also upon the further ground that such judgments were originally entered in the county of Orangeburg, where neither the said Steadman nor the plaintiffs in said confessions are, or were, residents at the time said confessions were there entered. The case was heard by his Honor, Judge Ernest Gary, who rendered his decree, holding that the mortgages were intended as something more than a security for the debts which they purported to secure, and were intended as a mode of avoiding the provisions of the assignment law, and secured to the mortgagees an undue preference over the other creditors of Steadman, and were, therefore, null and void. As to the confessions of judgment, he - held that they could not be assailed upon ally such ground, and he, therefore, rendered judgment that the complaint be dismissed, as to the confessions of judgment, without prejudice to any attack upon their validity, “in a direct proceeding for that purpose on the ground of any defect or any irregularity in form that may appear in the same.’’

From this judgment the defendants, McGahan, Brown & Evans, appeal, alleging error in so much of the judgment as declares the mortgages null and void on the various grounds set out in the exceptions filed by those defendants; and the plaintiff, together with those of the defendants who are acting with the plaintiff, also appeal, alleging error in so much of the judgment as dismisses the complaint as against the confessions of judgment upon the several grounds set forth in the exceptions filed by the plaintiff and the defendants, Melchers & Co. and Bollman Bros. & Co., as well as by the defendants, the Read Fertilizer Company. The decree of the Circuit Judge, together with all of the exceptions above referred to, should be incorporated in the report of this case.

1 Instead of taking up these exceptions seriatim, several of which make the same points, we propose to consider the several questions which we understand to be made by these exceptions. In natural order, we will first take up exceptions ten and eleven, filed by McGahan, Brown & Evans. These exceptions impute error to the Circuit Judge in not ruling out the testimony of Steadman, taken before B. T. Rice, Esq., as special referee, under an order made by his Honor, Judge Norton, in supplementary proceedings to an execution issued on the judgment obtained by the plaintiff against said Steadman. The Circuit Judge does not seem to have made any ruling upon this point; but we think it is obvious that he did not consider any such testimony, for he says in his decree: “After the issues were framed by the proceedings, it was referred to the master of Barnwell County to take the testimony and report the same to the court. The master has reported the testimony, and the cause was heard by me on the testimony reported by the master, together with other testimony taken by consent of counsel and the pleadings in the case” .(italics ours). And there is no reference in the decree to any testimony taken by the referee in the supplementary proceedings. Error is also alleged in not ruling out the testimony of Steadman, “relating to these mortgages, taken before the master, inasmuch as a prima facie case of fraud had not been made out against said mortgages.” Here, again, we find no specific ruling by the Circuit Judge as to this point. The question whether such preliminary proof had been made was for the Circuit Judge to determine. Furthermore, we are not prepared to hold that the testimony of Steadman as to what occurred or passed between himself and the mortgagees, in the negotiations prior to or at the time of the execution of the mortgages, was incompetent; and there is nothing'to show that the Circuit Judge considered any testimony of Steadman as to what occurred afterwards. These exceptions cannot, therefore, be sustained. Under this view, it follows that the point presented by the twelfth exception of these appellants becomes immaterial.

2 The main point presented by these appellants is, that the Circuit Judge erred in holding that these mortgages were intended, not as mere securities for a bona fide debt, but as an assignment in effect of all the property of the mortgagor securing an undue preference. The law upon this subject has been so recently reviewed and settled in the case of Porter v. Stricker, 21 S. E. Rep., 635, as to supercede the necessity for any extended observations here. It is there settled that in a case like the present, the question is one of intention, and that is a question of fact. Here the Circuit Judge has found distinctly, that the mortgages were intended as something more than a mere security for the payment of a debt, and were in fact intended as an assignment, with undue preference in favor of the mortgagees. The burden is on those who assail this finding of fact to show error therein; so that the practical inquiry is whether they have succeeded in doing so. It must be remembered that this finding does not necessarily involve any imputation of moral fraud or intentional wrong doing (Lamar v. Pool, 26 S. C., at page 447), but the question is whether the parties intended to do that which the statute forbids. A careful examination of the voluminous testimony fails to satisfy us that the Circuit Judge erred in his findings of fact, and, therefore, his findings must be affirmed. Under this view it becomes unnecessary to consider the further question made by the notice filed by some of the parties, of an intention to urge that the conclusion reached by the Circuit Judge should be sustained upon the further ground that these mortgages were made with an intent to hinder, delay, and defeat the other creditors.

3 Our next inquiry is, whether the plaintiff and those of the defendants acting in concert with the plaintiff, have succeeded in showing that the Circuit Judge erred in sustaining the confessions of judgment? In this also we fully concur in the views of the Circuit Judge. We have been unable to find in the great mass of testimony presented in the case any evidence even tending to show that these confessions of judgment were taken with any view whatever that they should operate, practically, as an assignment, or with any intent whatever to hinder, delay or defeat the other creditors. On the contrary, the evidence clearly shows to our minds that they were taken in the ordinary course of business, just as any other confession would be given and taken. They do not appear to have had the slightest connection with the mortgages. Even Steadman himself does not appear to have conceived the purpose to give these confessions until after the mortgages had been executed; and then that purpose was not the suggestion of his own mind, but was prompted by the advice of a friend, and the evidence is abundant that the plaintiff, in those confessions of judgment, knew nothing of the mortgages when the confessions were taken.

4 The only remaining inquiry is, whether the Circuit Judge erred in dismissing this complaint as against these confessions of judgment, and remitting the parties to a direct attack upon these judgments upon the ground, as alleged or claimed, that they were entered in the wrong county. The law upon the subject of the proper mode of attacking a judgment, for any defect not appearing upon the face of the reeord, has been recently considered at length in the case of Crocker v. Allen, 34 S. C., 452, and there it was held, that the proper mode of proceeding in such case was by a motion in the cause, and before the Court in which the judgment was obtained and entered. That case was recognized and followed in the subsequent case of Gillam v. Arnold, 35 S. C., 612. Counsel, however, claim in their argument that this case should be differentiated from those cases by the fact that here fraud is charged, while in those cases no such charge was made, and we have been cited to the cases of Ruff v. Elkin, 40 S. C., 69, and Woods v. Bryan, 41 S. C., 74. In the former of those cases, Mr. Justice McGowan, in delivering the opinion of the Court, makes a quotation from Rap. & Ran. Raw Diet., to show what is meant by an immunity from a collateral attack on a judgment, in these words: “In an action other than that in which it was rendered, except upon proof of fraud or want of jurisdiction,” and reliance is placed npon those words to sustain the contention on the part of the plaintiff and those acting with him. But, it will be observed, that in that case there was an agreement that the defendant should have the right to introduce any evidence or make any point, which he could introduce or make in any direct proceeding to vacate the judgment. Inasmuch as any objection to the mode of proceeding in that case was expressly waived, we can hardly regard that case as of any authority upon the point we are considering. Besides, under the express term of the quotation from the Raw Diet., the exception only applied where there was “proof of fraud,” and here the Circuit Judge had found that the fraud was not proved.

5 As to the other branch of the exception — proof of want of jurisdiction — that must mean proof on the face of the record of want of jurisdiction; and here it cannot be pretended that the records of these confessions of judgment showed on their face any want of jurisdiction, as they certainly did not show that Steadman was not a resident of Orangeburg County. In the other case—Woods v. Bryan—the record of the judgment showed on its face a lack of jurisdiction, and hence that case is not applicable.

We cannot say, therefore, that there was any error on the part of the Circuit Judge in remitting these parties to an attack upon these confessions of judgment for lack of jurisdiction not appearing on their face in a direct proceeding for that purpose. But we must not be understood as saying or even intimating that a judgment by confession is void because it is entered in a county in which the judgment debtor does not reside at the time of its entry.

The judgment of this Court is, that the judgment of the Circuit Court be affirmed.

Case Details

Case Name: Drake & Son v. Steadman

Court Name: Supreme Court of South Carolina

Date Published: Mar 28, 1896

Citation: 46 S.C. 474

Court Abbreviation: S.C.