43 F. 719 | U.S. Circuit Court for the Southern District of Georgia | 1890
The character of this case is outlined in the decision of the court given on the application for injunction, and reported in 37 Fed.
■■First. That the defendants H. M. Comer & Co. are entitled to a decree against the fund in the custody of the court for the sum of twenty-eight thousand six hundred and fifty-four dollars and thirteen cents, ($28,654.13,) the same being the principal, interest, and attorneys’ fees stipulated in the mortgage which was executed by N. B. Baum & Bro. and Baum & Co., and delivered to the'said H. M. Comer & Co. November 13, 1888, and recorded Within the time prescribed by law. Second. That the remaining specialty creditors of N. B. Baum & Bro. and Baum & Co., whose mortgages are enumerated in the second class of liens, are also entitled to have and recover the full amount of their debts, with the stipulated interest and attorneys’ fees. Imease of a deficit in the fund in the custody of the court, then, in conformity with section -1.956 of the Code, the court will distribute the proceeds to the mortgagees according to their claims, an exception to be made in favor of the minor mortgage of' Dennis Doke, should the proceeds of the sale of the land subject to this lien be sufficient to satisfy its claim. Third. When the mortgage creditors have been paid, if a surplus remain, the simple contract creditors, the master reports, are entitled to the priority of the distribution of the surplus.: ' The creditors who' filed the original bill have no preference thereby over those.who came' in by intervention as parties complainant.
A number of exceptions have been filed to the report of the master, ánd the cause has been fully heard upon argument on the report and the' exception® thereto.' ' In View -of the importance of the cause, the
Merchandise, as indicated by the receiver’s inventory at ten per cent, above invoice price, - $ 31,457 91
Notes and accounts collected by the receivers thereafter up to March 1, 1889,. ------ Real estate, at their own valuation, - 5,522 85 10,000 00
Amount of all other notes, accounts, and old ft. fas., which are regarded by the receiver as being wholly worthless, - Aggregating assets of - - 39,080 42 86,061 18
LIABILITIES.
Secured debts proved before the master, - - - $ 54,702 00 Unsecured creditors who proved their debts before the master, 29,841 39
Total liabilities, ------- 135,702 00
—showing that the Baums were wholly unable to pay $49,640.83, and upon their own showing were insolvent to that amount. It appears, however, from the report of the receivers that by the most diligent efforts they have been able to collect less than $30,000 of the alleged assets of more than $80,000, from which it is apparent that the Baums at the time of their failure were absolutely in debt for more than $100,000-This is an enormous degree of insolvency for a business like that of the Baums, carried on in the small villages of Toomsboro and Irwinton. The plaintiffs insist that the secret contract between the Baums and Comer & Co. was a fraud to give to the Baums a delusive credit, or that it had that effect. It is in evidence that the fact of its secret character, and that subsequent creditors had no knowledge of its existence, enabled the Baums to purchase large quantities of goods in fraud of the vendors and to the advantage of Comer & Co.; that in May, 1888, after this agreement on the part of the Baums to execute a mortgage to Comer covering their entire property whenever they should become financially embarrassed, the Baums stated to Bradstreet that they were worth in the neighborhood of $30,000 over and above all their liabilities, that there were no incumbrances whatever upon their property, and that their annual business amounted to about $75,000. In November the failure came, to the amount of $150,000 with $30,000 of assets covered with mortgages to Comer & Co., and with second mortgages on the same stqck to other persons for about $30,000.
. The solicitors for Comer & Co. rely, of course, upon the report, and insist, by virtue of the mortgage and assignments of choses in action to their clients, they are entitled to take the entire fund, or so much thereof as will fully discharge their indebtedness. The solicitors for the plaintiffs object to this, for the important reasons: (1) Whether the Baums are guilty of fraud or not, that the execution of the several mortgages, which the plaintiffs insist were all made as part of a scheme to
Do the several mortgages covering the entire property of the Baums and the assignment of their ehoses in action to Comer constitute such an attempt to avoid the law of the state as to voluntary assignments as to justify the law to declare this invalid for failure to comply with the statute? The plaintiffs direct the attention of the court to the mortgage-of November 13, 1888, covering all the merchandise and real estate given to secure a series of old notes, many of which were then overdue, with a power of sale authorizing Comer & Co. to sell the mortgaged property on 10 days’ notice, execute title to the purchaser, apply the proceeds to their debts, with 10 per cent, attorneys’ fees, and pay over the surplus, if any, to the mortgagors or their assigns; also to the assignment of ehoses in action aggregating $50,000; also a mortgage on November 17th, similar to that of November 13th, covering certain other merchandise that had been omitted in the first mortgage; also to the fact that on November 13th, the date of their first mortgage to Comer & Co., the Baums executed, as appears from the dates of the mortgages themselves, 17 other mortgages covering the same property already mortgaged to Comer, all of which latter mortgages are identical in form, and given to secure debts to the amount of $28,130.70, with 10 per
“A debtor may prefer one creditor to another, and to that end he may bona fide give a lien by mortgage or other legal means, or he may sell in payment of the debt, or he may transfer negotiable papers as collateral security, the surplus in such cases not being reserved for his own benefit or that of any other favoréd creditor, to the exclusion of other creditors.” ~ •
The last clause has been held to be repealed by the act of 1866, and the surplus may now be controlled to other favored creditors. Powell v. Kelly, 82 Ga. 1, 9 S. E. Rep. 278. The argument of plaintiffs’ solicitors, that the mortgage of Comer & Co. and the mortgages of the 17 other mortgagors were drawn the same day, and that, while the equity of redemption was preserved in the former, the latter mortgages had no such feature, but, on the contrary, provided that the surplus should be distributed to the general creditors. They insist that the entire series of conveyances bearing date November 13, 1888, shall be construed together as indicating the purpose of the makers, and the disposition to dispose of the entire property by a voluntary assignment. They insist, what seems to be indisputable, that the indebtedness of the Baums referred to in the conveyances of that date, November 13,1888, aggregate $66,130.70 principal, besides interest and 10 per cent, attorneys’fees. This is exclusive of Comer & Co.’s exclusive mortgage of November 17, 1888. Thus they had, as the plaintiffs insist, appropriated their entire assets to the payment of certain preferred creditors having claims aggregating nearly three times the value of their assets. They insist this is an assignment. The plaintiffs lay stress on White v. Cotzhausen, 129 U. S. 329, 9 Sup. Ct. Rep. 309. That case resulted from an attempt by a creditor to secure an illegal preference in the face of a statute which was enacted to secure absolute equality among the creditors of an insolvent
If that were the law of Georgia, we should be obliged, in our judgment, to adopt the reasoning of the plaintiffs’ solicitor, and be governed thereby. Is it true, however, that to obtain equality between the creditors of an insolvent debtor is the purpose of legislation in the state? It Is clearly otherwise. This appears, not alone from the language of the statute, but from repeated and the latest decisions of the supreme appellate court of the slate. We have seen that the Code provides: “A debtor may prefer one creditor to another, and to that end he may, bona fide, give a lien by mortgage or other legal means, or may sell in payment of the debt, or he may transfer negotiable papers as collateral security.” Section 1953. In the case of Powell v. Kelly, 82 Ga. 1, 9 S. E.
“The act does not prescribe any particular manner or form in which a debtor may prefer one creditor to another. In our- opinion he may do it by an assignment of all his property to one creditor or a class of creditors,” etc.
The court then proceeds to meet the argument that the preference therein described would be a virtual repeal of the policy of the legislature in regard to assignments, and says: “These acts, [meaning the statutes upon which plaintiffs here rely,] as will be seen by reference thereto, apply only to assignments,” etc. In that case the preference wás made by a sale to the preferred creditors of a part of the debtor’s property, and the other portion was sold to other creditors. It follows logically, as the purpose of the law of Illinois was wholly different as to preferences from the law of Georgia, a decision in White v. Cotzhausen is not to be regarded as controlling upon the question in controversy here. The mortgage to Comer & Co. was made in consequence of a promise by the Baums to give them a preference in case of subsequent embarrassment. It was made and delivered before' the remaining mortgages were executed. Comer & Co. for themselves had carefully provided against the financial embarrassments which now surrounded their debtors, and the laws of Georgia are not in conflict with the ancient and salutary maxim, “vigilantibus non dormentibus jura subveniunt.” “It is not to be disputed,” says Mr. Justice Woods, (Blennerhassett v. Sherman, 105 U. S. 100,) “that, except as forbidden by the bankrupt law, a debtor has the right to prefer one creditor over another, and that the vigilant creditor is entitled to the advantage secured by his watchfulness and attention to his own interest.”
It is insisted, however, by the plaintiffs that the mortgage to Comer & Co. is void as creating a preference, because it coutains a provision that the surplus, if any, after satisfaction of the debt is to be returned to the mortgagors, the Baums. It is sufficient, in reply to this proposition, to cite the case of Calloway v. Bank, 54 Ga. 441, in which we find that “where one in failing circumstances made amortgage with a power of sale, on which he procured money to be loaned to him, and the power of sale provided that if the property brought more at the sale than the debt, the surplus was to be reserved to the mortgagors, it is held that this was not such a reservation of a trust or benefit to the mortgagor as made the mortgage and power of sale fraudulent. Judge McCay, delivering the opinion, says: “The surplus in such a case is no benefit to himself. The land is subjected to his creditors.” See, also, Lay v. Seago, 47 Ga. 82. Upon this point we must overrule the objections to the mortgage..
It is further insisted by the plaintiffs that what they term the secret agreement of Marcli 10th, by which Comer & Co. received the promise of the Baums to prefer them, was a fraud on other creditors to the extent that it was withheld from the record, and that the Baums were thus given a delusive credit, thus enabling them to obtain the goods of the plaintiffs without either the ability or the intention of paying for them. This instrument is nothing more than an agreement to prefer in case of
' It is objected that they are not entitled to attorneys’ fees. This, however, was'a part of the contract expressed in the mortgage, and is as valid as any other stipulation therein. This precise question has been decided by the supreme court of Georgia in the case of McCall v. Walter, 71 Ga. 287, nor does it matter that the mortgage was not foreclosed. Comer & Co. having been enjoined, the court took jurisdiction of the whole matter, and their mortgage will be considered as foreclosed by the decree here.
With reference to the mortgage executed by the Baums to Comer & Co. on November 17th, we think it merely an attempt to perfect the original mortgage, it being intended to cover certain merchandise which had been omitted from the first because it was not in the store.
With reference to the assignment of choses in action aggregating some $50,000, executed on November 16,1888, by the Baums to Comer, with a power to collect, compromise, or settle the same, and apply the proceeds to his indebtedness, it is insisted by the plaintiffs that this is a voluntary assignment, and should have been made in compliance with the law of Georgia relative to such assignment. To secure the debt for which the mortgages to Comer & Co. were given, the Baums, on the 16th day of November, executed a written assignment, which contains this language:
“We hereby assign and transfer unto them all book-accounts, notes, and mortgages now in our possession, and belonging to us, including those belonging and appertaining to the business now being done by us at Toomsboro, in Wilkinson Co., and Dublin, in Lawrence Co., the aggregate amount of which is about fifty thousand dollars, more or less, a correct list of which we agree to furnish said H. M. Comer & Co. as soon as practicable, to be hereunto attached.”
Comer & Co. were given the power to make such compromises of these notes and accounts as they thought proper, to pay the proceeds on their debt, and to return to the Baums such accounts, notes, and mortgages as may remain uncollected. This, in our judgment, is a voluntary assignment by a debtor who has parted with the custody of all the remainder of his property, and who was known to the assignees to be insolvent. It is therefore an assignment in the meaning of the act of September 28, 1881, and, riot being accompanied by the sworn schedule and statement of assets required by the statute, it must be declared void, and the sums collected by the receiver from such choses in action as were included in this assignment will be distributed to the creditors of the Baums under the usual rule.
With reference to all those mortgages which contain a clause that the surplus existing after the payment of the debts due the mortgagees therein mentioned shall be paid over to the creditors of the mortgagors, they are, in our judgment, likewise voluntary assignments for the bene
With reference to the mortgage of S. Waxelbaum the master made no finding thereon. It stands upon an independent footing, and, if not settled by consent of ihe parties, will be disposed of by the court in accordance with its equities.
The court is unable to assent to the finding of the master that tho Baums were guilty of no fraud in the purchases from Fechheimer & Co. and Clatlin & Co. Upon this subject it is sufficient to say that the evidence lias not removed the impression which was formed by the court and announced in the decision granting an injunction and appointing a receiver. It is however true that the evidence offered b.y the plaintiff does not sufficiently, in the opinion of the court, identify and distinguish the goods so purchased as to justify an order for recaption. This holding is perhaps not very important to the parties in view of the small amount which will probably remain after the mortgages of Comer & Co. receive their share of the fund in the hands of the court. The court is not satisfied from its consideration of the evidence with the measure of identification upon which the solicitors have thought proper to rely.
In consideration of the premises, it will be decreed that the mortgages of Comer & Co., principal, interest, and attorneys’ fees, shall ho paid, as far as that fund will suffice, from the proceeds of the sale of the prop
This being an equity cause, in which the question of liability of cost is one for the discretion of the court, the costs will be assessed in accordance with what appears to be the equities of the case as affecting cost. That Fechheimer & Co. were grossly defrauded, there can be, in the opinion of the court, no doubt. The statement to Bradstreet by the Baums, that their property was unincumbered at a time when they were under a written private promise to Comer & Co. to execute a mortgage for every farthing of its value, was the grossest fraud. It is true that the evidence does not connect Comer &■ Co. with that fraud, but they must have known that the Baums were buying goods largely on credit; •and they also knew that in ease of possible, and it is not an extreme statement to say probable, collapse of the latter that the private agreement in their possession would utterly deprive subsequent creditors of the opportunity to recover the purchase price of their goods. It was the private agreement, then, which was the occasion of the great losses of Fechheimer & Co. and Claflin & Co., for it is not to be supposed that merchants of character and intelligence would give credit to men who had obliged themselves to prefer a particular creditor to the extent of their entire estate. This, indeed, is the evidence. The plaintiffs were wholly justified in filing their bill. They knew nothing of the secret agreement. It was this secret agreement to prefer, and the preference made in consequence thereof, which has in large measure defeated their recovery of the greater portion at least of their demands. Under all of these facts, upon which we have been compelled to maintain these preferences, to express the sense of the court of the injuries to the mercantile community by contracts of this secret nature, it is in the judgment of the court its duty to assess all the costs save the charge against the fund for Patterson & Hodges against the Baums and against H. M. Comer & Co. jointly and severally, and it will be decreed accordingly.