Herman Goepper & Co. v. Phoenix Brewing Co.

115 Ky. 708 | Ky. Ct. App. | 1903

Opinion of the court by

JUDGE O’REAR

Reversing.

Appellee was indebted to appellants in the sum of $11,-000, besides interest, evidenced by five notes for $2,200 each, all dated October 1, 1894, and maturing, the first one 11 months after date, the others at intervals of one each year thereafter. They were secured by collateral, 11 bonds of $1,000 each, which were secured by a third mortgage on appellee’s brewery. These 11 bonds were of a series, representing $94,900, issued to a trustee for debts owing by appellee. There was a first mortgage of $50,000, and a second mortgage of $100,000. Appellee defaulted in paying-three of the $2,2Q0- notes to appellants. Appellants brought this suit to recover $7,822,68, the amount of the three notes and interest past due, and obtained an attachment against appellee’s property on the ground (Civ. Code, section 194, subd. 2) that appellee had not enough property in this State subject to execution to satisfy the plaintiffs’ demand, and that the collection of the demand would be endangered by delay in obtaining judgment or a return of no property found. Appellants also joined in the suit an action for indemnity under section 238, Civ. Code, for the two notes not due, on the ground that the defendant was about to remove or had removed its property, or a material part thereof, out of this State, not leaving enough therein to satisfy the plaintiff’s claim or the claims of said defendant’s creditors. All of appellee’s property was not included in the mortgages. Its brewery was. This included all its real estate, consisting of the brewing plant at Louisville, and much of the personal property. Other personal property, not embraced by the mortgage, was of the value of about $2,545, not including beer in various stages of manufacture. The chancellor found against plaintiffs on all their grounds, of attachment. Their appeal presents three questions for our consideration. (1) Had defendant enough property in this State subject to execution to satisfy plaintiffs’ demand; (2) Was their demand in danger from further delay? (3) Was the sale of its beer, not in unusual quantities, to regular customers out of the State, by an insolvent brewer, a ground for attachment?

1. The circuit court, in fixing the values upon appellee’s property, has seen fit to adopt the maximum valuations from among those of witnesses materially varying. Whether we are fully justified in following his course, in view of all the evidence, may be doubted. Yet we incline to follow a rule of this court which gives some weight to the chancellor’s finding of facts, and, in cases of grave doubt, his findings will not be disturbed. The chancellor fixed the value of buildings, ground, and machinery (all covered by the three mortgages) at $210,705. The first and second mortgages alone amounted then to $158,249. Besides, there was owing a purchase money lien of $3,000, making $161,249. This would leave an apparent balance of $49,456. But it must be remembered that this same property was subject to a third mortgage of $94,900, which, with accrued interest, then amounted to, say, $111,000. Thus we have $49,-456 to pay $111,000 of lien, or say, 45 per cent, of that item. Of this .sum ($49,456) appellants, as holders of 11 of the third mortgage bonds, all of which were pledged to secure all the appellants’ notes, were entitled to receive $5,841. But that, at best, was only an estimation, which, when the practical test of foreclosure sales come to be applied, would, viewed from the evidence, likely fall short of realization in fact. Conceding that appellants’ proportion of the $49,456 equity in the mortgaged property was worth $5,841 in fact, where, in law, should it be applied? The learned chancellor applied the whole of it to that part of the debt due. In this we think he erred. Appellants were entitled to payment of the whole of their debt. If partial payments had been made by appellee it would not have released pro tanto any of the collateral, there being no clause in the notes to that effect; but the security would have remained upon the balance of the debt. Without deciding whether appellants might have ignored their security and proceeded at law to collect the whole of their debt, it was certainly their privilege to collect out of the debtor’s other estate all of the debt due and not secured — that is, not covered by the value of the security. So, if the value of the security was $5,841, then only a small part of the debt due was really secured, because the part not due, and its interest, consumed all the value of the collateral except ábout $700.

If a creditor have even more collateral in value than his debt, he will not be compelled to yield any of it to the debtor until the whole of the debt is paid. Union Bank v. Laird, 2 Wheat, 390, 4 L. Ed., 269; Pollock’s Adm’r v. Smith (107 Ky., 509, 21 R., 1227), 54 S. W., 740; Aetna Life Ins. Co. v. Wilcox Bank, 48 Neb., 544, 67 N. W., 449. This is not the case where a payment is made to a creditor holding several debts, in which the law would apply it to the debt past due. There was no payment here. There was no property, or, what is the same thing, no value in appellee’s property, covered by the mortgages, which it could have applied, or required the application of, to the payment of appellants’ debt of $7,822.68, unless it be the estimated balance of $700, and whether that could be applied without actual payment, so as to defeat their right of action for the whole debt due, is not necessary to be decided. The personal property not embraced by the mortgages consisted of horses, wagons, harness, machinery and goods in bottling department, all valued at $2,545.31. Added to this was a quantity of beer, 100 barrels of which was finished, having a market value of $5.40 per barrel, after paying the United States government tax of $1 per barrel. This would produce $3,085 of personal property undoubtedly subject to execution. In addition to this, appellee had 5,465 barrels of beer in the several stages of manufacture, of which 260 were in the fermentation state, 3,125 in the ruh state, and 2,080 in the chip state. None of these was a marketable condition. In each of them something must be added, especially in the way of skilled labor and attention, to make the beer worth anything as a marketable commodity. Especially did it require a brewrery, with necessary vats, tubs,, and cold storage compartment, all of great cost, and all necessary to be operated to complete the process by which this beer would ever become available as a salable article. The learned chancellor proceeded upon the theory, in estimating the value of this crude beer, that it was a valuable property, and that whatever value it had must be considered in finding whether appellee had enough property subject to execution to pay appellants’ debt. In the first place, all valuable property is not subject to sale under execution. For example, certain equitable interest in land, debts owing the execution defendant, choses in action generally, and so on. They may go, and do, toward constituting the debtor’s solvency. But neither his solvency nor insolvency-are regarded in determining whether he has enough property subject to execution to pay plaintiff’s debt. McFerran v. Jones, 2 Litt., 222; Rich v. Catterson, 2 J. J. Marsh., 135; Wooley v. Stone, 7 J. J. Marsh., 302; Russell v. Robinson, 7 Ky. Law Rep., 361; Hickman v. Reed, 11 Ky. Law Rep., 406.

The question comes down to the point: What property has the debtor in this State subject to exécution? Generally speaking, any species of personal property described as a chattel is subject to levy and sale under the writ of execution. But it must be in esse at the time of the levy and sale. Formerly, growing crops, the product of the labor of the tenant, and raised annually by cultivation, were the subject of execution. Craddock v. Riddlesberger, 2 Dana, 205; Parham v. Thompson, 2 J. J. Marsh, 159. This has, however, been changed by statute. Section 1696, Ky. St. 1899. It may be argued that, in view of the fact that the Legislature had not exempted other imperfect and immature things from similar sale, that is evidence that the legislative policy is not to exempt them. This argument would have peculiar force if such property had ever been held subject to execution sale. But it has not been, so far as we are advised. We have nothing to do with the argument of inconvenience in the case. The matter .comes to whether the property proposed to be sold has a salable quality. Perhaps that could be best tested after an attempt to sell had been made. But such articles as molten iron, or glass in the furnace, burning charcoal in the pit, and coke in the ovens, or baker’s dough, or brick in a burning kiln, hides in the vat, and beer in a state of fermentation, while undeniably having the qualities of chattels, are nevertheless in such imperfect state of transition from one thing to another that they really , can not be said to be either. With, out further labor, and generally artistic or skilled labor, and the use of the realty, and the combination or mixture of other articles, they are practically worthless. The officer could not take them into possession, nor could he separate them from the bulk of which they are a part, .without destroying, perhaps, not only what he took, but probably much in addition, of even greater value. While doing the creditor no good, he would be utterly destroying the debtor. There can be no sense in allowing such an act. Although, in levying upon unwieldy objects, the officer may leave them in the debtor’s possession, or in the possession of another (Hill v. Harris, 10 B. Mon., 120, 1 Am. Rep., 542), he could not require such person, against his consent, to give them further attention, and to put' upon them his labor, time and experience. It has been long since the creditor could force his debtor to involuntarily .work for him. The facts of this case fairly illustrate such a situation: Five thousand barrels of beer in the tubs are levied upon. In its then state it will require on an average of four to six weeks’ time and attention to perfect it so that it will have any market value whatever. To give it the necessary attention requires a plant worth $200,000; the labor and attention of a large and expensive force of workmen, more or less skilled in the trade of making beer; and the addition from time to time of other material than that already embraced in the beer when levied upon. When so completed, it would be worth $5.50 per barrel. In its then state, even allowing the privilege of such use and services, it was worth not exceeding $1.50 per barrel. Without the privilege of using the brewery, and without the labor and attention mentioned, it would be without any value.

In this State the ancient writ of fieri facias is allowed by statute, subject to but few exceptions in its former operations. One of them is that it can not be levied upon growing crops, as formerly allowed. Another is, it must be first satisfied out of the personal estate of the debtor, if he have sufficient. Certain specified articles are exempted by statute, to a debtor who is a citizen with a family, from levy and sale under execution and attachment. But these latter are not excepted, as such, from the operation of the writ of execution, so much as that their quantity is exempted from sequestration for debt at all. Drake on Attachments, sections 249, 250, and Waples on Attachments, sections 285, 286, are authority, and cite cases as well in support of it, that such unfinished product as that levied upon in this case is not and in justice ought not to be subject to levy and seizure under attachment or execution. As to the similarity of the writs, Waples says (section 228): “The writ of attachment issued at the beginning of a suit is really a preliminary execution, dependent for its ultimate efficacy upon the rendering of the judgment in favor of the plaintiff. . . . It has all the characteristics of an execution in the first stage.”

Unfinished beer in the state of intermediate fermentation is not leviable under an execution, because, if the sheriff were so minded, he could not take it into his actual custody without destroying its nature and value. He can not, as to it, satisfy the general rule as to what constitutes a good levy, viz., “that the officer must do such acts as would subject him to an action for trespass but for the protection of the execution.” McBurnie v. Overstreet, 8 B. Mon., 303. While he might leave it with the defendant, yet the defendant may also refuse to be responsible for it, or to give it room or attention. It is not satisfactory to say that the officer would generally wait till the product was so completed as to be marketable. The officer can no more be compelled to wait than can the debtor be compelled to work for his creditor. Nor should the sheriff be required to turn brewer, for which he has provided him neither the equipment, nor the necessary means, nor experience, probably, nor help, nor the time, without neglecting all other public duties. So the question must be determined as of any hour before the product reaches a salable condition. Public policy, which looks to the public welfare, forbids that the law’s process, intended for the aid of creditors, and not for the punishment of debtors, should be perverted in its use by the creditor to such ruinous ends to the debtor, with no benefit to any one. Such property of a debtor can be reached by the law and subjected, in a proper case, by having a receiver appointed to take charge of it and perfect it. Adequate authority and means are to be had for such action.

But even had the beer in its unfinished state been subject to a seizure, its then value, as fixed by the chancellor, $1.50 per barrel, making $8,197, added to the other unincumbered personal property, of $3,085 value, above named, would have yielded but $11,282 of property prima fade subject to execution. Appellee owed at that time overdue taxes of $10,971, which by statute was a first lien upon all the property. Besides, it owed to laborers and materialmen over $16,000. Under sections 2487, 2488 and 2490, Ky. St. 1899, whenever the property of a manufacturing establishment in this State is assigned for the benefit of creditors, or is taken in custody under execution or attachment for debt, materialmen whb furnished it supplies, and the employes of the owner in such business, have a lien upon the whole plant and effects involved in such business for the whole of the amount due them for their labor, and supplies. In the marshaling of liens, the mortgagees, finding the property mortgaged to them insufficient to pay these charges and their mortgages, would have the right to require the holders of the tax liens (which by express mandate of the statute must first be satisfied out of .the personal estate), and the holders of the materialmen and labor liens who have liens on both mortgaged and unmortgaged property, to apply the unmortgaged property first to the satisfaction of their lien. Logan v. Anderson, 18 B. Mon., 119; Hibler v. Davis’ Adm’r, 13 Bush, 21; Bank of Ky. v. Vance’s Adm’rs, 4 Litt., 175; Swigert v. Bank of Ky., 17 B. Mon., 285; Glass v. Pullen, 6 Bush, 349. This would have consumed the whole of the personal estate, leaving nothing subject to execution.

2. The day after the levying of the attachment, appellee assigned all its property for the benefit of creditors. It was hopelessly insolvent. Its liabilities were largely in excess of its assets, even when placing upon the latter a very high estimate. It had been losing heavily for several years. The first 10 months of 1897 (the year of the attachment) its net loss was nearly $20,000. Every day saw its liabilities increase, and its prospects ‘ growing worse. These circumstances are enough to warrant the finding that the collection of appellants’ debt was endangered by delay in obtaining judgment or a return of no property found. Johnson’s Assignee v. Lou. City Nat’l Bank (22 R., 118), 56 S. W., 710; Deposit Bank of Owensboro v. Smith (108 Ky., 311, 22 R., 808), 58 S. W., 792. .

3. We are of opinion that the ordinary and customary sales of its manufactured product in not unusual quantities, in the regular course of business, to customers out of the State, is not enough to justify an attachment against an insolvent seller on the grounds that-he has removed his property, or a material part thereof, out of the State, not leaving enough therein to satisfy his creditors. There must be shown some purpose to remove the property from the State, so as to get it beyond the process of the court and the reach of the creditors, or removal in such unusual quantities as to reasonably suggest such a purpose.

The judgment is reversed, and cause remanded for proceedings not inconsistent herewith.