Miller v. Hughes

| S.C. | Dec 8, 1890

The opinion of the court was delivered by

Mr. Justice McIver.

The sole question raised by this appeal is whether the Circuit Court erred in sustaining a demurrer to the complaint upon the ground that it does not state facts sufficient to constitute a cause of action. In such a case it is usual to set out either a copy of the complaint, or to state substantially all of the allegations found in it; but as the present complaint is very long, and contains some allegations which do not appear to be pertinent to our present inquiry, we will content ourselves with stating substantially such of its most material allegations as will enable us to determine the question presented, trusting that the reporter will incorporate in the report of the case a copy of the complaint. <

Amongst other allegations we find the following: That between the fourth and twelfth days of September, 1889, the defendant, Hughes, became indebted to plaintiffs in the sum of $929.72 for goods sold and delivered, of which the sum of $443.37 was then due, and the balance would become due “in a few days;” that the said Hughes and the defendant, Brunson, had been engaged in the mercantile business as partners for the past two years, and continued such business up to about six months before the filing of the complaint; that after the dissolution of said partnership the defendant, Brunson, held possession of all the stock in trade, as well as the securities or choses in action of the late firm, acknowledging, however, his accountability to said Hughes for his interest in the latter; that shortly prior, and subsequent to the dissolution of said partnership, the said Hughes, “for the purpose of deception in procuring credit and by some mysterious influence,” obtained a false high rating in the two leading commercial agencies of the United States; that said Hughes, soon after the dissolution of said partnership, upon the strength of such false rating, bought on a credit a stock of goods in New York and Baltimore, much larger and of much finer quality than was suitable for the market where he ostensibly proposed to sell them, and placed them in a small new store which he had erected some three miles from the town of Brunson, and to avoid suspicion and comment, had a large quantity of them shipped to a station on the Port Royal Railroad, although the town of Brunson was then his place of residence and was the station where he had previously had his goods shipped to ; that on the 12th of November, 1889, Leggett & Co., of New York, commenced a suit on a small account against said Hughes, which he had declared his inability to pay, and within three days thereafter, and a short time before the accounts for his large purchases became due, which had been arranged so as to become payable about the same time, the said Hughes, “in order to defraud his creditors, protended to sell all of the goods, of the value of eight thousand dollars or more,” to his friend and late partner, the said Brunson ; and in order to give a color of reality to such pretensive sale, the defendants, Daniel & Co., were induced to send to the town of Brunson a large sum of money to be exhibited to witnesses as a part of the price paid for said goods by the said Brunson, who executed a pretensive mortgage on the stock of goods to secure repayment of the same, although the said money was immediately returned to said Daniel & Co. as soon as it had served its purpose as aforesaid ; that the defendant, Brunson, as well as the defendants, Daniel & Co., were fully aware of the fraudulent purpose of said Hughes in making said pretensive sale; that the said Hughes is insolvent, and the stock of goods is perishable, and the defendant Brunson is not able to respond for the value of the goods ; that these transactions are in fraud of sections 2014 and 2015 of the General Statutes and are void.

Wherefore judgment is demanded, amongst other things, that the said pretensive sale to Brunson and mortgage to Daniel & Co. be adjudged fraudulent and void against the plaintiffs and all other creditors of Hughes, who shall come in and share the expenses of this action ; that a receiver of all the property of said Hughes may be appointed ; that the defendant Brunson may be required to turn over to the receiver all the property received by him under such pretensive sale, and account for the proceeds of such as he may have sold; that defendants may be enjoined from disposing of any of said property or paying away any of the proceeds thereof; that the receiver be directed to sell the property and collect the assets of said Hughes and hold the proceeds thereof for distribution amongst the creditors of said Hughes under the orders of the court.

The Circuit Judge in a short order rendered judgment that the complaint be dismissed, on the ground that it does not state facts sufficient to constitute a cause of action, saying: “The allegations of the complaint are not sufficient to bring the same within the terms of sections 2014 and 2016, Revised Statutes; but it appears to be a proceeding to set aside a fraudulent conveyance, and does not allege that the plaintiffs are judgment creditors, and havo exhausted their legal remedies.” From this judgment plaintiffs appeal upon the several grounds set oat in the record.

We agree with the Circuit Judge that the action cannot be sustained under the assignment law, for the reason that there is no allegation that either Brunson, to whom the sale was made, or Daniel & Co., to whom the mortgage was given, were creditors of Hughes, nor is there a.ny allegation that- such sale and mortgage, or either of them, was made for the benefit of any creditors of Hughes. So that wo do not see that the assignment law has any application to the case as made by the complaint.

But we do not agree that in a case like this it was essential to allege that the plaintiffs had recovered judgment and obtained a return of' nulla bona on their execution. It is quite true that such an allegation is necessary in a complaint to set aside a voluntary conveyance upon the ground of legal fraud merely, for the reason that in such a case there is no fraud, which is the real foundation of the action, until it has been made to appear that th.c debtor has no other property to which his creditor may resort for payment of his debt except that embraced in the voluntary conveyance; and this, it is supposed, can best be shown by the return of nulla bona. See the remarks of Chief Justice Simpson in reference to this subject in Suber v. Chandler, 18 S. C.. 526. But where the conveyance or other transfer is assailed upon the ground of actual moral fraud in its inception, the case, as it seems to us, stands upon a totally different footing, and should not be subject to the same arbitrary rule in regard to the inode of proof of one of the facts necessary to be established; for it certainly is an arbitrary rule that the fact that there is no other property of the debtor to which the creditor can resort for satisfaction of his demand, except that embraced in the fraudulent conveyance, can only be established by a nulla bona return.

The true view of this matter is clearly and strongly presented by that eminent jurist, Johnston, Ch., in his Circuit decree in Pettus v. Smith (4 Rich. Eq., at pages 200, 201), where, after saying that some of the cases cited to support what we have ventured to designate as an arbitrary rule, have been strained beyond principle, he says: “The principle is sound that a party holding a legal demand, and especially if ho hold a legal remedy for it, is not entitled to call on this court to aid him, unless he can show' that he needs its assistance. He must state such a case; and, if required, he must give reasonable proof of its existence. But a party undoubtedly does need equitable assistance, if his debtor is insolvent, except as to property so covered or encumbered that it cannot be reached without the intervention of this court. The only question is, whether there is any principle restricting the proof of insolvency to any particular method. Can it be proved only by the actual issuing and the actual return of process fertile seizure and sale of property ? Suppose that before -a, fi. fa. can be issued, or after the issue of a fi. fa. and before it is returnable, a fraud is discovered, consisting in a combination of third persons with the debtor, by which the property is secreted and about to be removed out of reach, can no application be made to this court until the fi. fa. is returned and the fraud actually and perhaps irremediably completed? The true doctrine, it appears to me, is that the party asking the aid of equity, in such cases as this, is bound to show’ that, without fault on his part and after the exercise by him of reasonable diligence, he has no means of obtaining satisfaction of his claims without the aid of this court; and as to the insolvency of his debtor, he is bound to make such proof only as under the circumstances is reasonable and satisfactory — such proof of insolvency as in all other cases is competent and satisfactory and no more.”

It is true that this is taken from a Circuit decree and is not authoritative, and it is likewise true that this Circuit decree was reversed, not, however, because of any error in the views presented in the passages quoted from, hut upon a totally different and independent ground; and there is not a word in the opinion of the Court of Appeals, which was delivered by the same Chancellor who prepared the Circuit decree, which indicates the slightest dissatisfaction with that portion of the Circuit decree from which we have so lib°rally quoted. While, therefore, it is not authority binding upon us, yet coming from so high a source, .it is entitled to the highest consideration, and we have not hesitated to adopt its language as presenting the true view of the question under consideration in a much clearer and stronger'light than we could hope to do.

This view is not without support from the highest judicial tribunal in the United States. In Case v. Beauregard (101 U. S. Rep., at page 690), Mr. Justice Strong, in speaking of this subject, says: “But after all, the judgment and fruitless execution are only evidence that his legal remedies have been exhausted, or that he is without remedy a.t law. They are not the only possible means of proof. The necessity of resort to a Court of Equity may be made otherwise to appear. Accordingly the rule, though general, is not without many exceptions. Neither law nor equity requires a meaningless form. ‘Bona sed impossibilia non cogit lex.’ It has been decided that where it appears by the bill that the debtor is insolvent, and that the issuing of an execution would be of no practical utility, the issue of an execution is not a necessary prerequisite to equitable interference,” citing the authorities. Again, he says: “So it has been held that a creditor, without having first obtained a judgment at law, may come into a Court of Equity to set aside fraudulent conveyances of his debtor, made for the purpose of Hindering and delaying creditors, and to subject the property to the payment of the debt due him,” again citing the cases. The following cases show that where the issue of insolvency arises in other classes of cases, no particular mode of proof of insolvency is required, but any evidence which establishes the fact satisfactorily is sufficient. Eddings v. Glasscock, 1 Nott & McC., 295; Wilson v. Miller, Harp., 437; and Arnold v. Waters, 8 Rich., 433.

It seems to us, therefore, that when a creditor files his complaint to set aside a conveyance for actual moral fraud, committed by a combination and collusion of his debtor, who is alleged to be insolvent, with third persons, the failure to allege that he has recovered judgment and obtained a return of nulla bona on his execution issued to enforce the same, is not fatal to the complaint on demurrer. The foundation of the cause of action in such a case is a fraud, and if the plaintiff after alleging the fraud makes further allegations showing that his rights are impaired or desti'oyed by the perpetration of the fraud, then he states a cause of action. Of course, the mere fact that his debtor has perpetrated a fraud, even of the grossest character, gives him no cause of action; but when he alleges other facts tending to show that his rights are injuriously affected by such fraud, then he states a complete cause of action, which, if established, will entitle him to relief. Thus where the creditor alleges that his debtor is insolvent, and by collusion with third persons has fraudulently disposed of his property, which was liable for tne debt, a complete cause of action is stated..

It is insisted, however, that until the creditor has exhausted his legal remedies by prosecuting his claim to judgment and procuring a return of nulla bona on his execution, a Court of Equity has no jurisdiction to afford him relief. But fraud is peculiarly a matter of equitable cognizance, and when fraud is alleged, and the further allegation is made that such fraud is injurious to the creditor’s rights, it seems to us that a Court of Equity has jurisdiction of such a case. In such a case the creditor does not ask the aid of the Court of Equity, upon the ground that he can obtain no relief at law, but his claim to the aid of equity is based upon the fraud which has been practised upon him, and from which the Court of Equity has jurisdiction to relieve him. It is not universally true that a plaintiff must show that he has no plain adequate remedy at law before he can invoke the aid of a Court of Equity; for there are some cases in which the jurisdictions are concurrent, and fraud is one of those matters. Accordingly it has always been hold in this State that where a creditor finds a fraudulent deed of real estate in the way of enforcing his claim, he has a choice of remedies. He may prosecute his claim to judgment and have the land sold under his execution, ignoring the fraudulent deed, and after purchasing the same at such sale, bring his action at law to recover the land, or he may proceed on the equity side of the court to have the deed set aside for fraud and the land sold for the payment of his debt. Burch v. Brantley, 20 S. C., 503, and the cases there cited; Amaker v. New, ante 28.

It is further urged that the claim of the plaintiffs, being a plain legal demand, should first be established by a judgment at law before the aid of equity can be invoked. Whatever embarrassment this might have offered under our former system of judicature, when law and equity were administered by different tribunals, cannot be felt now under our present system, especially after the Code has provided that both legal and equitable causes of actions may be united in the same complaint. We do not see, therefore, why the plaintiffs may not demand judgment for the amount alleged to be due them on the law side of the court, and in the same action ask relief on the equity side from the fraud which they allege will render their action fruitless. The fact that in this complaint there does not seem to be any formal demand for judgment for the amount due them by the defendant, Hughes, is of no consequence, provided the complaint contains other allegations, as wo think it does, sufficient to warrant such judgment.

It seems to us that the complaint in this case states facts sufficient to constitute a cause of action, and that the demurrer should have been overruled and the defendants allowed proper time to file their answers.

The judgment of this court is, that the judgment of the Circuit Court be reversed, and the case be remanded to that court for such further proceedings as may be necessary to carry out the views herein announced.