Pregnall v. Miller & Kelly

| S.C. | Jul 26, 1884

The opinion of the Court was delivered by

Mr. Chiee Justice Simpson.

On August 11, 1883, the appellants purchased from the Marine and River Phosphate Company a steam engine, with about 9,627 pounds of iron, then on a certain dredge boat lying in Ashley River, at the wharf of the said company, the consideration of the purchase being a preexisting debt upon which the said purchase was credited. The appellants at once removed the iron from the dredge boat, but left the engine thereon, for their convenience and at their risk. After this, i. e., about August 27, the respondents, claiming to have purchased the plant of this Marine and River Phosphate Company, located at their works, and including the said engine, took possession of the same. This purchase was made after August 11, the time of appellants’ purchase, and wrns also made in payment of a preexisting debt due by said company to respondents. Under these circumstances the action below was brought by appellants against respondents for the recovery of the engine, the sole issue in the case being ownership.

The Circuit judge laid down the following legal propositions, in substance, for the government of the jury. That to complete a sale of personal property, there must be a payment of the purchase money on the one side, and a delivery of the article on the other. That in such sale where the vendor continues in possession after the sale as visible owner, the sale is to be considered fraudulent and void against creditors. That in such sale, where the consideration is a pre-existent debt, and property is left in the possession of the vendor, the sale is null and void ; and in this case if they find that the appellants agreed to buy, and did buy the engine, leaving it in the possession of the company, from whom thereafter the respondents bought, taking possession without notice of plaintiffs’ claim, then the jury are instructed that such prior sale to appellants is null and void, and the latter sale to respondents is good and valid, and the plaintiffs cannot recover.

Under this charge the jury found for the defendants. A new trial was moved, but was refused, the Circuit judge holding that a sale of personal property in payment of a pre-existing debt, the vendor retaining possession required the application of fraud as a legal conclusion, and therefore the verdict, being in accordance with the law, could not be disturbed; and further, as there was but one exception to this rule, to wit, where the vendor remained in possession under a contract of hiring (Pringle v. Rhame, 10 Rich., 75), of which there being no evidence in this case, the verdict was not obnoxious to the objection that it should have been left to the jury as a matter of fact to determine the character of the possession, and especially whether any benefit or advantage accrued to the debtor, as the price of the preference given to the creditor.

The appeal involves the correctness of these different rulings and holdings. The main questions to be considered are, 1st. Whether, as held by the Circuit judge, the retention of possession by a vendor of personal property after a sale on consideration of a pre-existing debt is per se fraudulent as a general rule ? 2. If so, whether, the only exception thereto is, where the possession is retained upon a new contract of hiring as in Pringle v. Rhame f

The leading English cases upon this subject are Twyne’s Case, 3 Co., 80, and the case of Edwards v. Harben, 2 T. R., 587. These eases seemed to favor the principle that the mere fact of the vendor retaining possession after sale will of itself, in every such case, render such sale invalid. But this doctrine to its full extent has never been followed in all of the American courts. In Massachusetts it is held that such retention is only prima facie evidence of fraud, and may be explained by testimony; in other words, that the character of such possession is a question of fact. So in New Hampshire, Connecticut, New York, North Carolina, Georgia, Mississippi, Texas, Wisconsin, Arkansas, Ohio, and Tennessee. See 1 Chit. Cont. (11th edit.), 571, 572, note, and cases there cited. In some of the other states a contrary doctrine is held. In our state, previous to Smith v. Henry, 1 Hill, 16, the cases seemed to hold that retention of possession was a badge of fraud, not conclusive, but prima facie; but if the testimony proved that the sale was founded upon a valuable consideration, the sale could not be impeached except by positive fraud, want of bonafides. Terry v. Belcher, 1 Bail., 568; Garrett v. Rhame, 9 Rich., 407; Guignard v. Harley, 10 Rich. Eq., 253.

In Smith v. Henry, however, a distinction was drawn between a sale where a present consideration was advanced, and a sale upon a pre-existing debt; the former being left under the principle suggested above, and the latter held fraudulent as a conclusive presumption of law, the retention of possession being regarded in law as the inducement to the sale, and the cause of the preference given to the particular creditor. In this case Chancellor Harper attempted to reconcile the conflict which seemed to exist in the previous cases, by a close examination of the principle upon which it had been held in some of them, and especially the English Cases, supra, that retention of possession after sale was per se fraudulent. He said that this was not, as some seemed to suppose, because the debtor being left in possession, he thereby obtained a credit upon the faith of property which he was not entitled to, misleading subsequent creditors. Nor was it because his antecedent creditors were lulled into a false security. But it was because the debtor had obtained some benefit to himself as the price of the preference given, evidenced by his retaining possession, and using it as his own.

Such being the principle of these decisions, it was urged that it did not apply necessarily to a sale where the consideration was valuable, and paid down at the time, because there could be no necessary inference in suGh case that the sale was for the benefit of the debtor, although he retained possession thereafter. Where, however, the sale was in consideration of a pre-existing debt extinguished thereby, and yet the debtor retained possession, the inference that the debtor had stipulated for some benefit or advantage to himself was so irresistible, that in such cases such possession was held per se evidence of fraud. Hence the distinction which he drew in that case, between sales upon a present-consideration advanced at the time, and sales in payment of a pre-existing debt, holding the latter invalid upon the mere fact of retention of possession by the debtor, and the former open to explanation.

Thus stood the law in this state until Jones & Briggs v. Blake and wife, 2 Hill Ch., 636, followed by Pringle v. Rhame, 10 Rich., 74, in which the court modified the stringent rule laid down in Smith v. Henry, as to a sale upon a pre-existing debt, with possession retained under a contract of hire. Upon examination of this case, however, it will be seen that this modification was not based simply on the ground that possession was retained by virtue of a contract of hiring, but because the fact of hiring showed that such retention was not the price of a preference which the vendee had obtained over other creditors, but was a bona fide possession obtained by the debtor, independent of the sale, and having no necessary connection therewith. Such being the fact, in applying Jones & Briggs v. Blake and wife, and Pringle v. Rhame, we must not confine ourselves to their facts, but we-must look to the principle upon which they were decided. Guided by this principle, we cannot say that the only exception to Smith v. Henry is a case of hiring; on the contrary, in every case where possession is retained, if it is not retained as a benefit to the debtor, but under an independent and subsequent bona fide contract, it is open to explanation.

This seems to be the law of this state, and now since Jones cf Briggs v. Blake and wife, and Pringle v. Rhame, whether the consideration be the payment of a pre-existing debt or a present consideration, the cases stand on the same platform, i. e., the character of the possession becomes a question of fact and must be submitted to the jury, with the onus upon the vendee. Such being our conclusion as to the principle applicable to the question involved here, we think the Circuit judge was in error in holding that retention of possession after sale upon a pre-existing debt was conclusive far se of fraud, as a general rule, there being but one exception, i. e., where the possession is founded upon a contract of hiring. We think the character of the possession in this case should have been submitted to the jury in accordance with the views herein above, the invalidity of the sale being dependent upon the fact whether the retention of possession of the vendor was for his benefit or the price of a preference given to the vendee.

We think, too, that that portion of the charge of the judge in which he held that to complete a sale, both payment of purchase money and delivery of property were necessary, was erroneous. Change of title takes place when the bargain is struck, and may pass before payment and before actual delivery; where property is sold'on a credit with possession given, or where it is sold for cash and yet left with the vendor for vendee’s convenience, and subject to his control, title changes and the sale is complete.

It is not necessary to consider the other questions discussed by the counsel.

It is the judgment of this court that the judgment of the Circuit Court be reversed, and the case be remanded.