46 Kan. 597 | Kan. | 1891
Opinion by
This is an action begun by the Harvey County Bank and R. M. Spivey, as plaintiffs, against John F. Wafer, who was then sheriff of Harvey county. Wafer, as sheriff, had seized, under various orders of attachment, a stock of goods belonging to the attachment debtor, R. M. Hamill. The bank and Spivey claimed to have the right to the possession of the attached property by virtue of a chattel mortgage thereon, executed by R. M. Hamill on the 20th day of March, 1884. The attaching creditors were made parties, and filed answers alleging that the chattel mortgage was fraudulent and void as against them. The case was tried by a jury at the March term, 1883, of the district court of Harvey county. The jury returned a verdict for the bank, and fixed the value of the goods at $21,896.17, and the value of the plaintiff’s right of possession at $12,095.03. A motion for a new trial was overruled, and a judgment rendered on the verdict. The material facts disclosed at the trial are these: For many years prior to the commencement of this action the firm of Hamill Bros, had been engaged in merchandising in the city of Newton, and was a firm of good credit and of high repute. As a matter of fact, on or before the 20th day of March, 1884, the firm, and especially D. Hamill, the principal partner, was largely indebted, both as a member of the firm and individually. D. Hamill was the active and controlling member of the firm, and his brother, R. M. Hamill, appears up to a certain date to have been subordinate. There is evidence tending very strongly to show that in October, 1883, the firm was dissolved, a notice of dissolution was published, and in the next issue of the paper after the publication of the notice of dissolution the card of the business firm was changed from Hamill Bros, to D. Hamill. The terms of this
“This Agreement Witnesses, That in consideration, and as a full, final settlement of the respective rights, claims, accounts and interests of D. Hamill and R. M. Hamill, recently partners as Hamill Bros., the said parties have agreed and do hereby agree upon the following: R. M. Hamill shall be solely liable for all goods purchased and put into the store situated upon the lot hereafter described, from and after the 1st day of January, 1884, and said D. Hamill shall in no event be liable in any way for any portion of such goods, and has no interest therein except as herein specifically provided; said R. M. Hamill may, for the purpose of establishing his own business interests, advertise said business as his own, and purchase and incorporate into said stock of goods such goods as he may desire upon his own individual credit. Said R. M. Hamill shall contribute his own efforts toward the carrying on of said business in the same way and under the same conditions and restrictions that he has been since the 1st day of January, 1884. Until all the debts owing by the former firm of Hamill Bros., as shown by the books of said firm, are fully paid, D. Hamill shall remain in charge of said business as financial manager thereof, applying the net proceeds of all sales to the liquidation of said debts of Hamill Bros, until the same are fully paid. All goods in said store, whether they are goods formerly owned by Hamill Bros., or such as have since been or may in the 'future be put in said store by R. M. Hamill, shall be subject to sale in the ordinary course of business, and the net proceeds of such sale to be applied in liquidation of the debts of said firm as above agreed upon. When all of said debts have been fully paid, as above indicated, then said R. M. Hamill shall be the absolute owner of all goods in the store, and said D. Hamill shall execute and deliver to him a bill of sale for all of his interest therein, and deliver to him the absolute and exclusive control of said business and all goods in said store. The store herein referred to is that kept in the building upon lot No. 8, in block No. 38, in the city of Newton, Harvey county, Kansas; and the said D. Hamill, being the owner of said lot and building, together with the fixtures and furniture in said store, agrees that when full con*601 trol of said business is transferred to R. M. Hamill as above contemplated, he will execute to said R. M. Hamill a lease of said store and fixtures and furniture used therein, at the rate of $50 per month, payable monthly in advance from month to month, and said lease may be terminated by either party upon giving 60 days’ notice to the other party. This lease shall include only the store-room, ware-room and cellar now used in the business, and free ingress and egress to and from the same over said lot. D. Hamill.
R. M. Hamill.”
At the time this contract was entered into, the firm'of Hamill Bros, was indebted to various creditors in the sum of $4,800, and they owed the Harvey County Bank a note of $5,000. R. M. Spivey was then, and for a long time before had been, the vice-president and active manager of the Harvey County Bank, and was in the full charge of its business. Some time after the contract of January, 1884, was made, R. M. Hamill went to Chicago to buy goods with which to replenish the stock. He carried with him a letter from Spivey, as follows:
“HARVEY COUNTY BANK,
(Successor to the Harvey County Savings Bank.)
O. B. SOHMIDT, JULIUS SIMON, B. M. SPIVEY,
President. Cashier. Vice-President.
Newton, Kas., February 29, 1884.
“To whom it may Concern: The bearer, R. M. Hamill, succeeds the firm of Hamill Bros., merchants of long standing in this city. Mr. R. M. Hamill is not indebted to this or any other bank, and with his long experience and general acquaintance in this country, believe he will do a good business, and with continued prosperity no doubt he will make prompt payment for any goods he may purchase.
Respectfully, R. M. Spivey, Vice-President.”
While R. M. Hamill was in Chicago, Spivey wrote the following letter to a wholesale firm there from which R. M. Hamill bought goods:
“HARVEY COUNTY BANK.
O. B. SOHMIDT, JULIUS SIMON, E. M. SBIYBT,
President. Cashier. Vice-President.
Newton, Kas., March 8,1884.
“Kahn, Schoenbrun & Co., Chicago, III.:
“Gentlemen — I had a telegram fromR. M. Hamill yesterday, stating that Harvey County Bank reports him as ow*602 ing $8,000. The statement which we sent you regarding his financial standing was intended to be confidential, but it seems you have not made the information confidential, but informed him the contents. Under the circumstances, I do not care to confide in you further statements, but will add that Mr. R, M. Hamill does not owe this bank but'$200, and does not owe any bank, which I wired you last night.
Yours, R. M. Spivey.”
On the 1st day of March, 1884, D. Hamill wrote to Norton and Cahill, salesmen for two large wholesale houses, from whom R. M. Hamill bought goods, the following letter:
“ MONARCH MILLS, D. Hamili., Proprietor.
“Newton, Kas., March 1,1884.
“Messrs. L. R. Norton and J. H. Cahill, Chicago, III. :
“Gentlemen — Robert M. has just handed me your letter to him of the 27th ult. So far as the report is concerned to which you refer, I wish to say that there is not a word of truth in it. As a matter of fact Robert does not owe a dollar. So far as my own liabilities are concerned, they are a matter of record, and concern none but me personally, and I am fully able to take care of them.
“Gentlemen, Robert could have bought his goods several times since arrangements were made with you, and was strongly urged to do so, but his preference has been to buy of you. I only ask that you sell him goods at the right hind of prices, so that he can meet competition.
“ I wish also to say, gentlemen, that the First National Bank of this city and myself have been and are now on anything but friendly terms. This feeling was brought about from the fact that I did not patronize that bank, but did my business through the Harvey County Bank. The First National Bank has lost no opportunity to injure my business whenever they had the opportunity. So far I have been able to come out ahead in every encounter, and I think I can manage to take care of myself. I did not suppose that they would on that account endeavor to injure Robert’s credit.
Yery respectfully, D. Hamill.”
The Harvey County Bank loaned R. M. Hamill $200 with which to pay his expenses on the Chicago trip. He bought on this trip from John Y. Farwell & Co., Kahn, Schoenbrun & Co., and C. M. Henderson & Co., goods exceeding in value $18,000. He wrote to the wholesale houses on the 17th day
“Chicago, III., March 4, 1884.
“I, R. M. Hamill, of Newton, county of-, state of Kansas, for the purpose of obtaining a credit with John V. Earwell & Co., of Chicago, 111., for goods which - may now or hereafter purchase of them, do make the following statement and representations of-present true financial circumstances, wealth, and mercantile respectibility, which said representations shall be the basis of- credit with John V. Earwell & Co., both for - present purchase, and for all purchases for and during the period of five years from this date, agreeing to immediately notify them of any material change in or of- business matters during the the period above mentioned.
“-a copartnership of-.
“ASSETS. Amount.
Stock of goods on hand at value......................... $12,555 00
Notes and accounts, good............................... -2,000 00
Notes and accounts, doubtful....................................
Notes and accounts, worthless...................................
Cash on hand or in bank........................................
Other personal property........................................
Insurance (will increase)................................ 6,000 00
Real estate in my name at market value, storehouse....... 7,500 00
References............................................. ........
“liabilities. - Amount.
Incumbrances on real estate............................. $2,500 00
Incumbrances on personal property.............................
Nor merchandise, not to exceed.......................... 2,812 58
3?or borrowed money................................... None.
Individual liabilities.................................... None.
Nor confidential and all other liabilities.................. None.
Amt. debts past due, included in merchandise indebtedness, None.
(Signature) R. M. Hamill.”
On the 18th day of February, the Harvey County Bank, by Spivey, made a commercial report on R. M. Hamill to the reporting agency of Bond & Weigley, that was furnished by them to Kahn, Schoenbrun & Co. It is as follows:
“Name in full of eaoh member: Rob’t M. Hamill.
Business: Dry goods, clothing, etc.
Amount of capital in business............................$15,000 00
Amount borrowed capital............... 8,000 00
Value of real estate..................................... 3,000 00
Incumbrance........................................... 1,700 00
Value personal property................................. 500 00
Any chattel mtgs. or.................................... None.
*604 Other Hens.............................................. None.
Value of stock.......................................... None.
Married................................................ Yes.
Character.............................................. Good.
Attentive to business.................................... Yes.
Prompt pay............................................ Pair.
Insured.......................!........................ Yes.
Credit largely........................................More or less.
Prospect of success..................................... Pair.
Ever failed or asked extensions.......................... None.
Do you consider.....good for.....a credit of 1,000 dollars, Yes.
“ BEMABKS.
“ B. M. Hamill will, in a month or so, succeed to the business of Hamill Bros. If country continues prosperous he will succeed.
“Yours, Habvey Co. Bank.”
Ojq the 20th day of March, 1884, the following agreement was made in writing between E. M. Hamill, D. Hamill, and E. M. Spivey:
“Newton, Kas., March 20, 1884.
“ In consideration of D. Hamill releasing and assigning to E. M. Hamill all of his right, title and ownership in and to all of the goods (not including store furniture and fixtures) kept by Hamill Bros, and D. Hamill in their store upon lot 8, block 38, Newton, Kas., which he hereby does, we, the undersigned, E. M. Hamill and E. M. Spivey, agree and bind ourselves to pay and hold the said D. Hamill harmless of all the following debts now owing by the said Hamill Bros, to —
E. L. McDonald.......................................... $94 00
Jno. Y. Parwell........................................... 1,600 00
C. M. Henderson......................................... 400 00
A. N. Shuster............................................ 650 00
J. W. Bailey & Co......................................... 200 00
Noyes, Norman & Co...................................... 144 00
H. M. Price.............................................. 250 00
Tootle, Hosea & Co....................................... 350 00
Beynoíds Bros............................................ 300 00
I. Weil, four notes in bank.
“All debts of said firm to Harvey County Bank; all of which debts we assume; and E. M. Hamill agrees to pay any other debts of said old firm, should any be found not included in this agreement. Should D. Hamill be compelled to pay any debts in violation of this agreement, we agree to repay him all costs and expenses he may be put to on account thereof.
“ Made in duplicate. E. M. Hahild,
I). Hamill,
E. M. Spivey.”
On the same day E. M. Hamill executed a note for $10,000 to the Harvey County Bank, and a chattel mortgage to secure
The jury returned answers to the following special interrogatories :
“1. At the time John F. Wafer, as sheriff, took the stock of goods, how much was the Harvey County Bank entitled to hold the same as security for? Ans. $10,000.
“2. What items of indebtedness made up the amount of the $10,000 note secured by chattel mortgage? State fully the amount of each. A. One note of $5,000; guaranteed claims to eastern creditors, $4,800; borrowed money, $200.
“3. Was the stock of goods pledged to E. M. Spivey, and if so, for what? State specifically amount of each item. A. Pledge void.
“4. Were the goods pledged to E. M. Spivey, among other things, for future advances to be made to E. M. Hamill for the support of himself and his family? A. Pledge void.
“ 5. Did E. M. Hamill obtain the goods from the attaching creditors by false and fraudulent means ? A. Yes.
“6. Did the Harvey County Bank, through its officers, know that E. M. Hamill had purchased the goods by false and fraudulent means at the time it took this $10,000 mortgage? A. No.
“7. Did E. M. Spivey, by his letters of February 29,1884, and March 8, 1884, and his telegram of March 8, 1884, tend to and partially induce the attaching creditors to give E. M. Hamill credit and to sell him goods? A. Yes.
“8. Did E. M. Spivey have knowledge, at the time he accepted the pledge, that E. M. Hamill had purchased the goods by false and fraudulent means? A. Pledge void; and if time above refers to the pledge of May 3, 1884, we say ‘Yes.’
“ 9. At the time E. M. Spivey wrote his letters of credit of*606 February 29,1884, and his letters and telegrams of March 8, 1884, did he not know that Hamill Bros, were largely indebted to Harvey County Bank and eastern creditors? A. Not as a legal firm, as the evidence proves that the firm was in reality dissolved October 3, 1883.
“ 10. At the time David Hamill wrote his letter of credit for R. M. Hamill, to Norton and Cahill, dated March i, 1884, did he know that Hamill Bros, were indebted to the Harvey County Bank and eastern creditors? A. Not as a legal firm, as the evidence proves that the firm was really dissolved October 3, 1883.
“ 11. What persons composed the firm of Hamill Bros, during 1882,1883, and 1884?, A. D. Hamill and R. M. Hamill composed the firm of Hamill Bros, in 1882, and until the 3d of October, 1883.”
I. It has been said that “every case must create its own law;” but this is one in which the fraud alleged is not purely a question of law, nor yet exclusively a question of fact, but the two are so closely interwoven, and so intimately blended together, that they both concur to produce the belief that a part of the truth was suppressed, and cunning artifice resorted to, and that both actual and constructive fraud was committed in the attempt to hinder and delay honest creditors receiving their just dues. These two important facts are established by the evidence and found by the jury: First, That R. M. Hamill procured the goods covered by the chattel mortgage to the bank from the attaching creditors by fraudulent misrepresentations; second, that R. M. Spivey, by his letters and telegrams, partially induced the attaching creditors to give R. M. Hamill credit and to sell him goods. There are some other important facts established by the evidence contained in this record. Spivey was the active and controlling officer of the Harvey County Bank, and he knew of the indebtedness of Hamill Bros, to the bank and to the other creditors. He had loaned R. M. Hamill the money to pay his expenses on the Chicago trip, and knew that Hamill went there to buy goods. A short time before this he had made a confidential report of the financial condition of R. M. Hamill to a mercantile agency in Chicago. He had every opportunity to know, and did
Again, as matters of law, the knowledge of Spivey as to the financial condition of the firm of Hamill Bros., and of the individual members of the firm, was the knowledge of the bank, whose managing officer he was. He knew as a matter of law that D. Hamill had an agreement with R. M. Hamill that he was to pay the outstanding debts of the firm, or that the goods on hand were pledged to their payment, and that R. M. Hamill, as a member of the firm, was still liable for their payment, notwithstanding his agreement in January with D. Hamill; and by reason of his knowledge the bank knew this. He knew that the creditors of the firm had never accepted the individual assumption of the debt of Hamill Bros., and that, at the time the credit was extended, had not released R. M. Hamill, and the bank had not done so. In a word, both Spivey and the Harvey County Bank knew all about the financial condition of the firm of Hamill Bros., and of the individual members composing it, at the time R. M. Hamill went to Chicago and procured these goods from the attaching creditors. All these things are apparent from this record. One of the questions arising on this state of facts is this: Can an antecedent creditor, who knows that his debtor has procured goods and merchandise by fraudulent means, take a chattel mortgage on goods thus procured, and acquire a lien adverse to the interest of the vendors? Another question is: Can an antecedent creditor of a debtor who procures goods fraudulently from wholesale merchants, who were partially induced to give such debtor credit on the strength of letters of the antecedent creditor, acquire by chattel mortgage a lien of the goods so procured adverse to the interests of the wholesale merchants? Another question is: Can one who knows that goods and merchandise are procured by fraudulent means acquire any interest in or lien on such.goods against the innocent vendors?
II. The legal principle applicable to the first fact is, that these goods having been obtained from the attaching creditors
The law applicable to the second fact is, that where the fraud consists in inducing, by false representation, a sale of goods to an insolvent third person, from whom the misrepresenting party afterward obtains them, the seller may bring suit for the price against the latter party as though he had bought the goods in his own name. (Biddle v. Levy, 1 Starkie, 20; Hill v. Perrott, 3 Taunt. 274; Phelan v. Crosby, 2 Gill, [Md.] 462; Thompson v. Davenport, 2 Smith, Lead. Cas. 407; Meyer v. Amidon, 23 Hun, 553; Benj., Sales [4th ed.], § 491; 2 Schouler, Pers. Prop. [2d ed.], § 672.) The particular act of Spivey that was evidently in the minds of the jury, that produced the special finding, was that his letter and telegram in which he asserted that R. M. Hamill did not owe the Harvey County Bank but $200, when in fact and in law he was indebted to the bank in a large sum, partially induced the sale of goods to Hamill by the Chicago merchants. This representation, known at the time it was made by Spivey to be untrue, is fraudulent. Chief Justice Marshall, in Russell v. Clark’s Ex’rs, 7 Cranch, 69, said:
“ The ground of the action,” said the court in Boyd’s Ex’rs v. Browne, 6 Barr, 310, 316, “is the deceit practiced upon the injured party; and this may be either by the positive statement of a falsehood, or the suppression of material facts, which the inquiring party is entitled to know. Tire question always is, did the defendant knowingly falsify, or willfully suppress the truth, with the view of giving the third party a credit to which he was not entitled? It is not necessary that*609 there should be collusion between the party falsely recommending, and him who is recommended; nor is it essential, in support of the action, that either of them intended to cheat and defraud the trusting party at the time. It is enough if such has been the effect of the falsehood relied on.”
In the case of Allen v. Addington, 7 Wend. 10, reviewed in the court of errors, 11 Wend. 375, the letter of the defendant was written to a third person, and nevér shown to the plaintiff, but the plaintiff gave credit in consequence of what the third person was induced by the letter to say. The design of the defendant was to have the goods sold to the party recommended, from which he, as a creditor, might satisfy his own debt; and the fraud was held to consist mainly in the suppression of the fact that he held judgments against the person recommended,' which the latter was unable to satisfy. The court says it was a case of outrageous fraud and conspiracy. This is an exhaustive and elaborate case.
In the case of Patten v. Gurney, 17 Mass. 182, the action was brought by the plaintiffs against the defendants for fraudulently affirming anothér to be trustworthy, in order that they might levy on the goods with which he was trusted, in satisfaction of debts owing by him to themselves. Parker, C. J., says:
“A false and fraudulent affirmation, relative to the credit and ability of a person, to a merchant, who is thereby induced to trust such person with goods, is a sufficient ground for action, although there may have been no dishonest purpose of appropriating the goods to the use of the party making the recommendation, or in any way deriving a benefit from the fraud.”
See other cases cited in the American notes to the case of Palsey v. Freeman, 2 Smith, Lead. Cas. (6th ed.), 166.
III. Spivey knew that the goods had been procured from the wholesale merchants at Chicago by fraudulent representations. He knew that, at the time R. M. Hamill went to Chicago to buy the goods, Hamill had no money, because Spivey loaned him the money necessary to the expenses of the trip. He knew that, under the agreement between R. M.
The protection of a bona fide purchaser from a fraudulent vendee is almost universally recognized by the courts of this country, on the ground that the fraudulent purchaser has a voidable or defeasible title which, before its annulment by the vendor, the defrauding purchaser can transmit to a bona fide purchaser who is without knowledge or notice of the fraud, and because he has parted with value. One who buys with notice or knowledge of the fraud of his vendor in obtaining the property is not a bona fide purchaser, and is liaable not only to lose the goods, but, if he sells, to pay their value. (Stearns v. Gage, 79 N. Y. 102; Rateau v. Bernard, 3 Blatchf. 244.) To constitute good faith there must be an absence not alone of participation in the fraud or collusion with the vendee, but also of knowledge or even notice of the fraud, or of facts and circumstances calculated to put an ordinarily
IV. The chattel mortgage executed by R. M. Hamill to the Harvey County Bank on the 20th day of March was not placed on record until the 3d day of May, and not then until
"V. The court charged the jury in effect that the knowledge of Spivey was the knowledge of the bank, but the jury in their sixth special finding either did not understand or deliberately evaded such instruction. They find that the Harvey County Bank, through its officers, did not know that R. M. Hamill had purchased the goods by false and fraudulent means at the time it took this $10,000 mortgage. It was known to Spivey, and he was the active manager of the bank, and had been for some years prior to this time. If the jury meant that Spivey had no knowledge, there is not a particle of evidence to sustain this finding, as we view the facts. If they overlooked or gave no meaning to the words as used in the instructions of the trial judge, “If the bank, through its officers, knew,” and supposed that the bank itself, as distinguished from its officers, did not know, then they misapplied the law. The other two findings, already largely discussed, are inconsistent with and antagonistic to the general verdict. In the 4th special finding the jury evaded an answer to a question of fact, and gave a legal conclusion. In the 9 th and 10th special findings the evasion of the jury to a plain question of fact is self-evident. At the time the verdict was returned into court the plaintiffs in error demanded that the
We are satisfied that justice has not been done; that material error was committed in the trial; and that strong evidences of fraud and fraudulent intent are abundant in the record, and hence recommend that the judgment be reversed, and a new trial ordered.
By the Court: It is so ordered.