Hasie v. Connor

The opinion of the court was delivered by

JohNSTON, J.:

A stock of goods was seized upon attachment by the sheriff of Cowley county as the property of M. S. Hasie, with a view of appropriating the same to the payment of the claims of several of the creditors of M. S. Hasie. An action of replevin was soon brought by George E. Hasie, a brother of M. S. Hasie, to recover the same goods. He claimed them upon a mortgage executed November 29,1888, to secure an indebtedness of his brother to him, which had existed for a period of eight months. The debt was evidenced by a note for $12,978.93, given on March 10, 1888, and upon which there was a credit of $5,690.69, purporting to have been made on November 1, 1888. The mortgage, was recorded on November 30, and possession of the goods was soon afterward taken by the plaintiff. The sheriff answered, denying the allegations of the petition, and alleging that the goods levied upon belonged to M. S. Hasie, and were held under orders of attachment issued in an action wherein George E. Hasie was a party, which action was pending when the replevin action was begun. And he further averred, that the mortgage was fraudulent, without consideration, and void. The trial resulted in a verdict in favor of the sheriff, and several grounds of error are assigned for reversal.

It is first contended that the action was not maintainable, because it was commenced while the attachment suits against him and his brother were pending and undetermined. It appears that George E. Hasie was named as a party defendant in the two attachment suits wherein the sheriff levied upon the goods in question. The levy, however, was made to satisfy the debt of M. S. Hasie, and the goods were attached as the property of M. 8. Hasie.

replevin-estoppel. The point that the property replevied was in the custody of the law might have been made with some force but for the conduct of the creditors who were plaintiffs in the attachment suits. The attachments were sustained, and judgment taken as to M. S. Hasie. The actions were not prosecuted against George E. Hasie, but were discontinued and dismissed from the court as to him, for want of prosecution. Having voluntarily abandoned the prosecution of the attachment suits against him, and permitted, their dismissal from court before the trial of the replevin action, the defendant in error, who represents them, was , . , estopped from insisting that the action of re-plevin by George E. Hasie was not maintainable. The abandonment and dismissal were shown by the defendant’s own testimony, and together they constituted a waiver of the defense that the replevin action was begun before the attachment proceedings were disposed of.

1. Attachment by mortgagor’s mortgagee-Ruraenó!sea The principal grounds of error are based upon the rulings of the court in charging the jury. One of the contentions in the case was, whether the mortgage represented an actual indebtedness, or whether it had been executed with intent to deceive and defraud the creditors of M. S. Hasie. The jury were instructed that before the plaintiff could recover he must satisfy them by a preponderance of the evidence that the mortgage under which he claimed the property was executed and delivered to him by his brother in good faith, to secure an actual indebtedness then in good faith existing between them, and the court then added the following: “And the burden is upon him to satisfy you by a preponderance of the evidence of the truthfulness of this proposition in the first instance in in this case.” This instruction was clearly erroneous. The mortgage was fair upon its face, was properly recorded, and under it the plaintiff had taken possession of the _ . . 1 goods at the time they were seized by the sheriff la such a case, the burden of proof was upon the sheriff and those whom he represented to show that the mortgage was fraudulent, or that it had been executed for the purpose of delaying and defrauding the creditors of M. S. Hasie. Fraud is never presumed, and the burden to prove the same rests upon him who asserts it. In requiring the plaintiff to show in the first instance that the indebtedness was bona fide, and that the mortgage to secure the same was without fraud, the court committed prejudicial error. (Gleason v. Wilson, 48 Kas. 500; Landauer v. Mack, 57 N. W. Rep. 555.) To overcome this error, we are referred to another portion of the charge, .in which the court appears to place the burden of establishing the bad faith and fraudulent purpose of the plaintiff and his brother upon the defendant. This, however, does not take away the vice of the instruction first given, but it would rather create confusion in the minds of the jury, and it cannot be said that the contradictory instructions were not prejudicial to the plaintiff.

The next assignment of error is based upon instructions to the effect that actual or constructive notice of a purpose on the part of the plaintiff’s mortgagor to hinder, delay or defraud his other creditors would defeat the plaintiff’s mortgage. The jury were advised that if M, S. Hasie made the mortgage with the intent to delay and defraud his creditors, and George E. Hasie knew of such intent, or of such facts as ought to put him on inquiry as to the wrongful intention of his brother, then the plaintiff cannot recover. There were several repetitions of this view included in the charge, and the court refused an instruction to the effect that fraud on the part of the mortgagor does not affect the mortgagee, unless he was a party to it, and received the mortgage with the intent to delay or defraud the creditors of the mortgagor; that both parties must participate in the fraudulent intent to make the mortgage void, if the mortgage is taken in good faith, to secure an actual indebtedness existing at the time the mortgage is taken. In another instruction the court, in effect, charged that the preference could not be sustained unless both parties acted in good faith, and that constructive notice of the bad faith of the debtor would defeat the security which the creditor obtained.

2- civaftora-of tSitofdebtor, mitsnofraud, The rule laid down and repeated by the court does not apply in the case of a creditor whose only purpose is to fairly obtain satisfaction of or' security for an honest debt. A stricter rule obtains where a party is a mere volunteer. In such case, if a purchaser has knowledge of the fraudulent intent of the vendee or of facts which would put him upon inquiry, the transfer will ordinarily be deemed to be fraudulent as to him. (Phillips v. Reitz, 16 Kas. 396; Gollober v. Martin, 33 id. 252.) A bona fide creditor, however, may in good faith secure a preference of his debt, whatever may be the motive of the debtor in giving it. In taking either property or security from one who is insolvent, or who he knows is attempting to dispose of his property to defraud other creditors, he must act in the utmost good faith, and pay or allow his debtor adequate prices or fair value for the property so taken. (Lewis v. Hughs, 49 Kas. 23.) If his purpose is to assist the debtor in covering up his property, or in hindering and delaying creditors, he cannot be said to act in good faith. “However, a purchaser who in good faith takes the property oí his debtor, at a fair valuation, in payment of his honest debt, is not guilty of fraud against anyone. The fact that the payment of his claim in this, manner may absorb the entire property of the debtor is no evidence of bad faith, and does not necessarily taint the transaction with fraud.” (Schram v. Taylor, 51 Kas. 547; Davis v. McCarthy, 52 id. 116; Implement Co. v. Parlin & Orendorff Co., 51 id. 632; National Bank v. Naill, 52 id. 211.)

In National Bank v. Ridenour. 46 Kas. 717. the court, in considering the effect of a mortgage given to secure a bona fide debt, said that “ the plaintiff bank knew nothing of any wrongful intent; and it is probably true, under the authorities, that any amount of knowledge of the intent of the mortgagors, on the part of the plaintiff, would not render the mortgage void in its hands in favor of liens created after the recording of the mortgage, so long as the debt to secure which it was given was bona fide, and it got by its security no more than the fair value in property of the debt secured. ( Worland v. Kimberlin, 6 B. Mon. 608; 44 Am. Dec. 785, and cases there cited; Covanhovan v. Hart, 21 Pa. St. 495; Cooper v. National Bank, 40 Kas. 5.)” See, also, Chase v. Walters, 28 Iowa. 469; Kohn v. Clement, 58 id. 589; Owens v. Clark, 78 Tex. 547. Although there is considerable testimony agaiust the validity of the transaction, there was sustaining evidence offered by the plaintiff which entitled him to have his theory of the case fairly put to the jury, and from the record we cannot say that the error in the charge was without prejudice.

Complaint is made that undue prominence was given in the instructions to the relationship of the parties to the transaction. Of course, a failing debtor may prefer a brother or other relative, and no inference of wrong or fraud is to be drawn from the relationship alone. The fact, however, that they are closely related is a proper consideration for the jury, in connection with the other facts of the ease, to aid them in determining the honesty and validity of the transaction. The charge of the court appears to have substantially embodied this view, and we cannot say (hat the court placed too much importance on the matter of relationship.

There are other questions suggested which we do not deem of importance; but, for the errors pointed out, the judgment must be reversed and a new trial granted.

All the Justices concurring.