MACK 'V. JONES.
'Doubtless they could resort to equity, and seek a mandatory injunction to compel the association to make an assessment upon its refusal to do sOi but, although they might elect to pursue this course, they would not necessarily have to do so. It must therefore be held that the attachment was properly levied upon the demand of the defendant against the National Benefit Society, and consequently that the defense of want of jurisdiction should not have' prevailed. A new trial is granted.
(Circuit Oo'Urt, lv. D. Tennelme.
ATTA<lm.mNT-FRAUDULENT CONVEYANCE-EvIDENCE-STATE:MENT TO CREDITOR. , .
SAME-REMOVAL OF GOODS,
It is not evidence of a fraudulent intent to dispose of the property that a . merchant removes a considerable part of his stock to another town in the same comity. and opens a store there to sell them, if the proof shows that the Bcheme was fairly reasonable, and the purpose an honest one, to sell· goods to the trade, and not to cheat his creditors.
"It is not a fraudulent transfer of a merchant's property for which he may be attached if he places part of his stock in a partnership in a town near by,
to be so sold, provided the partnership be a fair one, and the contract has an adequate and valuable consideration to support it. A transfer may be so made without implication of fraud, and is not in any proper sense out of the usual course of trade, nor does it in any proper sense hinder and delay or defraud his creditors.
SAME-SELLING BELOW COST.
to do $0, is not sustained by proof that, in opening a new store to attract cus-
An attachment for fraudulently disposing of his property, and being about
tomers, a few articles are cheaply sold nearly at or below cost, the instances proved being insignificant, and fully explained by the circumstances; particularly if the fact be that the stock was generally sold at a profit, and the business was successful.
SAME-POLICY OF ATTACHMENT LAWS.
.The attachment laws should be intelligently administered, so as to protect creditors, on the one hand, Jrom any cunning devices to defraud them and their debtors; on the other, froJIl an eager and oppressive greed. for a preference, inconsiderate distrust, and unwarrantable interference with a business transactJori that is honest, but unsatisfactory to the creditor.
" , ' " "
7.. REMOVAL. 01' .04.trSE8 - ATTACHMENT - EFFECT OF TUNllll'ERIUNG FpND ON
ATTAOmmNTIl 'NOT REMOVED.
An attachment suit, being the first levied, was removed to tbe federal court, the state court directing the receiver to retain so much of thef\1nd as belonged to tb;atsuit and pay tbe balance into the registry of the state court; which was done. 'Held; that on the failure of the removed attachment in'the federal court the defendant was entitled to the fund, and that it would nQtbe returned to the state court to answer subsequent attachments not removed; but any SUfplus retained by the receiver should be by him paid under the order of tbe state court, .
Attachment. This is an attachment under the statute in Tennessee for having fraudulently disposed of property, or being about to do so, to which the de- ' fendant pleaded in abatement, denying the charges made. The facts appear in the opinion of the court. McFarland & Bobbitt, for plaintiffs. Rawlins & Willia'm8 and M. llf. Neil, for defendant.
HAMMOND" J. A most careful reading and reconsideration of the proof has the impression left at the hearing that this attachment was unauthorized. Giving the widest scope to all that is claimed for the language of Mr. Justice STRONG in Butler v. Watkin8, 13 Wall. 456, as to the latitude to be given in the ,admission of evidence to prove fraud, and conceding the utmost to the suggestion that often it cannot be proved by direct testimony, but only by circumstauces, and yet fraud cannot be established by inconsequential circumstances and facts that are entirely consistent with honest intentions, albeit they be facts that show an unwise judgment and imprUdent business conduct. Take any merchant; and especially the country merchants of this section, and subject their business conduct to hypercritical scrutiny, and circumstances will be developed showing that, in the struggle for existence that goes on among them, they violate somewhat the higHest standards of business prudence. They often do not keep books that should be kept, nor proper accounts. They buy toolargelYi engage in doubtful speculation; enterprises that risk too far their judgment as to the future of crops and other business contingencies; and do not always, if ever, give their creditors, or proposed creditors, the most exact statements of their condition, being satisfied with generally truthful exhibits that are as full as anyone expecting to deal with them has a right to expect. These statements are not intended to be exact. If so, every merchant would have to produce a balance sheet, and a complete and detailed showing of his affairs, as the .preliminary to asking a credit of the wholesale dealer. Few merchants would be willing to do this, and it is not asked. Therefore discrepancies between the statements that are made and the exact showing by the books are quite probable in almost any case; as here, the statement of the defendant to Eiseman, which has been so severely scrutinized, taken in the light of his explanations is of that character. Want of precision in it is not, in my judgment, of consequence, as a circumstance showing any fraudulent intent; particularly when taken in connection with the specific transfer alleged to be fraudulent, to be
presently noticed, and in relation to which the circumstance must be considered. As a conclusive indication that it does belong to that category of unintentional· misstatements, the effect of it was to cause Eiseman to refuse the credit asked, and to withhold the goods ordered. Wiser than the plaintiffs and others, whose eager drummers crowd their goods upon the defendant, Eiseman saw that he was overbuying and unwisely expanding his business upon a credit, based on a faith in the future of it that Eisetpan did not share. If the defendant had conceived the fraudulent scheme to buy goods extensively on a credit, and leave his creditors in the lurch, as ,plaintiffs insist, the misrepresentations would have been of a character to deceive Eiseman, and the truth would not,have been as nearly told as it was. And here I wish to say that the attachment laws of Tennessee were not designed to enable merchants who crowd their sales upon reluctant or imprudent retailers to impound the goods they have so parted with, as soon as they become alarmed for the success of their debtor in his enterprise ,of selling them. The attachment laws are made to protect them against fraud,-specificfraud, but not imprudent business management, or that kind of imaginary fraud that they attach to insubstantial, mercantile speculation which the wholesale merchant decries when it is developed in his customer, although indulged in by himself in the very transaction. Briefly, the proof here shows tha,t the defendant, a young man who had been a dry goodE' clerk, launched out for himself by buying at an insolvent assignment a stock of goods, at very low figures. To these he added other goods, and, after the year was done, he had been verysuccessful. He did not owe a dollar, and had more and better goods than he had started with, though he had some of the old stock left. He had pllIdhis purchases promptly, and taken the benefit of the discounts allowed for cash. He was dazed with the success, and thought he could enlarge his business. So were the drummers who lived round about him, and were his friends, everyone of them. They drummed him to death; even extorting promises that he should buy only from them, respectively, they thought it was such a good.thing. It is difficult to say which was most to blame,-the defendant or the drummers; but certainly those. orders and promises should not be now taken to mean that defendant ,had then cunningly contrived a scheme to get the goods, anddpocket the money for their sales, as is now alleged, in the desperation of the desire to save this attachment; for they are wholly consistent with an, honest purpose to conduct the business as successfully as before. Why should this successful young merchant conceive that scheme, at that tiIlle, rather than the, more honest one of enlarging his business into II. greater success? It is simply preposterous to suppose that he did. He did not owe anything, had paid for his stock on hand,and was not in the least embarrassed. The circumstances all tend to support his contention that he thought he could enlarge his business, buy on time, and ha.ve the money ready to meet his bills four months thence. He seems to have been himself somewhat alarmed at his orders, and coun-
FEDERAL , I,f '.
termandedsome, of them. ,Some of the drummers accepted this,and did not seh<1'th'e goods; others, including the tbey had alreadyshippi3d. But it is said he ordered from others, which is true, to SOme extent. He was trying to dish:ibutehis favors, no doubt, among his friends who were so eager to sell to himi but, after all, there was no such overbuying as indicated any such wickedly preconceived scheme as' that alleged against him to support 'this attachment. His purchases were largely within $10,000, and, according to plaintiff's calculations, amounted to' only $8,200, besides which he had, in goods and cash whenhe commenced tohuy,abollt $4,000. He had bought during the whole year before only about $7 ,000 worth of new goods, but he had bought the' Bryant old stock ;60 that, while his purchases for his fall trade were quite as much as for the whole year previously, this shows no such expansion as indicates the fraudulent purpose under consideration, however unwise it 'may seem. I am inclined to think he might have worked out if his creditorS had let hip! alone, and trusted him; for the comparison with his neighbOring merchants, made in the proof, indicates that. They were bound to trust him unlesahehad fraudulently conVeyed his property, or was about to do sowhen they attached. Tbisalleged fraud of overbuying was no ground of attachment. It may have alarmed his creditors, but their alarm was not to be aesuaged by seizing the goods without a statutory ground of attachment, and we can only look to these circumstances as evidence tending to convince uathat some specific'transfer; sworn to by the creditors, "'as a fraudulent one,-that is, one depriving the creditors of some just right they bad, with an intent to binder and delay'or'defraud them,arid these words may be taken as synonymous. Winf. Words & Phrases, 181; Bump, Fraud. Conv. (2d Ed.) 582. . The mere dissatisfaction of creditors with his business or his methods, however well founded it may have been, is no ground of attachment, and tbis is a mistake creditors alarmed about their customer often make. They must be able to show some specific act which is done under circumstances showing an intention to cheat theni by that act. Other acts and circumstances may be shown in evidence, undoubtedly, and the attachment laws should be so liberally construed arid administered by the courts that no amount of cunning shall be allowed to rpake fraud available by narrow and confined interpretation of conduct and its attendant circumstances; but, nevertheless, when a court can see that the conduct and circumstances are consistent with honest purposes, appearing in the case, the' creditors should not be allowed to distort those circumstances to make them fit any real or imaginary injury to themselves which they may be pleased to denominate a "fraud." This is clearly the law in Tennessee. Jackson v. Burke, 4 Heisk. 610; McHaney v.Cawthorne, Id. 508. !tis alleged, for instance, in this bill, and urged in argument, that thE1se goods were sold to be traded at Humboldt. and complaint is made that of them were carried to Medina, another railroad town in the same county, to be there sold, as if this transaction were a gronnd of attadhment, or, at least, a pregnant circumstance, showing a fraudulent
intent within itself. The .statute allows an attachfuent for a fraudulent removal of one's property from the state, but within the state he may carry it where he pleases,and, while: this circumstance may have alarmed plaintiffs, it was not wrong in: itselfi'and no fraud can be impliep. from itibe Roever so unwise. . Aga;i.n:;:it is alleged ·thatth6 se1ling the goods below cost. It is said in argument that this ishard'to prov6; but is this any reaSoDwhy it shall be assumed?What is the proof? Only that at Medina a few' pairs shoes and one suit· of clothes were sold for sums thought to be below cost. The defendant and his clerks'say the goods were not sold below costt, and explain that staple goods were.sold closely, and that some others as '!leaders," to start their new trade at Medina, were sold occasionally at figures close to cost, but all in the legitimate way that'a:ll merchants'use. , .When defendant's rivals complltined to plaintiffs that he was selling below they became alannea" and sent down a drum· mer. He went to the rivals, :and was told so; but these rivals are not witnesses hel'o to prove what they told to the plaintiffs in the letter they wrote, and to the drummer 'when he went to inveEltigate. It is said in argument,. by way of excuse for this, that they only knew what had been told to th.em, and that was not competent. If it was not competent to sustain the charge, it wasnbt suflicientas a basis for: the affidavit of its truth, unless the witnesses who did know and told the facts duced. ,The suspicions of rival merchants were not a..fairgroundofaetion for plaintifls in suing the attachment, even though'plaintiffs' were threatened with the loss oithe custom of those merchants by the letter defendsntwas.'sellingfor 50 they wrote giving the false cents on the dollar less than the price they paid to plaintiffs;: at'lieast.it was false.S0 far as this record.shows. This who 'was sent tb investigate went to these rival'merchants, who were,angrybeeause defendant had opened a stor6'iri their town, andwas'stlccessfullycoIPpet. ing with them, and were evidently trying to break him'down by reportinghiriito'his creditors assaIling below cost J and these conspirators !let. a .trap'to catch the defendant. . The man sent to buy lJ. suit of clothes which had been bought from the plaintiffs, the price 'Oflwhich was $16, 'succeeded in having the clerk price it to him at $14.50 would not tell, and say that he paid $16.50;" and this circumstance is distorted into one showing a fraudulent intent to sustain the allegations .of this attachment affidavit. So far from the proof showing'that the goods were sold below cost, it shows that they were successfully sold; for ,theMedina concern, not being attached, continued business and the clerk swears the goods were all sold properly, with such attractive methods of pushing trade as merchants use by selling a few articles cheaply. One of the reasons whyUefendant could do this was that he had part of his old insolvent sale stockjwhich he was working off in this way, to the consternation of his rivals. Courts cannot sustain attachments on such proof as that, however convenient they may be to merchants who have become uneasy, and wish to recover the goods they have sold. We come now to the partnership transaction, which is the only reany v.31F.noA-13
formidable fact in the,ptoof. Was that a fraUdulent transfer of the goods sent to Medina, and upon that fact can the tru.th of this attachmentaffidavit be sustained? "The facts are that the defendant conceived ll.lschern.eof locating a branch house at that town, in the samtl county, which seemed a good opening. He made an arrangement with his hrother,: whereby he was to manage the new stdre in a partnership, and theyhired.one Shelton, an efficient clerk, there. The defendant was to put in $2,400 worth .of thestookhe had atHumboldt; and his brother an equal amount. This was done; part of the brother's, however, being put in after this attachment was levied on the Humboldt store. But this is npt material, as the proof clearly shows.that the brother carried out his part of the contract. The defendant explains, and all the circircumstances: corroborate him, that he knew that Medina furnished an opening for a store. He was afraid that, selling at Humboldt alone, he would not be able tosell:msgoods in tiIlle to-meet his bills; and he thought.it a good business plan to sell them iattwo places, instead of one, particularly ashe could thereby use ,to advantage the old stock he had on hand, part of which he had bought at the insolvent sale. That he was doing this successfully: isrshown by the consternation he created among his competitors, who tried to drive him out of the town by the untrue complaints that he was seIling goods below cost, already noticed. In one senRe, this may have been out of the ordinary course of business, because it is not every merchant who keeps two stores, nor every one who resorts to this .particular way of selling his goods; but of itself it cannot be objectionable, nor can a fraudulent intent be implied from it, when explained as· this is explained.;' .: Suppose it be conceded to have been un:wise,still ,he. explanation negatives all idea of the fraudulent intent charged by this affidavit.: u Rut it does not appear to have been unwise, fot this Medina business went.onaftet the attachment of the Humboldt store, and was successfully conducted and wound up. The consideration was va]uable, adequate, and fair, and the defendant lost nothing by the transaction in his. ability to. pay his debts. It is true his brother did not at first put in more than ,$900 in money, and the purchase of J;lew stock was on.thecJ.:edit ofthefirm, but that is' only a detail of the transaction which perhaps waS fairly set off by the fact that defendant's contribution was in part old goods,and the brother afterwards made his part good. The defendant did not owe a cent that was due. He had bought his new stdck on four-months' time, and the hope was not an unrea$onable, that, if. he bad good luck, he could meet his billsjas he had dQJ;le the year before, by paying them before they became due; and yet these plaintiffs, 'without /lDM cause, except those already noticed, swooped down, upon him with this attachment. and seized the Humboldt goods before they were fairly, opened and the fall trade commenced. This was done on-the letters of riYalmercba11ts, and without any fact to sustain their statement, except that one suit of clothes had been sold for $t.50below tbe marked price, and a few pairs of shoes at 75 cents which the rival merchants sold fOf 90 cents. Atmost,that is all the foundation for it shown by this record. . '
'But it is:said that theplairitiffs.lIJld .other creditors were not iriforIl1ed'tlf this partnership transaction,;and that it was concealed from th,em.. ,No doubt, it wOllldhave been wise to but niendo not always think it to give information,to their creditors of'all their business transactionsjparticularly if the debts are not due, 'and they a.re acting' honestly and openly. The notion of any' concealment is preposterous when it is shown that this partnership was known tOhio neighbors at Humboldt and Medina, that itwas advertised in the county paper, and by circulars distributed all over the county soliciting trade. These plaintiffs' drummer and" those of other creditors aver they did not know it; but that only shows that they did not read the papers of the neighborhood where they lived, for they all lived in that section, and were not alert, and not that ,the defendant was. concealing the partnership, for he was not. They no doubt had confidence in a I1l8.nwho had been as successful as and were not watching him, and had no occasion to do so. 'It is said that the goods were removed to Medina secretlYj but this is in keeping with the rest of the circumstanr.e'El relied on to sustain this attachment, and wholly untrue. Tile proof is that a witness saw the goods being loaded on a wagon at the back door at 7 o'clock in the morning. They were carried openly across the country in wagons hired in the town, and were loaded at the back door for conven· ience. !twas cheaper to thus carry them, nodouQt, than by rail, anQ. there was nothing secret about it. The reliance upon such inconsequential proof as this shows the fatal defects of plaintiffs' attachment. It is urged that this partnership "hindered and 'delayed the creditors,"but that is delusive. Defendant's interest in the partnership was still liable to seizure by execution, and it is a mistake to suppose that he was under any obligation to his creditors not to enter into any partnership or other business transactions without their consent, or one that would deprive them of"a direct levy," to use the language of counsel. He might make any transfer that was honestly made, for a valuable consideration. Bump, Fraud. Conv. 582 et seq. The very worst thing that has been shown against the defendant is that when he wound up his interest in this Medina store, and got out his share of the partnership, he kept the money, only paying a debt due to his mother, and did not pay his creditors. The highest type of man would, perhaps, have paid this money to those creditors, at least, who had not attached; but a good deal of allowance must be made for the resentmentsand temptations of human nature. This cruel attachment had destroyed defendant's means of living, had taken away his goods, and shattered his business hopes and prospects, and under the circumstances it cannot be said that hisfailureto apply the money to his debts indicates that this affidavit for attachment was true at the time it was filed, and this is the test. Rumberger v. Gerson, 24 Fed. Rep. 257. Of course, itis apparent that the argument that defendant is insolvent, that the fund in court is the only reliance of plaintiffs to collect their debt, and that it is the product of the sale of the goods they had sold to him, in part, if not wholly, cannot avail the plaintiffs. The defendant
196 has :in abatement; that the allegations of the affidavit are not tr4e,and the finds the plea to be sustained, by the proof; and by test the pla,intiff's,case,unqer our law, must fail. And it is, plaintiff who prooeeds iu extraordinary way, before his, debtjS 9:ue, to attach hisdebtOJ;Jor conduct, shllli be required ,to proye that. fraud; and ,the courtfil should protect merchants actit1g hollestly:agaillst an ab,useof t4e attachment la",s, as well as their creditors againstallfraudulentcollltrivances to cheatth,em. The attachment be ':a,dministered hypha. qourts to prevent, 0:0. tPe. one hand; praqtices, and, o,lf" the. other, oppressive and greed for a inconsiderate distrust, and unwarranted interference withamercbant'sbuSlness actions that are honest, evenif not his creditorS. , , " '}' ' attachh1ent, at plait:!tiffs' cost. presentation ofthe in this plaintiffs' counsel to,so much of it as fpnd of $2,200 to be paid over tothede,fendant, upon the ,ground that there were other attlJ,chment suits pending .in .the state cO'\1rt" instituted immediately after tbis case, ,which was the firsti ,that the writs,were levied upon thl;l stock.ofg()ods, which' were sold by the receiver, and a joint fund realized in his hands; tPll:t (he levies were liens. on the fund, and this,prior lien hayingfaile,d, by the judgment bill in this court, leaves of the other le.yies in force, and the fund should be ,returned to the state court.' The :recor.d showed that at the time this suit was removed, from; the state court the whole fund was in the hands of the ,thll.t court, and pe \Vas ordered by the chancellor to pa,.."\S his accounts,and, after the allowa,nces made to hirn, he was directed to of this case, ·which retain ·in his hands $2,,200 to ,ljLpswer the' hadbeen,removeq. ,to this ;cQurt. and to Pfty 0NJn; ,the to t:p,e clerk andnlas,tel' of that ,COUti, .which was, .done a,ccordingly. The court holds that, under removal acts, 1J,lereceiverand the fund came tothj 11 e6,l;lti, 1tnd stood for all purposes just asifthe suit had been, originally here, and of stock pad been by the proce,ss of this court; that,as this case was t1)e first been levieg,. the, fund accumulated by that writ had been segregated by the remova', l!-ud left. in, the, hands of the receiver of tJiif3 the court receiver bep901ing such the mere att3,Ghments did not operate act of removal , as a lien on JU,nd which th,e, here had ,previously attache4, the case standing in all respects.!tS if ,originaJly; cmnmenced here, under the very language of the remo"alactBj and therefore there could be no Hen on :(u¥din this court ill.favor of attachml'lnts in another couJ:t, however it might ,been if the removed case had been ope of tl;le later levies, instead of the first one made. Rev. St. 639 j Act 1875, C. 137"§ 3j St. 471; Rev. St. 646; Act 1875,c. 137, § 4j 18 ,St.471; Supp. Rev. St. 174,175;:l'haoh. Pro Cir. Ct. 295. ,But since the chancellor, in dealing with the fund, could. not definitely determine "
FRY V. CHARTER OAK LIFE INS. CO.
the exact amount belonging alone to this case, nor to anyone of the other cases, until distribution should be made, he fixed upon the sum of $2,200 "to answer the contingencies of that case," which would be at most only the debt of Mack, Stadler & Co., the interest due upon it, and the costs, and, if so much,as the chancellor set aside for this cause should. be larger than would answer those demands, the balance would belong to the next attachment in order, and not to this case, and should be by the receiver paid into the hands of the clerk and master of the state court, under the chancellor's order, and not to the defendant, under the order of this court. Therefore, as Mack, Stadler & Co. had recovered no costs, but have costs to pay here, under this decree, nothing more sho'llid be .retained by the receiver than the amount of their debt and.interest, the balance inhis haQds going to the chancery court under the chancellor's decree. So ordered.
FRY 'l1. CHARTER OAK LIFE INS. Co.
«(Jircuit (Jourt, E. D. Missouri. E. D. June 11, 1887.)
LIFE !NaURANClj],COMPANm8-ATTACHMENT-SlUJTION8 1,2, LAw8 CONN. 1875. PAGES '12, 13. Laws Conn. 1875, pp. 12, 13, §§ 1, 2, provide, in the event that the capital of a life insurance company becomes impaired, it shall become the duty of the insurance commissioner to proceed againl'lt the company to annul its charter, and to wind up its affairs. The scheme of liquidation provided contemplates the audit and allowance of all demands against the corporation, including therein the reserve due on all outstanding policies, and an equitable application of all the corporll-te assets to the payment of the demands so audIted. The defendant, a mutual insurance company of Connecticut. having become insolvent, the insurance <lOmmissioner,on September 21, 1886. began proceedings in the supreme court of errors of Connecticut to annul its charter. andwind up its affairs.. <;)n September 28th. policy-holders in Missouri commenced suits by attachment to recover the reserve v&lue of their policies. ,Held, that all policy-holders of the company, whether residents of Connecticut or Missouri, were presumed to know the terms of its and the laws regulating its existence,and were bound thereby, in the absence of special provisions for the benefit of its own citizens by the state of Missouri when the defendant was licensed to do business there; that, as the fund attached was not deposited for the benefit of resident policy-holders in Missouri, they can claim no lien thereon; and that the plaintiff must be remitted to his share in the eqUitable distribution under the proceeding preViously commenced by the state Of Connecticut, through its .insurance commissioner, on behalf of all the policy-holders of company.
Goo. D. Reynolds, for plaintiff. J. S. Fullerton, for defendant.
THAYEJR, J. This is .one of several suits by pending in this court, brought by the policy-holders of the Charter Oak Life Insurance Company against the company, to recover the reserve value of, their respective poliCies. The company is a Connecticut corporation. .It became in-