FECHHEIMER V. SLOM:iUi.
(Otrcuit Court, D. Nebraska. January 31, 1888,)
FRAUDULENT CONVEYANCES-PREFERENCES TO CREDITORS.
A of a failing debtor had retired from a partnership with the latter only a few months previous to the failure of the latter. and continued about the store, and to engage at times in the latter's business. and it appeared that a large sum of money bad been fraudulently concealed by the failing brother. Held, l;hat the former should not be preferred as a bona fide secured creditor.
Bill in equity by Herman C. Fechheimer who claitDed a preference over other creditors of Morris H. Sloman, a merchant doing business under the firm name ofSIOlnan Bros., arid filed this bill to foreclose his mortgage security. .Other creditors filed cross-bills, and this contest between secured and unsecured creditors arose. BREWER, J. The controversy in this case is between the secured arid the. unsecured creditors of Morris H. Sloman, a merchant doing business in the city pf Omaha, under the firm name of Sloman Bros. While there are several pleadings by different parties there is but the one controversy, in which the secured creditors may be known as the complainants, and the unsecured as the defendants. The debtor disputes none of the claims, so that, as ag!1inst him, all are to be treated as just debts. The trouble arises by reason of these facts: On the twenty-ninth of May, 1886, Herman Fechheimer, a' creditor living in Detroit, came to Omaha and demanded security. The debtor consented to give a chattel mortgage, but at the same time insisted on giving like security to othl'lr holders of what he considered confidential debts. Thereupon rilOrtgages to each of said creditors were executed. Immediately thereafter, and on the same day, Fechheimer filed his bill to foreclose his chattel mortgage, and obtained the appointment of'a receiver. The other secured creditors filed. their cross-bill,and thereafter three unsecured creditors, having obtained judgtilent, filed their cross-bill in behalf of themselves and all othertm13ecured creditors. The entire stock was Bold by the receiver, and ·the money is now in the registry ot this court, which fund is the object of pursuit by the various creditors. Now, going back to the history of Morris Sloman's affairs, we find that prior to January, 1886, he was in partnership with his brother Siun.llel A. Sloman carrying on business under the same firm namej that· of Sl6mlUl Bros. They' had two houses; one in Omaha, and one in Chicago.' Eugene Sloman, a younger brother! ,was in .charge of the Chicago houfle, having an interest in the profits oftha concern. On that day Mon-ill Sloman bought out his brother Samuel A. SloIl,lan. The latter 'was firiai:lcially responsiblej thf;l condition of the former will appear
more fully as we proceed. The consideration of the purchase by Morris Sloman was a house and lot, some Wyopling Meat Company stock, $5,000 in money, which was obtained by discounting a note at the bank, and a note for $4,700. Notice of the dissolution was published in the "Watchman," a paper of little circulation in the city of Omaha, and a copy of this notice was sent to Eugene in Chicago, with instructions to have it published in a daily paper of the least circulation. In the latter part of January, Morris Sloman made a statement of his financial condition to one of the mercantile agencies in Omaha, which statement is as follows: - $ 41,768 24 Merchandise on hand, Wool on hand in Chicago, 62,000 00 Hides on hand in Chicago, 8,500 00 Accounts, 12,214 59 Bills Receivable, . 421 75 Making the toLal assets" $124,904 58 Liabilities the First National Bank of Chicago, secured by warehouse receipts on wool, ,- $ 48,560 00 Owe First Natipnal Bl\nk of Chicago,on notes, 5,80000 Owe Morris H. Sloman on personal acct., 1,555 00 Owe Eastern accounts, 44011 Owe the Commercial National Bank of Omaha, 3,000 00 Owe Samuel A.. Sloman, 20,000 00 Making the total liabilities, $ 79,355 11 On the seventeenth of March he made a second statement to the same agency, which is as follows: Merchandise on hand in Omaha, - $ 41,000 00 Hides in Chicago, 9,00000 12,00000 Book Accounts, Bills, -, 421 75
$ 62,421 75 Making the total assets, We owe nothing for merchandise, but the Chicago National Bank, . $ .4,300 00 10,000 00 Owe the Commercial National Bank of 'Omaha,
Leaving net worth, $ 48,121 75 The principal change, as will be noticed, is in the wool on hand in Chicago, and the indebtedness to the Chieago 'bank, he representing at the time that such indebtedness had been discharged by the sale f)f wool. About this time he attempted to. organize a corporation in C4icago, to be known as the "Chicago Hide & Wool Company," through which, evidently, it was intended that the busill.ess in Chioago should be done, but for some reason, not fully and satisfactorily disclosed, this project, ,after having been initiated, was a'bandoned. On the thirtieth of March a call report was issued by the Chicago agency, criticising the financial condition of the house, and on April \lth and 12th other
FECHHEIMER V. SLOMAN.
were issued by the Omaha agency, and the rating of the houses was then withdrawn in that agency. From some part in the latter part of March, until the closing up on May 29th, Sloman Bros. were ordering and receiving large quantities of goods. In thus purchasing, the firm dealt not with a few, but with many houRes, sending out orders for moderately sized bills, apparently in every direction, so that when the collapse came the unsecured creditors numbered something over a hundred, none of them having very large bills, and yet, in the aggregate, amounting in the neighborhood of $50,000. The secured indebtedness aggregated about the same amount, so that the indebtedness at the time of the failure was fully $100,000, while the stock on hand inventoried only $53,000, and, in fact,on sale realized much less. In other words, on the seventeenth of March, Morris Sloman appears to have been worth $48,ODD, while on of May he was at least $50,000 behind hand. Practically, in about two months and a half, a hundred thousand dollars has disappeared. Of course, this indicates either extreme -carelessness, great losses, or fraudulent concealment. No satisfactory explanation is tendered j but, on the contrary, Morris Sloman refused to be :sWorn as a witness until compelled by an order of this court, claiming that his witness fees had been demanded and not paid, and after having been sworn, and while being examined was an unwilling witness, and frequently declined to answer questions put by counsel. The books of the Omaha house were offered in evidence, and several hundred pages of testimony were taken in respect to the facts disclosed by those books. This branch of the testimony has been to me very embarrassing, and one of the matters which has caused the delay in the preparation of this opinion. I take it that it is impossible for one not himself an experienced book-keeper to appreciate fully the import of this testimony. Whether it disclosed merely unskillful book-keeping, or wrong-doing on the part of Morris Sloman, whether the books of the Chicago house, if produced, would have made clear the uncertain entries in the books of the Omaha house or not, are questions which, if this testimony were con:Bidered by itself alone, I am frank to say. I do not know how I should solve it. Taken in the case they strengthened the conviction that there was something wrong in the financial transactions of Morris Sloman, .and if the case turned simply on the controversy between the creditors and him, I should have little hesitation as to the conclusion to be reached. But before the secured creditors can be deprived of the benefit of their security, which is unquestionably legal in form, and duly ex-ecuted, it must appear that they are privy to the wrong, or responsible for it. Now, that the claims of the complainants represent real debts, there can be no doubt. Most of them are evidenced by notes or drafts made or indorsed by them. and discounted by Sloman Bros. with certain banks, and remaining in their possession at the time of the commencement of this suit, and with regard to all the complainants except .samuel A. Sloman there is not a syllable of testimony to impeach their good faith in the transactions. Meyer Hellman lived in Omaha. He .signed a note for $5,000, which was discounted by the Na-
tional Bank.. He was a relative by marriage ofthe Slomans; doubtless that prompted him ;to lend the credit of his name, for nothing else appears, and, in the absence of testimony, he has a right to rely on the presumption of good faith., The signatures of Slimuel Katz, of Omaha, B. V. Paige, ofChicagojC. A. Bresslar, of Bay City, Michigau, are also shown to. have been given to other paper, anci with no testimony to show the want of good faith. Herman Fechheimerwas amerchallt in Detroit; Samuel A. Sloman had. prior to coming to Nebraska, been with him many years, first as an employe, and then as a partner. The firm of Sloman Bros., both prior and subsequent to the retirement of Samuel A. Sloman, were in the habit of exchanging notes and drafts with him. Some time in the spring oH8S6, Samuel A. Sloman wits in Detroit, and urged upon Fechheimer the continuance of these exchanges for the accommodation of his brother, and gave assurance that Fechheimer would be safe;in so doing, and that he himself was willing and was rendering like assistance to his brother. There is no reason to doubt tbatthe exchanges were kept up,or that the amount claimed by Fechheimer, and evidenced by the papers presented, were not in fact due, and justly due. It is true none of these various complainants named was himself a witness, but, until some testimony was' given tending to show either that the debts were not just or: that they were participating in the wrongful conduct of Morris Sloman, 1 think they had a right to rely upon the presumption of good faith, and relying upon ;that they are entitled to protection at tbe hands of the court,andlshall find in their favor. With regard to the remaining complainant, Samuel A. Sloman, the matter is riot so dear; indeed, I find great difficulty in coming to a convidently the member of the clusion as to what the truth is. He was firm financially responsible. -He retired, and, within five, months, the which led to,that collapse indicate collapse came, and intentional wrong on the part of Morris Sloman. Notice of the retirementwas given Samuel A. Sloman from furtherresponsibility, but so given as to disclose the intent. on the part of Morris Sloman, at least; to retain the benefit of the credit .that Samuel. A. Sloman's name gave. to :the business after his retirement. ,Samuel A. Sloman continued about the store,carried ona large part of the correspondence of the firm, had' a desk in the'office, and does Dot seemed to have engaged in any new business. It is true he says tbat he wassimply rendering the services which brotherly affection prompted, and that he simply lent a helpirighandwhenever, in the pressure of his brother needed help. and called upon him for assistance; but it. seems impossible to believe that ,he could have been so constantly inlhe store, could have taken such part in the correspondence, without being cognizant of what was going:on" and. .aware that some wrong. was contemplated. In the early 'urges Fechheimer to continue his accommodations. Just before the-collapse he. visits Detroit, and Fechheimer soon thereafter meets him at-Chicago, and: comes with him to obtain security, and closes out theconcem. Hein!lttces .other of the complainants to sign paper for the accQmmodation of81omaIi Bros., by adding his name·
to theirs, and while he denies knowledge of any intentional misconduct on the part of his brother, while he affirms ignorance of his financial condition until a. few days prior to the collapse, yet it is difficult to believe that, situated as he was in the store, a witness of what was going on, and taking such part as he did in the business, he did not know and was not in fact privy to the whole scheme. I confess that, upon this matter, I have seriousdj>ubts. The testimony is not clear and satisfactory, yet bringing all things to the test of commonhutnan experience, it seems to me ibnust be held that he was cognizant of, and privy to, the wrongful scheme of his. brc;>ther. Some way and some where within the short time of hbout 10 weeks, nearly a hundred thousand dollars had .disappeared. . Can it be that Morris Sloman is the only one who knew of or accomplished such disappearance.. I think not. Web v. Armiiltead, 26 Fed. Rep·.70jKrippendorjv. Hyde, 28 Fed. Rep. 788. My conclusion is tnat Samuel A. Sloman is not entitled to preference the general creditors. .A decree will therefore or protection, as be entered, securing the other'complainants in their preference, and directing tl;1at: they be first paid out of the fundaon hand.. The matter ·will be referred to a master to report'what each one has paid. and when, and on the coming in of that .report, a final decree will be entered.
January 14, 1888.)
A I'eceivet of an insolvent filed a bill to set aside a deed from the insolvent to his Bon, while largely indebted. but before insolvency proceedings. and a mortgage given by the B<m certaIn. creditors of his tather, to seCl,1re their debts, alleging the deed to be wi.thout con.sideration, and the mortgages faud· ulent preferences. Judgment was rendered for defendants. Held.·a bar to a second bill by him alleging that the son \Va8a creditor of the father, and that the.conveyance to him was a fraudulent preference. and the subsequent mortglj.ge therefore void.
In Equity. Bill to set 'aside deed. . ArtburE. Patterson, as the receiver of the estate of B. S. Wold, in.solvent, filed a bill to setaside a deed made by him, making Stephen John Bell & Co. and others, defendants. S. Cooley, Aker8.& Coole1J, for complainant.: Henry O. James and Henderson, Hurd & Daniela, for defendants. BREWER,J. This. ease is submitted on. ,the plea of a former adjudication. TheJacts are Prior to December 8, 1883, defendant Boson . S. Wold was a merchant, doing bllsiness in the county of Roqk, in this state. He was then latp;ely indebted. He had become entitled to the conveyance . of ·atract of land· from the railroad company, defendant.