PEOH.HEliMER ft. B.AUM; ·

.transferred, tQ foieclose in: accordance 'with :the prayer 'oflthe bill, be allowed, and ,a ,decree, w:ithcosts, so entered. In view of the general appearance' of.. the case,' ,the court will direct, thattbecosts be paid' by Van Wyck.: "

will

FECHHEnl'ER

.

BAUM

',,'

et'al;

,

(CireuU Court, 8. ,D. Georl1£<ijW. Dl July, 1890,)
"

,

Ulidet Code Ga, § 1958. which ,proyides may prefer 9,Ile creditQr to is given' by an debtot toone tif his 'creditors ..andia followi1dinl.mediaJil!ly by otq.er mQlrt;gBges whichiu Elf. on all Ii general creditors, the, tlt;ilt, mortgage not coustltutepart of the'll.88ignnient.Dis'tingulShing ,wntte v. OotzhaUS61'l,& Sup. ' Ct. Rep. 800. , , ' , , ;
Fon BBlfEFIT

CQ;NBTIT'l1'flls-:.MoRTGAGB.,

, . , ,

fua 'credifur, of cdJJsisung, of choses ,inaction, in 'order to'seciure such t\leof , ' ,creditor, a generaJ ",ssigqmeut Il.SAillli. ". ' , " , ':"'"'' , ',' " , A'mor:tgllge'wbich provideilthat the lJurph1s, after paying the' mortgage debt, t!Ie mortg&lf0r,'1J for " F,bllowmg'Coggilil8 v. 73 Ga. 4 1 4 . , :

'5: FRAUDULENT CONVEYkNCE",:,WB'AT

" Ain for, which ianot aCcompanied by. sWorn is void. ' schedule and statement of ,assets all required by Act Ga.
',' " "

ANri VALIDM:'"

,',: ' : , '

,

"

,

'a SAME-Rrtcl>RIlli;rci,·" ,

',1 Tile proTilrionin & mortgage that ,the, surplUS after satitdaetioD: of the deb't'811a11 ,be tl!-emortgagor qoes mortgage fraupulept. Fpllowing 'Catlo'Wau'l. Bank. 54 Ga. 441. ,

The fact that an agreement by a debtor to preferI' creditor in ca&eof-in, solvency is not recorded does not render it fraudulent, since such an agreement ill loy; law to be reCorded. and'its,record would therefore' not cOnstitute v.,She}'mafl,. l05U.S. 100. " ,, .

'

',

'

7" sl1it tOeet wm'i>e , entitlea to' he in his suit, appeats tha,l hi!, , .; ignora.tlce :of, tbe,:agneement'bau9llcFhul1 to, give the debtor ereditii ' , :8. ;ATTOBWY, ANDCLIE1'I'l'-;-COllD'ENSiTION.....MoBTGAGE-EqUI'Iit' iPRACTlCB. Where the forl)Closure qta mortgage, provides for 10 pe,rcent. attorneys' fee,sble" in Ii su(t iil wlaich a rl¥l81V'er isappointe!l, tp sell the property for tIre' enefit' of 'a11 tIle mortgagor is entitled to' recover such alitoIll1eySl fees out of the prodEleds; " \J: , · ' , , ·

Wqe,re, a has, by +S111t',brougb,t i\itothe cUlltody of the conrt property pf his <111l:>Wr,Whichhad '()E¥ln appFopriatejl certain creditors to the e:r;clp.!lion of tbe'others,,and wb,ii\h the pourt distributes '[orthe, be,D,ell,t of all the crllditor!l. the' attorneys' of such' dtemwrare tmti1ired'to compensat'ion for tbeir services out of ,the; 'Pitoceedll of suehproperty. Following BaUrooo' 'U(), v.' pettU8. 5 Sup;' Ctl.
ll.ep··387;.

:,:,:

, i

"

'

"

,InEquity.", . Patiersonft!t:HQdges, ,Mtimm ,ErWin, and 0; II. Denmark,' Adams «'Addmk'ahd 'HiU -& 'Hurris, for " ,. '" ....
. ,. , " j

c,! f.

.

":' ./':

L

'JPEl.

outlined in the decision'6f'flht injunCtioIi, and ;t.eportedin

720

J'EllERAL REPORTER,

vol. 48.

Rep. 167. After granting the injunction and appointing a receiver, the cause was referred to the standing master, with instructions to that offic(:Irc-JifirBt. To audit and ascertain' the sevetalliens, or alleged liens, upon the fund in the custody of the court, and to report to the court the entire amount, including principal, interest, and attorneys' fees due 'on each, and the relative dignity and priority of said liens. Second. , To report to the court as to the right of Fechheimer & Co., Claflin & Co.,·and Gibian & Co. to a recaption of the goods sold Baum & Bro. and Baum & Co., and, if such recaption is allowed, to ascertain the particular goods upon which it is to and how much of the fund there is to allow therefor. Third. 'fa report also as to the claim of Comer & Co..to .the uncollected choses.in 'action now in the hands' receivers, the title ofwhich is claimed by Comer & Co. undetan assignment of Baum & BrQ. and Baum&Co.tothem. Fourth. To f,ttkeand. state the iltcQounts ot' all .the general creditors before the court, and :to report as to the amounts, if any, to be paid each. The master, ftfter full and protracted llelU'ing, has that the sales of goods made by Fechheimer & Co., by Claflin Co., and Gibian & Co.· to the Baums were legal and 'valid, and that charges of fraud by'wl:\i,M"the complainants sought. to rescind such sales were not sustainahle.from the·evidence. The master further finds tha:t the mortgage executed and delivered by Baum & Bro. and Baum & Co. to Comer & Co. f dated the 13th an4.recorded the 20th of November, 1888, is a legal, valid'mortgage'!i.cqording to the Code of Georgia, ,and entitled to priodty O\'6r all other claims; and,further, that'the aSsignment dated Nov(Jifiber!16, 1888, by the BauIns, of all their book-accounts, notes,and mortgages to Comer & Co. is a legal, valid assignment under the law of Ge0rgia.. The master concludes: the defendants H. M. Comer & Co. are'entitled to a decree against the fund in the custody of the court for the sUm of twenty-eight thousand six hundred and fifty-four dollars and thirteen cents. ($28.654.13.) the saine· being th.e principal. interest. and attorneys' fees. stipulated in the mortg.age which 'was executed by N.' B.Baum & Bro. and BauIn & Co·· and delivered to tlle said H. M. Comer & Co. November 18, 1888, and recorded within the time, prescribed by'aw. Second. That. the remaining specialty creditors<>f'1'T.B. Baum tt Bro. & Co.. whose mongages are enu· meratedin the'second class of liens. are' also. entitled· to have and recover the full amount of their debts. with the stipulated interest and attorneys' fees. In·cas60fadeficitin the fuud in the custody of the court, then, in conformity 1956 of the Code, the court will distripute the proceeds to the with mortgage!l&aqcordipg to, Uu:'ir claims, an exception to be made in favor of the minorlUottgage. of Dennis· Doke, shOUld .the proceeds of the sale of the land subject to this lien be sufficient to satisfy its claim. Thi1'd. When the mortgage creditors have been paid, if a surplus remain. the simple contract creditors, the master reports, are entitled to the priorityof the distribution of the who.filed the bill have DO preference thereby in by interventi0ll: complainant. over A number of exceptions have been filed to the report of the master, and the cause has been fully heard upon argument on the report and the', exceptions thereto. ,In· view of the importancebf· the cause, the

the

FECHaEIMER 1'. BAUM.

721

court has .taken time for consideration, and, after careful inquiry, has reached conclusions which may be stated as follows: The Baums were merchants, having places of busin.ess at Irwinton and Toomsboro in this district. They had been dealing for a number of years with H. M. Comf-r & Co., a firm of commission merchants of Savannah. In the course of this business, and, so far as the evidence has disclosed, without any intentional fraud. on the part of Comer & Co. in the negotiations which led to the arrangement, Baum & Bro. executed to Comer five notes, dated March 10, 1888, each for $3,200, bearing 8 per cent. interellt from maturity,and due, respectively, September 15, October 1, October 10, November 1, and November 10, 1888; also four notes of N. B. Baum & Bro.,.indorsed "BaurU & Co.," each for $5,000, with Interest from maturity'at 8 per cent., three of them dated Savannah, October 12, and one Toomsboro, November 13, 1888, and due, respectively, November 1, December 10, 1888. and January 12, 1889; and also 20, one note of Baum & Co., indorsed "N. B. Ba\lln& Bro.," for $2,000, with the/ same interest, dated March 10, 1888, and due October 20, 1888; 'thus making 10 notes, aggregatIng in all $38,000. On March 10,1888, which, it will be!ohserved, was of even date with several of the notes, the·. Baums .executed·. to Comer & Co. a written agreement which recited thatin consideration of advances to them by Comer & Co. amounting to $18,000 as evidenced by ,the five notes of $3,200 and one for $2,000 above mentioned, and to secure the payment of the same, the Baums agreed to deposit as collateral security notes and mortgages of good planters and others equal in amount to twice their indebtedness, and also to transfer their insurance policies to Comer & Co., and also to ship all cotton they control during the season to them, and further agreeing that all advances over the $18,000 be paid first out of the proceeds ofthe cotton shipments, and agreeing finally that in case they become financially embarrassed, or fail to meet the notes, they would give Comer & Co. a first lien or mortgage on all their real estate and their stock Of merchandise. On December 13, 1888, the complainants filed their hill against Baum & Bro. and Baum & Co. under the statute of Georgia, (section 3149a of the Code,) by which it is competent for a creditor whose debt is due and unpaid. to put his debtor, who is an insolvent trader, into the hands of a .receiver. The bill also alleged on the part of several complainants that as to the purchase of their goods there WollS such fraudulf-nt representation on the part .of the Baums as to their solvency and means that it was manifest the purchase was made by the Baumswithout any intention of paying therefor, and as to all such goods in possession of the defendants those contract creditors prayed a rescissionof the trade and recaption. On December 28, 1888, the complainants filed an amendment to their bill, iri which they charge that Comer & Co. were participants in this fraudulent conduct, and that the debt of Comer & Co. was a pretended debt, and that Comer & Co., with actual notjce of the insolvent condition of the Baumll, received the liens and mortgages upon which they rely; tbat the defendants deliberately bought a large stock of goods on credit, with the intent not to pay for v.43F.no.1l-46

FJt;l\ku;r;dthnt' they and', pll1b.lled; to get'un<cJiullnense 'stbck'Jon, hand,' and, Cotner &00., :created theprefBpd liens :above' mentioned'iwhich covered the entire stock of alg' well as' all, the defendants, and that COIner & insist ,that at the time o'P'tlie'failure of the' Bltuml!l'theit! finallcial' condition was:as follows: ' " 'per cent. above In vorce price; ',. ' " ,'. . . ' ',-' .. ' 8 31,457 91 N,Oteehioo' acbollnts' iColleeMd,'b' :thEll'E!ooivers thereafter up tb 1 : ' "'March lo18i'l9" : . i ... 1 .'''\ J. 'Wi':) ::' r.· , ·. : ,81> l\f/their own v4htatlo.tJ.. ;",. "" , " ! HMJOOOO

ot " '·.' "(,',

... L, i J:

, , , ·

,.: 7 "

89';080 42

-

:.. 86.{i6l is '"" .'

,,'I

"':,-

/'!

,.,,.'

$ "

theiBaumswere:wbi:>lly UDIDble to ,'pay.S49,640.83; and insolvent dlothat'amounk·It appears', h(!)wever,' from the report, of :tOO'receivers that! by ;the most diligent ,efMen ableta i less than$3l1iOOO ;of the alleged as'sets.o(i ,more ,lthaill$80,QOQ, :frbmiWbieh it; is' apparenUhatthe Ba'ilnis at debHonnore! than $100,0(;10. ,This iisiin rellOri1J6us' of:in$Olveney for a':btisin ess like that; of the <Bil:uthsjicartied'onin the small'iiUages ofToomsboro'11nd Irwinton. The plaintiffs insist that· 'the secret 'dontract .between Baums and, Comer &:Co>.d1V9:s a fraud that that.effilct. It is in evidence 'that the: fil.ct cbaracter, and that hiUl'bgeq"!letit, creditors had. no iknowledgeofirts,existence, enabled tlheBautnsto purchase :quantities of :goods in fraud of the vendors and to' It!b.e,· advantage of, Comer"& Co.; that! lin May, 1888, after , this ugrearuhton the; part of the'Baums to col\tert'llg)ltheir entire property wbenever they should' becoinefiuahoially embarrassed, the Baums stated r to: Bradstreet that: ,they were worth in the neighborhood 'of $30,000 over' and abovelrll!their liabilities, that there"were..no' 'incumbrances whatever upon their 'property ,and that theil'(lllnnual'businessamounted to about In November the 'failUr'eeame, to 'the BmQunt of $150,000 with $30,000 of assets covered'with .comer &00., and with second' mortgages on the !ti:l11e stock to otherpersoris for about'$30,000." ) Ii Tthe 'solicitors for Comer & Co. rely, of course; upon 'the report, arid 'insist; by 'Virtue, ofr.the mortgage and assignments 'cif (choses in' action to their:c11eilts, they aire'entitled to so much there,of, as ,. will jtheir indebtedness." The "solioitors for ,the 'plaluti:6B iobjeet to ,this, lor, the impol'tant (1) Whether the guil-ty of fraud: or' not, that theexecuiion of the several mort, ;w hich' the' plail'ltlffsi .ins.i.&t,' were: all: made as part of a sche'QaMb
;.;.

}

.

.

.

FECBBEIMER ,tI; BAUH.

723

dispose of the entire estate, to avoid the laws of. the state relative to signments, and were, in legal contemplation, an attempt to make an assignment, Hnd, failing to. comply with any oithe requisites of the statutes, they are void, and the preferences must be disregarded. (2) The plaintiffs iusist that the master erred in his finding that the Ba1,lrns were guilty Qfnofraud in the statement to the Bradstreet Commercial Agency and tqthe credit agent of Claflin & Co. They insist that they were then wholly insolvent; that they knew their conditIon, and sentedit, and as the consequence defrauded people who sold them goods for credit. (3) They insist that Comer & Co, must have known the finaneialcondition of the Baums at the time of the secret agreement in March,and, if so, to withhold that agreement from, the ,knowledge of the public was to give to the Baums a. :delusive, credit to the advantage of Comer & Co., who had this agreement to mortgage, and to the inj ury of subsequent creditors. That if, asa consequence of tbis secret agree" ment,loss must ensue toone of two persons dealing with the Baums, it must jaIl upon that person 'concerned in the secret arrallgement. and 110t was not aware orits tlxistellce. As a consequence they insist that Comer & Co., who were at fault, should be made to bear the loss. (4) "They illsist that, as the Baums obtained the ,goods of Fechheimer.& Co. and Comer & Co. by fraud and misrepresentation, they got I,lnd, having no title, t,hat Comer's mortgage did not attach, and should not therefore take the proceeds of their goods, which they insist were sufficiently identified. (5) They insist further,that the mortgage executed to Comer & Co. on the 13th of November was made to secure a debt pre-existing at the time of the purchases, and for that reason that it should nOt. attach as against their right to recover the purchase money. 1'here are other questions made by the report and the exceptions thereto, but the deCision must be controlled by thosellbove stated; Do the ,several mortgages covering the entire property of the Baums and the assignment of their choses in action to Comer constitute such an attempt to avoid the law of the state 8S to voluntary as to justi(y the law to dpclllrethis invalid for failure to comply with the statute? The plaintiffs direct the attention of the court to the mortgage of November '13, 1888, cowering all the merchandise and real estate given to secure'a senes of old 'notes, many of which were then overdue, with a power of sale authorizing Comer & Co;to sell the mortgaged property'on 10 days' notice, execute title to the purchaser, apply the pro-ceeds to their debts, with 10 per cent. attorneys' fees, and pay over the surplus, if any, to the mortgagors or their assigns; also to the; llssignment of choses in action aggregating $50,000 ; also a mortgage on No-vemner 17th, similar to that of November 13th, covering certain.other merchandise that had been omitted in the first mortgage: also to the fact that on Nov.ember 13th,thedate.oftheirfirst mortgagetoComer & Co., the Baums executed, as appears from the dates oJ.the mortgages themselves,',17, other mortgages covering the same property mortgaged to Comer, all of which latter mortgages are identical in form; an.dgivento, secure debts to the' amount of $28,130.70, with 10 per

724

FEDERAL REPORTER;

vol. 43.

cent. additional in attorneys' fees. Great stress is laid upon the fact that all of these mortgages . contained power of sale, with direction to apply proceeds to the debts due the mortgagees, with this notable clause: "The surplus, if any, to be paid over to our creditors." Attention is called to the fact that there was no equity of redemption left by these latter mortgages, and it is insisted that there was an absolute appropriation of the property to the mortgagees, or, as the plaintiff insists, to the assignees. Was this an assignment for the benefit of creditors? The statute of the state upon this subject can be found in the act of the general assembly of Georgia of 1884, p. 100. This act provides: In all cases where voluntary assignments are made by failing or insolvent debtors for the benefit of their creditors it shall be the duty of the firm, person, or corporation making soch assignment to comply with certain techniclllrequisites of the act, such aeannexing a schedule of the debts, etc. rfhese statutes are very strictly construed by the decisions of the state appellate court against the debtor 'and his assignee; and, when the instrument of assignment is not prepared in compliance with the statute, it is invariably declared to be'llulliWdvoid as an assignment. It is proper, at this point of the discussion, to state that the policy of the law Of Georgia authorizes preferences by insolvent debtors to creditors, Code, ,§ 1953, providing as follows,
u:A debtor may prefer one creditor to another. and to that end he may bona fldegi ve a Hen by mortgage or other .legal means, or he may sell in payment oUhe debt, or he mllY traDsfernegotiable papers as oollateralsecurity, the surplus in such cases not being reserved for his own benefit or that of any other favored creditor. to the exclusion of other creditors."

The last clause has been held to be repealed by the act of 1866, and the,surplus may now be controlled to other favored creditors. Powell v. Kelly, 82 Ga. 1, 9 S. E: Rep. 278. The argument of plaintiffs' solicitors, that the mortgage of Comer & Co. and the mortgages of the 17 other mortgagors '\\'ere drawn the same day, and that, while the equity of redemption was preserved in the Jformer, the latter mortgages had no such feature, but, on the contrary, provided that the surplus should be distributed to the general creditors. They insist that the entire series of conveyances bearing date ;November 13, 1888, shall be construed togetheras indicating the purpose of the makers, and the disposition to djspose of the entire property by a: voluntary assignment. They insist, what seems to be indispqtable"that the indebtedness of the 'Baums referred to in the conveyances of that date, November 13, 1888, aggregate $66,130.70 principal, besides interest and 10 per cent. attorneys 1 fees. This is exclusive of Comer & Co. 'sexclusive mortgage ofNo\'ember 17, 1888. Thus they had, as the plaintiffs insist, appropriated their entire assets to the payment o£certain preferred creditors having claims aggregating nearly three times the value of their assets. They. insist this is an assignment. The plaintiffs lay stress on JVhiW:v. Cotzhausen, 129 U. S. 329, 9 Sup. (,'t. Rep. 309. That case resulted from an 'attempt by a creditor'to secu1'e an illegal preference in the face oia statute which was enl.\cted to sel;ure ,among. thecrltditQrs of an ,insolv.ent

FECHHEIMER ". BAUJI.

725

debtor, the language of the law bei'ng: "Every provision in any assignment providing for the payment of one debt or liability in preference to another. shall.be void, and all debts and liabilities within the provision of the assignment shall be paid pro rata from the assets thereof." "The main object of this legislation," said Mr. Justice HARLAN in rendering the opinion of the court, "is manifest. It is to secure equality of right among the creditors of the debtor who makes a voluntary assignment of his propel'ty." This is widely variant, as we have seen, from the law of Georgia. We gather from the opinion just cited that, in Illinois, a debtor, when financially embarrassed, may in good faUh compromise liabilities, sell or transfer property in payment ofhis debts, or mortgage or pledge it 8S security for debts,- or create a lien upon it by means even of a judgment confessed in favor of his creditors. This language has reference to the /lction of the debtor while he retains dominion over his property; "but. when," as announced in what Justice HARLAN terms the 'leading upon this subject in the supreme court of Illinois, (Preston v.,;:Spaulding,120 Ill. 208, 10 N. E. Rep. 903,) "he reaches the point whereheis ready and determines to yield the dominion of his property, anq makes an assignment for: the benefit of his creditors, uuder the statthis act declares that .the effect of such assignment shall be the conveyance of all his est8tenot exempt by law to his void all preferences, and bringing about the distribuof .hi8 whole estate eqUlI,llyamong his. bona fide creditors; and we l:!{)ld that it is within the spirit and intent of the statute that when the deplpr has formed a determinlltion to voluntarily dispose of his who16 Stat"" and luJ,s entered upon that determination, it immaterial into how many parts the performance or execution of his determination may be law will regard all acts having for their object and effect the di;;;position of his estate as parts of a single transaQtion, and, on the execution of the formal assigmuent, it will, under the statute, draw to it, and thelaw will regard as embraced within its provisions, all prior acts of the 'debtor having for their and purpose the voluntary .or disposition of his estate to or for creditors; and, if any preferare show,n to have been made or given by the deQtor to one creditor over another in such disposition of hisjlstate, full effect will be given the assignIllent, and such preferences will, in a court of equity, be declared void,. and set aside as in fraud of the statute." If that were the law of Georgia, we should be obliged, in our judgment, to the reasoning of the plaintiffs' solicitor,and be g9verned thereby. Is ittrue, however, that to obtain equality between the creditors of an insolvent debtor is the purpose of legislation in the state? .It is clearly. otherwise. . appears. not alone from the language of the but from repeated and the latest decisions of the supreme n,ppellatecourtof state. We have seen that the Code4<lebtor may prefer one creditor. to another, and to that end h.e may, bonq, ji,ri,e, give' a lien by ,91' .other .legal means. or may sell in pl;tyment .ef the debt, or he. may transfer negotiable papersi as collateral sev. Kelly. 82 Qa.1, 9S.iE!.

7!a6-

·vol.

43.

a {jase decided 'l<:>ug' aftet',the <:>ftbeassignment act: uIlon:,:wbihb: hol(iIJ:' ' (l'''Th'eILet1ioel!i;' i1Ot'preseribe" .f\tiy maline!' 'or/form in which a' delltot may prefer one-creditor to'another. Inouriop'i:nion'he may do it by an ,assignment Qf ,all hie property t4)one eredito'r or a,clas$ Of creditors," etc. :;The:coort' then proceeds to: meet the arr;ument that the preference thereil'l·describe&woulcl be a vi'l'tlilll repeal of the policy of the legislatilr6",ii'i to assignments, 'S61'8: ," These acts, [meaning the stat.utes'upof.l' which plaintiffs tely,J as will be seen by reference thetew, nl'ply:cully to assignmenlia/'" etc. In that case' the preference WRS mnde by a sale to the :preferred: creditors ofa part of the debtor's property, Il.ndthe other ,portioll'WllS'sold It follows oHllinois w8Swhollydifferent as to frornthe law of Georgia, '8 deeision in White v, Cotzhausen is to lbe 'regarded as controlling' upon the questioll in controversy here. & Co. WaBlrtlaue in consequellce of a promise by tht:J them a preference: In case of subsequent embarrassment. ItiWa$"ttiade and deliteted befote the remainin'g'mortgages were exe;Comer &·Qj;,jOl' themselves -had carefully' 'provided against the which now Burrounded their debtors, and the Georgia areJIiOt inconfiict:witb salutary maxim, "ifigiM-ntibua nCindotmtntibuBjura "His Dot to be disputed," Shermlin, 105 U. S. 100,) (orMddeJi by thebanktuptlaw, a debtor has the right to over: anothet;and that the'vigilant creditor is en· ' titled to tlie advantag'e seeuredbyh'istwatchfull1essand' attention to his' own 'interest." ' ' ,'. n ' ! . , ' It ish;1!listed; .hoWever, bytheplflintiffs that the mortgage to Comer because it' cOtltains a provision thattlle' debt is to be returned to the Baams. 1,t1s sufficient; itneply to this' proposicase of: CttlWway v.iBirnk, 54 Ga. 441, iri whit:bwe find that in'failioKtlirctlltlstnnceS made Il.niortgage with 'a'power of sale, oll'whibbbe produ'red: money to 'be loaned tohifu;'and the' power of sale lba.Ht'tbe property brought more at the sale than the debt, the'surp}'(tliltitl:l to be reserved totbe mortgagorS,it is held that this was not such a reservation of a: trust or benetit'to the mortga,gor as made the mortgage 'atid ,power of sale ·fraudtHerit,': 'JUdge McCAY, delivering the :ff',ThesurpluB a 'CaEle is' no' benefit to' himself. The}all<!r hNltibjebted:tohiscreditors.". See,also','Lay v.Beago, 47 Ga. 82. 'Upbb'tni$: point '1ve,;D'nist' overrule' the objections to the mortgage. It is iusisted' by the plAintiffs,that What they term the secret agreemel'1tlOf March 10th,hywhich Oomer& Co. received the promise of'therHOtitfisttd'prefeNhem, was afraud,"on <)ther creditors to the extertt'thaHt the ieedtd; lind that the Baums were thus' giveti 'S: goods of the the!1bilitybrthe' intention of paying for them. 1rlBtrument is nuthing niora thah 'l1.ni agreement' to pralet in case of

!..

FECHJI:J!lIMER fJ.,

'

,727

ipsolvenoy·. lluthorizing an to preJer a creditor; it is ,qifficl;J,l,t.,toperceivewhyj a promise tp, prefer. :in itself be, th,e of fraud., is ,placed by the plaintiffs upon the case of Blennerhassett v. SherrYutn, 105 D·. S. 100, as, authority tosuppor,t,their view of this transaction. But it is easy to tha.t case .from, tl;1i:a. There an mortgage, by the law. shQuld have been reoorded. but was withheld from record. Here :the WaS, merely a':promise to give a mortgage,and there 9f the state of such a paper·. Ithae: ,h,e1d. cQUT:t,of tlJis state, that the of such conr ,veyanqes onlYaa a.re. required. by: law to be is co;ostrllctive tiee to all subsequent purchasers. Williams v. Logan, 32 Glj..l()5. It fpllows"tijere{ore,toh,ave rAgistered this would ,lity. .'l'he inq\:lestipn .between Gomer, & Co. and. BiJillIll, ,& ,00.; :ba,d. i.tbee.n merely io,pl,uQ1, &,Co. having, performed, their part of the, oontr:act, been valid as .if, in .We ,lrnpw of no.obligl!-tion which,tequires & CO'ilto,publish ilUCP an hajl:with '01)e of ,tpeircl.lsioPlers. In Blennqrhq.ssett ,..Sher.'Ilutn, the crElQitor, to use of the court,ftctively, as ,havinga)3rge esta,tellPd unlimi,W<l,credit., Nothing, iQfthe ,sort ;a:ppearshere·. 1;0 the. case: of lYesliny. WlIl18, 104 U. S. 428,Jhe single;question Wl¥' whether,uqder ,tpe laws ,Qf ;Utah in f9rce .at.th3t. a juniOr,IJl9f,tM1\l31 ,Clf,ft prif;>r.mortgage, is to be preferred in its lien to a mortgage prior inexecu1iqn. but ,sl,lh'eque,n,ly ,ttl:J.'. the,pllri;of the,vendOf, toJ,'ecoi.d chase-money, mortgage towards all who migbt become chasers for· value in good faith, il breach df which in respect to Kerr, the'subsequeilt mortgagee without notice, constitutes such negligence Md 'laches as ln' equityrequhes that the loss,whichiil consequence thereof must fall on one of the two, shall be borne by him by Whose fault it 'was occasioned. ·,Not only, therefore,· does it appear that Co.mer &r had opportunitytp register this paper, but thatifregistered it would have been a nullity IlB& ,noticejand, it oot appearing that they had any pur. pose to partioips,l.tein any subsequent fr.ud pf the BaQms on other ,parties, it must. be fr.egistered merelya,s a vigilant effort on their parHo provide for possible insolvency of that firm, in whosesolyency they we':e so deeplyco,ncerned. To language of Mr. WOODS in Sherman, 8Upra,, "it is not to be disputed that, a debtor hIlS the right .te:>. :prefer, one creditor, over another, and that Q-vigilant itoris" entitled to the advantage secured by his tion to. his own, interests.;" ,and, conceding is in effect,. as insisted by plaintiffs, an unrecorded mortgage.. they, Are met by .the fol,JoyvingJap:a,O;tln(leme.nt immediately succeeding that Just quoted:,".Neithef, be!deniedthat.themere, failure tOfe.Cord ,a mQrtgllge is not a setting.jt aside. (01" the bene.fit -who ,!W:',sIlecitic l;'enQo. il).:

FEDERAL, REPOkI.'ER\

vol.' 43.

gage;» : A/tell' careful we' sustain the master's report on all groutidswith tothemol'tgages of Comer & Co. They are entitled to be paid principal arid interest from the fund in the custody of the court. It is objected that they are not entitled to attortieys"fees. This, however; was a part of the contract expressed in the mortgage, and is as valid as any 'other stipulation therein. This precise question has been decided by the supreme' court of Georgia in the case of McCall v. Walter, 71 Ga. 287 , nor does it matter that the mortgage was not foreclosed. Comer & 00. having been enjoined, the court took jurisdiction. of the whole'fuatter, and their mortgage will be considered as foreclosed by the decrE:!ehere. ' With reference to the mortgage executed by the Baums to Comer & Cd. on Noveinber17th, we think it merely an attempt to perfect the originallriOrtgage, it being intended to cover certain merchandise which had bElen omitted 'frdIn the first because it was not in the store. , With reference tothe assignment choses in action aggregating sotiJe on Novenlber 16, 188S',by the Bltums to Comer, with a p6wer 'to'collect, compfomise,dr settle the sarile, and apply the proceeds to his indebtedness, it is insisted by the plaintiffs that this is a voluntury assignment, and shotild,hllve been made hi compliance with the law 'Of Georgia 'relative to :1lt1ch assignment., To secure the debt for which the mortgages to Comer & Co. were given, the Baums, on the 16th, day Of Noy-ember, exectiteda written assignthent, which contains this' language': '. r "W,e he'teby' a$sign and transfer unto them all book-accounts, notes, and mortgages 'DOW (In our possession, and belonging to us. including tbo&e be10nging'IIM appertaining to the business now being done by us at Toomsboro, in Wilkiuson Co.,. and (Dublin, in Lawrence Co" the aggregate amount of which lsalJo\ltfifty thousand dollsfI;I, JJlore or less, a correct list of which we agree .to flunish said H. M. Comer & Co. as soon as practicable, to be hereuu't6att;\che<:l." .

of

Comer, & 'Co. were given the power to make such compromises of these notes and accounts as they thought proper, to pay the proceeds on their debt, to t.eturn to the Baums such accounts, 'notes, and mortgages as niayrenhlih' unr.ollected.' This, in our judgment, is a voluntary assignmeIitbyi a debtor who has parted with the custody of all the remainder of his'lJtolJerty, and who was known to the assignees to be insolvent. It is therefore an assignment in the meaning of the act of September28,'18S];'and', not being.accompanied by the sworn schedule assets required by the statute, it must be declareflvoid, and the f!ums:colleoted by the'receiver from such choses in action. as were included in this assignment will be distributed to the creditors of the Baums tmder.theusual rule. ' With referenoetb (\11 those mortgages which contain a clause that the after the payment of the debts due the mortgagees therein mentiortedsha11 be'paid over to the creditors of the mortgagors, they a,re, in' our jUdgment, likewise voluntary assignmehts for the bene-

FECHBEIMER

v.

BAUM.

729

fit of creditors. They come fully up to the rule laid down in Burrill on Assignments, § 6. They constitute an absolute appropriation of the property for the payment of the debts of the creditors of the Baums. None ofthem contain any reservation of the equity of redemption. They pass, therefore, both the legal and the equitable title beyond the control of the a8signor, and the persons accepting them, had they been technically perfect as assignments, would have assumed the trust to collect any resulting surplus, and disburse the same to the indebtedness of the Baums. Martin v. Hausman, 14 Fed. Rep. 160; Olapp v. Dittman, 21 Fed. Rep. 15. A Georgia case precisely in point is Coggins v. StepheruJ, 73 Ga. 414. There the conveyance was made in consideration of $870, "a part of which was to be, paid to Silvey & Dougherty, and the remainder to debts, I, Faulkner, am owing." Coggins, on the execution of this instrument, took possession of the property, paid off a mortgage fi. fa. which had been levied thereon, and certain other debts. The supreme court held this transaction to be a voluntary assignment by Faulkner to Coggins in trust that Coggins would pay his debts, and that as an assignment it was void because not in compliance with the technicai requisites 'of the statute. This wise and salutary law, the court says, whElU invoked, should be enforced according to its express terms, and in a liberal spirit, to suppress the evil at which it aims a blow. In Orittenden v. Coleman, 70 Ga. 293, we held that this act must be liberally construedin favor of creditors and strictly against the debtor and his assignee. These mortgages, which we hold as constituting voluntary assignments conformably to the law, must be held invalid, and the court will inquire, if it becomes necessary to do so, as to the existence of the alleged debts they were nominally given to secure. It is by no means satisfied from. the evidence that such debts existed. With reference to the mortgage of S. Waxelbaum the master made no finding, thereon. It stands upon an independent and, if not settled by consent of the parties, will be disposed of, by the court in a,Ccordance with its equities. The court is unable to assent to the finding of the master that the Baums were guilty of no fraud in the purchases from Fechheimer & Co. and Claflin & Co. Upon this subject it is sufficient to say that theevidence has not removed the impression which was formed by the court and announced in the decision granting an injunction and appointing a receiver. Itis, however true that the evidence offered by the plaintiff {loes not sufficiently, in the opinion of the court, identify and distinguish the goods so purchased as to justify an order for recaption. This holding is perhaps not very important to the parties in view of the,small amount which will probably remain after the mortgages of Comer & Co. receive their share of the fund in the hands of the court. The court is not satisfied from its eonsideration of the evidence with the measure of identification upon which the/solicitors have thought proper to rely. In consideration of the premises, it will be decreed that the mortgages {)f Comer & Co., principal, interest, and attorneys' fees, shaH be paid, as far as that fund will suffice, from the proceeds of the sale of the prop-

730'

\101;43.

ertyuptin ' whioh the lien" of! :such m.ortgagesattached "after,' certain ·hereafteri·to1Ibar,indicat'ed..' , The 17 h:aveoeen: 'decided to constituifle 'an assi-g1nnent 'Void ,under,! the statute' iVill· be' so declared, Ulld, right of the mortgagees thereof :pal'ticipate as genera.l cteditotlS. will. be, if ne<lessal'Y, ,further examined; ':The assignment of: chosesf in"action hereinbefore mentioned as likeWi$& ovoid timMt the stlatutewm' be so dealared,:and ;the sum heretofore colleCted' on; such;;chosea in actionrwUl' be distributed a\niollt!tlie :;Messl1ll' & Hodges,solicitors for compHtirlant8, whosebillbtoughtl rthe!fund, into the custOclyof the court, and by· w'h(;$e: prdfessional labo1.'8 ,all the general creditorsiwill have been benefiiWd;,will';be accorded· from,suoh fund appropriate oompensation for their' a6ifricefJ,in accordance i with' the "precedent' ,fixed. in Railroad v. PettU8;,118:U. So 1l6,5Sup. Ct. ,Rep. 387. This will !be 5 per cent. otlthe entire fund ecillected by the r.eceiverso i I' , :'l'hth beiing an equiotycau!le; in::which the question of'liability of cost is one 1fo'f tthediscretiQn oou.rt, ,the costs will be assessed inacoord.. an6e t Witb what appears 'w' be ,thii equities of the caSe' as, affecting ,cost. That' J'eChheimer i & Oo.1Vere, grossly 'defrauded, ,there can be, in the opihitin,'tifitheMutf j ' nodouotl' The stateme1'lt to Bradstreet byibe propertY"",Qg1tmiilcumberedat a time.: when they Were unrler:a:wriUen' private promiBe .. tb iComer & Co. to' etecutea' mortgage for every: farthing ofitsvaluet,wasthe, grossest fraud. It is true that thee'VideiiCe' dUes' not eonnect Cotner &00. with that' fraud, but they must huveknown ,that the 'Bauma Were buying goods; largely on credit, and theyal!iOknewthat in it is not an extreme statenient 'to:sayiprt>bable, collapse ofrthelatter that the private agreement in their possession would utterltdepl'ive subsequent creditors of the opthe purebitse:j>rice,()ttheir goods.·,It was the pri\>ate wastm: dCcasion ()f the, great losses of Fechheimet&Co""nd,,Clhflin &00., for iiti iB'not tb be supposed that merchants of character and intelligence would give credit to men who had obliged tliElDlselves'; tt):, preteI' ,aparticulail' "creditor' to the extent of their entire , estate.'This,;indeed; is the e'VidenolVi The plaintiffs were wholly justified in fillilg:41heir bill. They; knew nothing of the secret agreement. It was' this.aeetl:Jtagreement: to prefer, and the preference made in conwhIoh hal! in 1ll1lgemeasul'e their recovery of the greater:potii0t?:a.t leas,t, Under aU of these facts; upon which 'we: :Jtltve 'been'obhlpelled 'to' )maintainthese' 'preferences, to express: the' Ilenlle Cou1tofthe'injhries to the mercantile oommunity by contracts'bt'fh'is secret nature, it is iothe judgment of the court its costs save the, charge against ,the fund for: Patterson &H()dgesJagaiust the Ba:umsahd iagainstiH. M. Comer & Co. jointly andsavemlly t and itwlll bel
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I ·

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.

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SMITII

ClliNT· .tW. B.

co.

731

SMITH 'IJ.

FLORIDA

CENT.

& W. R.Co.

et al.

(Circuit Oowrt,,lt.,D.FloridQ,. August, 1890.)
NBGOT]:ABLlIl

In' a suit to enforce the collection of railroad bonds which had beE:n declared fraudwent itaplleared that the blllldswere given to a firm of which plaintiff was a member in paYment for work alleged to have been done for the railroad company, andthat:another member of said firm was an active llarticipant in the fraud rendered the bonds invalid. Beld. that plainti1r w8snot an innocaut bolder.
.. _ I

BONDS-IloNA li',lDB HOL'DEB-:'F'RAtrD.

In Eq\lity. . . Q. L. Robinson, O. K. Davis. and J. W. Losey, for complainant. John A. l:!ender8on, for defendants· . SPEER, J. .This is a bill filed by the complainant, who avers self to .be a citizen of the state of Wisconsin, residing at La Crossein that state, against the Florida Central & Western Railroad Company, a corporation created by and under the laws of the state of Florida, havingits place of business at Jacksonville in said state; the Florida Central Railroad COlllpany, a corporation created by and under the laws oftha state of Florida, haviljlg its place of business at Jacksonville, in this district, against Sir .Edward J. Reede, who is an alien, and the subject of the queen of Great Britain and Ireland, and against J. Frederick Schutte, Jans Prins, Adrianus Prins, and 28 othem, who are aliens and l'lubjects of the king of the Netherlands, and against the .GuaranteeTrust & Safe-Deposit Company, a corporation created by the laws of the state of Pennsylvania, and a citizen of that state. The bill is brought to enforce the collection of 376 bonds of the Florida Central Railroad Company for 81,000 each, which will be hereafter more particularly described. It is one of,several cases, which it seems have sought to avoid the decision of this court, subsequently affirmed, in Schutre v. Railroad Qo. 103 U. S. 127. The hie,tory of this litigation is familiar. The deCree in the Schutte Que was rendered in this court by Mr. Justice BBA..J:). LEY, as circuit justice. That decree held that the trustees of the internal improvement fund or the state of Florida had the first lien upon this and other railroads to secure the sum of $464,175.37, with interest thereon since March 20,A. D.1869, at the rate of 8 per cent. per anof them defendants here, num. That the complainants, who are should have a second lien upon both railroads before mentioned, and upon the entire interests of the Jacksonville, Pensacola & Mobile Railroad Company betweep.QuiIlcy, and Chattahoochee, to the amount of all the bonds of the stltte of: Florida held and owned by them, mentioned in the pleadingl!! in the case, and numbered 3,000 and under, together with the That theamonnt of said state bonds now owned by the complainants was $2,75l,OOO, and the interest now matured amounted to 81,,655,001..That. the,(loJ11plaillants had a first Hen upon the rail:road running {ropt Lake City, to Jacksonville to the amount of the bonds for the bonds of the Florida Central of the state of.ll'lQridll.