It was not the province of the court to instruct the jury in
this case to render a verdict in the plaintiffs' favor, and, had it
done so, it would have usurped the province of the jury by
determining the proper inference to be drawn from the evidence, and
by deciding on which side lay the preponderance of proof.
As the controversy below in this case was what is known in the
jurisprudence of Alabama as a statutory claim suit, growing out of
attachment proceedings, the law of Alabama, as interpreted by the
Supreme Court of that state in its rulings, will be followed
here.
Page 160 U. S. 150
Under the law of Alabama, a debtor has the right to prefer a
creditor, either by paying his debt in money or by paying it by a
sale and transfer of property to the debtor, and if such sale and
transfer are real, and are made in good faith for a fair price, if
they are honestly executed to extinguish the debt and do extinguish
it, and contain no reservation of an interest or benefit in favor
of the vendor, they are valid, and pass the property to the vendee,
even if it further appears that the vendor was insolvent at the
time, that the vendee knew that fact, and that, in making the sale,
the vendor had a fraudulent intent to defraud his other creditors
by the preference, and the remaining creditors would, in
consequence of the sale, be unable to obtain the payment of their
debts.
In such case, if the fact of indebtedness and the fact that the
goods were sold in payment thereof at their reasonable fair value
are established to the satisfaction of the jury, and if it be
contended, in avoidance thereof, that the trade was simulated, and
that there was a secret trust or benefit reserved to the debtor,
the burden is on the contesting creditor to establish it.
The employment of such a vendor by the vendee in a clerical
capacity, and the subsequent transfer of the property by the vendee
to the wife of the vendor, though circumstances which may be
considered by the jury in determining the validity of the sale and
transfer, do not of themselves render them illegal in law.
When a request for instructions presents a suppositions case for
the establishment of which there is no proof of any kind in the
case, it should be refused.
The second section of the fourteenth article of the Constitution
of Alabama, and the act of the legislature of that state of
February 28, 1887, have been held by the courts of Alabama as not
intended to interfere with matters of commerce between the states,
and to have no application to transactions such as here under
consideration.
There was no error in the instructions as to the bearing on the
rights of the parties of the letter written by the Memphis firm and
the settlement made by the latter after it.
The controversy below was what is known, in the jurisprudence of
Alabama, as a "statutory claim suit," and grew out of an attachment
proceeding instituted by plaintiffs in error against one Henry
Warten. Under the writ, a levy was made on certain merchandise,
treated as belonging to Warten. The defendants in error intervened
and claimed the things seized, and thereby an issue was formed as
to whether they were owned by the defendant in attachment or were
the property of the claimants. The undisputed facts are as follows:
Henry Warten embarked in trade at Athens, Alabama, in 1881. His
business consisted of a general country merchandise store, of
Page 160 U. S. 151
advancing to farmers money or provisions wherewith to cultivate
and market a crop of cotton, of buying and selling cotton on his
own account and as agent for others. Almost at the opening of his
career at Athens, Warten began a course of dealings with the
commercial firm of Schoolfield, Hanauer & Co., of Memphis,
Tennessee (whom we designate hereafter as the "Memphis firm"). They
became his general factors, selling him merchandise, loaning him
money, cashing his sight drafts given to others in payment of
merchandise bought by him or for debts due, he consigning them
cotton for sale, the proceeds passing to the credit of his account.
This course of dealing continued until April, 1889, when the
Memphis firm went into liquidation. There was then formed, under
the laws of Tennessee, a corporation styled the Schoolfield-Hanauer
Company, designated hereafter as the "Memphis company," with whom
Warten carried on business of the same general nature as that
previously conducted with the firm.
The cotton crop of 1889, in the region of country where Warten
dealt, was a disastrous failure, and in consequence of this fact,
by the month of December of that year, Warten had a large amount of
outstanding debts due him by unsecured accounts, which were either
permanently lost or were unavailable as quick, realizable assets.
At this time he owed a large amount of money for merchandise and
for money borrowed during the course of his business. This
condition of things produced disorder in his affairs, and a state
of actual, if not ultimate, insolvency. By the 20th of December,
1889, Warten owed the Memphis firm a considerable debt, evidenced
by four notes, three of which were dated May 22, 1889. Two, for
$5,000 each, were past due. One, for $3,794, was to become due on
January 1, 1890. The other, for $2,500, was dated June 10, 1890,
and had also matured.
The last-mentioned note (dated June 10, 1890) had been made by
Warten to the order of the Memphis house, was by it endorsed, and
had been discounted by the Memphis company, who put the proceeds to
the credit of Warten, he thereafter drawing against the credit to
the full extent thereof. Warten at that time, also owed the firm of
Bamberger, Bloom
Page 160 U. S. 152
& Company, of Louisville, hereafter called the "Louisville
firm," a past-due note amounting to $4,719.36 and an open account,
both together making the total of his indebtedness to that firm
between $6,500 and $7,000. The embarrassed condition of Warten's
affairs was known to the Memphis and the Louisville firms. Late in
December, after conferring with his creditors in Memphis, Warten
went to Louisville for the purpose of asking an extension from the
Louisville firm and delivered to them the following letter:
"Memphis, Tenn.
December 27, 1889"
"Messrs. Bamberger, Bloom & Company"
"
Louisville, Ky."
"Dear Sirs: Our mutual friend and customer, Mr. Henry Warten,
through, we believe, no fault of his own, but owing to disastrous
failure of crops in his own section, finds himself forced to ask
for extension of his particular friends, and he recognizes you
among that number, and from whom he can ask that favor. Having
confidence in his honor and integrity, and business qualifications,
we have agreed to give him extension, provided you will do so. He
informs us that one of his creditors has agreed to give him
extension, and he will only ask it of three houses,
viz.,
yourselves, ourselves, and the party who has agreed to."
"Yours, very truly,"
"The Schoolfield-Hanauer Co."
After arriving at Louisville, Warten telegraphed the Memphis
company that the Louisville firm refused the extension unless he
paid three thousand dollars in cash, and the company replied that
they could not give him the money. A settlement was made on the
30th of December between Warten and the Louisville firm by which
the outstanding past-due note was taken up, and Warten furnished
and acceptance, due on the 15th of January, for one thousand
dollars and four other acceptances, for five hundred dollars each,
maturing on the first and fifteenth of February and first and
fifteenth of March, following, and the balance of the debt, except
an item
Page 160 U. S. 153
of about two hundred dollars, was settled by acceptances
maturing the following November and December. At the time of making
this settlement, or thereafter (up to the 13th of January), the
Louisville firm made no reply to the letter from the Memphis firm.
From January 1, the embarrassment of Warten became rapidly more
flagrant in consequence of the results of the crop disaster
becoming absolutely assured. On the 13th of January, 1890 at about
6 o'clock in the morning, Warten sold to the Memphis firm his stock
of goods, safe, and store fixtures at Athens, with also a small
stock and store fixtures owned by him at Elkmont, and certain
accounts, a lot of mules, and an interest in real estate, for the
price of $17,032.40, this being the amount of the principal and
interest of the notes held by the firm, which have been already
mentioned. The sale was accepted in full acquittance and discharge
of the debt. A member of the firm, who had come from Memphis, took
possession of the property. On the same day, Warten sold to the
Memphis company certain assets in full payment of an open account
due by him, and other transfers of assets, in payment of other
debts to various creditors, were also made at or about that time.
On the same day as the sale to the Memphis firm (13th of January,
1890), between eleven and twelve o'clock, Warten made a general
assignment of all but his exempt property in favor of his general
creditors -- the assets covered by this assignment being open
accounts due him, and the remaining avails of his business,
amounting to the face value of about $50,000; the claim of the
creditors, in whose favor this assignment was made, including that
of the Louisville firm, aggregating about fifteen thousand dollars.
Of the accounts assigned, about thirty thousand dollars were debts
due Warten for business of the current crop year.
A few days after this sale, the Louisville firm attached the
stock of goods in the Athens store as being yet the property of
Warten. The Memphis firm claimed the property seized, and bonded
it, thus raising the issue to which we have in the outset referred.
After the sale by Warten to the Memphis firm, he acted as an
employee in the store, generally assisting
Page 160 U. S. 154
in the conduct of the business, continuing to do so until the
10th of June, 1890, when what remained of the stock, and some other
of the property which had been sold to the Memphis firm, was resold
to the wife of Warten. Although there is no dispute as to the
foregoing facts, on every other question of fact, there is
conflict. The claimants' evidence tended to show that the sale by
Warten to them was real, was made for a just price, and that it
absolutely extinguished their debt, and that no benefit, or
expected benefit, was expressly or impliedly reserved to the
seller; that actual delivery was made of the property sold, and
that they were in possession, as owners at the time of the
attachment; that the employment of Warten was simply in a clerical
capacity, and was rendered advisable from his knowledge of the
business, and consequent ability to assist the vendors in
converting the stock and assets into cash. On the other hand, the
evidence of the attaching creditor (the Louisville firm) tended to
show, by a mass of circumstances, that the sale was intended to and
did reserve a benefit to Warten; that his presence in the store
after the sale, while ostensibly in the capacity of an employee,
was really in that of an owner, or of one having an expectancy of
ownership. As to the facts connected with the settlement made by
the Memphis firm, there was also much conflict in the evidence,
Warten swearing that, when he presented the letter from the
Louisville firm, the extension to the next crop year asked by him
was refused, unless he paid three thousand dollars cash, and that
it was in consequence of this demand that he telegraphed the
Memphis company that the Louisville firm refused the extension and
asked three thousand dollars. That, when he could not procure the
amount of the cash payment demanded, then the settlement was
effected -- the short-term acceptances for three thousand dollars
having been given by him as an equivalent of the cash demanded, the
remainder of the debt, except a small sum, having been extended to
the next crop season. On the other hand, the testimony of a member
of the Louisville house was that no demand of cash was made and
that the extension asked by Warten was granted without objection,
and was evidenced by the acceptances.
Page 160 U. S. 155
There was a verdict for the claimants (the Memphis firm), and
the seizing creditors (the Louisville firm) prosecute this writ of
error, on which they assign thirty-six errors, twelve of which are
predicated on erroneous rulings asserted to have been made in
admitting or rejecting testimony, and the others are directed to
the charge of the court to the jury. Only a fragment of the general
charge is in the record. Each party, however, presented a series of
requests, stating the propositions of law which they, respectively,
deemed applicable to the facts, and all the errors assigned,
growing out of the charge of the court, involve the correctness of
the court's action in having substantially given the special
charges asked by the claimants (the Memphis firm), and rejecting
those presented by the attaching creditors (the Louisville
firm).
Page 160 U. S. 157
MR. JUSTICE WHITE delivered the opinion of the Court.
In the discussion at bar, the plaintiffs in error have devoted
much of the argument to demonstrate that the trial court erred in
declining a request by them made to instruct the jury to render a
verdict in their favor, if they believed the testimony, but this
request was manifestly rightly refused. It involved a finding by
the court as to weight of evidence, and practically asked it to
usurp the province of the jury by determining the proper inference
to be drawn from the evidence and deciding on which side lay the
preponderance of proof. Insofar as this request asked the court to
instruct that, under any hypothesis of fact, as a matter of law,
the attaching creditors were entitled to a verdict, it can be more
properly considered in reviewing the exceptions taken to the
instructions given at the request of
Page 160 U. S. 158
the one, and the consequent refusal to give the converse
propositions asked by the other, party. It would lead only to
confusion and repetition to follow the various assignments of error
and review them separately. They group themselves under six
headings: first, assertion of error in the charges given as to the
legal effect of the sale to the Memphis firm; second, error in the
instructions as to the general assignment; third, error as to the
ruling with reference to the burden of proof to establish fraud;
fourth, error in the charge as to the effect of the employment of
Warten after the sale, and the resale to Mrs. Warten; fifth, error
as to the effect of having included in the debt for which the sale
was made the note, dated June 10th, for $2,500, and sixth, error as
to the bearing, on the rights of the parties, of the letter written
by the Memphis firm to the Louisville firm, and the settlement had
by the latter with Warten after the letter was received. The
consideration of the controversies under these various headings
will embrace all the errors assigned, and will dispose of every
question in the case except the twelve errors asserted to have been
committed in the admission or rejection of testimony.
First. The validity of the sale to the Memphis
firm.
The court charged that, under the law of Alabama, a debtor had
the right to prefer a creditor, and that, if the sale was real, and
was made in good faith for a fair price -- was honestly executed to
extinguish the debt, and did extinguish it, and contained no
reservation of any interest or benefit in favor of the vendor -- it
was valid, and passed the property to the vendee; that the sale, if
it possessed these enumerated qualities, would be legal, although
any of the following facts might be found by the jury to have
existed: (a) that the vendor was insolvent to the knowledge of the
vendee; (b) even although there was a fraudulent intent on the part
of the vendor to defeat his other creditors, because, if the sale
possessed the attributes necessary to make it valid, as the law
permitted the preference under the conditions stated, the mere
intention of the vendor to defraud his other creditors by giving a
preference to one would not render the sale invalid, and (c)
although its known effect and
Page 160 U. S. 159
necessary consequence was that the remaining creditors of the
vendor would be unable to obtain the payment of their debts.
The correctness of these instructions depends, necessarily, upon
the law of Alabama, as interpreted and construed by the supreme
court of that state, whose rulings in this regard will be followed
here.
Union National Bank v. Bank of Kansas City,
136 U. S. 233;
Peters v. Bain, 133 U. S. 670. It
was in consonance with this rule that, in a given case, we enforced
the law of the State of Illinois,
White v. Cotzhausen,
129 U. S. 329, and
in another that of the State of Iowa,
Etheridge v. Sperry,
139 U. S. 267.
The instructions given, as above recited, were in direct accord
with the settled law of Alabama. In
Pollock v. Meyer, 96
Ala. 172, it was held that:
"If the property conveyed by an insolvent debtor in payment of
preexisting debts does not materially exceed in value the amount of
indebtedness actually owing and paid by the conveyance, and no
benefit is reserved to the grantor, the conveyance is lawful as
against his other creditors regardless of the motives of the
parties to the conveyance or of badges of fraud in the
transaction."
On page 175, the court cites approvingly from the decision in
First National Bank of Birmingham v. Smith, 93 Ala. 97, as
follows:
"An insolvent debtor may select which of his creditors, one or
more, he will pay, and pay them in full, and thus disable himself
to pay the others anything, and it makes no difference if the one
or more preferred creditors know the effect of the transaction will
be to deprive the debtor of all means with which to pay his other
debts. Nor is the wish, motive, or intention of the debtor a
material inquiry if the requisite conditions exist. Those
conditions, in a case like the present, are: first, the debt must
be
bona fide and enforceable, not simulated; second, the
payment must be absolute, and, if made in property, must not be
materially in excess of the debt; third, no pecuniary benefit or
consideration of value, other than the liquidation of the debt,
must inure or be secured to the debtor. . . .
Page 160 U. S. 160
The true inquiry at last is did the creditor bargain for and
receive overpayment, or payment in excess of his just demand?"
The court further observed on page 176 as follows:
"The principle of law settled by the decisions of this Court is
that the payment of an antecedent debt by an insolvent debtor by a
conveyance of his property rests upon entirely different grounds
than when a cash or present consideration is paid. It matters not
whether the grantor alone, or grantor and grantee both, devised and
intended to get the advantage of other creditors if in fact the
effect of the transaction was solely to pay a debt honestly due,
and the property was received by the creditor in payment of his
debt at a fair and adequate price, and no interest or benefit
reserved to the grantor debtor. 'If the transaction is not
assailable on one of these grounds, fraud has no room for
operation.' As was said in
Hodges v. Coleman, 76 Ala.
103:"
"What injury can the motive do to a nonpreferred creditor? The
act, as we have seen, is lawful. Can human tribunals set aside a
transaction, lawful in itself, because the actors had an evil mind
in doing it? Can there be fraud in doing a lawful act even though
it be prompted by an evil malice or badges of fraud?"
Second. The effect of the general assignment.
The error alleged to exist in the charge of the court, as to the
legal consequences of the general assignment and its effect on the
sale to the Memphis firm, which was made a few hours before the
general assignment, is equally unfounded. The instruction given
substantially was that if the sale to the Memphis firm was valid,
the making of the general assignment on the same day did not render
it illegal. The decision of the Supreme Court of Alabama in
Ellison v. Moses, 95 Ala. 221, is decisive of the
correctness of this instruction. In that case, creditors of a
partnership sought to have several conveyances which had been
executed by the partnership declared parts of a general assignment
subsequently executed. The court held, however, that:
"An insolvent debtor having, under repeated decisions of this
court, the right to sell and convey property in absolute
Page 160 U. S. 161
payment of an existing debt, provided the price is fair and
reasonable and no use or benefit is reserved to himself, such
absolute sale and conveyance will not, at the instance of other
creditors, be declared and treated as part of a general assignment
executed soon afterwards (Code, 1737), though executed in
anticipation of it and with notice on the part of the creditor that
the debtor intended to make a general assignment."
In its opinion, the court further said (page 224):
"The law of this state permits an insolvent debtor to make
preferences among his creditors in the payment of his debts, by an
absolute sale or transfer of his property in discharge of such
debts. He may convey the whole or any part of his property in
payment of an antecedent debt, and, if the price is reasonably fair
and there is no reservation of a benefit or trust in his favor, the
sale is valid, and will be sustained whatever may have been the
debtor's intentions and though the preferred creditor knew of such
intentions and that the sale would leave the debtor unable to pay
his other debts. That such preferences are allowable is settled by
numerous decisions of this court.
Chipman v. Stern, 89
Ala. 207;
Hodges v. Coleman, 76 Ala. 103;
Crawford v.
Kirksey, 55 Ala. 282; 3 Brick.Dig. 517. The statutory
prohibition against preferences in general assignments (Code, 1737)
does not operate upon an absolute and unconditional sale of a
debtor's property to his creditors in payment of the debts due to
them. This question also is well settled by the former decisions of
this court. The general assignment, in which preferences or
priorities of payment given to one or more creditors over the
others are prohibited, implies the idea of a trust, under the
operation of which there is a possibility of a reversion to the
debtor of some interest in the proceeds of a sale of the property
assigned. No such idea is involved in an unconditional sale of
property in absolute payment and discharge of a debt. Here, the
debt is extinguished, and the debtor is stripped of all interest in
the property sold. Such a sale is not within the purview of the
statute, and if a preference is thereby effected, it is not such a
preference as the statute prohibits.
Otis v. Maguire, 76
Ala. 295;
Danner v. Brewer, 69 Ala. 191;
Comer v.
Constantine,
Page 160 U. S. 162
86 Ala. 492. The result is that the law, as it now stands,
permits an insolvent debtor to prefer one or more of his creditors
over the others in the payment of debts by a sale of property in
satisfaction thereof, and prohibits preferences or priorities of
payment in a general assignment by the debtor for the benefit of
his creditors. Only the legislature can make the prohibition
against preferences equally operative in both classes of cases. The
courts must recognize and enforce the law as it exists. They cannot
ignore distinctions created by the lawmaking power."
By recent legislation in Alabama, the provisions of section 1737
of the Alabama Code, upon which these rulings were made, have been
amended, so that a conveyance substantially of all a debtor's
property in payment of prior debts is put upon the same footing
with conveyances for the security of debts.
Strickland v.
Gay, 16 So. 77, 78. The questions, however, here, are
obviously to be determined by the law of Alabama existing at the
time the transactions occurred.
Third. Burden of proof to establish fraud.
The instruction complained of on this subject was that if the
proof showed that the Memphis firm had an honest debt, and they
purchased the stock at a fair and reasonable price in payment of
that indebtedness, the burden was on the plaintiffs to show that a
benefit or interest in the sale was reserved to Warten -- in other
words, that the transfer was fraudulent. It is urged that this
instruction ignored the rule of evidence as to the presumption of
law which arises from proof of circumstances of suspicion and
badges of fraud, which, it is asserted, were shown in this case by
the evidence offered in behalf of the Louisville firm. In
Curran v. Olmstead, 101 Ala. 692, it was said (page
694):
"When the transaction is assailed by an antecedent creditor, the
burden rests on a creditor who has been preferred to prove the
existence, amount, and justness of his claim, and, when paid in
property, he must also prove that the property was taken at a price
not materially below its fair market value."
The burden of proof to show fraud and notice of fraud was
Page 160 U. S. 163
on the party alleging fraud.
Hodges v. Coleman, 76 Ala.
103;
Pollak v. Searcy, 84 Ala. 259.
See also Jones v.
Simpson, 116 U. S. 609,
116 U. S. 615.
In
Pollak v. Searcy, supra, the court said:
"If the fact of indebtedness, and that the goods were sold in
payment of such indebtedness at their reasonable fair value, are
established to the satisfaction of the jury, and if it be contended
in avoidance thereof that the trade was simulated, that there was a
secret trust or benefit reserved to the debtors, the burden was
then on the contesting creditor to establish it."
So, in
Roswald v. Hobbie, 85 Ala. 73, 79, it was held
that:
"As against creditors of an insolvent debtor, the one claiming
as a purchaser must prove that he paid a valuable and adequate
consideration, but is not bound to negative the reservation of a
benefit to a debtor."
Fourth. As to the effect of the employment of Warten after
the sale, and the resale to Mrs. Warten.
The charges given by the court on this subject were as
follows:
"If the jury find from the evidence, under the instructions
given by the court, that Schoolfield, Hanauer & Co. made a
valid purchase of the stock of goods in controversy from Henry
Warten, then Schoolfield, Hanauer & Co. had a legal right to
employ Warten for their benefit to assist in winding up the
business and turning the goods into money as promptly and
economically as possible."
"If the jury find from evidence that prior to the 13th day of
January, 1890, Henry Warten had been engaged for several years in
an established and extensive business at Athens, Alabama, and that
he sold his stock of goods to Schoolfield, Hanauer & Co. in a
valid way, it is but reasonable that Warten might be employed by
Schoolfield, Hanauer & Co. as a clerk to assist in the winding
up of the business for the benefit of Schoolfield, Hanauer &
Co. Such circumstance is not, of itself, fraudulent."
"If the jury find from the evidence in this cause, under the
instructions given by the court, that the sale by Henry Warten
Page 160 U. S. 164
to Schoolfield, Hanauer & Co. is valid, then Schoolfield,
Hanauer & Co. had the legal right to give the stock of goods to
Mrs. Warten or sell the same to her on such terms as they
desired."
In considering the correctness of these instructions, we
necessarily assume the
bona fides of the sale made to the
Memphis firm and its validity, except insofar as its legality may
have been affected by the employment of Warten and the subsequent
sale to his wife. But the proof on the subject of the circumstances
which gave rise to the employment of Warten and the resale to Mrs.
Warten was conflicting. The fact of the employment and resale, no
question being made as to the reality of the transfer, could at
best have been only competent evidence to be considered by the jury
in determining whether or not a secret benefit was reserved to the
debtor in the original transaction, which was the issue on this
branch of the case. Certainly if nothing else appeared but the mere
employment of Warten subsequent to the sale to assist in the
disposition of the goods and the getting in of the book accounts,
such fact would not be a circumstance, in itself, sufficient to
prove, within the meaning of the Alabama law, that the transaction
was fraudulent. Even if at the time of the sale there had been an
agreement to employ, such fact would not, of itself, have
necessarily implied a reservation of benefit in favor of the seller
so as to have rendered the sale invalid under the Alabama law.
Murray v. McNealy, 86 Ala. 234. Such also is the general
rule.
Smith v. Kraft, 123 U. S. 436;
Burrell on Assignments, 6th ed., p. 471, ยง 343, and authorities
there cited. Indeed, under the rule as announced in Alabama, the
court could have affirmatively instructed that the employment of
the vendor in a clerical capacity could not affect the validity of
the sale.
Richardson v. Stringfellow, 100 Ala. 416,
422.
The instruction that if the original sale by Warten was valid,
the purchasers had a legal right to dispose of the property to Mrs.
Warten is within the principle of the decision in
Young v.
Dumas, 39 Ala. 60, 62, where the court said, speaking of a
gift by a father to his daughter of property
Page 160 U. S. 165
which the father had received from his son-in-law in payment of
an indebtedness due from the son-in-law to the father, as
follows:
"Mr. Horn had the clear right to collect his demand, which we
have seen was just, from his son-in-law, Mr. Dumas, and after he
thus became the owner of the property, his right to give the
property to the sole and exclusive use of his daughter, Mrs. Dumas,
cannot be successfully controverted by the creditors of Mr. Dumas.
As to them, the gift was harmless. That the effect may have been to
delay and possibly defeat all other creditors in the collection of
their demands cannot of itself avoid the sale."
It is argued that while these charges may not have been
intrinsically erroneous, they were yet illegal because they singled
out some of the strongest badges of fraud upon which the plaintiff
relied, and weakened, impaired, or destroyed their force and weight
as evidence; that they were argumentative deductions, the necessary
effect of which was to obscure the force of the inferences of fraud
which the jury might have deduced from the fact of the employment
and the resale, and therefore practically prevented the jury in
drawing its conclusions from giving due consideration to these
matters. But it nowhere appears that the court instructed the jury
that they might not, in reaching a determination upon the
bona
fides of the sale by Warten to the Memphis firm and the
question whether a secret benefit was reserved in his favor,
consider such facts as the subsequent employment of Warten and the
sale thereafter to his wife. As a matter of fact, the portions of
the general charge of the court set forth in the record make it
clear that the question of reservation of a secret benefit to
Warten in the sale was particularly called to the attention of the
jury as necessary to be considered by them in arriving at a
conclusion as to the validity of the transfer. We are unable to see
that the charges in question had a tendency to cause the jury to
regard the fact of the employment of Warten and the sale to his
wife as not important to be weighed by them in passing upon the
bona fides of the sale to the Memphis firm.
Page 160 U. S. 166
Fifth. Error as to the effect of having included in the debt
for which the sale was made the note, dated June 10 for two
thousand five hundred dollars.
The three following instructions on the subject were asked and
refused:
"33. If any part of the debt claimed by Schoolfield, Hanauer
& Company against Warten as the consideration of the transfer
of the goods to them is simulated or pretended, that fact would
vitiate the whole transaction. If the jury find from the evidence
that part of the consideration is composed of the note of Warten
for $2,500, which was due and payable to the Schoolfield-Hanauer
Company, a corporation under the laws of Tennessee, and that said
note was taken from the account of said corporation and placed upon
the account of the claimants for the purpose of increasing the
account of Schoolfield, Hanauer & Company, that account, to the
extent of said $2,500, would be simulated, and this would vitiate
the transaction, and, if the jury so find, their verdict should be
for the plaintiffs."
"34. If part of the consideration of the transfer from Warten to
the claimants is a note for $2,500, payable to the
Schoolfield-Hanauer Company, and owned by them, and if the said
note was transferred to the account of Schoolfield, Hanauer &
Company, and if said transfer was made for the purpose of
increasing the firm's debt against Warten, so as to make it equal
in amount to the value of the goods and property transferred by
Warten to the claimants, the consideration for such transfer to the
extent of said note for $2,500 would be simulated, and this would
vitiate the transfer, and if the jury so find the facts, their
verdict must be for the plaintiffs."
"36. If the jury believe from the evidence that the promissory
note for $2,500, made by Henry Warten on June 10, 1889, payable to
the order of Schoolfield, Hanauer & Company at the office of
the Schoolfield-Hanauer Company, four months after date, and
endorsed 'The Schoolfield-Hanauer Company, p'r W. W. Schoolfield,
Treasurer,' was taken and the account of said Warten with said
corporation Warten have the amount thereof, less discount, being
$_____, by crediting his
Page 160 U. S. 167
account with said corporation for $_____, as shown by said
statements of said accounts in evidence in this case, then said
draft became the property of said corporation, and it was an
indebtedness due by said Warten to it, and if the jury further
believe, from the evidence, that said indebtedness was transferred
from the account of said Warten with said corporation to the
account of said Warten with said firm on or about the 11th day of
January, 1890, for the purpose of evading the law of the State of
Alabama, which prohibits foreign corporations from doing business
in the State of Alabama without known place of business and
authorized agent therein, the jury would be authorized to find that
said indebtedness was the property of and due to said corporation,
and not said firm, when said alleged transfer of the stock of goods
in dispute in this suit to said firm by said Warten was made, and,
should they so find, in that event their verdict should be for the
plaintiffs."
They were rightly refused. There was no proof of any kind even
tending to show the simulation of the note. It was certainly, under
the undisputed proof, due by Warten. It was drawn to the order of
the Memphis firm, who were, as endorsers, necessary parties to its
negotiation. That firm had an obvious right, with the consent of
the company by whom the paper had been discounted, to use it as a
debt due them, and thus protect their endorsement. Nor was the
sending of a note to Tennessee for discount, and its discounting in
that state by the Memphis company, carrying on business in Alabama
by the Memphis company. The second section of the fourteenth
article of the Constitution of Alabama, and the act of the
legislature of 1886-87, pp. 102, 104, relied on by the plaintiff in
error, have been held by the courts of Alabama not to have been
intended to (as, of course, they could not) interfere with matters
of commerce between the states, and to have no application to
transactions such as that here under consideration.
Ware v.
Hamilton Shoe Co., 92 Ala. 145;
Cook v. Rome Brick
Co., 98 Ala. 409.
Sixth. Error as to the bearing, on the rights of the
parties, of the letter written by the Memphis firm, and the
settlement had by the latter with Warten after the writing of the
letter.
Page 160 U. S. 168
Much stress is placed by counsel on this proposition. The
contention is that the Louisville firm having been induced to give
an extension on the faith of the letter written them by the Memphis
firm, the latter could not receive payment, by sale, from the
debtor, which created a preference, without operating a fraud upon
the Louisville firm. To support this contention, authorities are
cited holding that when creditors have jointly agreed, each upon
the faith of the other's promises, to extend the indebtedness of
their co-debtor for a fixed and definite period, a party to such an
agreement who secures an advantage to himself out of the mutual
debtor's property during such extended period may be compelled to
account for the property received, and permit the other creditors
to share
pro rata with him. But the fallacy is not in the
legal proposition, but in its application to the facts here
considered, and consists in treating the Memphis firm as consenting
to and being bound by the terms of the extension granted to Warten
by the firm in Louisville. There was no evidence even tending to so
prove. The only connection of the Memphis firm with the settlement,
even if all the disputed questions of fact were determined in favor
of the firm at Louisville, was the letter from the Memphis firm
presented by Warten when the extension was made. But the letter
could not give rise to the obligations contended for, since the
extension granted by the Louisville firm was in conflict with the
obvious intent of the letter. It stated that Warten, "through, we
believe, no fault of his own, but owing to disastrous failure of
crops in his own section, finds himself forced to ask for
extension," and expressed a willingness to grant the extension
provided the Louisville firm would do likewise. The extension
referred to must necessarily have meant an extension to the next
crop year; otherwise, the letter was meaningless. The disaster
calling for the extension was the crop failure, and the substantial
results of the crop being realized by the end of December, it was
self-evident that the extension proposed, and which the Memphis
firm was willing to give in conjunction with the Louisville firm,
was one which would carry the debtor to another crop. This becomes
more manifest when it is
Page 160 U. S. 169
considered that the extension was only to be asked of three
creditors, the Louisville firm, the Memphis firm, and one other,
leaving the other debts unextended. But the extension granted by
the Louisville firm did not accede to this proposal, since it
embraced short-time acceptances for three thousand dollars, which
they could only hope to be paid out of the avails of the disastrous
failure of the crop which had, by the terms of the letter, given
rise to the necessity for the extension. Doubtless it was this view
of the relation of the parties which caused the court to instruct
the jury that if the Louisville firm took short-time paper from
Warten in the hope of obtaining an advantage over the Memphis firm,
they would have no right to complain because the Memphis firm
overtook them in the race of diligence. Whether, however, this
instruction was given because the court took this view of the
letter, and the legal effect of its unaccepted proposal, is
immaterial. The entire charge is not in the record. The court may
have expressed itself in this matter to the jury, in connection
with observations, possibly advanced in argument by counsel for
plaintiffs in error, upon their claim that the Memphis firm, in the
letter in question, had sought to gain an advantage. And if such
were the case, it was not error for the court to call the attention
of the jury to the opposing view of the transaction.
These conclusions dispose of all the errors assigned which
relate to the instructions given by the court, and leave only the
exceptions taken to rulings admitting or rejecting testimony. They
are twelve in number. We have examined them all, and content
ourselves with saying that we find them either not well taken or of
such a character, on account of their immateriality, as to create
no reversible error.
Affirmed.
