Findings of the lower court will not, where another construction
is possible, be so construed as to cause them to be silent on an
issue so controlling that the cause could not have been decided on
the merits without a finding thereon.
Where findings are so irresponsive to the case made by the
pleadings and the facts as to be no findings at all, this Court
must affirm on account of absence of any findings to review.
Gray v. Smith, 108 U. S. 12.
A finding that the evidence does not entitle the plaintiff to a
decree that the conveyance attacked was made to hinder and delay
creditors construed in this case to mean that there had been a
failure of proof, and that the judgment did not rest on a
conclusion of law that the local law did not afford a remedy if the
plaintiff had proved his case.
Under the law of Porto Rico, contracts made by an insolvent
debtor which are not fraudulent simulations are not susceptible of
rescission merely because they operate to prefer a creditor.
While the privilege of communication may not extend to the
concealment of crime, where an attorney testifies that the vendor
disclosed
Page 217 U. S. 48
to him a plan to make fraudulent conveyances to hinder and delay
creditors, but the court finds that the conveyances as made were
not under the local law illegal, the testimony is properly
excluded, as there is no sufficient foundation to relieve the
witness from the professional obligation of secrecy.
The statements made by the widow of the vendor whose conveyances
were attacked to the effect that such conveyances were fraudulent
were properly excluded in this case by the lower court.
The facts are stated in the opinion.
MR. JUSTICE WHITE delivered the opinion of the Court.
This appeal is taken to secure the reversal of a decree of the
court below dismissing the bill of complaint. The court sustained
its action by an elaborate opinion, and subsequently stated in a
formal way its findings of fact and conclusions of law.
The evidence is not in the record, although a portion of the
testimony is contained in the formal findings of fact, upon the
theory that this was necessary to preserve the right to review the
action of the court concerning objection urged by the defendants to
the admission of certain testimony tendered on behalf of the
complainants. The record, we are constrained to say, is
unsatisfactory and confused -- a condition which we assume has
resulted from circumstances referred to by the court below in the
opening passage of its opinion, as follows (3 P.R. 125, 126):
"This is a creditor's bill filed June 23, 1902, and permitted to
remain on the docket of this court during the five years that have
since intervened, without any apparent proper or sufficient cause
for the unwarranted delay, and with infinite inconvenience to many
parties connected with the subject matter
Page 217 U. S. 49
of the controversy. The first two years and a half of the time
seem to have been taken up with a battle over the proceedings,
trying to get the answers of the several respondents settled, and
during which time complainants' exceptions to several of the
answers were referred to a master, arguments had before him, his
report filed, exceptions to the same presented, arguments had on
the latter, and briefs submitted in support thereof, and so on, in
an interminable and fruitless contest of petitions, motions,
exceptions, pleas, demurrers, orders, affidavits, and rules to show
cause, without result or real merit, as we see it. The next year
and a half seem to have been taken up somewhat in the same way, and
also partly in an application for a receivership and in opposing
efforts to the same, and in efforts to prevent outside parties from
foreclosing several mortgages they had on some of the premises
involved, that they had secured in the meantime, in enjoining them
from so proceeding, and in issuing rules as for contempt against
them for their action in that behalf, etc."
In order to in some measure dispel the obscurity which must
arise from the circumstances just referred to, we briefly state, in
their chronological order, certain unquestioned facts which gave
rise to the controversy, and also outline the pleadings and
proceedings, the whole for the purpose of enabling us to adequately
test the sufficiency of the errors assigned.
For many years, the firm of J. Tornabells & Company,
composed of Joaquin Tornabells and Carlos Doitteau, was established
in Porto Rico and there carried on a mercantile business. The firm
was the owner of various trading establishments and warehouses,
was, besides, the owner of considerable real estate, embraced in
which were extensive coffee plantations which the firm carried on,
including the buildings, machinery, and appurtenances incident
thereto. It is not disputed that, presumably as the result of
losses occasioned by a disastrous hurricane which devastated the
island of Porto Rico, the firm, prior to 1900, had become
temporarily embarrassed, and, under provisions of the local law,
had obtained in a local court
Page 217 U. S. 50
an extension of time for the payment of its debts. While we
state the fact as to the suspension, we shall nevertheless indulge
in the assumption that such fact has no material bearing upon the
questions here to be decided. We do this because no rights based
upon such fact were asserted in the bill of complaint or passed
upon by the court, and no right of such a character is asserted in
the assignments of error or referred to in the elaborate argument
filed on behalf of the appellants, the appellees not having
appeared in this Court, either orally or by brief.
On May 9, 1900, Tornabells & Company, by deed before a
notary public, conveyed to Luis Aran y Lanci the following
property, as stated by the court below:
"Its place of business and other town property, its stock of
merchandise and twenty-six several pieces of real estate, most of
them being coffee plantations and their appurtenances."
The stated price was 197,700 pesos, provincial money, 30,000
declared to have been paid in cash, and the remainder to be paid in
ten installments of 16,770 pesos, bearing no interest, maturing
respectively from one to ten years. A few days thereafter, on May
11, 1900, Aran y Lanci mortgaged for 150,000 pesos nineteen of the
twenty-six pieces of real estate thus conveyed to him. This
mortgage was in favor of one Baudelio Duran y Cat and a firm styled
Duran & Coll. The mortgage in favor of the first was for
130,000 pesos, divided into ten annual installments of 13,000 pesos
each, evidenced by notes to the order of the mortgagee, maturing in
each of the ten years, the whole being secured on fourteen of the
twenty-six pieces of real estate. The mortgage in favor of Duran
& Coll was on five of the pieces of real estate acquired as
aforesaid, and secured 20,000 pesos, divided into five installments
of 4,000 pesos each, maturing in each of five years. These
mortgages were not indivisible, as the amount of each was
apportioned among the various pieces of real estate, so that each
piece was liable only for the sum secured on it. The sale to Aran y
Lanci was recorded on May 21, and the mortgages just stated
Page 217 U. S. 51
on May 24, 1900. On June 25, 1900, the mortgage for 20,000
pesos, which had been executed in its favor by Aran y Lanci, was
assigned by the firm of Duran & Coll to Raimundo Valdecillo to
secure an indebtedness due him by the firm of 6,000 pesos
provincial money, and this assignment was duly registered on July
5, 1900. Sixteen months after the conveyance to Aran y Lanci --
that is, on September 16, 1901 -- the firm of Tornabells &
Company acknowledged by notarial act that Aran y Lanci had, by
anticipation, fully paid the deferred purchase price (167,700
pesos). Nine months after such acknowledgment, Aran y Lanci
mortgaged in favor of the Banco de Solleir, to secure 32,780
pesetas, Spanish money, one of the pieces of property previously
mortgaged to Duran y Cat. On July 5, 1902, this mortgage was put
upon record. A few days before it was so put upon record,
viz., on June 23, 1902, the suit before us was
commenced.
The bill, which was not sworn to, was originally filed on behalf
of three commercial firms, Will & Company of Cuba, David
Midgley & Sons of Manchester, England, and Ramon Cortado &
Company of Ponce, Porto Rico, and the members of said firms, in
their own behalf and in behalf of all others similarly situated who
might intervene in the cause. It was alleged that the complainants
were creditors of the firm of Tornabells & Company at the time
of the conveyance to Aran y Lanci and the execution of the
mortgages by Aran y Lanci, above recited, and that, subsequent to
said transactions, the claims of the complainants had been merged
into judgments against the firm, obtained in the court where the
bill was filed, and that, on such judgments executions had issued
and been returned unsatisfied. It was further alleged that the
conveyance made by Tornabells & Company to Aran y Lanci, and
the mortgages put by the latter upon the property in favor of Duran
y Cat, and the firm of Duran & Coll, were fraudulent
simulations, and that the property covered by the conveyance and
the mortgages continued to belong to the firm, and was held by Aran
y Lanci under a secret trust in favor of Tornabells & Company,
the conveyance
Page 217 U. S. 52
and mortgages being mere fictitious devices adopted between the
parties for the purpose of screening the property from creditors or
hindering and delaying them in the recovery of their claims. It was
further charged that, at the time of the transactions referred to,
Tornabells & Company was insolvent, that the alleged price
mentioned in the conveyance to Aran y Lanci was largely below the
real value of the property, and that, despite the alleged
conveyance and mortgages, the firm of Tornabells & Company
continued to control the property conveyed and enjoy the fruits
thereof. The prayer of the bill in substance was that a receiver of
the property might be appointed, that the conveyance and subsequent
mortgages and transfers should be declared to be fraudulent and
void and be vacated and annulled, and that the property and each
and every parcel thereof should be decreed to be subject to the
lien of the several judgments. Tornabells and Doitteau, the members
of that firm, Aran y Lanci, Duran y Cat, and Duran & Coll, and
the members of that firm, were made defendants to the bill.
Valdecillo, to whom the mortgage executed by Arany Lanci in favor
of Duran & Coll had been assigned, was also joined as
defendant, he being called upon to establish the verity of his
alleged lien. Alfredo Saliva, who was alleged to be the attorney in
fact of, and to have acted for, Aran y Lanci in the transactions
set out in the bill, was also made a defendant.
Separate sworn answers were filed on behalf of the members of
the firm of Tornabells & Company traversing the allegations of
insolvency and of simulation and fraud, both as respected the
conveyance to Aran Lanci and the mortgages executed by the latter.
The answers contained affirmative allegations as to the good faith
of the conveyance to Aran y Lanci, the adequacy of the
consideration, and full payment thereof prior to the commencement
of suit. The taking possession by and the exclusive control and
management of the property conveyed, and receipt of the fruits
thereof by Arany Lanci for his exclusive use and benefit was also
averred. An answer
Page 217 U. S. 53
substantially of like tenor, also sworn to, was filed on behalf
of Arany Lanci. Juan Coll, a partner in the firm of Duran &
Coll, also answered, and averred the
bona fides of the
mortgage executed by Aran y Lanci to his firm, and the transfer
thereof made to Valdecillo.
On October 31, 1904, the firm of L. W. & P. Armstrong of New
York city, unsecured creditors of Tornabells & Company, were
made parties complainant to the bill. Thereafter, Ruffer &
Sons, a firm doing business in London, England, and the Caja de
Ahorros de Mayaguez, a Porto Rican corporation, as creditors of
Tornabells & Company, were also allowed to intervene and become
parties complainant.
Early in 1905, Tornabells died and the cause was revived as to
him against his widow and children as his heirs. In November of the
same year, Aran y Lanci died, and the cause was revived against his
widow, as administratrix of his estate. Doitteau, the surviving
partner of Tornabells & Company, died on January 22, 1907, and
the cause was revived against his widow and children.
Duran y Cat, an original defendant to the bill -- in whose
favor, as we have stated, Aran y Lanci had mortgaged fourteen of
the pieces of real estate for 130,000 pesos -- was not served with
process and did not enter his appearance. He also died during the
pendency of the cause. On February 12, 1907, upon motion of the
complainants, an order was entered dismissing the cause as to the
heirs of said Duran y Cat
"on the ground that said heirs, being out of the jurisdiction,
and having entirely disposed of their interest in the cause, are
not indispensable parties thereto."
Journal entries are contained in the record, showing that more
than a dozen firms or individuals became additional defendants in
the cause. The time when they came in and the nature of the
pleadings by them filed or the proceedings had concerning their
rights do not distinctly appear. It is, however, fairly inferable
that these new defendants came in long after the commencement of
the suit, either during or
Page 217 U. S. 54
subsequent to the dilatory and confused proceedings referred to
by the court in the excerpt heretofore made from its opinion, and
that such defendants asserted rights claimed to have been acquired,
after the filing of the bill, in the property affected by the suit,
either as purchasers or as holders of mortgage notes. In this
connection, it is to be observed that neither when the suit was
commenced nor at any time during its progress was the court
requested by the complainants to award a cautionary notice, to be
placed upon the public records, as a means of warning to parties
who might deal with the property in controversy, thus preserving
against them,
pendente lite, the rights which might be
ultimately established as existing in the complainants, and which
would not have been preserved by the mere pendency of the suit,
unaccompanied with the allowance and registry of the statutory
cautionary notice.
Answers or amended answers were filed on behalf of the widow and
administratrix of Tornabells, and by the guardian
ad litem
who was appointed for his minor children. An answer was also filed
on behalf of the widow and administratrix and minor children of
Doitteau. This also was the case as to the widow and administratrix
of Aran y Lanci. These various answers were substantially in accord
with those which had been previously filed on behalf of the
original defendants, except that in one of them the prescription of
one year was pleaded. It is inferable from the record that at this
stage of the proceedings, or at all events at a time not earlier
than four years after the commencement of the suit, certain persons
who had acquired rights in or to the property, either directly from
Aran y Lanci or through the mortgage executed in favor of Duran y
Cat and Duran & Coll, sought to enforce their claims and were
enjoined from so doing. At about the same time, a receiver was
appointed. The record is silent, however, as to whether the
receivership was intended to apply to all the property in
controversy, or whether the receiver attempted to take possession
under his appointment, although it would seem that to some extent
he did so, since, by the
Page 217 U. S. 55
final decree, the receiver was ordered to settle his accounts,
etc.
It came at last to pass in the spring of 1907 that the cause was
heard and taken under advisement. It was disposed of in the summer
of that year by the entry of a final decree dismissing the bill,
and was followed nearly six months thereafter, on December 19,
1907, by the making of formal findings of fact and conclusions of
law applicable thereto.
The facts found are embraced in fourteen numbered paragraphs.
The first merely states in general terms the filing of the bill,
makes allusion to the complicated proceedings which followed, the
dismissal as to some of the defendants (presumably the heirs of
Duran y Cat), the coming in of other parties, the ultimate joinder
of issue, and the submission of the cause. In the second is stated
the fact that evidence was heard on behalf of the complainants and
the submission of a motion for a decree dismissing the bill on two
grounds;
viz., the failure to prove the allegations of the
bill and the prescription of one year. The third finding is as
follows:
"3. The documentary evidence introduced on behalf of
complainants and the testimony of all the witnesses do not prove
the allegations of the bill so as to entitle the complainants to a
decree in their favor, declaring the conveyance from defendants
Tornabells & Company to defendant Aran, and the mortgage from
defendant Aran to defendants Duran y Coll and Duran personally to
be voluntary, or made to hinder and delay the complainants in the
collection of their debts."
The fourth, fifth, sixth, seventh, eighth, and ninth paragraphs,
in a summary way, find substantially, as we have stated them, the
facts concerning the conveyance by Tornabells & Company to Aran
y Lanci, the execution of the mortgages in favor of Duran y Cat and
Duran & Coll, and the divisibility of those mortgages, as well
as the fact that the claims upon which the complainants sued,
although in existence, were not reduced to judgment until some time
after the execution of the conveyances and mortgages in question.
In
Page 217 U. S. 56
one of the paragraphs, it is stated that the property conveyed
by Tornabells & Company was substantially all that was owned by
the firm at the time of the conveyance, and that Duran y Cat was a
relative of the senior member of Tornabells & Company. By the
tenth paragraph, it is found that the mortgage asserted by the
Banco de Sollier was one which Aran y Lanci had executed in favor
of that bank on one of the properties acquired by him from
Tornabells & Company, and was given to secure a debt due by
that firm to the bank, that Aran y Lanci incurred no personal
responsibility, and that he produced, as paid, the mortgage note
identified with the Act of mortgage executed in favor of Duran y
Cat, which had been released or extinguished so far as the
particular property was concerned. The eleventh paragraph stated
that the mortgage asserted by the firm of Fritze, Lundt &
Company, on one of the pieces of property conveyed to Aran y Lanci
was executed by the latter in favor of Fritze, Lundt & Company
to secure the payment of a current account for supplies furnished
for the cultivation of properties included in the conveyance from
Tornabells & Company to Aran y Lanci, and that, previous to the
giving of the mortgage, the advances made by the firm were secured
by a pledge of one of the mortgage notes executed by Aran y Lanci
in favor of Duran y Cat which, when Aran y Lanci mortgaged the
property in favor of the firm of Fritze, Lundt & Company, was
produced by him as the owner thereof and cancelled. In this case,
also, no personal responsibility was assumed by Aran y Lanci. The
twelfth and thirteenth paragraphs state sales by Aran y Lanci, in
1903 and 1905, to named persons, of pieces of the property acquired
by him from Tornabells & Company, and the production by Aran y
Lanci, as extinguished and paid, of the mortgage notes resting upon
the property so conveyed, identified with the mortgage in favor of
Duran y Cat. The fourteenth paragraph simply embraced a general
statement of the release of the Duran y Cat mortgage on the
properties referred to in the tenth to the thirteenth paragraphs,
inclusive, and that the mortgages and conveyances referred to
in
Page 217 U. S. 57
such paragraphs
"were, in each and every case, duly recorded in the registry of
property prior to any record in the registry of property of the
judgments obtained by complainants herein against Tornabells &
Company, referred to in paragraph nine."
From the facts thus found, the court drew the following
conclusions of law:
"1. That the proof on behalf of complainants is not sufficient
to entitle them to any relief under their bill of complaint."
"2. That there is not now, and never was, any such statute in
Porto Rico as the statute of 13th Elizabeth in England, referring
to fraudulent conveyances, because we have the civil law rule here,
instead of the common law. Every state in the Union has a
reenactment of the statute of Elizabeth in some form or other among
its laws. In the absence of it, there is no rule of law preventing
a debtor, even when insolvent, for even that does not take from him
the power of disposition of his property, and paying his debts with
it, or a portion of his debts, and preferring one or more of his
creditors with absolute intent to hinder, delay, or even to defeat
other creditors. If the favored creditor receives no more than is
due him, and permits the debtor to secure no advantage to himself,
the transaction will be upheld."
"3. That the statute of limitations of one year, as fixed by
Article 37 of the mortgage law, is applicable to suits like the one
at bar."
"4. That complainants, under the pleadings and proofs herein,
are not entitled to subject the properties described in the bill of
complaint herein to any lien, interest, or decree by which the
complainants would be entitled to have the conveyance and mortgages
described in said bill of complaint cancelled and annulled for the
benefit of the said complainants."
"5. That the bill of complaint should be dismissed."
These conclusions were followed by the reproduction of portions
of the testimony to preserve the right to review certain
Page 217 U. S. 58
rulings of the court respecting testimony offered on behalf of
the complainants.
The assignments of error are seven in number. The seventh we at
once put out of view, as it only charges generally that the court
erred in dismissing the bill of complaint.
The sixth, fifth, and fourth assignments concern rulings as to
the admissibility of testimony, and the third complains of the
action of the court maintaining the plea of prescription of one
year. As these assignments cannot be disposed of without in some
respect appreciating the merits, we temporarily forego considering
them.
The remaining assignments -- that is, the first and second --
are as follows:
"First, the court erred in finding as matter of law that in
Porto Rico there was no rule of law preventing a debtor, even
though insolvent, from preferring one creditor over others, with
absolute intent to hinder, delay, or even defeat the just claims of
said others."
"Second, the court erred in finding as matter of law, from the
facts found, that the above rule of law was applicable, and in not
finding as matter of law that the applicable rule was that a debtor
could not transfer his property without any consideration, for the
purpose of delaying or defeating the just claims of his
creditors."
It is apparent that these propositions assert that a two-fold
error was committed -- first in not applying to the facts as found
the legal principle rightfully applicable, and second by
erroneously stating the law in the irrelevant proposition which was
mistakenly applied in deciding the cause. The first contention
rests upon the theory that the facts found established that the
conveyance and mortgages which the bill assailed were mere
fraudulent simulations, and upon this assumption insists that the
case should have been controlled by the law applicable to that
state of fact, instead of being governed, as it was, by considering
how far, as a matter of law, a debtor, being insolvent, had a
right, through a real and
Page 217 U. S. 59
bona fide transaction, to prefer one or more of his
creditors. But when the findings of facts are considered, it is
manifest that the premises upon which the proposition rests is a
false one, since it cannot be indulged in without disregarding the
findings. We say this is manifest because the third finding of
fact, which we have already quoted, expressly declares that the
documentary evidence introduced on behalf of the complainants and
the testimony of all the witnesses did not establish that the
conveyance from Tornabells & Company to Aran y Lanci, and the
mortgage made by him to the firm of Duran & Coll and to Duran y
Cat, individually, were "voluntarily made to hinder and delay the
complainants in the collection of their debts." The error which
would have resulted from applying the doctrine applicable to a mere
simulated transfer to a case where the findings established that
simulation was not shown is self-evident. This result, which
necessarily arises from a consideration of the mere text of the
third finding, is also demonstrated if that finding be contemplated
in the light of the issues which the cause presented in connection
with the other findings and all the conclusions of law which were
deduced therefrom and applied in deciding the cause. The essential
charge which the complaint made was the fraudulent and simulated
character of the conveyance and mortgages which were assailed. That
issue was therefore the controlling question to be decided.
Considering the findings as we have previously fully stated them,
it is, we think, clear that the third finding was intended by the
court as a statement of its conclusion of fact as to that
controlling issue, and that the first conclusion of law which the
court stated -- that is, the insufficiency of the proof to justify
recovery by the complainants -- was intended as the legal resultant
of the finding which had established that there had been a failure
to prove the charge of simulation.
We think it is also clear that the second proposition of law
which the court announced -- that is, the right of a debtor under
the Porto Rico law, although insolvent, to give a
Page 217 U. S. 60
preference, in no way detracted from or modified the previous
finding and conclusion as to the absence of proof of simulation or
purpose to hinder and delay creditors in the conveyance from
Tornabells & Company to Aran y Lanci and the Duran y Cat and
the Duran & Coll mortgage, but was solely intended as
responsive to the findings in other respects. That is to say, we
think the second finding of law was responsive to the facts found
in the paragraphs other than number three, which tended to
establish that, even although the sale from Tornabells &
Company to Aran y Lanci was not simulated, and not intended to
hinder and delay creditors, nevertheless Aran y Lanci had
discharged a portion of the credit price which he had agreed to pay
by making payments to third persons, creditors of the firm of
Tornabells & Company, in extinguishment of the indebtedness of
the firm to such creditors, and thus, to the extent of such
payments, preferring the creditors paid out of the price due to
Tornabells & Company as the result of the sale.
Indeed, unless the appreciation which we have just made of the
findings and the conclusions of law deduced therefrom be correct,
it would cause the findings of fact to be absolutely silent on the
issue of simulation, although that issue was the controlling one in
the cause -- an issue, indeed, so essential that it is impossible
to conceive that the cause could have been disposed of on its
merits without a finding on the subject. But if the findings could
be thus envisaged, the inquiry would be at once suggested whether
they were not so manifestly irresponsive to the case as made by the
pleadings and to the facts necessarily involved in the decision
rendered as to cause them to be no findings at all, and therefore
to require at our hands an affirmance of the judgment because of
the substantial absence of any finding to enable us to review.
Gray v. Howe, 108 U. S. 12.
Concerning this suggestion, however, we express no opinion, since
we do not consider that the findings are of the unsubstantial and
irrelevant character which would result from attributing to them
the construction contended for by the appellants.
Page 217 U. S. 61
Our conclusion that the findings of fact exclude the contention
concerning the simulated character of the assailed contracts
renders it unnecessary to review the authorities cited in argument
to establish the proposition, which is not challenged, that, under
the law of Porto Rico, creditors possess the right to set aside
mere fraudulent and simulated contracts or conveyances made by
their debtor to or in favor of an interposed person, in order to
place the property of the debtor apparently in the name or under
the control of such person for the purpose of defeating
creditors.
The substantial foundation upon which the cause was based --
that is, the issue as to the simulation of the conveyance to Aran y
Lanci and the mortgage to Duran y Cat and the firm of Duran &
Coll -- being disposed of, the remaining contentions are free from
difficulty. We say this because, although it is elaborately
insisted that, putting the question of simulation out of view, the
court was wrong in its second legal conclusion to the effect that
the law of Porto Rico did not avoid a real and otherwise valid
contract merely because its result was to prefer one or more
creditors of the debtor making the contract, we think such
contention is shown by the record to be an afterthought, or, if
not, is unsupported by the provisions of law which are cited to
maintain it. An afterthought because the entire theory of the bill
was opposed to the conception that the assailed transactions merely
embodied preferences giving rise to a revocatory action -- that is,
merely to have an otherwise valid contract revoked. Indeed, it is
difficult to imagine that the action in any aspect was considered
as but revocatory in character when it is borne in mind that,
although the mortgage in favor of Duran y Cat covered fifteen
pieces of real estate securing 130,000 pesos, he was not served
with process, and after his death, on motion of the complainants,
the cause was dismissed as to his heirs upon the theory that they
had no interest in the result. We say that the contention as to
preference, if not an afterthought, is unsupported by the
provisions of law relied upon
Page 217 U. S. 62
since those which are referred to plainly relate to cases of
simulation, and, even if applicable to a question of preference,
tend to support the view stated by the court in its second
conclusion of law. For instance, the military order of March 5,
1899, deals with simulated transfers, and, when its context is
considered, we think also concerns alone sales made seemingly for
cash, and therefore, for a two-fold reason, is inapposite to the
question of mere preference arising from a contract for a legal
consideration, although not immediately payable in cash. So also,
the general provisions of Article 1101 of the Civil Code, providing
that those who fraudulently neglect to fulfill their obligations
are liable in damages; those of Article 1275, declaring that
contracts without a consideration, or with illicit consideration,
can have no legal effect, and the terms of Article 1276, providing
that the statement of a false consideration in contracts shall
render them void unless it be proven that they were based on
another and licit consideration -- may be put out of view, since
they simply announce undisputed propositions of law which are not
involved in the case before us, and which are not disputed by
anyone. And a like reason is also adequate to dispose of the
contention based upon the third paragraph of Article 1291 of the
Civil Code, which embraces in the enumeration of contracts which
may be rescinded "those executed in fraud of creditors, when the
latter cannot recover in any other manner what is due them." We say
this since this provision clearly limits the right of the creditor
to rescind to cases where he cannot otherwise recover his debt
without resorting to an action for rescission, and even in such
case, only confers such right where the contract sought to be
rescinded is one which is in fraud of his rights. To contend, as is
in effect done in the argument at bar, that the article gives to a
creditor a right to sue to rescind any contract made by his
insolvent debtor, simply because, without rescission, the creditor
cannot otherwise recover his debt, is to distort the clause by
misconceiving its obvious meaning. The power to seek rescission
being thus
Page 217 U. S. 63
limited to contracts which are in fraud of the rights of the
creditor, the question is, did the court below err in holding that,
under the law of Porto Rico, contracts made by an insolvent debtor
which were not fraudulent simulations, because made upon adequate
consideration, are not susceptible of being rescinded merely
because there execution operated a preference in favor of a
creditor? We are cited to no express provision of the local law, or
referred to any decision so interpreting that law, and we think an
analysis of the provisions of the local law relied upon for the
purpose of inferentially showing that the court below erred,
clearly not only do not support, but refute, the contention we are
considering. Thus, the provision expressly authorizing the right to
rescind payments made by an insolvent debtor on account of
obligations which at the time of making the payments, the debtor
could not be compelled to make (Civil Code, Art. 1292), plainly
import the validity of such a payment under other circumstances. So
also, the provision creating a presumption of fraud as to
alienations for valuable consideration, made by an insolvent debtor
against whom a condemnatory judgment has been rendered or a writ of
seizure of property has been issued (Civil Code, Art. 1297), also
gives rise to the inference that, where these circumstances do not
exist, the contrary rule would apply. And the inferences which are
deducible from the text of the Code are cogently fortified by a
consideration of the mortgage law. Thus, while the law contains an
enumeration of the suits which may be brought for the rescission of
conveyances made for the purpose of defrauding creditors, and
includes those made without consideration when the third person was
a party to the fraud (mortgage law, Arts. 36 and 37), it does not
mention the case of a mere preference resulting from a contract
made for an otherwise valuable consideration. So, also, in Article
39, the conveyance without consideration to defraud creditors is
expressly limited to those where "there was no price or its
equivalent, or any preexisting obligation which had fallen
Page 217 U. S. 64
due" -- an affirmative prohibition which would seem necessarily
to exclude a right to rescind a contract because of mere
preference, where there was a price or its equivalent, or where the
consideration was a preexisting obligation which had fallen
due.
The foregoing considerations cause it to be unnecessary to pass
on the error which it is alleged was committed in maintaining the
plea of prescription of one year. It remains, therefore, only to
dispose of the errors based upon the action of the court in
disposing of objections to testimony. They relate to two subjects
-- the first to objections made to the admissibility of the
testimony of Mr. Cornwell, one of the attorneys of record of the
complainants, concerning statements made to him by members of the
firm of Tornabells & Company in reference to their intention to
dispose of or mortgage their property, and the other to the
testimony of the same witness concerning statements made to him by
the widow of Tornabells after the death of her husband, and during
the pendency of the cause, as to alleged conversations had by her
with her husband tending to show simulation of the contracts which
were assailed. To pass upon the contentions on these subjects, a
statement of what transpired at the time the evidence in question
was proffered, and of the action of the court thereon, is
essential. While testimony was being taken in open court, Mr.
Cornwell, one of the attorneys for the complainants, was offered as
a witness on their behalf. It developing at once from the questions
put to him that the purpose was to draw from the witness statements
made to him by the members of the firm of Tornabells & Company
shortly before the assailed conveyance and mortgage were executed,
objection was made that such statements were incompetent, because,
at the time they were made, Cornwell was the attorney for the firm
and its members, and therefore the statements were not admissible,
because privileged communications. Thereupon the examining counsel,
while not denying that, at the time the statements were made, the
relation of attorney and client existed, insisted that the
Page 217 U. S. 65
statements were admissible because their character was such as
to cause them to be outside of the privilege. The court declaring
that it would reserve its ruling on the objection until it had an
opportunity to examine the subject during the noon recess, the
examination of the witness proceeded for the purpose of showing his
professional relation to the firm of Tornabells & Company at
the time of the making of the statements. When the court convened
after the recess, the subject of the admissibility of the offered
testimony was at once taken up. The court intimating doubt on the
subject, the counsel making the objection declared that he had
witnesses present by whom he expected to prove that Mr. Cornwell
not only was the confidential legal adviser of Tornabells &
Company at the time the statements were made to him concerning
which it was desired to question him, but that he continued to act
for that firm as their attorney after the assailed contracts made
up to the time of the bringing of this suit. Answering this
statement, the counsel for complainants declared that his position
was that the offered proof was irrelevant in view of the ruling in
Dent v. Ferguson, 132 U. S. 50, to
the effect that the privilege did not extend to statements made by
a client to his attorney of the intention of the client to commit a
fraud. The court then announced as follows: "I am going to permit
Mr. Cornwell to testify, reserving the right to see what it is,
giving to all the counsel a right to except." Upon this
announcement, counsel for the defendants insisted upon being
permitted to call witnesses to establish the existence of the
professional relation of the witness with the firm, as previously
stated, and proceeded to do so. After testimony had been given and
documentary evidence introduced without objection tending to show
the existence of the relation of attorney and client between the
witness and the firm of Tornabells & Company, in accordance
with the previous declaration as to what was proposed to be proven
on that subject, the court interrupted the taking of the testimony
as follows:
Page 217 U. S. 66
"The court: It doesn't change the court's mind as to admitting
the testimony in the way it intimates. It will let it in."
"Mr. Dexter: I desire to except against that ruling."
"The court: Give an exception to all counsel that wish it."
"Mr. Dexter: I want my objection to clearly appear: (1) it is
incompetent because of the relation of attorney and client; (2) it
is incompetent under the United States statute, and (3) because of
the party's being dead."
"Mr. Boerman: I want an exception to every question given."
The witness Cornwell was then recalled and was fully examined
and cross-examined not only in regard to the alleged statements,
but as to his professional relations with the firm of Tornabells
& Company when the statements as to which he testified were
made, and thereafter up to or nearly about the time of the bringing
of this suit.
Beyond question, the testimony established that the witness had
been the confidential legal adviser of the firm of Tornabells &
Company up to and at the time when the statements as to which he
testified were made. Without reproducing the testimony as to the
statements, we think it suffices to say that, on the examination in
chief of the witness, he repeated a conversation had with both
members of Tornabells & Company a short while before the making
of the conveyance to Aran y Lanci and the mortgage by the latter of
the property, which conversation was occasioned by the fact that
the members of the firm called upon the witness as their legal
adviser, either to consult him or to state to him the purpose of
the firm to convey or mortgage its property, and that the witness,
on his examination, stated that he construed the statements made to
him by his clients as unfolding a purpose on their part to make a
simulated transfer of their property to defraud their creditors,
and that he, the witness, declared he could not represent them in
the matter or have anything to do with it. The second statement
testified to a conversation had with Doitteau, one of the members
of the firm, after
Page 217 U. S. 67
the assailed conveyance and mortgage had been put upon the
record, which the witness considered was an admission by Doitteau
of the fraud and an explanation on the ground that he consented to
it because of the influence of his partner, Tornabells. It is also
true, however, that the statements made by the witness on
cross-examination tended to qualify the impression as to the
conversation resulting from his statements in chief, and to
indicate that the purpose of the members of the firm, as disclosed
by them in the conversation, was either to sell or mortgage their
property in order to raise money to apply to their debts, and that
the witness thought that this purpose was illegal, because it was
intended with the funds which might be raised to prefer particular
creditors. It was established that, at the time of the first
conversation, the witness, although the attorney of the firm, had
to its knowledge the claim of one of its creditors in his hands
professionally. It was also stated that, after the conversations
above referred to, and after the witness had knowledge of the
existence of the assailed conveyance and mortgage, he continued
both to have personal and professional relations with the firm. He
brought a number of suits in its behalf during the two years which
elapsed between the making of the assailed conveyance and mortgages
and the bringing of this suit. In fact, the claim which was in the
witness' hands at the time of the conversation with the members of
the firm was some time afterwards merged to judgment by a
confession by the members of the firm, which was written in the
office of the witness by one of his associates. Precisely when the
witness became the counsel for all the complainants does not
exactly appear, but certain is it that he stated in his testimony
that he was to receive a large contingent fee, amounting in several
of the cases to fifty percent of the amount recovered. The case, as
we have at the outset said, was decided some months after its
submission, and six months thereafter the statement of facts to
which we have referred, accompanied with extracts from the
evidence, was
Page 217 U. S. 68
certified by the court. After reproducing in the statement the
extracts from the testimony, the court said:
"As appears from the above, the court tentatively allowed the
foregoing evidence of said witness Cornwell to be admitted, but
subsequently, upon the consideration of the testimony as a whole,
and upon making its findings of fact and law, and rendering its
decision herein, the court did determine and rule that the
defendants' objections to the testimony of said witness Cornwell
insofar as same related to conversations between said witness and
Joaquin Tornabells, Carlos Doitteau, and Luis Aran, should be
sustained and said testimony excluded, because the plan outlined by
said Tornabells during said conversation did not constitute a fraud
upon creditors under the laws of Porto Rico at that time in force,
hence, the privilege existing as to confidential communications
between attorney and client was applicable thereto, and further,
because such testimony involved admissions of a dead man against
the interests of his own heirs, who are parties to the suit."
It is upon this statement that the contention is based that the
court illegally rejected the testimony of the witness Cornwell.
But, when the statement is accurately considered, it appears that,
instead of rejecting the testimony, the court weighed and
considered it, and but declared that, on its face, it did not tend
to establish a fraud within the meaning of the Porto Rico law, and
hence, that the statements were privileged. As the fraud on the
part of the firm of Tornabells & Company which was charged in
the bill, and the fraud which it was insisted was demonstrated by
the statements made to the witness, were in substance one and the
same, it necessarily follows that the finding of the court that the
statements testified to did not tend to show the fraud which it was
asserted they did show was but an expression of the conclusion of
the court upon the facts involved in the merits of the controversy,
and therefore is embraced in its finding of fact, which we may not
review. If, however, we could otherwise consider the action of the
court, we are constrained to say, upon an examination of the
Page 217 U. S. 69
testimony of the witness, made part of the certificate, that we
think the court was right in concluding that the testimony did not
establish a sufficient foundation to relieve the witness from the
obligation resting upon him as the result of his professional
relations.
The error which it is insisted the court committed as to the
statements of the widow of Tornabells need only be briefly noticed.
In the course of his examination, the witness Cornwell was asked
concerning statements made to him by Mrs. Tornabells of
conversations which she stated she had with her husband tending to
show that the assailed contracts were simulated, the statements to
the witness having been made after the death of Mr. Tornabells. In
reference to the motives which induced Mrs. Tornabells to make to
him the statements about which the witness was asked, he said that
she represented herself to be in great pecuniary distress, and was
desirous of ascertaining whether she and her children could not in
some way be benefited if the pending suit assailing the conveyance
and mortgage of the property was successful. Indeed, on
cross-examination, the witness said:
"Q. Is it a fact, Mr. Cornwell, that a contract was made between
your firm and this woman to give her either money or property?"
"A. If it was, it was made afterwards by Judge Pettingill and
Mr. Horton."
"Q. I am asking you if it was."
"A. I don't know. I am out at the mill the most of the
time."
On objection being made to the witness testifying to the
statements of Mrs. Tornabells as to the conversations with her
deceased husband, the court declared that the objection would be
overruled
pro forma, with a right to sustain it later, and
gave counsel for the defendants an exception. Thereupon the counsel
for the complainants declared as follows:
"I want to get on the record that it is not claimed by the
complainants that this statement, whatever it may be, made
Page 217 U. S. 70
by the widow of Tornabells as a defendant in this case, binds
any defendant or is admissible against any defendant except herself
and the minor children whom she represents."
After this declaration, the witness testified as to the
statements made to him by Mrs. Tornabells concerning conversations
with her husband, the substance of which tended to show that the
assailed contracts were fraudulent simulations. Although the
testimony was thus in the case when it was submitted to the court
for decision, in its certificate appended to the statement of facts
to which we have already referred, the court said that, in
disposing of the case, it, in effect, concluded that the statements
by Mrs. Tornabells as to the conversations with her husband were
inadmissible, because they were hearsay, Mrs. Tornabells not having
been called as a witness, and because, in any event, it was
incompetent to establish the want of good faith in written
contracts made by a deceased person by repeating conversations had
with him during his lifetime. Conceding that the action of the
court can be construed as indicating that it rejected the testimony
instead of simply weighing it, and found it insufficient to prove
the alleged fraud, we think it suffices to say, without further
elaboration, that the reasons stated by the court are, on their
face, adequate to sustain its conclusion. Besides, as the testimony
of the witness Cornwell concerning the statements made by the widow
Tornabells was offered only as against her and her children, and
not against the other defendants, it clearly results that no
prejudicial error could, in any event, have resulted from the
ruling, even on the hypothesis that the administratrix was
competent, by a mere admission, to injuriously affect the estate of
her minor children, which the court made, in view of its finding as
to the rights of the other defendants.
Affirmed.