Court Opinion

ID: 8846177
Source: CourtListenerOpinion
Date Created: 2022-11-26 16:57:56.652265+00
Date Added: 2024-06-11T17:05:21.071177
License: Public Domain

TAFT, Circuit Judge,
(dissenting.) Were this a proceeding in equity under the statute of 18 Eliz. to' set aside the sale from Jacob Lustig to the Treusch Brothers as in fraud of creditors, which had resulted in a decree for the complainants below, I should have no hesitation in sustaining the decree as fully supported by the evidence in this record. But the statute of Michigan has changed the form of action to enforce rights secured by the statute of 13 Eliz. to defraud creditors from the chancery to the law side of the court, by permitting the creditor to garnishee the fraudulent grantee of the debtor, and recover from him the goods, or their value, in a suit at law before a jury. Under this procedure the alleged fraudulent grantee is entitled to have the facts passed upon by the jury after the court in its charge shall have correctly laid down the principles of law upon which their investigation of the facts must proceed. If the principles of law in their application to the facts of the case are not correctly expounded to the jury, then it is the right of either party to have a new trial, no matter what result an appellate court might reach if, sitting as án appellate court of equity, it could determine the'issue on its merits. In this case the defendants in error sold to Jacob Lustig, a cigar and tobacco dealer- in Grand Rapids, more than $7,000 worth of goods and merchandise, which he never paid for. Lustig about the same time had purchased on credit a large amount of goods from other tobacco houses, with the evident intention of never paying for any of them. Of the goods furnished by other creditors than the plaintiff below he transferred some $10,000 worth to his brothers-in-law, Morris and Emanuel Treusch, the defendants below and the plaintiffs in error. It is in evidence that none of the goods sold to Lustig by the plaintiffs below were transferred to the Treusch Brothers. The action by the defendants in error, therefore, was as general creditors to recover by garnishee process the value of the goods which they had never owned to the amount of their claim against Lustig. The only ground for their action was that Lustig, being the owner of these goods and in failing circumstances, transferred them, in fraud of their rights as general creditors, to the Treusch Brothers. The fraud which Lustig had been guilty of in procuring the goods transferred to the Treusch Brothers from other creditors than the plaintiffs, gave the plaintiffs no right to complain. *881The plaintiffs’ right to recover goods or their value from Treusch was wholly dependent on Lustig’s title to them and ownership in them. It was not material, as an ultimate fact in this controversy, that the Treusch Brothers conspired with Lustig to defraud the persons from whom the goods held by Treusch were purchased. The persons thus defrauded could, of course, recover in trover the value of the goods from the Treusch Brothers, as transferees with knowledge of the fraud in Lustig’s title; but the plaintiffs, from whom the goods were not purchased, had no such right. Their rights grew out of the-fraud, if any, in the transfer by Lustig to the Treusch Brothers of goods winch, so far as third persons were concerned, belonged to him, in fraud of general creditors. In order to show that the transfer of these goods from Lustig to Treusch was in fraud of general creditors, it might be relevant to introduce évidenee of a general scheme of fraud in the purchase of the goods, in which the Treuschs and Lustig were acting together, as tending to show a guilty relation between Lustig and Treusch which would overcome a claim that Treusch was an honest, creditor honestly receiving pay for his debts. But the ultimate fact which must have been established in order that the plaintiffs below could have the right to set aside the transfer from Lustig to Treusch was fraud in that transfer, not as against the original owners of the goods, but as against the general creditors ef Lustig, solely on the hypothesis that Lustig was the owner of the goods transferred. Any other view seems to me to confuse the right of a general creditor, which is that the debtor shall not hinder or delay the collection of his debt by fraudulently disposing of his assets available for its payment, and the right of the vendor who has been defrauded into selling his goods to set aside the sale and recover the goods.
With this statement of the principles which should govern in a consideration of the facts of this case, let us see what the charge of the court was. The bill of exceptions states a part of the charge as follows:
“After instructing the jury, in substance, that the evidence in the case did not support the claim of plaintiffs that goods of Inis tig other than those accounted for on the hooks of Lustig and Treusch went into the Treuschs’ hand, and that Hiere was no evidence in the case showing that the defendants ought to he held for any deficit, if any, in, Lustig’s stock, and that the jury should! leave that basis of plaintiffs’ claim out of the case, the court charged the jury: ‘The question of fact involved, then, upon this main branch of the case is divided into two specific branches: hirst, in regard to the intent of Lustig in making these purchases of the goods that were turned over to the Treuschs; and, second, as to whether the Treusch Brothers connived at Lustig’s purposes, or had. notice of the fraud on his part in biwing and turning over t® them those goods; because, gentlemen, the law is that, however so fraudulent the conduct of a debtor may be in acquiring the title to goods, and however fraudulent his own motive may be, in turning them over to a creditor, unless that creditor lias also notice of the fraudulent purpose, or aids and abets it in some way,- — in other words, if he is entirely innocent of all fraud himself, or knowledge of the intended fraud on ihe part of the debtor-, — he is not responsible for it. He stands on Ills own merits, and is not to he condemned by the faults of his debtor, unknown to him. If Lustig bought a large stock of goods on credit without intending- to pay for them, or without having any expectation of being ¿ble to pay for them, and for the purpose of turning *882those goods over, so far as necessary, to Treusch Brothers, in payment of his debts to them, and they were so turned over, and Treusch Brothers, or either, of them, had notice that the goods thus received were, so purchased by Lustig with the intent and purpose stated, then you should find that those goods came into the hands of the defendants unlawfully, for it would be a fraud upon creditors, and they would be chargeable with their value in this suit.’ ”
In my view, the statement by the court to the jury that there was no evidence to impeach the validity and bona fides of Lustig’s debt to the Treusch Brothers was not warranted by the evidence, and was prejudicial to the plaintiffs below; but, as the plaintiffs below 'recovered a verdict, it requires no further comment. My object in making the above quotation from the charge is to show that the court, in effect, charged the jury that, if Lustig obtained the goods which were the subject of this suit by fraud on his vendors, in which fraud the Treuschs connived, then the plaintiffs below were entitled to recover in the action. Now, it is conceded that there was no evidence whatever to show that the goods sought here to be recovered were ever owned by the plaintiffs below. Therefore the court’s charge to the jury was that A., a creditor of C., might recover from B. goods transferred to B. by C. in payment of an honest debt owing by C. to B., because B. and C. had conspired together to defraud D., the fraud consisting in the intention on the part of C., known to B., not to pay B. the price of the goods. This, I submit, is a confusion of elementary principles. D., of course, would have the right in an action of trover, without regard to the statute of 13 Eliz., or the Michigan statute, under which this action was brought, to recover the goods fraudulently obtained, either from C. or B. But A. had no interest, and was not prejudiced by the fraud practiced on D. by B. and 0. The only complaint which A. could make of the transfer of goods by C., which A. had never owned or had any interest in, must have been entirely predicated on C.’s title to the goods and on A.’s right as a general creditor to have his debt paid by levy or other process on goods owned by C. The charge which I have quoted was duly excepted to. As it was, to my mind, erroneous, and presented the theory to the jury upon which the verdict doubtless rested, the judgment should, in my opinion, be reversed, and a new trial ordered.