Central Law Journal.

ST. LOUIS, MO., APRIL 14, 1916.

PARTICIPATION BY GRANTEE IN INTENT OF GRANTOR TO DEFRAUD HIS CREDITORS.

The scope of the rule that a failing debtor may prefer one creditor to another has elaborate consideration in recent opinion delivered by Third Circuit Court of Appeals in the case of English v. Brown, 229 Fed.

34.

This case shows that a husband was indebted to his wife and was being sued by another creditor for a large amount. About the only property he possessed was some shares of common and preferred stock in a certain corporation. These shares were transferred to her in part payment of her debt with full knowledge by her that this transfer to her, if effectual, would deprive the other creditor of all fruit of any judgment he might obtain in his pending suit.

That this situation may appear more fully, we reproduce the finding of the trial court as follows: "Much of the money advanced by her was received by Brown when he was in failing circumstances and when Mrs. Brown knew he was so situated, and the shares were turned over to Mrs. Brown when he was without means wherewith to meet the claims of the English brothers under the original agreement between himself and them, and when he and his wife both knew that the English brothers were both diligently pressing their rights and that the transfer of the stock would necessarily operate to hinder and delay the collection of the New York judgment held by the English brothers."

The Court of Appeals speaks of this finding as follows: "The substance of this

finding, as we understand it, is that although Brown was bona fide indebted to his wife and the consideration paid by her for the stock was adequate, yet her knowledge of her husband's insolvency, of his indebtedness to English brothers, and of hist inability to pay the same if she acquired the stock, disclosed the wife's complicity in her husband's fraud and made the transaction void."

This is hardly a fair summary of the finding, because it fails to take into account the fact when much of the money was loaned, and of the conclusion by the lower court, that the wife lending money "for the purpose of aiding him as well as to obtain a preference, took the shares with full knowledge of the circumstances."

The Appeals Court says the main question is whether the trial "court erred in deciding that the transfer of stock, in view of Brown's insolvency and his wife's knowledge thereof was in fraud of other creditors and therefore invalid." Though this is narrower than the question decided by the trial court, we yet venture to assert, that it should be answered in the affirmative. even under New Jersey decision, which the Appeals Court was endeavoring to apply, under the facts in this case.

Thus the Appeals Court relies upon Atlantic Refining Co. v. Stokes, 77 N. J. Eq. 119, 75 Atl. 445, which says: "There must be no combination between the preferred creditor and his debtor to hinder, delay or defraud other creditors of the debtor. It is not sufficient for the purpose of setting aside such a conveyance that the object of the grantor was fraudulent; it must be shown that the grantee participated in that intent, or had knowledge of the object of the grantee or of such facts as should have put him on inquiry as to that object."

The New Jersey case then goes on to say that if the conveyance is made to secure or discharge an antecedent debt, there must be more than knowledge by the grantee of grantor's fraudulent purpose, but there must be participation therein by making a

reservation in grantor's favor or in some other manner combining with him to enable him to defeat his creditors. Then the court goes on to distinguish between a volunteer paying a present consideration and an existing creditor endeavoring to save himself, saying the latter "may know the fraudulent purpose of the grantor, but the law sees that he has a purpose of his own and if he goes no further than it is necessary to serve that purpose, the law will not charge him with fraud by reason of such knowledge."

In this case there was a finding that the wife did go further. She advanced to her husband a large portion of the money while he was, to her knowledge, in failing circumstances, so, presumptively, to secure an antecedent debt. Much of the money then is to be looked at as a present, and not as an antecedent, debt.

We do not, however, believe that the distinction attempted to be drawn by the New Jersey court, and very doubtfully applied by the Appeals Court, is the law in the majority of American cases. We think, that a grantee should be held to intend that which he knows, or has reasonable ground to believe, will result from his acts, and if this principle should ever be applied, it ought to be applied in a case of a confidential relation existing between grantor and grantee as was the case before the Appeals Court.

The view that the fraudulent purpose of the grantor affects even a conveyance for a pre-existing debt, where the creditor takes with knowledge of such purpose, appears to have been held in Iowa. Flood v. Bellmeier, 144 N. W. 579; in Washington, Allen v. Kane, 79 Wash. 248, 140 Pac. 534; in Michigan, Fasshender v. Donohue, 150 N. W. 335; and in North Carolina, Sanford Co. v. Eubanks, 152 N. C. 697, 68 S. E. 219.

The principle declared in the New Jersey case is also declared in Baldwin v. La Fayette Land Co., 56 So. 943, decided by Florida Supreme Court, but stress is

laid upon the fact that the only purpose of grantee must be to secure his debt. We greatly doubt whether it can be thought that any wife claiming for an antecedent debt would be presumed to be acting only for such a purpose. And this seems the rule in Missouri. Aull v. Gaffin, 136 S. W. 343.

That the Appeals Court disregarded all of the evidence to show fraud in the grantee strongly appears from its saying that English could no more complain than Mrs. Brown could have complained had Brown transferred all of that stock to English. Therein it is seen to disregard the confidential relations between the parties, the wife advancing money after notice of Brown's situation and the necessary result of the transfer to her.

NOTES OF IMPORTANT DECISIONS.

CARRIERS

PRESUMPTION WHERE GOODS ARE DELIVERED IN DAMAGED CONDITION TO CONSIGNEE.-The rule often has been announced that where goods have been delivered to the first of several connecting carriers in good condition and by the ter minal carrier in bad condition, there arises a presumption against the terminal carrier.

In St. Louis, I. M. & S. Ry. Co. v. House Oil & Mfg. Co., 183 S. W. 176, decided by Supreme Court of Arkansas, it was held that where this presumption was rebutted by the terminal carrier, then it arose against the carrier next before it, and unless it was rebutted the preceding carriers were to be held not liable.

The court does not go into any reasoning as to this principle but cites therefor two cases -Railway Co. v. Shanley, 36 Tex. Civ. App. 291, 81 S. W. 1014; Connelly v. Illinois C. R. Co., 133 Mo. App. 310, 113 S. W. 233. Why, however, should not the rule work from the initial carrier forward instead of from the terminal carrier backward? Thus it was held in Lyon v. Atlantic C. L. R. Co., 165 N. C. 143, 81 S. E. 1, that where proof is made of delivery to any carrier on the route in good condition, the burden is on him to show delivery in the same condition to the next car

rier or to the consignee. It has been held that where it was shown that the first carrier received the goods in good condition and they were delivered in bad condition, the final carrier rebutting presumption makes a prima facie case against the first carrier. Packing Co. v. R. Co., 164 Ill. App. 646.

And it has been ruled that where an initial carrier failed to show it delivered freight to its connecting carrier, the terminal carrier could not be held for its loss. Mobile J. & K. C. R. Co. v. Phillips, Miss., 60 So. 572; Texas Cent. R. Co. v. Davies, Tex. Civ. App., 153 S. W. 916.

But it has been held that delivery to first carrier in good condition goods remained such when received by each succeeding carrier. Lumber Co. v. B. & O. R. Co., W. Va., 77 S. E. 333. This principle working backward until overcome by proof, tends to sustain the ruling in the Arkansas case.

A part of shipper's proof, where there is loss or damage anywhere, is that he delivered to first carrier in good condition. When the terminal carrier shows itself not at fault, is all presumption gone as to any other carrier? Or is the presumption as to good condition to remain until otherwise shown? This would make it work backward from the terminal carrier and the burden would be on its connecting carrier to acquit itself. If the presumption against the terminal carrier is an arbitrary rule, the initial carrier should first acquit itself.

EXTRADITION-REQUISITION FOR FUGITIVE IN STATE TO WHICH HE HAD BEEN REMOVED BY EXTRADITION.-The federal constitution provides that a person charged with treason or felony in one state and fleeing may be demanded from any other state in which he may be found. The extradition statute provides he may be demanded from the state to which he has fled, if there found. In Innes v. Tobin, 36 Sup. Ct. 290, a fugitive from Georgia was demanded from the governor of Texas, he there having been brought by extradition proceedings by the governor of Texas, on the governor of Oregon, to which latter state he had fled from Georgia.

Here it appears that the fugitive was not a fugitive to Texas, to which state he had come involuntarily and, certainly, he was beyond the reach of any proceeding under the statute enacted under the constitutional provision, which statute, however, was not broad as it might have been made.

as

The petition for habeas corpus averred that "petitioner was never a fugitive from justice from the state of Georgia to the state of Texas," and, as seen, this was true, and if he could be requisitioned from there it must be on some theory outside of the federal statute.

The Chief Justice reasons that prior to the adoption of the constitution, fugitives from justice were surrendered between the states conformably to what were deemed the controlling principles of comity, and the constitution meant to confer on Congress authority to deal with this subject fully to this extent. But in the statute it only had dealt with it partially. Did the statute intend to cover the entire ground of demand for a fugitive from the justice of a state?

The Chief Justice said: "When the situation with which the statute dealt is contemplated, the reasonable assumption is that by the omission to extend the statute to the full limits of constitutional power, it must have been intended to leave the subject unprovided for not beyond the pale of all law, but subject to the which then power controlled state authority-until it was deemed essential by further legislation to govern them exclusively by national authority." He then argues that this must be so, greatly or state authority is paralyzed.

This reasoning is all upon a failure, more by inadvertence than by intention in Congress, to make a statute as broad as it should have been made. Certainly, if Congress was providing for extradition of fugitives there could be no reason for not going the full length of of the power vested in it. It is not the same as if no statute was passed at all, and the subject is one that should be disposed of completely, if treated at all. If paralysis from partial treatment was to result that would be congressional inefficiency and not the product It would seem, at of congressional design.

all events, that the constitution intended, that the subject was to be cared for by federal legislation and if it was not exhaustive, it ought to have been.

age Co. *

*

*

Buyer

Accepted...

Seller."

It was contended, only, that this memorandum was insufficient because "not signed by defendant or some agent by it thereto lawfully authorized."

The Court of Appeals first ruled that "in the first instance a broker may be regarded as the agent of one party only, *** but when acting as a broker he strikes a bargain between the parties and the contract of sale is definitely settled, he becomes the agent of both parties for the purpose of executing the memorandum of the transaction." This principle is said to be "implied from the necessity of the case, because without it he could not complete a contract of sale so as to make it legally binding on the parties."

This point being passed, it became easy to deduce the conclusion that the printed name at the top of the memorandum sufficed for the signature required by the statute of frauds. Indeed, it may well be doubted whether there remained any question referable to the statute of frauds.

As to being a sufficient signature, Judge Norsaid: the court, "It toni, speaking for is true to no formal signature appears be affixed thereto (to the memorandum), but this is unimportant in view of the fact that the name of the broker *** is printed on the heading of the memorandum and defendant's name is clearly written by the broker therein in typewriting as the purchaser. The signature required by the statute is not confined to the actual subscription of his name by the party to be charged, as is said by Mr. Benjamin on Sales (6th Ed.) § 256. * * * It sufficiently appears that defendant's name was written into the memorandum as the purchaser by the brokerage company, who, according to the evidence, at that stage of the negotiations, had, in virtue of its function as broker, become the agent of the defendant as well as of defendant."

This case demonstrates that decision, of which much is cited, will apply the statute of frauds only where parties are still standing at arm's length and when there are intervening circumstances showing this no longer to be so, as in this case the dual agency of the brokerage firm, there is no reason for applying rule for suppression of frauds and perjuries. If there is a dual agent his credibility is attested by all parties. For a discussion under title "Statute of Frauds-Signature and Waiver," see 74 Cent. L. J. 339.

The general doctrine that exemplary damages may be assessed, at common law, in appropriate cases, is now expressly recognized by English courts and by about three-fourths of the American courts of last resort. In England, a well known case2 in the Court of Common Pleas, a century and a half ago, expressly sanctions the award of exemplary damages; and an important American court, about a century ago, apparently as a matter of course, recognized the propriety of such damages. Yet, probably there is no warrant for saying that, prior to 1763, there was a general rule, positively and expressly stated by courts. that, under certain circumstances, the jury might assess exemplary damages. Probably the general rule resulted from the extreme reluctance, and often flat refusal, of early courts to interfere with the verdicts of juries in tort cases when urged to set aside such verdicts on the ground that the damages awarded were excessive.*

Some of the decisions cited in American cases as being authorities for the imposition of exemplary damages are not very strong supports to the contention for which they are cited as standing; for instance, one very important and frequently cited case quotes Lord Chief Baron Pollock as saying. in Doe v. Filliter," in 1844, that, in actions for malicious injuries, juries had always been allowed to give what are called vindictive damages. Lord Pollock did not use the words "always," and the entire indirect quotation is of a statement which was purely dictum in an ejectment suit; though the same distinguished judge, fourteen years

(1) This article takes no notice of exemplary damages allowed in some states by statute. (2) Huckle v. Money, (1763) 2 Wils. 205. (3) Wort v. Jenkins, (1817) 14 Johns. (N. Y.)

352.

(4) Townsend v. Hughes, 2 Leach 150. (5) Goddard v. Grand Trunk Ry., (1869) 57 Me. 202, 2 Am. Rep. 39.

(6) 13 Mees. & W. 50, 51, 153 Eng. Rep. 20, 21.

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Many arguments against the allowance of exemplary damages are advanced in the famous case of Spokane Truck & Dray Co. v. Hoefer, and in the cases therein cited. It is not within the purpose or scope of this article to weigh in detail the objections there raised. Doubtless the most important of these objections is that the doctrine is not historically a part of the common law. This objection has never been really overcome. The other objections may be classified as constitutional and ethical. It seems difficult to maintain that the award of exemplary damages is, on any ground, unconstitutional; and all constitutional objections have been squarely met and logically refuted. Of course, the objection of mere ethical injustice could not control in a legal proceeding; but most courts and juries, and some legislatures, have regarded the assessment of exemplary damages as being eminently just in what they have considered appropriate cases.

The supreme courts of three states have clearly and consistently denied that exemplary damages may be allowed at common law.10 The highest courts of four other states have imposed upon the general rule so restricted an interpretation as practically

(7) 3 Hurl. & N. 961.

(8) 2 Wash. 45, 25 Pac. 1072, 11 L. R. A. 689, 26 Am. St. Rep. 842.

(9) See Sedgwick, El. Dam. 2d ed., pp. 87-89. But see criticism of exemplary damages for penal offense, 2 Suth. Dam. 3d ed. 1116 and note.

(10) Murphy v. Hobbs, 7 Col. 541, 5 Pac. 119, 49 Am. Rep. 366; Greeley, etc., R. Co. v. Yeager, 11 Col. 345, 18 Pac. 211; Howlett v. Tuttle, 15 Col. 454, 24 Pac. 921; Boldt v. Budwig, 19 Neb. 739, 28 N. W. 280; Bee Pub. Co. v. World Pub. Co., 59 Neb. 713, 82 N. W. 28; Spokane Truck & Dray Co. v. Hoefer, 2 Wash. 45, 25 Pac. 1072, 11 L. R. A. 689, 26 Am. St. Rep. 842; Corcoran v. Postal Tel. Co., 80 Wash. 570, 142 Pac. 29.

Twenty supreme courts, including sixteen not in the two classes above mentioned, place serious limitations upon the general rule. Some of these and other courts have stated further logical and necessary restrictions upon its operation.

Although the validity of a general rule that exemplary damages may be awarded. in cases of malicious torts and breach of

promise to marry is expressly recognized by most supreme courts, some of the most important questions connected with the operation of the rule are decided differently, where they have arisen at all, and are still undecided in some jurisdictions; e. g., whether exemplary damages are ever recoverable where there is no proof of actual damage; whether exemplary damages are entirely within the discretion of the jury or may be insisted upon as a matter of right; whether such damages may be awarded for an act which is punishable criminally; to what extent exemplary damages may be assessed against infants; whether such damages are recoverable for anxiety and mental anguish not accompanied by other damage; what constitutes malice authorizing the assessment of exemplary damages; and to what extent a principal may be held liable in exemplary damages for torts of his agent. It is sometimes said that the principle of exemplary damages is well settled in most of the states; but it would be more nearly accurate to say that only a more or less vague and uncertain general principle is held in common by most courts, some of the most important principles ancillary and subsidiary to the doctrine being varied, indistinct, or unsettled. As the law of exemplary damages

(11) Maisenbacker v. Society Concordia, 71 Conn. 369, 42 Atl. 67, 71 Am. St. Rep. 213; Hassett v. Carroll, 85 Conn. 23, 81 Atl. 1013; allowing no exemplary damages above expenses of litigation. Stowe v. Heywood, 7 Allen, (Mass.) 118; Detroit Daily Post Co. V. McArthur, 16 Mich. 447; Welch v. Ware, 32 Mich. 84; Fay v. Parker, 53 N. H. 342, 16 Am. Rep. 270; allowing exemplary damages only to make reparation for injury to feelings.