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 indorsed, 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 [160 U.S. 149, 152] & Co., 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:
After arriving at Louisville, Warten telegraphed the Memphis company that the Louisville firm refused the extension unless he paid $3,000 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 $1,000 and four other acceptances, for $500 each, maturing on the 1st and 15th of February and 1st and 15th of March, following, and the balance of the debt, except an item [160 U.S. 149, 153] of about $200, 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 1st the embarrassment of Warten became rapidly more fiagrant, 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 11 and 12 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 $15,000. Of the accounts assigned, about $30,000 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 employ e in the store, generally assisting [160 U.S. 149, 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 employ e, 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 $3,000 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 $3,000. That, when he could not procure the amount of the cash payment demanded, then the settlement was effected,-the short-term acceptances for $3,000 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. [160 U.S. 149, 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 36 errors, 12 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).
Milton Humes, for plaintiffs in error.
[160 U.S. 149, 157] Lawrence Cooper, for defendants in error.
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. In so far 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 [160 U.S. 149, 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 12 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 [160 U.S. 149, 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 Nat. Bank v. Bank of Kansas City, 136 U.S. 233 , 10 Sup. Ct. 1013; Peters v. Bain, 133 U.S. 670 , 10 Sup. Ct. 354. 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 , 9 Sup. Ct. 309), and in another that of the state of Iowa (Etheridge v. Sperry, 139 U.S. 267 , 11 Sup. Ct. 565). The instructions given, as above recited, were in direct accord with the settled law of Alabama. In Pollock v. Meyer, 96 Ala. 172, 11 South, 385, it was held that:
On page 175, 96 Ala., and page 385, 11 South., the court cites approvingly from the decision in First Nat. Bank of Birmingham v. Smith, 93 Ala. 97, 9 South. 548, as follows:
The court further observed, on page 176, 96 Ala., and page 385, 11 South., as follows:
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, 11 South. 347, 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:
In its opinion the court further said (page 224, 95 Ala., and page 347, 11 South.):
By recent legislation in Alabama1 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 (Ala.) 16 South. 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, 14 South. 398, it was said (page 694, 101 Ala., and page 398, 14 South.):
The burden of proof to show fraud and notice of fraud was [160 U.S. 149, 163] on the party alleging fraud. Hodges v. Coleman, 76 Ala. 103; Pollak v. Searcy, 84 Ala. 259, 4 South. 137. See, also, Jones v. Simpson, 116 U.S. 609, 615 , 6 S. Sup. Ct. 538. In Pollak v. Searcy, supra, the court said:
So, in Roswald v. Hobbie, 85 Ala. 73, 79, 4 South. 177, it was held that:
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:
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 in so far 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, 5 South. 565. Such, also, is the general rule. Smith v. Kraft, 123 U.S. 436 , 8 Sup. Ct. 196; Burrell, Assignm. ( 6th Ed.) p. 471, 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, 14 South. 283.
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 [160 U.S. 149, 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:
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. [160 U.S. 149, 166] 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.
The three following instructions on the subject were asked and refused:
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 indorsers, 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 indorsement. 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. Shoe Co., 92 Ala. 145, 9 South. 136; Cook v. Brick Co., 98 Ala. 409, 12 South. 918.
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. [160 U.S. 149, 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 codebtor 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 rate 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 [160 U.S. 149, 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 $3, 000, 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. The are 12 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.
[ Footnote 1 ] Act Feb. 21, 1893.