Summary
In Penn v. Whiteheads, 12 Gratt. 74, this court entertained jurisdiction of an appeal from such an order, and affirmed it so far as it overruled the motion to dissolve, but reversed it in other respects.
Summary of this case from Baltimore & O.R. Co. v. City of WheelingOpinion
02-05-1855
PENN v. WHITEHEADS.
Patton, for the appellant. Morson and Robinson, for the appellees.
(Absent LEE, J.)
1. A husband carries on a mercantile business as agent for his wife, and he is aided by his sons, who are minors. The business is profitable, and property is accumulated from its profits. The husband has an interest in this property, which may be subjected by his creditors to the payment of his debts.
2. Upon a bill by the creditor of the husband, who had recovered a judgment upon which an execution had issued, and had been returned " no effects unencumbered," to subject the property, charging that the agency was a fraud, and that the property was the hus band's; or that at least he had an interest in it on account of his services, and the services of his sons, who were minors, and asking for an injunction to restrain the collection of the debts and the disposition of the property, and for a receiver, the injunction was properly granted: And upon a motion in vacation to dissolve the injunction, which was overruled, it was proper to appoint a receiver to sell the property and collect the debts.
3. In this case, one of the sons of the husband having come of age, was taken in as a partner, and there were debts due for goods purchased, for which the son was liable. If these debts were entitled to be first paid out of the property, it was still error to direct the receiver to pay them, before having a report upon them by a commissioner of the court.
In January 1853 James S. Penn filed his bill in the Circuit court of Nelson county, in which he alleged that Floyd L. Whitehead was indebted to him in the sums of eight hundred and twelve dollars and fifty cents, and of one thousand nine hundred and eighty-four dollars and sixty-three cents, with interest from the 1st of January 1842, which he had recovered against the said Whitehead by a decree of the Circuit court of Nelson made in October 1842, upon which execution had been issued and returned " no effects unencumbered." That Whitehead had conveyed away all his property except money to secure creditors to the exclusion of the plaintiff, and except certain property conveyed to one Charles Williams, in trust for Maria P. Whitehead his wife. That by a suit in the County court of Nelson, Whitehead contrived to have Williams removed and himself appointed trustee in his place. That Whitehead afterwards commenced the mercantile business in the county of Nelson, styling himself agent for Maria P. Whitehead, and was aided by his two sons, both of whom were minors, and owed their service to their father, and not to their step mother Mrs. Whitehead. That Whitehead was in fact doing business for himself. That Mrs. Whitehead furnished no money at the commencement or during the progress of the business to carry it on. That she had nothing except the property conveyed in trust as aforesaid for her benefit; and that she continued to hold.
He further charged, that for the purpose of carrying on his fraud, Whitehead changed the style of his business, and pretended that his son Alexander, who was then a minor, and without money, was a partner; and the business was then conducted under the style of Floyd L. Whitehead, agent, & Son.
He further charged that Whitehead was then engaged in the mercantile business with Joseph B. Coffey. That Whitehead, agent, & Son had recently ceased to sell goods, and the stock which was on hand had been sent to the establishment of Whitehead & Coffey; and the father and son were then engaged in settling up the business of the other two concerns. He charged that the books and papers of the three concerns were the property of Floyd L. Whitehead; and that a tract of land which he had acquired, and a negro man and three horses he had purchased were his property; and not the property of his wife.
The plaintiff further charged that if Whitehead was in fact acting as agent of his wife, his services and the services of his two sons were worth at least the sum of three thousand dollars, which a court of equity would charge upon the trust property in favor of creditors. And making Whitehead and his wife and his son Alexander defendants to the suit, he asked for an account of the profits of the mercantile concern, and of the capital invested therein by Floyd L. Whitehead; and if necessary, an account of the value of the services of said Whitehead, and of his sons, whilst they were under the age of twenty-one years; and also for an injunction to restrain the defendants from selling the property, and collecting or otherwise disposing of the debts until they should give security in the penalty of three thousand dollars, with condition to have that amount arising from the collection of the debts, forthcoming to answer the future order of the court; and if they should fail to give the security in a limited time, that a commissioner might be appointed to collect said debts. The injunction was granted according to the prayer of the bill.
The defendants answered separately. They all denied the fraudulent intent imputed to them. They denied that Floyd L. Whitehead had any personal interest in either of the mercantile concerns. They admitted that no capital was put in by either Mrs. Whitehead or by Alexander Whitehead. Whitehead and Mrs. Whitehead stated that the place where the business was conducted, and the first goods purchased, were rented and purchased of H. W. Heath & Co. who had conducted a store at the place; and were made upon the faith of Mrs. Whitehead's trust property. That the subsequent purchases were in like manner made upon her credit, and all persons were informed of the character in which Floyd L. Whitehead acted. As to the services of the sons, the younger was going to school the greater part of the time, and Alexander was supported by Mrs. Whitehead. And as to Floyd L. Whitehead, the books would show that he had drawn out of the concern full as much as his services were worth. Alexander Whitehead stated that for the two years he was a partner, he was to receive one-fourth of the profits. That the debts of Whitehead, agent, & Son, for which he was responsible, amounted to eight thousand two hundred dollars, debts which had been contracted for goods; and he insisted that he should not be deprived of the assets of the concern, and left subject to this liability.
A mass of testimony was taken in the cause, which it is unnecessary to notice further. It is sufficiently stated in the opinion of the court.
The defendants gave the plaintiff notice that they should, on the 3rd of February 1853, at the office of the judge, in vacation, move him to dissolve the injunction: And accordingly, the cause came on, on that motion, when the court held that the whole net profits of the concern of Whitehead, agent, and three-fourths of the profits of Whitehead, agent, & Son, and of Whitehead & Coffey, whether existing in the form of money or property, real or personal, or choses in action, being the fruits of the labor and skill of Floyd L. Whitehead and his minor sons, and not in fact the profits or product of the trust estate of his wife, were not protected from the payment of his debts by the arrangement resorted to, to give them the semblance of profits realized from the separate estate of the wife upon a bona fide separate trading of the wife, in pursuance of a lawful and binding contract, or permission or consent of the husband, either before or since the coverture. And that the nominal contracts by Whitehead, agent, & c. and Whitehead, agent, & Son, carrying on concerns in these names and styles, however free from mala fides or actual fraud they may have been, in consequence of having resulted from the mistaken opinion or advice of counsel, or the mistaken opinion of the client as to the rights of his wife or his own rights, duties and responsibilities, were, in legal contemplation, fraudulent devices or contrivances for the purpose of defeating the creditors of the husband, and securing to him and his family the profits of his skill, labor, resources and contracts against their demands: And he therefore overruled the motion to dissolve the injunction.
The judge then went on to decree, that unless the defendants, or one of them, or some one for them, executed the bond required by the order granting the injunction, within ten days, that Robert Whitehead be appointed a commissioner and receiver of the court, to take into his possession the books, papers and evidences of debt of the said concerns, and the property, real, personal and mixed, appertaining thereto; to collect the debts, and make sale of the property on the usual terms; and pay out of such debts, collections and sales of property, all the liabilities of said concerns to merchants or others who have trusted them for supplies of goods, moneys or other things; and that he hold the residue or profits of said concerns subject to the future order of the court; and that he make report to the court of his proceedings under this decree. And the court would thereafter direct the account prayed for, to ascertain the net profits of the concerns; and the value of the services of said Whitehead and his minor sons; and upon the final hearing would determine as if upon a review or reconsideration of the decree, whether the plaintiff was entitled to subject the whole of the profits of the first concern and three-fourths of the second, or only such part as would be equivalent to the services of the said Floyd L. Whitehead and his minor sons. From this decree Penn obtained an appeal to this court.
Patton, for the appellant.
Morson and Robinson, for the appellees.
OPINION
MONCURE, J.
The order appealed from in this case was made on a motion founded on the provision in the Code, ch. 179, § 12, p. 678, which declares that " the judge of a Circuit court in which a case is pending, wherein an injunction is awarded, may, in vacation, dissolve such injunction, after reasonable notice to the adverse party." In deciding on this motion, it was only necessary for the judge to determine whether or not (looking to the case as it then stood) it appeared that the appellee Floyd L. Whitehead had any interest in the subject in controversy, which could be made liable to the claims of his creditors, and that the appellant was a creditor entitled to enforce such liability. If it did so appear, it was proper to continue the injunction; otherwise it was proper to dissolve it. It was unnecessary and premature in that stage of the case to enquire, or express any opinion, as to the precise extent of the interest which could be so made liable, whether it embraced the whole subject in controversy, or the surplus thereof, after paying the debts of the mercantile concerns mentioned in the order, or either of them, or an undivided portion of such surplus.
We are of opinion that the said appellee had such an interest in the subject in controversy. He carried on the trade as agent of his wife and on her separate account. She pledged her separate estate (so far as she had power to do so) for the stock of goods with which the trade was commenced; and the store-house was leased to her husband as her agent. The subsequent purchases, or many of them, were made on the credit of her separate estate, or of her husband as her agent. But she invested no money in the business, and always remained in the possession and enjoyment of her separate estate. It is comparatively of small value, and consists of unproductive personal property, much of which is perishable. She has but a life estate in the property, with a power of appointment " by will to such person or persons as she shall choose, but not out of her own family, or the family of her said husband." And it is provided in the deed of settlement that even during her life the property shall remain in her possession for the support and maintenance of herself and her issue and family, and for no other purpose whatever. She could certainly pledge or charge no more than her life estate in the property if even she could do that: which is at least very questionable. At all events, it is obvious that whatever was acquired by the trade was acquired, in whole or in part, by the labor and skill of the husband. Creditors trust their debtor on the faith, not only of his present property, but of his future acquisitions, whether made by his labor and skill or otherwise; and he has no right to devote either to the separate use of his wife, in exclusion of their claims. He is certainly under a high obligation to support his family; but he is under a still higher obligation to pay his debts. If the wife in this case had no power to pledge or charge her separate estate, then the arrangement under which the trade was carried on by her husband as her agent was purely voluntary; and though it might be valid as between the husband and wife, it would seem to be void as to his creditors. Whether in that case the creditors, whose debts were created on the faith of the arrangement, would be entitled to priority of payment out of the subject in controversy, is a question which it is unnecessary now to consider. If she had such power, then the arrangement would be void as to his creditors to some extent, and whether in whole or in part, would be a question for the court to decide at the hearing. If valid as to them to any extent, it would only be to the extent of compensating her just interests in the subject; on the principle of the cases of Quarles v. Lacy, 4 Munf. 251; Blanton v. Taylor, Gilm. 209; and Taylor v. Moore, 2 Rand. 563. It would be difficult, if not impossible, for the court to adjust the relative and conflicting interests of the wife and the creditors of the husband in the profits of the trade; and to ascertain how much she should receive for the credit of her separate estate, and they for the labor and skill of himself and his infant sons in carrying on the business. She might at least be entitled to require that the property acquired by the trade should be applied to the payment of the debts of the concern, before it was subjected to the claims of his individual creditors. She would certainly not be entitled, as against them, to all the profits of the business, however large they might be, on the ground that the services of the husband and his infant sons in carrying it on had been adequately compensated by the support which they derived from it. A man may be so successful in business as to make more than a support for his family, and more than the ordinary value of such services as were rendered by him in carrying it on; and his creditors are entitled to the benefit of all that he can make. He cannot, by trading as agent of his wife and on the credit of her separate estate, secure to her separate use, in exclusion of the claims of his creditors, all the proceeds of his future labor and skill beyond the necessary support of his family. The business in this case appears to have been very successful, and to have yielded a profit beyond the support of the family, including the wife. We deem it unnecessary to express any opinion as to any right or interest of the appellee Alexander R. Whitehead in the subject in controversy; and think enough has been said to show that the appellee Floyd L. Whitehad has an interest therein which is liable to the claims of his creditors.
We are also of opinion that the appellant is a creditor entitled to enforce such liability. He is a decree creditor, and avers in his bill that he has sued out two executions on his decree, which have been returned " no effects unencumbered." He exhibits a copy of his decree, though not of the executions and returns. But the averment in the bill in regard to the executions is not denied in any of the answers; and, on a motion to dissolve, must be taken to be true. Having thus acquired a right to have satisfaction out of his debtor's property specifically, he is therefore entitled to come into equity to impeach the arrangement in question, on the ground of fraud. Whether a creditor at large would be so entitled, under the provision in the Code, ch. 179, § 2, p. 677, is a question which need not be considered. It is stated in the answer of Floyd L. Whitehead, that the appellant has long since conveyed away his claim by deed of trust for the benefit of his creditors; a copy of which deed is in the record: and it is contended that the appellant has therefore no right to maintain this suit. It is not pretended that the claim was ever sold under the deed of trust; and, even if the deed be still unsatisfied, we are of opinion that the appellant has a sufficient interest in the claim to entitle him to maintain the suit; though it may be necessary hereafter to make the trustee in the deed a party to the suit.
The motion to dissolve the injunction was therefore properly overruled.
We are also of opinion that there is no error in so much of the order as appointed a receiver to take into possession all the papers, books, accounts, evidences of debt, & c. of the concerns therein mentioned, and the property, real, personal or mixed, appertaining thereto, collect the debts, make sale of the property upon the usual terms, and make report to the court. The power to appoint a receiver, when one is necessary for the collection, preservation or sale of property pending an injunction suit, is incident to the power to grant an injunction; and the latter power being expressly conferred by law on a judge in vacation, the former is conferred on him by implication. The necessity for the appointment of a receiver in this case for the purposes before mentioned, is shown by the answers of the appellees; from which it appears that when arrested by the injunction they were engaged in winding up their business, by selling their property, collecting their credits, and paying their debts, and their interests required that the sales and collections should be made with as little delay as possible. Indeed, the counsel of the appellees, in their argument of this case, did not question, but seemed to admit, the propriety of appointing a receiver, if it was proper to continue the injunction.
But we are of opinion that there is error in so much of the order as directed the receiver to " pay out of such debts, collections and sales of property, all the liabilities of said concerns to merchants or others who have trusted them for supplies of goods, moneys or other things." It was premature to determine, before the hearing of the cause, whether the creditors of the said concerns, or either of them, are entitled to priority of payment out of the subject in controversy; and if they are so entitled, it was erroneous to direct the receiver to pay their claims before they were ascertained and allowed by the court. Before any such direction is given, an order should be made directing a commissioner of the court to take an account of what is due to the said creditors, and to cause them, upon due public notice, to come before him and prove their claims; so that an opportunity may be afforded to the appellant and the creditors respectively, to contest any of the said claims before the commissioner, or before the court, on exceptions to his report.
Therefore, so much of the said order as is in conflict with the foregoing opinion is reversed, with costs to the appellant, and the residue thereof is affirmed. And the cause is remanded to the Circuit court for further proceedings to be had therein.
DECREE REVERSED.