Opinion
13492
October 17, 1932.
Before JOHNSON, J., Hampton, April, 1931. Affirmed.
Suit by Gothard E. Penning and Edward T. Penning, co-partners trading as Penning-Reid Company and others, in behalf of themselves and others, against R.W. Reid and another.
Judgment for plaintiffs and defendants appeal.
The decree of Circuit Judge J. Henry Johnson, directed to be reported, follows:
This was an action commenced on or about April 27, 1931, by the named plaintiffs in behalf of themselves and all other creditors in like plight of the defendant R.W. Reid, who will come into, join in, and contribute to the expenses of this action, to set aside a voluntary deed made by the defendant R.W. Reid, to his wife, Katherine Hill Reid, under the Statute of Elizabeth solely on the ground of legal or constructive fraud, the complaint alleging that the said deed had hindered, delayed, and defrauded plaintiffs and other creditors of R.W. Reid of their just and lawful action, suits, debts, claims, and demands, praying for judgment in their respective favor against the defendant R.W. Reid for the amounts alleged to be due; that the deed be set aside as legal fraud upon their rights; that the land be sold and the proceeds distributed to plaintiffs and other creditors of the defendant R.W. Reid; that a receiver be appointed to take charge of the premises; and for such other and further relief as plaintiffs were entitled to.
Prior to this time, to wit, on or about March 17, 1930, some of the same plaintiffs herein had commenced a creditors' action in this Court to have the same conveyance set aside under the Statute of Elizabeth on the grounds of actual or moral fraud. The title of this case was Marsh Furniture Company, Incorporated, Demerritt-Fisher Company, Incorporated, in behalf of themselves and all other creditors in like plight of R.W. Reid, who would come into and contribute to the expenses of this action, plaintiffs against R.W. Reid and Katherine Hill Reid, defendants. The plaintiffs in this first suit contended that the allegations of the complaint and proof were sufficient to set aside the deed for legal fraud. This suit was decided against the plaintiffs (Marsh Furniture Company. Incorporated, et al.), in an order signed by me in that case which will be hereinafter referred to.
The instant case of Penning-Reid Company was heard by me on the record and testimony in the first case of Marsh Furniture Company et al., by agreement of counsel for plaintiffs and defendants, together with such additional testimony as each desired to offer. For all practical purposes, the testimony in this case was the testimony taken in the first case of Marsh Furniture Company, Incorporated, et al.
For a complete understanding of this case it will be necessary to refer to the Marsh Furniture Company case.
Marsh Furniture Company, Incorporated, et al., was the first suit brought, and for convenience will hereafter be referred to as the first suit, and the Penning-Reid Company et al. case, the instant case now before me, will be referred to as the second suit.
In the first suit, the complaint of plaintiffs therein alleged the corporate capacity of each plaintiff; that both the defendants were nonresidents of the State of South Carolina and lived and resided in the City of Jacksonville, State of Florida; that the defendant R.W. Reid and E.E. Cleveland were co-partners trading as E.E. Cleveland Furniture Company, with its principal place of business in the City of Jacksonville, State of Florida; that in the case of plaintiff Demerritt-Fisher Company, a final judgment for the amount claimed due had been rendered and was of record in the Civil Court of record for Duval County, Fla., against the defendant R.W. Reid and E.E. Cleveland, but did not allege that an execution had been issued upon said judgment; the complaint further alleged that the co-partnership of E.E. Cleveland Furniture Company had been liquidated and a dividend of 13 3/4 per cent paid to general creditors; that there were no other assets, and that it was necessary to set aside the voluntary deed made by the defendant R.W. Reid to his wife, Katherine Hill Reid, conveying two tracts of land of 200 acres each, situate, lying, and being in Hampton County, S.C.; that the defendant R.W. Reid was totally insolvent at the time of said conveyance; and that said conveyance was a fraud upon the rights of plaintiffs and creditors of R.W. Reid.
The conveyance referred to was a deed made by the defendant R.W. Reid to his wife Katherine Hill Reid, conveying the said two tracts of land consisting of 200 acres each, more or less; that the deed was dated September 1, 1928, and recorded October 12, 1928, in the office of the Clerk of Court for Hampton County, S.C. The complaint contained the usual allegations of a creditors' bill.
In this first suit several references in the City of Jacksonville, Fla., were held, and the defendants both appeared in Hampton and testified before the referee, to whom it was referred.
Incidentally, in this first suit, an attachment was issued against both defendants, and the complaint also alleged that the defendant R.W. Reid had a certain interest in a mortgage proceeding involving real estate which was separate property. In the writ of attachment against the defendant R.W. Reid, a one-sixth undivided interest in a separate and distinct tract of land and the land deeded by R.W. Reid to his wife, was attached as the property of R.W. Reid. This property in the first suit was held to be subject to the payment of the debts of R.W. Reid, he being a nonresident of the State of South Carolina. However, all sums realized in the first suit were consumed in the payment of the cost of the action; the plaintiffs losing on the main issue.
From the testimony and the record in both the first suit and the second suit, the following facts were proved, and were not contradicted, and I so find and hold.
The E.E. Cleveland Furniture Company was a co-partnership consisting of E.E. Cleveland and R.W. Reid, and was one of the oldest furniture businesses in the City of Jacksonville. R.W. Reid is now, and was for many years, a nonresident of the State of South Carolina and a resident of the City of Jacksonville, State of Florida.
As far back as July 9, 1928, claims against the furniture company were being placed in the hands of attorneys in the City of Jacksonville for collection, and up until September 6, 1929, claims were being forwarded and collected and paid through attorneys against the said furniture company.
On September 6, 1929, a letter, signed by David J. Lewis, an attorney representing claims against the furniture business, R.D. Oldham, an experienced furniture man, and the defendant R.W. Reid, was sent out to the creditors of the furniture company saying that the said E.E. Cleveland Furniture Company had reached the stage where there was no possible prospect of its continuing in business; that seven judgments aggregating $2,000.00 had been entered of record, and executions given to the sheriff with instructions to levy; that the business at that time was in arrears for rent in the sum of $5,350.00 (the rent being for rent lease of $700.00 per month); that the business owed for personal taxes, exclusive of interest and exclusive of 1929 taxes, the sum of approximately $3,500.00, which with interest would amount to more than $4,000.00. That at the suggestion of several creditors, and to avoid bankruptcy of the said furniture business, it was thought best that the business be placed in the hands of a liquidating committee consisting of the above-named persons: the defendant R.W. Reid being one. (Some of the taxes in arrears dated back to the year 1923, which were unpaid and in execution.) It was stated that this plan was the best in the interest of creditors. The business was actually liquidated. After compromise of preferred claims, and after all assets of the business were disposed of, it paid a dividend of 13 3/4 per cent.
At the time R.W. Reid made the deed to his wife, to wit, September 1, 1928, there were suits pending against the furniture company. The deed was a voluntary one, being given for love and affection; the purported consideration of $10.00 not being actually paid.
The record shows, and it is part of the testimony in this suit, that in the City of Jacksonville, State of Florida, the Statesville Furniture Company, one of the creditors of E.E. Cleveland Furniture Company, commenced a suit to set aside as an alleged fraud the transfer of a mortgage in the sum of $68,000.00, which the defendant R.W. Reid had transferred to his wife, Katherine Hill Reid. In this proceeding, on or about March 24, 1930, the defendant R.W. Reid testified that outside of his interest in the E.E. Cleveland Furniture Company he had no other assets or property. This testimony on his part as to his having no other assets, except his interest in the furniture business, was part of the testimony in this case.
On trial the defendants introduced audits of certified public accountants for the period from May 1, 1927, to April 30, 1928, and for the period from May 1, 1928, to April 30, 1929, showing that at that time the company owned assets in excess of liabilities of $72,051.44, and $21,952.47, although the said audits showed that the said furniture company had a net operating loss of $17,103.58, and $18,650.34, respectively.
The plaintiffs, in the testimony in the first suit, introduced in the record, properly authenticated under the acts of Congress, judgment in favor of Marsh Furniture Company against R.W. Reid and E.E. Cleveland, co-partners. After the close of the testimony, and after the argument in the first case was made by the attorneys for plaintiffs and for the defendants, plaintiffs moved to reopen the case for the purpose of introducing in the record nulla bona returns on two judgments, which said nulla bona returns were dated January 20, 1931, and February 12, 1931, said dates being long after the commencement of the first action. The referee allowed the same, and allowed plaintiffs to amend their complaint by alleging the return of nulla bona on the executions issued on the judgments, which allegation was not in the complaint originally.
The referee, in the first suit, held in favor of the defendants on the ground of actual or moral fraud, but held in favor of plaintiffs on the ground of legal or constructive fraud.
The matter was heard by me on exceptions by plaintiffs and defendants to the report of the referee. I held in the order in the first suit, dated April 27, 1931, reference to which order is craved, that plaintiff's motion to amend the complaint by inserting the allegation as to the return of nulla bona was the wrong remedy, as the same, if it could be set up at all, should have been made by supplemental complaint and not by amended complaint, since the return of nulla bona was dated after the commencement of the action.
I further held that, even though no supplemental complaint was moved for by plaintiffs as the pleadings and testimony stood, even a supplemental complaint could not have been allowed. Francis Marion Hotel v. Chicco, 131 S.C. 344, 127 S.E., 436, 437. Moon v. Johnson. 14 S.C. 434.
I further held that the complaint had sufficient allegations to set up a cause of action for actual or moral fraud only, but that the plaintiffs, not having at the time of the commencement of the action the nulla bona return, and not having alleged the same at the commencement of the action, had not set up, and could not set up, a cause of action for legal or constructive fraud; and in that order I dismissed the complaint and discontinued the action for the two main reasons that plaintiffs had not proved the insolvency of the firm or of the defendant R.W. Reid, at the time of the deed, and that there was not sufficient proof to charge the defendant Katherine Hill Reid with the condition of the furniture business, the pendency of the suits, etc. The order stated that the alleged cause of action sought and attempted to be set up by plaintiffs in said first suit to have the deed set aside on the ground of legal or constructive fraud was not passed upon or adjudicated, the same not being before the Court in that first suit, and that it could not have been before the Court. Suber v. Chandler, 18 S.C. 526; Temple v. Montgomery, 157 S.C. 85, 153 S.E., 640, 641.
Soon after the filing of this order dismissing the first suit and the cause of action for actual or moral fraud therein alleged and set up, the plaintiffs. Penning-Reid Company. Marsh Furniture Company, Demerritt-Fisher Company et al., commenced this second suit in the form of a creditors' bill alleging their corporate capacity, the amount due on their claims, that judgment should be awarded in their favor against the defendant R.W. Reid, that the said amounts were due by the defendant R.W. Reid, and set up and alleged judgments obtained in their favor, execution and return of nulla bona thereupon, the judgments being in the County of Duval, State of Florida. The judgments, executions, and nulla bona returns, properly authenticated by the Acts of Congress, were introduced in and are in the record. In the case of Penning-Reid Company the execution was issued on the judgment on July 29, 1929, and same was returned nulla bona on February 2, 1931, by the Sheriff of Duval County, State of Florida, saying that: "Execution was issued July 29, 1929, and that after diligent search at the date of the receipt and at all intervening times and now he had been unable to find any property of R.W. Reid or E.E. Cleveland as copartners and/or as individuals to satisfy the execution and that he therefore returned nulla bona." The date of this nulla bona return is prior to the commencement of this second suit.
In this action bond was given by the plaintiffs and the property covered in the deed herein sought to be set aside for legal fraud was seized and attached by the sheriff and certain rental collected from the lands during the pendency of the first suit.
The defendants answered denying the main allegations of the complaint, but admitting the execution, delivery, and receipt of the deed, and further set up that such cause of action in the second suit was res adjudicata because of the cause of action in the first suit, and set up estoppel on the part of the plaintiffs in not including the cause of action for legal fraud in the first suit, and set up other defenses as will appear by the answers of the said defendants.
In the hearing before me in the present, or second suit, the defendants' counsel raised the point that the judgment, execution, and nulla bona return were given on a judgment rendered in the County of Duval, State of Florida, and that under the laws of this State before plaintiffs could have a cause of action for legal fraud they would have first to secure a judgment, execution, and nulla bona return on a judgment rendered in the Courts of this State, and on a domestic judgment as against a foreign judgment.
Before considering this question I will consider the answer of the defendants as to the question of res adjudicata. Clearly in view of the case of Johnston-Crews Company v. Folk, 118 S.C. 470, 111 S.E., 15, this defense will not stand. The order in the first suit specifically held that only the cause of action for moral fraud had been alleged, and that the cause of action for legal fraud not only was not set up, but could not have been set up, passed upon, or adjudicated in that first suit. There was no appeal from this order by either side. This matter was not, and could not have been, adjudicated in the first suit, and I rule against the defendants on this point and all other points and defenses raised and interposed by the defendants.
This brings us to a consideration of the position taken by defendants, that the execution and nulla bona return had to be upon a judgment rendered by the Courts of this State. To reach a correct conclusion as to this point, both the facts of this case will have to be considered, and the fact as to whether or not the rule admits of an exception or exceptions.
This principle of law has given me serious concern, but I believe the facts of this case of Penning-Reid Company, the second suit, take it out of the general rule, and that the facts of the case bring it under the exception to the general rule.
While I find no decided cases in the Courts of this State holding that, before the plaintiff can maintain a cause of action as herein set out, he must first obtain an execution upon a domestic judgment, and that a foreign judgment will not form the basis of such cause of action, I hold, and am convinced after careful consideration of such cases from other jurisdictions, that the weight of authority is that a creditors' bill to set aside a deed for legal fraud cannot be based upon a judgment rendered in another state, and that in the absence of special facts that would take the case out of the general rule it is my opinion, and I so hold, that to maintain an action such as this it will be necessary for a creditor to have an execution, nulla bona return on a judgment rendered by the Courts of this State (although in some cases judgments recovered in sister states have been held sufficient, but, as pointed out, these cases usually contain special elements). McCartney v. Bostwick, 32 N.Y., 53; 15 C.J., 1394 (Creditors' Suits, par. 36).
There are, however, clearly defined and well-recognized exceptions to the general rule, and the exceptions are as clearly established as the general law and rule itself is established.
One of the most recent cases bearing upon this point, that is the exceptions or exceptions as to when and under what circumstances a general creditor or a creditor having a foreign judgment may maintain such a suit and cause of action as is set up in this second suit without first obtaining judgment, execution, and nulla bona return in this State, is the case of Shuck et al. v. Quackenbush et al., decided by the Colorado Supreme Court on July 7, 1924, and reported in 75 Colo., 592, 227 P., 1041, 1044, 38 A.L.R., 259. As reported therein, it is the established law of the Colorado Court that to maintain such a creditors' suit as the plaintiffs allege here, it is necessary for plaintiffs to exhaust their legal remedy at law, to have judgment, execution, and nulla bona return thereon; but as stated in the syllabus of the case: "A general contract creditor may maintain a creditors' bill to reach his debtor's equitable interest in real estate, where the debtor is a nonresident, a fugitive from justice, and such equitable interest is the only property which he possesses, without the recovery of a judgment at law and return of execution unsatisfied." 75 Colo., 592, 227 P., 1041, 38 A.L.R., 259.
In the above case the creditor had obtained a judgment in the Court of Nebraska against the debtor. The debtor had purchased certain lands in the State of Colorado, and caused title to this property to be taken in the name of Cora, his wife. Suit on the Nebraska judgment was brought in the Colorado Court. The debtor had left the State of Colorado and had no other property in the State except the property, the title to which he had placed in the name of his wife. The Colorado Court sustained the action and set the deed aside, not specifically on the fact that the creditor had obtained a foreign judgment, but because it was impossible for him to obtain a judgment in Colorado, and because debtor had no property in the state except the property in his wife's name out of which the creditors' judgment could be satisfied, and held that the bill could be maintained without the creditor first reducing the claim to judgment at law and of having a return of execution unsatisfied. The question involved here is fully discussed in the above case, quotations from which will be set out below:
"In England and in the state Courts of the Union the general rule, in the absence of a qualifying statute, is that a creditor's bill may not be maintained, unless the creditor has theretofore reduced his claim to a judgment at law and the execution issued thereon, has been returned nulla bona. In Colorado, except in the Federal Courts, which are not so exacting in such proceedings, a mere general creditor may not maintain a suit in the nature of a creditor's bill, unless he has, in addition to the foregoing requirements, caused his previously rendered judgment to become a specific lien on the judgment debtor's interest in the real estate sought thereby to be subjected to its payment. Robinson v. Gumaer, 43 Colo., 310, 95 P., 935 and cases cited. * * * The English and American cases from the very beginning expressly declare, that there are exceptions to the general rule which Judge Helm announced governed the case then under consideration. One of these exceptions which excuses a previous judgment and the utilization without avail of process to enforce it is where it is impossible or impracticable to recover in an action at law a personal judgment by the creditor against the debtor; as where the debtor is a nonresident, a fugitive from justice, has absconded, and his whereabouts are unknown, or where he is insolvent, or some Court has enjoined prosecution of actions against him. In such instances, one or more of which is presented by this record, and other exceptions might be noted, the Courts say that, as the general rule is based upon the doctrine that resort to equity is not permissible until the one seeking its aid has exhausted his legal remedies, it would be folly and a useless expense to refuse equitable relief, because the one seeking it had failed to comply with an impossible or wholly useless condition precedent. We are not cited to any case in this jurisdiction that negatives the right of a plaintiff in a state of facts like those now before us to maintain a creditor's suit without a previous judgment and exhausting unavailingly process thereunder. Following the decided weight of authority, both of the federal and state Courts, we hold that, since the debtor McIninch was a fugitive from justice, a nonresident of Colorado, and that the only property interest which he possessed was the equitable estate in the lands in controversy which are situate in Larimer County, Cause No. 3621, the creditor's bill was maintainable by the general contract creditor, because the undisputed facts bring the case within an exception to the general rule, which exception makes unnecessary a previous recovery at law by the creditor and the unavailing employment of process to enforce it. Among the authorities so holding are: Case v. Beauregard (Case v. New Orleans C.R. Co.)), 101 U.S. 688, 690, 25 L.Ed., 1004, 1005; Williams v. Adler-Goldman Commission Co., 142 C.C.A., 70, 227 F., 374; Scott v. McMillen, 1 Litt. (Ky.), 302, 311, 13 Am. Dec., 239; Overmire v. Haworth, 48 Minn., 372, 31 Am. St. Rep., 660, 51 N.W., 121; Skilton v. Codington, 185 N.Y., 80, 113 Am. St. Rep., 885, 77 N.E., 790."
The last case cited is from the State of New York. For two reasons it will be quoted from. First, because by statutory enactment the laws of New York require, as prerequisite to bringing a creditors' suit of this nature, that a creditor shall first obtain judgment, execution, and nulla bona return, and, second, because counsel for the defendants has cited and relied upon, in argument, several New York cases referred to and distinguished below.
In Skilton v. Codington, 185 N.Y., 180, 77 N.E., 790, 792, 113 Am. St. Rep., 885, supra, the Court said: "The rule that a creditor must first recover a judgment is simply one of procedure and does not affect the right. Therefore, where the recovery of a judgment becomes impracticable, it is not an indispensable requisite to enforcing the rights of the creditor. So it was held that an assignee in bankruptcy could, for the benefit of creditors, attack a fraudulent mortgage, though if a creditor had sought that relief in his own name it would be necessary that his claim be first put in judgment. Southard v. Benner, supra ( 72 N.Y., 424). Even where a statute, which secures to creditors liability of stockholders, provides in express terms for the recovery of a judgment and return of execution against the corporation, judgment and execution are unnecessary where they have become impracticable on account of the dissolution of the corporation or of an injunction restraining the prosecution of suits against it. Hardman v. Sage, 124 N.Y., 32, 26 N.E., 354; Hunting v. Blun, 143 N.Y., 511; 38 N.E., 716; Lang v. Lutz, 180 N.Y., 254, 73 N.E., 24."
In volume 38 A.L.R., following the case of Shuck v. Quackenbush, at pages 269 to 285, there is a full collection of cases and an exhaustive and complete annotation on this question. In general, it is there stated: "The great weight of authority supports the view that nonresidence or absence of the debtor obviates the necessity of a prior judgment at law, at least where such nonresidence or absence renders it impossible or impracticable to obtain such a judgment."
Following this stated principle of law, there are quoted numerous decisions from the United States Court and thirty-one State Courts, and a great number of the leading cases are discussed in this annotation. It would lengthen this opinion too much to refer here to all, or even a majority, of the cases there discussed. Most, if not all, of said cases maintain the general law that to maintain an action of this nature a creditor must first exhaust his legal remedy. Some of the cases hold that there is an exception to the general rule; (a) where the debtor is a nonresident, or where his absence renders it impossible or impracticable to obtain judgment, (b) that there is an exception where the debtor is a nonresident and has no property within the state where the suit is brought subject to attachment, or out of which he can have legal recourse for the satisfaction of his demand, or is insolvent, (c) where the above conditions exist and the creditor has pursued his legal remedies as far as possible in another jurisdiction. There are a few cases which I have found which hold that the presence of all of the above requirements do not take the case out of the general rule. A few of the cases from this exhaustive annotation will be quoted from.
The case of Bank of Commerce Trusts v. McArthur (1919), 167 C.C.A., 326, 256 F., 84, reversing (D.C., 1918), 248 F., 138, was a suit to set aside a fraudulent transfer by the debtor, the facts of which case are very similar to the case of Penning-Reid Company. In the McArthur case: "The bill disclosed that the debtor was a nonresident, and that there was no one in the state upon whom process might be served, and that the creditor had exhausted his legal remedies by recovering judgments on which execution was returned unsatisfied in the jurisdiction where the debtor resided, the Court said: "The averments of the bill bring the case within an exception to the general rule, that to maintain a creditors' bill there must first have been a judgment at law and execution thereon returned unsatisfied in the jurisdiction in which such bill is filed. A creditor sufficiently shows that he has no adequate remedy at law, in the jurisdiction in which he seeks equitable relief, when he discloses the impossibility of obtaining in that jurisdiction a judgment at law against the debtor, and that the only remedies at law anywhere available have been exhausted without satisfying the demand asserted. The averments of the bill show that the appellant had exhausted the legal remedies available to it. It recovered judgment against the debtors in the only jurisdiction in which process could be served upon them, and executions on those judgments have been returned unsatisfied. Because of the absence from Florida of Adam McArthur, that not being the state of his residence, an action at law on the North Carolina judgments against him could not be maintained in Florida, as service on him of process in such action could not be had. By no action at law could the creditor have reached and subjected the property in Florida which the debtor had transferred. Where a creditor invokes the aid of a Court of equity to set aside transfers by the debtor of his property in fraud of the creditor, and to subject transferred property in which the debtor no longer has any beneficial interest, and shows that it is impossible to obtain a judgment at law against the debtor within the jurisdiction where the suit in equity is brought, nothing more is required to show that the creditor has no plain, adequate, and complete remedy at law. A creditor so situated is entitled to resort to a Court of equity.'"
In Dollman v. Moore (1892), 70 Miss., 267, 12 So., 23, 19 L.R.A., 222, referring to the general rule, the Court said: "But the rule never was of universal application, and was limited by the reason upon which it rested. When the debtor died or was beyond seas, the complainant could have relief in equity."
"So, also, in First Nat. Bank v. Eichmeier (1911), 153 Iowa, 154, 133 N.W., 454, an action to subject to the plaintiff's claim certain lands which were alleged to have been fraudulently conveyed by the defendant to his wife, the Court said: "The claims of plaintiff had not been reduced to judgment prior to beginning this suit. As defendants were nonresidents, this was unnecessary. Relief in the way of judgment against the debtor, and subjecting the land in the wife's name, was rightly sought in the same action.'"
"Fidelity Sav. L. Asso. v. Reese (1919), 41 S.D., 546, 171 N.W., 812, holding that a creditor who had secured a judgment in another state, and who had attached property within the state which the debtor had conveyed to his wife, might, without first securing a domestic judgment against the husband, bring suit against both the husband and wife in one action to recover not only a money judgment against the husband, but also a judgment vacating the conveyance to the wife and adjudging that the money judgment be satisfied out of the property in question."
There is a strong South Carolina case announcing the same general proposition of law in the case of Farrar Brothers v. H.G. Haselden, and others, 9 Rich. Eq., 331, the Court saying: "Where a debtor is absent from this State, having property within the State which cannot be reached by the ordinary process of law, it has been a practice much older than Kinloch v. Meyer, Speers, Eq., 427, to grant relief in this Court as against such property, to the creditors of such absent debtor. In such case he may have taken no steps to recover, or establish, his demand at law, because the law afforded no process by which he could make his debtor a party in Court. Attachment will not lie against executors or administrators in possession of funds of the absent debtor."
In this case the firm of Moody, Finklea Company consisted of Moody, Finklea, and H.G. Haselden. After dissolution of the firm, H.G. Haselden left the state. Actions were commenced against the firm, and the other two copartners were served. Haselden was not served. He had property in the hands of the administrator of an estate as an heir at law, and certain funds in the hands of C.D. Evens, as commissioner in equity, and as attorney. For the reason that the defendant Haselden could not be served in the state, and for the reason that his property was in such form as that it could not be attached, the plaintiffs were allowed to maintain a creditors' bill without first establishing their demand at law, for the reason that the law afforded no process by which they could make their debtor a party in Court.
CASES CITED BY DEFENDANT'S COUNSEL DISTINGUISHEDCounsel for defendants has cited several very strong cases to the effect that a creditor cannot maintain a creditors' bill to set aside a debtor's property fraudulently conveyed until he has exhausted his legal remedy and obtained judgment in the jurisdiction where the bill is filed, and some cases to the effect that nonresidence of the debtor affords no reason for dispensing with the judgment at law in the jurisdiction. The case of Ladd v. Judson, 174 Ill., 344, 51 N.E., 838, 66 Am. St. Rep., 267, is cited at length. It appears from a study of this case (38 A.L.R., 282) that it appeared therein that a suit by attachment could have been maintained whereby the interest of the debtor in the property might have been reached. In the case of Penning-Reid Co., the defendant R.W. Reid has shown by the record, the testimony, and admissions of the defendant himself, and it was clearly established, that the defendant R.W. Reid, had no property in this State subject to attachment. The two 200-acre tracts of land were in the name of his wife, Katherine Hill Reid, and were attached in that action as against her.
McCartney v. Bostwick, 31 Barb. (N.Y.) 390, was cited, but this case was reversed in McCartney v. Bostwick, 32 N Y, 53.
In Trotter v. Lisman, a New York case, 199 N.Y., 497, 92 N.E., 1052, the opinion of the Court in the case stated that no facts were stated from which it would appear that the action could not have been brought against it there. The complaint came up upon demurrer. It does appear in this case, Penning-Reid Company, that the action against the defendant R.W. Reid could not have been brought against him in South Carolina, there being the nonresidence; there could have been no attachment of this property, as he had none here subject to attachment.
The case of DeCoppet v. Cone, 199 N.Y., 56, 92 N.E., 411, 139 Am. St. Rep., 844, 20 Ann. Cas., 841, is not in point, but the rule stated there is in favor of plaintiffs when it was held that a citizen of New York had no means of obtaining payment of their demands through the ordinary procedure for the administration of the estate of a defendant of a decedent that equity would entertain a suit for the administration of the property of the deceased which is situated there. The deceased was a nonresident, and the New York Court even held that, as the creditor could not get any personal judgment against the debtor, he was not bound to follow his debt into a foreign jurisdiction.
The cases cited by counsel for the defendants are only authority for the law that the execution and nulla bona return required of the creditor in a creditors' suit must be upon a domestic judgment, and that a foreign judgment in itself alone will not form the basis for a creditors' bill. I think in the absence of such facts as are present here in the Penning-Reid case, and as a general proposition of law, such would be the law of this State. I will also add that if the defendant R.W. Reid had been a resident of this State, or had property located in this State out of which the plaintiffs herein, or his creditors could have satisfied their demands at law, or if it were possible, in an action in the Courts of this State upon the Florida judgments, to obtain jurisdiction of the defendant Reid, which cannot be done because an action here upon the foreign judgments would be an action in personam, I would unhesitatingly sustain the position taken by the defendants (though it was not pleaded in their answers), and would have dismissed the complaint in this second suit by plaintiffs.
The facts in this second suit, however, bring the case within the well-recognized exception.
That there may be no misunderstanding of my holding, I am granting the relief asked for not because of the fact, alone, that they have secured a judgment, execution and nulla bona return, on the judgment rendered in the state of Florida. This action on their part is evidence of the fact, however, that they have exhausted their legal remedies there. It was proper in this suit for the plaintiffs to plead their judgments as evidence of the debt, and this Court will give the said judgments the full faith and credit as required by the Federal Constitution. Shuck v. Quackenbush, supra.
In determining the question, it is necessary to consider the facts and the situation as it existed prior to and at the commencement of this suit, Penning-Reid Company, and to consider the testimony and proof presented. The records show, and I so find as a matter of fact, that at the time of the commencement of this second suit: (a) The defendant R.W. Reid was and for many years prior thereto had been a nonresident of the State of South Carolina, and a resident of the State of Florida, in which state his furniture business was carried on; (b)) that all of the assets of the said business had been disposed of, that only 13 3/4 per cent dividend had been paid to these plaintiffs and other general creditors, and that the defendant R.W. Reid himself had testified under oath in Court, which testimony is part of this record, that he owned no other property or other assets other than his interest in the said furniture business; (c) that he had no property subject to attachment in this state (the record in the first suit and in this second suit show that all funds realized from his interest in the property in this State had been under orders of this Court absorbed in payment of costs in that first action); (d) that these plaintiffs had pursued their claims to judgment, issued execution, and obtained returns of nulla bona, and that they had exhausted their legal remedies in the Courts of the State where the defendant lived and did business; that at the date of the execution of, and of the recording of the deed to the tract of land involved in the deed to his wife, that there were then existing creditors of the furniture business in a sum in excess of $8,000.00, whose debts, including the debts of the plaintiffs, now remain due and unpaid, except for a 13 3/4 per cent dividend paid thereon by the liquidating committee.
It is impossible for these plaintiffs to obtain here a judgment in personam against the defendant R.W. Reid, and there is no property of his that they can attach in a legal action. They have exhausted their legal remedies as far as they can go both here and in the State of Florida. Their debts existed at the time of the deed, and now remain unpaid. They are at present in great need of a Court of equity. To dismiss this action and require them to do the useless or impossible thing and afford an opportunity for the property, sought to be subjected to their claims and demands, to be put out of their reach would not be consonant and in keeping with the powers and duties of a Court of equity.
The deed was a voluntary one. No rule is more clearly imbedded in the law of this State than that a debtor must be just before he is generous. "The law will not permit one who is indebted at the time to give his property away, provided such gift proves prejudicial to the interest of existing creditors. The motive which prompts the donor to make the gift is wholly immaterial. If the donor is indebted at the time, and the event proves that it is necessary to resort to the property attempted to be conveyed away by a voluntary deed for the purpose of paying such indebtedness, the voluntary conveyance will be set aside, and the property subjected to the payment of such indebtedness upon the ground that it would otherwise operate as a legal fraud upon the rights of creditors, even though it might be perfectly clear that the transaction was free from any trace of moral fraud." Jackson v. Lewis, 34 S.C. 1, 12 S.E., 560, 562; Miller v. Erwin, 129 S.C. 415, 125 S.E., 36; Temple v. Montgomery, 157 S.C. 85, 153 S.E., 640, 641, 647; Izard v. Middleton, Bailey, Eq., 236; Jenkins v. Clement, Harp. Eq., 85, 14 Am. Dec., 698; Greene v. Mobley, 112 S.C. 275, 99 S.E., 814; Magovern v. Richard, 27 S.C. 286, 3 S.E., 340; Rice v. City of Columbia, 143 S.C. 516, 141 S.E., 705.
Every element, every condition, every fact that is necessary to entitle the plaintiffs to the relief demanded is present and proved in this second suit, except the fact that plaintiffs have not in South Carolina obtained a judgment, execution, and nulla bona return on the Florida judgments rendered in that jurisdiction. The record clearly shows, and the defendant R.W. Reid himself admits, that the conditions existed which would inevitably result in a return of nulla bona here. Should this Court require plaintiffs to attempt to do that here, it would be an utterly useless and unavailing procedure, since it would be impossible. The defendant is a nonresident, and no personal judgment can be obtained against him. A judgment obtained against him without service upon the defendant in the borders of this State would be a nullity, or would be of no effect. At law they can attach none of this property. They have exhausted their remedies in the Courts of this State. As stated, "it is peculiarly the province of a Court of equity to afford a remedy where the law affords none and so, where the law is powerless to aid the creditor, by reason of the debtor's absence, and the situation of his property, equity will assume jurisdiction, adjudicate the claim, and * * * shall adjust the rights of all parties to the proceeding, and afford the appropriate relief." Hanscom v. Hanscom, 6 Colo. App., 97, 39 P., 885, 886, 38 A.L.R., 277, note.
Neither law nor equity requires a meaningless form. Bona Sed Impossibilia Non Cogit Lex.
In reaching my conclusions in this matter, I am not unmindful of the rule and principle of law laid down in Temple v. Montgomery and cases therein cited, that to maintain an action of this nature it is both necessary to allege and prove nulla bona return on the judgment. But all of our cases so holding were against debtors resident in this State, and it does not appear from an examination of any of these cases that the facts therein were similar to the case at bar, or that it was impossible or useless to obtain a judgment. The reason for the rule is that a creditor must show beyond peradventure that he has exhausted his legal remedies. When the reason for the rule ceases, the rule ceases. Plaintiffs in this case have proved themselves to be in this position. The facts of this case bring it within the general exception to the general rule, and plaintiffs are entitled to the relief demanded.
It is therefore ordered adjudged, and decreed, that the title deed executed by R.W. Reid to Katherine Hill Reid, dated September 1, 1928, and recorded October 12, 1928, in book 31-D, page 106, in the office of the Clerk of Court for Hampton County, S.C. be, and the same hereby is, declared void and invalid, and is set aside as to the existing creditors of the defendant R.W. Reid, as of the date of the recording of the deed, October 12, 1928. There are quite a number of creditors whose claims were filed with plaintiff's attorney at the commencement of this action and in this proceeding; the aggregate amount of said claims being $4,000.00. In order that the creditors may participate in the benefits of this decree, it is ordered that B.F. Stanley be, and he hereby is, appointed special referee herein to determine the validity and dates of said claims. The said B.F. Stanley, as special referee, is hereby authorized, ordered, and directed to insert and have published a notice to said creditors for at least sixty days in the Hampton County Guardian, a newspaper having circulation in Hampton County, S.C. If no appeal is taken from the decision of said referee, then the claims may be allowed to participate in the benefits of this decree.
It is further ordered, adjudged, and decreed, that B.F. Stanley be, and he hereby is, appointed receiver for the purpose of taking control and charge of said property and of collecting rentals for the year 1931, and for the further purpose of offering for sale and selling the property mentioned and described in said deed and hereinbelow described. The said B.F. Stanley, as receiver, is hereby authorized and directed and empowered to offer for sale and sell the said property in front of the courthouse at Hampton, S.C. on the first Monday in October, 1931, or some convenient salesday thereafter, to the highest bidder for cash during the legal hours of sale, said sale to be made after three weeks' advertisement of same according to the terms of this order in the Hampton County Guardian, a newspaper having circulation in Hampton County, and by posting a copy of the advertisement on the courthouse door at Hampton, S.C.; that upon making said sale, the said receiver shall make, execute, and deliver to the purchaser a good and sufficient title deed to the said premises. Before the property shall be knocked down to any successful bidder, except to plaintiffs or their attorney, Hugh O. Hanna, Esq., he shall require of the bidder a deposit of $500.00 in cash or certified check for said amount. Should said bidder fail to take up and comply with the terms of his bid within five days after said sale, the $500.00 deposit shall be forfeited and retained by said receiver, and the property shall be resold at the next convenient sales day. The property ordered sold is as follows: The two 200 acres in Hampton County, S.C.
It is further ordered, adjudged, and decreed, that out of the proceeds of said sale, the said receiver shall first pay the costs and expenses of this action and any taxes due and unpaid upon the land, and then pay to creditors or their attorney, participating in the benefits of this decree, the amount of their respective claims, or pro rate the same in the event the property does not bring a sufficient amount to pay said claims in full. If there are any remaining funds in his hands as receiver, then the funds shall be held subject to the further order of this Court.
It appears from the appraisal made by the sheriff and the appraisers is the sum of $2,000.00, and it is therefore ordered, adjudged, and decreed that the said receiver shall give bond, with sureties approved by the Clerk of Court, in the sum of $5,000.00.
It is further ordered, adjudged, and decreed, that the plaintiff Demerritt-Fisher Company have judgment for the sum of $155.35, being the amount of its claim and judgment set up of $180.73 less a dividend payment of $25.37.
It is further ordered, adjudged, and decreed, that the plaintiff Demerritt-Fisher Company have judgment for the sum of $196.04, being the amount of its claim and judgment set up of $221.42 less a dividend payment of $33.38.
It is further ordered, adjudged, and decreed, that the plaintiff Penning-Reid Company have judgment for the sum of $61.88, being the amount of its claim and judgment set up of $73.61 less a dividend payment of $11.73.
It is further ordered, adjudged, and decreed, that the plaintiff O.K. Stove Range Company have judgment for the sum of $164.63 being the amount of its claim and judgment set up of $189.91 less a dividend payment of $25.28.
It is further ordered, adjudged, and decreed, that the plaintiff Luce Furniture Company have judgment for the sum of $301.88, the amount of its claim being $350.00 less a dividend payment of $48.12.
This disposes of the matters before me, except the question of the rentals for the year 1930. Plaintiffs allege that the deed was utterly void and of no effect, and that the moneys collected are due the sheriff for the year 1930, and that the rentals to be collected for the year 1931 were and are the property of the defendant R.W. Reid, and funds which should be subject to the payment of their claims. Taxes have not been paid upon the land for several years. The sheriff has some $200.00 as rentals collected for the year 1930. These funds have been attached in this action, and are in the hands and jurisdiction of this Court. The claims existed at the time of the deed in 1928, and are unpaid, and taxes due to the State on the particular lands are unpaid.
It is therefore ordered, adjudged, and decreed, that the receiver shall take charge of said rentals and administer the same and pay out the same as herein directed with respect to the proceeds of sale of the lands, and C.V. Thomas, sheriff, is hereby authorized and directed to turn over said rentals in his hands to the receiver.
Mr. George Warren, for appellants, cites: Necessary things to sustain plea of res adjudicata: 17 S.C. 202; 19 S.C. 156; 41 S.C. 80; 19 S.E., 218; 44 A.S.R., 688; 96 S.E., 644; 52 N.W., 8; 39 A.S.R., 290; 28 N.W., 51; 23 Cyc., 1170; 49 S.C. 563; 27 S.E., 551; 9 Rich. Eq., 475; 1 Rich. Eq., 301; 111 S.E., 15; 118 S.C. 470; 245 U.S. 520; 38 Sup. Ct., 182; 62 L.Ed., 444; L.R.A., 1918-C, 355; 215 U.S. 252; 30 Sup. Ct., 78; 54 L.Ed., 179; 227 U.S. 434; 33 Sup. Ct., 274; 231 U.S. 725; 34 Sup. Ct., 249; 244 U.S. 294; 37 Sup. Ct., 506; 17 S.C. 35; 94 U.S. 351; 34 L.Ed., 195. As to nulla bona return: 13 S.C. 449; 18 S.C. 526; 20 S.C. 503; 153 S.E., 649; 3 S.E., 340; 42 S.E., 169; 71 L.Ed., 1069.
Mr. Hugh O. Hanna, for respondents, cites: As to question of res adjudicata and of estoppel: 131 S.C. 344; 127 S.E., 437; 14 S.C. 434; 18 S.C. 526; 157 S.C. 85; 153 S.E., 641; 118 S.C. 470; 111 S.E., 15; 17 S.C. 35. Identity of the subject matter means the causes of action: 111 S.E., 17; 21 S.E., 221. Where wife accepted deed with intent to hinder, delay and fraud must prove mala fides: 64 S.C. 354; 42 S.E., 169; 160 F., 41; 90 C.C.A., 47; 185 N.Y., 180; 77 N.E., 794; 124 N.Y., 32; 26 N.E., 354; 180 N.Y., 254; 73 N.E., 24.
October 17, 1932. The opinion of the Court was delivered by
We have made a careful and painstaking study of the questions involved in this appeal, and are satisfied with and approve the conclusions arrived at by Judge Johnson in his very full and well-considered decree.
With respect to the necessity for a " nulla bona return," a novel question is presented under the special facts of this case; and while the general rule is as stated in Temple v. Montgomery, 157 S.C. 85, 153 S.E., 640, we think, in line with the great weight of authority, that an exception to this rule arose under the facts here presented, and that the circuit Judge was correct in so holding.
With regard to the point made by counsel for appellants, that at the time of the execution of the deed in question, and for some time thereafter, the defendant R.W. Reid, as shown by the testimony, was solvent, in addition to what is said in Judge Johnson's decree, we may refer to Cordery v. Zealy, 2 Bailey, 205, to the effect that, subject to the qualification of slight indebtedness or debts inconsiderable in comparison with the value of the donor's estate, "it may be laid down as a settled rule of law, that one who is in debt, cannot make a voluntary conveyance, which will prevail against existing debts." The rule is thus stated in Richardson v. Rhodus, 14 Rich., 95 (we add italics): "The general rule is, that, as against creditors existing at the time of the conveyance, a voluntary conveyance is fraudulent in law and void. * * * The test of the donor's legal capacity to give, as against existing creditors, depends upon his final solvency" — that is to say, not upon his solvency at the time the gift is made; if in the final event the property of the debtor is not sufficient to pay his debts existing at the time of his voluntary conveyance, then such conveyance is null and void as to such debts.
In Buchanan v. McNinch, 3 S.C. 498, the Court, in considering the qualifications of the general rule thus stated, further observed: "We think, too, that another exception may be added, and which finds justification in the circumstances of this case. It is that where the donor makes a voluntary conveyance of an inconsiderable portion of his estate, leaving unincumbered a probable sufficiency for the payment of his existing debts, it shall prevail, if his subsequent insolvency arises from the loss of his property by sudden and extraordinary events which he could not control or prevent."
It is not made to appear, under the facts disclosed by the record, that the case at bar falls within any exception named.
The circuit decree, which will be reported, is affirmed.
MR. CHIEF JUSTICE BLEASE and MESSRS. JUSTICES CARTER and BONHAM and MR. ACTING ASSOCIATE JUSTICE W.C. COTHRAN concur.