Opinion
No. 38286.
July 3, 1944. Rehearing Denied and Opinion Modified, October 9, 1944. Motion to Set Aside Overruled, November 6, 1944.
1. FRAUDULENT CONVEYANCES: Action by Simple Creditors Authorized. Where the debtor has absconded and no personal judgment can be obtained against him, a creditor may sue to set aside a fraudulent transfer without first reducing his claim to judgment.
2. EQUITY: Creditor's Bill: Ownership of Debtor Not Shown. If the bill be considered a creditor's bill, plaintiffs have not sustained their burden of showing that the assets they seek to subject to the payment of their claim are the property of the debtor.
3. FRAUDULENT CONVEYANCES: Intent to Defraud Not Shown. The evidence does not show an intent to defraud plaintiffs, but that plaintiffs were preferred over other creditors. And plaintiffs have dismissed as to the transferees of the property.
4. PARTIES: Improper Intervention: Voluntary Dismissal Proper. An intervening petition which injected an independent controversy should not have been permitted to be filed, and it was proper to permit a voluntary dismissal after the report of a referee, but before any action thereon.
5. DEEDS: Payment of Debt: Not Intended as Security. The evidence showed that, although there were certain repurchase rights, the deed was intended as payment for certain debts, and not as security therefor.
6. DEEDS: From Individual Instead of Corporation: No Failure of Consideration. The fact that a deed given in payment of certain notes of a corporation endorsed by the managing officer thereof was executed by such officer in the mistaken belief that he held title, when the title was actually in the corporation, did not constitute failure of consideration.
7. COSTS: Equity: Discretion to Assess Joint Costs. A court of equity has discretion to apportion costs and this discretion was not abused by assessing the costs jointly against plaintiffs and one of the defendants, even though the result might be that plaintiffs would have to pay the entire costs.
8. JUDGMENTS: Personal Judgment After Appearance Entered. After a defendant absent from the state returned and entered his appearance, a personal judgment was proper.
Appeal from Circuit Court of City of St. Louis. — Hon. William B. Flynn, Judge.
AFFIRMED.
Taylor R. Young, Stephen A. Boggiano, James T. Riley and Alvin Goldman for appellants.
(1) Where debtor has admitted his indebtedness to his creditor, has transferred all of his property to another so as to render himself wholly insolvent, is a fugitive from justice, has absconded, has absented himself and concealed himself so that the ordinary process of law could not be served upon him in this State, and he has transferred and conveyed his property in fraud of his creditors, and has thus made it impossible for his creditor to obtain a judgment at law, a creditor's bill will lie, without the necessity of an action at law for the purpose of first obtaining a judgment on the creditor's claims. Bewes v. Buster, 108 S.W.2d 66; Farmers Traders Bank v. Kendrick, 108 S.W.2d 62; State ex rel. Brigance v. Smith, 135 S.W.2d 355, 345 Mo. 793; Buckley v. Maupin, 125 S.W.2d 820, 344 Mo. 193; General American Life Ins. Co. v. Leavenworth, 149 S.W.2d 360, 347 Mo. 876. (2) Where a debtor has entered his appearance in a suit in equity as a plaintiff and has filed an intervening petition in such cause admitting his indebtedness to his creditor (co-plaintiff) under oath, he should not be allowed, after full hearing of said cause by a referee, and after submission of said cause to the referee, and after findings made by the referee, to withdraw his intervening petition, assume a new role as a party defendant, and file a general denial, for the reason that such procedure would substantially change the issues, prejudice the plaintiff-creditors' cause, and compel such plaintiffs after trial to meet issues that plaintiffs had not prepared to meet, would be contrary to all the rules and maxims of equity, and would not do justice between the parties. Clark v. St. Louis Transfer Co., 30 S.W. 121, 127 Mo. 255; Joyce v. Growney, 55 S.W. 466, 154 Mo. 253; Ryans v. Hospes, 67 S.W. 285, 167 Mo. 342; Neville v. D'Oench, 34 S.W.2d 491, 327 Mo. 34; Fischman-Harris Realty Co. v. Klene, 82 S.W.2d 605. (3) Where a deed and a contract were executed contemporaneously, or as one transaction, the deed and the contract should be read together to ascertain the intent of the parties in the execution of the deed. Carr v. Holbrook, 1 Mo. 240; Smith v. Smith, 233 S.W. 183, 289 Mo. 405; 26 C.J.S., sec. 91, p. 338. (4) Where a deed is executed to secure the payment of a debt or notes, which notes remain in the hands of the holder thereof unpaid, and as a part of the same transaction, the debtor also executes a contract or agreement with his creditor by the terms of which contract or agreement the creditor agrees to re-convey the deeded property upon payment of the notes or debt, the deed is to be construed to be a mortgage, though absolute in form; and whether a deed is intended as an absolute conveyance or a mortgage must be determined from the intention of the parties; and in the case at bar by the written contract, plaintiffs' Exhibit A-174, the deed is a mortgage. Knight v. Firemen's Ins. Co. of Newark, N.J., 49 S.W.2d 682, 227 Mo. App. 426; Younger v. Evers, 64 S.W.2d 936, 333 Mo. 931; Citizens Bank of Pleasant Hill v. Robinson, 117 S.W.2d 263; Phillips v. Jackson, 144 S.W. 112, 240 Mo. 310; Branham v. Peltzer, 177 S.W. 373. (5) The deed to the Duncan Avenue real estate was executed by George C.V. Fesler individually, but the title to that property was held by George C.V. Fesler, Incorporated, and therefore, the deed conveyed no title, and the deed did not extinguish the indebtedness and notes of Fesler, even if the property could be held to have been conveyed in payment of the notes and indebtedness, because there was a complete failure of consideration. 66 C.J., p. 555, sec. 103; Jones v. Shaver, 6 Mo. 642. (6) Where debtor has admitted his indebtedness to his creditor, under oath, on promissory notes, and has executed a deed and contract in the nature of a mortgage, he will not be allowed to deny or avoid the effect of his acts, and in equity, judgment will be entered against him on such notes, for the reason that equity regards that as done which ought to be done. Dinkelman v. Hovekamp, 80 S.W.2d 681; Woolery v. Todd, 139 S.W.2d 1005. (7) Where a debtor admitted his indebtedness to his creditor plaintiff in an equitable action, and at the same time made claims against defendants in such action, the court was right in permitting the debtor to join with plaintiffs and permitting him to file in such action an intervening petition as a new party plaintiff necessary to a complete determination of the matters in controversy. Zeitinger v. McKittrick, 250 S.W. 913; Monticello Bldg. Corp. v. Monticello Inv. Co., 52 S.W.2d 545, 330 Mo. 1128; Davis v. Austin, 156 S.W.2d 903. (8) It is well settled that equity has jurisdiction to trace trust funds and charge them against the property into which they can be traced; and where it has been shown that real estate has been purchased with trust funds, and the title to such property placed in the name of a person other than the trustee and the cestui que trust, such third person becomes and is a "constructive trustee," and holds such property subject to a lien in favor of creditors of the cestui que trust and the cestui que trust, in amount equal to the sum of the trust funds traced into the property. Farrell v. Farrell, 91 Mo. App. 665; Liflander v. Bobbitt, 111 S.W.2d 72; State ex rel. and to the use of Clay County State Bank v. Walther, 145 S.W.2d 152, 346 Mo. 1138; Schneider v. Schneider, 146 S.W.2d 584, 347 Mo. 102. (9) Where equity has acquired jurisdiction of a cause, such jurisdiction shall be retained until full and complete justice has been done between the parties, and all matters in controversy adjudicated. Cooper v. Cook, 148 S.W.2d 512, 347 Mo. 528; Lortz v. Rose, 145 S.W.2d 385, 346 Mo. 1212; Waugh v. Williams, 119 S.W.2d 223, 342 Mo. 903; Selle v. Selle, 88 S.W.2d 877, 337 Mo. 1234. (10) If, on this appeal, the Supreme Court should hold, as did the referee, that there is no equity in plaintiffs' bill, but that plaintiffs' cause is one at law, the referee having found that plaintiffs are entitled to judgment on Counts I and XII of its petition, and having found that the money and property in the hands of Lee Hess was in fact George Fesler's money and property, and that Lee Hess had not fully accounted to Fesler therefor, the costs should be taxed against defendants, Lee and George C.V. Fesler, because where plaintiff is the prevailing party, the whole costs should be taxed against defendants. Sec. 1406, R.S. 1939; Du Pont v. McLaran, 61 Mo. 502; Huggins v. Hill, 236 S.W. 1054; Oldham v. McKay, 138 S.W.2d 735, 235 Mo. App. 348. (11) Should the Supreme Court hold on this appeal, that a creditor's bill will lie, and that plaintiffs should recover on all of the counts of its petition, then all of the costs, including the referee's fees and stenographic fees, should be taxed against defendant, Lee Hess. Sec. 1406, R.S. 1939; Du Pont v. McLaran, 61 Mo. 502; Huggins v. Hill, 236 S.W. 1054; Troost Ave. Cemetery Co. v. Kansas City, 154 S.W.2d 90, 348 Mo. 561; Oldham v. McKay, 138 S.W.2d 735, 235 Mo. App. 348. (12) Contrary to the finding of the referee in his report, there was ample evidence to show that George C.V. Fesler did intend by his acts and conduct to transfer all of his property for the purpose of hindering, delaying and defrauding his creditors, and therefore, a creditor's bill is the proper remedy. Bewes v. Buster, 108 S.W.2d 66; Farmers Traders Bank v. Kendrick, 108 S.W.2d 62; State ex rel. Brigance v. Smith, 135 S.W.2d 355, 345 Mo. 793; Buckley v. Maupin, 125 S.W.2d 820, 344 Mo. 193; General American Life Ins. Co. v. Leavenworth, 149 S.W.2d 360, 347 Mo. 876.
Lee, Fricke Lee for Lee Hess, Estelle L. Hess, June E. Hess and William Hess, respondents.
(1) Fesler's intervention, under Section 3506, R.S. 1939, on the theory of a trust void as to existing and subsequent creditors, was improper and inconsistent with appellants' theory under Section 3507, R.S. 1939, that defendant Fesler, a co-conspirator, fraudulently conveyed his property to escape his creditors. Monticello Bldg. Corp. v. Monticello Inv. Co., 330 Mo. 1128, 52 S.W.2d 545; Muster v. Mallen, 163 S.W.2d 578; McCluer v. White, 338 Mo. 1017, 93 S.W.2d 696. (2) Ordinary unsecured creditor must reduce claim to judgment before seeking relief in equity, as amount of money indebtedness should be determined by a jury. State ex rel. Brigance v. Smith, 345 Mo. 793, 135 S.W.2d 355; Buckley v. Maupin, 344 Mo. 193, 125 S.W.2d 820. (3) Admission of liability and offer to pay a debt not legally enforceable, did not create liability where there is no liability, and is not binding on the referee, the chancellor or this court, or the alleged co-conspirator Fesler, nor on defendant Hess answering separately under the statute. Pitcairn v. American Refrigerator Transit Co., 101 F.2d 929; Whittington v. Westport Hotel Operating Co., 326 Mo. 1117, 33 S.W.2d 963; Maltz v. Jackoway-Katz Cap Co., 336 Mo. 1000, 82 S.W.2d 909; Steele v. Kansas City So. Ry. Co., 265 Mo. 97, 175 S.W. 177; Smithers v. Barker, 341 Mo. 1017, 111 S.W.2d 47; In re Largue's Estate, 198 Mo. App. 261, 200 S.W. 83. (4) The warranty deed transferring title in settlement was clear and definite. The corporate minutes were clear and definite. Fesler intended by the transaction to pay the debt. Only an ambiguous or obscure contract is open to interpretation. This court has never applied the doctrine of contemporaneous construction except where the language is uncertain in its meaning. Meissner v. Railway Equipment Co., 211 Mo. 112, 133, 109 S.W. 730; Anchor Serum Co. v. Rea, 326 Mo. 811, 32 S.W.2d 587. (5) Allowing Fesler to withdraw his intervening petition and file a general denial did not change the cause of action, but was in conformity with the evidence which gave rise to the amendment. Maryland Cas. Co. v. Spitcaufsky, 178 S.W.2d 368. (6) Equity, either on the whole or partial record presented, did not acquire jurisdiction for any purpose. There was no trust to be followed and no issue which could not have been adjudicated at law. Daggs v. McDermott, 327 Mo. 73, 34 S.W.2d 46; Morris v. Hanssen, 336 Mo. 169, 78 S.W.2d 87; Manchester Iron Works, Inc., v. E.L. Wagner Const. Co., 341 Mo. 389, 107 S.W.2d 89. (7) The costs taxed against Fesler, if collectible, far exceed the usual costs incurred in actions at law to collect an ordinary debt.
Plaintiffs, appellants, term this action a creditors' bill. They sue in twelve counts on eleven promissory notes and a contract for the payment of money for a total of $11,595.19.
The debtor is defendant George C.V. Fesler, a druggist and manufacturing chemist. Long preceding the controversies of this lawsuit Fesler created the formula for a cosmetic which he named "Dew." He manufactured and marketed this product successfully first in his individual capacity and later under the name of George C.V. Fesler Company. He interested Marion L.J. Lambert in Dew and with him formed the Lambert-Fesler Company which took over the business of the George C.V. Fesler Company. After two years Fesler retired from active participation in this company. He had a contract with the company under which he received substantial monthly royalties on the sale of Dew. He owned stock in the company. Fesler then created a formula for a new cosmetic which he named Petalis. A company was formed, George C.V. Fesler, Inc., to manufacture and market this product. Shares of stock were sold by stock brokers to the public. Heavy commitments for advertising were incurred with Nelson Chesman and Company, trustor of plaintiff Publicity Building Realty Corporation. The Publicity Corporation and Nelson Chesman Company had interlocking boards of directors. Plaintiffs Pendergast and Budke were officers of both companies. The Nelson Chesman Company later made an assignment for benefit of creditors to plaintiff Max W. Kramer.
Petalis was not a success. Fesler, Inc., became indebted. Its chief and largest debtor was Nelson Chesman Company, to which it owed $16,809.37. Part of this indebtedness was represented by the promissory notes sued on. Fesler, Inc., executed ten of these notes and Fesler endorsed them.
Fesler became involved in some criminal charges. In October, 1931, he gave defendant Lee Hess, an old friend and business associate, his general power of attorney, transferred to him his stock in Lambert-Fesler Company, and absconded to escape trial. While he was a fugitive from justice he jumped from state to state, visited Europe and Cuba. He kept in touch secretly with Hess through third persons and by communications in code. Hess collected his monthly royalties and according to instructions made monthly remittances to him, and to his mother and paid certain bills. After several years Hess and Fesler met covertly at Highland, Illinois, where Hess was authorized to sell to Lambert Fesler's stock in the Lambert-Fesler Company and his royalty contract. From the proceeds of the sale Hess paid some of Fesler's debts. Sometime after the sale Hess met Fesler in New Orleans and turned over to him $20,500 as the balance of the proceeds. Several weeks later, on March 13, 1934, this suit was filed.
The petition charges that Fesler and certain defendants "entered into an unlawful combination or conspiracy to defraud the creditors of said Fesler." Plaintiffs pray that the assignment of the royalty contract from Fesler to Hess and then from Hess to Lambert be set aside and title to the contract vested in Fesler. Plaintiffs ask as alternative relief that property of Fesler on deposit with Chippewa Trust Company in the name of Hess, and the contents of [72] a safe deposit box in the Jefferson-Gravois Bank belonging to Fesler but held in the name of Hess, and the cash surrender value of certain insurance policies bought by Hess with funds alleged to belong to Fesler be sold and the proceeds, if sufficient, used to pay the debt to plaintiffs.
While the suit was pending Fesler returned to St. Louis and was lodged in jail. While there he filed an intervening petition in this case through plaintiffs' attorneys and another in which he admitted he executed the notes sued on; that he had transferred to Hess the stock and royalty contract; but denied he did so to defraud creditors; that Hess sold the stock and contract to Lambert; and that Hess had not accounted to Fesler for the entire proceeds of the sale. He asked for an accounting from Hess and that Hess hand over any property or funds due him.
The case was referred. The first referee died before completing his duties. The case was next referred to two referees and one of them died before submitting his findings. The surviving referee made a report to the court. He recommended judgment against Fesler on the first count for $2,345.81 and on the twelfth count for $814.35. He found the notes sued on in counts two to eleven inclusive had been paid. He found plaintiffs were not entitled to equitable relief. The court entered a decree in accordance with the referee's findings, gave judgment against Fesler on counts one and twelve, dismissed counts two to eleven inclusive, and assessed the costs jointly against plaintiffs and Fesler. Plaintiffs have appealed.
The fact plaintiffs were simple rather than judgment creditors did not affect their cause of action in the first instance. They were entitled to institute their action under the recognized exception to the general rule that claims need not be first put to judgment where the debtor has absconded and no personal judgment can be obtained against him. State ex rel. Brigance v. Smith, 345 Mo. 793, 135 S.W.2d 355; Curlee Clothing Co. v. Boxer (Mo. App.), 51 S.W.2d 894.
For the purpose of our discussion it does not matter whether this action is a creditors' bill, as the parties term it, or a suit to set aside a transfer in fraud of creditors under the statute. Sec. 3507, R.S. 1939. A creditors' bill is generally understood to be one to enforce the payment of debts out of equitable assets which cannot be reached by levy and sale or execution at law. If this case belongs in such classification, plaintiffs have not sustained the burden cast upon them to show the assets they seek to subject to the payment of their claim are the property of Fesler. The insurance companies have dropped out of the suit. They filed an interpleader in the United States District Court stating the policies had been assigned to the Collector of Internal Revenue and paid the amount of the cash value of the policies into that court where plaintiffs and the collector are now contending for it. Plaintiffs dismissed as to the Jefferson-Gravois Bank. We do not find in the record, nor is there pointed out to us any evidence whatever about the property alleged to be on deposit with the Chippewa Trust Company. There is no finding that defendants have any property of Fesler's.
If this suit is regarded as one to set aside a fraudulent transfer we find again plaintiffs have not sustained the burden of proof. Facts have not been proved which give rise to a presumption the transfer was fraudulent. There is no evidence of an intent to defraud plaintiffs. On the contrary the evidence shows that plaintiffs were preferred over other creditors. Furthermore, plaintiffs have dismissed as to Marion L.J. Lambert and Marion Lambert, Inc., successor to Lambert-Fesler Company. They have thereby abandoned their attempt to set aside the sale of the stock and royalty contract. The judgment denying equitable relief was proper.
The question of Hess' duty to account to Fesler under the intervening petition was not determined. The referee properly found the intervening petition should not have been permitted to be filed because it was neither consistent with plaintiffs' claim nor united with defendants in resisting plaintiffs' claim but injected an independent controversy. Monticello Bldg. Corp. v. Monticello Inv. Co., 330 Mo. 1128, 52 S.W.2d 545.
After the referee filed his report stating the intervening petition was improperly filed, but before the court took any action upon the report, Fesler dismissed his intervening petition and by leave filed a general denial. He had the right to dismiss his petition under Section 1111, R.S. 1939 which provides: "The plaintiff shall be allowed to dismiss [73] his suit or take a nonsuit at any time before the same is finally submitted to the jury, or to the court sitting as a jury, or to the court, and not afterward." We permitted a plaintiff to dismiss his suit after the filing of a referee's report and before action upon it by the court in Everett v. Taylor, 32 Mo. 390.
The referee found the notes described in counts two to eleven inclusive had been paid. The evidence shows that Fesler was authorized by his company to negotiate for the payment of the company's debt to Nelson Chesman Company which comprised these notes and the advertising account by conveying to the latter company business property owned by Fesler, Inc. The property was conveyed to plaintiff Pendergast, president of Nelson Chesman Company acting as trustee for that company, in satisfaction of the debt. Pendergast took possession of the property. He testified that the notes were not surrendered because Fesler, Inc., was on the verge of bankruptcy and Nelson Chesman Company was advised not to surrender the notes until four months had elapsed after receiving the deed.
The parties entered into an agreement by which Fesler could buy back the property for the same consideration for which it was conveyed, i.e. the amount of the debt. The question is raised whether the agreement, when construed with the deed, converts the latter into a mortgage securing the debt rather than the payment of it. The instruments themselves do not permit such a construction. The deed is a general warranty deed. The agreement to convey back recites that Pendergast, grantee in the deed, owns the property in fee simple. It provides that Fesler may purchase the property within two years but it also provides that during that period Pendergast may sell the property to any one else at any price after first offering it to Fesler for the same price. These recitals are contradictory to the theory that the deed was security for the debt. The agreement merely gives Fesler a two-year option to purchase. Furthermore, extrinsic evidence indicates the parties intended the conveyance of the property was a payment of the debt, not as security for it. The intention of the parties must control. Williamson v. Frazee, 294 Mo. 320, 242 S.W. 958.
When it was agreed to convey the property in payment of the debt it was believed that title, although owned by Fesler, Inc., stood in the name of Fesler individually. Therefore Fesler executed the deed in his individual capacity. A title certificate erroneously showed he had conveyed good title to Pendergast. It was later learned title was not in Fesler individually, but in Fesler, Inc. Plaintiffs did nothing about getting a deed from Fesler, Inc., although the board of directors of the latter company had authorized the deal and plaintiff Budke, an officer of Nelson Chesman Company, was also vice president of Fesler, Inc. Nelson Chesman Company later acquired legal title to the property by purchasing a small encumbrance against it, permitting foreclosure and buying in at the sale.
Did Fesler's lack of title constitute a failure of consideration so that the debt was not paid? Where there is a contract to convey real property lack of title in the vendor is ordinarily regarded as a failure of consideration. Jones v. Shaver, 6 Mo. 642. However, that situation does not exist here. The parties to the agreement were Fesler, Inc., and Nelson Chesman Company. The latter, through mistake, chose to accept a deed from Fesler individually instead of from the company. Plaintiffs remained in a position to receive a deed from Fesler, Inc., upon request. They have the property. Under the circumstances, they may not now complain.
The chancellor decreed that the costs be assessed jointly against plaintiffs and Fesler. Courts of equity have the inherent and discretionary power to award costs. They may order one party or the other to pay the costs or may apportion them among the parties. Boatmen's Natl. Bank v. Rogers, 352 Mo. 763, 179 S.W.2d 102. In an equity proceeding where some issues are found for plaintiffs and some for defendants the court has considerable discretion in the allowance of costs. Bruegge v. State Bank of Wellston (Mo.), 74 S.W.2d 835. In the instant case the chancellor did not abuse his discretion in awarding costs as he did although assessing them jointly against the plaintiffs and Fesler could mean that plaintiffs might have to pay the entire costs or Fesler might have to do so. Under a rule similar to ours governing the allowance of costs in equity [74] cases, the Georgia Supreme Court held that assessing costs against an alleged insolvent defendant primarily but alternatively against plaintiff was not an abuse of discretion. Biggers v. Noland, 175 Ga. 874, 166 S.E. 645.
As Fesler had entered his appearance in the case the personal judgment against him on counts one and twelve was proper. No appeal from this part of the judgment was perfected. Denying plaintiff's equitable relief and dismissing their petition as to counts two to eleven, inclusive, was also proper.
The judgment is affirmed. All concur.