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DAVIS v. SCHWARTZ.

decided: January 7, 1895.

DAVIS
v.
SCHWARTZ.



APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF IOWA, EASTERN DIVISION.

Author: Brown

[ 155 U.S. Page 636]

 MR. JUSTICE BROWN, after stating the case, delivered the opinion of the court.

This is a contest between the attaching creditors and the chattel mortgagees of the property of John H. Schwartz, an insolvent debtor formerly engaged in business at Fort Madison and Chariton in the State of Iowa, and at Dallas in the State of Illinois. These two classes of creditors are in reality competitors in a race of diligence, the object of which was to obtain a lien upon and possession of the property in question.

1. As the case was referred by the court to a master to report, not the evidence merely, but the facts of the case, and his conclusions of law thereon, we think that his finding, so far as in involves questions of fact, is attended by a presumption of correctness similar to that in the case of a finding by a referee, the special verdict of a jury, the findings of a Circuit Court in a case tried by the court under Rev. Stat. § 649, or in an admiralty cause appealed to this court. In neither of these cases is the finding absolutely conclusive, as if there be no testimony tending to support it; but so far as it depends upon conflicting testimony, or upon the credibility of witnesses, or so far as there is any testimony consistent with the finding, it must be treated as unassailable. Wiscart v. D'Auchy, 3

[ 155 U.S. Page 637]

     Dall. 321; Bond v. Brown, 12 How. 254; Graham v. Bayne, 18 How. 60, 62; Norris v. Jackson, 9 Wall. 125; Insurance Co. v. Folsom, 18 Wall. 237, 249; The Abbotsford, 98 U.S. 440.

The question of the conclusiveness of findings by a master in chancery under a similar order was directly passed upon in Kimberly v. Arms, 129 U.S. 512, in which a distinction is drawn between the findings of a master under the usual order to take and report testimony, and his findings when the case is referred to him by consent of parties, as in this case. While it was held that the court could not, of its motion, or upon the request of one party, abdicate its duty to determine by its own judgment the controversy presented, and devolve that duty upon any of its officers, yet where the parties select and agree upon a special tribunal for the settlement of their controversy, there is no reason why the decision of such tribunal, with respect to the facts, should be treated as of less weight than that of the court itself, where the parties expressly waive a jury, or the law declares that the appellate court shall act upon the finding of a subordinate court. "Its findings," said the court, "like those of an independent tribunal, are to be taken as presumptively correct, subject, indeed, to be reviewed under the reservation contained in the consent and order of the court, when there has been manifest error in the consideration given to the evidence, or in the application of the law, but not otherwise." As the reference in this case was by consent to find the facts, we think the rule in Kimberly v. Arms applies, and as there is nothing to show that the findings of fact were unsupported by the evidence, we think they must be treated as conclusive. To same effect are Crawford v. Neal, 144 U.S. 585, 596; Furrer v. Ferris, 145 U.S. 132.

2. The real question in this case is, whether the mortgages, which were awarded priority of payment by the decree of the court below, were valid securities at the time of the Schwartz failure, or were fraudulent and void as against his general creditors. If they were in fact given bona fide and for a valuable consideration, it is difficult to see why they should not be upheld, notwithstanding they were given for precedent debts, were executed and acknowledged under an impending fear of

[ 155 U.S. Page 638]

     attachment, at a most unusual hour of the day, and were immediately foreclosed by the mortgagees and possession taken of the property. There are undoubtedly indicia of fraud connected with the transaction, but, after all, they are only items of testimony bearing upon the main question, and if there be nothing to impeach the consideration and the good faith of the parties, the fact that the mortgagees intended to obtain a preference over other creditors should not invalidate the mortgages, since the very object of giving such securities is to give a preference to the creditors therein designated. Hutchinson v. Watkins, 17 Iowa, 475; Chase v. Walters, 28 Iowa, 460; Stewart v. Mills County Bank, 76 Iowa, 571.

The fact that the assignee or the preferred creditor of an insolvent debtor is a relative or intimate friend is doubtless calculated to excite suspicion; yet in reality there is nothing unnatural in a dealer or trader who is in need of credit, or a loan of money to carry on his business, first applying to his relatives for such loans, and if the evidence be undisputed that the money was advanced, the fact that the persons making the loan are relatives ought not to debar them from receiving security. Their rights are neither increased nor diminished by the fact of relationship. Magniac v. Thomson, 7 Pet. 348; Prewit v. Wilson, 103 U.S. 22; Estes v. Gunter, 122 U.S. 450; Bean v. Patterson, 122 U.S. 496; Garner v. Second National Bank, 151 U.S. 420, 432; Aulman v. Aulman, 71 Iowa, 124; Van Patten v. Thompson, (Iowa,) 34 N.W. Rep. 763; In re Alexander, 37 Iowa, 454; Doyle v. McGuire, 38 Iowa, 410. A general assignment to a relative as trustee for the benefit of creditors is open to more suspicion, since such are more often selected as instruments for creating a secret trust in favor of the assignor.

It is also true that the mortgages must have been given for a valuable consideration, and must have been executed and received in good faith and for an honest purpose. It has been the accepted law ever since Twyne's Case, 3 Coke, 80, that good faith as well as a valuable consideration is necessary to support a conveyance as against creditors. In that case Pierce, being indebted to Twyne in 400 pounds, was

[ 155 U.S. Page 639]

     sued by a third party for 200 pounds. Pending such suit he conveyed all his property to Twyne in consideration of his debt, but continued in possession, sold certain sheep and set his mark on others. It was resolved to be a fraudulent gift, though the deed declared that it was made bona fide. Most of the cases illustrative of this doctrine, however, have been like that of Twyne, wherein a debtor, knowing that an execution was to be taken out against him, had sold his property to a vendee having knowledge of the facts, for the express purpose of avoiding a levy, or receiving a consideration which could not be reached by execution. In such cases the fact that he receives a good consideration will not validate the transaction, unless at least the creditor has obtained the benefit of the consideration. A like principle applies where a mortgage is given and withheld from record in order to give the mortgagor a fictitious credit. Cadogan v. Kennett, Cowp. 432; Blennerhassett v. Sherman, 105 U.S. 100, 117; Sayre v. Fredericks, 1 C.E. Green, (16 N.J. Eq.,) 205; Sweet v. Wright, 57 Iowa, 510, 514; 1 Story's Eq. Juris. § 353; Klein v. Hoffheimer, 132 U.S. 367; Holt v. Creamer, 34 N.J. Eq. (7 Stewart) 181; Clements v. Moore, 6 Wall. 299; Wickham v. Miller, 12 Johns. 320; Pulliam v. Newberry, 41 Alabama, 168; Robinson v. Holt, 39 N.H. 557.

In Twyne's case, the facts that the sale was accompanied by a secret trust in favor of the debtor, and that the vendor remained in possession, showed that it was not intended as a bona fide preference to the creditor, but merely as ...


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