Hulley v. Chedic , 22 Nev. 127 ( 1894 )

On June 4, 1891, A. E. Harris executed and delivered to the defendant, W. H. Chedic, a promissory note for about $4,000, which was secured by a chattel mortgage upon certain property situated in Ormsby county, Nevada. This note and mortgage, it is claimed, were immediately assigned by the mortgagee to his mother, the defendant Adeline A. Chedic, as security for $3,900 which he then owed her upon a note made by him to his father some time prior to that, and by his father given to her.

Harris had also executed another chattel mortgage upon the same property to D. C. Simpson, upon which Simpson commenced an action of foreclosure. On February 10, 1892, the Chedic note and mortgage were assigned by Adeline back to the defendant W. H., and on February 11, 1892, he intervened in the action so commenced by Simpson; alleging that he was the owner of the said note and mortgage, and asking for a judgment thereon against Harris, and for a foreclosure of the mortgage, as a first lien upon the property. On May 19, 1892, a decree was duly rendered in his favor, accordingly.

On April 19, 1892, the plaintiff obtained a judgment against the defendant, W. H. Chedic, for the sum of $1,605, with interest and costs, upon a note made by the latter to him on October 1, 1890. The next day he duly served a notice of garnishment upon Harris, intended to garnish the money then owing by him to W. H. upon the note and mortgage then in suit.

August 4, 1892, W. H. assigned the judgment so obtained by him against Harris to the defendant Adeline, which assignment the plaintiff alleges to have been made and accepted for the purpose of hindering, delaying and defrauding W. H. Chedic's creditors. February 6, 1893, both of the defendants assigned the said judgment to Simpson for the sum of $4,195, which was paid to Adeline.

February 16, 1898, a second execution was issued upon the plaintiff's judgment against W. H., and thereunder, on the same day, a notice of garnishment was duly served upon the defendant Adeline, to which she made no answer. Under supplementary proceedings she was then cited to appear before a referee, where she denied any indebtedness to W. H., and claimed to be the owner of the money obtained by her from Simpson. Thereupon, an order was made, authorizing the plaintiff to institute an action against her to recover so much of the money as might be necessary to pay the plaintiff's judgment against W. H. Chedic, and this action was then commenced. The execution upon the plaintiff's judgment was returned unsatisfied.

The complaint asks for judgment against the defendant Adeline for the sum of $2,16480, with interest, that being the amount due upon plaintiff's judgment against W. H. Chedic. Upon the trial, judgment was rendered for the defendants, and the plaintiff appeals. To the proper disposition of this case, it seems necessary to first determine what are the plaintiff's rights under the allegations of his complaint, and what were the issues to be determined upon the trial. Admitting, as contended by the plaintiff's attorneys, that by the assignment made February 10, 1892, from Adeline A. Chedic to W. H. Chedic, the latter became vested with such a title to the note and mortgage as made the debt owing by Harris subject to the claims of W. H. Chedic's creditors, we are of the opinion that the plaintiff, by his garnishment of Harris, obtained no claim upon the money received by her in consideration of the assignment of the judgment to Simpson.

This conclusion is based upon two grounds: (1) However it may be with specific property in the hands of a garnishee, our conclusion is that garnishment does not give the creditor any lien upon a debt owing by the garnishee to the debtor in the action, nor upon any money or property with which he may afterwards pay it. The books speak of it as giving a "quasi lien" — such a lien as will justify the garnishee in refusing to pay his creditor until the garnishment is disposed of, and as will give the creditor a right of action against the garnishee for any money or property in his hands owing or belonging to the party against whom the writ runs (Wade, Attachm., sec. 329), but not such a lien as will enable the creditor to follow any money that may be paid thereon into the hands of third persons. The only case cited as sustaining a contrary view is that of Sessions v. Stevens,1 Fla. 233, where the point involved was the right of an assignee of a note to maintain an action against the maker where, previous to the assignment, the maker had been garnished in an action against the payee, and judgment obtained against him in the garnishment proceedings. That, of course, is quite a different question from the one we have here, and, as applied to this case, some of the language used is a little too strong. The authorities are in conflict as to whether a garnishment creates such a lien upon specific property in the hands of the garnishee as will enable the garnisher to follow it into the hands of third persons. Among those in the affirmative we may cite Focke v.Blum, 82 Tex. 436, 17 S.W. 770, and Reed v. Fletcher, 24 Neb. 435, 39 N.W. 437; while, in the negative, we find Bigelow v. Andress,31 Ill. 333; McGarry v. Coal Co.,93 Mo. 237, 6 S.W. 81; Mooar v. Walker,46 Iowa, 164; McConnell v. Denham,72 Iowa, 494, 34 N.W. 298; Johnson v. Gorham,6 Cal. 195; Wade, Attachm., secs. 325, 334, 338; Drake, Attachm., sec. 453; Brown, Jur., sec. 149. But, as already remarked, this is not the question here, but — viewing the case most favorably to the plaintiff — whether, by garnishment of a debtor, a right can be obtained which will enable the creditor to follow money paid upon the debt into the hands of third persons; and we do not hesitate to say that it cannot. Such a debt can be paid by any legal-tender money. No particular pieces belong to the creditor; and it would be, under such circumstances, an anomalous thing to hold that a lien can be obtained upon that which may be paid to him or his assignee. To so hold would be equivalent to determining that a garnishment creates a lien on all the garnishee's property which might subsequently be delivered in settlement of the debt; but, clearly, that is not the law. (Drake, Attachm., sec. 226, and cases cited.) (2) The money in the hands of Adeline A. Chedic is money received by her, not, so far as is shown by the complaint, from Harris, the garnishee, but from Simpson, upon the assignment of the judgment to him. Admitting that the garnishment of Harris would bind the money that he might subsequently pay upon his indebtedness to W. H. Chedic or his assignee, so that, by reason of its receipt, the plaintiff would have a cause of action against the assignee, that is not the situation here. Certainly, the garnishment could not have the effect to prevent Chedic from assigning his judgment. The garnishment was only for about $2,000, while the judgment was for $4,000. Subject only to the garnishment, the judgment was his, to dispose of as he saw fit. Possibly, the purchaser would take it subject to the garnishment, but it would not prevent Chedic from assigning it all. Nor would these facts make his assignee, who might again assign it, responsible to the garnisher for money received upon the assignment. Proof of these matters might be admissible upon the question of fraud, still to be considered; but they do not, of themselves, constitute a cause of action against Mrs. Chedic.

2. It is, however, alleged in the complaint that the execution upon the plaintiff's judgment has been returned unsatisfied, and that the assignment of the judgment by W. H. Chedic to his mother was without consideration, and was made and accepted for the purpose of hindering, delaying, and defrauding his creditors. We are of the opinion that, if these allegations are supported by the proofs, they are sufficient to entitle the plaintiff to a judgment against Adeline for the amount of his judgment against W. H. Chedic. The complaint shows that W. H. Chedic obtained the judgment against Harris. Presumptively it belonged to him. As such, it constituted property that was subject to the claims of his creditors, and if assigned by him, and received by the assignee, for the purpose of defrauding his creditors, the assignee held it in trust for the creditors; and if she subsequently assigned it to another, as it is alleged she did, then the money received by her upon the assignment is held subject to the same trust. (Ferguson v.Hillman, 55 Wis. 181; Bank v.Wilson, 74 Wis. 391; Murtha v.Curley, 90 N.Y. 372; Fullerton v.Viall, 42 How. Pr. 294; 2 Bigelow, Fraud, 420; Bump, Fraud, Conv., 567; Wait, Fraud. Conv., sec. 177.) The charge of fraud is denied in the answer, and it is this allegation and denial that constitute the issue to be tried in the action.

3. A jury trial was demanded by the defendants, but objected to by the plaintiff, who contended that the case was one in equity, and should be tried by the court, or, if a jury were called, that only special issues should be submitted to it. The court ruled that the action was at law, and should be submitted to the jury for a general verdict; and at the close of the testimony it was, against the plaintiff's objections, accordingly so submitted. A general verdict was found, upon which judgment was rendered for defendants. In this ruling, we are of the opinion that the learned judge fell into error. The principle concerning the right of a party to a jury trial is thus stated in Fish v. Benson,71 Cal. 428, 435: "Both courts of law and in equity, in proper cases, have jurisdiction in cases of fraud; and when the facts constituting the fraud, and the relief sought, are such as are cognizable in a court of law, the parties are entitled to a jury trial. But where the case, as made by the pleadings, involves the application of the doctrines of equity, and the granting of relief which can be obtained in a court of equity, and not elsewhere, the parties are not entitled to a jury trial."

Under our system, where law and equity are administered by the same court, and in actions which, in form, in no wise differ from one another, it is sometimes somewhat difficult to determine whether the action is at law or in equity, or, perhaps more accurately, whether it calls for legal or equitable relief. The rule for determining this is well and accurately stated in Cole v. Reynolds, 18 N.Y. 74, 76, as follows: "The principles by which the rights of the parties are to be determined remain unchanged. The code has given no new causes of action. In some cases parties are allowed to maintain an action who could not have maintained it before, but in no case can such an action be maintained when no action at all could have been maintained before upon the same state of facts. If, under the former system, a given state of facts would have entitled a party to a decree in equity in his favor, the same state of facts in an action prosecuted in a manner prescribed by the code will now entitle him to a judgment to the same effect. If the facts are such that at the common law the party would have been entitled to a judgment, he will, by proceeding as the code requires, obtain the same judgment. The question, therefore, is whether, in the case now under consideration, the facts, as they are assumed to be, would, before the adoption of the code, have sustained an action at law or a suit in equity."

The action against Adeline Chedic is based upon a state of facts in which, prior to the code, relief could only have been obtained in a creditor's suit in equity. The property sought to be made subject to the plaintiff's demand could not be reached or levied upon by an officer. "In cases where the legal title to the property is such that it cannot be seized under execution, resort to equity is necessary." (Mulford v. Peterson, 35 N. J. Law, 127, 133.) The plaintiff has no title to the money in Mrs. Chedic's hands, nor had he any to the judgment through which she obtained it. He has simply an equitable right to demand that she shall account for his debtor's property, which has been fraudulently conveyed to her, and subsequently converted into money. As a legal demand, the complaint states no cause of action whatever, (Murtha v. Curley, 47 N. Y. Super. Ct. 393; Wellington v. Small, 3 Cush. 145; Lamb v. Stone, 11 Pick. 527;Moody v. Burton, 27 Me. 427; Wait, Fraud. Conv., sec. 62), but is sufficient in equity. In Ferguson v. Hillman, 55 Wis. 181, 191 — a cause quite like the present — the court, speaking by Mr. Justice Taylor, said: "The original conveyance being void as to creditors, no title, as to them, ever passed to the grantee; and if he sells it, and receives the money, he must hold the money for the benefit of the creditors. In equity, such money in the hands of the fraudulent grantee is held for the benefit of the creditors; and although they may not be able to maintain an action at law for money had and received for their use, because they were never the owners of, or had the title to, the property which had been converted into such money, yet a court of equity, having all the parties interested before it, may make such order as to the application thereof as may be just."

Murtha v. Curley was an action brought to recover a money judgment against the defendant, upon the ground that he had, for the purpose of hindering, delaying, and defrauding the creditors of one Doyle,, of which the plaintiff was one, taken a mortgage from Doyle upon certain personal property, which he had subsequently foreclosed, and converted the proceeds to his own use. The plaintiff obtained judgment, but upon appeal to the general term (47 N. Y. Super. Ct. 393) the judgment was reversed; that court being of the opinion that the action was one at law, and, as such, not maintainable. The plaintiff then carried the case to the court of appeals (90 N.Y. 372), where the latter judgment was, in turn, reversed; the court of appeals, while admitting the correctness of the decision of the general term, if the action were one at law, coming to the conclusion that it was in equity, and consequently properly brought. In delivering the opinion, Mr. Justice Earl said: "It appears from the opinion pronounced at the general term that the action was there treated, not as a creditor's bill, but as an action at law to recover damages for the fraud alleged, and the conclusion reached was that such an action could not be maintained; and the decision of the general term was sought by Curley's counsel to be sustained, in his argument before us, upon the same ground. We are of the opinion that the learned general term fell into error. The complaint contains all the allegations requisite for what is commonly called a 'creditor's bill,' to wit, that the plaintiff was a creditor of Doyle, having a judgment and execution returned unsatisfied, that the mortgages were executed by Doyle with the intent to hinder, delay, and defraud his creditors; and that Curley had converted the mortgaged property by a sale, and had taken the proceeds to his own use." It is argued, however, that the right to maintain this action came through the order authorizing it, made in the supplemental proceeding against Adeline Chedic; that, as that was a statutory proceeding — a proceeding at law — the action authorized by it must also be an action at law. This does not follow. In authorizing an action, the statute, of course, means the kind of action calculated to give the proper remedy. It may be that in some cases an action at law would furnish full relief, while in others it would not. In fact, in a case founded, as this is, upon a fraudulent transfer of property, it does not seem to be necessary to resort to supplemental proceedings at all; and consequently, without such order, the action could be maintained. The rule is correctly stated in 2 Freem. Exns., sec. 394, as follows: "But two of the chief objects of creditors' bills were to reach equitable assets, and to set aside fraudulent transfers of property. For the pursuit of these objects, supplemental proceedings do not afford an adequate remedy; and hence both, as formerly, may still be pursued by creditors' suits." Besides the numerous cases cited by Mr. Freeman, see, to the same effect,Herrlich v. Kaufmann, 99 Cal. 271;Bank v. Wilson, 74 Wis. 391, 399;Bufford v. Holley, 28 Fed. 680.

4. Being an equity case, only special issues should have been submitted to the jury; and it was clearly error to direct them, against the plaintiff's objections, to find a general verdict, and then to vender judgment thereon as in an action at law. (Dunphy v. Kleinschmidt, 11 Wall. 610, 615; Simpson v. Harris,21 Nev. 353, 376, and cases cited.)

5. From the defendants' testimony, it appears that the note which they claim was owing by W. H. Chedic to Adeline Chedic, and to secure which he assigned the judgment in the foreclosure suit, was indorsed and delivered by the payee, his father, to Adeline, a month or two before his death. The plaintiff contends that the evidence also shows the transaction to have been a gift in expectation of death; that he recovered from the illness from which he was then suffering; that this recovery had the effect to revoke the gift; and, consequently, that she had no title to the note; and, aside from that, he owed her nothing — the transfer of the judgment to her was without consideration. Upon this theory the plaintiff requested the court to submit several special issues, and afterwards to make findings concerning the matter, which were all refused. We are of the opinion that these rulings were correct. The note had been, according to the testimony, actually indorsed and delivered to Adeline Chedic. Thereby, the legal title had been transferred to her; and this gave her the right to enforce payment, without regard to the relations existing between herself and the indorser. As to the maker of the note, except, possibly, in so far as he may have had an offset against the payee, the note was hers. The gift was not void, hut voidable; and that only by the donor, or his lawful representative. (Prouty v. Roberts, 6 Cush. 19; Carrier v. Sears, 4 Allen, 336; Brown v. Penfield, 36 N.Y. 473; Poorman v. Mills,35 Cal. 118.)

But, of course, without regard to this question, and without regard to whether anything was or was not owing from W. H. Chedic to his mother, if the assignment was made and accepted for the purpose of hindering, delaying or defrauding his creditors, as to those creditors it was void. (Simpson v. Harris, 21 Nev. 353, 375.) If there was no consideration, the fraud would simply be a little easier to prove. (Wait, Fraud. Conv., sec. 208.)

Judgment reversed, and cause remanded for a new trial.