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Attorney(S)

G. M. T. Fountain for defendants (appellants). (60) Jacob Battle and Gilliam Gilliam for plaintiff.

Judges

CLARK, J.

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Smart Summary

Pender v. Mallett, Supreme Court of North Carolina (Dec. 18, 1898)

Factual and Procedural Background

This action was brought by John R. Pender, as receiver of the firm composed of John P. Mallett and C. B. Mehegan, to recover certain property alleged to belong to the firm and to have been fraudulently placed in the possession of Mrs. S. Mallett (wife of one partner and sister of the other). The original complaint also claimed a debt alleged to be due from the Edgcumbe Homestead and Loan Association to John P. Mallett. A demurrer was filed to the complaint. By leave of court an amended complaint was filed on October 11, 1897, eliminating the loan association from the action. At April Term, 1898, a second demurrer was filed and overruled, and the defendants were allowed until May 20, 1898, to answer. On motion of the plaintiff, an order was entered directing the examination of the defendants before the clerk on May 23, 1898.

The defendants excepted to that order and appealed. The Superior Court initially held that no appeal then lay from an order directing examination of parties and ordered the clerk to proceed with the examination. The defendants sought a writ of certiorari from the Supreme Court to review those orders; the Supreme Court issued certiorari but expressly held that the certiorari would not suspend the order of examination insofar as that order was concerned, and the Court later addressed the appeal from the overruling of the demurrer. On June 7, 1898, at the scheduled examination, Mrs. S. Mallett moved to dismiss proceedings on the ground that the order provided for examination after answer filed. The clerk refused to proceed with the examination, accepting the defendants' contention; the plaintiff excepted and appealed to the Superior Court judge. At the June Term, 1898, the Superior Court determined that an appeal would not lie from an order directing examination of parties and directed the clerk to proceed. The defendants objected and appealed to the Supreme Court.

Legal Issues Presented

Whether an appeal lies from an order directing the examination of parties (i.e., whether such an appeal is premature).
Whether, when an amended or substituted complaint is filed by leave of court, it may differ from or be antagonistic to the original complaint (and the limits of that allowance).
Whether an argumentative or evidentiary pleading is properly tested by demurrer or by motion for repleader.
Whether a receiver, as the court's officer, may maintain an action to set aside fraudulent conveyances of the debtor.
Whether property conveyed by an insolvent husband to his wife in fraud of creditors may be recovered from the wife (including when she is a married woman or a "free-trader") and whether the fund may be followed into substituted forms of property.

Arguments of the Parties

Defendants' Arguments

They contended that the order for examination was improper because, as phrased, it provided for examination only after an answer was filed; thus, the examination then ordered was premature.
They argued that the clerk's decision refusing to proceed with examination was correct and that the Superior Court should not have directed the clerk to proceed while appeals were pending.
They excepted to the ruling that they could not appeal from the clerk's decision directing examination of parties.

Plaintiff's Arguments

The plaintiff asserted that the clerk should proceed with the examination (subject to the defendants' exceptions), and that an appeal taken before the examination was conducted would be premature.
The plaintiff, as receiver and by order of court, sought to pursue discovery/examination to obtain information and evidence relevant to the action to recover property claimed to have been fraudulently conveyed.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Holt v. Warehouse Co., 116 N.C. 480	The defendant may be examined before pleadings are filed to procure information in framing the complaint; an appeal from such an order was held premature and dismissed.	Used to show that examination before pleadings is permissible to obtain information and that an appeal from such an order would be premature.
Helms v. Green, 105 N.C. 251	A defendant may be examined after answer is filed to procure evidence in the cause.	Illustrates the distinction between examinations before and after pleadings; supports that appeals from such orders are premature when taken in isolation.
Vann v. Lawrence, 111 N.C. 32	Affirms that appeal from an order for examination after answer would be premature; cautions against appeals on isolated practice questions that would prolong trials and increase costs.	Reinforces the court's refusal to entertain an appeal from an order directing examination as premature and contrary to sound practice.
Pender v. Mallett, 122 N.C. 163	Referenced concerning the appeal from overruling demurrer and the court's prior direction regarding certiorari and suspension of examination orders.	Noted that an appeal from the overruling of the demurrer lay, but the Supreme Court had directed that certiorari would not suspend the order of examination — a discretionary action by the Court.
Daniel v. Fowler, 120 N.C. 14	Where a pleading is argumentative and evidentiary, the proper remedy is a motion for repleader to make the complaint more explicit, not a demurrer.	Cited to reject the third ground of demurrer (that the complaint was argumentative/evidentiary) as not a proper basis for demurrer but for motion for repleader.
Gilliam v. Ins. Co., 121 N.C. 369	An amended or substituted complaint filed by leave of court may be different or even antagonistic to the original complaint provided it does not confer jurisdiction or evade defenses that could have been pleaded to the original complaint.	Applied to sustain the amended (substituted) complaint as a permissible mode of stating the same cause of action and to reject the demurrer's contention that the second complaint was impermissibly antagonistic.
Authorities: 24 A. E., 699 notes; Porter v. Williams, 59 Am. Dec. 523 (and notes)	Support the proposition that a receiver is an officer of the court ("the hand of the court") and may maintain actions to set aside fraudulent transactions of debtors.	Used as authority for the court's statement that the receiver can bring an action under the court's order to recover property fraudulently conveyed by debtors.
Edwards v. Culberson, 111 N.C. 344	Where an insolvent husband conveys property to his wife in fraud of creditors, the property may be recovered in her hands; if proceeds are invested in other property, the fund may be followed.	Applied to support the court's holding that property conveyed by the insolvent husband to Mrs. S. Mallett could be recovered and that the fund may be followed into substituted investments.
Reynolds v. R. R., 136 N.C. 348	Not specified in the provided opinion text.	Mentioned as a cited case at the end of the opinion; no rule or specific application is detailed in the provided text.

Court's Reasoning and Analysis

The Court analyzed both procedural and substantive points raised by the record. It began with the procedural question of examination of defendants under The Code, sec. 581, recognizing two permissible contexts for such examinations:

Examination before pleadings are filed to procure information for framing the complaint (citing Holt v. Warehouse Co.).
Examination after answer is filed to procure evidence in the cause (citing Helms v. Green and Vann v. Lawrence), in which latter context appeals from orders would be premature in isolation.

Applying those distinctions, the Court observed that an earlier order to examine before answer (entered at a different stage of the cause) was premature, as Judge Bryan had properly held. At a later stage, Judge Brown overruled the demurrer and extended time to answer until May 20, and set the examination for May 23, a date after the time allowed for filing an answer — thus placing the examination at an appropriate stage. The Court concluded that the earlier order was not res judicata as it was made at a different stage of the proceeding.

As to the demurrer itself, the Court addressed each ground preserved by the record:

The misjoinder grounds were resolved by the filing of the amended complaint (which omitted the parties and causes of action previously objected to) and by the finding of discontinuance as to them.
The contention that the complaint was argumentative and evidentiary was rejected as a basis for demurrer; the proper remedy would have been a motion for repleader to make the pleading more explicit (citing Daniel v. Fowler).
The Court explained the permissible scope of substituted complaints filed by leave: such a complaint may differ from or be antagonistic to the original complaint, provided the amendment is not an attempt to confer jurisdiction or to evade defenses (citing Gilliam v. Ins. Co.). The second complaint was treated as a substituted complaint stating the same cause of action in a different mode and therefore permissible.
The Court reasoned that the receiver acts as the court's agent ("the hand of the court"), not merely as a representative of the debtors, and may maintain actions to set aside fraudulent transactions (citing 24 A. E., Porter v. Williams, et al.).
Concerning Mrs. S. Mallett, the Court noted she was sued as a free-trader; in any event, the fact that property came into her hands before she became a free-trader did not make her immune. Even if she were not a free-trader, the action concerned property she claimed as her separate property and she could be sued concerning that property with her husband joined as defendant (citing The Code, secs. 178, 424 (4)). The Court rejected the notion that a married woman could avoid suit where the husband in insolvency has transferred property to her in fraud of creditors; if the proceeds were invested, the fund could be followed (citing Edwards v. Culberson).

Considering these points together, the Court found no error in the rulings below.

Holding and Implications

HOLDING: No error; the order directing the examination of the defendants was proper and the overruling of the demurrer was correct.

Direct consequences for the parties:

The Superior Court's direction that the clerk proceed with the examination of the defendants is affirmed as consistent with procedural rules and precedent (the Court treated the later-set examination date as appropriate).
The overruling of the defendants' demurrer is sustained: the amended complaint was permissible; the objection that the pleading was argumentative/evidentiary was not a ground for demurrer but for motion to replead; and the receiver is authorized to institute the present action to set aside alleged fraudulent conveyances.
The defendants may not obtain immediate appellate review of an order directing examination of parties when such review would be premature.

Broader implications: The opinion applies existing procedural and remedial principles (as cited) without purporting to establish a novel rule of law. The Court reaffirmed established distinctions regarding timing of defendant examinations, the proper procedural vehicle for challenging argumentative pleadings, the permissible scope of substituted complaints filed by leave, and the receiver's authority to pursue fraudulent conveyances, including recovery from a wife where property has been fraudulently conveyed by an insolvent husband. The opinion does not announce a new precedent beyond application and reinforcement of those established authorities.

Decision delivered by Clark, J. — "No error." (Cited thereafter: Reynolds v. R. R., 136 N.C. 348.)

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JOHN R. PENDER, RECEIVER OF JOHN P. MALLETT AND C. B. MEHEGAN, v. JOHN P. MALLETT, C. B. MEHEGAN AND S. MALLETT AND THE EDGECOMBE HOMESTEAD AND LOAN ASSOCIATION.

Pleading — Receivers — Fraudulent Deed by Insolvent Husband.

1. If a pleading is argumentative and evidentiary, the remedy is by motion for a repleader and not by a demurrer.

2. An amended or substituted complaint filed by leave of court may be different from or even antagonistic to the original complaint, provided, the effect of the change is not to confer jurisdiction, or evade defenses (as Statute of Limitations) which could have been pleaded to the original complaint.

3. A receiver is the hand of the court, and does not represent the debtor alone, and can bring an action by order of court to set aside fraudulent conveyances of the debtor.

4. Where an insolvent husband has conveyed property to his wife in fraud of his creditors, it may be recovered in her hands, the husband being joined as defendant, if the wife is not a free trader. If she has invested the proceeds in other property the fund may be followed.

CLARK, J.

Under The Code, sec. 581, the defendant may be examined before pleadings filed to procure information in framing the complaint as was the case in Holt v. Warehouse Co., 116 N.C. 480, where it is held that an appeal from such order was premature and would be dismissed; or the defendant may be examined after answer filed to procure evidence in the cause, Helms v. Green, 105 N.C. 251; Vann v. Lawrence, 111 N.C. 32; and in the latter case the Court held that an appeal from such an order would be premature, pointing out that trials would be needlessly prolonged and costs extravagantly swelled if an appeal could lie to this Court "upon every isolated question of practice or the admissibility of evidence, competency of witnesses, or the like."

The examination in this case not having been asked to procure evidence in framing the complaint, his Honor, Judge Bryan, properly held, at Fall Term, 1897, that the order to examine the defendants before answer filed was premature. At April Term, 1898, Judge Brown overruled the demurrer and gave the defendants till 20 May to file answer, and ordered examination to be taken 23 May. The issue would regularly have been joined by filing the answer at April term, and as by the grace of his Honor time was given till 20 May, he was within the practice by setting the examination for 23 May, a date after issue should be joined, and the former order of Judge Bryan, made at a different stage of the cause, was not res judicata. The defendants appealed at April Term, 1898, which lay from overruling the demurrer, though not from an order directing examination of witnesses, and this was held in this case, (61) Pender v. Mallett, 122 N.C. 163. The appeal would ordinarily stop all proceedings in the lower court, including proceedings under orders from which, if considered alone, an appeal would be premature. But in this cause, upon the case as presented, we directed that the writ of certiorari should not suspend the order of examination of the defendants — a matter which rested in the discretion of this Court. The Code, sec. 957.

This brings us to the consideration of the demurrer, from overruling which an appeal lay, but as to which we find no error. The first two grounds of first demurrer for misjoinder are eliminated by the omission of the parties and causes of action objected to in the second or substituted complaint filed by leave of court, and the finding of fact by Judge Brown that there has been a discontinuance as to them. The third ground of demurrer that the complaint was argumentative and evidentiary is not ground for demurrer, but, if true, would have sustained a motion (if made before answer or demurrer) for a repleader and to make the complaint more explicit. Daniel v. Fowler, 120 N.C. 14. As to the first additional ground of the amended demurrer, the second complaint is not for a different cause of action and antagonistic to the first, but merely a different mode of stating the same cause of action, and if it were as the demurrer alleges, the second complaint is in effect a substituted complaint by leave of the court and might be different or even antagonistic to that stated in the original complaint, for this is not the case of an amendment of summons, or even of the complaint, to confer jurisdiction by charging an entirely new cause of action or evading defenses to the original action, which would not be admissible. Gilliam v. Ins. (62) Co., 121 N.C. 369. The second additional ground of demurrer cannot be sustained. The receiver is the hand of the court, bringing this proceeding under its orders, and is not the representative of the debtors alone, and can maintain an action to set aside fraudulent transactions of the debtors. 24 A. E., 699, notes; Porter v. Williams, 59 Am. Dec., 523, and notes. As to the last ground of demurrer, the defendant S. Mallet, is now a free-trader and sued as such. It is immaterial that the property came into her hands before she was made a free-trader. But even if she were not a free-trader the action concerns property she claims as her separate property, and she can be sued in regard thereto, no matter when she acquired it, her husband being joined with her as defendant. The Code, secs. 178, 424 (4). It cannot be allowed that when an insolvent husband (or his firm as here charged) makes over his property to his wife in fraud of his creditors, she cannot be sued for the recovery thereof because she is a married woman. If in such case the specific property (money, for instance) has been invested in some other shape, the fund may be followed. Edwards v. Culberson, 111 N.C. 344, and cases there cited.

No error.

Cited: Reynolds v. R. R., 136 N.C. 348.

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PENDER v. MALLETT