Missouri Broom Mfg. Co. v. Guymon

115 F. 112, 53 C.C.A. 16, 1902 U.S. App. LEXIS 4195

• Court: Court of Appeals for the Eighth Circuit
• Decided: April 14, 1902
• Docket: No. 1,609
• Status: Published

Opinion

THAYER, Circuit Judge,

after stating the case as above, delivered the opinion of the court.

It is manifest, we think, from an inspection of the bill, the substance of which has been stated above, that the proceeding at bar must be characterized as an action to recover personal property and the proceeds thereof, which property the complainant below was induced to sell and ship to the Missouri Broom Manufacturing Company (hereafter termed the “Broom Company”) by means of false and fraudulent representations that were made by certain officers of that corporation to induce the sale. The bill distinctly avers that the broom company made the purchase of the broom corn in controversy wdth no intent to pay for the same; that the sale was induced by statements which were false and misleading; that the complainant was thereby deceived, and induced to part with his broom com; and that immediately after the discovery of the fraud the complainant elected to rescind the contract of sale and reclaim the property sold, and that. he took the proper steps in that behalf. These allegations and the relief prayed for give an unmistakable character to the proceeding, and stamp it as a proceeding to recover property which was wrongfully obtained from the complainant by fraud, and which, for that reason, must be regarded as having been held originally by the broom company, the fraudulent vendee, in trust for the complainant, if he elected to rescind the contract of sale. It must also be regarded as held in trust by the other defendants, to whom the property was transferred, unless they were innocent purchasers for value. It is true that there are some allegations in the bill, not stated above, showing that one of the stockholders of the broom company (I. J. Ringolsky) has not paid for his stock, and that he has received money from the broom company, which he ought to refund. It is also true that allegations of this sort have no proper place in a proceeding such as we understand the present proceeding to be, and that they might, under some conditions, render the bill multifarious; but as the bill was dismissed as to Ringolsky, and as no attention was paid to these allegations, or relief sought or granted on account thereof, they ought not, at this stage of the case, to be noticed, or to prejudicially affect the decree, if it is right in other respects. The appellants have sustained no injury in consequence of these allegations, and cannot be heard to complain that the bill is multifarious.

Nor is the contention of the appellants entitled to any weight that the decree is erroneous, and that the demurrer to the bill should have been sustained, because the complainant was not, as it is said, “a judgment or lien creditor” of the broom company when he filed his bill. It is a sufficient answer to this contention that the proceeding is in no sense, or from any point of view, a creditors’ bill to reach equitable assets of a debtor, to which class of cases the doctrine invoked by the appellants is applicable. This is a proceeding by the complainant, as before stated, to establish a constructive trust, and compel the trustee to restore the trust property to its rightful owner, or to account for the proceeds if the property, or a part thereof, has been sold. In such cases it is no more necessary for a complainant to establish his demand at law before proceeding in equity than when a beneficiary under an express trust seeks relief against his trustee. Lawton v. Levy, 2 Edw. Ch. 197; Kerr v. Blodgett, 48 N. Y. 62; Weir v. Tannehill, 2 Yerg. 57; Bank v. Houchens, 115 Fed. 96 (decided by this court at the present .term). Moreover, in the case in hand, the complainant could not have established a demand at law against the broom company, as by suing for the value of the broom corn, without ratifying the sale and relinquishing the very right to the property which he seeks by this proceeding to enforce.

Another contention on the part of the appellants, which is entitled to more consideration, perhaps, than the one last mentioned, is that an action at law by way of replevin would have furnished an adequate remedy for the wrong complained of, since the property involved was personalty; and hence that a court of equity was without jurisdiction. With reference to this contention we observe that, while a vendor of personal property may maintain replevin against a vendee, who, as in this case, bought the property with a preconceived intent not to pay for the same (Bussing v. Rice, 2 Cush. 48; Bank v. Bates, 120 U. S. 556, 7 Sup. Ct. 679, 30 L. Ed. 754; Beebe v. Hatfield, 67 Mo. App. 609; Morrow Shoe Mfg. Co. v. New England Shoe Co., 6 C. C. A. 508, 57 Fed. 685), yet it does not follow that in every case a vendor who elects to rescind and reclaim his goods from one who has bought them not intending to pay therefor, must resort to replevin, and cannot have relief in equity. Serious obstacles may stand in the way of obtaining adequate redress at law. Besides, the fact that the fraudulent vendee, when the election to rescind is made, occupies the position of a trustee, should dispose a court of chancery to assume jurisdiction, on the ground of declaring and enforcing the trust, unless the transaction is a very simple one, which can be investigated readily by a court of law and tried to a jury. In the case before us the bill alleged that such part of the broom com as had not been worked up into brooms had been mingled by the broom company with other broom corn, which, as a matter of course, rendered it difficult of identification. It was also disclosed by the bill that the property had been twice sold, and that the rights of the alleged purchasers would be a subject-matter for careful investigation. It was also charged in the bill that a part of the commodity had been manufactured into brooms, and consigned to third persons, who were acting in collusion with the broom company, and who were chargeable, as fraudulent trustees, with the property, or the proceeds thereof, which they had received. It was obvious, therefore, that the complainant could not obtain complete relief by a single action in replevin, such as he could obtain by the more flexible processes of a court of equity. These considerations were ample, in our judgment, to warrant a court of equity in entertaining the bill for the purpose of investigating the entire transaction, and enabling the complainant to obtain full relief by a single action. The case was one which fell within the province of a court of chancery, because the object was to establish and enforce a trust, and because the legal remedy was inadequate. Refining Co. v. Fancher, 145 N. Y. 552, 556, 557, 40 N. E. 206, 27 L. R. A. 757. See, also, Morse v. Nicholson, 55 N. J. Eq. 705, 38 Atl. 178.

Turning to other phases of the controversy, the appellants claim that they, or at least some of them, are armed with the rights of innocent purchasers for value, notwithstanding the fraud that was perpetrated by the broom company. This claim seems to be based entirely on the fact that the deed of trust which was executed in favor of the Exchange Bank of Jefferson City and David Loewen on September 28, 1897, granted to the broom company a definite extension of time for the payment of the debts which were thereby secured, and the argument is that such extension was a present valuable consideration paid by the beneficiaries in the deed of trust for the conveyance, which will enable them to hold the property as against the complainant, because the beneficiaries were not cognizant of the fraud that had been perpetrated by the broom company. It is conceded that the deed of trust was given to secure antecedent debts, and that the Missouri doctrine, as well as the doctrine of some other states, is that one who takes a mortgage or deed of trust on property simply as security for an antecedent debt, without paying any new or additional consideration, is not a bona fide purchaser who can hold the property if it transpires that his vendor acquired the same fraudulently. Goodman v. Simonds, 19 Mo. 107; Wine Co. v. Rinehart, 42 Mo. App. 171, and cases there cited; Vogelsang’s Adm’rv. Fisher, 128 Mo. 386, 405, 31 S. W. 13; 2 Pom. Eq. Jur. (2d Ed.) § 749. While the deed of trust now in question does contain a clause extending the time of payment of the debts thereby secured for 10 days, yet this clause was immediately followed by another, which authorized the trustee to take possession of the mortgaged property “at once,” inventory it, and sell it forthwith, either at public or private sale} in bulk or at retail. The trustee was further empowered to hold the proceeds of the sale until the debts, as extended, matured, and then to apply the proceeds to' their payment. We are of opinion that a deed of trust or mortgage containing such provisions as these cannot be regarded as granting a debtor any indulgence, unless we ignore matters of substance, and look merely at the shadow. The debtor was deprived immediately of all of his property and resources of whatsoever character, which were to be sold forthwith at a forced sale; and before such a sale as the one contemplated in the present instance could have been consummated the indebtedness, as extended, would doubtless have become payable. The debtor derived, therefore, no possible advantage from the clause granting an extension, which was merely colorable, and, as we have been forced to conclude, was in fact inserted in the deed of trust for no other purpose than to furnish a pretext for such a claim as has been made, namely, that such extension of the time of payment was a new and additional consideration for the conveyance, such as protects the creditor and arms him with the rights of an innocent purchaser for value. Instead of having the effect intended, it really creates a grave suspicion that the creditor either knew or suspected that the broom, company could not transfer a good title to some of the property in its possession which it offered to pledge as security for its debts. Edson v. Hudson, 83 Mich. 450, 47 N. W. 347. See, also, Victoria Paper Mill Co. v. New York & P. Co. (City Ct. N. Y.) 57 N. Y. Supp. 397. The result is that the plea by the appellants that they were innocent purchasers for value was properly overruled, and, as no sufficient reasons are shown for disturbing the finding of the lower court that the broom company bought the broom corn in controversy with no intent to pay for it, it follows that the beneficiaries in the deed of trust have no greater right thereto than the hroom company would have, if it was the sole defendant.

Another contention on the part of the appellants — and the only one which we deem it necessary to notice — is that the lower court should have allowed the complainant only $30 per ton for his broom, corn, instead of $50 per ton, which was the sum actually awarded. This claim seems to be made upon the theory that the complainant sued the broom company for the purchase price of the. commodity sold, or in trover for its conversion; in which event, it is said, the purchase price was the true measure of recovery. But the theory on which this claim is based is erroneous. The complainant sued to recover his property from the fraudulent vendee upon the theory that he was chargeable with it as a trustee. Pending the action, and for convenience, the purchasers from the fraudulent vendee were allowed to sell or dispose of the property as they deemed best, holding the proceeds to await the outcome of the suit. In the meantime the value of the commodity rose, and it was sold at a large advance above the purchase price. For these reasons we entertain no doubt that the complainant was entitled to recover the value of his broom corn at the time the final decree was entered, and such seems to have been the opinion of the lower court.

Finding no material error in the proceedings below, the decree from which the appeal was taken must be affirmed, and it is so ordered.