Rock Island National Bank v. Powers

34 S.W. 869, 134 Mo. 432, 1896 Mo. LEXIS 201

• Court: Supreme Court of Missouri
• Decided: June 2, 1896
• Status: Published

Opinion

DIVISION ONE.

Brace, P. J.

This is an action on a promissory note by attachment, levied on defendant’s stock of lumber and other personal property at its lumber yards on Troost avenue, between Nineteenth and Twentieth streets, in Kansas City, issued on an. affidavit which charged: “That the defendant Western Lumber Company has fraudulently conveyed or assigned its property or effects so as to hinder or delay its creditors ” and “that the defendant Western Lumber Company has fraudulently concealed, removed, or disposed of its property or effects so as to binder or delay its creditors;” on which issue was joined by the usual plea, the issue found for the defendant and the attachment abated.

Thereafter the cause proceeded to final judgment in favor of the plaintiff for the sum of $2,709.50 and the plaintiff appeals to this court, for errors alleged to have been committed on the trial of the issues on the plea in abatement.

The note sued on is for $2,139.16, dated January 14, 1891, payable four months after date with ten per cent interest from maturity.

The suit was instituted, and the writ of attachment sued out and levied on the fifteenth of June, 1891.

To support the affidavit therefor the plaintiff introduced evidence tending to prove that from the first day of January to the fifteenth of June, 1891, the defendant was largely indebted, was in embarrassed circumstances, unable to meet its liabilities as they matured, and was disposing of its property, real and personal, to its creditors; introduced several warranty deeds executed by the defendant between those dates whereby they conveyed valuable real estate to the grantees and among them three conveyances, absolute on their face, duly acknowledged and recorded; in connection with each of which deeds the plaintiff read in evidence a written contract of defeasance executed by the grantees therein of the same date, whereby the grantor agreed to reconvey the property to the grantee upon the paymént of the debt recited in the contract, which defeasances were not put upon record; also a chattel mortgage dated the twenty-sixth of February, 1891, duly executed, and acknowledged by the defendant on that day, but withheld from record until the sixteenth of June, 1891, the day after the attachment was levied, whereby the defendant conveyed to C. H. Y. Lewis, cashier of the Union National Bank of Kansas City, “all of the stock of lumber and all buildings and the furniture and fixtures therein contained of the lumber yard known as the Western Lumber Company’s yard' and situate in Kansas City, Jackson county, Missouri, on land leased by said company from Victor Bell, fronting on Troost avenue between Nineteenth and Twentieth streets in said city; also all the lumber and materials that may be added to said stock from time to time; also one sorrel horse called Mike,, about seventeen hands high, eight years old; also two single lumber wagons and two sets of heavy weight single harness,” to secure the payment of a promissory note dated the twenty-fifth of February, 1891, payable to said Lewis as such cashier, one day after date, for the sum of $27,569, with interest from maturity at the rate of eight per cent per annum.

In which chattel mortgage it was provided “that said Western Lumber Company shall keep a correct daily account of all lumber sold by it, and shall at the close of said day’s business account to the said Charles H. Y. Lewis, cashier, for all moneys so received, and shall pay the same to him, and all moneys so received shall be credited on the note.” And the same was conditioned to be void upon the payment of said promissory nóte; “but if the said Western Lumber Company shall fail or make default in the payment of said indebtedness or any part thereof when the same shall become due and payable, or if it shall sell, except as above provided, or attempt to sell, remove, or attempt to remove, said property out of Kansas City, Missouri, at any time before said indebtedness is fully paid and discharged, whether the same be due or not, then it shall be lawful for the said Charles H. V. Lewis, cashier, or anyone in his name, to take possession of said property wherever it may be found and sell the same in any manner lie shall think fit, and out of the proceeds arising from said sale pay off said indebtedness or so much thereof as shall be unpaid, together with the costs and expenses of said sale, and the overplus, if any there be, shall be paid to the said Western Lumber Company.”

Plaintiff also read in evidence a deed of trust dated February 25, 1891, recorded June 16, 1891, the day after the attachment was levied, made by the Western Lumber Company to Francis M. Randolph, as trustee, for Charles H. V.. Lewis, cashier, to secure the payment of the promissory note mentioned in the chattel mortgage'above set out, and conveying lots 10, 13, 14, 17,18, 19, 24, in Linwood Summit, an addition to Kansas City.

Also the following assignment and receipt written on the same paper:

“Kansas City,.Mo., Feb’y 25, 1891.

“We hereby assign to Charles H. Y. Lewis, cashier, all of the accounts due the Western Lumber Company, as shown by the books kept at such yard.

“Western Lumber Company,

“ByP. W. Powers, President.

“Received of Charles H. Y. Lewis, cashier, for collection and return to him of net proceeds, the accounts and books of the Western Lumber Company conveyed to him by the above transfer and assignment.

“Western Lumber Company,

“By P. W. Powers, President.”

Plaintiff also read in evidence a receipt given by the Union National Bank for the note of $27,569, as follows:

“Received from the Western Lumber Company its promissory note for $27,569, dated February 25, 1891, due one day after its date, with interest from maturity at the rate of eight per cent per annum. Said note is taken and held as collateral for any renewal of said notes, or any of them, or any part thereof, as collateral security for any indebtedness of said lumber company now existing or hereafter ci*eated in favor of the payee, or the Union National Bank of Kansas City, Missouri; but the fact that said notes for which this is given are not due according to their face shall in nowise preclude or prevent the holder of said note for $27,569 from collecting the same according to its tenor and effect, nor from taking possession of any or all of the property conveyed by deed of trust or the mortgage to secure the same, and subjecting such property to the payment of said indebtedness; when the indebtedness for which this note is given as collateral security shall be paid this note shall be canceled and surrendered.

“Union National Bank,

“By E. P. Neal, Vice-President.

“Kansas City, Mo., Eeb’y 25, 1891.”

It further appeared from the undisputed evidence that the notes referred to in the receipt and for which this $27,569 was given as collateral, and -which the chattel mortgage was given to secure, were three notes, two for $10,000 each, given for an indebtedness due the bank on open account, and the other for $7,569, for money borrowed at that date, all payable ninety days after date. That the defendant lumber company, after the execution of th'e chattel mortgage, with the knowledge and consent of the bank, continued in possession of the property a.nd conducted its. business the same as before, buying and selling lumber as it had been accustomed to do for cash and on credit, in the course of which a portion of the proceeds of the sales of the lumber mortgaged was used in paying for additional lumber and material, and for a horse used in the business. No indication was given to the public of any changes in the ownership of the property, or in the mode in which the business was being conducted. Occasional statements of receipts and disbursements .were made by the bank, however, and the balance of the proceeds after paying rent, expenses, and salaries, was turned over to the bank. This continued until the attachment was levied, and during all this time and long before the plaintiff was a creditor of the lumber company for the indebtedness evidenced by the promissory note sued upon.

At the close of the evidence the plaintiff asked for an instruction to the jury to find for the plaintiff, which the court refused, and submitted the case on instructions of which'the plaintiff complains in many particulars, as also to the action of the court, in some instances, on the admission of evidence. But if the court erred in refusing the peremptory instruction it will not be necessary to consider these instructions or notice the objections made to them, or to the rulings of the court upon the evidence. So we will first address ourselves to the error assigned in refusing the peremptory instruction, which, it is claimed, ought to have been given because the chattel mortgage 'was a fraudulent conveyance of the defendant’s property.

1. It is settled law in this state that, “if it appears upon the face of a chattel mortgage that the mortgagor is to retain possession-and have the power to sell and dispose of the property in the course of his business for his own benefit, then it is fraudulent as to creditors and purchasers, because made to the use of the mortgagor, and the courts will so declare as a matter of law without regard to the intention of the parties.” Hubbell v. Allen, 90 Mo. 574; Bullene v. Barrett, 87 Mo. 185, and cases cited.

In Bullene v. Barrett, supra, it was said: “It logically follows from this ruling that, in a case where the mortgage is fair on its face and the same impeaching facts are proven by extrinsic evidence, the same legal consequence flows from them when established. It is the facts which invalidate the deed, and not that they are made to appear by this or that evidence.”

Now, while the lumber company by the provisions-of this mortgage was to remain in possession of the mortgaged property with power to sell the same, the proceeds thereof were by the terms of the mortgage to be applied to the payment of the debt. The power to sell, therefore, was not to the use of the mortgagor and the mortgage was not fraudulent on its face. Hubbell v. Allen, supra; Metzner v. Graham, 57 Mo. 404.

It is not the right to remain in possession with power to sell in the ordinary course of business that renders a chattel mortgage fraudulent and void under the first section of our statute of fraudulent conveyances (R. S. 1889, sec. 5169), but it is the right to-remain in possession and to so sell, and convert the proceeds to the mortgagor’s own use that renders the-instrument void. If this power appears upon the face of the instrument it is void by its terms. If it does not so appear, but is in fact given by the mortgagee by agreement with the mortgagor, outside of the mortgage, the same consequences must follow. Barton v. Sitlington, 128 Mo. 164, and cases cited.

It is contended for the appellant that it appears1from the undisputed extrinsic evidence in this case that such power was given to the mortgagee, from the fact that the mortgagee by the contemporaneous written receipt became a security, not only for an existing indebtedness, but for future advances, and other property was 'bought by the mortgagor with the consent of the mortgagee, as it became necessary in the course of the business, and paid for out of the proceeds of the mortgaged property, and the court ought to have held that the mortgage was in fact to enable the mortgagor to carry on its business, and therefore for its use and void.

While such an inference might be drawn from the facts stated, by a jury, it was hardly within the province of the court to declare such a conclusion as matter of law, and if this was the only ground for holding the chattel mortgage a fraudulent conveyance, the court might well have refused the peremptory instruction.

But it was kept off the record until after the attachment was levied and plaintiffs rights had intervened, thus rendering it obnoxious to another section of the statute of fraudulent conveyances which avoids such instruments as to all persons except the parties thereto unless ‘ ‘possession of the mortgaged or trust property be delivered to and retained by the mortgagee or trustee, or cestui que trust, or unless the mortgage or deed of trust be acknowledged or proved and recorded in the county in which the mortgagor or grantor resides.” R. S. 1889, sec. 5176.

Of course this statute means, not a constructive, but an actual, open, and visible change of possession, regard being had to the situation and character of the property, and must take place before the rights of other parties attach to the property. Dobyns v. Meyer, 95 Mo. 132.

The chattel mortgage in this case was not recorded and no such change of possession took place until after the plaintiff’s rights attached to the property, consequently it was fraudulent and void as to plaintiff (White v. Graves, 68 Mo. 218; Bevans v. Bolton, 31 Mo. 437), and the court might well have so declared.

2. It is also claimed that the three deeds, absolute on their faces, and duly recorded, but which were converted into mortgages by the contemporaneous written defeasances given to the lumber company, but which were not recorded, while good as between the parties, were fraudulent as to the plaintiff.

There can be no question that these deeds were thus made the means of concealing a secret trust for the benefit of the grantor, and thereby became obnoxious to the first section of the act of fraudulent conveyances. Martin v. Estes (1896), 132 Mo. 402; Roberts v. Barnes, 127 Mo. 405.

The only answer that defendant makes to this contention is that plaintiff’s agent took a like security for its debt; but we can not see how the fact that plaintiff had a security which had a like infirmity, could in any way change the character of these deeds, or estop the plaintiff from showing their true character.

3. It would seem from what has been said that the court did err in refusing the peremptory instruction ; and it certainly did unless the defendant’s next contention can be maintained, which is, that although the conveyances aforesaid may have been fraudulent and void as to the plaintiff, yet if the defendant had other property which might have been subjected to the payment of its debts, then defendant had not conveyed its property so as to hinder and delay its creditors as alleged in the affidavit; thus making the right to attachment for the causes set out in the affidavit dependent upon the insolvency of the debtor.

It appears from the brief of counsel that several other attachments were* levied upon the property in question at the same term with the case in hand, all of which were sustained in the court below except this one. One of these other attachments was taken by appeal to the Kansas City court of appeals, in which this question was raised upon the same state of facts and-pleading as is here presented (Bank v. Lumber Co,, 59 Mo. App. 317), and that court held, after matured consideration, that, “the fact that a debtor who fraudulently disposes of a part of Ms property is solvent, will not defeat an attachment.”

This is in accordance with the construction of that section of the statute that has always obtained with the profession of this state, so far as our knowledge or experience extends, and is so well maintained in the opinion in that case, that we deem it unnecessary to add anything to the argument thereof.

It will thus be seen that the court committed error in refusing the peremptory instruction, and it becomes unnecessary to consider the other points made for reversal. The judgment on the plea in abatement will therefore be reversed and the cause remanded, with directions to the circuit court to enter up judgment thereon for the plaintiff.

All concur except Baeclay,' J., who dissents.

IN BANC.

Pee Cueiam.

The foregoing opinion of Beace, P. J., handed down in division number one is adopted as the opinion of the court in banc. Beace, C. J., Gantt, Sheewood, Maoeaelane, Büegkess, and Robinson, JJ., concurring therein, and Baeclay J., in the result. The judgment of the circuit court is therefore reversed, and the cause remanded to be proceeded with as in the opinion directed.