Russell v. Letton

Gill, J. — As appears from the foregoing statement, this is another of those contests, so often before the courts, wherein two rival creditors have sought to save their claims out of the assets of the insolvent debtor. The real parties in interest here are, Russell claiming under a chattel mortgage executed and recorded June 30, 1892, and Barnes, a subsequent execution creditor. Both appear to have just claims against Nall, the common debtor; and the question is, who, in this race for [547] preference, is entitled to priority. On the face of things, Russell — being first in the point of time — has prima Jade the better right; for the general rule of the law in ■such cases is, “first come, first served.'” The law unquestionably concedes to Nall, the debtor, the right to prefer Russell, and admits, too, in Russell the right to seek and secure such preference, even if thereby .Barnes and other creditors are left unprovided for. But the defendant, in behalf of Barnes, charges in his answer that by the execution of the chattel mortgage to Russedl June 30, 1892, Nall intended to hinder, delay and defraud Barnes, and that Russell knew of ;such design and took the mortgage to aid Nall in such ■fraudulent purposes. If that were true, then it is clear ■that Russell’s pretended mortgage security should be •declared void and set aside in favor of the Barnes .judgment. Eor, as repeatedly decided, while a creditor ■will be protected in his prior security acquired by his ■diligence, yet if he take it coupled with a design to -assist the debtor in cheating or defrauding other creditors, he will not be allowed to profit thereby. Mere .knowledge, however, of the debtor’s illegal object in .giving the preference will not invalidate the claim of the favored creditor; more is necessary — the creditor .must be a party to the fraudulent design. This, in brief, comprises the general principles of law applicable to controversies of this nature (Deering v. Collins, 38 Mo. App. 73; Shelly v. Booth, 73 Mo. 74; Holmes v. Braidwood, 82 Mo. 610, 616; Schroeder v. Bobbitt et al., 108 Mo. 289), and this law, too, was clearly and intelligently declared by the learned judge who tried this •case in the circuit court, as will be seen by reading the instructions quoted in the statement. Defendant’s counsel, however, contends, in substance, that the execution of the $2,000 note and mortgage by Nall to Russell, and placing the same on record, [548] was, of itself, fraud inlaw, such as to invalidate Russell’s, security, and that the court ought to have declared, on that evidence alone, the chattel mortgage to be fraudulent and void. This position is taken because, it is. said, it was made to appear of record that Russell’s, claim was for $10,000, whereas it was only for $8,000 all told. This contention is not maintainable. While this circumstance might be considered, with other evidence, as tending to prove a common design by Nall and Russell to cover up Nall’s property and conceal it from other creditors, it surely cannot be regarded as conclusively showing such a purpose. Whether said $2,000 note and mortgage is to be considered as additional security for the $6,000 note and interest, oras payment of the interest due to that time, it was entirely legitimate, provided, of course, there was an absence of a. real fraudulent purpose on the part of Nall and Russell. It clearly appears from the testimony that it was not-intended as a fraudulent inflation of Russell’s claim,, and the court so found. It is a matter of common occurrence to execute notes and mortgages to secure-existing indebtedness, or even to secure future advances, or contingent liabilities; and so long as the purposes-thereof are honest in fact they are upheld. In our opinion then the trial court properly-declined to give defendant’s instructions numbers 1 and 4. Foster v. Reynolds, 38 Mo. 553; 1 Jones on Mortgages [4 Ed.], sec. 374. The judgment herein was for the right party and will be affirmed. All concur.