Webb City Lumber Co. v. Victor Mining Co.

SMITH, P. J. Statement. Plaintiffs brought an action of attachment against the defendant; and, under the writ issued therein, certain mining machinery and other personal property of the defendant were levied upon. One Kane filed an interplea on the action claiming to be the owner and entitled to the possession of the attached property under the provisions of a certain mortgage executed to him by the defendant prior to the levy of the attachment. The plaintiffs, by their answer, denied the allegations of the interplea and charged that the mortgage was made with the intent to hinder and delay creditors, and that the debt described in the mortgage was fictitious, and that the mortgage was fraudulent and void. There was a trial by the court without a jury. At the request of the interpleader the court made a special finding of facts, which is to the effect following: “That on the twenty-second day of September, 1896, and prior thereto the Victor Mining Company was a corporation organized and existing under the laws of the state of Missouri and on that date, it was indebted to the Bank of Carterville, a corporation organized and existing under the laws of the State of Missouri, in the sum of $2,164.35, for which amount the said bank held a note of said Victor Mining Company, signed by said company, and E. E. Dwight, J. B. Flanders and A. M. Drake, all as principals, which said note was not then due. That Flanders, Dwight and Drake were solvent; that the Victor Mining Company was heavily indebted to various persons other than the Bank of Carterville, — 679 — and was insolvent and was being pressed by some of its creditors and tbat fact was known by interpleader on September 22, 1896; that on said date and prior thereto the interpleader, ~W. B. Kane, was cashier of Said Bank of Carterville; that on said twenty-second day of September, 1896, without consulting the Bank of Carterville or any of its officers or the interpleader, ~W. B. Kane, or. without being asked or requested to give any additional security for the indebtedness which it owed to the said Bank of Carterville, said Yictor Mining Co. executed a chattel mortgage on all its property to W. B. Kane, interpleader, to secure a note for the sum of $5,161.35, which note was particularly described in the mortgage; that this mortgage was executed for the purpose of obtaining three thousand dollars to be thereafter advanced by the interpleader, W. B. Kane, and that at the time said note was delivered to Kane in the Indian Territory, it was agreed between said Yictor Mining Co. and the interpleader that the mining company would send in its bills to the interpleader and that he would draw his own check on the Bank of Carterville; that said note and mortgage were delivered to the interpleader at Waggner, I. T.; that said mortgage was on the twenty-fourth day of September, 1896, duly filed for record in the office of the recorder of deeds of Jasper county, Missouri, and was duly recorded and afterwards on the twenty-fifth day of September, 1896, the plaintiff, with other creditors, attached the property in said mortgage described; that the said mortgage •contained a provision that the mortgagor might retain possession of the property until the debt became due, with the proviso that in case of the sale, disposal or removal of the property or any part thereof, or the attempt to sell, dispose of or remove said property or any part thereof, the whole debt should at once become due and the mortgagee should at once have the right to the possession of said property; that up to the time of the levying-of the attachment the inter-pleader had advanced no part of the sum agreed to be advanced and after the attachments he refused to advance any — 680 — sum, and it was then agreed by and between the interpleader and the defendant that no further sum should be advanced and that the sum he had agreed to advance should be credited as a payment on the note secured in the mortgage, which was done; that the said note of $2,164.35 was not canceled or delivered to said Victor Mining Oo. but was retained by said bank and treated by said bank as a part of its assets; that afterwards, on April 17, 1897, the said Bank of Oarterville went into liquidation and transferred all its assets to the First National Bank of Oarterville; that said note with the other assets was transferred to the said First National Bank of Oarterville; that on the first day of May, 1897, said note of $2,164.35 was taken up by the Victor Mining Oo. and a new note for the same amount was executed by the Victor Mining Oo., and Dwight, Flanders and Drake, to the First National Bank of Oarterville, which bank still holds said note; that the property attached has been sold under the order of this court and the proceeds thereof stand in the place of the property. “The court further finds that the purpose of the Victor Mining Company in executing said mortgage and said $5,164.35 note was to raise said sum of $3,000 to be used in sinking its shaft and taking up a stope in its mine, and not to secure the payment of any indebtedness,which it then owed to the Bank of Oarterville, and that the interpleader, Kane,, knew of such purpose; that no part of the said $3,000 agreed to be . advanced was to be paid until the interpleader returned from the Indian Territory and then, if everything was satisfactory to said Kane, the money was to be paid by him on orders from the Victor Mining Oo., and that no part of said $3,000 was ever deposited in said bank or set apart subject to-the order of the Victor Mining Company; that before Kane returned from the Indian Territory the property was attached by the plaintiff and other creditors and the contract in relation to said $3,000 between the interpleader and the Victor — 681 — Mining Company was never completed ox carried out; and that said note of $5,164.35, secured by said mortgage is to the extent of the sum of $2,164.35 fictitious and to that extent the said mortgage was without consideration, but that the Victor Mining Co., in the execution of the $5,164.35 note, made the amount thereof exactly equal to the two sums of $3,000 to be thereafter advanced to it by interpleader, and the sum of $2,164.35 which it owed to the Bank of Carter-ville; that at the time of the delivery of said mortgage to interpleader he agreed with the representative of the Victor Mining Co. that said Bank of Carterville would deliver up to the makers thereof the said note of $2,164.35, but the court finds that said bank refused to carry out said agreement and never did deliver up said note, but retained same and treated it as a part of the assets of said bank.” Appellate practice: special finding. An examination of the record has convinced us that there is evidence contained in the record which tends to support the findings so made and therefore the same are incontrovertible here. Freeman v. Moffit, 119 Mo. 280; Nelson v. Railway, 66 Mo. App. 647; Griffith v. Construction Co., 46 Mo. App. 539. Fraudulent conveyances: fictitious debt. The court concluded, that upon the facts found by it, that the interpleader could not recover and gave judgment accordingly. It is difficult to see how a different conclusion could have been reached on the facts, as found. The law is now quite well settled in this state - » _ _ .. . _ . . that a raise statement of the consideration of a mortgage or the creation of a fictitious indebtedness is a badge of fraud. Touching this doctrine it has been said that “no device can be more deceptive and more likely to baffle, delay or defeat creditors than the creating of incumbrances upon their property by embarrassed men for debts that are fictitious, or mainly so. The falsé pretense of a debt or the designed exaggeration of one is an act of direct fraud,” so, “a false recital of consideration in an instrument, — 682 — in the absence of explanation, justified a finding of fraud, and the misrecital must be intentional and not accidental; and subject to explanation, and that the evil design must be mutual, otherwise the transaction will stand against creditors except as to the excess.” Hawkins v. Alston, 4 Ired. Eq. 145. And it has been held that the talcing of a mortgage for a greater amount than is due from one known by the mortgagee to be in failing circumstances and pressed by his creditors is conclusive evidence of fraud. Butts v. Peacock, 23 Wis. 359. And where a part of the consideration for which a chattel mortgage is given is fictitious or fraudulent as to creditors the entire mortgage will be vitiated. State ex rel. v. Hope, 102 Mo. 429; Seger v. Thomas, 107 Mo. 635; Nat. Tube Works v. Machine Co., 118 Mo. 365; Boland v. Ross, 120 Mo. 208; Ball v. O’Neill, 64 Mo. App. 388. It seems to us that in the light of the foregoing authorities the conclusion of law reached by the court was inevitable. We can conceive of no correct theory of the case upon which the interpleader would be entitled to recover. The instructions given for the interpleader show that he had a consideration by the court of the case upon every theory upon which he was possibly entitled. Bill and notes: collateral security: different debt: instruction. The interpleader objects that the court erred in its action giving the second instruction requested by plaintiff which declared that if the Carterville Bank has carried the $2,164.35 note referred to by the wit&ess, Kane, and marked exhibit “C,” as collateral security for the$5,164.35 note described in the interpleader’s mortgage and has held and treated the said $2,164.35 note as collateral to and security for the said mortgage note, then said note for $2,164.35 can not be held to evidence .the same indebtedness that purports to be evidenced by the said mortgage note; and said mortgage is to that extent without consideration and was as to plaintiffs, void. It is conceded that at the time the inter-pleader and defendant entered the $3,000 credit on the — 683 — $5,000 mortgage note that the only debt which the defendant then owed interpleader was evidenced by the $2,164.35 note which was given for borrowed money. The defendant did not owe the interpleader the amount represented by the $5,000 note after the deduction of the $3,000 credit. It is clear that if the $2,164.35 note was not canceled and surrendered but was allowed to stand as collateral security to the $5,000 note the former evidenced a real debt and the latter one was fictitious. Manifestly the two notes could not represent the same indebtedness. The very fact that one is collateral to the other implied that they evidenced different debts. The $5,000 note does not represent the $2,164.35 note. If valid subsisting obligations they are distinct. It follows from this that the $5,000 note is fictitious as to the sum of $2,164.35. The instruction, we think, unobjectionable in its enunciation. -: renewal: security: instruction. The interpleader insists that the plaintiffs’ instruction just referred to should have been refused and his own should have been given instead thereof which declared, in substance, that even though the Bank of Cai’terville held the note of defendant for the indebtedness due by the latter to the former, existing at the time of the execution of the mortgage, and kept the same thereafter, and even took a new note in lieu thereof and held the same as collateral security to the $5,000 mortgage note, this would not have the effect to invalidate the mortgage provided that it was not agreed that such should be the effect of giving the new note. No doubt but that it is the law' that the renewal of a note secured by a deed of trust or mortgage does not in any way impair or destroy the security. Christian v. Newberry, 61 Mo. 446; Lippold v. Held, 58 Mo. 213. But this rule can have no application to a case like this where there was no renewal of the mortgage note. This note was, as has been already stated, collateral to the mortgage note. It did not — 684 — and could not, in the very nature of things, represent the same debt that was represented by the mortgage note. And as it was not secured by the mortgage its renewal was unimportant except as showing that it represented the defendant’s entire indebtedness to interpleader and that therefore the note secured by the mortgage represented nothing more than a fictitious debt. We have examined the interpleader’s objections to other instructions given for the plaintiffs, but these we do not think tenable. It matters very little what the several theories were upon which the court was requested to consider the case since we think the judgment is the only one that could have been properly given in the case. The interpleader contends that the findings of fact by the court were inconsistent and contradictory in that it found that the $2,164.35 indebtedness was included in the $5,000 mortgage note and that the latter note was fictitious as to such indebtedness. By recurring to the finding of the court it will be seen that it found that the defendant executed the $5,000 note and mortgage to secure the said indebtedness and the $3,000 to be advanced. It will be also seen that it was further found that the note representing the existing indebtedness was never canceled and surrendered and was never merged into the $5,000 note, and therefore the latter was fictitious as to the amount of the former. The evidence supports this conclusion. The transaction was incomplete in the first instance. The defendant was to secure the mortgage which it proposed to give interpleader and if later on everything was found satisfactory it was to be coinpleted and made effective and binding. Before the completion of the transaction the plaintiffs had attached the property covered by the proposed mortgage and interpleader then declined to complete the same. It never was completed. — 685 — The transaction that took place after the levy of the attachment was not the completion of that begun in the Indian Territory. The mortgage was accepted on the inter-pleader’s return but it was wholly without any consideration. It did not represent either the $3,000 advancement or the note for $2,164.35. The debt it evidenced was a fictitious one and a device contrived and intended to hinder and defeat the plaintiffs in the enforcement of their attachment lien against the mortgaged property. . • The finding of the court was consistent and sufficient to support the judgment, which must be affirmed. All concur.