Smith v. Dennison

Mr. Chief Justice Diceey delivered the opinion of the Court :* Two questions are presented for decision in this case: First, the question of fact, whether the collaterals deposited at the making of the note of April 20, 1876, were pledged as collaterals in Wallace’s hands to secure not only that note, but also to secure the payment of the .preexisting debt upon the note of December 28, 1875; and second, whether Eappleye had lawful authority to make such pledge, if it were in fact made. After a most careful consideration of. the evidence on the subject, we are brought to the conclusion that the pledge was in fact made to secure both of these notes. Wallace and Eappleye both swear positively that this is the truth, and no witness contradicts them in this respect. Not only so, but there is such inherent evidence of the truth of this testimony arising out of the circumstances of the ease, as to give great strength to-it. Eappleye and his partner were not in -harmony. The affairs of the firm had just been turned over to Eappleye for management. The money of the insurance company had been wrongfully applied to the payment of a debt of the firm, in the expectation that the demand of the insurance company could be met by money expected from another source. Eappleye, in his solicitude to get rid of a partner not in harmony with him, had (as Frisbie claims) represented to him that if he alone had the management, Wallace (his father-in-law) would furnish the ready money necessary to carry the debts of the firm until their resources could be made available. He may have hoped that this would be.so. When applied to for a further loan, however, Wallace was found to be very cautious, and probably somewhat suspicious as to the discretion and capacity for success of his son-in-law. He was not disposed to lend any more money in that direction, but was at length induced to do so by the consideration that the collaterals offered were more than sufficient for the present loan, and he would thereby strengthen his security upon his first note. The conversations and discussions on this subject, sworn to in detail by both Wallace and by Eappleye, are so natural and probable, and so fully in harmony with the ordinary course of affairs with men of like relative conditions under similar circumstanees, as to render it very improbable that they could have been invented in all their details. It seems to be supposed by counsel for the receiver that certain circumstantial evidence in the case rebuts the conclusion that Bappleye had agreed with Wallace that he might retain these notes as collateral to the old debt as well as to the new, and for this purpose the fact is supposed to be established that in the chancery suit of Frisbie, both Wallace and Bappleye made oath that these collaterals were held by Wallace for the new debt only, and for no other debt, and that in a prosecution against Frisbie, instituted afterwards, Bappleye so testified. It may be conceded that Bappleye did so swear, but he now swears that his former statements were not correct on this question. This identical question now presented was not a material question in issue in either of those cases. The substantial allegations on which the chancery suit was based were, that the assignment of these collaterals was made without consideration, and that the first debt was fictitious and fraudulent, and not real, and if real, was already well secured, and hence the pledge for the old debt was unwarranted. The material allegation of the answer in that case was, that the pledge was made to secure the new debt, of which Frisbie had made no mention. The material question was not whether the pledge extended over the old debt, but was whether it rested upon a real, valid, subsisting debt. It was material to show the new debt, and the pledge therefor. This being shown, it was not material in that case whether the pledge covered the old debt or not. Bappleye’s affidavit and his testimony, therefore, were not as to matter material to the issues in the proceedings in question. These circumstances, therefore, are not sufficient to authorize the rejection entirely of the testimony of Bappleye in this case. Contradictory statements by a witness as to immaterial matters do tend to cast suspicion upon the testimony of a witness, but do not authorize its entire rejection, where he is corroborated by another witness, and not contradicted by any evidence in the case. As to the claim that Wallace made any statement in his affidavit at variance with his present testimony, it is not sustained. The only evidence on this" question is that of Mr. Cooper, who drew the affidavit of Wallace, referred to. He says as to Wallace’s affidavit, that it was about the same as that of Rappleye. This was the recollection of Mr. Cooper as to the contents of an affidavit drawn by him in another suit, near three years before he gave his testimony. An examination of Rappleye’s affidavit, referred to by the witness, shows that it contains nothing directly on the question as to whether Wallace had an agreement from Rappleye to hold these securities as collateral to the first note. There is one expression which contains that idea by implication. There is nothing in this record indicating that Mr. Wallace was not a man of unquestioned standing in the community as a man of wealth, caution and integrity. He was not interrogated at all as to this affidavit. We are satisfied his testimony in this case is true. The next question relates to the power of Rappleye to pledge these collaterals to secure the first debt. Counsel for the receiver seems to construe the contract of April 18, 1876, between Frisbie and Rappleye, as an assignment of the assets of the firm for the benefit of creditors, and hence insists that Rappleye became “a trustee for all the creditors, without priority, ” and that he therefore had no power or authority to secure one creditor to the prejudice of others. In the absence of this agreement between these partners, it will not be denied that Frisbie and Rappleye, in winding up their affairs,’ could have made a valid contract with Wallace that if he would . make the second loan he might hold the securities as collateral to both debts, or to his entire claim. This contract differs from an ordinary assignment for the benefit of, creditors in its whole character.and structure. It was made for the benefit of the parties to it, and Rappleye was given the largest powers and discretion. The end to be accomplished for the benefit of the parties was, that the debts and liabilities should be extinguished out of the assets, without sacrifice of the assets, and. a surplus divided. To “secure that end” Rappleye was authorized “to trade any part of the assets, and to do all and every the matters and things that may he * * * expedient in settling the affairs of the ■firm.” It was plainly the design and effect of this contract to clothe Rappleye with powers to this end equal to the combined power of both Frisbie and Rappleye,—that he was to be in that regard in full the representative of the late firm. Frisbié plainly undérstood that Rappleye had power in some way to borrow money, for in his bill he said he was expected to get advances from Wallace, and his complaint was that this was not done; and he also understood that Rappleye had power to pledge assets to secure old debts, even without any new consideration. He was told by Wallace that he held this second parcel of securities. At that time he did not know of the new loan by Wallace, and yet he made no objection and did not then find any fault with the arrangement. In an ordinary assignment to a trustee for the benefit of creditors, the title to the assets is passed from the debtors, so that the same can not be reached by creditors except by virtue of their rights under the assignment. Here the title was placed in Rappleye, and in his hands these assets were as open to appropriation by creditors as if the assignment had not been made. Their rights were in no way affected by the transfer. The object and legal effect of this contract was that the prosecution of the business should cease, and that Rappleye should have vested in him all the powers which both the partners would otherwise have had in the management of the property, to the end that they should both be relieved from liability as debtors. This case does not involve the question of the personal liability of Frisbie upon the last note. The validity of the debt for which that note was given, and of the note as the note of Bappleye, may be, and no doubt is, involved. Bappleye had authority to apply the assets to pay the debt of the insurance company, or to pledge assets in its security to procure extension of time for the payment thereof; or, under the powers given in the agreement, he had power to borrow money to pay that debt, upon his own note, and pledge the assets in security, if the pledgee was given no power to sell the assets in violation of the limitations in the agreement. Treating, then, this new note merely as the note of Bappleye alone, it is a' debt of such character that the pledge of collaterals was in that regard valid. The remaining question relates to Wallace’s right to a lien on the collaterals for the payment of the first note. Obviously Frisbie understood that he had by this contract clothed Bappleye with power to pledge assets to secure the payment of old debts. He was told by Wallace that he held this second parcel of securities. At that time he did not know of the new loan, and yet he made no objection thereto. Afterwards, when he got the notion that this first indebtedness was not real, he filed his bill charging that there was no foundation for this old indebtedness, that it was merely colorable, and that Bappleye had no lawful authority to pledge the col-laterals to secure a fictitious claim of indebtedness. We are fully convinced that the pledge was made as claimed by Wallace, and that in equity Wallace’s estate should be fully paid from the proceeds of the collaterals in question, before the application thereof to any other debts of the late firm. The judgment of the Appellate Court is therefore reversed, and the decree of the Superior Court of Cook County is also reversed, and the cause remanded to the Appellate Court, to be remanded thence to the Superior Court, with directions to enter there a decree in conformity to the views herein expressed. T 7 7 Judgment reversed. Mr. Justice Walker : I concur in the conclusion reached, but not in all that is said in the opinion. Footnotes [*] At the time this opinion was delivered Mr. Justice Dickey was Chief Justice.