Mullanphy Bank v. Schott

Phillips, J. The only question made by this record arises upon the decree made upon the final hearing and ruling of the court with reference to the admissibility of certain evidence offered by appellants. The principal question to be determined from this record is, in what order the creditors of the Brookside Coal Company, whose claims are secured by mortgage, deed of trust, or judgment liens, shall be paid. The order of seniority and priority in point of time is, first, the mortgage, of date October 19, 1881, to Martin J. Schott; second, the deed of trust made to William H. Krome, trustee, of date June 17, 1882; third, the mortgage to John 0. Evans, Sr., made January 21, 1885, and the chattel mortgage of same date made to said John O. Evans, Sr.; and fourth, the judgments in the order of time as made in the statement of facts; there is no question as to the validity of either of the mortgages on the realty of the company, nor of the judgments. Martin J. Schott, although a director of this company and its treasurer, had a right to loan money to the company, and take a mortgage to secure the same, on the same terms and like manner as other persons. Merrick v. Peru Coal Co., 61 Ill. 472; Harts et al. v. Brown et al., 77 Ill. 226. At the time of the meeting of the board of directors and at the date of the execution of the mortgage to Krome, none of the notes secured by the mortgage to Schott were due. His mortgage was recorded, and that record was notice of his lien to all persons dealing with the property. Krome, the trustee in the second mortgage, had actual notice of the mortgage to Schott. That mortgage being made to one having a right to deal with the company, executed in good faith, for a valuable consideration, and duly recorded, a superior lien of which Krome had actual notice, is sought to be set aside and made inferior to the Krome mortgage. To do this appellants offered the declaration of Erendenau, the president of the company, made at the time of the execution of the Krome mortgage, that it would be a prior lien. While Erendenau as president of the company might bind the comjiany by his declarations, he being the agent of the company, and the declarations made within the scope of the agency, yet we fail to see wherein he, as agent of the company could by his declarations, within the scope of his agency, bind a stranger who had dealt with the company in good faith, and such declarations of the company’s agent being to the prejudice of that stranger so dealing with the company. Schott’s relation to the company as mortgagee was the same as that of a stranger. The declarations of Freudenau, even if made in the presence of Schott, would not prejudice Schott’s priority, as the purpose of executing a mortgage to pay off all indebtedness of every character, including that of Schott, if carried out and payment of the notes to Schott made, would have the effect of satisfying his lien, and it being extinguished, the mortgage to Krome would have become a first lien. But those declarations made by Freudenau, the president of the company, could not make Schott liable for the appropriation of the money received on the sale of the bonds secured by the Krome mortgage even though he was a director of the company. What was claimed to be the resolutions adopted by the Brookside Coal & Coke ComPany offered in evidence; was the records of Madison county showing the recording of certain resolutions. The secretary of the company was not called as a witness nor was the president. The evidence showed an examination of the office of the company was made, and no records of the board of directors were found of the meeting at the time the Krome mortgage was made. The evidence clearly showed that a careful examination was made of all persons and places where the records of the company might be, save an inquiry of the secretary and president of that company. While the evidence shows that the president and secretary were both non-residents, yet from this evidence the conviction must arise that either the president or secretary was in possession of the books. These resolutions being recorded do not make them bear the character of a deed ormortgage, the recording of which is provided for by statute, and the record or certified copies made evidence in certain cases. The search for the records of the company does not, from the evidence in the record, appear'to have been sufficiently made to authorize the admission of the secondary evidence offered; while the resolutions recited, “That for the purpose of paying the floating indebtedness now due against the real estate owned by the Brookside Coal Company,” etc., the bonds of the company to the amount of $15,000 should be issued, and by those resolutions, for the payment of the bonds with the interest thereon, a sinking fund was provided; and for its creation the rents of houses and other real estate, the proceeds of real estate sold, and one quarter of one cent per bushel on all coal mined from under the lands, was set apart. By these resolutions and the bonds issued and the mortgage to secure the same there is no declaration or recital of that being a.first mortgage and to have priority of all othersbfor can the record—11 that for the purpose of paying the floating indebtedness now due against the real estate owned by the company”—-be held as declaratory of a purpose of paying a mortgage indebtedness not yet due. hi either can the term, “floating indebtedness” be held to mean and include the amount of a debt secured by mortgage on the real estate of the company. In The People ex rel. Cooke v. Wood, 71 N. Y. 371, where a private act had been passed empowering the trustees of the village of Saratoga Springs to issue bonds and raise money to pay the floating debt of the village, the court in defining that term held, “ By the term ‘floating debt’ is meant that mass of lawful and valid claims against the corporation, for the payment of which there is no money in the corporation treasury specially designed, nor any taxation or other means of providing money to pay, particularly provided.” The term “floating indebtedness ” as used in these resolutions, must be held to mean that mass of lawful and valid claims against that corporation due and unsecured, and. for the payment of which there is no money in the corporation treasury, and which, by their attempted collection, would embarrass the company and compel it to wind up its business. The property of the company was chiefly realty and the terms used can not be held to be understood as providing a fund for the payment of this mortgage by issuing those bonds. And no act of Schott- as director or as treasure]1, so far as shown by the evidence, can be held to estop his assertion of the priority of his mortgage. It is, however, insisted that of the bonds issued and” secured by the mortgage to Krome, ten bonds of 8500 each were delivered to Schott and he is thereby estopped by reason of having received the same. While the evidence shows that the president of the company delivered to Schott ten bonds, yet they were delivered with the request he should sell the same and apply the proceeds to the payment of his claim, and on his reporting to Freudenau his inability to sell those bonds, he was, by the president of the company, requested to return them to him, and .that was done. A part of those bonds thus returned are now held by, and are sought to be collected in this proceeding by the appellant. FTo part of the proceeds having been received by the prior mortgagee, and being delivered to him to sell when he returned them to the president of the company from whom he received them, it can not be held that he was thereby in any way estopped from the assertion of his claim as a prior lien. The evidence in this record discloses no element of fraudulent misrepresentation or concealment on the part of Schott, nor does the evidence show any change of purpose on the part of the subsequent mortgagees or bondholders induced by his acts. In Davidson v. Young, 38 Ill. 146, it was ruled— “the doctrine of estoppel in jpais or equitable estoppel is based upon the fraudulent purpose and the fraudulent results. If the element of fraud is wanting there is no estoppel; as, if both parties were equally cognizant of the facts, and declarations or silence of the one party produced no change in the conduct of the other, he acting solely on his own judgment. There must be deception, and change of conduct in consequence, in order to estop the party from showing the truth.” To the same effect is Powell et al. v. Rogers, 105 Ill. 318. It is further assigned as error that certain affidavits made by Martin J. Schott were offered by appellant for the purpose of showing he was an officer of the company, and had examined into the condition of the company, and had attended the meetings of the board of directors. The fact that he was a director of the company and its treasurer was already shown and was in no manner in controversy. That he had investigated the condition of the company wonld not in any way affect the question here at issue, unless he was guilty of some fraudulent act or concealment to the prejudice of the appellants. The company continued in business after the execution of the second mortgage and the evidence fails to show that Martin J. Schott knew of any indebtedness other than was stated by Freudenau. Her does the evidence show that the indebtedness existing at the time of execution of second mortgage was not correctly stated. The affidavits were not contradictory of anything stated by Schott as a witness, and we fail to see wherein they were relevant testimony. There was no error in sustaining the objection to the affidavits going in evidence. We have not deemed it necessary to comment on the relation of Martin J. Schott to Otto G-. Schott in the purchase of the notes in the supplemental bill sought to be foreclosed, which were purchased from. Ttaissenr as trustee for Schlosstein, as what we have already said necessarily disposes of that question. Finding no error in the exclusion of evidence and there being no element of estoppel in pais nor error in the relief decreed, the decree is affirmed. Decree affirmed.