Hutchinson v. First Nat. Bank of Michigan City

• Decision Date: 07 April 1892
• Parties: HUTCHINSON v. FIRST NAT. BANK OF MICHIGAN CITY.
• Court: Indiana Supreme Court

133 Ind. 271

30 N.E. 952

HUTCHINSON

v.FIRST NAT. BANK OF MICHIGAN CITY.¹

Supreme Court of Indiana.

April 7, 1892.

Appeal from circuit court, La Porte county; DANIEL NOYES, Judge.

Action for the foreclosure of a mortgage and the appointment of a receiver by the First National Bank of Michigan City, Ind., against William B. Hutchinson, assignee, etc. Demurrer to the answer sustained. Defendant appeals. Affirmed in part; reversed in part.

Duncan & Smith and Tuthill & Schwager, for appellant. J. H. Orr, Mortimer Nye, and J. H. Bradley, for appellee.

MILLER, J.

The appellee brought this action against the Hopper Lumber & Manufacturing Company and William H. Hutchinson, its assignee, to foreclose a mortgage executed by the company prior to its assignment. In addition to the foreclosure, the complaint charged that there were situate upon the mortgaged premises certain buildings and machinery used in the business of the company, which one James S. Hopper had advertised for sale under a pretended chattel mortgage held by the Sutton Manufacturing Company of Detroit, Mich.; that the assignee of the Hopper Lumber & Manufacturing Company permitted said Hopper to take possession of the property, and will allow him to dispose of it; that the mortgaged property, including the machinery, is of less value, by $6,000, than the amount due the plaintiff; that, unless a receiver is appointed without notice, the mortgaged machinery, or part of it, will be removed, and the plaintiff's security will be materially impaired. In accordance with this prayer a receiver was appointed. No question is made as to the regularity of the proceedings in making the appointment of the receiver. This suit was commenced and the receiver appointed on the 11th day of August, 1891, in vacation. On the 10th day of September an answer in two paragraphs was filed, which are as follows:

“Paragraph 1. The defendant William B. Hutchinson, assignee of the Hopper Lumber & Manufacturing Company, for a partial answer to so much of the complaint herein as prays for the foreclosure of the mortgage in the complaint mentioned and described, says that he admits that on the 6th day of January, 1891, the defendant the Hopper Lumber & Manufacturing Company executed to the plaintiff the several notes and mortgage in the complaint mentioned and described, and therewith exhibited; but he says that the plaintiff is not entitled to the decree of this court for the foreclosure of said mortgage, and ordering the sale of said real estate to pay the notes aforesaid, for the reasons following, that is to say: That said notes were executed to secure a pre-existing indebtedness. That, at the time of the execution of said notes and mortgage, the defendant the Hopper Lumber & Manufacturing Company was engaged and expected to continue in the business of buying and selling lumber, and the manufacture and sale of certain refrigerators, and the manufacture and sale of certain furniture specialties, and that said corporation was then in good credit. That said corporation was then indebted in large amounts to persons other than the plaintiff herein, to wit, in the sum of more than seventy-five thousand dollars, which indebtedness would mature at various dates within ninety days next succeeding the 6th day of January, 1891, which indebtedness said Hopper Lumber & Manufacturing Company expected and intended to continue by renewals and extensions thereof by its creditors, and such renewals and extensions were necessary in order for it to continue in business. That said Hopper Lumber & Manufacturing Company at said date also expected and intended to purchase very large amounts of lumber and other material necessary for its use in the prosecution of its said business, all of which facts were at the time fully known to the plaintiff herein. That at said time it was also well known, both to the plaintiff and said lumber and manufacturing company, that, if said Hopper Lumber & Manufacturing Company should execute to the plaintiff the mortgage in the complaint mentioned and described, the credit of said Hopper Lumber & Manufacturing Company would be utterly destroyed, and it would be wholly unable either to procure renewals or extensions of its then existing indebtedness, or to purchase lumber or other material needed by it in the prosecution of said business upon credit. That, said corporation defendant being so indebted to the plaintiff, the latter demanded from it the execution of the mortgage in the complaint mentioned and described, and therewith exhibited, to secure said indebtedness. That, upon such demand being so made, the defendant corporation called the attention of the plaintiff to the foregoing facts, and to its intention to renew its then existing indebtedness, and to purchase lumber and other material upon credit, and that it was necessary for it to be able so to do; and said defendant corporation wholly refused to execute said mortgage to the plaintiff, except upon the condition that the fact of the execution of such mortgage and its existence should be concealed from the public, and that the same should not be recorded, to the end that it might continue in good credit, and be enabled thereby to renew said indebtedness, and to make such purchases upon credit. That said plaintiff, with a full knowledge of all of the foregoing facts, and that knowledge of the execution of said mortgage would destroy the credit of said defendant corporation, and render it impossible to renew such debts and make such purchases; and well knowing that certain agencies, well known in the mercantile and business world as ‘mercantile agencies,’ exist, whose business it is to keep constant watch over the credit of all persons engaged in business, and particularly to keep close watch over the record of mortgages, and at once, on the record of mortgages, to publish such fact to all persons engaged in business; and well knowing that, if such mortgage should be put upon record, the fact would be published to the persons to whom said defendant corporation was indebted, and from whom it expected to purchase such lumber and other material; and well knowing that thereby said defendant corporation would be precluded from renewing said indebtedness then existing, as well, also, as from making such purchases of lumber and other material upon credit; and well knowing that, if the existence of such mortgage and the fact of its execution were concealed and it withheld from record, said corporation would be able to make such renewals and such purchases, and would in point of fact do so, and calculating and intending to enable it to do so, and to maintain its credit,-said plaintiff did agree with said corporation defendant that it would conceal the fact of the execution of said mortgage and its existence, and would withhold the same from record; and thereupon, upon said agreement and condition, said defendant corporation did execute said mortgage in the complaint mentioned and described and therewith exhibited; and said plaintiff did, in accordance with its said agreement, withhold said mortgage from record, and did conceal its existence. And said defendant further says that said defendant thereafter, proceeding according to its said intentions as hereinbefore set out, and as it was intended by the plaintiff that it should, did proceed to renew its then existing indebtedness, the creditors holding the same consenting to do so in ignorance of the existence of said mortgage, when they would not have done so had they known of its existence; of which debts so renewed there now exists unpaid the sum of more than twenty-five thousand dollars, and more than the full value of said mortgaged property. And said corporation defendant further proceeded according to its said intention, and as was intended by plaintiff it should, to purchase large amounts of lumber and other material needed by it, on credit, the sellers thereof relying upon the credit had by said defendant, and ignorant of the existence of said mortgage, when they would not have sold said lumber and other material to said defendant corporation had they known of the existence of said mortgage. That of said indebtedness for such lumber and material so purchased there now remains unpaid the sum of twenty-five thousand dollars. And the defendant further shows that thereafter, to wit, on the 25th day of July, 1891, said defendant being insolvent and unable to pay its debts, and owing the various sums above set forth, did, under the provisions of the statute of the state of Indiana in such cases made and provided, execute to this defendant its indenture of assignment of all of its property for the benefit of all of its bona fide creditors, which indenture of assignment was duly recorded in the recorder's office of La Porte county, on the said 25th day of July, and delivered all of said property, including that in the said mortgage mentioned and described, to this defendant, and that this defendant accepted said trust, and within fifteen days thereafter filed with the clerk of the circuit court of La Porte county his affidavit that said property had actually been delivered to him for the purposes declared in said indenture, and as to the probable value thereof, and did execute and file with said clerk his written undertaking in double the amount of the value of said property, with surety to the acceptance and approval of said clerk, conditioned that he would faithfully execute the duties of his trust, and did also file with said clerk an oath duly prescribed by him that he would faithfully execute the duties of his trust, and thereupon he entered upon the execution of said duties, and thenceforward, hitherto, until now, he had been, and yet continues, in the execution thereof. And that thereafter, on the 27th of July, 1891, the plaintiff caused said mortgage to be recorded in the recorder's office of La Porte county. That the total value of the assets of...