Reagan v. First Nat. Bank of Chicago

• Citation: 61 N.E. 575,157 Ind. 623
• Parties: REAGAN et al. v. FIRST NAT. BANK OF CHICAGO et al.
• Decision Date: 08 October 1901
• Court: Supreme Court of Indiana

157 Ind. 623

61 N.E. 575

REAGAN et al.

v.FIRST NAT. BANK OF CHICAGO et al.¹

Supreme Court of Indiana.

Oct. 8, 1901.

Appeal from superior court, Marion county; Vinson Carter, Judge.

Action by the First National Bank of Chicago, Ill., and others against John Reagan, trustee (assignee), and others, in which a cross complaint was filed by the trustee against all parties. From a judgment for plaintiffs for part of the relief demanded, the trustee and other defendants appeal. Reversed in part.Wm. T. Brown, Ayres, Jones & Hollett, Miller, Elam & Fesler, and W. A. Ketchan, for appellants. Baker & Daniels, for appellees.

JORDAN, J.

On December 29, 1897, the First National Bank of Chicago, as plaintiff below, instituted this action. Afterwards, on December 31, 1897, an amended or supplemental complaint was filed, setting out the execution of two chattel mortgages, each executed by the Krag-Reynolds Company, a corporation doing business at the city of Indianapolis. The first of these mortgages was dated December 21, 1897, and was executed to one Lafayette Perkins, as trustee, to secure the claims of certain beneficiaries therein named. The second mortgage in question was executed on December 27, 1897, to said Perkins, as trustee, to secure the claims of beneficiaries therein mentioned. A part of the relief sought by the amended complaint was: First, to have the court adjudge Harrie N. Reynolds, Alfred B. Gates, and Nicholas McCarty Harrison had no right or interest in or to the property or funds embraced in the first mortgage; second, for the removal of Perkins as trustee of said mortgage, and the appointment of a receiver in his stead, to carry out the provisions of said instrument. Various reasons for the removal of the trustee were assigned, among which was that the duties to be discharged by him under the stipulations of each of said mortgages were conflicting. The complainant also prayed for the appointment of a receiver pendente lite to take charge of the mortgaged property, and disposethereof under the order of the court. Perkins, as the trustee, by virtue of the aforesaid mortgages, and Reagan, appellant herein, as the assignee of the Krag-Reynolds Company, together with plaintiffs cobeneficiaries and all other persons concerned or interested in the proceedings, were made defendants, and filed their respective pleadings. Each of plaintiffs cobeneficiaries under the first mortgage filed complaints seeking to recover judgments upon their respective claims and a foreclosure of the mortgage, except Nicholas McCarty Harrison, who filed a disclaimer of any interest or right in the property or funds covered by the first mortgage until after the payment of the creditors of the Krag-Reynolds Company. Reagan, trustee, filed a cross complaint against the plaintiff and all of his co-defendants, including Perkins, as trustee. He alleged in his cross complaint that each of said mortgages was void, and of no effect, so far as he (the trustee) was concerned, because: First, that each of said instruments was executed with the intent to hinder, delay, and defraud the creditors of the insolvent concern; second, that the first mortgage was obtained by means of a fraudulent agreement to include therein as creditors certain mentioned preferred stockholders of said company; third, that neither of said mortgages had been accepted by the beneficiaries therein named until after the deed of assignment executed by said Krag-Reynolds Company had been duly recorded in the recorder's office of Marion county, Ind. Issues were finally joined upon the pleadings filed by the respective parties, and, with the consent of Perkins, trustee, a receiver was appointed to serve in his place and stead in the administration of the trust created under the first mortgage. There was a trial by the court, and upon request a special finding was made, upon which the court stated its several conclusions of law in respect to each of the mortgages involved. By its conclusions the court affirmed in part the validity of the first mortgage of December 21, 1897, and thereby held it to be a valid security in favor of all the beneficiaries therein named, except Nicholas McCarty Harrison and Alfred B. Gates, assignee of Harrie N. Reynolds. In respect to the notes of claims of Gates and Harrison of $25,000 each, which were executed by said company, as hereinafter shown, in consideration of the surrender of preferred stock, and secured by the mortgage in question, the court held the security invalid to the extent of these two claims so far as Reagan, trustee, was concerned or affected thereby. Or, in other words, the conclusions of the court were to the effect that the claims of Harrison and Gates, by reason of the statute applicable thereto, were not entitled to be paid as provided by the mortgage; that the payment thereof must be postponed until all the other creditors of the insolvent company not embraced in the first mortgage had been paid in full. To the extent of this holding, Reagan, as trustee, under his cross complaint prevailed in his effort to set aside the first mortgage. The court's conclusions as to the second mortgage in issue were to the effect that it was invalid in its entirety as against Reagan, trustee, except as to any surplus arising out of the administration of his said trust, and remaining in his hands after the payment of all claims upon final settlement. Exceptions to the court's conclusions of law were reserved by all the parties aggrieved thereby, and over motions for a new trial the court rendered its judgment and decree, whereby, among other things, it ordered that the proceeds arising out of the property embraced in the first mortgage should be applied in the following order of priority: (1) To the payment of the costs and expenses of the suit and the receivership herein; (2) to the payment of any judgment that may be rendered against the receiver in this action in favor of intervening petitioners, or persons asserting claims by way of replevin suits or petitions; (3) to the payment pro rata of the claims of the Capital National Bank, Indiana National Bank, Nicholas McCarty, and Eppens, Smith & Weiman Company, as found in the special finding; (4) to the claim in favor of the plaintiff First National Bank of Chicago, as found in the special finding; (5) the residue, if any, to be paid to the cross complainant, John Reagan, trustee, to be administered under the terms of his trust.

Motions to modify the special finding, the conclusions of law thereon, and also the judgment and decree, were filed by appellants herein, and overruled by the court. Reynolds, the trustee, Alfred B. Gates, and other parties aggrieved by the judgment of the court, have appealed, and separately assign errors, by which they present for review the various conclusions, rulings, and decisions of the trial court. The special finding is quite lengthy, and in part, at least, we have merely summarized therefrom such facts as we deem essential to the particular question or questions necessary, in our opinion, to be considered in determining this appeal. The following may be said to be the facts which we deem essential to set out in this opinion: On October 25, 1894, the Krag-Reynolds Company was incorporated under the laws of this state for the purpose of doing business at the city of Indianapolis, Ind. The business to be carried on by this incorporated company was that of the “buying and selling of merchandise, and the conducting of mercantile operations, to wit, the preparing of coffees for the market, and selling the same; the buying of all kinds of spices, grinding them, and fitting them for the market, and selling the same; the buying of buckwheat, and manufacturing the same into buckwheat flour for the market, and selling the same; and the purchase or manufacture and sale of all kinds of goods which are ordinarily connected with and incidental to the practical operation of the wholesale grocery business.” The capital stock of the company was $100,000, of which $50,000 was common stock and $50,000 was preferred stock. The latter stock, by its terms, entitled the holder thereof to a semiannual dividend of 4 per cent. before any dividends should be declared or paid to the holders of the common stock. The right to redeem the preferred stock at any time after the expiration of 10 years from the issuing thereof was reserved by the corporation in its articles of association. At the expiration of 30 years such preferred stock was to be payable absolutely. Alfred B. Gates and Nicholas McCarty Harrison were the holders of the preferred stock, each holding $25,000 thereof. William A. Krag, Charles M. Reynolds, and William W. Krag were the promoters and incorporators of the association. Charles M. Reynolds was made president and treasurer, and also the company's financial manager. Nicholas McCarty Harrison was one of the directors. On December 20, 1897, the Krag-Reynolds Company was an insolvent concern, its indebtedness and liabilities being largely in excess of its assets, and far in excess of its ability to pay; and still continues to be an insolvent concern. On December 21, 1897, the indebtedness of the incorporation, including the two notes held by Harrison and Gates for the preferred stock, amounted to $365,000, and the actual assets of the corporation did not exceed, as a going concern, $250,000. Charles M. Reynolds, the president, treasurer, and general manager, as heretofore stated, of the said company, on and prior to December 21, 1897, knew that said company was insolvent. In its insolvent condition the company, through its officers, as it appears, desired to make a mortgage upon its property to secure certain creditors. It was informed, however, by its legal adviser, that, in order to execute such a mortgage, the company must first procure the written consent of the holders of a majority of its preferred stock. Thereupon certain negotiations were...