American Trust & Sav. Bank of Chicago v. McGettigan

• Decision Date: 17 February 1899
• Citation: 52 N.E. 793,152 Ind. 582
• Court: Indiana Supreme Court
• Parties: AMERICAN TRUST & SAVINGS BANK OF CHICAGO et al. v. McGETTIGAN.

152 Ind. 582

52 N.E. 793

AMERICAN TRUST & SAVINGS BANK OF CHICAGO et al.

v.McGETTIGAN.

Supreme Court of Indiana.

Feb. 17, 1899.

Appeal from circuit court, Marion county; E. A. Brown, Judge.

Suit by John E. McGettigan, receiver of the Premier Steel Company, against the American Trust & Savings Bank of Chicago and others. From a judgment overruling demurrers to the complaint, defendants appeal. Reversed.R. W. McBride, Caleb S. Denny, Mason & Latta, Blackledge & Thornton, and D. P. Baldwin, for appellants. Miller, Winter & Elam, Elliott & Elliott, and Ayers & Jones, for appellee.

HADLEY, J.

This suit was commenced by John E. McGettigan, receiver of the Premier Steel Company of Indianapolis, against the American Trust & Savings Bank of Chicago and the Bank of Commerce of Indianapolis, as trustees of a certain bond issue of said steel company, Henry E. Southwell, et al., to cancel the mortgage given by the Premier Steel Company to secure bonds issued by it to the amount of $300,000. The substance of the complaint, after certain formal allegations, is as follows: That the plaintiff was duly appointed the receiver of the Premier Steel Company by the Marion circuit court, and was by order of court authorized to bring this suit to test the validity of this mortgage; that on the 7th day of July, 1891, by a resolution of the board of directors, the president and secretary of the Premier Steel Company were directed to execute 300 bonds, of $1,000 each, secured by mortgage on the property of the company, and to dispose of them to the best advantage; that the bonds, bearing date August 1, 1891, and a mortgage to secure the same, were signed by the president and secretary, covering the property of the company, which is described in the complaint; that said officers were not authorized by said company to pledge said bonds as collateral security for loans; that the bonds and mortgage were signed by the president and secretary (a copy of said mortgage being filed as a part of the complaint, as Exhibit A), but the bonds were not sold or disposed of in any way, and the company thereafter held itself out as being possessed of the property free from incumbrance, and procured large loans and credits upon the strength of such representations; that on the 13th day of July, 1892, being then insolvent, and largely indebted for loans and credits obtained as aforesaid, all of which was at the time well known to defendant Southwell, and being at the time indebted to Southwell in the sum of $20,000 upon two notes dated December 21, 1891, for $10,000 each, payable one year after date, and having obtained from Southwell an additional loan of $30,000 upon three notes, of $10,000 each, dated July 13, 1892, payable one year after date, all of said notes being indorsed by Charles W. De Pauw, president, and W. H. Coen, secretary and general manager, of said company, thereupon said general manager and said Southwell executed the agreement of that date, which is made a part of the complaint, and which is in the following words: “This memorandum of agreement, made this thirteenth day of July, A. D. 1892, between the Premier Steel Company of Indianapolis, Indiana, and H. E. Southwell of Chicago, Illinois, witnesseth: Whereas, H. E. Southwell is now the holder and owner of five certain notes of the Premier Steel Company, for ten thousand dollars each, payable to the order of C. W. De Pauw, and by him indorsed, payable one year after date, two of said notes being dated December 21st, 1891, and three being dated July 13th, 1892; and whereas, the Premier Steel Company has deposited with the American Trust & Savings Bank of Chicago three hundred of its six per cent. gold bonds, of $1,000 each, payable twenty years after date, secured by a mortgage deed on the property of said Premier Steel Company, dated August 1st, 1891, in escrow: Now, it is hereby agreed between the parties hereto that said bank shall continue to hold said bonds and said mortgage deed, which deed has not been filed of record, upon the following understanding, to wit: That, whenever the owner of said notes shall feel himself insecure in regard to the same, then, upon his request, said bank shall file said trust deed for record, notice of said request to be given previously to said Premier Steel Company; otherwise, said bonds and trust deed to remain as at present until the payment of said notes. It is further agreed that if, at any time before the expiration of the aforesaid notes, said Premier Steel Company shall desire a further loan of fifty thousand dollars, and said Southwell shall not be able to furnish said amount, then the said trust deed shall be filed of record, and $200,000 of said bonds shall be released to said steel company, the other $100,000 remaining as security for the aforesaid notes. Witness our hand and seals the day and year above written. Premier Steel Company, by W. H. Coen, Sec'y & Gen'l Man'g'r. H. E. Southwell.” It is then averred that such secretary and general manager had no sufficient authority from said company to execute said agreement; that at the time said Southwell well knew that said company was insolvent, or in danger of insolvency; that said company was largely in debt, and intended and expected to buy large quantities of material upon credit, and to borrow large sums of money, and incur large debts, to carry on its business and construct new and additional buildings, etc., all of which improvements to said property were by its terms to be covered by said mortgage; that, knowing that the business of said company was largely carried on upon credit, and that to record the mortgage would injure the credit of the company and prevent it from obtaining credit, and knowing that it was obtaining and was intending to obtain credit by holding out to the world that its property was free from incumbrance, said Southwell fraudulently agreed with said company to withhold said mortgage from the record for the purpose of permitting said Premier Steel Company to fraudulently hold itself out as being possessed of said property free of incumbrance; that thereafter said company contracted large debts, borrowed large sums of money, and obtained materials and property upon credit, upon such representations that its property was free from incumbrance, and that such credits and property could not have been obtained otherwise, and that a very large part of the indebtedness of said company now existing, to wit, more than $100,000, is for loans and credits and property obtained after said agreement was made, and while the mortgage was so fraudulently withheld from the record; that the same was so fraudulently withheld until the 29th day of April, 1893, a few days prior to the appointment of said receiver, when said Southwell caused said mortgage to be placed on record; that said bonds have never been sold or in any way disposed of, except to place the same in the American...