Foster v. McAlester

• Decision Date: 19 February 1902
• Docket Number: 1,583.
• Parties: FOSTER et al. v. McALESTER et al.
• Court: U.S. Court of Appeals — Eighth Circuit

114 F. 145

FOSTER et al. v. McALESTER et al.

No. 1,583.

United States Court of Appeals, Eighth Circuit.

February 19, 1902

This action was brought by J. Foster & Co., the plaintiffs in error, in the United States court for the Northern district of the Indian Territory, at Muskogee, against James J McAlester and others, the defendants in error, to recover the value of a stock of general merchandise. The plaintiffs acquired their right to the goods under a chattel mortgage thereon executed by John G. Terrell, Elmer Terrell, and J. C Terrell, composing the firm of E. Terrell & Co., retail merchants doing business at Wagoner, in the Indian Territory to secure the payment of a note executed by the mortgagors to the mortgagees for the sum of $3,971.56, and for another purpose not necessary to be mentioned. The mortgage was duly executed and acknowledged on the 28th day of January, 1895 and duly recorded on the next day. In pursuance of a stipulation contained in the mortgage, the mortgagees, through their agent, took immediate possession of the mortgaged property, and, in conjunction with the mortgagors, proceeded to sell the goods in the usual course of business, applying the proceeds of the sale daily to the mortgage debt. In the month of March following the execution of the mortgage, Tootle, Wheeler & Motter and Tennent-Stribling Shoe Company severally brought their actions against E. Terrell & Co., and sued out writs of attachment, which were placed in the hands of the defendant McAlester, as United States marshal for the Indian Territory, who, with the other defendants, his deputies, levied the writs on the stock of goods covered by the plaintiffs' mortgage, took them out of the plaintiffs' possession and sold them. In their answer the defendants alleged they had good right to seize the goods on the writs of attachment, because they say, in substance, that the plaintiffs' mortgage was fraudulent and void for the following reasons: That John G. Terrell was during the year 1893 engaged in the mercantile business in the town of Waldron, in Scott county, and in the town of Mansfield, in Sebastian county, Ark., and that on the 11th day of February, 1893, he executed a chattel mortgage to the plaintiffs on his stocks of goods at each of these places to secure an indebtedness of $4,300; that this mortgage was duly recorded in the counties in Arkansas, where the goods then were; that afterwards, about July 5, 1893, the plaintiffs permitted Terrell to remove both stocks of goods from Arkansas to Wagoner, in the Indian Territory, while the Arkansas mortgage thereon was in full force and effect; that it was understood and agreed that upon the removal of the goods to Wagoner the firm of E. Terrell & Co. was to be formed, consisting of John G. Terrell, Elmer Terrell, and J. C. Terrell, which firm was to be the successor of John G. Terrell, and assume the payment of his debts, including his indebtedness to the plaintiffs, and that it was also agreed after the goods were removed from Arkansas to the Indian Territory the firm of E. Terrell & Co. was to give the plaintiff a chattel mortgage on the goods whenever they deemed it necessary for their protection, and the same should be demanded; that it was agreed that the indebtedness of Terrell & Co. to purchase goods on credit, in order that the plaintiffs might secure the benefit of such purchase, by demanding the mortgage; that, in furtherance of this alleged fraudulent scheme, E. Terrell & Co. made in writing, and mailed to the attaching creditors, false and fraudulent statements of their financial condition; and that the plaintiffs made to Tootle, Wheeler & Motter, one of the attaching creditors, a false and fraudulent statement of the financial condition, promptness, and ability to meet their obligations, of E. Terrell & Co.

Charles E. Warner, for plaintiffs in error.

Harrison O. Shepard, Richard B. Shepard, Charles B. Stuart, and J. H. Gordon, for defendants in error.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

CALDWELL Circuit Judge, after stating the case as above, .

Indisputably, on the record before us, the chattel mortgage executed by E. Terrell & Co. to the plaintiffs on the 28th day of January, 1895, was on its face a valid instrument; and the debt it was given to secure a bona fide debt. There is, indeed, no pretense that Terrell & Co. did not honestly owe the plaintiffs the debt the mortgage was given to secure. Thus being so, we proceed to a consideration of the grounds upon which the defendants seek to avoid it. The only testimony in the record relating to the removal of the goods from Arkansas to the Indian Territory-- and it is certified in the bill of exceptions that it contains all the testimony-- is:

'That shortly prior to July 5, 1893, the said Terrell went to see the said Josiah Foster, and told him that they had just had three successive crop failure in his section, and it was useless for him to continue business at Waldron, and hope to pay his debts, and that he wanted to find a good business location in the Indian Territory, and locate there, moving his goods and merchandise over there, but that he could not do so unless Foster would consent; that he selected Wagoner as the place, and wanted to take his two sons in with him, move the merchandise over there, and begin business at that place; that, if Foster would agree for him to move the merchandise, the new concern would assume all indebtedness to plaintiffs, and would make a new mortgage upon the stock of merchandise at Wagoner to secure their indebtedness to plaintiffs whenever Foster called upon them for same. That, upon these statements and agreements on the part of Terrell, Foster consented for him to carry his stock of merchandise from Waldron and Mansfield, Arkansas, to Wagoner, in the Indian Territory. That Terrell moved the said stock of merchandise to Wagoner, and opened up the store at Wagoner in the firm name of E. Terrell & Co. about July 5, 1893. That at the time of removing to Wagoner said Terrell had not paid any part of the indebtedness to plaintiffs, and that they moved about $10,000 worth of merchandise to Wagoner. That the plaintiffs debt was embraced in one note for $1,500, and two notes each for $1,400; and in the fall of 1893 and part of 1894 one of the $1,400 notes was paid off, and about $600 or $700 was paid on the other two notes out of the proceeds of sales of merchandise brought from Waldron, Arkansas, and subsequent purchases. That after the said business was begun at Wagoner the plaintiffs continued to sell the said E. Terrell & Co. goods in the regular course of trade, and received payment from them on account from time to time, until January 28, 1895, at which time there was due the plaintiffs from said firm of E. Terrell & Co. for balance on merchandise sold them at Wagoner, the sum of $1,175.41, and upon the two unpaid notes the sum of $2,796.15, making a total indebtedness then due of $3,971.56.'

Upon this evidence the court charged the jury as follows:

'The omission of J. Foster & Co. to file in the Indian Territory their mortgage executed in Arkansas, when they consented that Terrell might remove the merchandise covered by such mortgage from Arkansas to the Indian Territory, is a badge of fraud, which, if unexplained, would authorize you to find that the mortgage executed on January 28, 1895, by E. Terrell & Co., was fraudulent, and to render your verdict for the defendant.'

This charge is erroneous for several reasons. The omission of the plaintiffs to file in the Indian Territory the mortgage executed on the goods while they were in Arkansas, and duly recorded in that state, was not of itself a fraud, or a badge of fraud, which would authorize the jury to render a verdict for the defendants. The plaintiffs had a perfect right to permit J. G. Terrell to remove his goods from Arkansas into the Indian Territory. The Arkansas mortgage was on stocks of goods owned by J. G. Terrell, and described as being in storehouses in Waldron and Mansfield, in Arkansas; and its record in the Indian Territory would not have operated as a mortgage on a stock of goods belonging to E. Terrell & Co. or as a security for the plaintiffs' debt, and would therefore have been a useless and vain act. It is said that the plaintiffs, by not putting the mortgage on record in the Indian Territory, thereby concealed the same, and enabled Terrell & Co. to contract debts upon the presumption that the goods were unincumbered. But there was no concealment of an incumbrance on the goods in the Indian Territory, because there was no incumbrance on the goods in that territory prior to the execution of the mortgage under which the plaintiffs claim, which was placed on record the day following its execution. As the plaintiffs could gain nothing by recording the Arkansas mortgage in the Indian Territory, and as they could not and do not claim the goods under that mortgage, we do not think there was any legal or moral obligation resting on them to have that mortgage recorded in the Indian Territory, merely for the information of Terrell & Co.'s other creditors. That mortgage remained of record in Arkansas unsatisfied, and thus the defendants and all other persons had legal constructive notice of its existence all the time at the only place its record could have any legal effect. By the use of the words 'if unexplained' in this instruction, the jury were told, in effect, that the burden of proof rested in the plaintiffs to show that an act which in itself was perfectly lawful and innocent was not done for a fraudulent purpose, or in furtherance of a fraudulent scheme. But an act which in itself is lawful and innocent is never presumed to be fraudulent, and the burden rests on the party...