Goll & Frank Co. v. Miller

• Decision Date: 30 January 1893
• Citation: 54 N.W. 443,87 Iowa 426
• Parties: GOLL & FRANK CO. ET AL. v. MILLER ET AL.
• Court: Iowa Supreme Court

87 Iowa 426

54 N.W. 443

GOLL & FRANK CO. ET AL.

v.MILLER ET AL.

Supreme Court of Iowa.

Jan. 30, 1893.

Appeal from district court, Clay county; Lot Thomas, Judge.

This is an action in equity, and it involves the rights of the creditors of G. W. Miller to priority in the distribution of the proceeds of certain personal property. There was a full hearing on the merits, and a decree for the plaintiffs. Defendants appeal.Cory & Bemis and C. C. Nourse, for appellants.

Parker & Richardson, for appellees.

ROTHROCK, J.

About the year 1880, the defendant G. W. Miller embarked in the mercantile business at Spencer, in Clay county. He had about $1,000 of capital with which to commence operations. He had two partners. About the year 1885 he bought out one of his partners, and paid him for his interest in the firm the sum of $2,000. In 1887 he bought out the other member of the firm, and paid him $5,500, in cash. He continued in business until the 16th day of June, 1890, at which time he was indebted to the defendant J. L. Nicodemus for borrowed money and interest, and rent of his store building, amounting in the aggregate to over $13,000. On that day he executed a bill of sale to Nicodemus, by which he transferred to him all of his goods and merchandise, and his promissory notes and accounts. The bill of sale is absolute in form, and recites that it was given in satisfaction of a mortgage previously given on the same property. Nicodemus took possession of the property under this bill of sale, and was proceeding to dispose of the same, when the plaintiffs commenced actions and obtained judgments against Miller, and issued executions, and garnished Miller and his agents and employes, who had said property in charge. The plaintiffs are wholesale merchants, and Miller was indebted to them for goods purchased for the store. The answers of the garnishees were taken, which showed that they were not indebted to Miller, and that they had none of his property under their control. The plaintiffs are composed of nine partnerships and corporations who had sold goods to Miller, and each one of their claims had been reduced to judgment by separate proceedings. They filed pleadings controverting the answers of the garnishees, and the parties entered into a stipulation, which, as appears from appellants' abstract, was as follows: “The stipulation shows that the plaintiffs and defendants agreed that an action in equity be commenced by the plaintiffs to settle the matters in controversy, arising in the several cases of the plaintiffs against G. W. Miller and these defendants, as garnishees, upon the pleadings, controverting their answers, given by said garnishees, in said garnishment proceedings, and that said proceedings be continued until the termination of this suit.” In pursuance of this stipulation, this action was commenced. All the wholesale merchant creditors united as plaintiffs, and set forth in the petition the grounds upon which they claimed that they were entitled to priority over the defendant Nicodemus.

We will now proceed to state the grounds upon which the plaintiffs contend that they are equitably entitled to priority. It appears that the defendant Nicodemus is a resident of the state of Maryland. He is the owner of the Clay County Bank, at Spencer, in this state, and said bank has been managed, and its business conducted, by one H. N. Smith, cashier. When Miller purchased the interest of his partners in business, he borrowed money of Nicodemus. These loans appear to have been at first made by Nicodemus personally, and no security was taken for the money. These loans were continued until the aggregate amount became quite large, and the matter appears to have been taken control of by the bank, and security was demanded, and Miller executed mortgages upon his stock of goods, notes, and accounts to secure the indebtedness. There is conflict in the evidence as to when the first mortgage was given. Our reading of the evidence leads us to the conclusion that it is shown by a fair preponderance thereof that the first mortgage was given early in the year 1888. In the month of October, 1889, this mortgage was renewed by another, in the sum of $7,500, and on the 20th day of March, 1890, another renewal was effected. At this time the debt had increased, so that the renewed mortgage was taken for $12,222. This last mortgage was held by the bank until June 16, 1890, when Miller executed to Nicodemus the bill of sale above referred to. The several mortgages held by the bank were not placed on record, with the exception of the last one, and that was not filed for record until June 16, 1890, just before the execution of the bill of sale.

It is claimed by the plaintiffs that it was understood and agreed between the bank and Miller that these mortgages should not be recorded. It is conceded by the bank that there was such an arrangement as to the mortgages taken prior to the one which was dated March 20, 1890. It is strenuously contended by Smith, the manager of the bank, that the omission to record said mortgage was the result of oversight, and was not in pursuance of any arrangement or understanding with Miller. We think the evidence fairly shows that there was the same arrangement and understanding with reference to this mortgage that there was with reference to those that preceded it. It is true that Smith testified as a witness that the intention was to put it on record, but we think, when his whole evidence is considered, in connection with the facts and circumstances surrounding the transaction, it must be found that there was more than mere oversight in the matter of putting the instrument on record. The following is part of Smith's testimony on his cross-examination: “The intention was to put it on record in a very short time. It was my intention, if he did not pay up some of the indebtedness, that I would close him up. The mortgage was not recorded because I overlooked it. It was simply an oversight. It was an oversight and negligence on my part, not doing what I should have done. I simply put it off, against my better judgment, from time to time. No; it was not a postponement of recording it, the same as the first mortgage was, because in the first mortgage I guess there was an understanding that the first mortgage should not be recorded. The mortgage in March, 1890, was an entirely different one from the first one.” The surrounding circumstances were that the mortgages previously given were by agreement withheld from record; and the parties to the transaction knew that, whenever the bank placed the mortgage on record, Miller's career as a merchant was at an end. He could not have bought goods on credit. All the property he had, aside from his stock of goods, did not exceed $500 in value. It cannot be believed that any of the parties entertained the idea that Miller was such a master of finance that he could operate a country store with a mortgage of over $13,000 on his stock. The plaintiffs sold the merchandise upon which their judgments are founded to Miller after the first mortgage was given, and before the bill of sale was executed, without any knowledge of the existence of the mortgages.

It is charged that the withholding of the mortgages from record was a fraud as to the plaintiffs, and this is the principal question in the case. There can be no doubt that the withholding of the mortgages from record, in pursuance of an agreement between the parties, could have but one object, and that was to maintain the credit of Miller, and lead parties with whom he dealt to give credit to him in the belief that he was not a chattel-mortgage merchant. In such a case it is well settled that the mortgagee cannot be permitted to insist on the validity of his mortgage, as against those who have given credit to the mortgagor under such circumstances. Such a transaction is fraudulent as to the other creditors. It is provided by section 1923 of the Code that “no sale or mortgage of personal property, where the vendor or mortgagor retains actual possession thereof, is valid against existing creditors or subsequent purchasers, without notice, unless a written instrument conveying the same is executed, acknowledged like conveyances of real estate, and filed for record with the recorder of the county where the holder of the property resides.” It was held in Fox v. Edwards, 38 Iowa, 215, that the term “existing creditors” is not limited to those who were creditors when the sale...