Hodson v. Eugene Glass Co

• Decision Date: 15 May 1895
• Citation: 156 Ill. 397,40 N.E. 971
• Parties: HODSON et al. v. EUGENE GLASS CO.
• Court: Illinois Supreme Court

156 Ill. 397

40 N.E. 971

HODSON et al.

v.EUGENE GLASS CO.¹

Supreme Court of Illinois.

May 15, 1895.

Appeal from appellate court, First district.

Bill for injunction by the Eugene Glass Company against Frederick A. Hodson and William R. Fleming. Complainant obtained a decree, which was affirmed by the appellate court. 54 Ill. App. 248. Defendants appeal. Affirmed.

Severy & Galloway and R. C. Busse, for appellants.

Woolfolk & Browning, for appellee.

MAGRUDER, J.

This is a bill filed on February 3, 1893, by the appellee, the Eugene Glass Company, against the appellants, Frederick A. Hodson and William R. Fleming, to enjoin the foreclosure of a chattel mortgage, purporting to have been executed by appellee to appellant Fleming, and also to enjoin the collection or assignment of the note purporting to be secured by said mortgage. Upon the filing of the bill a preliminary injunction was granted. Motion was made by defendants to dissolve the preliminary injunction, which motion was overruled. Answers were filed to the original bill, and, the bill being subsequently amended, further and amended answers were filed to the bill as amended. The cause being at issue, was referred to a master in chancery, who took testimony and made a report finding that no indebtedness existed from the glass company, the complainant below, to Fleming, when the mortgage was made; that the note and mortgage were a fraud upon the company, and invalid in the hands of Fleming; that Hodson, to whom the note had been transferred, was not a bona fide holder for value thereof, and that the same was invalid in his hands; and recommending that the note be delivered up and canceled, and that the foreclosure of the mortgage be perpetually enjoined. The circuit court overruled the exceptions to the master's report, and confirmed the same, and decreed that the note and chattel mortgage were null and void and of no effect, and that the defendants be perpetually enjoined from collecting the note and from foreclosing the mortgage. The decree of the circuit court has been affirmed by the appellate court, and from the judgment of the latter court the present appeal is prosecuted.

The note was for $4,000. The note and chattel mortgage are dated September 14, 1892, but the mortgage was not recorded until February 2, 1893. The note purported to be executed by the company to Fleming on September 14, 1892, and is payable eight months after date. The mortgage covers the machinery, fixtures, stock, and books of the company. The Eugene Glass Company was organized under the laws of Illinois, in March, 1892, by the appellant William R. Fleming and one Henry Erkins, for the purpose of manufacturing and selling art glass. At first the stock was $10,000, consisting of 1,000 shares of $10 each, half belonging to Fleming and half to Erkins; 10 shares, however, going to Fleming's wife, Eugenie, and 10 shares to Erkins' brother, Albert. Fleming had some money. Erkins had no money, but was a designer of art glass, and his skill was offset against the money of Fleming. Upon the original organization of the company, William R. Fleming, Eugenie Fleming, and Henry Erkins were directors, William R. Fleming was president, Henry Erkins vice president, and Albert Erkins secretary. Appellant Fleming had charge of the books and the finances, and Henry Erkins of the designing and manufacturing. Erkins paid no money into the treasury of the compnay; Fleming paid in $9,000. No certificates of stock were issued until October, 1892, when the capital stock was increased to $25,000, of which John S. Boddie and Charles G. Smith took 900 shares, and paid in $9,000. Of the $9,000 paid in by Fleming it is not denied that $5,000 went to pay for his own and his wife's stock, but the dispute arises over the remaining $4,000. It is claimed by Fleming that he advanced this sum of $4,000 as a loan to the company; and that he, as president of the company, executed to himself the note and mortgage dated September 14, 1892, to secure the $4,000, so advanced as a loan to the company. On the other hand, it is claimed by Henry Erkins that he declinedto go into the company unless he could own one-half the stock; that Fleming was anxious to have the benefit of the skill of Erkins, and agreed to advance the money to pay for the stock of Erkins; that Erkins was to pay back the money out of the dividends on his stock; and that Fleming put the $4,000 into the company to pay for the stock of Erkins. The material question in the case is whether this sum of $4,000 was a loan to the company, or a payment upon the stock subscribed for by Erkins. If it was a loan to the company, then the note and mortgage, provided they were properly executed, represented an indebtedness from the company to Fleming; but if it was a payment upon Erkins' stock, then the company owed no debt to Fleming, and he had no right to take a note and mortgage from it. The theory that there was a loan to the company is sustained only by the testimony of Fleming. Erkins swears to the contrary. Three or four witnesses swear that Fleming told them he had paid for Erkins' stock, and Erkins owed him therefor. When the new stock was issued to Boddie and Smith, in October, 1892, Fleming permitted a certificate of stock to be issued to Erkins, and took a note to himself from Erkins for the amount of such issue. At this time also Fleming made written reports to Boddie and to others as to the total indebtedness of the company, and failed to include in such reports any indebtedness of $4,000 to himself. In order to induce Boddie and Smith to buy stock in October, he signed a written guaranty that the company owed nothing except certain specified debts amounting to $4,379.24, which did not embrace any indebtedness of $4,000 to himself. Although the chattel mortgage purports to have been executed on September 14, 1892, it was withheld from record until February 2, 1893, the day on which the appellant Fleming took forcible possession of the mortgaged property. Henry Erkins, Albert Erkins, and Smith swear that they never knew of the existence of the note and mortgage until February 2, 1893, when the seizure of the property took place. Albert Erkins swears that on September 14, 1892, a replevin suit was begun for the company against the firm of Flannagan & Biedenweg, and that he was induced to sign some papers as secretary, which he supposed at the time to be papers needed to commence the replevin suit, and that he never intentionally signed any note and chattel mortgage as secretary of the company. It is unnecessary, however, to further discuss the evidence. The finding of the circuit court that the $4,000 was a payment upon the stock subscribed by Henry Erkins, and not a loan to the company, is fully sustained by the testimony.

It is claimed, however, that the appellant Hodson is a bona fide holder for value of the note, through an alleged assignment thereof to him by Fleming before maturity. So far as the chattel mortgage is concerned, the assignee of the note could take no other interest in the mortgage than that which was derived from the assignment of the note. The assignment of the note carries with it the mortgage as an incident to the principal debt, but in such case the assignee of the note takes only an equitable interest in the mortgage. The assignee of the mortgage takes it subject to the defenses which the mortgagor had against it in the hands of the mortgagee. Hodson had no other or greater right in relation to the mortgage, and stood in no better position, than Fleming, the mortgagee. It follows that, if the court had jurisdiction to entertain a bill of this kind at all, there was no error...