Lehman Manufacturing Company v. Jewett

• Decision Date: 02 October 1929
• Docket Number: 13,442
• Citation: 168 N.E. 46,90 Ind.App. 12
• Parties: LEHMAN MANUFACTURING COMPANY ET AL. v. JEWETT, RECEIVER, ET AL
• Court: Indiana Appellate Court

168 N.E. 46

90 Ind.App. 12

LEHMAN MANUFACTURING COMPANY ET AL. v. JEWETT, RECEIVER, ET AL

No. 13,442

Court of Appeals of Indiana

October 2, 1929

From Dubois Circuit Court; Bomar Traylor, Judge.

Suit by Charles W. Jewett as receiver of the Beech Grove State Bank against the Lehman Manufacturing Company and others to foreclose a mortgage and seeking a recovery on bonds secured by such mortgage. From a decree foreclosing the mortgage and awarding judgment against the mortgagor and others, the latter appealed.

Affirmed.

Norman E. Patrick and W. E. Cox, for appellants.

Roemler Carter & Rust and Leo H. Fisher, for appellee.

OPINION

MCMAHAN, C. J.

This is an action by Charles W. Jewett, receiver of the Beech Grove State Bank, against the Lehman Manufacturing Company and others, seeking a recovery on certain first mortgage coupon bonds issued by the named defendant, for a foreclosure of the mortgage and asking that the mortgage be declared a first lien on all of the property described therein.

The facts were found specially, and, in substance, are as follows: On September 30, 1920, the Lehman Manufacturing Company, hereafter referred to as "the mortgagor," or "old company," executed and issued 100 seven per cent interest coupon bonds numbered one to 100. Each bond was for $ 500, payable to bearer, or to the registered holder, if the same were registered, October 1, 1930. The interest was payable on April 1 and October 1 in each year, on surrender of the interest coupons, principal and interest being payable at the Troy State Bank, of Troy, hereafter referred to as "Troy bank" and "trustee." These bonds were secured by a mortgage on the property of the mortgagor given to the Troy bank as trustee. The mortgagor was given the option of redeeming any or all of the bonds October 1 1923, or on any subsequent interest payment date. The bank accepted the trust, and the several bonds with the interest coupons were thereafter sold and delivered to various parties. Bonds numbered 21 to 40 were sold and delivered to the Farmers Bank of Newburg. Thereafter, and before September 9, 1921, the Beech Grove Bank purchased said bonds 21 to 40 from the Newburg bank paying $ 10,000 therefor, and has ever since been the owner thereof. These bonds, 21 to 40, were not registered, and the first interest coupon on each was paid to the Newburg bank. No other interest coupons on said bonds were paid or presented for payment. September 9, 1921, the Beech Grove Bank was robbed, and each of said bonds and the coupons attached thereto were stolen and destroyed by the robbers by burning. Neither the mortgagor, the trustee, nor the Lehman Company of America knew or had any information as to what had become of said bonds or who claimed to own them until in December, 1924.

The Lehman Company of America, Incorporated, hereafter referred to as "the new company," was incorporated in July, 1922, and immediately thereafter the mortgagor sold and transferred all of its property to the new company. The officers and directors of the last-named corporation, at the time of this transfer, knew that said bonds numbered 21 to 40 had not been paid, and, as a part of the consideration for the sale and transfer of the mortgaged property, agreed to pay said bonds, and set apart 20 bonds of like denomination issued by it for the use of the owner of bonds 21 to 40.

The trustee, after accepting the said trust, caused the mortgage to be recorded, and, when the mortgaged property was transferred to the new company, the trustee knew of the terms and the arrangements of such transfer and knew said bonds, 21 to 40, and the interest coupons, had not been paid, and, in order that the property might be transferred free from the mortgage, at the request of the said two Lehman companies, released said mortgage from record as being paid and satisfied. No money has ever been delivered to the trustees to be used in paying said bonds 21 to 40. December 6, 1924, the plaintiff, by letter, informed the trustee of the fact that the Beech Grove bank was the owner of said bonds 21 to 40, that the same had been stolen and destroyed, and demanded payment by said trustee of the interest coupons then due, which payment was refused. The Lehman Company of America has failed to keep on hand any money received for the transfer of the property from the mortgagor, has failed to cause any mortgage to be taken on its property to secure the payment of said bonds, and has failed to provide any money to pay any of the interest coupons on said bonds so owned by the Beech Grove bank. The bonds so owned by the Beech Grove bank are the only outstanding bonds of the mortgagor. Neither the Beech Grove bank nor the receiver thereof was consulted or knew anything about the transfer of said property or the release of said mortgage, and never assented to or ratified the same, all of which was done by the mortgagor and the trustee in violation of the trust, for the purpose of depriving the Beech Grove bank of its legal rights with reference to said bonds and avoiding the payment thereof.

The mortgage securing said bonds provided that in case of a default for 60 days in payment of interest, the trustee might, or, if requested in writing by holders of 20 per cent in interest of the outstanding bonds, should declare the principal of all bonds then outstanding due. In August, 1925, the receiver for the Beech Grove bank, in writing, informed the trustee that the Beech Grove bank was the owner of $ 10,000 of the outstanding bonds issued by the Lehman Manufacturing Company and of the interest coupons attached thereto, and that, on December 1, 1924, the receiver had made demand on the trustee for payment of the coupons then due and owned by the Beech Grove bank, which demand was refused, and that no part of such interest had been paid, and, in writing, requested that the trustee declare all of said outstanding bonds due and payable. The trustee refused to pay said bonds or any part of the interest thereon, and also refused to declare the outstanding bonds due and payable. Immediately upon the sale and transfer of the mortgaged property to the new company, it executed to the First National Bank of Cannelton, as trustee, a mortgage upon the same property mortgaged to secure the payment of the bonds so held by the Beech Grove bank, the mortgage to the Cannelton bank being executed to secure $ 50,000 Class A bonds bearing six per cent interest, each of such bonds being due January 1, 1931. This mortgage, like the first one, contained a provision by which all of the bonds should be declared due for failure to pay interest coupons when due, upon written request of 20 per cent of the bond holders. The Cannelton bank gave no consideration for the mortgage issued to it, and, at the time, knew the bonds held by the Beech Grove bank and the interest thereon were unpaid. The new company sold a small part of the real estate covered by the mortgage for $ 300, has erected some new buildings, and is worth about $ 75,000 over and above all indebtedness. The original incorporators and stockholders of the new corporation were the same persons who were the directors in the Lehman Manufacturing Company when the property was transferred to the new company. The bonds issued by the mortgagor, and owned by the Beech Grove bank and secured by a mortgage, in express words made all the terms and conditions of the mortgage a part of each bond. Appellee contends these terms became a part of the bonds and rendered them non-negotiable, but, in view of the conclusion we have reached, these provisions are not material and consequently will not be set out.

The court concluded, as a matter of law, that the bonds in question and the coupons thereto attached were not negotiable as inland bills of exchange; that they were owned by the Beech Grove bank, and, with the interest thereon, aggregating $ 15,895.72, were due and unpaid; that plaintiff should recover that sum from the Lehman Manufacturing Company, the Lehman Company of America, Incorporated, and the Troy State Bank, with costs; that the mortgage should be foreclosed, and that, if the mortgaged property did not sell for enough to pay the said amount and costs, the deficiency should be paid by the defendants in the following order: (a) By the Lehman Manufacturing Company; (b) if not paid by it, then by the Lehman Company of America, Incorporated; and (c) if not paid by either of them, by the Troy State Bank. From a decree in accordance with the conclusions of law, the three defendants last named appealed.

Appellants contend the court erred in overruling their demurrer to each paragraph of the complaint, in overruling their motions to suppress the deposition of Henry Schoenrock, that the findings are not sustained by sufficient evidence, and error in the conclusions of law.

The first and the last contentions present the same questions and will be considered together.

The deposition of Schoenrock was taken by written interrogatories, pursuant to § 491 Burns 1926, being § 318 of the Civil Code, which provides that the party desiring to take such a deposition shall serve notice of his intention, with a copy of the interrogatories to be propounded; that the opposite party may, within five days file with the clerk such cross-interrogatories as he desires to propound; that the clerk shall then issue to some officer, by him selected, and authorized to take depositions, a commission, with interrogatories and cross-interrogatories and re-examining interrogatories, if any, annexed thereto, requiring such officer to cause the witness to come before him at such time and place as he may appoint, and to faithfully take the deposition upon the...