Longfellow v. Barnard

• Decision Date: 17 May 1899
• Citation: 79 N.W. 255,58 Neb. 612
• Parties: LONGFELLOW v. BARNARD.
• Court: Nebraska Supreme Court

58 Neb. 612

79 N.W. 255

LONGFELLOW

v.BARNARD.

Supreme Court of Nebraska.

May 17, 1899.

Syllabus by the Court.

1. An unincorporated bank, exclusively owned by a private individual, is not a legal entity, even though its business be conducted by a president and cashier.

2. In such case the assets of the bank represent merely the portion of the owner's capital invested in banking, and he may lawfully dispose of them to pay or secure the just claims of any of his creditors.

3. A fraudulent vendee of property may lawfully mortgage the same to secure a bona fide creditor of the fraudulent vendor. The consent of the vendor to such disposition of the property is implied in the conveyance by which he invested the vendee with the title.

4. A pre-existing debt already due is a sufficient consideration for the execution of a mortgage securing the same.

5. A mortgage given to indemnify a surety or guarantor is, in legal effect, a security to the owner of the debt, even though he did not originally rely on it, or know of its existence.

6. An assignment of a fraudulent mortgage to secure a creditor of the mortgagor is valid without any consideration moving from the assignee to the assignor. Such a transaction is, in substance, a release of the fraudulent mortgage and the execution of a new mortgage by the debtor to his creditor.

7. Whether a merger results from the possession by the same person at the same time of two estates of different rank in the same property depends generally on the intention of the owner.

8. The appointment of a receiver is in the nature of an equitable execution. By it the court is able to reach only the actual interest of the debtor in the property impounded.

Appeal from district court, Saunders county; Sedgwick, Judge.

Action by John H. Longfellow, receiver of the State Bank of Wahoo against E. H. Barnard. Judgment for plaintiff, and defendant appeals. Reversed.Munger & Courtright, for appellant.

Good & Good, for appellee.

SULLIVAN, J.

This action was instituted in the district court by the appellee against the appellant to cancel and annul a mortgage upon lot 7 and the west half of lot 8 in the County addition to the city of Wahoo. The defendant answered, asserting the validity of his mortgage, and demanding a foreclosure of the same. The decree granted the relief sought by the petition, and dismissed the counterclaim. Barnard brings the record here for review by appeal.

Most of the essential facts are either admitted or specifically found by the trial court. The lots were originally owned by W. H. Dickinson, and are covered by a large brick building, one room of which was used and occupied for some years prior to 1893 by the State Bank of Wahoo. The bank was not incorporated, but was a private institution, owned and managed by Dickinson, who was at the same time conducting a real-estate, loan, and insurance business. He was also interested in an electric light plant, and owned an elevator and coal yard. On January 24, 1893, Dickinson being insolvent, and having absconded, the bank closed its doors, and soon afterwards passed into the hands of a receiver appointed under the authority of section 14, c. 37, p. 397, Sess. Laws 1889. In November, 1892, Dickinson, for the purpose of defrauding his creditors, executed to his sister-in-law, Harriet E. Adams, the mortgage in suit; and about a month later he made a fraudulent conveyance to her of the legal title to the mortgaged property. The deed contained a recital to the effect that the grantee had assumed the payment of her own mortgage. Both instruments were filed for record at the same time. Prior to the events just recounted, Dickinson, in some transaction not connected with the banking business, became indebted to Barnard in the sum of $2,000. This indebtedness was evidenced by a promissory note which Barnard had sold to the First National Bank of Fremont with a guaranty of payment at maturity. The note became due on January 1, 1893, and, being unpaid, Barnard went to Wahoo with a view of obtaining security or payment. He was unable to see Dickinson, but he obtained from Miss Adams, as protection to his guaranty, an assignment of her mortgage and the note which it was given to secure; and he agreed, in consideration of receiving the collateral, to take up the note, which was still held by the Fremont bank, and carry it himself for some indeterminate time. The defendant did afterwards take up the note according to his agreement, and now seeks to obtain payment by foreclosure of the Adams mortgage. The receiver is in possession of the property. He holds the legal title, which was conveyed to him by Miss Adams in recognition of his superior right, and subject only to such incumbrances as the courts of this state might adjudge to be valid. The trial court found that Barnard knew, or ought to have known, that the conveyances by Dickinson to Adams were made for the purpose of defrauding creditors. This finding seems to be warranted by the evidence, and we shall, therefore, in the further consideration of the case, assume its correctness.

With this statement of the salient facts, we proceed to examine what we deem to be the decisive points discussed in the briefs of counsel. The validity of the mortgage in the hands of the defendant is the cardinal question which each of the parties, in demanding affirmative relief, presents for decision. The appellee insists that the State Bank of Wahoo was a de facto corporation, and that the mortgaged property, being a bank asset, was primarily liable for the payment of claims growing out of the bank business. We cannot accept this view, for it is obviously based on a false assumption. The business of the bank was conducted, it is true, by a president and cashier; but articles of incorporation were never adopted; it had no board of directors; it never pretended to possess or exercise corporate powers; it was incapable of contracting debts, or of owning and holding property. In its reports to the state banking board it was represented as a private concern, of which W. H. Dickinson was the sole proprietor. Certainly it was not in fact a legal entity, and we know of no reason why the owner, or those in privity with him, should be precluded from asserting the truth in regard to the matter. The assets of the bank represented merely the portion of Dickinson's capital invested in banking, and its liabilities represented the indebtedness incurred by Dickinson as a banker. The assets were his, and he might dispose of them as he pleased, subject, of course, to the power of creditors to reclaim them if the disposition should be in fraud of their rights. The liabilities were also his, and for their satisfaction all of his property not exempt by law was equally liable to seizure and sale. It results from these considerations that Barnard, before the appointment of the receiver, might have obtained from Dickinson security for the $2,000 note in the form of a mortgage on the real estate in controversy; and he might also, with Dickinson's consent, take as security an assignment from Miss Adams of the...