Nappanee Canning Co. v. Reid, Murdoch & Co.

• Decision Date: 08 October 1902
• Docket Number: 19,779
• Citation: 64 N.E. 870,159 Ind. 614,64 N.E. 1115
• Court: Indiana Supreme Court
• Parties: Nappanee Canning Company et al. v. Reid, Murdoch & Co. et al

64 N.E. 870

159 Ind. 614, 64 N.E. 1115

Nappanee Canning Company et al. v. Reid, Murdoch & Co. et al

No. 19,779

Supreme Court of Indiana

October 8, 1902

Rehearing Denied January 7, 1903.

From Elkhart Circuit Court; H. D. Wilson, Judge.

Action by Reid, Murdoch & Co. and others against the Nappanee Canning Company and others for damages for breach of an alleged contract, and to set aside, as fraudulent, a mortgage or deed of trust. From a judgment for plaintiffs, defendants appeal. Transferred from Appellate Court, under subdivision two of § 1337j Burns 1901.

Affirmed in part and reversed in part.

J. M Vanfleet and V. W. Vanfleet, for appellants.

C. W Miller, J. S. Drake, S. C. Hubbell and H. G. Colson, for appellees.

OPINION

Dowling, C. J.

Action by the appellee Reid, Murdoch & Co. against the appellants, to recover from the Nappanee Canning Company damages for the breach of an alleged contract of said company to deliver to the said Reid, Murdoch & Co. 2,000 cases of tomatoes, and also to set aside, as fraudulent, a mortgage or deed of trust executed by the said Nappanee Canning Company to one Samuel Mosiman to secure the payment of divers debts owing by the said Nappanee Canning Company to its directors and to other persons and corporations, for all of which its directors were liable. A demurrer to the complaint was overruled. The appellants answered in denial, and filed a plea of non est factum as to the contract in writing set out in the complaint. The record does not show any submission or trial of the cause, but a special finding of facts, with conclusions of law thereon, is set out, to each of which conclusions the appellants separately excepted. Motions for a venire de novo and for a new trial were overruled, and judgment was rendered against the Nappanee Canning Company for $ 1,100, and against all the appellants, vacating and setting aside the mortgage or deed of trust as to each director of the company, and sustaining it as to the other creditors, whose debts were secured by it.

Various errors are assigned, but it will be necessary to consider only the second, which questions the correctness of each conclusion of law, and the fourth, which challenges the ruling of the court on the motion for a new trial.

The facts found by the court which are material to the determination of the cause on this appeal are substantially as follows: On the 7th day of April, 1897, the Nappanee Canning Company was a manufacturing corporation organized under the laws of the State of Indiana, having its principal office at the town of Nappanee, in this State; and the appellee Reid, Murdoch & Co. was a corporation organized under the laws of Illinois, and doing business in Chicago. On said day the appellant the Nappanee Canning Company sold and agreed to deliver to the appellee Reid, Murdoch & Co. 2,000 cases of tomatoes, such delivery to take place in lots of 1,000 cases, not later than September 15th and October 1, 1897, to be paid for in cash at sixty days, at the rate of sixty-two and one-half cents per dozen, delivered in Chicago, Illinois, less one and one-half per cent. on prompt delivery. The Nappanee Canning Company did not deliver the tomatoes. The market price advanced, and in consequence of the failure of the Nappanee Canning Company to perform its agreement, the appellee Reid, Murdoch & Co. was compelled to purchase tomatoes elsewhere at prices exceeding the contract price by $ 1,100. On October 5, 1897, the Nappanee Canning Company was insolvent, and that fact was known to its directors, its assets amounting to $ 9,000, and its liabilities to $ 19,000, all of which were then past due. The directors of the Nappanee Canning Company were its co-appellants, Berlin, Uline, Coppes, Hartman, Wysong, Whisler, Armey, Albin, and Emmert; Berlin being the president, and Uline the secretary, treasurer, and general manager of the company. The directors were sureties, or were otherwise legally liable for all of the debts of the canning company, and, to protect themselves against loss, they caused a mortgage or deed of trust of all the property of the canning company, real and personal, to be executed by that corporation, by its president and secretary, to one Mosiman, as trustee, to secure (1) the expenses of the trust; (2) all debts due from the corporation for tomatoes bought in 1897; (3) the debts due to the Farmers & Traders Bank, of Nappanee, Indiana, evidenced by notes executed by the directors for moneys used for said company, amounting to $ 4,712.10; (4) an account owing to Coppes Bros. & Zook; (5) a note for $ 1,100 due to one Barber, and certain other debts due to divers persons and corporations, aggregating $ 5,000; the claims classified as numbers one, two, and three, to be first paid in full. The trustee was to continue the business until he could effect a sale of the property of the corporation. Samuel D. Coppes and Harry E. Coppes were partners trading under the name of Farmers & Traders Bank, and Coppes Bros. & Zook were stockholders of the Nappanee Canning Company. The corporation continued to do business for about two weeks after the mortgage or deed of trust was made, and was managed by Uline, its secretary, treasurer, and general manager. None of the beneficiaries of said mortgage or deed of trust, excepting Coppes Bros. & Zook, and the directors of the corporation, knew that the said mortgage or deed of trust was to be made until after it was executed, and none of the creditors of the company, excepting those just named, was demanding payment of the claims against it. The financial condition of the canning company was better on October 5, 1897, than on April 7, 1897. The company had other contracts for tomatoes to the amount of at least 2,000 cases, which it refused to fill. The claims mentioned in said mortgage or deed of trust, and secured thereby, were just and bona fide debts of the said canning company, and said mortgage or deed of trust was executed by the authority of the entire board of directors of said corporation. The canning company immediately put Mosiman in possession of the property described in the mortgage or deed of trust, but without any expectation or intention that the factory would run, or business be done, more than two weeks. The acts of the directors in so securing to themselves, as indemnity, the property of the canning company were intended to make it impossible, and did make it impossible for the appellee Reid, Murdoch & Co. ever to enforce its contract, or to recover damages for the nonperformance thereof, and they meant thereby to shield themselves from further liability. Samuel Mosiman paid nothing for the property mentioned in the mortgage or deed of trust. The Nappanee Canning Company executed the said mortgage or deed of trust on October 5, 1897, for the express purpose of enabling said directors to indemnify themselves against all liability incurred by either of them in its behalf, and with the further intention of leaving no property out of which the appellee Reid, Murdoch & Co. could make any part of its claim, if it had a claim, and for the further reason that after the making of the contract with the appellee Reid, Murdoch & Co., the price of tomatoes had advanced about thirty cents per dozen. The said contract with the appellee Reid, Murdoch & Co. was broken, and the mortgage or deed of trust was executed for the purpose of enabling the canning company and its directors to reap the benefit of the advance in the price of tomatoes. The execution of the mortgage or deed of trust was a fraud upon the appellee Reid, Murdoch & Co., and as to the said appellee it is void. Said mortgage or deed of trust is valid as to the mortgagees, Barber, Mittenthal, guardian, Blumberg, Searer, and the City National Bank of Goshen. Mosiman is not entitled to any compensation for his services as trustee under said mortgage or deed of trust. The Nappanee Canning Company is indebted to the appellee Reid, Murdoch & Co. in the sum of $ 1,100.

The conclusions of law on the foregoing finding of facts are thus stated: "(1) That plaintiff is entitled to recover from the defendant, the Nappanee Canning Company, $ 1,100. (2) That the trust deed is void as to the following persons, namely: Francis E. Berlin, Barney Uline, Frank Coppes, Tobias Hartman, Henry Wysong, Jacob S. Whisler, Joseph S. Armey, John W. Albin, Ephraim Emmert, Coppes Bros. & Zook, and Farmers & Traders Bank. (3) That as to the City National Bank of Goshen, Indiana, Isaac Blumberg, and George Searer, and George Barber, M. H. Mittenthal, as guardian, said trust deed is valid, and plaintiff's rights are subject thereto."

The important questions in the case are presented by the exception to the second conclusion of law, and by the motion for a new trial. Was the mortgage or deed of trust invalid as to the appellants, who were directors of the Nappanee Canning Company? Does the evidence sustain the finding that the appellee Reid, Murdoch & Co. is entitled to recover $ 1,100 from the canning company?

In this State it is settled by a long course of decision that an embarrassed or insolvent debtor may lawfully prefer one or more of his creditors, by payment, mortgage, pledge, or deed to the exclusion of the others. No statute forbids such preferences; no rule of law is understood to prevent them. Ball v. Barnett, 39 Ind. 53, and cases cited; Lowry v. Howard, 35 Ind. 170, 9 Am Rep. 676; McCormick v. Smith, 127 Ind. 230, 26 N.E. 825; Carnahan v. Schwab, 127 Ind. 507, 26 N.E. 67; John Shillito Co. v. McConnell, 130 Ind. 41, 26 N.E. 832; Peed v. Elliott, 134 Ind. 536, 34 N.E. 319; Rockland Co. v. Summerville, 139 Ind. 695, 39 N.E. 307; Heiney v. Lontz, 147 Ind. 417, 46 N.E. 665; Snyder v. Jetton, 137 Ind. 449, 37 N.E. 143. The fact that...