Rouse v. Merchants' Nat. Bank

• Decision Date: 18 June 1889
• Parties: ROUSE v. MERCHANTS' NAT. BANK.
• Court: Ohio Supreme Court

22 N.E. 293

46 Ohio St. 493

ROUSE v. MERCHANTS' NAT. BANK.

Supreme Court of Ohio.

June 18, 1889.^[1]

Error to superior court of Cincinnati.

The T J. Nottingham Manufacturing & Supply Company, a corporation organized under the laws of this state, and located in Cincinnati, being unable to meet its liabilities, on the 25th day of June, 1884, made an assignment to F. W. Browne for the benefit of its creditors. The assignment was duly filed in the probate court, and thereafter Browne was removed, and George L. Rouse appointed trustee to administer the assignment. The Merchants' National Bank of Cincinnati claiming to be a creditor of the corporation, and that the debt due it was secured by a chattel mortgage upon the property assigned, presented its claim to the trustee for allowance, and, the same having been rejected by him, the original action was brought by the bank in the superior court of Cincinnati, to compel the trustee to allow the claim in the settlement of the trust, and to establish the priority of the mortgage lien. The petition of the bank alleges that the corporation, being indebted to it in the sum of $6,000 on six promissory notes particularly described, on the 25th day of June, 1884, ‘ by a resolution of its board of directors duly passed, authorized T. J. Nottingham, its president, to execute and deliver to this plaintiff a chattel mortgage upon all its property on the premises occupied by it at the south-east corner of Plum and Pearl streets, in the city of Cincinnati, Ohio, and thereupon a chattel mortgage was regularly drawn and executed, conveying said property to the plaintiff to secure the payment of the six promissory notes as hereinbefore set forth. And said T. J. Nottingham, in executing said chattel mortgage, signed the name of said company by him, as its president, after the schedule of the property conveyed by said mortgage, but not in the place where such signing is usually done; but said execution and signature was made at said place for the sole purpose of authenticating the execution of said instrument, a copy of which mortgage is herewith filed, and made a part hereof. Plaintiff further states that it, through its officers, made the affidavit on said mortgage, required by the statutes of Ohio, as to the amount due thereon, and that said claim was just, and said chattel mortgage was thereupon filed in the recorder's office of Hamilton county, Ohio, as required by law, on the said 25th day of June, 1884, at 2:28 P. M Plaintiff further says that the said T. J. Nottingham Manufacturing & Supply Company, after the execution and delivery of said chattel mortgage, conveyed the property described therein to one F. W. Browne, in trust for its creditors, and by order of the probate court of Hamilton county the defendant was afterwards appointed trustee for said creditors in the place of said Browne, and said Rouse took possession of said property as such trustee, and has converted a large part of it into money, and has now in his hands therefrom sufficient to pay the sum due this plaintiff and plaintiff says that its claim, duly verified according to law, has been presented to said Rouse, and payment thereof refused, and the said claim, both upon the said notes and mortgage, rejected. Plaintiff therefore asks a judgment against the said Geo. L. Rouse for the allowance of said plaintiff's claim, and that the said mortgage was validly executed and is valid, and for the sum of $6,000 and interest, and for costs.’ The trustee answered, denying the indebtedness of the corporation to the bank, and the due execution of the chattel mortgage, and alleging that the notes described in the chattel mortgage were given by T. J. Nottingham to the plaintiff to raise money for his own individual use; that the plaintiff knew that fact when the loans were made to him; and that the indorsement which he gave of the company upon said notes was without any authority whatever, as the plaintiff well knew. The answer further avers that the board of directors of the company had no authority to order a chattel mortgage to be given to the plaintiff to secure the individual debt of T. J. Nottingham; that the chattel mortgage was attempted to be executed, with several other chattel mortgages, for the purpose of giving the bank and others a preference over general creditors, and was procured from the board of directors, and the order for the same was procured by said T. J. Nottingham, who well knew that the debt due the bank was his own individual debt, which he was thus attempting to have the company prefer out of its assets over its own general creditors; that an assignment for the general benefit of creditors, under the insolvent laws of Ohio, was duly executed, and delivered to F. W. Browne, as assignee, at the same time, and before the mortgage set up in the petition was attempted to be executed by the said T. J. Nottingham; that the assignment was duly delivered to said Browne by the company for the general benefit of creditors; that the mortgage was never delivered to the bank, but after its attempted or pretended execution was delivered, in an unfinished condition, to the said F. W. Browne, the assignee, who caused it to be filed in the recorder's office in Hamilton county, and a few minutes thereafter caused the deed of assignment, which was then in his hands, to be filed in the probate court of Hamilton county; and the defendant alleges that said chattel mortgage is void, and in fraud of the rights of the general creditors.

The case was heard upon the pleadings and evidence, and then reserved to the general term for decision, where, at the request of counsel, the court stated its findings of fact and conclusions of law separately, as follows: ‘ That on the 23d day of June, 1884, the T. J. Nottingham Manufacturing & Supply Company, defendant, being insolvent, resolved to make a general assignment of its property for the benefit of its creditors, and resolved to give a mortgage on the same property to the plaintiff, and other mortgages to other creditors, which mortgages should have preference over the assignment, and appointed F. W. Browne assignee. The deed of assignment was executed and delivered to the said F. W. Browne, who drew all the instruments, and acted as attorney for the company in the whole matter, as well as assignee, on the 24th of June. Before the execution of the assignment, the mortgage was drawn, but a blank was left therein for the insertion of the amount secured by it. Next day, the 25th of June, the mortgage was completed and executed, and immediately thereafter, the other mortgages were completed and executed, the whole being done at one sitting. The property was described in the body of the mortgage as ‘ the goods and chattels described in the schedule hereunto annexed,’ and was signed, not at the close of the body of the mortgage, but at the end of the schedule, and the signature was there affixed for the purpose of authenticating and executing the mortgage. A copy of the mortgage is hereto annexed and made part of this finding; and, upon request of the defendant, it is further found that the other mortgages executed were signed both at the close of the body of the mortgage and at the close of the schedule. On the 25th of June the completed mortgage was filed in the recorder's office of Hamilton county, where chattel mortgages, executed in Cincinnati by residents thereof, are required by law to be filed, and on the same day, an hour or two later, the assignment was filed with the judge of the probate court. The amount due the plaintiff on the first day of this term, secured by said mortgage, is $6,542.41. F. W. Browne, assignee, was removed, and George L. Rouse, defendant, was appointed trustee in his place. The property has been sold, and the proceeds are in the hands of said trustee. The plaintiff presented his claim to said trustee, and demanded its allowance and payment, all of which the said trustee refused. As conclusion of law the court finds that the mortgage is a valid instrument, and has preference over the assignment, and the plaintiff is entitled to the payment thereof from the proceeds of the mortgaged property. To all of which findings the defendant then and there excepted, and thereupon the defendant made and filed a motion to set aside the said findings, and for a new trial, which motion was by the court overruled, to which action of the court the defendant then and there excepted. It is therefore considered by the court that the plaintiff recover from the said trustee, from the said proceeds in his hands, $6,542.41, with interest at six per cent. per annum from the first day of February, 1886, and that the costs of this action be paid from said proceeds, and that this judgment be certified to the probate court.'

The present proceeding in error is prosecuted here to reverse the foregoing judgment of the superior court.

Syllabus by the Court

A corporation for profit, organized under the laws of this state, after it has become insolvent and ceased to prosecute the objects for which it was created, cannot, by giving some of its creditors mortgages on the corporate property to secure antecedent debts, without other consideration, create valid preferences in their behalf over the other creditors, or over a general assignment thereafter made for the benefit of creditors.

Lincoln, Stephens & Lincoln, Watson, Burr & Livesay , and Albery & Albery, for plaintiff in error.

John W. Herron , for defendant in error.

WILLIAMS, J., (after stating the facts as above .)

The general question for decision in this case is whether a corporation for profit, organized under the laws of this state, can, in the disposition of the corporate property after it has become insolvent, and cased to...