Simpson v. First Nat. Bank, 1,007.

• Decision Date: 27 March 1899
• Docket Number: 1,007.
• Citation: 93 F. 309
• Parties: SIMPSON v. FIRST NAT. BANK OF DENVER.
• Court: U.S. Court of Appeals — Eighth Circuit

93 F. 309

SIMPSON v. FIRST NAT. BANK OF DENVER.

No. 1,007.

United States Court of Appeals, Eighth Circuit.

March 27, 1899

T. J O'Donnell (Milton Smith, on the brief), for appellant.

Charles J. Hughes, Jr., for appellee.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

SANBORN Circuit Judge.

This is an appeal from a decree which dismissed a bill exhibited by the appellant, Simon M. Simpson, against the First National Bank of Denver, the appellee, for an account of the proceeds of certain personal property, which the appellant alleged that he had transferred and delivered to the bank as collateral security for the payment of his indebtedness to it. On March 2, 1887, Simpson owed the bank $33,685.31. He owned three lots and a house, in which he lived, which were worth about $12,500; a stock of cigars, pipes, and other articles used by smokers, and some fixtures in a store in Denver, which were worth about $21,000; and a large stock of cigars and tobacco in the United States bonded warehouse in that city, on which the duties had not been paid, and which were represented by bills of lading, and were worth about $25,000. For the sake of brevity, we shall call the house and lots the 'residence,' the stock of cigars smokers' articles, and fixtures in the store the 'store,' and the stock of cigars and tobacco in the bonded warehouse the 'bonded goods.' David S. Moffat was the president, S. N. Wood was the cashier, and H. Z Salomon was a brother of a former director, and a customer of the bank, who was engaged in the grocery business in Denver, and was familiar with all the facts relative to this transaction as they occurred. On March 2, 1887, Simpson told Wood that he was insolvent, and that he was willing to secure the payment of his indebtedness to the bank; and thereupon, under Wood's direction, he deeded the residence to him, conveyed the store by a bill of sale and delivered it to him, and assigned the bills of lading of the bonded goods to the bank as security for $23,000 of his debt, for which amount he gave new notes on that day. The consideration recited in the deed was $7,500, and the consideration recited in the bill of sale was the same amount. For this deed and bill of sale he was given a credit of $15,000 on the books of the bank, and he was given a credit of $23,000 for his new notes, making his credit, in all, $38,000. This credit paid his overdraft and his old notes, and left a balance of $4,314.69 to his credit still. For this balance, the bank issued its certificate of deposit, but made it payable to its president, Moffat, instead of to Simpson, and Moffat retained it in the bank. It was never delivered to Simpson, but in November, 1888, it was canceled, and credited to profit and loss on the books of the bank, as an offset to a note of $5,000, which had been made long subsequent to March 2, 1887, by the Only Chance Mining Company, a corporation of which Simpson was treasurer and manager, and which had been indorsed by Simpson.

It is conceded by the bank that the bonded goods were assigned to it as collateral security for the new notes for the sum of $23,000, which was a part of Simpson's old debt of $33,685.31. The controversy was over the store. The appellant alleged in his bill that this was assigned and conveyed as security for his debt, and he now insists that the residence and the store, as well as the bonded goods, were transferred to secure his entire debt. On the other hand, the bank maintains that it bought the residence and the store outright, for $7,500 each. The appellant did not charge, in his bill, that the residence was conveyed as security; so that the nature of the title to it which the bank acquired arises incidentally. The real issue is whether the transfer and delivery of the store to Wood was a purchase thereof by the bank for $7,500, or an assignment of it to the bank in trust, to sell and to apply the proceeds to the payment of Simpson's debt, and to return the surplus to him. Upon this issue only two witnesses testified, Simpson and Wood, and their testimony is irreconcilable. We are therefore remitted to the surrounding circumstances, and to the acts of the parties while they were disposing of this property, for convincing evidence of the truth. The written instruments made by the parties at the time generally constitute persuasive, if not controlling, proof on such an issue; but they are of slight significance here, because it is conceded on all hands that they do not evidence the truth. The deed and bill of sale, and the entries in the account books of the bank, show that Wood bought the residence for $7,500, that he bought the store for $7,500, that he paid Simpson $15,000 for them, and that Simpson paid this money to the bank; but Wood testified that he had no idea of taking the store or of assuming the payment of $7,500 to the bank on account of it, that in all his transactions with Simpson he was really acting for the bank, and that $10,685.31 of the $15,000 was a credit to Simpson on his debt to the bank, while the balance, of $4,314.69, was not paid to Simpson at all at the time, but was put into the form of the certificate of deposit we have mentioned, payable to the order of the president of the bank, and was left in his hands to cover any contingencies that might arise. Courts of equity look through the form into the actual character of a transaction (Marshall v. Thompson, 39 Minn. 137-142, 39 N.W. 309, and cases there cited), and it clearly appears from the testimony of the witnesses for the bank that this transaction was in fact between a debtor and his creditor, between Simpson and the bank, and that the deed and the bill of sale were not, as they appeared to be, conveyances to a purchaser who was a stranger, but to the creditor, the bank. It is not claimed that the bank was forbidden to become a purchaser because it was a creditor; but where the relation of debtor and creditor, or of mortgagor and mortgagee exists, and conveyances are made, or property is delivered by the debtor to the creditor, the legal presumption is that the relation continues, and that the transfers were made as further security for the debt. Marshall v. Thompson, 39 Minn. 137, 140, 39 N.W. 309; Holridge v. Gillespie, 2 Johns.Ch. 33; Holmes v. Grant, 8 Paige, 243, 251; Clark v. Henry, 2 Cow. 324; Hone v. Fisher, 2 Barb.Ch. 559.

When the arrangement for these conveyances was made, the relation of debtor and creditor, and the relation of mortgagor and mortgagee, existed between Simpson and the bank. He owed it $33,685.31, and Wood held his deed of the residence as security for this debt. Before entering upon a discussion of the disposal of the store, we will briefly indicate the facts proved with reference to the residence. The old deed, which Wood held to secure the bank, had never been recorded. It was destroyed, and a new deed, dated March 2, 1887, reciting the consideration of $7,500, was made to Wood, and recorded. The familiar rule, 'Once a mortgage, always a mortgage,' left the presumption that this second deed was a mere security for the debt so strong that convincing evidence was required to overcome it. But the only evidence produced was that of Wood, and this was contradicted by that of Simpson. The subsequent treatment of this real estate by the bank does not strengthen Wood's testimony. On its account books, real estate was charged with $7,500 on account of the residence, in accordance with the theory of a purchase; but on November 19, 1888, real estate was charged with $5,000 more on account of this property, and on the same day a note of Simpson's corporation, the Only Chance Mining Company, was paid. It is difficult to resist the conclusion that this note was paid by this residence property, and this inference seems to be strengthened by the fact that on January 16, 1889, the residence was sold by $9,000 cash, or its equivalent, and for other lots worth $3,500, and real estate was credited with $12,500, the sum of $7,500 and $5,000, on account of it. This account strongly indicates that the bank considered the interest of Simpson in the residence sufficient, in November, 1888, more than 20 months after it claims to have purchased it, to pay a debt of $5,000 due to it from his corporation. We will not pursue the discussion of the title of this property further. The fact that it was already mortgaged to the bank when the deed of March 2, 1887, was made, the fact that the consideration recited in that deed was $5,000 less than the value of the property, and the fact that 20 months later the bank appears to have used Simpson's interest in it to pay an obligation of his...