In a case referred to a master to report the evidence, the
facts, and his conclusions of law, there is a presumption of
correctness as to his finding of facts similar to that in the case
of a finding by a referee, the special verdict of a jury, the
findings of a circuit court in a case tried by the court under
Rev.Stat. § 469, or in an admiralty cause appealed to this
Court.
In Iowa, an insolvent debtor may make a mortgage or other
conveyance of his property to one or more of his creditors, with
intent to give them preference, and, in the absence of fraud, such
mortgage or conveyance will not operate as a general assignment for
the benefit of creditors unless intended so to operate.
The fact that the property so conveyed was much in excess of the
debts secured by the conveyance is not necessarily indicative of
fraud, but in such cases the question of good faith is one of fact,
and a mere error of judgment will not be imputed as a fraud.
The different transfers assailed in this suit examined, and, in
the light of these rulings, held to be valid.
The different mortgages assailed in this suit were for several
and separate interests, and the one to Kent not being of the amount
requisite to give this Court jurisdiction, the appeal as to him is
dismissed.
This suit was originally begun by a petition filed December 29,
1884, upon the equity side of the Court of Appeals of Lee County,
Iowa, by certain creditors who had previously attached the stock in
trade at Fort Madison, Iowa, of one John H. Schwartz, to set aside
and vacate four chattel mortgages upon such property, and subject
the same to the payment of their debts.
Upon the following day, the suit was removed upon the
Page 155 U. S. 632
petition of the plaintiffs Samuel C. Davis & Co., of St.
Louis, and E. S. Jaffray & Co., of New York, to the Circuit
Court of the United States for the Southern District of Iowa, in
which court the record was filed January 9, 1885. Subsequently, and
on January 17, a receiver was appointed who took possession and
made an inventory of the property and soon thereafter sold the same
for the net sum, after deducting costs and expenses, of about
$50,000, which was placed at interest by order of the court and,
with the accumulated interest, amounts now to upwards of $66,000,
held by the court to abide its order herein.
To this petition of the attaching creditors separate answers
were interposed by Catharine Schwartz, John H. Hellman, Frant B.
Kent, and the German-American Bank, the four mortgages, wherein
each defendant set up his mortgage and notes; and, as these answers
also set up certain affirmative facts which could not be met by
replication, the petitioners, under leave of the court, filed an
amended bill in equity, to which not only Schwartz and the four
mortgagees were made parties, but a large number of other attaching
creditors, whose interests plaintiffs averred to be inferior and
subject to their own liens. Answers were filed to this bill by John
H. Schwartz and the four mortgagees. Several of the other attaching
creditors also interposed by answer and cross-bill. One Katie Kraft
also intervened, setting up a promissory note for $5,000 and
claiming the benefit of a mortgage not only upon the stock of goods
at Fort Madison, but upon another stock at Chariton, Iowa. A
supplemental bill was also filed setting up judgments obtained by
the plaintiffs in the actions at law in favor of Samuel C. Davis
& Co. in the sum of $14,358.20, and in favor of E. S. Jaffray
& Co. in the sum of $6,168.07. Subsequently another amended
bill was filed alleging that Catharine Schwartz and Frank B. Kent
had caused to be inserted in their respective mortgages a large
amount of property owned by Schwartz in Chariton, which property
they had seized and converted to their own use. The prayer of the
bill was that the mortgagees be required to account for and pay
into court the value of the property
Page 155 U. S. 633
so seized and converted and that it be distributed under the
order of the court.
It appeared that this Chariton stock was sold out by the
mortgagees, and the proceeds, amounting to some $7,000, placed in
the German-American Bank. Of this amount $4,075 was paid over to
Catharine Schwartz, and a certificate of deposit for the sum of
$2,500 delivered to the bank for the use of Kent.
A large amount of testimony was taken, and finally on January
16, 1889, the case was referred, by consent of parties, to a master
"to hear said causes and report to this court his findings of facts
and conclusions of law."
The following is a summary of the most important facts: John H.
Schwartz, a citizen of Iowa, residing at Fort Madison, had for some
years been a retail dry goods and clothing merchant, carrying on
his principal business at Fort Madison, with an estimated stock of
about $100,000, and with a branch store at Chariton, estimated at
about $16,000, and another at Dallas City, Illinois, estimated at
$17,000. In addition to this, he owned real estate in Fort Madison
valued at $17,000, together with notes and accounts, stock in a
ferry company and in a building association, the value of which was
somewhat uncertain. There were a mortgage and mechanics' liens upon
the real estate to the amount of about $13,000, under which the
property was sold, and the values therein involved figure only
indirectly in this controversy.
At this time, December 29, 1884, Schwartz was indebted to
plaintiffs Samuel C. Davis & Co. to the amount of some $14,000,
and to E. S. Jaffray & Co. to the amount of some $6,000, for
goods sold, and to a somewhat greater amount to various other
creditors in smaller sums. He was also indebted to one of his
mortgagees, John H. Hellman, his father-in-law, to the extent of
$22,180.37, evidenced by seven promissory notes of different dates,
given from time to time during the eight previous years, for money
borrowed and put into the business, and was further indebted to the
German-American Bank in the sum of $8,168.35; to Catharine
Schwartz, his mother, in the sum of $11,306.51 and to Frank B. Kent
in the sum of $2,665. His
Page 155 U. S. 634
total indebtedness appears, then, to have been about $84,000,
and his assets about $144,000. Late in December, some $6,000 of his
indebtedness to Jaffray & Co. falling due, he wrote to his
father-in-law for his endorsement upon a promissory note for that
amount. Hellman, desiring to investigate his son-in-law's business
before becoming responsible for a further amount, went to Fort
Madison, learned the amount of his debts and assets, refused to
advance any more money or sign the notes, and advised Schwartz to
send for the representatives of Davis & Co. and Jaffray &
Co., tell them of his situation and intentions and ask for an
extension of time.
Schwartz accordingly telegraphed for these representatives, who
arrived at Fort Madison on Saturday morning, December 27, and held
a conference with him at his house in the presence of Hellman.
Schwartz gave a full account of his debts and assets, and asked for
an extension of the Davis and Jaffray claims. Schwartz and Hellman
claim that they were given to understand that the extension would
be granted, and that the representatives of these firms would
return after dinner with the extension notes prepared for Schwartz
to sign. There is some dispute as to what was done that day, but,
instead of returning to Schwartz, it appears that the two
representatives prepared petitions for attachments upon his stock,
though the writs were not issued, apparently because they were
awaiting indemnity for the surety upon the attachment bond. It
seems that Schwartz and Hellman became suspicious at the failure of
the representatives of the two firms to return with the extension
notes, and on Sunday evening met at the residence of one of their
counsel, Casey & Casey at which were present John H. Hellman,
John H. Schwartz, H. D. McConn, cashier of the German-American
Bank, and Joseph B. Schwartz, a brother. After midnight and before
dawn of Monday morning, the 29th, the four chattel mortgages in
question were drawn up, taken to the bank, acknowledged before a
notary, and delivered to the recorder of deeds, and filed by him
about 5 o'clock in the morning.
A demand was immediately made by the mortgagees upon Schwartz
for payment. The latter, expressing regret that he
Page 155 U. S. 635
was unable to comply with such demand, presented to each one of
the mortgagees a key to his store in Fort Madison, where the
largest part of the goods was, whereupon the mortgagees at once,
and at a very early hour in the morning, entered into possession,
put up notices that the goods were being sold under mortgage, and,
by the time the attachments were levied had made sales of about $70
worth of property.
As soon as it was known that the mortgages were made and the
mortgagees were in possession, Davis & Co. and Jaffray &
Co. sued out their writs of attachment, and at once levied the same
upon the stock of goods and upon the real property owned by
Schwartz in Fort Madison. Under indemnity bonds given by the
attaching creditors, the sheriff, as provided by the statutes of
Iowa, continued in possession, the mortgagees relinquishing their
claim to the property, and falling back upon the present suit to
enforce their debts.
The master made his report on January 1, 1890, finding the
mortgage to Hellman valid and the others invalid upon the ground
that they embraced notes or accounts claimed to be owing by
Schwartz to the mortgagees, which were not in fact debts due to
such mortgagees; that the amount so secured had been fraudulently
exaggerated for the purpose of defrauding the general creditors,
and adjudging that, so far as such mortgagees had received payment
on their debts derived from sales of the property mortgaged, they
should account to the attaching creditors who had garnished such
mortgagees, according to the priority of such creditors in
effecting these garnishments.
To this report exceptions were filed by both parties and, the
case coming on to be heard before the court, certain exceptions of
the defendants were sustained, and a final decree entered adjudging
the several mortgages to be valid conveyances and first liens, and
dismissing the bill so far as the same attacked the validity and
priority of such mortgages. The decree then proceeded to find the
several amounts due the mortgagees, ordered that they should be
paid out of the fund in court, and the surplus over and above
paying mortgage debts and receiver's costs and expenses was ordered
distributed
Page 155 U. S. 636
to the general creditors
pro rata -- that is, in
proportion to the amount shown to be due and owing said parties
from the insolvent debtor. It was further decreed that the mortgage
defendants served as garnishees be discharged as such garnishees,
and, as the fund in court had been loaned, upon bond and security,
to the Polk County Savings Bank of Des Moines, that the clerk
withdraw the money from such bank, and make payment to the several
parties adjudged to be entitled thereto. From this decree
plaintiffs appealed to this Court.
MR. JUSTICE BROWN, after stating the facts in the foregoing
language, delivered the opinion of the Court.
This is a contest between the attaching creditors and the
chattel mortgagees of the property of John H. Schwartz, an
insolvent debtor, formerly engaged in business at Fort Madison and
Chariton, in the State of Iowa, and at Dallas, in the State of
Illinois. These two classes of creditors are in reality competitors
in a race of diligence, the object of which was to obtain a lien
upon and possession of the property in question.
1. As the case was referred by the court to a master to report
not the evidence merely, but the facts of the case and his
conclusions of law thereon, we think that his finding, so far as it
involves questions of fact, is attended by a presumption of
correctness similar to that in the case of a finding by a referee,
the special verdict of a jury, the findings of a circuit court in a
case tried by the court under Rev.Stat. § 649, or in an admiralty
cause appealed to this Court. In neither of these cases is the
finding absolutely conclusive, as if there be no testimony tending
to support it, but so far as it depends upon conflicting testimony
or upon the credibility of witnesses, or so far as there is any
testimony consistent with the finding, it must be treated as
unassailable.
Wiscart v.
Dauchy, 3
Page 155 U. S. 637
Dall. 321;
Bond v. Brown,
12 How. 254;
Graham v.
Bayne, 18 How. 60,
59 U. S. 62;
Norris v.
Jackson, 9 Wall. 125;
Insurance
Co. v. Folsom, 18 Wall. 237,
85 U. S. 249;
The Abbotsford, 98 U. S. 440.
The question of the conclusiveness of findings by a master in
chancery under a similar order was directly passed upon in
Kimberly v. Arms, 129 U. S. 512, in
which a distinction is drawn between the findings of a master under
the usual order to take and report testimony and his findings when
the case is referred to him by consent of parties, as in this case.
While it was held that the court could not, of its motion or upon
the request of one party, abdicate its duty to determine by its own
judgment the controversy presented and devolve that duty upon any
of its officers, yet where the parties select and agree upon a
special tribunal for the settlement of their controversy, there is
no reason why the decision of such tribunal with respect to the
facts should be treated as of less weight than that of the court
itself where the parties expressly waive a jury or the law declares
that the appellate court shall act upon the finding of a
subordinate court. "Its findings," said the Court,
"like those of an independent tribunal, are to be taken as
presumptively correct, subject, indeed, to be reviewed, under the
reservation contained in the consent and order of the court, when
there has been manifest error in the consideration given to the
evidence, or in the application of the law, but not otherwise."
As the reference in this case was by consent to find the facts,
we think the rule in
Kimberly v. Arms applies, and, as
there is nothing to show that the findings of fact were unsupported
by the evidence, we think they must be treated as conclusive. To
same effect are
Crawford v. Neal, 144 U.
S. 585,
144 U. S. 596;
Furrer v. Ferris, 145 U. S. 132.
2. The real question in this case is whether the mortgages which
were awarded priority of payment by the decree of the court below
were valid securities at the time of the Schwartz failure, or were
fraudulent and void as against his general creditors. If they were
in fact given
bona fide and for a valuable consideration,
it is difficult to see why they should not be upheld,
notwithstanding they were given for precedent debts, were executed
and acknowledged under an impending fear of
Page 155 U. S. 638
attachment at a most unusual hour of the day, and were
immediately foreclosed by the mortgagees, and possession taken of
the property. There are undoubtedly indicia of fraud connected with
the transaction, but, after all, they are only items of testimony
bearing upon the main question, and if there be nothing to impeach
the consideration and the good faith of the parties, the fact that
the mortgagees intended to obtain a preference over other creditors
should not invalidate the mortgages, since the very object of
giving such securities is to give a preference to the creditors
therein designated.
Hutchinson v. Watkins, 17 Ia. 475;
Chase v. Walters, 28 Ia. 460;
Stewart v. Bank, 76
Ia. 571.
The fact that the assignee or the preferred creditor of an
insolvent debtor is a relative or intimate friend is doubtless
calculated to excite suspicion, yet in reality there is nothing
unnatural in a dealer or trader who is in need of credit or a loan
of money to carry on his business first applying to his relatives
for such loans, and if the evidence be undisputed that the money
was advanced, the fact that the persons making the loan are
relatives ought not to debar them from receiving security. Their
rights are neither increased nor diminished by the fact of
relationship.
Magniac v.
Thompson, 7 Pet. 348;
Prewit v. Wilson,
103 U. S. 22;
Estes v. Gunter, 122 U. S. 450;
Bean v. Patterson, 122 U. S. 496;
Garner v. Bank, 151 U. S. 420,
151 U. S. 432;
Aulman v. Aulman, 71 Ia. 124;
Van Patten v.
Thompson (Iowa), 34 N.W. 763;
In re Alexander, 37 Ia.
454;
Doyle v. McGuire, 38 Ia. 410. A general assignment to
a relative as trustee for the benefit of creditors is open to more
suspicion, since such are more often selected as instruments for
creating a secret trust in favor of the assignor.
It is also true that the mortgages must have been given for a
valuable consideration, and must have been executed and received in
good faith and for an honest purpose. It has been the accepted law
ever since
Twyne's Case, 3 Coke 80, that good faith as
well as a valuable consideration is necessary to support a
conveyance as against creditors. In that case, Pierce, being
indebted to Twyne in 400 pounds, was
Page 155 U. S. 639
sued by a third party for 200 pounds. Pending such suit, he
conveyed all his property to Twyne in consideration of his debt,
but continued in possession, sold certain sheep, and set his mark
on others. It was resolved to be a fraudulent gift, though the deed
declared that it was made
bona fide. Most of the cases
illustrative of this doctrine, however, have been like that of
Twyne, wherein a debtor, knowing that an execution was to be taken
out against him, had sold his property to a vendee having knowledge
of the facts for the express purpose of avoiding a levy or
receiving a consideration which could not be reached by execution.
In such cases, the fact that he receives a good consideration will
not validate the transaction, unless at least the creditor has
obtained the benefit of the consideration. A like principle applies
where a mortgage is given and withheld from record in order to give
the mortgagor a fictitious credit.
Cadogan v. Kennett,
Cowp. 432;
Blennerhassett v. Sherman, 105 U.
S. 100,
105 U. S. 117;
Sayre v. Fredericks, 16 N.J.Eq. 205;
Sweet v.
Wright, 57 Ia. 514; 1 Story's Eq.Juris. § 353;
Klein v.
Hoffheimer, 132 U. S. 367;
Holt v. Creamer, 34 N.J.Eq. 181;
Clements
v. Moore, 6 Wall. 299;
Wickham v. Miller,
12 Johns. 320;
Pulliam v. Newberry, 41 Ala. 168;
Robinson v. Holt, 39 N.H. 557.
In
Twyne's Case, the facts that the sale was
accompanied by a secret trust in favor of the debtor and that the
vendor remained in possession showed that it was not intended as a
bona fide preference to the creditor, but merely as a
trick to keep the property away from the other creditors.
But where a person, being lawfully indebted to several
creditors, makes a mortgage or other conveyance to one for the open
and avowed purpose of preferring him, then, in the absence of a law
of the forum prohibiting preferences, such mortgage or conveyance
is valid though it may operate to bar other creditors from
obtaining satisfaction of their debts. A mortgage which may have
the effect of hindering other creditors is not necessarily
unlawful, though a mortgage given to defraud them is always so.
Stewart v. Dunham, 115 U. S. 61;
Estes v. Gunter, 122 U. S. 450;
Smith v.
Craft, 120
Page 155 U. S. 640
U.S. 436;
Huntley v. Kingman & Co., 152 U.
S. 527;
Southern White Lead Co. v. Haas, 73 Ia.
399, and cases cited.
In this case, the preferred creditors receive no more than they
are entitled by law to have, and the fact that they know that other
creditors will suffer by their preference does not show a want of
good faith. The effect of every mortgage to a creditor as security
for the payment of a preexisting debt is to withdraw the value of
the property covered by the security from the assets of the debtor,
which would otherwise be available in satisfaction of his other
debts. But unless a general bankrupt law or a law of the particular
state makes the preference illegal, it is difficult to see why
mortgages given under the circumstances that these were given
should be held to be invalid. The fact that they were given at
night, under the instant apprehension of legal proceedings, and
that their execution was followed by an immediate delivery of
possession only indicates that the insolvent debtor wished, in the
selection of his creditors, to prefer his own friends, rather than
the plaintiffs, who would have secured to themselves the position
of preferred creditors by suing out attachments and levying upon
his property. In short, they were attempting to do what the
mortgagees themselves successfully carried out. The equities of the
latter are at least equal to those of the plaintiffs. We do not
understand it to have ever been doubted that a debtor may openly
prefer one creditor to the rest, and may transfer property to him
or give him security even after others have begun their actions.
Holbird v. Anderson, 5 T.R. 235. In this case, it was said
by Lord Kenyon, p. 238:
"The words of the statute 13 Eliz. do not apply to this case,
for this warrant of attorney was given on a good consideration and
the other words in the act, '
bona fide,' only apply to
those cases where possession is not delivered, or where it is
merely colorable."
See also Estwick v. Caillaud, 5 T.R. 420.
The fact that the execution of the mortgages was immediately
followed by a delivery of possession of the property mortgaged, so
far from being a badge of fraud, has rather a contrary tendency,
and was evidently resorted to to avoid an implication of fraud from
the retention of possession by the
Page 155 U. S. 641
mortgagor. A prompt and vigorous enforcement of an honest debt
is by no means indicative of fraud, and it does not lie in the
mouth of the plaintiffs, who are themselves taking steps in the
same direction as the mortgagees, to cavil at their success.
It is also true that by the law of Iowa respecting assignments
for the benefit of creditors, preferences are forbidden; but the
authorities in that state hold that a sale or mortgage to pay or
secure the payment of preexisting
bona fide debts is not
to be considered an assignment within the statute, even when made
in contemplation of insolvency, or when the debtor, by the
mortgage, intends to hinder other creditors who are about to obtain
liens upon his property, unless at least, the mortgage was intended
to operate not as a security, but as a general assignment for the
benefit of creditors or is made in such connection with a general
assignment as to constitute both but one and the same transaction.
Farwell v. Howard, 26 Ia. 381;
Southern White Lead Co.
v. Haas, 73 Ia. 399;
Gage v. Parry, 69 Ia. 605;
Kohn v. Clement, 58 Ia. 589;
Aulman v. Aulman, 71
Ia. 124.
It is sometimes difficult to determine whether a particular
instrument is a mortgage or an assignment with preferences. The
test most frequently applied is whether the conveyance is of all
the property of the debtor, and is made to a trustee for the
benefit of certain creditors. In such cases, it is usually held to
be an assignment, but if the conveyance be made directly to the
creditor himself, it is ordinarily treated as a chattel mortgage.
Jones on Chattel Mortgages § 352a; Burrill on Assignments, p.
11.
We do not regard the fact that the property conveyed was
nominally more than double in value to the amount of debts secured
thereby to be, in itself, indicative of fraud, since the property
conveyed was a stock of goods of somewhat uncertain value, and when
sold, realized but little more than was necessary to pay off the
mortgages. Indeed, this Court held directly in
Downs v.
Kissam, 10 How. 102,
51 U. S. 108,
that it was not even a badge of fraud that a mortgage was made to
cover more property than would secure the debt due.
Page 155 U. S. 642
The fact that goods were spirited away from the store on Sunday
night would undoubtedly assume a serious importance were it shown
to have been done directly or indirectly for the benefit of
Schwartz; but the goods seem to have been taken away in a sleigh by
some of the clerks, who took this method of paying themselves for
the amounts due them for wages, aggregating $282.77. It appears
that they took no more than sufficient to reimburse themselves, and
that they were charged upon the books with the goods taken at cost
price. Although, of course, the proceeding was irregular, there is
no evidence to connect either Schwartz or the mortgagees with it,
and the clerks did no more for themselves than Schwartz would have
been at liberty to do for them if he had been present,
viz., to prefer them to the amount of the wages severally
due them.
The case, then, reduces itself to the simple question whether
the mortgages were given for
bona fide existing debts to
the amount expressed upon their faces, and this involves an inquiry
into the consideration of each mortgage separately.
3. So far as regards the mortgage to John H. Hellman, which
covered only the stock at Fort Madison and the book accounts, both
the master to whom the case was referred and the court agreed in
holding it to be valid. In this connection, the master found
Schwartz to be indebted to Hellman, his wife's father, as evidence
by his notes, for money borrowed, amounting, with interest, to
$22,180.37; that Hellman, before leaving Galena, had prepared
memoranda of these notes, which amounted, upon their face, to
$20,380.98, together with another note for $1,000, payable to his
son John V. Hellman, in consideration of money loaned to Schwartz.
This note had been assigned by the payee to his wife Wenona, but,
being afraid that Schwartz was in a bad way financially, it was
agreed between the father and son that the former should purchase
the note, which was then in his safe; that Wenona should endorse
it; that the father should be charged with it on his books, and the
son, who was then owing the father to that amount, or more, should
be credited therewith. But the entry upon the books was not made
until after John H. Hellman returned from Fort Madison, and was
then entered as of December 29.
Page 155 U. S. 643
As the note really belonged to John H. Hellman, and was
transferred to him before he left Galena, though the entry had not
yet been made, there can be no just criticism upon his including it
in his mortgage. Even if the purchase had not been made, there is
nothing improbable in John V. Hellman desiring that his wife's note
should be secured, and if he suspected, as he doubtless did, that
Schwartz was likely to fail, he would naturally put the note in his
father's hands to be secured with the much larger amount due this
father, and if the latter caused it in good faith to be included in
his mortgage, supposing it to be lawful to do so, the mortgage
would not thereby be invalidated.
4. The mortgage to the German-American Bank, which covered not
only the stock at Fort Madison but that at Chariton, and the book
accounts at both places, was given on its face to secure two notes,
of $5,000 and $500, made to the bank, as well as a note for $1,500
made to H. Cattermole, president of the bank, and assigned to the
bank, together with a note of $1,000 to Pauline Schwartz, also
assigned to the bank, these notes aggregating $8,000. This mortgage
was found by the master to be fraudulent as against the general
creditors by reason of the inclusion of the Cattermole and Schwartz
notes.
So far as concerns the Cattermole note, the finding is that
McConn, the cashier of the bank, who acted for it at the Sunday
evening meeting at Schwartz's house, demanded not only security for
the bank, but for Cattermole himself. As Cattermole was not
present, no transfer of the note could have then been made by him,
and there is no pretense that it was then transferred. The note was
not produced at the time, and McConn knew that there was no entry
upon the books of the bank to show that the bank owned the note. It
appears that the bank afterwards became the owner of the note by
giving therefor its own note in exchange, although it is not
certain when this took place, since the books of the bank show no
entry whatever of the transaction, either to charge the bank with
the liability or to credit it with the Cattermole note as an asset.
But putting a construction upon this transaction most favorable to
the plaintiffs, it only appears that the bank did not actually
own
Page 155 U. S. 644
the note at the time the mortgage was given. The Cattermole note
had been given by Schwartz for money loaned, and had been in
possession of the bank for two and a half months before the
failure. The money had been loaned to Schwartz under a promise by
him to give a real estate mortgage, and McConn, who was a cousin of
Cattermole, upon the failure of Schwartz to give the mortgage, had
agreed to take the note off of his hands.
The note of $1,000 to Pauline Schwartz was sold and delivered by
John H. Schwartz to McConn for about two-thirds its face value and
interest. It seems that the money represented by this note had been
sent, in 1879, in the form of a draft, by Hellman to his daughter
Pauline, who was the wife of John H. Schwartz, as a Christmas
present. Schwartz appears to have used the money himself and given
his note therefor dated December 27, 1879. When the mortgage was
given, he turned it over to the bank for its face value, upon his
wife's request that he should realize upon it for her. No entry was
made upon the books of the bank because, as McConn explained, "it
was a small matter, and we thought it would be adjusted in a few
days, and we did not want any more of John H. Schwartz's matters
mixed up." The money to pay for the note was taken from an envelope
in the bank by McConn. This was undoubtedly outside of the usual
course of banking business, and was open to some suspicion, but
there is nothing to impeach the consideration for which the note is
said to have been given, and nothing but the somewhat unusual
nature of the transaction to contradict McConn's story with
reference to this purchase by the bank.
Of both these notes it may be said that whether they were
actually owned by the bank or not, there is nothing to indicate
that they were not just debts of John H. Schwartz. It would also
seem that McConn's inclusion of these notes in the mortgage to the
bank was made in good faith, supposing that he had the right to
cover them by the same security he was taking in favor of the bank.
While the fact that a mortgage is given for a larger amount than is
due is doubtless a suspicious circumstance raising a presumption of
fraud, and may, under certain circumstances, avoid the whole
mortgage (
Wood
Page 155 U. S. 645
v. Scott, 55 Ia. 114;
Lombard v. Dows, 66 Ia.
243;
Taylor v. Wendling, 66 Ia. 562;
McNichols v.
Rubelman, 13 Mo.App. 515;
Holt v. Creamer, 34 N.J.Eq.
181;
Heintze v. Bentley, 34 N.J.Eq. 562;
Mead v.
Combs, 19 N.J.Eq. 112), it will only have this effect when
given willfully, in connivance with the mortgagee, and with an
actual design to impose upon and defraud the general creditors.
In all such cases, the question of good faith is one of fact,
and a mere error of judgment will not be imputed as a fraud. The
fact that the debt so included was a
bona fide debt, and
that the act of the mortgagee in so including it was subsequently
affirmed by the creditors interested, will be strong evidence that
no actual fraud was intended.
Shirras v.
Caig, 7 Cranch 34;
Lombard v. Dows, 66 Ia.
243;
Davenport v. Cummings, 45 Ia. 219;
Miller v.
Lockwood, 32 N.Y. 293;
Frost v. Warren, 42 N.Y. 204;
Goff v. Rogers, 71 Ind. 461;
Barkow v. Sanger, 47
Wis. 505;
Van Patten v. Thompson (Iowa), 34 N.W. 763.
5. The mortgage to
Catharine Schwartz was given to
secure one note for $2,296.35; another for $500; a note for $5,000,
payable to Katie Kraft, Schwartz's sister, upon which Catharine
Schwartz was surety; a note for $318, payable to A. S. Gage &
Co., upon which Catharine was surety, and which had been paid by
her, and also the sum of $2,382.97 due upon an open account for
goods and merchandise, and cash advanced and owing by John H.
Schwartz. This mortgage is assailed as fraudulent upon the ground
that the last item consisted of merchandise and cash advanced to
John H. Schwartz from another store in Fort Madison, the business
of which was solely conducted by Joseph C. Schwartz in the name of
his mother, Catharine. It seems that when the business began, she
loaned to Joseph $8,000, which composed the capital of the concern,
which loan was secured by note. He bought and sold the goods,
paying all the bills and not accounting to her save to pay the
interest due upon the note, and took the profits to himself. It
thus appears that the debt really belonged to Joseph C. Schwartz
and not to Catharine, although the three
Page 155 U. S. 646
parties swore that it was due to her as the nominal proprietor
of the store. It does, however, appear conclusively that Joseph was
indebted to his mother in a sum largely in excess of the account;
that the consideration of the account was goods bought, nominally
at least, of Catharine, and that she was responsible to the
creditors of that establishment. As the accounts were kept in her
name, she had the legal title to the account, and Joseph only an
equity in them. But as, in any event, the debt was
bona
fide, and under the circumstances must be presumed to have
been included in the mortgage with the consent of Joseph, the
mortgage ought not to be held void on that account. It was a debt
honestly owing by John H. Schwartz, was intended to be included in
his mortgage, and he had as much right to secure his brother Joseph
as his mother, Catharine. His creditors were not placed in any
worse position by reason of the fact that he security was not given
directly to Joseph. The form in which the security should be given
was really a question between the parties themselves, and did not
in any way concern the plaintiffs. So, also it is quite immaterial
whether the Katie Kraft note was originally made to her, or to her
husband Joseph and by him endorsed to her. There is very little, if
anything, to indicate that it did not represent a
bona
fide debt, or that Catharine Schwartz, the mortgagee, was not
held for its payment. In addition to this, however, Mrs. Kraft
herself filed an intervening petition, claiming the amount of the
note and the benefit of the mortgage to Catharine Schwartz, and a
separate decree was made in her favor.
Upon the whole, we think the court below was correct in
sustaining this mortgage.
6. The mortgage to Frank B. Kent covered the property both at
Fort Madison and Chariton, and was given to secure the payment of a
note for $2,500 executed by Schwartz, March 1, 1884, and payable
one year after date. His decree was for $3,601.42.
In this connection, a motion was made by Kent to dismiss the
appeal from the allowance of his claim upon the ground that the
requisite amount is not involved to give jurisdiction
Page 155 U. S. 647
to this Court. We think this motion should be granted. It is
true the four mortgagees were made joint defendants to the bill,
but in reality their interests were several. The mortgages were
separate, and a several and distinct decree was made in favor of
each for the payment of his claim. A separate bill would have lain
again each mortgagee, but as certain of the questions involved were
common to all mortgages, they were as matter of convenience all
made parties to the same bill. The rulings of this Court are
uniform and consistent to the effect that where several plaintiffs
claim under the same title and the determination of the cause
necessarily involves the validity of that title, this Court has
jurisdiction though the individual claims do none of them exceed
the requisite amount; but when the matters in dispute are separate
and distinct, and are joined in one suit for convenience or
economy, the case will be dismissed as to claims not exceeding
$5,000.
Schwed v. Smith, 106 U. S. 188;
Hawley v. Fairbanks, 108 U. S. 543;
Stewart v. Dunham, 115 U. S. 61;
Estes v. Gunter, 121 U. S. 183;
Gibson v. Shufeldt, 122 U. S. 27;
Henderson v. Carbondale Coal &c. Co., 140 U. S.
25;
New Orleans Pacific Railway v. Parker,
143 U. S. 42;
Chapman v. Handley, 151 U. S. 443.
As it is clear in this case that the validity of each mortgage
depended upon its own consideration, independent of the others, and
the decree in favor of each mortgagee was several and distinct, the
motion dismiss must be granted.
And as we agree that there was no error in the court below
holding the other mortgages to be valid securities, and entitled to
preference as against the attaching creditors,
The appeal as to Kent must be dismissed, and as to the
others the decree of the circuit court must be affirmed.
