Case Name: E. B. Bacon et al., appellees, v. P. Brockman Commission Company, appellant et al., appellees
Court: Nebraska Supreme Court
Jurisdiction: Nebraska
Decision Date: 1896-05-06
Citations: 48 Neb. 365
Docket Number: No. 6537
Parties: E. B. Bacon et al., appellees, v. P. Brockman Commission Company, appellant et al., appellees.
Judges: 
Reporter: Nebraska Reports
Volume: 48
Pages: 365–380

Head Matter:
E. B. Bacon et al., appellees, v. P. Brockman Commission Company, appellant et al., appellees.
Filed May 6, 1896.
No. 6537.
Fraudulent Conveyances: Chattel Moktgages. A chattel mortgage which covered all the property of an insolvent debtor, executed under an agreement between the parties thereto that the mortgage should not be filed for record, that the mortgagee should take formal possession of the mortgaged property and hold possession thereof for the benefit and subject to the direction of the mortgagor until by sale or lease of the mortgaged property to the advantage of the mortgagor the debt secured should be paid, and then account to the mortgagor for tbe balance, held fraudulent as to other creditors of the mortgagor who are plaintiffs in this action.
Appeal from tbe district court of Gage county. Heard below before Babcock, J.
Hall & MoOulloch, for appellant
John D. Howe, E. R. Duffle, and James McNeny, contra.

Opinion:
Ryan, C.
Tbis action was begun April 28, 1892, in tbe district court of Gage county by tbe partnership firm of E. P. Bacon & Go. Subsequently, by intervention, tbe Citizens State Bank of Council Bluffs, Iowa, became a party plaintiff. Tbe Brown Bros. Grain Company, a corporation organized under tbe laws of tbe state of Nebraska, was made a defendant because it was largely indebted to each of tbe plaintiffs. Between tbe parties already named there was in tbis case no controversy. Between tbe original plaintiff and tbe intervenor, on tbe one band, and tbe P. Brockman Commission Company, a Missouri corporation doing business at St. Louis, on tbe other band, there-was a real closely contested dispute. Each petition was in tbe nature of a creditor's bill containing averments necessary to show tbe existence of an indebt edness due from the Brown Bros. Grain Company, evidenced by a judgment in favor' of the plaintiff and the intervenor respectively, the issue and return of execution "no property found," and the subsequent levy upon the property sought to be subjected to the payment of said judgments. In addition to the averments indicated, these petitions, in apt language, sufficiently described the transactions of which complaint was made1, charged that they-were fraudulent, and prayed appropriate relief. The subsequently filed pleadings fully presented the issues under which the evidence was introduced, so that it is not necessary to describe at greater length these pleadings. There was a decree in favor of the plaintiff and the inter-venor, and therefrom the P. Brockman Commission Company has prosecuted this appeal.
The Brown Bros. Grain Company was incorporated in the year 1890 and continued in the business of buying,, selling, and shipping grain until the latter part of the year 1891. This firm owned eleven elevators in Nebraska and two in Kansas, and had a five years' lease of the Union Elevator at Council Bluffs, Iowa.' The elevators in Nebraska and Kansas were built and stood on the right of way of the Union- Pacific railway, or of its branches. About July 20, 1891, the Brown Bros. Grain Company made a shipment of grain to the P. Brockman Commission Company at St. Louis, and against said shipment drew a draft of $300. This was paid and thereafter there Avere other consignments and other drafts, until in September, 1891, the Brown Bros. Grain Company was indebted to the P. Brockman Commission Company in the sum of $67,580.85, and, after having been increased to over $84,000 in the meantime, this indebtedness, in November of the same year, was reduced to $68,-479.11. On the 14th day of the month last named P. Brockman, the president of the P. Brockman Commission Company, made an arrangement with the Brown Bros. Grain Company whereby was procured to be executed a chattel mortgage. Mr. Brockman in making this ar rangement bad, it seems, full authority to represent the company of which he was president. The chattel mortgage aboye referred to was not easily procured, and finally was given only on condition that certain memo-randa of agreements should be contemporaneously executed by the mortgagee. Practically, this mortgage covered all the property of the mortgagor, including its accounts, notes, and demands of every hind. The conditions contained in the mortgage were as follows: "Now if the said Brown Bros. Grain Company shall well and truly pay, or cause to be paid, all of said notes, checks, bills of exchange, open accounts, and other indebtedness above described, to the said P. Brockman Commission Company, when the same shall become due and payable, then this obligation shall be void, but in case the said Brown Bros. Grain Company shall not pay the same when they become due and payable, or any part thereof, then the said P. Brockman Commission Company shall have the right to take immediate possession of the same, and to sell the same either at public or private sale, as it, said corporation, shall elect, notice of said sale and publication thereof being hereby expressly waived, and, after* paying the expenses of the said sale, and any amount which may be due the said P. Brockman Commission Company, the said P. Brockman Commission Company shall render the surplus, if any, to the said Brown Bros. Grain Company." Contemporaneously with the making of the above mortgage, there were executed three memo-randa, which, under their respective headings, "A," "B," and "C," were as follows:
"A."
"This memoranda witnesseth, that whereas, Brown Bros. Elevator Company have this day turned over to P. Brockman Commission Company, of St. Louis, by mortgage indenture of this date, their lease of elevator in Council Bluffs, and all their elevators on the line of the Union Pacific and its branches in Nebraska and Kansas, being elevators at Raymond, Lincoln, Beatrice, Prince ton, Hamlin, Jamaica, Blue Springs, Pickerell, Cortland, Holmesville, Barneston, in Nebraska, and Oketo and Hull, in Kansas:
"Now, therefore, it is understood and agreed by the P. Brockman Commission Company, of St. Louis, Missouri, that they will continue to operate all of such elevators now operated until the same can be disposed of, by lease or sale, to the advantage of said grain company, accounting to said Brown Bros. Grain Company for whatever profits there may be over and above all costs and expenses, interest, and indebtedness for running the same.
"Hated this 14th day of November, 1891.
"Brockman Commission Company,
"Per P. Brockman."
"B."
"Whereas, Brown Bros. Grain Company has heretofore caused certain grain to be shipped on the line of the Union Pacific Railway Company, on its bills of lading duly issued therefor, consigned to the care of the Union Elevator of Council Bluffs, Iowa, which said Union Elevator has been in the possession of and operated by the said Brown Bros. Grain Company; and
"Whereas, the said Brown Bros. Grain Company has secured the delivery of large shipments of said grain to said elevator so operated by it, without producing or surrendering to the said Union Pacific Railway Company the bills of lading therefor, by reason of which fact there are now outstanding a large number of bills of lading as against the said railway company, for grain which has actually been delivered to said elevator company; and
"Whereas, the undersigned is a large creditor of the Brown Bros. Grain Company, and it is important that the undersigned should secure possession of the said Union Elevator at Council Bluffs, Iowa, and should secure a transfer, assignment of sale of the grain, and other properties now in possession of Brown Bros. Grain Company at the said elevator, and in certain other elevators now operated by it in the state of Nebraska; and,
"Whereas, the said Union Pacific Railway Company has assisted the undersigned in securing' possession of the said elevator and in negotiating a proper transfer of the properties of said Brown Bros. Grain Company, for the purpose of securing the undersigned:
"Now, therefore, in consideration of the premises, the undersigned hereby promises and agrees to and with the said Union Pacific Railway Company, that all of the grain received from the said Brown Bros. Grain Company and now stored in the Union Elevator at Council Bluffs, Iowa, so far as the same can lawfully be applied for such purpose, shall be applied to the cancellation and satisfaction of all outstanding bills of lading of the Union Pacific' Railway Company for grain delivered at such elevator in Council Bluffs, it being expressly understood that those bills of lading now in the hands of the undersigned shall be first satisfied, and that thereafter other bills of lading so outstanding shall be satisfied in the order of their presentation, it being the purpose of this agreement to guaranty and protect the said railway company from all loss arising from any outstanding bills of lading therefor, so far as the said grain now in said elevator will suffice for that purpose.
"P. Brockman Commission Company,
"Per P. Brockman, Pt."
"C."
"It is agreed by P. Brockman Commission Company that it will protect all drafts against grain en route for the elevator now drawn, not exceeding $16,800.
"P. Brockman Commission Company,
"Per P. Brockman, Prest."
Appellant insists that the above described mortgage, and the written contracts made contemporaneously therewith, constitute the sole admissible evidence of the transactions therein referred to. As between the parties to these written instruments this doubtless would have been the general rule, but this action was not one predicated upon the memoranda nor between the parties. It was rather a proceeding in which this whole transaction was assailed as fraudulent and void as against the rights of the complaining parties, and its purpose was to obtain the judgment of the court to that effect. Whatever evidence was competent and relevant for the purpose indicated was admissible, and from an attach of this character the written memoranda could claim no special immunity.
On Sunday, the 8th day of November, 1891, P. Brock-man, representing the P. Brockman Commission Company, made an examination of the books of the Brown Bros. Grain Company, and with expressions of approval of the showing thereby made, offered to furnish whatever money was necessary for carrying on the business, provided security was given for what was already owing, and for further advances. During the remainder of the week preceding Saturday there were renewed efforts to reach an agreement as to how matters should be arranged, between the commission company and the grain company. As indicated by memorandum "B," above copied, the Union Pacific Railway Company had previously delivered from its cars large amounts of grain to the grain company at the Union Elevator at Council Bluffs, without requiring' the production or surrender of the bills of lading. There were outstanding on November 14, 1891, 129 bills of lading of this character. The grain represented by these bills of lading had either been shipped to some eastern market and sold, or was still in the possession of the Brown Bros. Grain Company. It was to hold harmless the railroad company with reference to this grain that the provisions in the memorandum "B" were made.
Memorandum "G" was made necessary by the following condition of affairs: There had been purchased in the regular course of business, by the agents of the Brown Bros. Grain Company running the elevators of that company in Kansas and Nebraska, a large amount of grain. It was the custom of these agents, as they purchased grain, to draw on the grain company aforesaid through local banks for the amount of suck purchases. The credits were extended to these agents by the local banks, largely, if not altogether, on the faith of the drafts, draAvn against actual purchases. On the date of the mortgage and memorandum "0" there were outstanding unpaid drafts of this character to the aggregate amount of $16,-841.26. It cannot be determined from the evidence what proportion of the grain drawn against in this manner was in the elevators, and what proportion was on board cars. It was to make certain the payment of these outstanding drafts that the memorandum designated "C" was made.
It was in relation to the provisions of memorandum "A" that very much of the conflicting oral testimony was introduced. Briefly summarized, these conditions were that the P. Brockman Commission Company undertook to operate all the elevators which theretofore had been operated by the grain company, until such elevators should be disposed of by lease or sale to the advantage of the grain company, accounting meanwhile to said grain company for all profits "over and above all costs and expenses, interest, and all indebtedness for running the same." How from one standpoint this should be construed and supplemented was illustrated by the testimony of C. T. Brown, George K. Brown, and W. E. Kirker. Of these, C. T. Brown was the president of the Brown Bros. Grain Company. He testified that on the date of the mortgage he, with others, met Mr. Hall, the attorney for the P. Brock-man Commission Company, and P. Brockman himself, at Mr. HalFs office in Omaha. As to what transpired at this office before the mortgage was executed this witness testified as follows: "The question of filing the mortgage was talked over and I said if the mortgage was filed it would probably ruin our business and our credit, and we did not want anything of that kind done, and Hall said, 'Either place the mortgage on file or take possession in order to make the mortgage good;' and I said that taking possession and placing a notice on the buildings would be as bad as filing the mortgage, and Hall said, 'You can give possession with these elevators and formally turn them over to him, and he can turn them back to you and arrange with someone to take charge of them and no one know anything about it.;' and I said that I wanted a written agreement as to how it should be run and who was to have charge of it, and we talked the matter over and the attorneys suggested that that could be done later on, as we had not much time. It was finally agreed that the mortgage should not be recorded. It was agreed that the mere claim of formal possession should be given to Brockman, instead of filing the mortgage, and the business was to be run as it had been, without any change. He agreed there should be no change and I should be the general manager of the business, but he should pay the men, and possession was to be given him and the business was to run as it had been. Mr. Carstons was to represent Mr. Brockman in carrying on the business." C. T. Brown further testified that the memorandum designated above as "A" was "a part of the result of the whole business and the only part of that understanding that was decided was necessary to put in writing; the rest of it was claimed to be matters that could be arranged later on. We insisted upon having some agreement in writing, and this was made and the rest was to be drawn afterwards; the details of running the business were not yet to be put in writing, but drawn in the contract there." Mr. Brown testified that the mortgage and memoranda, above designated as "A," "B," and "C," were contemporaneously executed about 6 o'clock of Saturday evening. It seems from the testimony of all parties that on Sunday morning trouble began between the contracting parties by the posting of a notice of possession under the mortgage, and that on Monday it increased and has since still further increased, so that it resulted that the business was practically never continued. We have not, therefore, the aid of subsequent events to enable us to ascertain from'the actual manner of running the business whether or not the above testimony was true. We can look alone to parol testimony in connection with the writings executed, and to the writings themselves, for information as to the scope and object of the transaction. The testimony of George K. Brown was as direct as was that of his. brother, O. T. Brown, and to the same matters, and in addition thereto George K. Brown, who Avas secretary of the grain company, testified that on Sunday morning following the making of the mortgage he called on Mr. Brockman at the Paxton Hotel in Omaha to practically give him the formal possession; that witness asked Brockihan if he had not better wait till Monday, as there was no time set, and was answered, "We had better take it to-day and we will be ready for business Monday," to which the witness replied that he was only one of the company, but would go and practically turn it over. This witness testified that practically turning over the office consisted in walking into the office and telling the bookkeeper and foreman of the elevator "that we practically turned the business over to Brockman, to operate the business as before, which I did." When those parties reached the office they found nailed to the door a notice, in the language of Mr. Brown, stating "that this property had been taken by Brockman, of St. Louis, under a chattel mortgage." Mr. Brockman denied that he had been instrumental in having this notice posted, and promised to see that it came down. George K. Brown, further testifying, said: "I think that Mr. Brockman was the man who spoke up and said things are going on as before, and I have a little interest here, and we want to keep everything quiet and not to say anything about the chattel mortgage on the property, as it was understood and agreed Brown is to manage the business as before, and that he would probably have a man there to represent him, which would be J. D. Carstons of Omaha, and I spoke to Brockman, as he went out, to have the notice removed from tbe door, and be said, 'I'll see tbis is done.' "
Mr. Kirker, tbe treasurer of tbe Brown Bros. Grain Company, testified tbat be was present just before tbe mortgage was signed and asked Mr. Brockman about filing it, and was answered tbat it was not to be filed; tbat Brockman was to take formal possession, and, as Mr. Kirker said, "we were to run tbe business tbe same as it bad been." Tbis witness also testified tbat Mr. Brockman said be would, furnish all tbe money necessary to run tbe business, and upon being asked to put tbat in writing be said, "Do you tbink I am a damned rascal?" and refused to comply.
In regard to tbe matters above referred to Mr. Brock-man testified tbat after be came to Ornaba in November, 1891, be investigated tbe matter, and as tbe Brown Bros. Grain Company owed bim a great deal, be asked for security, either in tbe nature of a bill of sale or of a mortgage. In answer to an inquiry as to whether be made an. agreement with tbe grain company for continuing its business when tbe mortgage was made, Mr. Brockman said in bis testimony, "I tbink I agreed for them to carry on tbe business; tbat was before I knew bow their financial standing was. They made all kinds of statements to me, which I found afterwards to be false; tbat they misrepresented everything to me, as I found out when I came to tbe various elevators." In answer to an interrogatory as to what understanding outside tbe written agreements be bad with tbe Brown brothers, Mr. Brockman said: "I don't know tbat I bad any particular agreement." Having admitted tbat be did not carry out bis agreement with tbe grain company, Mr. Brockman responded to tbe question why tbis was, as follows: "After I took possession of tbe property of the various elevators, including tbe Council Bluffs elevator, and ascertained bow much grain there was, I found tbat there was hardly any, perhaps a few car loads in tbe Council Bluffs elevator. I held at tbat time forty-three bills of lading for which there was no grain. After ascertaining bow I bad been victimized and swindled by tbe Browns, wbo bad obtained my money under false pretenses, I shut down on them only too quick, in order not to get in them any deeper, wbicb would bave been tbe case if I bad continued business with them. For this reason I did not carry out this agreement, as, from tbeir statements, tbe elevators were full. If I bad found them so I would bave carried out my agreement to tbe letter, but after I learned and found that they bad swindled me in tbe matter, as I bave stated before, I simply considered it my duty as a business man not to give them any chance to get into me any deeper. The bills of lading, wbicb are in my possession yet, besides lots of other bills of lading, show where tbe grain has been diverted to, either Chicago or Milwaukee; all told there was over 100 car loads for wbicb tbe Brown Bros, got paid twice, and in a good many instances they never even paid for tbe grain to tbe country shippers. They took out another bill of lading at Council Bluffs without surrendering tbe original ones, wbicb were in possession of tbe various parties, some in banks, some in Chicago, some in Milwaukee, and those I held myself. By this modus opercmdi they not only swindled tbe various shippers, but tbe railroad company besides. For this reason .1 do not suppose that any sane man can blame me for not continuing tbe business in tbeir name any longer, because it could not be done unless I bad furnished them tbe money, and I even paid drafts for them, with bills of lading attached, to the amount of over $20,000." Upon this same subject-matter Mr. Brockman testified as follows :
Q. At the time you took possession of those elevators and other property, was there any understanding between you. and tbe Brown Bros. Grain Company that they would still be tbe property of tbe Brown Bros. Grain Company?
A. No, sir.
Q. Or was there also any understanding that they should keep possession also with you? A. I think there was somewhat of an agreement, the same as yon read before, and for that reason I made this explanation giving the reason why I did not carry out this agreement.
On cross-examination, being asked if he meant to say that he had carried ont his agreement (memorandum marked "A") to continue operating the elevators until they were disposed of, and as to continuing business with the Brown Bros. Grain Company, Mr. Brockman said: "I did intend to carry ont that agreement at the time I signed it, and would have carried it out if I had found matters the way they were represented to me by the Browns."
Mr. Hall, who, as attorney, conducted the operations for Mr. Brockman at the time the mortgage was given, testified as follows:
"At the time the mortgage was given, at that interview or at the one leading up to it, the Brown Bros. Grain Company did not desire us to put our mortgage on record, and I think in the first interview, or one of the first, I told them, or it was said on our side, that it would not be necessary to put these mortgages on record at once; they were desirous of that afterward. At the time the mortgage was given I spoke of taking possession and they, the Brown Bros., whoever it was that conducted the conver-, sation, I think it was Charley Brown, but it may have been one of the others, asked if we were going to take possession. I said, 'Yes, if we didn't record the mortgage, we would have to take possession;' and they then said that if we had to take possession, it didn't make much difference whether we recorded the mortgage or not; that was about the size of the talk, the substance of it."
Q. What, if anything, Mr. Hall, was said or done in these negotiations with regard to the control or running of the property?
A. Well, there was nothing in regard to control, except that he went into possession.
Q. Well, what was there, if anything, with reference to the preservation of it and disposition of it?
A. Well, they were, the Brown Bros. Grain Company, very much afraid, and so expressed themselves; said they were afraid that when we got this mortgage for the P. Brockman Commission Company, that we would immediately go to work and sell the elevator out and destroy the business. They said that they had an immense amount of grain coming in, and, to do that, would ruin the business. We said to them that if they had the grain coming in they said they had, it would not be to Brockman's advantage to destroy the business, nor to destroy or sell the elevators out at a sacrifice. They said, "Yes, but after yon get this mortgage you may forget about that." Substantially the talk, and they wanted a writing that we would not sell it out at a sacrifice immediately, and, in fact, after that talk there was a writing given that told them that we did not propose unnecessarily to sacrifice the property. It was to our advantage to get as much for it as we could, and we intended to do that.
' Prom the above quotations it is not left open to doubt that there was sufficient evidence from which it could properly be found that at the time the mortgage was made there was an understanding between the mortgagor and the mortgagee that the latter should take formal possession of the mortgaged property, and that it should, under the name of the latter, be run for the benefit of, and practically under the direction of, the mortgagor. By the terms of the mortgage itself it was provided that the mortgagee's right to take possession should be exercised upon the failure of the mortgagor to make payments of all or some portion of the amounts secured when it fell due. The property mortgaged was all the property of the mortgagor, and at the time the mortgage was given the mortgagor was insolvent. It is, however, insisted by the appellant that by the terms of memoranda "B" and "C" the mortgagee assumed, and has in fact assumed, certain obligations in consideration of said mortgage, and in fact has performed some of these obligations at considerable cost, and that all these undertakings would have been carried out if the Brown Bros. Grain Company had not been guilty of such fraudulent conduct that the commission company ought not to be held to such performance. These were matters which concerned only the mortgagor and the mortgagee. In memorandum "B" the mortgagee recited, as one of the reasons for signing the memorandum, that the Union Pacific Railway Company had assisted the mortgagee in securing possession of the Union Elevator and in negotiating a proper transfer of the properties of the said Brown Bros. Grain Company for the purpose of securing the P. Brockman Commission Company, a consummation which, in this memorandum it was recited, was important to bring about, for the commission company, as was said in the memorandum, was a large creditor of the BroAvn Bros. Grain Company. As this memorandum was entered into solely for the benefit of the mortgagee and the Union Pacific Railway Company, and to the necessary disadvantage of all the other creditors of the Brown Bros. Grain Company, it is difficult to understand why any hardship sustained by the mortgagee should be chargeable to such other creditors. The agreement to protect certain drafts, to the amount of $16,800, was one intended solely for the benefit of the parties to it, and of the parties liable on the drafts. It was not for the benefit of the appellees in the remotest degree, and therefore it should not prejudice their rights. It is no concern of appellees whether or not the mortgagor or mortgagee aimed solely to secure an unjust advantage of each other in these dealings, and. it is of as little consequence that, quarreling afterward, each still further sought to wrong the other, as is now freely charged by both parties. The question with which appellees are concerned is whether or not the transaction between the mortgagor and mortgagee on November 14, 1891, was of such a nature that thereby a secret trust was created in favor of the mort gagor to the prejudice of the rights of the appellees as creditors of the Brown Bros. Grain Company. Section T, chapter 82, Compiled Statutes, provides: "All deeds of gift, all conveyances, and all transfers and assignments, verbal or written, of goods, chattels, or things in action, made in trust for the use of the person making the same, shall be void as against the creditors, existing or subsequent, of such person." By section 20 of the same chapter it is provided: "The question of fraudulent intent in all cases arising under the provisions of this chapter shall be deemed a question of fact and not of law," etc. It has been repeatedly held by this court that the question of fraudulent intent is one to be determined by the jury, in a case where there is a jury, and by the court as a question of fact where there is no jury. (Kilpatrick-Koch Dry Goods Co. v. McPheely, 37 Neb., 800; Hewitt v. Commercial Banking Co., 40 Neb., 820; Meyer v. Union Bag & Paper Co., 41 Neb., 67; Connelly v. Edgerton, 22 Neb., 82; Davis v. Scott, 22 Neb., 154; Riley v. Melquist, 28 Neb., 474; Fitzgerald v. Meyer, 25 Neb., 77; Feder v. Solomon, 26 Neb., 266.) The district court, upon conflicting proofs evidently, found that there was a fraudulent intent entertained by both parties to the mortgage at the time it was made, and this it could very properly do, in view of evidence in relation to the existence of a secret trust relation between them under the circumstances disclosed by the proofs. There were also justified findings that the mortgagor was insolvent, that the appellees were existing creditors of the mortgagor, and that if such mortgage was sustained the appellees would be wholly prevented from collecting their claims as against the mortgagor. In terms, these findings were not expressed at length in the decree, but they were the necessary inferences from findings that the averments of the petitions which alleged these facts were true. It requires no citations in support of the proposition that the findings of the district court upon conflicting evidence will not be disturbed on appeal. It therefore results that the judgment of the district court is
AFFIRMED.