Court Opinion

ID: 7054246
Source: CourtListenerOpinion
Date Created: 2022-07-24 07:04:15.125363+00
Date Added: 2024-06-11T16:11:50.025046
License: Public Domain

*673On Petition for Rehearing.
Jordan, C. J.
Certain, ones of the losing parties in this appeal petition for a rehearing. The first of these petitions is presented by the Southern California Packing Company and others therewith associated. The second petition is presented by the Indiana National Bank, Capital National Bank, First National Bank of Chicago-, Nicholas McCarty, and Eppens, Smith & Wieman Company. The petitioners in the first mentioned petition in support of their petition refer us to the argument and authorities in the original brief, and the sole ground upon which they rest their petition fo-r rehearing is, that this court in its opinion failed expressly to consider and pass upon the grounds presented by them at the former hearing in respect to the invalidity of the claims of the New York banks. These petitioners filed no motion in the trial court for a new trial, and hence the ruling of that court of which they complain is its conclusion of law affirming the validity of the claims mentioned upon the special findings. Paragraph eight of the court’s finding discloses that the notes in question were all executed and issued by the Krag-Keynolds Company, through its proper officials, for money advanced by the several banks, which money was deposited to the credit of said company in the Importers and Traders National Bank of New York; that the company was notified of such deposit and thereupon drew out a portion thereof and used the same in its business. Part of this deposit, as it appears, was checked out by Charles M. Reynolds, the principal manager of the company, and by him misappropriated. It is disclosed, however, that the banks in controversy advanced the money io good faith, in the due course of business, on the notes executed by the company, without any knowledge or reason to believe that Reynolds had any intention of using any part of the money for other than the legitimate purposes of the corporation. Certainly upon these facts the trial court could *674declare no other conclusion than it, did in its seventh conclusion of law, whereby it held and declared that the notes in question were valid and legal claims against the Erag-Reynolds Company. This conclusion under the facts found was fully authorized, and the judgment of the trial court thereon is affirmed.
The petition for a rehearing of the Indiana Rational Dank and others is apparently based on the fact advanced and asserted therein that we should at the former hearing have accepted the contention of these parties, that they as a part of the beneficiaries of the mortgage in dispute have a standing thereunder which is independent and separate from that of Gates and Harrison, who are virtually conceded to be fraudulent claimants. In other words, the contention of the parties is renewed to the effect that, although the EragReynolds Company, an insolvent concern, in the fulfilment of the promise made by it to Gates and Harrison in order to obtain their consent to the execution of the mortgage, agreed, under the terms of this instrument, to turn over to these preferred stockholders $50,000 of its assets, which the law required should be applied on the claims of its other creditors, and further provided and stipulated that the petitioners herein and the stock claimants, their co-beneficiaries-, should share pro rata and equally with each other in the distribution of the proceeds of the mortgaged property, to- all of which stipulations these petitioners agreed and consented, still, notwithstanding these facts, they should be permitted, over the protest of Gates as well as that of Reagan, the trustee, to repudiate the mortgage so far as it secures the fraudulent claims of Harrison and Gates, but be awarded its benefits so far as they themselves are concerned. This contention was fully considered and denied at the former hearing, and what is asserted in support of the petition for a rehearing does not convince us that, in so holding, we committed an error. It is said that the sole purpose of the officials of the corporation in executing the trust mortgage was to secure its Iona -fide debts. That may have been its original *675purpose, but when it was confronted with the fact that it could not exercise this right without the consent of its two preferred stockholders, it then, to an extent at least, seems to have departed from this purpose, and by executing the mortgage it is shown to have designed and intended to secure, in violation of law, the stock claims of Gates and Harrison, as a reward for the consent of the latter that the instrument might be executed. Counsel seemingly overlook the fact that the very- thing which made it possible for the corporation to execute the mortgage at all was the illegal agreement between it, Gates and Harrison, to the effect that their stock claims should be secured by the mortgage as a reward for their consent to its execution. That was the consideration for their consent, and the evil thereof under the stipulations and terms of the mortgage permeated the instrument as an entirety. The company at the time, as shown, was insolvent, and by reason of that situation was forbidden by a positive statute to- carry this agreement into effect. Its officers, under the circumstances, were confronted with the proposition that in order to- carry out the preferences which they desired to give to- some of the creditors they must first secure the consent of Gates and Harrison, or otherwise the claims of those which they desired to prefer must go unsecured. To obtain the requisite consent they were, under the agreement, required to include at least the claim of Gates in the proposed mort> gage, and thereby violate the statute, and perpetrate a fraud on their other creditors. They seem to have adopted the latter, and in carrying out this fraudulent purpose, or scheme, the mortgage was so formulated as to stipulate and direct that the fraudulent claims of Gates and Harrison should stand on a parity and be paid along with those of the other beneficiaries, except the Chicago bank. To all the stipulations, provisions, and directions as embodied in the mortgage each and all of the petitioners herein agreed and consented, when they accepted the instrument as tendered, and thereby permitted their claims in respect, to the payment *676thereof to be inseparably linked and united with those of Gates and Harrison. And now when confronted with the effect of their agreement they contend that it should be abrogated, or in other words, that the court in granting the demand or prayer of appellant for the annulment of the mortgage shall eliminate the fraudulent elaims therefrom and leave the instrument as to their own claims untouched. That so far as the mortgage fixes the rights of Gates and Harrison in respect to the payment of their claims along with those of the petitioners, the latter virtually concede that it should be annulled, but so far as it concerns and benefits themselves they insist it must be upheld and enforced. While repudiating or disowning the contract in which they concurred whereby the rights of these stock claimants were fixed in conjunction with those of their own, they in the same breath insist that their interests or rights as declared and fixed by the mortgage must be maintained. The mortgage when tendered disclosed by its terms that it proposed, if accepted, to create contractual relations, not^ only between the acceptors and the mortgagor, but also among the latter in regard to- the rights of each in sharing in the application of the proceeds of the mortgaged property to- their respective claims. An examination of the mortgage as tendered certainly revealed its peculiar character or nature and the rights of the parties as therein fixed under its expressed terms and stipulations. If they accepted it at long range, or with eyes closed, they, when confronted with its fraudulent features to which they assented, can not relieve themselves of the situation in which they are placed under their agreement by successfully demanding that the mortgage, so far as it concerns their interests, shall be sustained, but avoided so far as the claim of Gates- and Harrison is concerned. Certainly it must be evident that under the circumstances they are not in a position to avail themselves of the benefits thereof and at the same time dispute the rights of Gates and Harrison, by whose consent they were enabled to obtain the benefits of the security for which they now con*677tend. Having accepted the instrument and concurred in what may be termed its evil or fraudulent provisions, they can not seek to avail themselves of their rights as fixed in connection with those of the fraudulent claimants, and at the same time repudiate or deny the rights of the latter which stand on a parity with their own. Therefore, being unable, under the facts, to defend against the demand of appellant in this action that the mortgage in question shall be avoided, and being further unable to show that under the circumstances they are entitled to have the fraudulent claims separated from their own and eliminated from the security, the court must yield to the prayer of appellant that the instrument by reason of the fraud imputed to it be annulled in its entirety. We may again repeat that the petitioners herein accepted the mortgage merely as a security for preexisting debts without any new or additional consideration, hence the avoidance thereof will place them in no more unfortunate situation in respect to the payment of their claims than they occupied at the time they accepted the security. The insistence of counsel that if the decision in this appeal is permitted to stand it will become a mischievous precedent and one that will be injurious to commercial business, is entirely without merit. The decision is to be construed in respect to the circumstances and facts upon which it ijests. No questions in regard to innocent holders of commercial paper, on of like import, are involved.
We have fully examined all of the authorities cited by the learned counsel for the petitioners and have fully considered their arguments, but discover no authorities which can be said to be at variance with the proposition, that where a party, as in this case, has by contract precluded himself from attacking a conceded fraud which is impressed upon an instrument under which he claims, he must accept the consequences of such fraud.
We are of the opinion that the ultimate conclusion reached at the former hearing is right, and therefore each of the petitions for a rehearing is overruled.