Bunday v. Huntington

224 F. 847 | 8th Cir. | 1915

Lead Opinion

TRIEBER, District Judge

[ 1 ] (after stating the facts as 'above). While the court, sitting as a jury, made only a general finding of all the issues in favor of the plaintiff, the request for special findings made on behalf of the defendants, and which was by the court refused, and proper exceptions saved, enables us to review the evidence for the purpose of determining whether it was of such a nature as to make it the duty of the court to make these findings, and whether the refusal to do so is reversible error.

It is only in the absence of any request’to find facts specifically, or to find for the plaintiff in error generally, that a general finding by the court, sitting as a jury, has the effect of a general verdict by a jury. National Surety Co. v. United States, for use, etc., 200 Fed. 142, 118 C. C. A. 360. As the defendants, the plaintiffs in error, requested special findings, which, if made by the court, would entitle them to a judgment, it is our duty to examine the evidence for the purpose of determining whether the court erred in refusing to make these findings, or such of them as would entitle the defendants to a judgment in their favor.

It will be noticed that the findings asked by the defendants are/eally in the nature of conclusions of law. There were other requests for findings of facts made by the defendants which, in view qf the conclusions reached by us, it is unnecessary to notice in this proceeding.

[2] If, upon an examination of all the evidence, the judgment of the trial court was for the right party, it is the duty of the appellate •court to affirm it, even if a wrong reason was assigned therefor. Latting v. Owasso Mfg. Co., 148 Fed. 369, 78 C. C. A. 183. The insolvency of the bankrupts at the time this transaction took place, and that the defendants had reasonable cause to know that fact, is not disputed.

[3] The original contract made on April 14, 1909, between the defendants and the-bankrupts, provided for a mortgage to secure the unpaid purchase money, amounting to $5,000, on the stock of. goods sold, and that 15 per cent, of the amounts realized from sales of said goods should be applied on the note; that this 15 per cent, should be paid by the bankrupts to the defendants on the 1st day of each month until the same is fully paid or until such time when the note shall become due and payable in full. It also contains a provision that the bankrupts shall insure said stock of goods to the amount of $5,000; also, that “the stock in said store shall not be reduced more than $2,000 in value of the stock of goods now on hand, and that no goods shall be sold except in the ordinary course of retail trade, as shall be provided in said mortgage.” The note was to become due five years after date. Each of the parties was to deposit in the Bank of Bruce, S. D., $200 to be forfeited by either party “not living up to this contract.”

The trade was finally consummated on April 26, 1909, $3.,000 being paid in cash and a note for $5,107 executed by the bankrupts, and the mortgage, hereinbefore set out, executed by them for the purpose of securing the note for the unpaid purchase money.

It will be noticed that the mortgage differs in several material respects from the agreement, and is much more favorable to the defendants than the terms of the original contract entitled them. It contains every obligation agreed to be assumed by the bankrupts under the contract except the promise to insure the stock of goods for the benefit of the defendants. It contains the following provisions not required of them in the executory contract:

While the contract only requires a mortgage on the goods sold, the mortgage includes all after-acquired goods of the bankrupts. Under the contract only 15 per cent, of the amount of the sales of “said goods” was to be applied to the payment of the note on the 1st day of each month, and that the stock of goods should not be reduced more than $2,000 in value of the stock now on hand, the mortgage provides that:

“The mortgagors shall make daily deposits of all moneys and proceeds from said sales, and shall on tlie first day of each month make a just and true account to the mortgagees of all sales made, and the proceeds of all sales shall on the first day of each month he applied to the extinguishment of the mortgage indebtedness mentioned herein, provided, that out of said proceeds the mortgagors shall replenish the said stock of goods and keep the said stock of goods at its present value; provided further, that if the said stock of goods be reduced below its present value of §8,107.00' all of the proceeds of such sales shall bo applied to' the extinguishment of the mortgage indebtedness, and provided further, that at no time shall less than 15 per cent, of the monthly sales be applied to the payment of this mortgage.”

The mortgage therefore varies in several respects from the contract, and is much more favorable to the defendants, but, as before stated, omits the obligation on the part of the mortgagors to insure the goods for the benefit of the mortgagees. Assuming, without deciding, that the provision to insure contained in the contract gave the defendants an equitable lien on the proceeds of the insurance policies, and that this equitable lien is superior to the rights of the plaintiff as trustee in bankruptcy, although the mortgage', which was of record (the contract was not recorded), fails to show it, the judgment of the court is, in our opinion, correct. Whenever an executory contract is executed by a new contract in writing, the latter is presumed to express the final agreement of the parties, and conditions in the former agreement not included in the last, nor reserved or continued by its terms, are, in the absence of fraud, or mistake, deemed waived. 'And this is especially true when the last contract is more favorable to the party complaining than was the preliminary contract. Andrus v. St. Louis Smelting Co., 130 U. S. 643, 647, 9 Sup. Ct. 645, 32 L. Ed. 1054; American Colortype Co. v. Continental Colortype Co., 188 U. S. 104, 108, 23 Sup. Ct. 265, 47 L. Ed. 404; Grand Trunk W. Ry. Co. v. Chicago, etc., R. R. Co., 141 Fed. 785, 73 C. C. A. 43; Wheeden v. Fiske, 50 N. H. 125; Ford v. Smith, 25 Ga. 679; Ellis v. Lockett, 100 Ga. 719, 28 S. E. 452; Parmly v. Buckley, 103 Ill. 119; Slocum v. Bracy, 55 Minn. 249, 56 N. W. 826, 43 Am. St. Rep. 499; Hubachek v. Brown’s Estate, 126 Minn. 359, 148 N. W. 121; Keator v. Colorado Coal, etc., Co., 3 Colo. App. 188, 32 Pac. 857.

[4] In addition to this, the construction of the mortgage by both parties evidently was that there was to be no insurance for the benefit of the mortgagees; for, although more than a year had elapsed since the execution of the mortgage, none of the insurance policies were made for the benefit of the defendants, but all were made payable to the bankrupts. This was a practical construction of the last contract by the parties and will be given effect by the courts, even if there was an ambiguity. Barber Asphalt Paving Company v. City of St. Paul, 224 Fed. 842, - C. C. A. -, decided at the present term of this court.

The judgment is affirmed.

---

Dissenting Opinion

REED, District Judge

(dissenting). I am unable to concur in the conclusion reached in -the foregoing opinion.

By the agreement of April 14th, the bankrupts agreed on completion of the sale to give the defendants a chattel mortgage upon the stock of merchandise purchased by them from the defendants as security for the purchase price thereof, and to keep such stock insured in the sum of $5,000 for the benefit of the defendants. April 26th, a mortgage was made pursuant to that agreement in which, however, some changes were made in regard to sales to be made by the bankrupts in the ordinary course of their business, satisfactory to the parties and presumably for their mutual benefit. The agreement to keep the property insured was not carried into the mortgage, and does not require that it shall be. The bankrupts took possession of the property upon the execution of the mortgage and began and continued the sale thereof at retail in the ordinary course of their business as agreed, adding to the stock by the purchase of other merchandise from time to time as it was reduced by such sales, until May 3, 1910, when the property was destroyed by fire. When the chattel mortgage was made the bankrupts were solvent; it was made in good faith to secure the indebtedness of the bankrupts to the defendants for the purchase price of the property. After the mortgage was made, the bankrupts, as they had agreed in the contract of April 14th, insured the property in an amount in excess of $5,000 but took the policies in their own name. In due time the loss was adjusted and the bankrupts gave to the defendants an order upon the insurance companies for some $3,300 of the insurance money to apply upon their indebtedness to the defendants for the purchase price of the merchandise, which amount was paid to the defendants by the insurance companies July 16, 1910. November 15, 1910, an involuntary petition in bankruptcy was filed against the mortgagors upon which they were in due time adjudicated bankrupts, and the plaintiff Huntington appointed as their trustee, who brought this suit and was permitted to recover from the defendants the amount of the insurance so received by them, upon the alleged ground that it was a voidable preference under the Bankruptcy Act of July 1, 1898, c. 541, 30 Stat. 544.

The transaction between the defendants and the bankrupts arose prior to the amendment of the Bankruptcy Act on June 25, 1910 (Act June 25, 1910, c. 412, 36 Stat. 839). No actual fraud is alleged and none was attempted to be proven. Prior to that amendment it had been frequently held by the Supreme Court that trustees in bankruptcy succeed only to the rights of the bankrupt in the property of his estate in cases unaffected by fraud. Thompson v. Fairbanks, 196 U. S. 516, 25 Sup. Ct. 306, 49 L. Ed. 577; Humphrey v. Tatman, 198 U. S. 91, 95, 25 Sup. Ct. 567, 49 L. Ed. 956; York Manufacturing Co. v. Cassell, 201 U. S. 344, 26 Sup. Ct. 481, 50 L. Ed. 782. In Thompson v. Fairbanks, the court, at page 526 of 196 U. S., at page 310 of 25 Sup. Ct. (49 L. Ed. 577), said :

“Under the present Bankrupt Act, the trustee takes the property of the bankrupt, in eases unafl'ecled by fraud, in the same plight and condition that the bankrupt himself held it, and subject to all.the equities impressed upon it'in the hands of the bankrupt, except in eases where there has been a conveyance or incumbrance of the property which is void as against the trustee by some positive provision of the act.”

See Mitchell v. Winslow, 2 Story, 630, 17 Fed. Cas. 527, No. 9673, appljdng this rule to an insurance policy.

Under the agreement of April 14th, upon the completion of the sale and the execution and recording of the chattel mortgage the defendants acquired not only a valid lien upon the mortgaged property, but also under the statute of South Dakota, and the settled principles of equity, an equitable lien upon the insurance on the mortgaged property.

The Civil Code of South Dakota (1903) provides as follows:

“Sec. 2022. A lion is created: (1) By contract of the parties; or (2) by operation of law. * * * ”

“Sec. 202-1. An agreement may be made to create a lien upon property not yet acquired by the party agreeing to give the lien, or not yet in existence. In such ease the lien agreed for attaches from the time when the party agreeing to give it acquires an interest in the thing to the extent of such interest.

“Sec. 2025. A lien may be created by contract, to take immediate effect, as security for the performance of obligations not then in existence.” Iverson v. Soo Elevator Co., 22 S. D. 638, 119 N. W. 1006; Grand Forks Nat. Bank v. Minneapolis, etc., Elevator Co., 6 Dak. 357, 43 N. W. 806; Wheeler v. Insurance Co., 101 U. S. 439, 25 L. Ed. 1055; Ketchum v. St. Louis, 101 U. S. 306, 318, et seq., 25 L. Ed. 999; Walker v. Brown, 165 U. S. 654, 17 Sup. Ct. 453, 41 L. Ed. 865; Hurley v. Atchison, T. & S. F. Ry. Co., 213 U. S. 126, 29 Sup. Ct. 466, 53 L. Ed. 729; Sexton v. Kessler, 225 U. S. 90, 32 Sup. Ct. 657, 56 L. Ed. 995; In re Ozark Cooperage Co., 180 Fed. 105, 103 C. C. A. 603 (this court); In re Sturtevant, 188 Fed. 196, 110 C. C. A. 68 (C. C. A. 7th Circuit) In re Bird (D. C.) 180 Fed. 229; Miller v. Aldrich, 31 Mich. 408; Cromwell v. Brooklyn Ins. Co., 44 N. Y. 42, 4 Am. Rep. 641.

And such lien or equity is not impaired by the amendment of June 25, 1910, to section 47a (2) of the Bankruptcy Act, giving to the trustee “as to all property coming into the custody of the court of bankruptcy, the rights of a creditor holding a lien.” Holt v. Henley, 232 U. S. 637, 34 Sup. Ct. 459, 58. L. Ed. 767.

The property in controversy herein, the insurance fund, never came into the custody of the court of bankruptcy.

In Wheeler v. Insurance Co., above (101 U. S. 439, 25 L. Ed. 1055), it appears that Johnson & Goodrich, commission merchants, being creditors of one Green for advances made to him, suggested to him that he should authorize them to effect insurance upon his buildings and other property for their better security. Green accordingly wrote them, authorizing them to effect such insurance, and they did procure from the defendant Insurance company a policy in their own names for $5,500. Before the expiration of the policy, the property was destroyed by ñre, and Johnson & Goodrich took measures to recover the insurance, which amounted to some $3,500 in excess of the amount due upon their advances. Wheeler & Co. intervened, and in equity claimed the insurance money as against the insurance company, Green, and Johnson & Goodrich. The defendants severally answered, and upon the hearing the court dismissed the bill, from which decree Wheeler & Co. appealed. It appeared upon the hearing that prior to the employment by Green of Johnson & Goodrich as his commission merchants, he had employed the firm of Foster & Gwyn as such, had become largely indebted to them, and gave them his notes secured by mortgages upon the same property mortgaged to Johnson & Goodrich, with an agreement in some of the mortgages to insure the buildings and machinery, and to transfer the policies to the mortgagees for their better security, or in default of doing this that the mortgagees and all subsequent holders of the notes secured by those mortgages should have the right to effect such insurance at his expense. These mortgages were all given and recorded before Johnson & Goodrich procured their insurance upon the property. Foster & Gwyn under the reserved right contained in their mortgage effected insurance for one year upon the buildings and machinery, but did not renew the same, and after it had expired the property was destroyed. Foster & Gwyn being largely indebted to Wheeler & Co. transferred to them the notes and mortgages by way of collateral security, and upon this security Wheeler & Co. made their claim for the insurance money upon two grounds: (1) That the insurance was effected in the name of Johnson & Goodrich, merely as agents of Green; and (2) upon the ground that when the insurance in question was about to be renewed by Foster & Gwyn they were assured by Green and by Johnson & Goodrich that the Johnson & Goodrich insurance was effected for their (Foster & Gwyn’s) benefit. The Supreme Court held against Wheeler & Co. upon each of these grounds; but Mr. Justice Bradley, speaking for the court, said at page 442 of 101 U. S. (25 E. Ed. 1055):

“But as the debt due to Johnson & Goodrich will not exhaust the whole amount of the insurance/and as the balance rightfully belongs to Green, the question arises whether, as to that balance, the claim of the appellants is not maintainable. It is undoubtedly the general rule that a mortgagee has no right to the benefit of a policy taken by the mortgagor, unless it is assigned to him. * * * But it is settled by many decisions in this country that, if the mortgagor is bound by covenant or otherwise to insure the mortgaged premises for the better security of the mortgagee, the latter will have an equitable lien upon the money due on a policy taken out by the mortgagor to the extent of the mortgagee’s interest in the property destroyed. (Citing the cases.) And this equity exists, although the contract, provides that in case of the mortgagor’s failing to procure and assign such insurance, the mortgagee may procure it at the mortgagor’s expense.”

In Cromwell v. Brooklyn Insurance Co., above (44 N. Y. 42, 4 Am. Rep. 641), it appeared that Cromwell was the assignee of a contract for the purchase of the lot in question from one Chesley. Chesley by the terms of the agreement was to build a house on the lot and convey it to one Eichenlaube, who was to insure the house for the benefit of Chesley. He did at first procure insurance in his name, which by the terms of the policy was payable to Chesley. When that policy expired the company refused for some reason to renew it. Eichenlaube then took out another policy in his own name, which contained no specifications that the loss, if any, was payable to Chesley or the plaintiff. The court said:

“But, in the absence of any proof to the contrary, it must be inferred that lie made the insurance in pursuance of his agreement, and for the benefit of his vendor. And such, undoubtedly, would have been the legal Inference, no matter what may have been his secret intention when he effected the insurance, provided he did it while in possession of the premises, and while the agreement between him and Chesley was binding, either in law or equity.”

But it is said that because the agreement of April 14th, to keep the property insured for the benefit of the defendants, was not incorporated in the chattel mortgage, it was waived by the parties. The testimony shows, however, without any dispute, that the bankrupts procured the insurance upon the mortgaged property intending it for the benefit of the defendants; for after the mortgage was made the defendants inquired of the bankrupts if they had procured the insurance, and were informed by them that they had; and upon the adjustment of the loss the right of the defendants to the insurance money was clearly recognized by the bankrupts giving to them an order or orders upon the insurance companies for the amount of the insurance received by the defendants; and the bankrupts testified that they gave the defendants such orders because by their agreement to keep the property insured they understood the defendants were entitled thereto to the extent of their indebtedness against the bankrupts. If there was any doubt of the intention of the parties that the defendants were to have the benefit of the insurance to the extent of their indebtedness, the order given by the bankrupts upon the insurance companies therefor seems conclusive o f the understanding of the parties, and the interpretation by them of their agreement should not he disturbed at the instance of the trustee, who stands only in the shoes of the bankrupts that he may recover this amount of this insurance for other creditors.

In Metropolitan National Bank v. Benedict Co., 74 Fed. 182, page 185, 20 C. C. A. 377, page 379, Judge Caldwell, speaking for this court, said:

“Moreover, parties have tlie undoubted right to make their own contracts, and to put their own construction upon them, and to regulate their rights and liabilities thereunder. If the court ‘leaves the parties to be governed by their understanding of their own language, it, in effect, enforces the contract as a ctually made. That they should be so permitted to construe their own agreement accords with every principle of reason and justice.’ * * * And when both parties to a contract, acting in good faith, are agreed as to its meaning and their rights under it, a stranger having no interest in the subject-matter of the contract cannot insist that a different interpretation shall be put upon it, or compel the parties to put that interpretation upon it which will benefit him.”

In Hubachek v. Brown’s Estate, 126 Minn. 359, 148 N. W. 121, cited by the majority, the agreement involved was by its plain terms a condition precedent to the completion of the purchase. The acceptance of the deed without exacting a compliance with such condition was necessarily a waiver thereof by the grantee. The ruling of the court in that case, as stated in the opinion, applies only to stipulations that are expressly made conditions precedent to the performance of the contract, and does not necessarily apply to stipulations or agreements that are not conditions precedent, citing Taylor v. Railroad Co., 27 S. D. 528, 132 N. W. 152; and see De Rue v. McIntosh, 26 S. D. 42, 127 N. W. 532, and cases there cited, and McDonald v. Daskam, 116 Fed. 276, 53 C. C. A. 554.

The insurance agreement in this case is in no sense a condition precedent to the completion of the contract of April 14th, but is an independent collateral agreement to insure the property for the defendants’ benefit; is not required to be in writing and is in no way inconsistent with the terms of the sale or of the chattel mortgage. Upon taking out the insurance policies, some time prior to the fire, an equitable lien at once attached thereunder to the insurance upon the property, which entitled the defendants to the insurance money to the extent of their interest in the property immediately upon its destruction by fire, which was May 3, 1910. McDonald v. Daskam, 116 Fed. 276, 53 C. C. A. 554; Grand Forks National Bank v. Minneapolis, etc., Elevator Co., 6 Dak. 357, 43 N. W. 806. As this was more than four months prior to the bankruptcy, the defendants are entitled to the insurance money received by them as against the plaintiff. McDonald v. Daskam, 116 Fed. 276, 53 C. C. A. 554, above.

Some question is made in the argument in behalf of the plaintiff that, as the mortgage covered after-acquired property which is not a part of the contract of April 14th, the insurance will not attach to such property. But the insurance company did not object to this and it is not for the plaintiff to do so. The question of the validity of a chattel mortgage covering after-acquired property is not open to discussion under the statute of South Dakota. Iverson v. Soo Elevator Co., 22 S. D. 638, 119 N. W. 1006; Grand Forks National Bank v. Minneapolis, etc., Elevator, 6 Dak. 357, 43 N. W. 806, above. And see Mitchell v. Winslow, 2 Story, 630, 17 Fed. Cas. 527, No. 9673.

This case upon its facts is so materially different from Long v. Farmers’ Bank, 147 Fed. 360, 77 C. C. A. 538, 9 L. R. A. (N. S.) 585, and In re Great Western Manufacturing Co., 152 Fed. 123, 81 C. C. A. 341, that the decision in those cases is not applicable here.

I reach the conclusion that the judgment of the District Court should have been for the defendants, and as it was not it should be reversed.