110 Mich. 466 | Mich. | 1896
This is an action to foreclose a mortgage made by the Gypsum Plaster & Stucco Company to the complainant on October 4, 1892, on 120 acres of land in the township of Wyoming, Kent county, with the gypsum mines and mills thereon, to secure payment of $25,-000, with interest. The mortgage was recorded October
It appears that, prior to 1891, the Union Mills Plaster Company, a corporation, had been engaged in business near Grand Rapids in the quarrying of plaster rock, and in the manufacture and sale of land and calcined plaster. The lands and quarries, with the mills, were sold by the company to Andrew L. Hubbell, and by him, December 23, 1891, conveyed to the Gypsum Plaster & Stucco Company, a corporation organized under the laws of Illinois, for the stated consideration of $165,500, and the company’s notes were given for this amount. The stockholders of the new company were James B. Hubbell, Mr. Russell, and Mr'. Carland. The two latter held one share each, and the.balance of the stock was held by Mr. James B. Hubbell. The capital stock was $100,000. A note for this amount was given to Andrew L. Hubbell by the company as a part of the purchase price of the property, and was by him transferred to James B. Hub-bell, and by the latter surrendered and canceled, and in this manner the capital stock was treated as fully paid. The Gypsum Plaster & Stucco Company also assumed certain of the debts of the Union Mills Plaster Company, among them being many debts still existing and involved in the present litigation, and also a mortgage to the Union Mutual Life Insurance Company, which amounted at the date of the transfer, for principal and interest, to $28,600. Thereafter the company carried on the business, and became more and more involved in financial difficulties. A foreclosure decree was taken upon the insurance company mortgage, and the day of sale was fixed for October 6, 1892. From time to time during that summer, levies of attachments and executions had been made upon the property, subject to the mortgage, when, about the 1st of October, these levies amounted in all to $14,000.
Mr. Frank L. Noble had been the active business manager of the corporation, and a portion of Mr. Hubbell’s
It is claifned by the defendants that these gentlemen represented to the attachment and execution creditors that 'they had only a small amount of money available, and could not pay in full; and that these creditors, sup
At the time of the execution of the mortgage iir controversy, a series of notes was executed, due in from 30 days to 18 months, and were all payable to Mr. Dummer. After the moneys were all paid in, the corporation took up these notes, and issued a new series of notes, dated back as of the date of the mortgage, and running from 1 to 5 years, viz.: Five notes, of $2,000 each, to Mr. Dummer; five notes, of $2,000 each, to Mr. Gill; five notes, of $1,000 each, to Mr. Dickinson. The complainant claims that
It appears that in November, 1892, the capital stock of the corporation had been increased from $100,000 to $500,000. Of this increase, $100,000 was made preferred stock, and was to be used for the purpose of paying creditors as far as they could be induced to accept the same. Of the remaining $300,000 of stock, it had been agreed that Dummer and Gill should have $2.50 for each $1 of money paid in by them, thus giving Dummer and Gill each $25,000 of the stock; and, when Dickinson entered into the arrangement, he was given a similar issue of stock, amounting to $12,500.
In 1893, litigation was commenced by some of the execution creditors to set aside the Dummer mortgage, as fraudulent as against them. Mr. Dummer appeared and answered. This litigation is still pending, and, by consent of the parties, has been transferred to the present suit. The business of the corporation was continued until January 1, 1894, when the company entered into a pool with other manufacturing companies. The mill was
On July 6, 1894, this bill was filed. Defendants Hinsdill and Tyler answered. The bill was taken as confessed against the Gypsum Plaster & Stucco Company. In December, 1894, Mr. Smedley was appointed receiver, and was thereupon granted leave to intervene and answer. He filed an answer, setting up that the mortgage was invalid, and averring that the general creditors of the Gypsum Plaster & Stucco Company had rights in the properties prior to the Dummer mortgage. After some proofs were taken, the Lidgerwood Manufacturing Company, a New York corporation, also obtained leave to intervene as a defendant, and, by way of a basis for affirmative relief, alleged that in March, 1893, it sold to the Gypsum Plaster & Stucco Company a cable apparatus for hoisting rock out of the quarry, for the price of $4,000, of which $3,500 remained unpaid; that this property had become an -essential part of the plant, and was procured by the company by fraud; and that, though the intervener was entitled to retake the property, it had so become a part of the plant that equity and the interests of all the parties required it should remain there, and the intervener should have a lien for the amount unpaid. The answers of the defendants Hinsdill, Smedley, and Tyler also set up facts as a basis of affix’mative relief, in the nature of a cross-bill, and they ask that the complainant’s mortgage be vacated.
It appeared upon the hearing that the complainant had advanced $1,050 for the payment of delinquent interest upon the Uhl mortgage, in order to prevent foreclosure; that the receiver had paid taxes upon the company property, and also delinquent interest upon the Uhl mortgage, to the amount of $1,365. The proofs were taken in open court and by deposition, and on September 20, 1895, a decree of foreclosure was entered, and awarded priority to the several parties as follows:
*473 1. To the complainant, $1,050 and interest, for moneys advanced to pay delinquent interest on the Uhl mortgage.
2. To Receiver Smedley, $1,365 and interest, being the amount paid by him for taxes, and delinquent interest on the Uhl mortgage.
3. To the Lidgerwood Manufacturing Company, $4,080, being the entire amount of its unpaid debt and interest.
4. To complainant, Dummer, the sum of $10,000 and interest, for advances made by him under the mortgage.
5. To H. R. Gill, $4,100 and interest, for moneys advanced by him under the mortgage prior to November 7, 1892, that being the date when defendant Hinsdill levied the first attachment after the giving of the Dummer mortgage.
6. To defendant Hinsdill, $4,408, with interest, being the amount of her debt under the levy of November 7, 1892.
7. To H. R. Gill, $4,561, for moneys advanced by him on the Dummer mortgage after the Hinsdill levy, and before the next levy.
8. To E. D. Preston and D. H. Armstrong, $4,000 and interest, they beihg the next levying creditors, and that being the full amount of their claim.
9. To H. R. Gill, $1,161, being for moneys advanced on the Dummer mortgage after the foregoing named levies, and before the next levy.
10. To E. D. Preston, $177, he being the next levying creditor.
-11. To H. R. Gill and John W. Dickinson, $4,600, being the remainder to Gill for his advances, and to Dickinson for advances made by him before the next levy.
12. To C. O. Smedley, $365, he being the next levying creditor.
13. To John W. Dickinson, $2,300, being the remainder of his advances upon the mortgage.
From this decree, defendant Smedley, as receiver, and the defendants Hinsdill and Tyler, appeal. The other defendants do not appeal. The complainant also appeals from the decree.
The receiver contends that the. mortgage is fraudulent and void as against the general creditors, and that the lien under it should be postponed to the payment of their claims. This claim is based upon two grounds: (1) That
It appears from the record that the corporation had ample power to borrow money, and give security on the corporate property therefor. The statute of Illinois, under which this corporation was organized, gives it this power. From a careful reading of the record, it appears to us that no other conclusion can be reached than that, before the time the mortgage was given, an arrangement was made by the corporate authorities to make a loan of that amount. They regarded the condition of the company as serious, and that by the placing of the Uhl mortgage, and thus discharging the insurance company decree, the company would not be in a condition to go on with the business without further means. Mr. Gill had been working to make the loan. Dummer was seen, and was offered some of the bonus stock if he would take part of the mortgage. While the arrangement was not fully completed, Mr. Dummer says that Gill agreed to put in $10,000 if the company would arrange for the other $5,000, as he (Dummer) was to put in $10,000. Matters were in this condition when the mortgage was executed. Dickinson thereafter consented to put in the other $5,000. From all that took place during the few days prior to the execution of the mortgage, and the conduct of the parties afterwards, it is apparent that it was the intent of all the parties that the full sum of $25,000 should be paid in. As soon as Gill could raise his money he was to pay it over. Dummer put in $8,500 at first, and within a few days thereafter paid over the balance of $1,500, completing his share. Gill and Dickinson subsequently paid the full amount they were to take. There is no showing upon the record that there was any bad faith in the giving of the mortgage, and the consideration was fully
The fact that the mortgage did not state that it was given t o secure future advances would not render it void as to creditors. Brace v. Berdan, 104 Mich. 356. A mortgage is not fraudulent for including contemplated advances. Newkirk v. Newkirk, 56 Mich. 525. Counsel for the receiver cite Showman v. Lee, 86 Mich. 560, in support of their contention; but all that was held in that case was that, if the mortgage was taken for a greater amount than was actually paid, the parties must act in good faith; that parties who fake security from insolvents, or from parties who are indebted to others, must act in good faith, and so as” not unnecessarily to hinder, delay, or deceive other creditors; that the taking of a mortgage for an amount in excess of the debt or the assumed liability is a badge of fraud, and it is a fraud in law if the purpose is to protect the debtor’s interest from other creditors. This is but the statement of a familiar principle of law. In the present case, however, no such showing is made. The parties were acting in good faith, and the whole of the consideration thereafter paid. The mere fact that the mortgage was given for a greater amount would not necessarily make the mortgage fraudulent. There must be some fact or circumstance showing an intent to hinder, delay, or defraud creditors, and this is necessarily a question of fact. This record, as we have said, discloses no such fact.
The contention that the beneficiaries under the mortgage stood as stockholders, and not as mortgagee creditors, has no force. It is claimed by counsel for the receiver that the record' discloses that these beneficiaries intended to become interested as stockholders, and that the mortgage was a plan adopted to save them against the risk of loss on their investment, while they obtained all possible chances of gain. Counsel treat the question as though the stock given to the mortgagees were part
In Handley v. Stutz, 139 U. S. 417, this subject was fully discussed. The bill was filed by Stutz and others, creditors of the Clifton Coal Company, to compel an assessment upon certain shares of stock for the satisfaction of the debts of the company. The company was organized-in 1883, and the capital stock of $120,000 all subscribed and paid for. In May, 1886, the stock was increased to $200,000. The increased stock was issued to Handley and the other defendant under the following circumstances: After unsuccessful attempts to sell $50,000 of its bonds secured by mortgage, the company offered $1,000 stock as a bonus with each $1,000 bond. The defendants bought the bonds and took the bonus stock. The debts of the complainants were created before the increase of the stock. Speaking of this bonus stock, the court said:
“The case, then, resolves itself into the question whether an active corporation, or, as it is called in some cases, ‘a going concern,’ finding its original capital impaired by loss or misfortune, may not, for the pur*477 pose of recuperating itself and providing new conditions for the successful prosecution of its business, issue new stock, put it upon the market, and sell it for the best price that can be obtained. * * * To say that a corporation may not, under the circumstances above indicated, put its stock upon the market, and sell it to the highest bidder, is practically to declare that a corporation can never increase its capital by .sale of shares if the original stock has fallen below par. * * * It frequently happens that corporations find it necessary to increase their capital in order to raise money to prosecute their business successfully, and one of the most frequent methods resorted to is that of issuing new shares of stock, and putting them upon the market for the best price that can be obtained. * * * It would seem to follow that, if the stock had been of some value, that value, however much less than par, would have been the limit of the stockholders’ liability.”
Speaking further in the case as to the rights of creditors, and what particular creditors would be affected by the increase of the capital stock, it was said:
“We have no doubt that the learned circuit judge held correctly that it was only subsequent creditors who were entitled to enforce their claims against these stockholders, since it is only they who could by any legal presumption have trusted the company upon the faith of the increased stock.”
In Richardson’s Ex’r v. Green, 133 U. S. 30, it appeared that Richardson had advanced moneys on bonds, and taken stock as bonuses. On a suit to foreclose the mortgage, the moneys actually advanced by him were allowed, without any reduction on account of the bonus stock, though there were general creditors subsequent to the mortgage securing his bonds.
It is therefore apparent from these cases; which we think embody the settled law on the subject, that the defendants Hinsdill and Tyler are not in position to question the right of the corporation to increase its capital stock, and to sell or pledge such bonus stock to raise money for the legitimate purposes of the corporation. Their debts antedated the giving of the mortgage.
We think the complainant was entitled to his decree of foreclosure for the full amount of the mortgage, and that he had such right under the second series of notes, as the third was never used, and the first was delivered up and cancelled. We are also of the opinion that the court was not in error in giving the complainant the prior lien for interest paid on the Uhl mortgage. It was necessary to protect his own mortgage lien. Neither do we think the court was in error in providing, second, that the receiver should have a lien for the moneys paid by him for interest on the Uhl mortgage and the taxes on the property. It would be inequitable to hold that the receiver, having protected the property from sale for the taxes assessed and interest on the Uhl mortgage, and preserved the .security for the mortgagees, should not now be protected.
We now come to the discussion of the priorities fixed hy the court in other portions of the decree. The Lidgerwood claim is made a lien prior to the complainant’s, except as to the moneys advanced as interest upon the Uhl mortgage. We think this claim cannot be sustained by the Lidgerwood Company. A court of equity will not create a lien upon real estate in favor of a party
We think the court was not in error in fixing the priorities between the other claimants. By the decree, the court gave the execution and attaching creditors priorities over the moneys which were paid under the mortgage subsequent to the levies.