Frank v. Morehead

EMERY, V. C.

Bill by Martin Frank and others against Alida B. Morehead and others for foreclosure of a mortgage securing notes. Cross bill by defendant for cancellation of the mortgage and notes. Held for further hearing.

Mr. Bradner and Bradford Semble, for complainants.

Adrain Riker, for defendant Mrs. Moorehead.

EMERY, V. C. Upon consideration of the pleadings and proofs in this case I have reached the following conclusions:

First. The notes secured by the mortgage of which foreclosure is sought by the bill were delivered to the defendant Jackman for the purpose of being discounted by him in New York, to procure funds for the business of W. G. Morehead & Co. and W. R. Morehead & Co., two firms, each composed of William R. Morehead, William G. Morehead, and the defendant Jackman. The mortgage given by the defendant Alida Morehead, wife of William R. Morehead, upon her separate estate, to secure the notes, was procured upon that understanding or agreement as to the purpose of the notes, and her indorsement of the notes was made upon that understanding and agreement. The allegation in the bill that the notes were given to secure Indebtedness by William G. Morehead & Co. to the defendant Jackman is disproved.

Second. The defendant Jackman, after the receipt of the notes and mortgage, and without authority or consent of William G. Morehead, William R. Morehead, or of the indorser and mortgagor, Alida Morehead, and before the maturity of any of the notes, assigned the mortgage and notes to the complainants as collateral to secure the payment of notes, amounting to over $10,000, made by the A. H. Jackman Manufacturing Company, and indorsed by Jackman as joint maker, which had been given to complainants for goods sold to Jackman or to the company on Jackman's credit. These notes are unpaid. This delivery of the notes and mortgage took place in the city of New York, in the state of New York, where Jackman resided and the complainants carried on business, and where Mr. Frank, the complainant who transacted the business, also resided. Such delivery to the complainants for this purpose was a fraudulent misappropriation of the notes and mortgage. The claim made at the hearing that the firms ofWilliam R. Morehead & Co. and William G. Morehead & Co. owed the Jackman Company several thousand dollars at the time of the assignment to complainants, and that, therefore, the assignment of the notes and mortgage to secure this debt of the Jackman Company was not a misappropriation, —even if it be admissible against the allegations of the bill that the debt of the firms was due to Jackman,—is not sustained by the evidence. The proofs show that, at the time of issuing these notes, the Jackman Company had already received notes from the firms for about the amount of their indebtedness, which notes were still outstanding, and not due, so that the notes now in question could not have been intended to be appropriated by the Jackman Company for payment of its debts. Besides, the direct evidence in the cause, and the course of dealings between these parties, negative any such intention.

Third. On the assignment of the mortgage and notes the complainants received them solely as security for a pre-existing debt or liability of the A. H. Jackman Company and of Jackman, and without parting with value or other credit, or relinquishing any previous security.

Fourth. Under the law of New York, which is applicable to the case, and which was proved as a fact in the cause, the complainants are not bona fide holders of the notes for a valuable consideration, and the notes and mortgage, and are therefore subject to the equities of the defendant Alida Morehead.

Upon these conclusions of fact the defendant Alida Morehead would seem to be entitled to a decree that the mortgage is void, and should be canceled, and that her indorsement on the notes should be canceled. But it also appears by the evidence that on July 11, 1893, William R. Morehead and William G. Morehead, the other partners in the firm, executed and delivered to Jackman, the remaining partner, a bill of sale for the stock in trade of the said firms, located in the store at Newark and in the store at Middletown, N. Y. Possession does not seem to have been taken under the bill of sale by Jackman, and the evidence makes it probable that it was executed to prevent creditors of the firm in New York from seizing the stock of goods under attachment as the property of William R. Morehead, a nonresident debtor. If this was the purpose, it would still be valid between themselves. On July 20, 1893, and at the time of receiving the notes and mortgage, the complainants received from Jackman an assignment of this bill of sale as collateral security for the notes of the Jackman Manufacturing Company, then in their hands. William R. Morehead, in August, 1893, declined to allow the complainants to take possession of the Newark store under the assignment of the bill of sale, unless they would deliver up the notes and mortgage; and on failing to reach an agreement for settlement, William R. Morehead and William G. Morehead, individually and as partners, executed a chattel mortgage upon the property in the Newark store to the defendant Alida Morehead, to secure her against liability on these notes and mortgage, and their cancellation and delivery to her upon demand. The affidavit to the mortgage stated that the whole $10,000 was due. The evidence in the cause leaves it uncertain whether or not the stock was sold out under her chattel mortgage. She is the only witness examined upon this subject, and her evidence leaves the matter in doubt. She says that she did not foreclose it, but also that she did sell it out. "I took the stores, and supposed I sold them." On redirect she says she does not know whether her mortgage was foreclosed, or some other chattel mortgage.

In this situation of the case, and before making any final decree, I desire to hear counsel further on these points: (1) Whether an inquiry should not be directed to ascertain the facts as to the dealings (if any) of Mrs. Morehead, as mortgagee, with the stock included in the chattel mortgage, and whether, as a condition of granting the relief of cancellation, she is to be held equitably accountable to the complainants for anything under the chattel mortgage. (2) If such inquiry is directed, whether any amendment of the answer to the cross bill or other pleadings is necessary in order to raise the question properly on the record. (3) Whether decree for complainants in cross bill should extend further than cancellation and delivery of mortgage and cancellation of her indorsement on the notes. I will hear counsel any motion day on notice.