Summary
In Coffeeville Bank v. Stone, 151 Miss. 482, 118 So. 413, transactions very similar to those in the case at bar, with the exception that the evidence of the lien therein was acknowledged and recorded, were held to be fraudulent and void as to other creditors, because the debtor was held out as the absolute ostensible owner of the property and by this means was able to obtain a fictitious credit all because of the conduct of the two parties to the transaction.
Summary of this case from Wood Preserving Corp. v. Groc. Co.Opinion
No. 27300.
October 8, 1928.
FRAUDULENT CONVEYANCES. Instrument creating lien on lumber remaining in possession of owner held fraudulent and void as to general creditors.
Instrument creating lien on lumber remaining in possession of owner, who was permitted to sell and replenish the stock in usual course of business, held fraudulent and void as to general creditors of owner.
APPEAL from chancery court of Lafayette county; HON. N.R. SLEDGE, Chancellor.
Stone Stone, for appellant.
There is not one word in either instrument authorizing the selling and replenishing of the stacks. There is only the agreed statement herein that with the knowledge of the bank a part of the lumber was, in fact, shipped out later and replenished; that is, that a part of the lumber changed in identity. We say first, the instruments are not void on their face. We say that the only thing that makes an instrument of this sort void on its face is the reservation in the giver of the instrument the right to keep and use and handle the subject-matter, and this has been consistently held by the courts of Mississippi. See Britton Mason v. Criswell, 63 Miss. 394; Hitchler v. Citizens Bank, 62 Miss. 403; Baldwin v. Little, 64 Miss. 126, 8 So. 168, especially the latter case.
An analysis of the cases relied on by the receivers herein shows that it was in almost every case a stock of goods, and in the single exception of the Andrews v. Partee case it was where there was a distinct agreement that the debtor could use the logs in the usual course of business, which, of course, invalidated the instrument in whole and in part.
The instruments not being void on their face, it cannot be claimed that the valid lien was lost to the bank and absolutely destroyed by the fact that the bank knew and understood that a part of the lumber was shipped out, and it certainly could not destroy the lien on the planer. There is no case where simple knowledge by the mortgagee of the fact that the mortgagor had handled a part of the property would destroy a lien.
Under our view of this case the bank has a valid debt, and certainly that is not denied, and has a valid lien on the lumber and the planer.
Sivley, Evans McCadden, for appellees.
We submit that both of these instruments are absolutely void under the authorities, because McRea carried on his business of buying and selling lumber, and was shipping and replenishing the stock after these instruments were executed, in just the same way that he carried on his business before they were executed, and that this was done with the full knowledge, understanding and consent of the parties. We submit that the language of the instruments themselves can mean nothing else when they provide "that at no time shall the stock of lumber kept by them be smaller than that above indicated," and that McRea was "to render a checkup of the lumber at any time." And McRea's conduct of the business thereafter, selling, shipping and replenishing his stock of lumber, is a practical interpretation of what was meant and intended by the language of the instruments. See 11 C.J. 573.
Opposing counsel call attention to the fact that the instruments involved in this case were recorded, and that creditors had constructive notice thereof. See Robinson v. Elliott, 22 Wall. (U.S.) 513; Rocheleau v. Boyle, 11 Mont. 451, 28 P. 872; Bank v. Goodbar, 73 Miss. 566.
In Andrews v. Partee, 79 Miss. 80, the grantor was engaged in the business of buying and selling logs. He executed a chattel mortgage on all the logs then on hand and all thereafter to be cut and put on the yards. The deed of trust did not on its face give him the right to continue to sell and replenish his stock, but as a matter of fact, he did continue his business with the knowledge and consent of the mortgagee. The deed of trust was held to be void. See Tallman v. Tuttle, 65 Miss. 492.
Opposing counsel cites the case of Baldwin v. Little, 64 Miss. 126. We submit that this case strongly supports our contention, for the court held that the deed of trust involved was void as to creditors, because the stock of merchandise was sold and replenished after the execution of the deed of trust. See Britton v. Criswell, 63 Miss. 394; Harman v. Hoskins, 56 Miss. 142; Oil Co. v. Carr, 97 Miss. 234.
The rule is the same in other states. See Hangen v. Hachemeister, 114 N.Y. 566, 21 N.E. 1076.
Appellees were receivers for F.K. McRea Co. Prior to the receivership, McRea had executed to appellant bank two instruments purporting to give to the bank a first lien on lumber stacked and to be stacked on planer yards of McRea. The bank had loaned and was to advance to McRea money to the amount of ten dollars per thousand feet on all lumber so stacked. The instruments were acknowledged and recorded.
The agreed statement of facts recites:
"The lumber which we stacked on yard at the time of the execution of these lien agreements was shipped out in part from time to time and other lumber stacked on the yard from time to time in the place of that sold and shipped out and that the lumber changed in identity from time to time, but that the percentage of the lumber originally stacked on the yard at the time of the receivership is uncertain, but a large portion of it had been sold and shipped out, and that these facts were known and understood by the parties to the lien agreement at the time of the shipments and of the replenishments, and no objections were ever made thereto by the bank.
"It is further agreed that at the dates of the lien agreements in evidence, the bank did not require that McRae should stop business, and McRea continued his business as before, as specified above in this agreement."
The question for decision is: Were these instruments void as to the creditors of McRea? The fact that McRea was permitted to remain in possession of the lumber, to sell and replenish the stock in the usual course of business, brings the case squarely under former decisions of this court, rendering the instruments, and the course of dealing thereunder, fraudulent and void as to the general creditors of McRea. Bank v. Goodbar, 73 Miss. 566,
19 So. 204; Andrews v. Partee, 79 Miss. 80, 29 So. 788; Johnston v. Tuttle, 65 Miss. 492; 4 So. 553; Baldwin v. Little, 64 Miss. 126, 8 So. 168; Britton v. Criswell, 63 Miss. 394; Oil Co. v. Carr, 97 Miss. 234, 52 So. 353.
The court below held these instruments to be void, and in so holding we do not think there was error.
The judgment of the court below is affirmed.
Affirmed.