sign the notes, and advised Schwartz to send account to the attaching creditors, who had for the representatives of Davis & Co. and Jat- garnished such mortgagees, according to the fray & Co., tell them of his situation and in-priority of such creditors, in effecting these tentions, and ask for an extension of time. garnishments. Schwartz accordingly telegraphed for these To this report exceptions were filed by both representatives, who arrived at Fort Madison parties, and the case coming on to be heard beon Saturday morning, December 27, and held fore the court, certain exceptions of the dea conference with him at his house in the pre- fendants were sustained, and a final decree sence of Hellman. Schwartz gave a full ac-entered adjudging the several mortgages to be count of his debts and assets, and asked for an extension of the Davis and Jaffray claims. Schwartz and Hellman claim that they were given to understand that the extension would be granted, and that the representatives of these firms would return after dinner with the extension notes prepared for Schwartz to sign. There is some dispute as to what was done that day, but instead of returning to Schwartz, it appears that the two representatives prepared petitions for attachments upon his stock, though the writs were not issued, apparently because they were awaiting indemnity for the surety upon the attachment bond. It seems that Schwartz and Hellman became suspicious at the failure of the representatives of the two firms to return with the extension notes, and on Sunday evening met at the residence of one of their counsel, Casey & Casey, at which were present John H. Hellman, John H. Schwartz, H. D. McConn, cashier of the Ger man-American Bank, and Joseph B. Schwartz, a brother. After midnight and before dawn of Monday morning the 29th, the four chatteland Eben Richards, for appellants: mortgages in question were drawn up, taken to the bank, acknowledged before a notary, and delivered to the recorder of deeds and filed by him about 5 o'clock in the morning.

valid conveyances and first liens, aud dismissing the bill so far as the same attacked the validity and priority of such mortgages. The decree then proceeded to find the several amounts due the mortgagees, ordered that they should be paid out of the fund in court, and the surplus, over and above paying mortgage debts and receiver's costs and expenses, was ordered "distributed to the general cred- [636 itors pro rata; that is, in proportion to the amount shown to be due and owing said par ties from the insolvent debtor. It was further decreed that the mortgage defendants served as garnishees, be discharged as such garnishees, and as the fund in court had been loaned upon bond and security to the Polk County Savings Bank of Des Moines, that the clerk withdraw the money from such bank, and make payment to the several parties adjudged to be entitled thereto. From this decree plaintiffs appealed to this court.

Messrs. John W. Noble, James C. Davis

The several mortgages were void because given with intent to hinder, delay and defraud creditors, and so known by them to be when received by mortgagees.

Redhead v. Pratt, 72 Iowa, 103; Zimmerman v. Heinrichs, 43 Iowa, 260; Headington v. Langland, 65 Iowa, 280; Stinson v. Hawkins, 13 Fed. Rep. 833.

The real question is whether the transaction was in good faith. It is not sufficient that it be upon consideration or bona fide; it must be both.

A demand was immediately made by the mortgagees upon Schwartz for payment. The 635] latter, expressing regret that he was unable to comply with such demand, presented to each one of the mortgagees a key to his store in Fort Madison, where the largest part of the goods was. Whereupon the mortgagees at once, and at a very early hour in the morning, | entered into possession, put up notices that the Syre v. Fredericks, 16 N. J. Eq. 205; Sweet goods were being sold under mortgage, and byv. Wright, 57 Iowa, 514; Hawkins v. Alston, the time the attachments were levied, bad 39 N. C. 137; Morris Canal & Bkg. Co. v. made sales of about $70 worth of property. Stearns, 23 N. J. Eq. 414; Glenn v. Glenn, 17 Iowa, 498; Vandall v. Vandall, 13 Iowa, 247; Holladay Case, 27 Fed. Rep. 830; Klein v. Hoffheimer, 132 U. S. 367 (33: 373); Lombard v. Dorcs, 66 lowa, 213.

As soon as it was known that the mortgages were made and the mortgagees were in posses sion, Davis & Co. and Jaffray & Co. sued out | their writs of attachment, and at once levied the same upon the stock of goods and upon the real property owned by Schwartz in Fort Madison. Under indemnity bonds given by the attaching creditors, the sheriff, as provided by the statutes of Iowa, continued in posses sion, the mortgagees relinquishing their claim the property and falling back upon the present Buit to enforce their debts.

The master made his report on January 1, 1890, finding the mortgage to Hellman valid, and the others invalid, upon the ground that they they embraced notes or accounts claimed to be owing by Schwartz to the mortgagees, which were not in fact debts due to such mortgagees; that the amount so secured had been fraudulently exaggerated for the purpose of defrauding the general creditors; and adjudging that, so far as such mortgagees had received payment on their debts derived from sales of the property mortgaged, they should

If the consideration inserted in each mortgage was at least in part fraudulent, and thus falsely swelled the amount to be secured, the several mortgages were invalid and void.

Mead v. Combs. 19 N. J. Eq.. 112; Holt v. Creamer, 34 N. J. Eq. 181; Heintze v. Bentley, 34 N. J. Eq. 563; McNichols v. Rubelman, 13 Mo. App. 515.

A mortgage taken for more than due from insolvent debtor is a strong circumstance to impeach it.

Wood v. Scott, 55 Iowa, 114; Taylor v. Wendling, 66 Iowa, 562.

Mortgage to secure antecedent debt, debt not surrendered and no new consideration given, is a voluntary conveyance and void and to existing creditors and prior existing equities. Iowa College Trustees v. Hill, 12 Iowa, 463478; Ryan v. Chew, 13 Iowa, 590; Flannigan Althouse, 56 Iowa, 515; Busenbarke v.

v.

For the mortgages to have had no provisions for notice and sale, was itself an evidence of fraudulent intent. A sale of mortgage property, otherwise than by foreclosure or in computed consideration. pliance with statute is illegal, and a conversion of the property.

Jones, Chattel Mortgages, § 774; Loeb v. Milner, 21 Neb. 392; 6 Wait, Actions & Defenses, 192; Simpson v. Carlton, 1 Allen, 109, 79 Am. Dec. 707; Denny v. Faulkner, 22 Kan. 89; Denny v. Van Dusen, 27 Kan. 437; Black Novation, is a well recognized mode of subv. Howell, 56 Iowa, 630; Stromberg v. Lind-stituting one debt for another, and is always berg, 25 Minn. 513; French v. Edwards, 80 U. held to be valid. S. 13 Wall, 506 (20: 702).

Mr. Justice Brown delivered the opinion of | Crawford v. Neal, 144 U. S. 585, 596 [36: 552, the court:

This is a contest between the attaching creditors and the chattel mortgagees of the property of John H. Schwartz, an insolvent debtor formerly engaged in business at Fort Madison and Chariton in the state of Iowa, and at Dallas in the state of Illinois, These two classes of creditors are in reality competitors in a race of diligence, the object of which was to obtain a lien upon and possession of the property in question.

557]; Furrer v. Ferris, 145 U. S. 132 [36: 649]. 2. The real question in this case is, whether the mortgages, which were awarded priority of payment by the decree of the court below, were valid securities at the time of the Schwartz failure, or were fraudulent and void as against his general creditors. If they were in fact given bona fide and for a valuable consideration, it is difficult to see why they should not be upheld, notwithstanding they were given for precedent debts, were executed and acknowl1. As the case was referred by the court to a edged under an impending fear *of at-[638 master to report, not the evidence merely, but tachment, at a most unusual hour of the day, the facts of the case, and his conclusions of and were immediately foreclosed by the mort law thereon, we think that his finding, so far gagees and possession taken of the property. as it involves questions of fact, is attended by There are undoubtedly indicia of fraud a presumption of correctness similar to that in connected with the transaction, but, after all, the case of a finding by a referee, the special they are only items of testimony bearing upon verdict of a jury, the findings of a circuit court the main question, and if there be nothing to in a case tried by the court under Revised impeach the consideration and the good faith Statutes, 649, or in an admiralty cause ap- of the parties, the fact that the mortgagees inpealed to this court. In neither of these cases tended to obtain a preference over other crediis the finding absolutely conclusive, as if there tors should not in validate the mortgages, since be no testimony tending to support it; but so the very object of giving such securities is to far as it depends upon conflicting testimony, give a preference to the creditors therein desor upon the credibility of witnesses. or so far ignated. Hutchinson v. Watkins, 17 Iowa, as there is any testimony consistent with the 475: Chase v. Walters, 28 Iowa, 460; Stewart finding, it must be treated as unassailable. Wis-v. Mills County Nat. Bank. 76 Iowa, 571. cart v. Da uchy,3 U.S. 3 Dall. 321 [1: 619]; Bond 637]*v. Brown, 53 U.S. 12 How. 254 [13: 977]; Graham Bayne, 59 U. S. 18 How. 60, 62 [15: 265 266]; Norris v. Jackson, 76 U. S. 9 Wall. 125 [19: 608]; Mercantile Mut. Ins. Co. V. Folsom, 85 U.S. 18 Wall. 237, 249 [21: 827, 833]; The Abbottsford v. Johnson, 98 U. S. 440 [25: 168].

case.

The fact that the assignee or the preferred creditor of an insolvent debtor is a relative or intimate friend is doubtless calculated to excite suspicion; yet in reality there is nothing unnatural in a dealer or trader who is in need of credit, or a loan of money to carry on his business, first applying to his relatives for such loans, and if the evidence be undisputed that the money was advanced, the fact that the persons making the loan are relatives ought not to debar them from receiving security. Their rights are neither increased nor dimin ished by the fact of relationship. Magniac v. Thompson, 32 U. S. 7 Pet. 348 [8: 709]; Prewit v. Wilson, 103 U. S. 22 [26: 360]; Estes v. Gunter, 122 U. S. 450 [30: 1228]; Bean v. Patterson, 122 U. S. 496 [30: 1126]; Garner v. Second Nat. Bank of Providence, 151 U. S. 420, 432 [38: 218. 223]; Aulman v. Aulman, 71 Iowa, 124, 60 Am. Rep. 783; Van Patten v. Thompson, 73 Iowa, 103; Re Alexander, 37 Iowa, 454; Doyle v. McGuire, 38 Iowa, 410. A general assignment to a relative as trustee for the benefit of creditors is open to more suspicion, since such are more often selected as instruments for creating a secret trust in favor

The question of the conclusiveness of find ings by a master in chancery under a similar order was directly passed upon in Kimberly v. Arms, 129 U. S. 512 [32: 764], in which a distinction is drawn between the findings of a master under the usual order to take and report testimony, and his findings when the case is referred to him by consent of parties, as in this While it was held that the court could not, of its motion, or upon the request of one party, abdicate its duty to determine by its own judgment the controversy presented, and devolve that duty upon any of its officers, yet where the parties select and agree upon a special tribunal for the settlement of their controversy, there is no reason why the decision of such tribunal, with respect to the facts, should be treated as of less weight than that of the court itself, where the parties expressly waive of the assignor. & jury, or the law declares that the appellate It is also true that the mortgages must have court shall act upon the finding of a subordi. been given for a valuable consideration, and nate court. "Its findings," said the court, must have been executed and received in good "like those of an independent tribunal, are to faith and for an honest purpose. be taken as presumptively correct, subject, in- the accepted law ever since Twyne's Case, 3 deed, to be reviewed under the reservation con- Coke, 80, that good faith as well as a valuable tained in the consent and order of the court, consideration is necessary to support a convey. sideration given to the evidence, or in the ap-being indebted to Twynein 400 pounds, was sued plication of the law, but not otherwise." As *by a third party for 200 pounds. Pend-[639

when

ihe

It has been

there has been manifest error in the con- ance as against creditors. In that case Pierce,

find the facts, we think the rule in Kimberly Twyne in consideration of his debt, but con1. Arms applies, and as there is nothing to tinued in possession, sold certain sheep and set show that the findings of fact were unsup- his mark on others. It was resolved to be a ported by the evidence, we think they must be fraudulent gift, though the deed declared that treated as conclusive. To same effect are it was made bona fide. Most of the cases il

reference in this case was by consent to ing such suit he conveyed all his property to

642] *The fact that the goods were spirited | made to the bank, as well as a note for away from the store on Sunday night would un- $1500 made to H. Cattermole, president of the doubtedly assume a serious importance were it bank, and assigned to the bank, together with shown to have been done directly or indirectly a note of $1000 to Pauline Schwartz, also for the benefit of Schwartz; but the goods assigned to the bank,-these notes aggregating seem to have been taken away in a sleigh by $8000. This mortgage was found by the some of the clerks, who took this method of master to le fraudulent, as against the general paying themselves for the amounts due them creditors, by reason of the inclusion of the Catfor wages, aggregating $282.77. It appears termole and Schwartz, notes. that they took no more than sufficient to reimburse themselves, and that they were charged upon the books with the goods taken at cost price. Although, of course, the proceeding was irregular, there is no evidence to connect either Schwartz or the mortgagees with it, and the clerks did no more for themselves than Schwartz would have been at liberty to do for them if he had been present, viz, to prefer them to the amount of the wages severally due them. The case, then, reduces itself to the simple question whether the mortgages were given for bona fide existing debts to the amount expressed upon their faces, and this involves an inquiry into the consideration of each mortgage separately.

3. So far as regards the mortgage to John H. Hellman, which covered only the stock at Fort Madison and the book accounts, both the master to whom the case was referred and the court, agreed in holding it to be valid. In this connection the master found Schwartz to be indebted to Hellman, bis wife's father, as evidenced by his notes, for money borrowed, amounting with interest to $22, 180.37; that Hellman, before leaving Galena had prepared memoranda of these notes, which amounted upon

So far as concerns the Cattermole note, the finding is that McConn, the cashier of the bank, who acted for it at the Sunday evening meeting at Schwartz's house, demanded not only security for the bank, but for Cattermole himself. As Cattermole was not present, no transfer of the note could have then been made by him, and there is no pretense that it was then transferred. The note was not produced at the time, and McConn knew that there was no entry upon the books of the bank to show that the bank owned the note. It appears that the bank afterwards became the owner of the note by giving therefor its own note in exchange, although it is not certain when this took place, since the books of the bank show no entry whatever of the transaction, either to charge the bank with the liability or to credit it with the Cattermole note as an asset. But putting a construction upon this transaction most favorable to the plaintiffs, it only appears that the bank did not actually own the note at the [644 time the mortgage was given. The Cattermole note had been given by Schwartz for money loaned, and had been in possession of the bank for two and a half months before the failure. The money had been loaned to Schwartz under promise by him to give a real estate mortgage, and McConn, who was a cousin of Cattermole, upon the failure of Schwartz to give the mortgage, had agreed to take the note off of his hands.

their face to $20,380.98, together with another note for $1000. payable to his son John V. Hellman, in consideration of money loaned to Schwartz. This note had been assigned by the payee to his wife Wenona, but being afraid that Schwartz was in a bad way The mortgage of $1000 to Pauline Schwartz financially, it was agreed between the father was sold and delivered by John H. Schwartz and son that the former should purchase the to McConn for about two thirds its face value note, which was then in his safe; that Wenona and interest. It seems that the money represhould indorse it; that the father should be sented by this note had been sent, in 1879, in charged with it on his books, and the son, who the form of a draft, by Hellman to his daughter was then owing the father to that amount or Pauline, who was the wife of John H. more, should be credited therewith. But the Schwartz, as a Christmas present. Schwartz entry upon the books was not made until after appears to have used the money himself, and and was then entered as of December 29. As the 1879. When the mortgage was given, he 643] *note really belonged to John H. Hell- turned it over to the bank for its face value man, and was transferred to him before he left upon his wife's request that he should realize Galena, though the entry had not yet been upon it for her. No entry was made upon the made, there can be no just criticism upon his books of the bank because, as McConn exincluding it in his mortgage. Even if the pur-plained, "it was a small matter, and we chase had not been made, there is nothing im- thought it would be adjusted in a few days, and probable in John V. Hellman desiring that his we did not want any more of John H. wife's note should be secured, and if he sus-Schwartz's matters mixed up." The money likely to fail, he would naturally put the note in the bank by McConn. This was undoubtpacted, as he doubtless did, that Schwartz was to pay for the note was taken from an envelope much larger amount due his father; and if the business and was open to some suspicion; but latter caused it in good faith to be included in there is nothing to impeach the consideration his mortgage, supposing it to be lawful to do for which the note is said to have been given, so, the mortgage would not thereby be in and nothing but the somewhat unusual nature Bank, which covered not only the stock at 4. The mortgage to the German-American with reference to this purchase by the bank. Fort Madison, but that at Chariton, and the whether they were actually owned by the bank Of both these notes it may be said that book accounts at both places, was given on its or not, there is nothing to indicate that they face to secure two notes of $5000 and $500 were not just debts of John H. Schwartz. It

validated.

of the transaction to contradict McConn's story