Plitt v. Stevan

Henderson, J., delivered the opinion of the Court. Kool Vent Aluminum Awning Corporation, on March 3, 1958, executed a chattel mortgage to the appellant to secure payment of $10,000 on or before April 2, 1958. Plitt, the lender, made affidavit before a notary public that the consideration of $10,000 set forth in the mortgage was true and bona fide. Plitt drew a check for that sum to Kool Vent, which was immediately endorsed by Dorfman, the President, and handed to the attorney for the Company, Schimmel, who cashed it.

On March 4, 1958, the chattel mortgage was duly recorded. On the same date Schimmel deposited $6,000 in his personal bank account, and on March 8, gave Plitt his check for $5,000. He testified that he disbursed the remaining $5,000 to or for the account of Kool Vent. Default having occurred in the payment of the balance due Plitt, he filed a petition to foreclose on July 15, 1958.

On August 15, 1958, Kool Vent executed a deed of trust for the benefit of its creditors, and on the same date the equity court passed an order assuming jurisdiction of the administration of the trust, authorizing the trustee for creditors to sell the corporate assets and reserving to Plitt all rights he might have in the proceeds. ¹⁸¹ This order was assented to by the trustee named in the mortgage. Thereafter, Plitt filed a petition for the allowance of his lien claim for $2,322.99, representing the unpaid balance of the mortgage debt. After hearing testimony, the Chancellor disallowed the claim on the ground that the mortgage was invalid because the consideration sworn to was not the true consideration. Dorfman testified that he approached Plitt for a loan of $5,000, the company being in financial straits.

Plitt demanded a $750 bonus, and insisted that he sign a note and mortgage for $10,000. Plitt gave him a check for $10,000, which he endorsed and delivered to Schimmel, the company’s attorney. He “understood” that Schimmel cashed the check and paid Plitt $5,000 in four or five days. Plitt asked that it be done that way.

He did not know whether Plitt ever received the bonus. The note and mortgage were executed in Schimmel’s office, and Plitt gave him the check for $10,000 at that time. Kool Vent never received any benefit from the $5,000 repaid to Plitt. Plitt testified that Kool Vent had the use of the entire $10,000 for five days.

There was never any understanding as to when the $5,000 was to be repaid. He was to receive $10,750 if “it was carried as long as thirty days.” He never received the $750. There were other payments on account of principal, the last being on April 18, 1958. The lien claim included an item for interest of $60.79, but did not include the bonus.

Schimmel testified that arrangements for the loan were made by Dorfman and Plitt. He cashed Plitt’s check, endorsed by Dorfman, and deposited $6,000 in his account. He gave Plitt his check for $5,000 on March 8, in accordance with “the instructions he received from Mr. Plitt at the time he handed him the check” for $10,000, when the parties met in his office. The rest of the money he subsequently disbursed for the account of Kool Vent.

The Chancellor found as a fact that there was “a loan of only $5,000,” and that “[t]he obvious reason for attempting to make the consideration appear to be $10,000 was the fact ¹⁸² that interest charged was $750 for one month, and by treating this as interest on $10,000 instead of $5,000, the rate might not appear to be too outrageous, although far beyond the legal limit.” We cannot hold that the Chancellor was clearly wrong in his finding of fact. The appellant argues that Kool Vent, or its agent, had the use of the full $10,000 for four or five days, and hence the affidavit was literally true. But Kool Vent never had dominion over the fund. Plitt’s check was immediately endorsed and handed to Schimmel, upon condition that $5,000 be returned to Plitt.

Schimmel, acting for both parties and upon their joint instructions, was in the nature of an escrow agent, and the consideration was not bona fide, but colorable and inflated. The evidence supports the conclusion that the true consideration was $5,000, and not $10,000. Code (1957), Art. 21, sec. 50, states that “[n]o * * * mortgage of personal property shall be valid, except as between the parties, unless the * * * mortgagee * * * shall make an affidavit that the consideration * * * is true and bona fide as therein set forth * * *.” A similar provision as to mortgages of real property is found in Code (1957), Art. 21,