"In consideration of the above premises, I agree to execute and deliver to the said company 10 promissory notes, each of the sum of $360, payable in monthly installments of $30, commencing at date of signing contract. The said notes cover principal sum loaned, interest, and cost of guaranty to cancel debt in case of death, and shall be secured by good and sufficient deed of trust or mortgage executed by myself and wife on said ground and improvements. The contract hereafter to be entered into, if my application shall be accepted and contract entered into in writing between myself and said company, shall provide that the mortgage or deed of trust given to secure the above notes shall contain a clause guarantying, in case of my death before payment of any unpaid installments, a release of unpaid portion of debt, if I shall have promptly paid previous installments and kept other conditions. As part of foregoing condition, I agree, before acceptance of this application and the execution of said contract, to pass such medical examination as may be required by said company, and to pay said company the usual fee of $3 therefor, and to pay all fees for recording deed of trust or mortgage."

That thereupon Theodore M. Krumsieg passed the medical examination required, paid the fee demanded, and complainants then executed 10 certain promissory notes, each for the sum of $360, dated September 5, 1890, payable in monthly installments of $30, with interest at 10 per cent. after due; 41 of which installments, amounting to $1,230, have been paid. That on the same day, in order to secure these notes, they executed and delivered to defendant Missouri, Kansas & Texas Trust Company a mortgage on the premises, with the usual covenants of warranty and defeasance, reciting the indebtedness of $3,600 in manner and form aforesaid, and containing in addition thereto the following clause:

"And it is further understood and agreed by and between the said parties of the first part, their executors, administrators, or assigns, and the said party of the second part, the Missouri, Kansas & Texas Trust Company, that in case said Theodore M. Krumsieg, one of the parties of the first part, should die after the execution and delivery of the said notes and this mortgage, and within ten years thereafter, each and every of the said notes remaining unpaid at the said date shall be surrendered to the executors or administrators of the said Theodore M. Krumsieg, one of the parties of the first part, and this mortgage shall be canceled and satisfied: provided, however, that said parties of the first part shall have promptly paid each monthly installment that shall have become due prior to his death, according to the terms of the notes herein before mentioned, and that he has not committed suicide within two years, and has not, without written consent of the party of the second part, visited the torrid zone, or personally engaged in the business of blasting, mining, or submarine operations, or in the manufacture, handling, or transportation of explosives, or entered into the service of any railroad train, or on a steam or sailing vessel, for two years."

The bill alleges further that the sole consideration for the notes and mortgage was (1) the sum of $1,970, together with the interest thereon from date until maturity of the installment notes; and (2) the clause in the mortgage last referred to, which latter was in fact an arrangement between defendant and the Prudential Life Insurance Company of Newark, N. J., to save the former harmless from any loss that might occur to it in case of the death of complainant Theodore M. Krumsieg during the term covered by the mortgage. There is also an allegation that defendant has not complied with the laws of the state of Minnesota governing life insurance companies, and that the contract is therefore void. Complainants ask that the

mortgage be canceled of record, and the remaining notes be delivered up to them. The answer denies that the contract is usurious, and alleges that the sum of $1,970 received by complainants, with the legal interest thereon, and the cost of the guaranty of defendant to cancel the loan in case of the death of Theodore M. Krumsieg during the continuance of the contract, constituted a full and ample consideration for the notes and mortgage in question, and that the same was so understood and agreed to by complainants at the time of the execution of the contract. A stipulation was subsequently entered into by which the Union Trust Company of Philadelphia, Pa., was made a party defendant.

This contract cannot be upheld. It is contrary to public policy, and tainted with usury. Ingenious and novel in character, it must have taxed to the utmost the skill of the originator. It has about it certain features of life insurance,-a plan denominated by the counsel and some of defendant's witnesses "the reverse of endowment insurance." It is certainly not an ordinary “life insurance contract," in the general acceptation of the term. One of defendant's witnesses describes it as follows:

"It is similar to a straight loan, in that the borrower gets his money in advance. It is different from a straight loan, in that the borrower gradually pays the loan off by installments, and that at the end of the period, if he has kept his installments paid up, the mortgage which he has given as security therefor is satisfied, with this * * * additional feature: that if, while the contract is running, he should die, no matter whether he has paid one or many installments, the mortgage is immediately thereupon satisfied."

The undoubted purpose of the defendant was to loan money, and at the same time secure, as far as possible, indemnity against loss to itself, at the expense of the borrower. The supreme court of Minnesota describes a similar contract, in substance, as a loan of money with an agreement for perpetual forbearance in case of death, and holds that the contingency set up-the continuance of the life of the borrower-was a mere contrivance to cover usury. Trust Co. v. McLachlan (Minn.) 61 N. W. 560. Complainants could not have obtained the loan without submitting to this feature of the contract, the result of which, when carried out, is to give defendant a greater compensation for the use of the money than that allowed by the law of Minnesota. It is undisputed that defendant had a contract with the Prudential Insurance Company of Newark, N. J., under which it secured indemnity against loss upon transactions similar to the one in question, and that in this instance it obtained a policy of insurance upon the life of Theodore M. Krumsieg, in favor of itself, upon what is called the "Renewable, Reducing Term Plan." Such policies were to be issued for 10 successive years, decreasing in amount payable each year, so that as the payments were made upon the loan the amount of insurance upon the life of the borrower was also decreased. It is not necessary to decide whether this contract could be upheld in case the lender had charged complainants merely the amount it paid the insurance company for indemnity, for it appears conclusively from the testimony that it bound them to pay a sum far in excess of the cost to it for this in

demnity. Such a contract is usurious, under the law of Minnesota, and the agreement for perpetual forbearance does not relieve it from the taint.

Complainants seek the cancellation of the mortgage and notes, for usury. The supreme court of Minnesota, in the case of Scott v. Austin, 36 Minn. 460, 32 N. W. 89, 864, held that under section 2214, Gen. St. 1894, which declares that all usurious notes, conveyances, contracts, and securities "shall be void," except as to certain bona fide purchasers, it is not necessary for the party thus situated to tender or pay the amount of money received, as a condition of obtaining relief.

Upon the other point made by counsel for complainants,-that such a contract is in violation of the laws of Minnesota with reference to insurance companies, it is not necessary for the court to pass. Complainants are entitled to a decree, with costs; and it is so ordered.

CENTRAL TRUST CO. OF NEW YORK v. EAST TENNESSEE LAND CO. December 20, 1895.)

(Circuit Court, E. D. Tennessee, S. D.

FRAUDULENT CONVEYANCE EVIDENCE.

A mortgage of its assets, real and personal, made by a land company to secure bonds provided that until default the company should retain the mortgaged property and the income therefrom, and have the same power to control and sell the same as if the mortgage had not been made, and that upon the sale of any part thereof a release for such part should be given by the trustee in the mortgage. It appeared that the mortgage covered all such solid assets as would furnish grounds of confidence to creditors. Held, that the mortgage was void as against existing creditors, but not as against subsequent creditors.

This was a bill in equity by the Central Trust Company of New York against the East Tennessee Land Company to foreclose a mortgage made by the East Tennessee Land Company, August 28, 1891, to secure $1,000,000 of bonds, dated and issued October 1, 1890, part of which had been sold and negotiated prior to the execution of the mortgage. The form of the bonds was incorporated and made part of the mortgage. They were payable 20 years after date, with interest payable semiannually; and each bond showed that it was one of the million issue, and contained the following provisions:

"For the payment of said bonds, and each and every of them, said company pledges its corporate faith, and hereby creates a charge and lien upon all the real property which it now owns or may hereafter acquire" in certain counties named. "The charges and lien hereby created on said land shall entitle the holders of said bonds to priority of satisfaction out of the same over all debts which may hereafter be created by the company: provided, that the charge and lien thus created in favor of the holders of said bonds shall be equal among all the holders; * * provided, further, that nothing herein contained shall be so construed as to prevent the company, at all times prior to default herein, from taking and keeping possession of said lands, and using the same in the usual and ordinary course of business, and receiving and using the rents, issues, and profits arising therefrom, or from selling, conveying, leasing, or otherwise disposing of said lands, or any of them, to bona fide purchasers; and the sale of the land by the company in the ordinary course of its business shall not be construed to be prov.71F.no.3-23

hibited or prevented, and all lands so sold by it in good faith shall be relieved and discharged from the lien of said bonds; it being the purpose of this clause to permit the free and usual conduct by said company of its business of buying and selling lands unrestricted by the terms of this bond."

Then follow the conveying clauses of the mortgage, and the description of the property, consisting of all freehold and chattel interests in land, and all interests which the company has in "contracts, options, and agreements," and all after-acquired lands or interests in lands. It then provides as follows:

"Until default shall be made in the payment of principal or interest of said bonds, or some or any of them, or in some other covenant or agreement herein made, to be kept and performed by said party of the first part, the said party of the first part shall be permitted to possess, use, keep, and enjoy said lands, and every part thereof, with their appurtenances, and to take mineral, timber, stone, and other substances therefrom, and to take and use the rents, incomes, issues, and profits of every part thereof, in the same manner, and with the same effect, as though this mortgage deed of trust had not been executed."

The trustee covenants for itself, its successors and assigns, that: "It will at all times, when the party of the first part is not in default in any of the covenants and agreements in this mortgage made and provided, release, on the request of the president and secretary of the first party, from the lien of this mortgage, all such lots, parcels, or tracts of land herein conveyed as shall from time to time be sold by the party of the first part in the usual course of its business as a land company, upon the following express terms and conditions, however: (1) That no property subject to the lien of this mortgage shall be released unless the same shall be bona fide sold at such price as shall, from time to time, be fixed and determined by the executive committee of the party of the first part, which said price so fixed shall at all times be open to the inspection of the trustee herein named, or any agent or attorney designated in writing by such trustee; and, in the event the said trustee shall be of the opinion that any lot or parcel of land is priced too low by the said executive committee, the schedule or sale price list of said lot or parcel of land shall at once be advanced to such price or sum, not above the real market value, as such trustee shall fix, and such lot or parcel of land shall not thereafter be sold at a less price than so fixed. (2) That no property subject to the lien of this mortgage shall be released unless the same is sold bona fide to an actual purchaser; and the purchaser shall, in case of town lots, have a down payment of at least one-third of the purchase price, and, in case of other lands, a down payment of at least onefifth of the purchase price; the deferred payments to be evidenced by the notes of the purchaser, bearing interest at the rate of six per cent. per annum, payable annually, and secured by a vendor's lien on the property sold, expressly reserved in the deed conveying the same; provided, that such down or deferred payments may be made in the stock of the company, as now provided by its by-laws, or in any of the securities of the company which, by the terms thereof, are now receivable in payment of such down or deferred payments; and provided, further, that the trustee shall release such lots and parcels of land from the lien of this mortgage as said first party has heretofore or may hereafter give or donate to any religious or charitable purpose or use, or to any municipality for municipal or school purposes, or to any manufacturing or industrial company for a manufacturing site in or near the city of Harriman, Tennessee, or to any railroad company for a right of way through any of the lands hereby conveyed; it being expressly understood that the affidavit of the president or any vice president of the party of the first part, setting forth the existence of the facts requiring the release of any lots, tracts, or parcels of land under this clause of this deed, shall be sufficient evidence to authorize the trustee to execute the release required herein.”

For the purpose of creating a sinking fund, the mortgagor then agrees that on or before the 10th of January and July of every year it will pay or cause to be paid to the trustee 20 per cent. of the proceeds of all sales of lots and tracts of land made by it during the preceding six months. It is provided that this 20 per cent. may be paid in money or notes given for land; or the corporation may, at its election, pay in 40 per cent. of the amount of sales in bonds. But it is expressly understood and agreed that when the purchaser of lands has paid for the same in "profit-sharing certificates," or coupons of such certificates, theretofore issued by the company, or in the stock of the company, no percentage of such payments are to be made to the sinking fund. The mortgage then provides for investing the sinking fund in the bonds secured by the mortgage.

Previous to the filing of the foreclosure bill by the Central Trust Company an insolvent bill had been filed in the same court by Ferdinand Schumacher and others; the insolvency of the East Tennessee Land Company had been adjudged, and receivers appointed; and upon the filing of the foreclosure bill the receivership was extended to this case. By leave of court the receivers answered, resisting the validity of the mortgage sought to be foreclosed, and insisting that it was void in law, because it provided that the mortgagor should retain possession and full power of disposition of the mortgaged property, and created a trust and reserved benefits in favor of the mortgagor.

Butler, Stillman & Hubbard and Wheeler & McDermott, for Central Trust Co.

Russell, Robinson & Winslow, for bondholders.

Robert Pritchard and Jerome Templeton, for receivers of the East Tennessee Land Co.

C. E. Lucky, for unsecured creditors.

SEVERENS, District Judge, sitting by designation because of the disability of CLARK, District Judge (after stating the facts). The mortgage and lien attempted to be executed and created by the East Tennessee Land Company were, in my opinion, fraudulent and void in law as to then existing creditors. The facts show, in substance, that the company, having gone on and created debts until it was necessary to raise further means for continuing its business, resorted to the scheme of issuing its bonds for $1,000,000, and securing them by a mortgage of all its solid assets, such as would furnish grounds of confidence to creditors. It is true, there were other assets, but they were largely speculative and uncertain in their character, and not to be relied upon by creditors for their debts. They might be something or nothing, as the boom upon which the corporation was moving should prosper or fail. Here it failed, as is the common issue. The mortgage or trust deed was so drawn as to close the gates against access by the creditors to the valuable assets of the company, and to leave them to the manipulation and use of the debtor, and sale by it for its own benefit, and assured to the debtor the privilege of conversion to its own use and