Ryan v. Rogers

AILSHIE, C. J. This action was commenced in the district court by Albert T. Eyan as trustee in bankruptcy of the estate of Peter B. Yan Blarieom v. Walter A. Eogers and Peter A. Steers, as sheriff of Bingham county. Plaintiff sought to recover the sum of $3,000 alleged to be the value of a stock of merchandise which he claimed belonged to the estate of the bankrupt and which had been wrongfully converted by the defendant. The issues were joined and when the case came on for trial the attorneys made and filed a stipulation which is in the following words: “It is hereby stipu — 314 — lated that a special question shall be submitted to the jury-in answer to which they shall find simply the value of the property seized and sold by the defendants, and there shall be submitted to the court, upon the evidence, the question whether or not the chattel mortgage in controversy, under the circumstances shown by the evidence, was void as against the plaintiff at the time of plaintiff’s appointment as trustee, the court to take into consideration the fact of actual possession by the defendants of said property at said time, and if the court find that said mortgage was at said time void as against the plaintiff, and further finds that the defendants had no valid lien as against the trustee, by reason of such possession, judgment shall be entered in favor of the plaintiff and against the defendants for the full amount of the value of said property as found by the jury; otherwise, judgment to be for said defendants.” Under the provisions of the foregoing stipulation, a jury was impaneled and sworn and heard the evidence submitted, and found the value of the property in controversy to be $2,400. The court found that $300 worth of the property was originally covered by the mortgage, and that $2,100 worth of the property taken had never been covered by or included in the mortgage. The court thereupon entered judgment in favor of the plaintiff for the sum of $2,100. The defendant appealed to this court, and after an examination of the matter, the court, in pursuance of the conditions and requirements of the stipulation, held that the judgment must be for either plaintiff or defendant to the full value of the property as found by the jury, and •accordingly reversed the judgment and remanded the cause for further findings and judgment in accordance therewith. (Ryan v. Rogers, 12 Ida. 404, 86 Pac. 524.) After the cause was remanded, the trial court made further findings and entered judgment in favor of the plaintiff for the full sum of $2,400. This appeal is from the judgment. Appellants have assigned fourteen errors, but we will not undertake to consider them separately, but will rather deal with the questions as argued in the briefs. The stipulation was construed by this court on the previous appeal to — 315 — the extent of holding that under its terms the court should enter judgment for the full value of the property in favor of either the plaintiff or defendants. A further question, however, is raised on this appeal as to the construction of that stipulation which it will be necessary for us to consider. The substance of appellant’s argument is to the effect that the trial court was to determine, under the provisions of the stipulation, whether the mortgage was on its face a valid and binding instrument. They seem to argue here that the trial court had no right to go into the evidence as to the circumstances under which the mortgage was executed and the knowledge of the mortgagee as to the disposition by the mortgagor of the property covered by the mortgage, nor was the court authorized to go -into the question as to whether the property taken was in fact the property covered by the mortgage. Both the purpose and spirit of the stipulation, as well as the language it contains, refute the contention made by the appellants. The stipulation provides that “there shall be submitted to the court, upon the evidence, the question whether or not the chattel mortgage in controversy, under the circumstances shown by the evidence, was void as against the plaintiff at the time of plaintiff’s appointment as trustee.” It will thus be seen that the court was to determine the validity of the mortgage, not from the instrument itself, but upon the evidence and circumstances shown thereby. It could not have been the intention of the plaintiff to consent to a judgment against him for the value of property that was in fact not covered by the mortgage, nor could it have been his intention to submit the question on the face of the mortgage itself, or else he would not have provided for its consideration “upon the evidence.” The conduct of the parties in the trial court shows clearly that they intended that this matter should be determined, not only upon the instrument itself, but upon all the facts and circumstances submitted in evidence. The trial court viewed the stipulation in the same light and heard the evidence, and, in fact, no objection was made to the introduction of the evidence in these respects. The mortgage in this case described the property as — 316 — follows: “The stock of goods and merchandise this day sold by the mortgagee to the mortgagor consisting of harness, saddles and supplies and furnishings used in connection with the business of the Blackfoot Harness Company now situated in the building of John C. Milliek on Bridge Street in Blackfoot, Bingham County, Idaho.” Following this description of the property, the mortgage contains a further paragraph which is called under consideration in this case, and which is as follows: “It is understood and agreed by and between the parties that the mortgagor shall continue in possession of said goods, doing a retail business, but the proceeds derived from the sale of said property shall be as the same is received applied on the payment of this mortgage and not otherwise.” The mortgage was executed on July 21, 1903, to secure the payment of two promissory notes, each for the sum of $750, bearing interest from date at the rate of ten per cent per annum. The first note fell due July 21, 1904, and the second July 21, 1905. Interest was made payable quarterly in advance. The mortgage also contained the usual stipulation providing that the indebtedness should become immediately due upon the failure of the mortgagor to comply with any of the covenants, agreements or stipulations of the mortgage, or to make payments of interest or principal when due. The only payment that was ever made was two or three days after the execution of the notes and mortgage, when the mortgagor paid the sum of $37.50 .to be applied on interest. No further sum whatever was paid, but the mortgagor remained in possession of the property and continued to sell and dispose of the same, and sold off all the property covered by the mortgage with the exception of about $250 or $300 worth of fixture's. The mortgagee testified that he knew of the sales being made from time to time, and knew that the mortgagor was disposing of the property and that no payments whatever were being made on the indebtedness to him. The stock of goods at the time the mortgage was executed was of the value of about $3,000. On July 8, 1904, the sheriff seized the whole of the property now in controversy under instructions from the defendant’s — 317 — attorneys. The sheriff, proceeding under affidavit and notice as required for foreclosure of chattel mortgages, advertised the property for sale on July 16th. Some of the creditors procured an injunction restraining the sheriff from selling, and, while the injunction was in force, and on July 23d, the bankrupt, Yan Blaricom, filed his petition in the United States circuit court, asking that he be adjudged a bankrupt, and on the 28th day of that month, he was duly and regularly adjudged a bankrupt. On August 4th, the temporary injunction was dissolved, and thereupon the sheriff advertised the property for sale on August 11th, and on that date sold it at public auction. On August 8th the referee in bankruptcy issued and caused to be served on the sheriff and the mortgagee, a notice that the property about to be sold was not the property covered by the mortgage, but that, on the contrary, it was part of the assets of the estate of the bankrupt, and that they would be held liable for any sale, disposal or conversion of the property. This action was thereafter commenced to recover the value of the property on account of its wrongful conversion. In the first place, the mortgage in this ease does not attempt to cover after-acquired property. It has been established beyond cavil that at least $2,100 worth of the property taken was after-acquired property. It was not owned by the mortgagor at the time the mortgage was executed; was not among the property described in the mortgage, but was purchased by him from time to time after the execution and recording of this mortgage. It is therefore clear that the property not covered by the mortgage was wrongfully converted. It was not taken under the mortgage or by virtue thereof if not covered by the contract. The respondent contends, however, that the mortgage was absolutely void even as to the property it attempted to cover, for the reason that the mortgagee permitted the mortgagor to remain in possession of the property and to sell and dispose of the same and retain the proceeds without applying any part thereof on the payment of the debt secured. The fact that the mortgagee permitted the mortgagor to remain in possession of the property, which was within itself some — 318 — thing like double the value of the debt secured, for a period of one year, and for at least nine months after breach of the conditions named in the mortgage, and sell and dispose of the property, without any attempt to collect any part of the mortgage debt, or take possession of the property, would, as a matter of law, be such a fraud upon attaching creditors and purchasers as to avoid the mortgage. (Wilson v. Voight, 9 Colo. 614, 13 Pac. 726; Stevens v. Curran, 28 Mont. 366, 72 Pac. 753; Rocheleau v. Boyle, 11 Mont. 469, 28 Pac. 878; Lewiston Nat. Bk. v. Martin, 2 Ida. 734, 23 Pac. 920.) Notwithstanding these facts, however, the mortgage would be good as to any remaining property covered by it as between the mortgagor and mortgagee in the absence of attachment or other lien or encumbrance prior to the mortgagee taking possession. (Fisher v. Zollinger, 149 Fed. 54, 79 C. C. A. 76, and cases there cited; Thompson v. Fairbanks, 196 U. S. 516, 25 Sup. Ct. 306, 49 L. ed. 577.) In this case the mortgagee took possession of the remaining property covered by the mortgage prior to any creditors’ rights initiating by reason of an attachment lien or other encumbrance on the property whereby a general creditor could bring himself within the purview of the statute and acquire a right to contest the mortgage. (Neustadter Bros. v. Doust, 13 Ida. 617, 93 Pac. 978.) Possession of the remaining mortgaged property having been taken by the mortgagee prior to the rights of any creditor attaching thereto, the mortgagee would be exempt from the application of the general rule. There is another reason, however, which prevents the appellant from securing a reversal of this judgment, even though it includes the $250 or $300 worth of property that was in fact covered by the mortgage as originally found by the trial court. Upon the first trial of this case, the court found that there was $300 worth of the property covered by the mortgage and $2,100 worth not included in the mortgage, and entered judgment in favor of the plaintiff for only the sum of $2,100. The defendants appealed from that judgment and insisted in this court that under the stipulation heretofore set out, the judgment should be either for the plaintiff in the full — 319 — sum of $2,400 or the defendants in the full sum of $2,400 as found by the jury. This court, on that appeal, construed the stipulation in accordance with the contention of appellant, and held that notwithstanding the judgment as entered by the trial court was probably equitable, it was not in accordance with the stipulation. After the case was remanded, the trial court made amended findings and, among other things, found that the goods taken by the defendant were practically all new and different goods from those covered by the mortgage and of the value of $2,400, and that the mortgage did not cover such goods and was void as to those goods. The court thereupon entered judgment against the defendant for the full sum as found by the jury. The appellant on this appeal will not be allowed any different construction of the stipulation from that obtained by him on the previous appeal. On that appeal he contended that the judgment must be either for or against him in the full value of the goods as found by the jury. He will be obliged to abide by that contention on this appeal. The appellants argue that if the mortgage should be held invalid as against them, that notwithstanding such fact, the defendant Rogers was entitled to set off or counterclaim plaintiff’s demand to the extent of the balance due him on the note and mortgage. That position might be tenable under some circumstances in an action between the mortgagor and mortgagee (Jones v. Annis, 47 Kan. 478, 28 Pac. 156; Barton v. Randall, 4 Kan. App. 593, 46 Pac. 326; Jacobson v. Aberdeen Packing Co., 26 Wash. 175, 66 Pac. 419), but no such principle can be applied in an action by the trustee of a bankrupt estate. In such case, “the filing of a petition in bankruptcy, followed by an adjudication, is a seizure of the property by the law which is equal in rank to seizure on attachment or execution, and with respect to the right to attack transfers or encumbrances by the bankrupt as either actually or constructively fraudulent the trustee stands in the same position as an attachment or execution creditor.” (In re Rogers, 3.25 Fed. 169, 60 C. C. A. 567; Bankruptcy Act, sec. 67.) (March 12, 1908.) Plaintiff also assigns the action of the court in overruling his demurrer to the amended complaint as error. The chief argument made in support of this assignment is that the conversion is- shown to have taken place prior to the appointment of the plaintiff as trustee in bankruptcy, and that in order for the plaintiff to recover, he must show that he was entitled to the possession of the property at the time of its seizure by defendant. There are two reasons why this assignment cannot be sustained. The demurrer was considered on the previous appeal, and while the opinion does not deal with that assignment, it was necessary to pass on it in order to arrive at the conclusion announced on that appeal. By that decision, we, in effect, held that the demurrer was not well taken. The complaint on its face, however, alleged sufficient facts in proper form. It alleged the plaintiff’s appointment prior to the date that it charged the conversion took place. If there was any variance between the proofs and the pleadings, it was necessary to raise that in some other manner than by demurrer. The demurrer was properly overruled. In the light of the foregoing conclusions, the other assignments of error become immaterial, and their consideration is of no importance to a decision of this case. There is no error in the record that would call for a reversal of the judgment. The judgment is therefore affirmed, with costs in favor of respondent. Sullivan, J., and Stewart, J., concur.