Dearing v. Dash

Adams, J.: At the close of the proofs the learned trial court held as matter of law that the plaintiff was entitled to the possession of the property in question, and submitted nothing to the jury save the question of value. This disposition of the case' was apparently based upon the theory that the instrument relied upon by the plaintiff to sustain his claim of title was a chattel mortgage; that the same was •valid under the law of the State of Michigan, and that it conse-quently operated as a valid transfer of the mortgagor’s personal ■property wherever situated. In reviewing the several questions which are necessarily involved in the disposition made of the case by the trial court, it becomes important to determine at the outset the nature and effect of this •instrument, as construed by the law of the State where it was executed, for it seems to be conceded by the jdaintiff that if it is to be treated as a common-law assignment for the benefit of creditors, it is void for the reason, if for no other, that it creates preferences among the creditors of the Elms Buggy Company, and consequently contravenes the Statute of Frauds of the State of Michigan, which declares that “ All assignments, commonly called common-law assignments for the benefit of creditors, shall be void unless the same shall be without preferences as between such creditors and shall be of all the property of the assignor [not] exempt from- execution.” (Howell Ann. Stat. § 8739.) The courts of the State of Michigan have had occasion to give construction to instruments similar in character to the one under consideration, and in doing so to point out certain characteristics by which an assignment may be distipguished from a chattel mortgage, "Without stopping to consider these various distinguishing features, it may be said that the one essential difference between a chattel mortgage and a common-law assignment is, that the former is a conditional while the latter is an absolute- transfer of the title to the property affected thereby. (Pettibone v. Byrne, 97 Mich. 85 ; Warner v. Littlefield, 89 id. 329.) When, therefore, this simple test is applied to the instrument under which the plaintiff claims the right to maintain this action, it is quite clear that Ms contention rests upon a substantial foundation, for the mortgage contains an express condition that the transfer of — 38 — title which it was designed to accomplish was to become absolute only in the event of the failure' of the mortgagor to pay, within ninety days from its. date, the several creditors and classes of creditors therein mentioned. . Several other objections to 'the validity of this instrument are raised by the defendant, but without noticing the same in detail, we think, in view of the conclusion we have -reached upon another branch of the case, it is sufficient to say that it may be assumed that under the decisions of the Supreme Court of Michigan the instrument in question is a chattel mortgage; and that inasmuch as its execution was authorized by the directors of the Elms Buggy Company and it does not entitle the mortgagor to any of the surplus moneys- until all the creditors have been paid in full, it does not violate the statute-of that State inhibiting preferences in common-law assignments. (Kendall v. Bishop, 76 Mich. 634; Cluett v. Rosenthal, 100 id. 193; Austin v. F. N. Bank, Id. 613; Adams v. Niemann, 46 id. 135.) The question, however, with which we are more immediately concerned is this: Does this mortgage contravene any statute of this State ? The contention of the defendants being that in. several of. its provisions it is repugnant- to the policy of this State as declared in what is known as the Statute of Frauds, and that, consequently, it is not valid as against creditors who have acquired any rights as to property within this State. This contention we áre inclined to think is well founded ; for the instrument' in question, by whatsoever name it may be called, does apparently contravene the provisions of our statutory law which are designed to prevent a failing or dishonest debtor from hindering or delaying his creditors in the collection of their debts. (R. S. part 2, chap. 7, tit. 3, § 1.) In the first place, the instrument, so far as it affects the creditors who are specifically mentioned therein, is coercive, in that it expressly directs that the provision for such creditors, shall operate only in the event that they shall, “ after knowledge hereof, avail themselves of the security of this instrument and accept and .abide by the terms and conditions hereof, and all whose debts are due or to become due within ninety days shall assent. to an extension of the same for said period,” — 39 — This it seems to us is equivalent to saying to these creditors that if they will extend their debtor’s term of credit to a time fixed by the debtor himself, they can share in whatever benefits are to be derived from the instrument, but otherwise they must take whatever the debtor sees fit to allow them. The effect of such provision must necessarily be to hinder and delay these creditors in the collection of their debts. (Hyslop v. Clarke, 14 Johns. 458; Grover v. Wakeman, 11 Wend. 187; Armstrong v. Byrne, 1 Edw. Ch. 79.) Again, by the terms of this instrument, the trustee named therein was authorized to dispose of the property transferred to him “ at any time in the best manner and for the best prices he can obtain for the same at wholesale, retail or in job lots, as in his judgment shall be best for the beneficiaries herein, and to receive payment therefor and to apply the proceeds in the manner hereinafter provided,” etc. This clearly vests the trustee with discretionary power as to the time and manner of converting the property transferred to him into cash, and in the carrying out of this provision he is hampered by no limitation as to time. He is simply called upon to exercise hi.s own judgment, and in doing this he would obviously be at liberty, if he 'saw fit, to sell upon credit, and thus defer the settlement of the trust and the payment of creditors indefinitely. Such a delegation of power is in direct violation of the spirit, if not the letter, of the statute, because it is well calculated to cause the very delay which the statute inhibits. In the case of Jessup v. Hulse (21 N. Y. 168), which involved a consideration of. this same question, it was said : “ If the clause in question purported in terms to invest the assignee with any discretion, as coming directly from the assignor himself, it- would be fatal to the assignment; as if it had authorized the assignee to dispose of the property at such time and in such manner as in his judgment would be most conducive to the interests of the creditors, or as he should deem expedient and best calculated to promote their interests.” And in the case of The City Bank of Rochester v. Westbury (16 Hun, 458) it was held that where, by the terms of a chattel mortgage, the mortgagor was permitted to remain in possession of the mortgaged property, and in his discretion to sell- the same on credit and thereby keep his other creditors at bay, the transaction was fraudulent per se. — 40 — But the provisions of this instrument to which attention has thus far been directed are by no means the only ones which have a tendency to hinder arid delay creditors, for the mortgagor or assignor expressly reserves to itself the right to continue the business, and not only to convert the raw material which' was on hand into manufactured stock, but also to purchase new material for that purpose and to sell the same for the benefit of the parties secured. This, it seems to us, when considered in connection with the other portions of the instrument, is nothing more or less than a device by .means of which the corporation sought to carry on its business, and at the same time secure to itself immunity ffrorii importunate creditors; and, if so, it is obviously repugnant to the Statute, of Frauds.. Assuming, then, that the instrument in question is in conflict with the laws of this State, we are brought to the consideration of another and perhaps a still more important question, which is whether this fact permits us to treat it as void, in view of the further fact that it appears to be valid under the laws of the State where it was executed. It is not to be denied that, by a rule of interstate comity, transfers of personal property, -valid by the law of the domicile of the transferror, are, generally speaking, upheld and sustained by our courts. (Ockerman v. Cross, 54 N. Y. 29 ; Barth v. Backus, 140 id. 230.) But this, like every other rule, has its limitations, one of which is that the domiciliary law must not contravene the statute law of this State nor be repugnant to its policy. (Barth v. Backus, supra; Hervey v. Rhode Island Locomotive Works, 93 U. S. 664; Warner v. Jaffray, 96 N. Y. 248; Keller v. Paine, 107 id. 83.) In the case last 'cited it was said that “ the general rule that the voluntary transfer of personal property wheresoever situated is to be governed by the law of the owner’s domicil always yields when the law and policy of the State where the property is actually located have provided a different rule of transfer from that of the State whqre the owner lives.” And it has been repeatedly held that this general rule also yields in favor of domestic creditors who have secured a lien upon property within this State by attachment proceedings. (Guillander v. Howell, 35 N. Y. 657; Keller v. Paine, supra; Hallgarten v. Oldham, 135 Mass. 1. See, also, Bish. Insolv. § 295.) It thus appearing that, the instrument under which the plaintiff — 41 — claims title is in some of its provisions repugnant to the statute as well as to the policy of this State, and that the property to which he asserts his title was within this State at the time that instrument was executed, the only remaining question to be determined is whether the defendants are in a position to avail themselves of these facts as a defense to the action. Although it was for some time a mooted question in this State, it seems now to be pretty well settled that the party seeking to avail himself of the Statute of Frauds as a defense must plead it, unless it appears upon the face of the complaint that the contract sued upon was within the statute (Porter v. Wormser, 94 N. Y. 450; Hamer v. Sidway, 124 id. 538; Wells v. Monihan, 129 id. 161; Crane v. Powell, 139 id. 379), and this, it is conceded, the defendants have failed to do. Nevertheless we are of the opinion that the defendants have not deprived themselves of the right to assert that the plaintiff cannot maintain his action for the reason that the instrument upon which he bases the same is violative of the Statute of Frauds. This instrument, it is to be observed, is incorporated into and made a part of the complaint, and whatever defects it jjossesses are consequently apparent upon the face of that pleading. It follows, therefore, that if the instrument is for any reason invalid, the complaint is defective for'the reason that it does not state facts sufficient to constitute a cause of action; and this is an objection which may be raised at any stage of the proceedings. (Code Civ. Proc. § 499 ; Coffin v. Reynolds, 37 N. Y. 640.) , It is true that in the case of Grane v. Powell (supra) it was said that “ When the defect in the plaintiff’s cause of action appears on the face of the complaint the defense must be interposed by demurrer; ” but in that case the complaint did not disclose an agreement which was invalid upon its face, and consequently the question now under consideration was not in the case, and the language above quoted must, we think, be regarded as obiter. ■ It appears that at the close of the plaintiff’s evidence in this case the defendants’ counsel moved for a dismissal of the complaint upon the ground that no cause of action had been established by his proofs; and among the reasons stated in support — 42 — of the motion was one to the effect “ that the instrument under which the plaintiff claims.is void by the laws and policy of. the. State of New York as against these defendants.” This motion was denied, and when the proofs were all in it was renewed and again denied. We think that, within all the authorities which we have cited, this motion raised precisely the same question which would have been presented had the statute been pleaded by way of defense. We are not aware that it has yet been held that, where an instrument which constitutes a plaintiff’s cause of action is void upon its facei an objection to it must '.necessarily. be taken by answer or demurrer, and we are unwilling, to establish' any such practice. (Carling v. Purcell, 46 N. Y. St. Repr. 287; Lupean v. Brainard 20 App. Div. 212.) Our conclusion, therefore, is that the Statute of Frauds was available to the defendants as a defense in this action, and that because the instrument sued upon is clearly repugnant to that statute, the judgment and order appealed from should be reversed. All concurred. Judgment and order reversed and a new trial ordered, with costs to the appellant to abide the event.