Hasbrouck v. LaFebre

Scott, Justice. On October 15, 1912, one C. H. Reeder, who was then engaged in general merchandising at Dayton, Sheridan County, Wyoming, borrowed two thousand dollars from the Citizens’ State Bank of Sheridan and gave his promissory note, signed by C. L. Olson and Grace L. Olson as sureties, both of whom have since deceased, for that sum payable — 377 — one year after date, with interest thereon at the rate of ten per cent per annum, payable semi-annually. In order to indemnify and secure the Olsons, Reeder on the same day executed a chattel mortgage to them on his' stock of goods described in the mortgage as follows, viz.: “All the stock of dry goods, notions, groceries, boots and shoes, clothing, drugs and all other merchandise of every description now contained in the two-story frame building situated on lot one (1), block fifteen (15), of Dayton, Wyoming, and all furniture and fixtures belonging or appertaining to the above described business and being in the above described premises, and all other stock of merchandise, furniture of fixtures, that may be added thereto in the future, and it is further understood by all the parties to this contract that the party of the first part will keep all stock up to the extent of its present value for the benefit of the said parties- of the second part” The mortgagees were granted by the terms of the mortgage the right to foreclose and take possession in case of any default or if at any time he or they felt himself or themselves insecure. This mortgage was duly filed .in the office of the county clerk of Sheridan County on the day of its execution. On the same day and coincident with the execution of the mortgage it was verbally agreed by and between Reeder and the Olsons that the former should continue in business as before, and Reeder so continued in business until September 1, 1913, on which day he, never having paid anything on the note to the Citizens’ Bank or to the Olsons as indemnity, and being insolvent, assigned all his property, including the stock of goods then in his possession, to Hasbrouck, the plaintiff in error here, for the benefit of his creditors under the provisions of the general voluntary assignment law of this state, that is to say, under the provisions of Chapter 212, p. 830, Comp. Stat. Reeder in his deed of assignment recited that the stock of goods and merchandise so assigned was mortgaged October 15, 1912, in the sum of $2,000 and interest, to the Olsons and further recited that the mortgage was duly filed and that the sum secured thereby was unpaid. In the meantime C. L. Olson — 378 — had died, and Grace L- Olson had been appointed adminis-tratrix of his estate, and thereafter deeming herself insecure on behalf of the estate and herself, she paid the note in full and made demand upon the assignee under the chattel mortgage for the delivery of the stock of goods so attempted to be assigned to him and then in his possession, which was refused, and thereupon she brought this action in replevin to recover possession of the same. The goods were taken upon the writ. The action was tried to the court without the intervention of a jury, and the court found and gave judgment in favor of Grace L. Olson both in her personal and representative capacity as administratrix of the estate of C. L- Olson, deceased. TIasbrouck, the assignee, brings error. Grace L. Olson having died, Jans J. LeFebre, administrator of each estate, was substituted here as and for defendant in error. It is contended that the evidence does not sustain the judgment and that the same is contrary to law. It is argued by ITasbrouck that the oral agreement between the parties to the mortgage to the effect that the mortgagor might continue the business as before and replenish the stock of goods rendered the mortgage void as against the creditors whom he claimed to represent because permission to do so was not expressly given in the mortgage as provided in’ Section 3734, Compiled Statutes, which section is as follows: “It shall be lawful for the parties to any mortgage, bond, conveyance, or other instrument intended to operate as a mortgage of personal property as provided by law, to insert therein permission to the mortgagor to use, handle, operate, herd, manage and control the property mortgaged, and to market, sell and dispose of such portions thereof as may be necessary in the course of business, or to preserve and care for the same, and replace such property, or parts sold, with other property of like kind or character, which property replaced may be purchased, either with the net proceeds of the mortgaged property sold, or' otherwise, all of which shall be subject to the operation and effect of such mortgage, bond, conveyance, or instrument intended to operate as a — 379 — mortgage. But unless permission is expressly given otherwise in the mortgage’ the mortgagor shall pay over to the mortgagee all moneys received from the sale of any part of the mortgaged property aforesaid.” Section 3727 is as follows : “Every mortgage, bond, conveyance or other instrument intended to operate as a mortgage of goods, chattels or personal property, which shall not be accompanied by immediate delivery and be followed by an actual and continued change of possession of- the goods, chattels and personal property so mortgaged shall be absolutely void as against the creditors of the mortgagor, and as against subsequent mortgagees or purchasers in good faith, unless said mortgage, bond, conveyance or other instrument intended to operate as a chattel mortgage shall be filed as hereinafter provided.” Section 3734 does not declare the mortgage void as between the parties thereto for failure to insert permission in the mortgage to continue the business as before, but directs that all money that accrues from the sales shall be paid over to the mortgagee in the absence of permission expressly given in the mortgage to apply the money otherwise. The failure to express the permission in the mortgage did not render that instrument void ab initio. The statute does not say so, but goes only to the application of the proceeds of the sales. We think the mortgage was valid as between the parties thereto within the contemplation of the sections quoted, and it having been properly executed that as between the parties thereto it came within the provision of Section 3732 id., which provides, “That any such mortgage, bond, conveyance or other instrument intended to operate as a mortgage shall be valid as between the parties, anything contained in this chapter to the contrary notwithstanding, until the debt thereby secured is fully paid.” The different sections referred to were all enacted at the same time and as a part of the same chapter. (L. 1890-91, Ch.7.) When a mortgage is defective or is so worded as to accomplish that which is evidently prohibited by the statute as working a fraud, such mortgage should fall in so far as provided by the statute at the suit of one entitled to main — 380 — tain a suit for that purpose. The mortgage here contains no express provision as to replenishing the stock of goods out of the proceeds of the sales which, would be necessary under thé statute to render an agreement to that effect valid. The proviso contained in Section 3734, above quoted, modifies and limits the declaratory part of the section. It will be observed that as against creditors of the mortgagor the parties to a chattel mortgage may stipulate certain things, but in order that such stipulation may be lawful the stipulation or permission must be expressly set forth in the mortgage. From the language used there is a clear implication that unless the permission be expressly given in the mortgage the proceeds of all sales of the mortgaged property must be applied to the payment of the debt secured by the mortgage. But the material question here is what title and right, if any, the plaintiff in error has to assail the mortgage on the ground stated. His title, if any, is derived solely from possession of the property under the deed of assignment and from no other source. To show the character of the law under which such assignment was made we will refer to some of the provisions of the deed and of the statute regulating such assignments. It is recited in the deed of assignment “that I, C. H. Reeder, of the Town of Dayton, Sheridan County, Wyoming, being unable to pay my debts from my means as they become due, and wishing to avail myself of the provisions of Chapter 212 of the Wyoming Compiled Statutes, 1910, do hereby, in pursuance of and in accordance with the provisions of said chapter of said laws, hereby make a general assignment of all my property in trust for all my creditors all my property, etc., * '* * * to handle, deal in, sell and dispose of the same for the benefit of the said creditors in the manner and as provided in and under the laws of the State of Wyoming in such case made and provided and to pay and distribute the proceeds of the same in accordance with the said laws.” Section 3366 being the first section of the chapter under which this assignment was attempted says that “Any debtor or debtors in embarrassed or failing circumstances, may make to one — 381 — or more assignees a general assignent of all his or their property, in trust for the benefit of his or their bona fide creditors; and all assignments hereafter made by such person or persons for such purpose, except as provided for in this chapter, shall he deemed fraudulent and void. The debtor is insolvent and in embarrassed -and failing circumstances within the meaning of this chapter when he is unable to pay his debts from his own means as they become due.” Section 3367 provides that the deed of assignment shall be signed and acknowledged by some person authorized to take the acknowledgment of deeds and within ten days from the execution shall be filed and recorded in the office of the county clerk and ex-officio register of deeds of the county in which the assignor resides, or has his place of business in case he be a non-resident of the state. Section 3368 provides that the deed shall contain a verified copy of the schedule of the property assigned, and Section 3369 provides how and when the assignee shall qualify and requires the assignee to file a certified copy of the assignment and schedule in the office of the clerk of the district court in the county in which the assignment is made. Section 3370 makes it the duty of the clerk to make proper record of the copy of the deed of assignment, schedule and undertaking of the assignee, and Section 3376 also requires him to file the returns of sales made under the oath by the assignee, etc. Provision is also made by other sections for appraisement'of the property assigned. By Section 3372 the as-signee after qualifying and complying with the other pro-, visions of the chapter shall give notice'by publication for three successive weeks, or by posting notices as therein provided, and within 30 days after entering upon the duties of his trust file under oath a full and complete inventory of “all the property real and personal, the rights, credits, interests. profits, and collateral securities which shall have come into his hands, or of which he may have obtained knowledge as belonging to the assignor.” Section 3378 required the assignee to report to the court or judge the condition of the trust and Section 3383 provides that the claims of all cred — 382 — itors shall be presented “under oath to the assignee for allowance” * * * * “prior to the expiration of six months from the date of the first publication required by this chapter,” and unless he or they do so cannot participate in the distribution of the trust estate except upon application to and permission of' the court. Section 3377 is as follows: “The court shall exercise a supervising power over the estate of the assignor, and may make all necessary orders in the interest of the creditors, for its control and management by the assignee before sale, and shall, after sale, have the power to compel the assignee to report the money in his hands for distribution; and shall, after the expiration of the time for presenting claims as hereinafter provided, compel distribution, whenever the assets are shown to be sufficient to pay ten per cent dividend upon the indebtedness; and such distribution may be ordered from time to time when on application of anyone interested it is shown to the court or judge thereof that there is a sufficient fund in the hands of the assignee to pay said dividend of ten per cent.” It is provided that the assignee shall report his doings to the judge of the district court of the county (Sec. 3378) and the district court approves of. disapproves the act of the assignee in the matter of the allowance or disal-lowance of claims (Sec. 3379). and shall try issues between creditors and the assignee in the matter of establishing claims. Distribution is made upon order and approval of the court (Sec. 3381). Section 3395 is as follows: “In cases where the assignor complies with the provisions of this chapter, any creditor accepting from the assignee any dividend arising from the property of the assignor to which he is entitled under any assignment under this chapter, shall release the assignor from all further liability on the claim or claims on which said payment may be made.” In this case the record shows that the mortgagees were the only lien holders. The creditors here for whom the-assignee attempts to defend this action had no lien upon the property either by contract, judgment or levy thereon of writ of attachment or execution, except that conferred, if any, by — 383 — the deed of assignment. The deed of assignment carried to the assignee only such rights as the assignor had in the property attempted .to be conveyed. (Sec. 13, p. 655, 2 R. C. L.) It was not nor does it purport to be a common law assignment (Sec. 2, p. 644 of 2 R. C. L.) because it provided for the administration by the court of a trust attempted to be created under the provision of a statute which declares (Sec. 3366, supra) that all assignments other than as provided in this act shall be deemed fraudulent and void, and also requires (Sec. 3395, supra) that the creditors who participate in the trust fund shall release the unpaid balance of their claim. (5 Cyc. 290-291; 22 Cyc. 1262; In re John A. Etheridge Furniture Co., 92 Fed. 329, 1 Am. Bankr. Rep. 112; Patty-Joiner &c. Co. v. Cummins, 93 Tex. 598, 57 S. W. 566, 4 Am. Bankr. Rep. 269; Downes v. Parshall, 3 Wyo. 425, 26 Pac. 994.) The provisions of the statute above referred to make it an insolvency law which was suspended and under suspension by the National Bankruptcy Act of 1898, and it being an insolvency law then under the provisions of the national act all proceedings under it were Amid. The provisions of the state insolvency larv were not binding upon the mortgagees so as to require them to recognize the assignee’s claim of possession or of right to possession of the property attempted to be conveyed by the deed of assignment and which property was included in their mortgage. The mortgagees had a specific prior lien enforceable against the property in the hands of the mortgagor and also his assignee rvho rested his right to possession as against their lien upon a deed of. assignment for the benefit of creditors under a suspended state insolvency law. (2 R. C. L., Sec. 14, p. 656; 22 Cyc. 1265.) As against such lienors the assignment will be treated as void. (4 Cyc. 222.) The filing and proving of the claims of the creditors as provided by such larv Avould harm no immediate effect as establishing a lien because of the suspension of the operation of the state insolvency law by the Federal Bankruptcy Act then and ever since in force. — 384 — It is not necessary to sustain this judgment to hold that the assignee’s right of possession was void. It is sufficient to say that the assignee succeeded to. and his rights were measured by those of his assignor and as between the parties to the mortgage the mortgagor could not avoid the mortgage. Indeed the fraud which is here complained of, to-wit: the verbal permission, consist of alleged acts against the creditors, none of whom, aside from the mortgagees, have a lien and for that reason are not in position to complain against these specific lienors. No greater rights passed to the assignee than those possessed by the assignor, and it follows that as upon the facts replevin could be maintained by the mortgagees against the mortgagor it can be maintained against his assignee as efficaciously as though the assignment had not been attempted. We find no error in the record, and the judgment will be affirmed. Affirmed. Potter, C. J., and Beard, J., concur.