Pierre Banking & Trust Co. v. Winkler

WHITING, J. Plaintiff seeks to foreclose a chattel mortgage on a stock of merchandise, defendant Winkler 'being the mortgagor and defendant Warren the trustee in bankruptcy of the estate of the defendant Winkler. The mortgage in question was given and filed September 8, 1913, and contained the following clause: “It is further agreed- that, so long as the terms and conditions of this mortgage are kept and performed, the undersigned may retain possession of said property, and sell and -dispose of the same in -the ordinary course of trade, for cash; but of all such sales tire undersigned shall keep a detailed and- accurate account, and at the end of each month shall render to (plaintiff) an accurate account of such sales and shall, at the time of so> rendering such account, pay over to said (plaintiff) * * * the entire proceeds of all' such sales, to be credited and applied, as fast as pai-d, to the payment of the debt hereby secured, until the same shall have been fully paid and satisfied.” It appears that on June 24, 1913, Winkler being indebted to plaintiff bank in the sum of $600, the bank loaned to him $400 more, took -his note for $1,000, and took a chattel mortgage on the whole of his stock of goods to secure such note; the stock of -goods being represented by Winkler to be worth $1,500. The mortgage contained the same provision- as in the mortgage of September 8, 1913. It was to secure a $1,000 note given in •renewal of the note of June 24, that the mortgage sought to- be-foreclosed was given. Winkler made no- appearance herein. The trustee in bankruptcy defended, alleging that the said mortgage was void as to him for the reason that it was given to hinder, delay, and defraud the creditors of the said Winkler; that it was given within four months prior to the time when the -petition in -bankruptcy was filed; and that the effect of sustaining such chattel mortgage would be to- create a preference in favor of plaintiff. It stands conceded that both of the mortgages above referred to were given within such four-month period. The trial court found in favor of the plaintiff on the [457] other issues, and from the judgment of such court and an order denying a new trial this appeal was taken. [i] Respondent contends that the judgment should be affirmed for the reason that appellant is not in a position to question the said mortgage, there being no- evidence to show that there are not ample assets in the trustee’s hands with which to pay the creditors of Winkler if there are any creditors -other than respondent; and that the evidence fails to show that there are any other creditors. There is no merit in this contention: First, because appellant sought to prove by competent evidence the existence of other creditors and of the amount of their claims— this evidence was objected to by respondent as immaterial, which objection was sustained over appellant’s exception. Second, because under the laws in relation to bankruptcy it is not incumbent upon a trustee in bankruptcy to prove the existence of other creditors or indebtedness. Act June 25, 1910, c. 412, § 8, 36 Stat. 840 (U. S. Comp. St. 1916, § 9631) ; In re Geiver (D. C.) 193 Fed. 128; Kraver v. Abrahams (D. C.) 203 Fed. 782. [2/3] As above noted, the mortgage in .question covered the whole of the stock of goods owned by defendant Winkler. The giving, and the receiving of such a mortgage is an act entirely out of the ordinary course of business and is, as held by this court in Grant v. Dry Goods Co., 23 S. D. 195, 121. N. W. 95, almost conclusive evidence of the intent of the mortgagor to give and of the mortgagee to receive a preference over other creditors, and therefore of an -intent on the part of the mortgagor to hinder and delay the creditors -other than the mortgagee. The receiving of such a mortgage gives to the mortgagee -reasonable cause to believe the mortgagor insolvent. Matthews v. Chaboya, 111 Cal. 435, 44 Pac. 169. Furthermore, it appears that, while the mortgage contained a clause which would render the mortgage valid on its face, the mortgagee allowed the mortgagor to handle the mortgaged property as though it were unmortgaged — to dispose of a large part thereof, to use the proceeds as he might see fit in apparently every manner except in payment of the mortgage indebtedness. It appears undisputed that this stock of goods was reduced to about -one-third of the value -it was represented to be when the -mortgage was first given; that the mortgagor banked with- the mortgagee; that he made -deposits -of - moneys received [458] from the stock of goods and from other sources; and that he checked out the same exactly as though this mortgage was not in existence, applying no part of such funds to the payment of said mortgage — in other words, it appears that the mortgagor was permitted to handle this mortgaged stock of goods in a way which, if allowed -by the provisions of the mortgage itself, would have rendered the mortgage void as to creditors. It follows that, although the trial court might have 'been justified in refusing to find that either the mortgagor or mortgagee were actuated by a fraudulent motive when giving or taking the mortgage, it should have held that the mortgage was given with the intent, on the part of the mortgagor, to hinder and delay his creditors other than this plaintiff. We would call particular attention to the opinions in Re Platts (D. C.) 110 Fed. 126, and Egan State Bk. v. Rice, 119 Fed. 107, 56 C. C. A. 157, wherein the facts were on all fours with those in this case and where it was held that such facts established an intent on the part of the mortgagor to hinder and delay his creditors other than the mortgagee. The judgment and order appealed from are reversed.,