Lockwood v. Slevin

Ebazeb, J. This was a proceeding by the appellees, creditors of one who had made an assignment, under our statute upon that subject, for the benefit of creditors, against the assignee, Lockwood, to compel him to account for the proceeds of certain goods embraced in the assignment, one-third of which had been mortgaged by the assignor long before the assignment was made. The mortgage was not recorded within ten days, as required by the statute of frauds, (1 G. & H. § 10, p. 352), but the assignee had actual notice of the existence of the mortgage. "Without obtaining or applying for an order of court, as required by the statute (1 G. & H. 116), he sold the goods and paid off' a large part of the mortgage debt, and in his reports to the court stated the fact of such payment, and the amount thereof, and the court, no objection being made, confirmed his reports. The complaint, showing the facts above stated, was demurred to, and the demurrer was overruled. That action of the court below is assigned for error. Lockwood, having assumed to act as assignee, is bound to the creditors as such, and it was not necessary that they should aver that the deed of assignment was recorded. The statute expressly enacts that a mortgage of chattels, where the possession is not changed, shall not be valid against any other person than the parties to it, unless it is recorded within ten days after the execution thereof. The language is so plain that no room is allowed for construction. Actual notice can make no difference. It has, we believe, been so held everywhere, under a statute like this. Chenyworth v. Daily, 7 Ind. 284; Denny v. Lincoln, 13 Met. 200; Travis v. Bishop, id. 304; Bingham v. Jordan, 1 Allen 373. In considering the action of the court below upon the demurrer to the complaint, there remains a question not [126] suggested by the appellant’s brief, which has given us more trouble than those already disposed of, and upon which we are not now unanimous. It is as to the effect of the action of the court in confirming the assignee’s reports, showing that he had made the payments upon the mortgage, in connection with the fact that after the first of those reports, the creditors remained silent until after he had made additional payments, and a report thereof had also been confirmed. If, under such circumstances, the acts of the court in confirming the reports are conclusive upon the creditors, then the complaint was bad, and the demurrer should have been sustained. If, however, they are but prima facie evidence of the correct action of the assignee, then the complaint was good, for it clearly shows, as we have seen, that the mortgage was void, and hence it should have been so treated by the assignee. The act concerning voluntary assignments provides that the assignee shall sell the property subject to liens thereon, unless he shall be satisfied that the general fund would be materially increased by the payment of such liens; and in that case he shall apply to the court, by petition, for leave to do so, and shall abide its order made in that behalf. ETo provision is made concerning notice to creditors of the pendency of the petition, nor is the effect of the order of the court thereon declared, as to them. It is, however, a general rule of law, that no person shall be conclusively bound by a proceeding in court, substantially affecting his interests, to which he is not a party, or in which he has had no opportunity to be heard. Formerly a trustee, doubtful as to his duty in any matter concerning the trust, might have brought his bill in equity, stating the facts as he understood them, making all parties in interest defendants thereto, and praying a decree for his direction. All had an opportunity to be heard, and the decree rendered in the case bound them and protected the trustee. In the absence of the statutory provision which we have referred to, the former proceeding in equity could still be resorted to, and we [127] think it may he, notwithstanding the statute. The provision under consideration merely authorizes a single question to he submitted to the court by petition, and that is, not whether a lien claimed is valid, but whether the general fund would be materially increased by paying off a valid lien upon the property. Ho power is expressly given under this ex parte proceeding to pass upon the validity of the lien, where that is doubtful, so as to bind either the person who holds it, or the creditors who are interested in that question, and we think no such power can he fairly implied. Inasmuch as a confirmation of the payment afterwards can certainly have no greater effect than an order previously obtained authorizing the payment of a void lien, we reach the conclusion that the confirmation was not conclusive upon the creditors, and that the complaint was good. The fifth paragraph of the answer alleged that the mortgagee, after the execution of the mortgage, as a partner and joint owner with the mortgagor, took, and for five months continued to hold, possession of said stock of goods, and then, upon a dissolution of the partnership, left the undivided one-third of the same with said mortgagor to be sold by him, as the agent and for the use and benefit of the mortgagee; that said mortgagor afterwards delivered said one-third of said stock to the appellant to be sold for the use, &c., of the said mortgagee; that appellant did so'sell them, and applied the proceeds to the payment of the notes secured by said mortgage. To this answer a demurrer was sustained, which is claimed to have been error. The statute of frauds, section ten, where the mortgage is not recorded as required, makes a delivery of the goods to the mortgagee, and a retention of the possession by him, necessary to the validity of the mortgage, and thus secures publicity of the fact of the mortgagee’s interest, and prevents the taking effect of secret incumbrances, of which the public could not be advised, or would have no reason to suspect. This paragraph of the answer does not show such a state of facts as is required, and it is therefore insufficient. If the mort [128] gagor may become vested with the possession as agent of the mortgagee, which we do not say, it must be in such a way that the public shall not be misled, but shall be advised of the fact that he is but the agent, and not the owner; that he acts for another and not for himself; to the end that he may not, by the visible possession and controland apparent ownership of the goods, obtain a credit which would not be accorded if all the facts were known. The allegation that the mortgaged goods were received and sold by Lockwood, as the agent of the mortgagee, is, on demurrer, a sufficient denial that he received them as assignee, which the complaint avers. But this allegation that he took possession as agent of the mortgagee he cannot be permitted to make. As assignee he was bound to treat all the creditors fairly, and therefore to resist a void mortgage held by one of them, the recognition of which as a valid lien would unjustly affect the interests of the others. He could not, therefore, lawfully become the agent of the mortgagee to take possession of the goods under the mortgage, for that would have been incompatible with his duty as assignee, and a fraud upon the other creditors, and he cannot be heard thus in self-stultification. The judgment is affirmed, with costs.