Stewart v. Hoffman

MR. JUSTICE MILRÜRN delivered the opinion of the court. This is an appeal from a judgment entered in favor of the defendant. The plaintiff, at the time of the bringing of the action, was the duly appointed, qualified and acting trustee of the estate of one Frank Rennie, a bankrupt. Rennie, prior to August 11, 1899, and continuously from that date until the 14-tli day of March, 1901, was engaged in the business of a liquor dealer in the county of Gallatin. On that day lit' made, executed and delivered to the Bozeman Rational Rank his promissory note, for $1,800, on which he made certain payments, leaving a balance of about- $800. On February 6, 1901, he, being unable to pay his debts to numerous creditors, made a chattel mortgage of his saloon property, including a large number of articles, running to the defendant, O. AY. Hoffman, to secure him,' he having guarantied in writing the payment of said note to the bank. This mortgage was duly executed, and filed in the office of the county clerk. Rut on the 11th day of August, 1899, a — 186 — certain agreement 'in writing was made between Rennie and Hoffman, whereby it was attempted’ to secure the latter for such sum or sums of money as he might advance to pay the debts of Rennie. Rennie gave therein to Hoffman the right at any time prior to the full payment of the sums of money mentioned, or any Other money advanced by Hoffman for him (Rennie), to take immediate possession without notice and without legal proceedings of all of said personal property, and sell and dispose of the same at such time or times and in such manner as to him might seem advisable, the proceeds of the sale first to be applied to payment of Hoffman for all moneys advanced to Rennie and for costs and expenses of taking, keeping and selling the property, the residue to be paid to Rennie. It is noticeable that the defendant in his answer sets up that this agreement, which was made without formality, and was not filed in the office of the county clerk, was a chattel mortgage to secure him against loss or liability by reason of the written guaranty, whereas the writing itself discloses the fact, as above stated, that it was to secure him (Hoffman) for such sums of money as he might advance to pay the debts of Rennie. The defendant avers that this mortgage of the 6 th of February was made “for the purpose and with the intent of extending said chattel mortgage of August 11, 1899, and the lien thereof, and putting the same in such form as to entitle it to record, so that notice of its existence might be given to all of the aforesaid creditors of said Frank Rennie.” On the 14th day of May, 1901, Rennie was, by order of the United States Court for the District of Montana, adjudged a bankrupt. It is alleged in the complaint that on the 14th day of March, 1901, Hoffman seized and took possession of all of said property of Rennie under and by virtue of the chattel mortgage — meaning the instrument of February 6, 1901. Defendant denied that the property was taken by him under or by virtue of the chattel mortgage last above mentioned, but avers that he took and seized the same on the 14th day of March, 1901, under — 187 — and by virtue of the authority'conferred upon him in the instrument of August 11, 1899, for the purpose of securing himself against any loss by reason of his said personal guaranty, and not otherwise. It is admitted that there is still due by Rennie to the bank on the original agreement made with the bank a sum exceeding $800. Possession of the property remained in Rennie until the 14th day of March, 1901, when it was taken by Hoffman, as above stated, except one or two articles of small value. Plaintiff prayed for a decree that the chattel mortgage of February 6, 1901, be declared null and void as against the creditors of Rennie and against the plaintiff, and that Hoffman be required to surrender and deliver up to plaintiff all the property by him seized, and that, if any of said property could not be delivered, plaintiff have judgment for the value thereof, and that plaintiff have attorney’s fees. The case was tried to the court without a jury, and the court found, among other things, that on February 0, 1901, Rennie having reduced his indebtedness on the note to the bank which Hoffman had guarantied to $800, with a small amount of interest, and being again pressed by creditors, gave to the defendant “another chattel mortgage,” regular in form, for which no new consideration was passed, and that said instrument was intended as a continuation of the security given on August 11, 1899, and that Hoffman, on March 14, 1901, deeming himself insecure, took possession of the property under and by virtue of the instrument of August 11, 1899. The court found further that in April, 1901, proceedings were commenced against Rennie in the Hnited States court, and that he was regularly adjudged a bankrupt, and plaintiff was appointed by the Hnited States court as alleged; and that defendant turned over to plaintiff a portion of the goods in his possession, retaining sufficient to indemnify himself. As conclusions of law the court foiuid, among other things, that the instrument of August 11, 1899, was a valid chattel mortgage as between the parties to it and as against all — 188 — persons except such as had. brought themselves into privity with the property by acquiring a lien upon the specific property therein described; that defendant’s taking possession of the property under his chattel mortgage of August 11, 1899, before any of Rennie’s creditors had established a lien on the property, cured any defect which may have existed in the chattel mortgage; that the chattel mortgage of February 6, 1901, was a continuation of the security given defendant in the chattel mortgage of August 11, 1899; that the service of certain garnishment proceedings in suits by Rennie’s creditors did not give them a lien on the property in controversy, and did not entitle them, or any of them, or the plaintiff, to contest the validity of the chattel mortgage of August 11, 1899 ; and that the plaintiff was not entitled to recover. Judgment was entered accordingly for the defendant. Plaintiff appeals. Ten specifications of error are relied upon, but it is not necessary to consider more than one of them. Was the court correct in holding that the plaintiff was not entitled to recover a judgment? The property was seized by the defendant, according to his own statement, under and by virtue of the power contained in the instrument of August 11, 1899, it having remained in the possession of Rennie from the time of the making of the instrument until the time of its seizure. There was not any new consideration for the mortgage of February 6, 1901. Possession of i the property was taken less than four months prior to the time that Rennie was declared a bankrupt under the bankruptcy act. At the time of the taking of said property it conclusively appears that Rennie was insolvent. The instrument of August llth was not such as entitled it to filing under the laws of the state of Montana as a chattel mortgage. The insolvent, Rennie, owed considerable sums of money to other parties before the 14th day of March, 1901. There was not any fixed time mentioned in the “mortgage” of August 11, 1899. More than fourteen months had expired after August 11, 1899, before possession was taken under the instrument of that date, and the agreement was not executed and had not been executed up to the time — 189 — of the commencement of this action. The property of Bennie was turned over to the defendant less than four months before the bankruptcy. It was not a transfer to secure a present loan or advance, but one to pledge the payment of an old obligation, the effect of the transfer being to enable one creditor to obtain a greater percentage of his debt (to-wit, all of it) than any other. This is illegal, under Section 60 of the national Bankruptcy Act of 1898 (Bankr. Act July 1, 1898, c. 541, 30 Stat. 562 [U. S. Com]). St. 1901, p. 3445]), and the property may be recovered. Section 60 of said Act is as follows: “(a) A person shall be deemed to have given a preference if, being insolvent, he has procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. •(!>) If a bankrupt shall have given a preference within four months before the filing of a petition, or after the filing of the petition and before the adjudication, and the person receiving it, or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such per- ' son. * * *” Section 4491 of the Civil Code of this state is as follows: “Sec. 4491. Every transfer of personal property, other than a thing in action, or a ship or cargo at sea, or in a foreign port, and every lien thereon, other than a mortgage, when allowed by law, and a contract of bottomry or respondentia, is conclusively presumed, if made by a person having at the time the possession or control of the property, and not accompanied by an immediate delivery, and followed by an actual and continued change of possession of the things transferred, to be fraudulent, and therefore void, against those who are his creditors while he remains in possession, and the successors in interest of such creditors, — 190 — and against any persons on whom liis estate devolves in trust for the benefit of others than himself, and against purchasers and incumbrancers in good faith subsequent to the transfer.” Rehearing granted November 30, 1904. (Submitted March 13, 1905. Decided May 29, 1905.) 1. In an action by a trustee in bankruptcy to recover property of the bankrupt alleged to have been fraudulently transferred to the defendant, under a chattel mortgage executed more than fourteen months prior to such transfer and good between the parties to the instrument, where it appeared that the transfer was made within four months of the time when the debtor was adjudged a bankrupt, the trustee was not entitled to judgment under the provisions of the Bankruptcy Act of July 1, 1898 (Chapter 541, Sec. 60, cl. a, 30 Stat. 562), the delivery to, and taking by, defendant of the goods not having been unlawful under the laws of this state nor an unlawful preference under the Bankruptcy Act. 2. A mortgage not executed in manner and form as prescribed by law, is good between the parties. Z. There not being in this state any restriction placed by. law upon the mortgaging of any species of personal property, all such mortgages are exempted from the operation of Section 4491 of the Civil Code, which provides that a transfer of certain personal property áhd every lien thereon, other than a mortgage “when allowed by law,” is conclusively presumed to be fraudulent under certain circumstances, and the words “when allowed by law” are therefore superfluous. 4. In all matters pertaining to a construction of the United States Bankruptcy Act, the holdings of the Supreme Court of the United States are conclusive. It thus appears that the instrument of August 11, 1899, and the transfer made on the 14th day of March, 1901, were not such as are allowed by the law of the state of Montana, and were such as attempted to give an unlawful preference to the defendant. Our conclusion, therefore, is that the judgment of the court below is wrong, and must be reversed. Reversed and remanded. Mr. Justice Holloway, being disqualified, takes no part in the foregoing decision.