Sweet v. Neff

Marshall, J. The question for decision on this appeal is: Did the mortgages given by Davis & Buckstaff to the garnishee defendants, under the circumstances, constitute an assignment for the benefit of creditors within the decisions [485] of this court in Winner v. Hoyt, 66 Wis. 227; Strong v. Kalk, 91 Wis. 29; Jameson v. Maxcy, 91 Wis. 563; Collins v. Corwith, 94 Wis. 514, and similar cases ? The principles of law governing the subject are too well known to require any discussion here. It is the established doctrine that if an insolvent debtor make a conveyance to, or by any arrangement place his property under the control of, another, whether such other be a creditor or not, or whether all the debtor’s property be so placed or not, for the benefit of one or more of his creditors, with or without preferences, it constitutes an assignment for the benefit of creditors and is voidable at the election of any creditor not consenting thereto unless the statutory requisites for the making of assignments for the benefit of creditors be complied with. In short, if the transaction combine the elements of assignor, trustee, trust, creditors, and cestui gue trust who can compel the enforcement of the trust, so that all the common-law requisites of an assignment for the benefit of creditors are present, it will fail at the option of any creditor who may properly challenge its validity, if any material statutory requirement on the subject be violated. The learned trial court said the facts here do not bring the case within the principles of law above referred to, resting his conclusion largely on Menzesheimer v. Kennedy, 75 Wis. 411, and Michelstetter v. Weiner, 82 Wis. 298. The former case does not seem to apply. There were two mortgages each given independently of the other to a creditor, without any agreement between the two creditors, or either of them, and the mortgagor to take possession of the property as trustee. Here there was unquestionably ah understanding that the property should immediately pass into the possession of the first mortgagee for conversion into money and distribution thereof in the order of the priority of the various mortgages. It in effect so states inlhe instruments, and the conduct of all the parties is consistent with that view and with no other. The latter case cited does not [486] seem to have any application to the facts here. The decision turned on the finding that the transfer of the property was absolute, in payment of a debt owing to the vendee and in consideration of his agreeing to pay off the other debts which were secured on the property transferred. The vendee in that case did not become a trustee for the other two creditors, but became their debtor. The essential elements of an assignment for the benefit of creditors did not exist. There was no absolute conveyance of property in this case, and no similarity between the two cases that we can perceive. If Neff became, by agreement of the parties, a trustee for the subsequent mortgagees, then it must be admitted that all the elements of an assignment for the benefit of creditors' entered into the transactions which resulted in giving him that status. There were the assignors, Davis & Buck-staff, the assignee or trustee, Neff, the trust reposed in him by virtue of his situation, the cestms que trust, the other creditors who could enforce the trust. If we were left to determine just what the agreement was between Eaton, the attorney who represented all the creditors, and Neff, the first mortgagee, and the debtors, by the circumstances of the transaction, some difficulty might be met with in determining the true situation. But we are not so left. In the Neff mortgage, as well as in all the others, in addition to the usual clause obligating the mortgagee to turn over to the mortgagor any surplus arising from the property over and above the mortgage debt, in case of conversion of the property into money by the mortgagee, there was added the significant clause obliging Neff to take immediate possession of the property and account for all sales. That clearly contemplated, not only possession of the property by Neff, but a sale thereof by him and accounting, not to the mortgagor, but to the subsequent mortgagees. True, he had authority, probably, to sell at retail, and after receiv [487] ing sufficient to satisfy his own claim to turn the balance of the property over to the other mortgage creditors in the order of their priority, or to Eaton as their mutual agent. But it is quite clear that such was not the original scheme. The parties contemplated an immediate sale of the entire property and an accounting for the proceeds to the other mortgagees or to Eaton for them. If there was no other purpose in the making of the instruments than to secure Neff, the peculiar clause referred to was entirely unnecessary. In connection with the fact that all the mortgages were made at the same time, drawn and filed by the same attorney, and that Weff by the ihstructions of such attorney took possession of the property and was then notified by the latter that he claimed the right thereto, representing the other creditors, subject to the former’s claim, it is quite clear that the purpose of the added clause was for Weff to take such possession and account for his doings to the subsequent incumbrancers. That the purpose was as indicated is clearly borne out by the fact that Weff did not at first endeavor to sell sufficient of the property to pay his own claim. His first effort was to sell in bulk. It was only upon his failing to obtain a satisfactory offer that way that he proceeded to sell at retail. So the agreement, as evidenced by the writings and what occurred pursuant thereto, appears to have been that Weff should take possession of the entire property for the benefit of himself and all subsequent mortgagees, and account to them for his handling thereof; that he should sell the whole in bulk and dispose of the fund realized by satisfying his own claim and turning the balance over to the subsequent mortgagees in the order of their priority, or to Eaton as their agent, for distribution. The understanding probably was, too, that if a sale could not be made of the property as a whole, Weff should sell at retail, accounting for all sales to Eaton or to the creditors represented by him, he having the [488] right to take possession after Neff’s claim was satisfied. In either case, Neff became a trustee in possession for the other creditors. If the mortgages were separate, independent transactions, and Neff’s liability to answer to subsequent-mortgagees merely the legal' result of the situation, the case would be different. But there was something more than a liability by operation of law. There was a written agreement to take possession of the property and to account for all sales, which, as before indicated, clearly meant account to the other mortgagees. That, with the concert of action in the whole transaction, is consistent with no other reasonable theory than that Neff’s possession of the property was by mutual agreement for the benefit of all the mortgagees, in the order of their priority. lie became obligated by such agreement to answer to them as trustee, and they became his Gestáis que trust, who could have enforced the trust thus created. Of that there can be no reasonable controversy when the whole situation is viewed properly. If we should sustain the judgment appealed from, a way would have been discovered at last, after many futile efforts, in that direction, to make an assignment for the benefit of creditors without complying with the statutes of this state on the subject, and to secure at thé same time a preference of some creditors over others. The sole requisite would be, several mortgages made to favored creditors, with an agreement obligating the first mortgagee to take immediate possession of the property and account for it to the subsequent mortgagees or to their mutual agent. By that means the-legislative policy of the state, that creditors shall share equally the assets of their insolvent debtor in case of a trust thereof for their benefit, and that the trust shall be created with such safeguards as to secure its honest and faithful administration, would be most effectually defeated. In our-judgment this case, on the facts, comes clearly within the condemnation of the statutes on the subject of assignments489 for the benefit of creditors, and previous adjudications of this court. • By the Court.— The judgment of the circuit court is reversed, and the cause remanded for further proceedings according to this opinion.