Dearing v. McKinnon Dash & Hardware Co.

At the-close of the proofs the learned trial court held as matter of law that the plaintiff was entitled to the possession of the property in question, and submitted nothing to the jury save the question of value. This disposition of the case was apparently based upon the theory that the instrument relied upon by the plaintiff to sustain his claim of title was a chattel mortgage; that the same was valid under the law of the state of Michigan, and that it consequently, operated as a valid transfer of the mortgagor’s personal property, wherever situated. In reviewing the several questions which are necessarily involved in the disposition made of the case by the trial court, it becomes important to determine at the outset the nature and effect of this instrument as construed by the law of the state where it was executed; for it seems to be conceded by the plaintiff that, if it is to be treated as-a common-law assignment for the benefit of- creditors, it is void for the reason, if for no other, that it creates preferences among the creditors of the Elms Buggy Company, and consequently contravenes the statute of frauds of the state of Michigan, which declares

Several other objections to the validity of this instrument are raised by the defendant, but, without noticing the same in detail, we think, in view of the conclusion we have reached upon another branch of the case, it is sufficient to say that it may be assumed that under the decisions of the supreme court of Michigan the instrument in question is a-chattel mortgage, and that, inasmuch as its execution was authorized by the directors of the Elms Buggy Company, and it does not entitle the mortgagor to any of the surplus moneys until all the creditors have been paid in full, it does not violate the statute of that state inhibiting preferences in common-law assignments. Kendall v. Bishop, 76 Mich. 634 , 43 N. W. 645 ; Cluett v. Rosenthal, 100 Mich. 193 , 58 N. W. 1009 ; Austin v. Bank, 100 Mich. 613 , 59 N. W. 597 ; Adams v. Niemann, 46 Mich. 135 , 8 N. W. 719 . The question, however, with which we are more immediately concerned is this: Does this mortgage contravene any statute of this state? the contention of the defendants being that in several of its provisions it is repugnant to the policy of this state as declared in what is known as the “Statute of Frauds,” and that consequently it is not valid as against creditors who have acquired any rights as to property within this state. This contention, we are inclined to think, is well founded; for the instrument in question, by whatsoever name it may toe called, does apparently contravene the provisions of our statutory-law, which are designed to prevent a failing or dishonest debtor from hindering or delaying his creditors in the collection of their debts. 2 Rev. St. c. 7, tit. 3, § 1. In the first place, the instrument, so far as it affects the creditors who are specifically mentioned therein, is coercive, in that it expressly directs that the provision for such creditors shall operate only in the event that

“If the clause in question purported in terms to invest the assignee with any discretion, as coming directly from the assignor himself, it would he fatal to the assignment; as if it had authorized the assignee at such time and „in such manner as, in his judgment, would be most conducive to the interests of the creditors, or as he should deem expedient and best calculated to promote their interests.”

And in the case of Bank v. Westbury, 16 Hun, 458 , it was held that where, by the terms of a chattel mortgage, the mortgagor was permitted to remain in possession of the mortgaged property, and in his discretion to sell the same on credit, and thereby keep h"is other creditors at bay, the transaction was fraudulent per se. But the provisions of this instrument to which attention has thus far been directed are by no means the only ones which have a tendency to hinder and delay creditors, for the mortgagor or assignor expressly reserves to itself the right to continue the business, and not only to convert the raw material which was on hand into manufactured stock, but also to purchase new material for that purpose, and to sell the same for the benefit of the parties' secured. This, it seems to us, when considered in connection with the other portions of the instrument, is nothing more or less than a device by means of which the corporation sought to carry on its business, and at the same time secure to itself immunity from im

Assuming, then, that the instrument in question is in conflict with the laws of this state, we are brought to the consideration of another, and perhaps a still more important, question, which is whether this fact permits us to treat it as void in view of the further fact that it appears to be valid under the laws of the state where it was executed. It is not to be denied that by a rule of interstate comity transfers of personal property valid by the law of the domicile of the transferror are, generally speaking, upheld and sustained by our courts. Ockerman v. Cross, 54 N. Y. 29 ; Barth v. Backus, 140 N. Y. 230 , 35 N. E. 425 . But this, like every other rule, has its limitations, one of which is that the domiciliary law must not contravene the statute law of this state, nor be repugnant to its policy. Barth v. Backus, supra; Hervey v. Locomotive Works, 93 U. S. 664 ; Warner v. Jaffray, 96 N. Y. 248 ; Keller v. Paine, 107 N. Y. 83 , 13 N. E. 635 . In the case last cited it was said that “the general rule that the voluntary transfer of personal property wheresoever situated is to be governed by the law of the owner’s domicile always yields when the law and policy of the state where the property is actually located have provided a different rule of transfer from that of the state where the owner lives.” And it has been repeatedly held that .this general rule also yields in favor of domestic creditors who have secured a lien upon property within this state by attachment proceedings. Guillander v. Howell, 35 N. Y. 657 ; Keller v. Paine, supra; Hallgarten v. Old-ham, 135 Mass. 1 . See, also, Bish. Insolv. Debtors, 295. It thus appearing that the instrument under which the plaintiff claims title is in some of its provisions repugnant to the statute, as well as to the policy, of this state, and that the property to which he asserts his title was within this state at the time that instrument wás executed, the only remaining question to be determined is whether the defendants are in a position to avail themselves of these facts as a defense to the action. Although it was for some time a mooted question in this state, it seems now to be pretty well settled that the party seeking to avail himself of the statute of frauds- as a defense must plead it, unless it appears upon the face of the complaint that the contract sued upon was within the statute (Porter v. Wormser, 94 N. Y. 450 ; Hamer v. Sidway, 124 N. Y. 538 , 27 N. E. 256 ; Wells v. Monihan, 129 N. Y. 161 , 29 N. E. 232 ; Crane v. Powell, 139 N. Y. 379 , 34 N. E. 911 ); and this, it is conceded, the defendants have failed to do. Nevertheless we are of the opinion that the defendants havé not deprived themselves of the right to assert that the plaintiff cannot maintain his action, for the reason that the instrument "upon which he bases the same is violative of the statute of frauds. This instrument, it is to be observed, is incorporated into and made a part of the complaint, and whatever defects it possesses are consequently apparent upon the face of that pleading. It follows, therefore, that if the instrument is for any reason invalid, the complaint is defective, for the reason that it does not state facts sufficient to con

It appears that at the close of the plaintiff’s evidence in this case the defendants’ counsel moved for a dismissal of the complaint upon the ground that no cause of action had been established by his proofs, and among the reasons stated in support of the motion was one to the effect “that the instrument under which the plaintiff claims is void by the laws and policy of the state of New York, as against these defendants.” This motion was denied, and when the proofs were all in it was renewed, and again denied. We think that within all the authorities which we have cited this motion raised precisely the same question as would have been presented had the statute been pleaded by way of defense. We are not aware that it has yet been held that where an instrument which constitutes a plaintiff’s cause of action is void upon its face, an objection to it must necessarily be taken by answer or demurrer, and we are unwilling to establish any such practice. Carling v. Purcell (City Ct. N. Y.) 19 N. Y. Supp. 183 ; Pupean v. Brainard, 20 App. Div. 212 , 46 N. Y. Supp. 1044 . Our conclusion therefore is that the statute of frauds was available to the defendants as a defense in this action, and-that, because the instrument1 sued upon is clearly repugnant to that statute, the judgment and order appealed from should be reversed.

Judgment and order reversed, and a new trial ordered, with costs-to the appellant to abide the event. All concur.