Brown v. Guthrie — 18 N.Y. St. Rep. 311

Majority

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Robert Brown and Thomas O’Meara, as Sheriff of Livingston County, Resp’ts, v. James G. Guthrie, App’lt.^[1]

(Court of Appeals,

Filed October 2, 1888.)

Headnote

1. Chattel mortgage—To secuAb future advances—Validity of.

A chattel mortgage may be given to secure future advances, but it does not operate until the advances are actually made, and leaves the property exposed to execution until the advances are made and the lien accrues; but where only a part of the advances are made, the mortgage holds good to that extent against a subsequent execution or attachment

2. Same—When valid—When does not amount to an assignment for THE BENEFIT OF CREDITORS.

A chattel mortgage was given by an insolvent debtor, in the sum of $2,400, nominally to secure the payment of certain notes of the debtor, amounting to that sum, with a simultaneous agreement (not filed nor known to other creditors), which specified that the mortgage was given to secure a previous indebtedness of $980.79; a claim of $200 for services

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rendered, and an advance of $600 to be paid to the mortgagor within twenty days, and provided that the mortgagee should pay notes and accounts, then owing by the mortgagor to the extent of $619.21, and that the mortgagor, as agent of the mortgagee, might sell the goods mortgaged within a specified time, at public vendue, on credit; and it further provided that, after the sale of the goods and the payment of the mortgagee’s claim, the balance remaining should be paid to the mortgagor. The referee found that the mortgage had been given in good faith; that the $600 to be so advanced was advanced, and also that the names of the mortgagor’s creditors to the amount of $619.21 to be paid pursuant to the terms of the agreement, had been furnished to the mortgagee, before the issuing of the attachment by another creditor. Held, that the mortgage was good, and that the transaction did not amount to an assignment for benefit of creditors.

3. Same—Mat be proved to be an assignment in trust

Whilst a chattel mortgage may, in form, be an absolute sale for a fixed consideration, it may, nevertheless, be proved to be an assignment in trust.

4. Same—Appeal—Findings or rereree.

Facts found by a referee, not reversed by the general term, which acted upon supposed errors of law, will stand as determined by the trial court on appeal from the general term.

Appeal from a judgment of the general term of the supreme court of the fifth department, which reversed the judgment of the trial court, and ordered a new trial before another referee.

The action was brought to recover damages for the conversion of personal property after it had been levied on by the sheriff, plaintiff, by virtue of a warrant of attachment in favor of his co-plaintiff therein by one Morrison. After the levy the defendant Guthrie took the property and sold it by virtue of a chattel mortgage executed to him by Morrison previous to the levy.

The question was as to the validity of the chattel mortgage, which was assailed as fraudulent.

On October 20,1883, the defendant Guthrie, and Morrison, who was then insolvent, entered into a written agreement which recited that Morrison was indebted to the defendant in the sum of $980.79, and also to other persons in a large amount; that he was the owner of unincumbered personal property worth $2,500, and that he desired to obtain from the defendant an additional loan of $1,200. It then provided that Morrison should execute and deliver to the defendant his notes to the amount of $2,400, and secure their payment by a chattel mortgage upon nearly all of the goods and chattels then owned by him; that the defendant should cancel the notes of Morrison then held by him, and advance to him $600 within twenty days, and assume and pay certain notes and accounts that Morrison should thereafter specify, then owing by Morrison, to the extent of $619.21.

It was further agreed that Morrison, as the agent of defendant, should be allowed to sell the said goods and chattels at public vendue on a credit of not to exceed one year

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at such time before the first of the next April as should suit the convenience of Morrison, and that the defendant should take the credits as cash at his risk, and receive and receipt for all cash payments and notes taken at the sale and retain the same to the amount of the $2,400 notes, and pay over any surplus that might remain, to Morrison—the defendant to be allowed $200 for services previously rendered by him.

The mortgagee subsequently advanced the $600, as agreed, before the plaintiff’s attachment was issued, and, also, it appeared that at the time of the transaction the creditors of Morrison to be paid up to the agreed amount were named and the sums owing to them specified.

The chattel mortgage, which made no reference to the agreement, was filed November 3, 1883, but the agreement was not filed, and the plaintiff had no notice of it.

At the time of the execution of the agreement and mortgage, Morrison was indebted to the plaintiff for rent of a farm, to recover which the action was brought, and therein procured and levied his attachment on November 20, 1883, which action progressed to judgment, and execution was issued thereon and returned wholly unsatisfied.

The referee found that the chattel mortgage was executed in good faith and not with intent to hinder, delay or defraud creditors.

The trial court entered judgment in favor of the defendant on the report of the referee.

The general tema on appeal reversed this judgment and ordered a new trial before another referee upon which the defendant appealed to this court.

A. J. Abbott, for appl’t; McNaughton & Taylor, for resp’ts.

This controversy is a struggle between creditors of the_ same debtor for a preference. The defendant has obtained it by negotiation and agreement, and has had it wrested from him by the judgment of the court from whose determination ho appeals.

The question turns upon the validity of his chattel mortgage, which was assailed as fraudulent. The finding of the referee was to the contrary, and has not been reversed by the general term, which acted upon supposed errors of law, leaving the facts to stand as determined by the trial court. We must assume, therefore, that the transaction was not fraudulent if such an assumption is legally possible. And so, the circumstances of the allowance by the debtor of $200 for alleged services of the creditor, and the delivery of checks by the latter almost immediately returned, cease to be material; for they were merely probative facts, bearing upon the honesty of the dealing, and while to some extent they may have been badges of fraud, their force is exhausted by the finding of honesty and good faith. We

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• are confined to a study of the transaction itself, and to the inquiry whether, as matter of law, it was fraudulent and •void against other creditors.

The view of the case, which prevailed with the general ■ term, was that the mortgage and the agreement which led to it, taken together, amounted to a general assignment by an insolvent debtor, which was void because it reserved to him a possible surplus at the expense of unpaid creditors, and the right to make preferences subsequent to the conveyance. If the basis of the reasoning be sound, the result 'reached was a proper inference; but we are not satisfied that the mortgage and agreement amounted to a general assignment by the debtor.

In form it was an absolute sale upon a chattel mortgage given for a fixed and agreed consideration, and while nevertheless such a sale, in spite of its form, may be proved to be an assignment in trust. Britton v. Lorenz, 45 N. Y., 51 , yet,, in the present case, we are unable to discover any such proof. The material and essential characteristic of a general assignment is the presence of a trust. The assignee is merely trustee and not absolute owner. He buys nothing and pays nothing, but takes the title for the performance of trust duties. There was no such element in the transaction between these parties. The purchaser became absolute owner, and paid or secured the full amount of his mortgage. At first he had only the lien which it gave him. It did not cover the whole of the debtor’s property. _ A quantity of beans were left unincumbered as the means in the hands of the debtor with which to pay the plaintiff’s debt. The remainder of the property was included in the mortgage, the consideration of which was composed of several items, making in all $2,400. Morrison owed Guthrie for money loaned, the sum of $980.79, represented by promissory notes held by the latter. The evidence shows that to have been a subsisting and honest debt These notes were surrendered to Morrison and cancelled, and the debt they represented was discharged. There is no trace of any trust in that part of the transaction, Guthrie further agreed to lend and advance Morrison $600 in cash, and did actually advance him that money. It was agreed that Morrison owed Guthrie $200 for services previously rendered, and that debt was cancelled. These items of actual indebtedness amounted to $1,780.29, and deducted from the $2,400, for which the mortgage was to be given, left a balance of $619.21; and the agreed manner of advancing this has furnished the principal ground of criticism. Guthrie stipulated to advance it thereafter by paying that amount to such creditors of Morrison as the latter should name. Of course, a mortgage may be given to securé future advances, and is not void or fraudulent for that reason. It simply does not operate as a general' rule until the advances are made, and leaves the

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property exposed to execution until the loan is made and the lien accrues. The present mortgage, therefore, was good when executed for the amount already advanced; and, before the plaintiff’s attachment was issued, became good for §600 more, or for $1,780.29; and that fact alone furnished a complete answer to plaintiff’s action, for it justified the taking and sale of the property by Guthrie, which is the ground of complaint.

It further appears, however, that at the time of the transation, the creditors of Morrison to be paid up to the agreed amount were named, and the sums owing to them specified; and the referee so finds as a fact; so that the agreement did not leave to Morrison the right to dictate after the transaction, what creditors should be paid. Guthrie became bound to pay them absolutely, out of his own means, and whether his security proved ample or insufficient. He held no part of the property in trust for the debtor, but ■ solely as mortgagee, entitled to its proceeds till his debt was paid, and then bound to restore any surplus realized to the mortgagor, or those claiming under" him. Such provisvision never hinders creditors, for they may pay the mortgage and take the property, or fasten upon the surplus. Such was not only the form of the transaction, but also the actual fact; and there was in it no element adequate, in disregard of its form, to turn it into a general assignment by an insolvent debtor; for it did not cover all of the debtor’s property, but contemplated leaving him in possession of his crop of beans, of $600 in cash, and any surplus in the property mortgaged, beyond the exigencies of the debt; it involved no trust in Guthrie and no holding by him as trustee, but simply the ordinary lien of a mortgagee; and for the whole sum secured, Guthrie either advanced the cash and rendered his services, or became hable to others for the exact amount.

The dealing, therefore, must be treated as a chattel mortgage by a debtor to his creditor, the consideration of which was evidenced and settled by the outside agreement. So regarded, the findings declare it to have been in good faith and not fraudulent. The arrangement for the sale on credit was made harmless by the stipulation that Guthrie should take the credits as cash, and himself bear the delay, and risk the solvency of the purchasers. Brackett v. Harvey, 91 N. Y., 214 .

We see no just reason why this creditor who defends should lose the preference which he obtained.

The judgment of the general term should be reversed and that entered on the report of the referee affirmed with costs.

■ All concur. >