Delaney v. Valentine

This action was prosecuted by the plaintiff, as receiver of the property of Thomas B. Valentine, to have two chattel mortgages executed to Ann A. Lockwood, and an assignment of certain choses in action to William H. Lockwood, declared fraudulent and void as to the claims of the plaintiff as receiver, and as to the plaintiff, as such receiver, set aside, on the ground that the same were given by the defendant Thomas B. Valentine and received by the said defendants Ann A. Lockwood and William H. Lockwood for the purpose and with the intent of hindering, delaying, and defrauding the plaintiff as such receiver, a creditor of the said Thomas B. Valentine. The defendants Ann Lockwood and William Lockwood joined in an answer, denying the allegations of fraud, setting up the mortgages to Ann Lockwood, and a sale of the mortgaged property at public auction, at which the defendant William Lockwood purchased the same. The answer also set up the assignment of the accounts to William H. Lockwood by the defendant Valentine as collateral to the payment of the debts of Valentine to certain other persons. The defendant Valentine, by separate answer, alleged that the mortgages and assignment were made in good faith, and to secure actual indebtedness of such defendant, and alleged that the mortgagee took possession of the mortgaged property, and actually sold the same for the sum of $5,000 to William H. Lockwood, who took actual possession of the same, and also alleges that the assignment of the accounts to William H. Lockwood was to secure actual indebtedness of the defendant Valentine to certain persons named in the

The case discloses that on the 23d day of' March, 1893, the defendant Thomas B. Valentine, who was a merchant doing business in the village of Saratoga Springs, was indebted to Ann A. Lockwood in the sum of $7,500, and also indebted on two notes, one of $1,200 and one for $180, indorsed by William H. Lockwood, •and a note of $1,500 indorsed by Augustus H. Lockwood; that to secure the aforesaid debts he executed on that day a chattel mortgage covering the entire stock of merchandise owned by him, •and in his store at 468 Broadway, in Saratoga Springs, which mortgage was duly filed in the town- clerk’s office. Subsequently, and on the 14th day of June, 1893, the defendant Valentine ex-’ ecuted to the defendant Ann A. Lockwood another chattel mortgage on the same stock of goods. And “ all the stock of goods, the fixtures, and personal property of every kind and description, owned by said Thomas B. Valentine, situate in and about the premises of No 468 Broadway, in the village of Saratoga Springs,” which was also duly filed in the office of the proper town clerk, and which mortgage contained the following conditions and provisions : “Upon condition that if said party of the first part shall ■and do well and truly pay or cause to be paid the following notes owing by him, to wit: One made by him, said Thomas B. Valentine, for the sum of $5,000, dated July 22nd, 1892, payable twelve months after date, with interest,-at the First National Bank ■of Saratoga Springs, to the order of said Ann A. Lockwood. One made by said Valentine, dated November 10,' 1892, payable ‘to the order of said Ann A. Lockwood, twelve months after date, at the First National Bank, for $1,500 and interest. One made by said Valentine, dated December 2nd, 1892, payable to the order of W. H. Lockwood twelve months after date, with interest, at the First National Bank of Saratoga Springs, for $1,200. One made by said Valentine, dated January 31, 1893, payable to the order of Ann A. Lockwood, twelve months after date, at the First National Bank of Saratoga Springs, with interest, for the sum of $1,000. One made by said Valentine, dated March 25th, 1893, for the sum of $1,500, payable three months after date, at the First National Bank of Saratoga Springs, indorsed by Augustus H. Lockwood. A note of $967.71 given by said Valentine to M. H. Berge & Sons, due July 2, 1893. A note of $1,500 given by said Valentine tolvah Holmes, payable on demand, on account of $629.75 due from said Valentine to J. C. Wemple & Co. Then these presents, and everything herein contained, shall cease and be void. And the said party of the first part, for himself, his executors, administrators, and assigns, does hereby covenant and agree to and with the party of the second part, her executors, administrators, and assigns, to make punctual payment of the money hereby secured. And in case default shall be made in payment of the said sum above mentioned, or in case the said

On the day of the execution and delivery of the last mentioned mortgage, and at the same time, the defendant Yalentine executed and delivered to the defendant William H. Lockwood an assignment, of which the following is a copy : “For value received, I hereby sell, assign, set.over, and convey unto William H. Lockwood, of Saratoga Springs, N. Y., all the account due or owing to me mentioned in the annexed list, and all other accounts, dues, and choses in action due or owing to me, as collateral security for the payment of a balance of $1,852.50 on a note of $1,500 made by me, Thomas B. Yalentine, and indorsed by Augustus A. Lockwood, and owned by the First National Bank of Saratoga Springs, the sum of $147.50 being paid on said note; also, a note of $967.71 held by M. H. .Berge & Sons, due July 4th, 1898; also, a note of $500 and interest owned by Ivah Holmes,—said Berge note'and Holmes note being each made by said Thomas B. Yalentine; also, a note of $18.93 given by said Thomas B. Yalentine to R. H. Trimm; a claim of $282.81 owing by said Thomas B. Yalentine to George W. Yalentine for work; also a claim of $148.85 due from said Thomas B. Yalentine to John W. Yalentine for work; an account of $629.70 owing by said Thomas B. Yalentine to Jay 0. Wemple & Co., which became due July 2, 1893; three notes-of said Thomas B. Yalentine, owned by the First National Bank of Saratoga Springs,— one of $50, due July 3d, 1893, one of $150, due July 9, 1893, and one of $100, due August 5, 1893. Also, to pay two notes of $65 each given to S. A. Rickard, and $83.33 fora month’s rent of the store No. 468 Broadway.”

On the 14th of June, the day of the execution of the last mentioned mortgage by the defendant Yalentine to the defendant Ann

The receiver, who is appellant on this appeal, insists that the mortgage to Ann A. Lockwood of June 14, 1893, and the assignment to William H. Lockwood made on the same day by the defendant Valentine, are in violation of the provisions of 2 Rev. St. p. 135, § 1, for the reason that they create a trust in favor of the mortgagor and assignor, and are therefore violative of the right of his creditors. The language of that section is as follows: “ All deeds of gift, all conveyances and all transfers or assignments verbal or written of goods, chattels and things in action, made in trust for the use of the person making the same, shall be void as against creditors existing, or subsequent of such persons.”

The condition in the mortgage which directs the mortgagee to sell and dispose of the property mortgaged for the payment of the amount intended to be secured is not unlike an ordinary mortgage of chattels, and, had all the persons whose debts are attempted to be secured been made mortgagees, it could hardly be maintained that the provision requiring the mortgagee to pay the surplus to the mortgagor would be such trust for his benefit as to render the mortgage void under the provisions of the statute above quoted. Under such circumstances the legal title, before breach or forfeiture, would have remained in the mortgagor, liable to sale on execution, subject to the payment of the mortgage; and if the mortgage was an honest transaction, and the same given to secure honest indebtedness due to the mortgagees, the creditors of the mortgagor not secured by the mortgage would have no right to complain, as their right to the surplus after the payment of the mortgage would in that case be in no wise impaired. Does the creation of a trust in the mortgagee for the benefit of creditors who are not mortgagees alter the rights of the parties who are creditors of the mortgagor, but whose debts are not provided for in the trust created for the benefit of certain preferred or favored creditors who are named in the mortgage? The same question may be asked as to the assignment made by the defendant Valentine to the defendant William H. Lockwood. Both the mortgage and assignment create a trust for the benefit of creditors of Valentine who are not parties to the instrument, and together they transfer all of his property to the mortgagee and assignee, who are to use the avails of the same in paying the debts of the defendant Valentine, which are therein specified, and return to the mortgagor and assignor any surplus that may arise out of the sale of the property assigned or' mortgaged,

And in stating that proposition, Judge Earl uses the following language: “An insolvent, or even a solvent, debtor cannot convey all his property to a trustee, to pay a portion of his creditors, with a provision that the surplus will be returned to him, and leave other creditors unprovided for, because such a conveyance ties up his property in the hands of his trustee, and places it beyond the reach of his creditors by the ordinary process of law, and thus hinders and delays them, and is therefore void as to creditors unprovided for. ”

In the case at bar the referee found that the defendant Valentine, at the time of making the mortgage and assignment, on the 14th day of June, was indebted beyond and in excess of the value of his property; and it is quite apparent from the evidence of the defendant William H. Lockwood that he and his mother, Ann A. Lockwood, knew that fact. In Sutherland v. Bradner, 116 N. Y. 410 ; 26 St. Rep. 854 , Follett, J., in delivering the opinion 'of the’court, uses this language: “ A preferential assignment by an insolvent of all of his estate in trust for the payment of a part of his debts, which provides that after paying the, creditors named the remainder of the assigned estate shall be restored to the assignor, hinders and delays the unpreferred creditors, and it is void as against them.”

—And he cites in support of that proposition Goodrich v. Downs, 6 Hill, 438 ; Barney v. Griffin, 2 N. Y. 365 ; Collomb v. Caldwell, 16 N. Y. 484 . It can make no difference in principle, or in the practical effect of such an assignment, whether the surplus provided for is large or small, or whether, indeed, there is or is not in fact any surplus. The vice consists in its effect in hindering and delaying the other creditors in the use of the ordinary remedies for the collection of these debts. Knapp v. McGowan, supra. But the respondents urge that the ordinary remedies available to other

In the case at bar the mortgagee, availing herself of the title thus acquired, immediately took possession of this property, advertised and sold it to the defendant William H. Lockwood, and thereby cut off all equity of redemption of the other creditors of the mortgagor. Under such circumstances; it can hardly be said that the trust created in this mortgage did not have the effect to hinder and delay other creditors in the .ordinary proceeding for .the collection of their debts. The case is not like Wheel Co. v. Fielding, supra. In that case no trust was created for the benefit of third parties, and the mortgage under discussion then was a real estate mortgage, under which a forfeiture or breach of condition did not work a change in the title, as in this case; and in the discussion of that case, Éinch, J., says: “Thisis the usual clause reserving surplus to mortgagor in eveiy mortgage upon real estate, and, as here employed, cannot be regarded as of the same character as if used in an assignment of property for the benefit of creditors

In a real estate mortgage the surplus, on foreclosure, passes to the person entitled to the same under the order of the court. But the surplus provided for in this mortgage is reserved to the mortgagor after the satisfaction of all the trusts provided for in the instrument itself; and in effect the trustee, who is also mortgagee, is charged with the duty of returning such surplus to the mortgagor, without regard to the rights of other creditors who are not provided for in the mortgage. In no light in which we can examine this mortgage and assignment can we escape the conclusion that a trust is created by this mortgage for the-benefit of the mortgagor’s creditors named therein, and that the surplus is.reserved to the mortgagor who makes the transfer, and creates the trust for his own benefit. To allow such a transfer in the name of a chattel mortgage to stand in the way of bona fide creditors of the mortgagor or assignor would seem to furnish an easy method for a debtor to transfer his property in a manner that hinders and delays his creditors, and at the same time secure to himself the remainder of his estate, in violation of the plain intent, if not of the letter, of the statute. The referee finds that at the time Valentine made this mortgage and assignment he was insolvent, and expected to be closed. Under such circumstances, his transfer of all of his property was in the nature of a general assignment, and any reservation of any interest in the property assigned, in himself, rendered the transfer void, within the statute referred to. In Curtis v. Leavitt, 15 N. Y. 9 , the court holds that where a security is given in the ordinary course of business, with a provision that after the payment of the debt the balance of surplus shall belong to the mortgagor or grantor, no illegal trust is created in the surplus. But. the same case holds, at page 132, as follows : “ But when they are made in favor of an insolvent, who winds up his affairs by an assignment of his whole estate, then they have been justly regarded as high, and sometimes conclusive, evidence of a fraudulent design. The principle, indeed, which runs through this whole branch of our law is that when a trader or dealer fails, and proposes to put his estate in trust, he must devote the whole of it, immediately and unconditionally, to the payment. It is only on those terms that he is allowed to withdraw it from the ordinary process of the law. He must reserve nothing to himself, but must, give all to his creditors.”

Upon the facts of this case, and within the principle here enunciated, we think that the learned trial judge erred in non-suiting the plaintiff, and for that error the judgment must be reversed.

Judgment reversed, and a new trial ordered • cost to abide the event.