Dearing v. Mckinnon Dash & Hardware Co.

• Decision Date: 27 November 1900
• Citation: 165 N.Y. 78,58 N.E. 773
• Court: New York Court of Appeals Court of Appeals
• Parties: DEARING v. McKINNON DASH & HARDWARE CO., Limited, et al.

165 N.Y. 78

58 N.E. 773

DEARING

v.McKINNON DASH & HARDWARE CO., Limited, et al.

Court of Appeals of New York.

Nov. 27, 1900.

Appeal from supreme court, appellate division, Fourth department.

Action by Henry M. Dearing, as trustee for the creditors of the Elms Buggy Company, against the McKinnon Dash & Hardware Company, Limited, and others. From a judgment of the appellate division (53 N. Y. Supp. 513) reversing a judgment for plaintiff, he appeals. Affirmed.

This is an action of replevin brought by the plaintiff, as trustee for the creditors of a corporation organized under the laws of another state, to recover the possession of a quantity of buggies attached by a sheriff in this state. The defendants are the indemnitors of the sheriff, and were substituted as parties in his place, pursuant to the provisions of the Code of Civil Procedure. They justify through him under an attachment issued out of the supreme court on the 27th of June, 1896, in favor of the McKinnon Dash & Hardware Company, a domestic corporation, against the Elms Buggy Company, a corporation formed under the laws of the state of Michigan, and levied upon the property in question while stored in the city of Rochester. The title of the plaintiff depends upon a certain indenture executed in the state of Michigan on the 22d of May, 1896, between the Elms Buggy Company, as party of the first part, and the plaintiff, as party of the second part. The first party, after reciting its insolvency, purports to ‘grant, bargain, sell, and mortgage unto the said party of the second part, as trustee for the said creditors,’ all its personal property, consisting, among other things, of buggies, finished and unfinished, and material and tools for making buggies; ‘said goods and chattels now remaining and continuing in the possession of said party of the first part at its factory in said city of Albion, county of Calhoun, and state of Michigan.’‘Said first party also simultaneously herewith mortgaging to said trustee all its realty in said city of Albion, where its factory is located ant it is doing business, * * * in trust for the same purposes hereinafter expressed.’ The instrument also covered buggies stored in the states of New York, Iowa, and Wisconsin, and required the party of the second part, as trustee, to dispose of the property thus transferred ‘at any time in the best manner and for the best prices he can obtain for the same at wholesale, retail, or in job lots, as in his judgment shall be best, for the beneficiaries herein, and to receive payment therefor, and to apply the proceeds in the manner hereinafter provided, after deducting all necessary expenses of taking possession of the same and of disposing thereof.’ Then follows a list of creditors, four in number, whose claims amount in the aggregate to $51,000, including the First National Bank of Albion for $41,000, evidenced by promissory notes made by said first party, one of which for $15,000 was indorsed by Fred L. Elms, and another for $6,000 was indorsed by Charles B. Gale. It appeared by extrinsic evidence that said Elms and Gale constituted one-half of the directors, and by the execution of said indenture that the former was president and the latter secretary of the Elms Buggy Company. It also appeared that the plaintiff was cashier of the First National Bank of Albion, the principal creditor. The instrument then continues: ‘And it is also indebted to divers and sundry other persons, firms, corporations, etc., elsewhere, in divers amounts, aggregating about the sum of $34,000. Therefore these presents are upon the express condition that if the party of the first part shall and do, ninety days after date hereof, well and truly pay or cause to be paid to the several creditors and classes of creditors before mentioned, in the order above mentioned, the several debts, liabilites, and obligations to them and each member thereof, respectively, owing, * * * and shall also pay, satisfy, and discharge all of its other indebtedness and liabilities, whether specifically named or not, but intended to be secured hereby, then this instrument to be void; otherwise, to remain in full force.’ After a covenant by the first party to pay said debts within the period mentioned, there followed what is known as the ‘coercive clause,’ to wit: ‘And it is expressly understood that each and every of the said persons and corporations above mentioned or referred to, and who are intended to be benefited hereby, shall accept and abide by the terms and conditions of this security, and the same shall only operate in favor of those who shall, after knowledge hereof, avail themselves of the security of this instrument, and accept and abide by the terms and conditions hereof, and all whose debts are due or to become due within ninety days shall assent to an extension of the same for said period.’ If default was made in the payment of any of the debts by the first party, or if it should dispose of its property ‘except in accordance with the terms of this agreement,’ as thereinafter specified, or should remove any part thereof from its factory without the consent of the second party, ‘except in the usual course of trade and in accordance with the terms and conditions of this mortgage,’ or if the first party should ‘deem himself or said debts insecure,’ he was entitled to take possession of the property, and ‘make sale thereof at public auction, at wholesale, retail, or in job lots, to the highest bidder or bidders, or at private sale, and in bulk or parcel, at his option.’ From the moneys realized ‘upon this mortgage in any manner by said trustee’ he was required to pay the expenses of executing the trust, all taxes, insurance, and a reasonable compensation to himself for his services, and out of the remainder to pay the preferred creditors in the order named, and, if anything was then left from the proceeds of either mortgage, to ‘pay all of the other creditors of said first party in full who accept of this security and assent thereto, if there be in his hands a sufficient sum for that purpose’; otherwise, to pay the remainder ‘to all other creditors of said first party so accepting, ratably, share and share alike.’ It was expressly provided that the proceeds of said real-estate mortgage should ‘be used and applied in the same order and in the same way as the avails of this mortgage.’ The first party agreed to ‘furnish the trustee with a complete list or schedule of the names and post-office addresses of the creditors not hereinbefore mentioned specifically, together with the amount of indebtedness owing by said first party to them, respectively, and the same, when complete, shall be taken to be a part of this instrument so far as designating the persons to whom said residue shall be distributed, and to whose benefit the provisions of this instrument and the avails of said real-estate mortgage shall inure after payment of the expenses and other indebtedness, as before provided. And after the payment in full of all said claims, charges, and expenses, in the manner aforesaid, and in the order aforesaid, said second party, as such trustee, shall deliver the surplus remaining in his hands, if any, to said party of the first part, its successors and assigns. It is believed by the first party that it is for the benefit and advantage of the creditors for it to continue the business of manufacturing until such time as it shall have used up all of its stock now on hand, for the purpose of transforming the raw material into manufactured stock, and, in case some certain lines should be exhausted, that it should buy sufficient new material of any kind not on hand necessary to complete the working up of any other available for that purpose. For this reason said first party contemplates the coninuance of its said business, and of selling its said product for the benefit of those secured.’ The first party was required to keep an accurate account of the expenses ‘of so operating the business, and of all receipts,’ and to render the same to the trustee, who was given power to examine into the buiness, and, if at any time he should ‘believe that the continuance of said business is not for the interest of said creditors secured hereby, he shall have full power and authority to stop the operation of said factory, and take possession of the said property, if he deems it necessary, and at maturity of this mortgage to dispose of the said property in accordance with the terms of this mortgage.’ This indenture was executed pursuant to a resolution adopted by the four directors who were the only stockholders of the company, and was filed in Michigan, as required by the law governing the filing of chattel mortgages in that state, and a certified copy thereof was filed with the county clerk of Monroe county, in this state. The claim of the McKinnon Dash & Hardware Company, upon which said attachment was issued, was founded upon a promissory note dated April 8, and falling due June 15, 1896, for $1,128.50, made by the Elms Buggy Company, and delivered by it to the attaching creditor for goods sold. The property attached formerly belonged to the Elms Buggy Company, and still belonged to it when seized under the attachment, unless title thereto, either absolute or conditional, passed to the plaintiff by virtue of said instrument. The complaint followed the usual form in actions of replevin, except that it set forth said indenture in haec verba. The answer justified the action of the sheriff under said attachment, and alleged that the chattels attached ‘were at the time of said attaching and taking the property of said Elms Buggy Company, or that the said Elms Buggy Company had a leviable or attachable interest therein, or that said goods were liable to be levied upon and taken by virtue of said attachment.’ Upon the trial said...