Brown v. Brabb

• Decision Date: 06 October 1887
• Citation: 67 Mich. 17,34 N.W. 403
• Court: Michigan Supreme Court
• Parties: BROWN v. BRABB.

34 N.W. 403

67 Mich. 17

BROWN v. BRABB.

Supreme Court of Michigan

October 6, 1887

Appeal from circuit court, Midland county; HENRY HART, Judge.

M.H. Stanford, for appellee.

Dwight N. Lowell, for appellant.

CHAMPLIN J.

Complainant files a bill in Midland circuit setting forth that, January 14, 1884, John J. Ryan and Ethelbert J. Brewster, of Midland were doing business as John J. Ryan & Co.; that on that date they made an assignment to complainant, for the benefit of their creditors, of all of their property and rights not exempt from execution, without preference; that complainant accepted the trust, and qualified as such assignee; that he proceeded to carry out the trust as such assignee; that January 4th, without his knowledge or the knowledge or consent of Brewster, Ryan, in the firm name, gave a chattel mortgage to defendant Brabb for $1,928.67, covering 20 buggies, and with the usual conditions; that the mortgage was given to take up certain notes previously given, and that they never were given up; that the mortgaged property was left in the possession of Ryan & Co.; that when the mortgage was given it was agreed between Ryan and Brabb that the mortgage should be left with the township clerk, with instructions not to file unless some other mortgage on the same property should be presented for filing, and that the clerk was so instructed; that, January 21st, Brabb caused said mortgage to be filed in the township clerk's office that Brabb demanded the property covered by the mortgage of complainant, which was refused, and that Brabb still claims property in said mortgage; that he claims said mortgage to be void as to him and the creditors of Ryan & Co.; that he believed Brabb would surrender said mortgage, or test its validity, until Brabb informed him that he would not discharge it, but insist upon the lien; that the value is over $100; that he has converted the assets into money, and that he will soon be ready to distribute to the creditors that Brabb refuses to bring suit, and insists that he shall hold complainant liable for the value of the property converted; that he cannot distribute until the mortgage is canceled; and the fear of suits by Brabb to enforce his claim at law. The prayer for relief is to cancel the mortgage, and to restrain defendant from bringing suit, of any name or nature, against complainant, to recover the mortgage debt and for general relief. December 12, 1885, complainant amended his bill, setting up that the debts of Ryan & Co. were $17,000, and the nominal assets $18,000, and the true value $5,000.

The defendant answers, and admits the copartnership, and denies their insolvency; neither admits nor denies the assignment, but leaves complainant to proof of the same; denies that it can be material whether the mortgage of Ryan & Co. was made without the knowledge of complainant; denies that it was made without the knowledge or consent of Brewster; and avers that Ryan & Co. were indebted, January 4th, to the Rome Carriage Company and to the defendant in the sum of $2,428.67, and giving the items and dates; that, January 4th, such statement was taken by defendant to both partners, who assented to it, and agreed to give the chattel mortgage in question as security, which was given in pursuance of the agreement and assent of each; that Brewster, being obliged to leave by cars, assented to and directed Ryan to execute the chattel mortgage for the firm in part security, and that it was done in accordance with such agreement and direction; that in making the adjustment Ryan & Co. agreed to give the chattel mortgage, and a real-estate mortgage on property mentioned, and to pay $500 in cash; that, in consequence of Brewster being obliged to leave, the real-estate mortgage was not completed, nor the money paid, but that Ryan and wife executed the real-estate mortgage, and were only awaiting Brewster's return, when defendant was to deliver up the notes, and receipt for his claim and the carriage company's claim, and rely entirely on the security, but that Ryan & Co. never completed the real-estate mortgage or paid the $500; that the chattel mortgage was given absolutely as part security for $1,928.67, the real-estate mortgage was to be the additional security, and the $500 was the balance; that on said date Ryan & Co. executed two notes aggregating $1,928.67, to the credit of defendant, and what was owing to him, and sets out the terms of the notes, and the making of the mortgage to secure the same; that it was a bona fide indebtedness from Ryan & Co. to defendant, and was credited upon the account as shown Ryan & Co., leaving only the $500 due the carriage company; that complainant knew this, and that both he and Ryan & Co. have been aware of this from the first, and until the filing of the bill never claimed differently; that defendant is entitled to said mortgage lien and the avails of the property in complainant's hands, and that upon the payment of the $500, he has been at all times ready to deliver up the old account, and receipt to Ryan & Co. in full, save as to his mortgage rights; denies there was any other agreement, or that the notes were to be delivered up, save upon the completion of the agreement, and that it was understood that the notes of $1,928.67 were to be a credit upon the old notes and account; that defendant has been wrongfully dispossessed of the chattel mortgage property; that complainant has sold and converted the same to his own use, and is liable to defendant for the value of the same; denies that any arrangement was made to deliver the mortgage to the town clerk as stated; that defendant took the mortgage immediately to the clerk, delivered it for filing, directed it to be filed, and paid said clerk his legal fees for filing, and did all he could to file the same; and that, if it was not filed then, it was not his fault; that he subsequently learned it had not been filed, and he again directed its filing, and denies that the failure to file was by reason of any agreement; neither admits nor denies the possession of complainant, but leaves him to his proofs, save that he avers that complainant has disposed of said property; that the lien was a subsisting lien to secure the $1,928.67, and defendant claims a decree for an accounting by complainant for the avails of said property, and to pay to defendant the sum in satisfaction of said lien; denies that the mortgage was in fraud of the creditors of Ryan & Co., or any other person; claims the security, and avers knowledge of the same by complainant at the date of the assignment, and claims the affirmative relief for a decree to turn over the property, or account, and pay the moneys received therefor; that complainant has $1,490 of such money, which should be ordered to be paid over to defendant. The defendant claims the benefit of a demurrer the same as though he had demurred generally and specially.

A general replication was filed, and hearing in open court demanded. The cause heard April 30, 1886, and a decree made February 21, 1887, granting the relief prayed for by complainant. Defendant appeals.

The assignee of an insolvent debtor, in the absence of fraud in fact, and in the absence of statute regulations, takes only the debtor's rights; and consequently he is affected with claims, liens, and equities which exist as against the debtor, were he asserting claims to the property. It was long ago held in England that assignees in bankruptcy take subject to whatever equity the bankrupt is liable to. Mitford v. Mitford, 9 Ves.Jr. 87: Sherrington v. Yates, 12 Mees. & W. 855; Brown v. Heathcote, 1 Atk. 160, 162. Such is the prevailing doctrine in this country. Winsor v. McLellan, 2 Story, 492; Fletcher v. Morey, Id. 555; Mitchell v. Winslow, Id. 630; In re Griffiths, 1 Low.Dec. 431; In re Dow, 6 N.B.R. 10; Coggeshall v. Potter, 1 Holmes, 75; Johnson v. Patterson, 2 Woods, 443; Goddard v. Weaver, 1 Woods, 257, 260; In re Collins, 12 N.B.R. 379; Platt v. Preston, 3 Fed.Rep. 394; Yeatman v. Savings Inst., 95 U.S. 764; Adams v. Collier, 122 U.S. 382, 7 S.Ct. 1208. It is held in this state that the assignee for the benefit of creditors is not a purchaser in good faith. The statute relative to common-law assignments does not place the assignee upon any better footing than the creditors he represents.

There is no question, in this case, but that the chattel mortgage executed by John J. Ryan & Co. was given in good faith, to secure an honest debt, and is valid between the parties. The important question is whether a chattel mortgage not filed pursuant to section 6193, How.St., and valid between the parties, is equally valid and effective as against the assignee for the benefit of creditors who became such prior to the date of the mortgage. In Stewart v Platt, 101 U.S. 731, 739, Lane v. Lutz, 40* N.Y. 213; Wescott v. Gunn, 4 Duer, 107; Smith v. Acker, 23 Wend. 653. Suppose the mortgagors had not been adjudged bankrupts, and there had been no creditors, subsequent purchasers, or mortgagees to complain, as they alone might, of the failure to file the mortgages in the towns where the mortgagors respectively resided. It cannot be doubted that Stewart, in that event, could have enforced a lien upon the mortgaged property in satisfaction for his claim for rent. The assignee took the property subject to such equities, liens, or incumbrances as would have affected it had no adjudication in bankruptcy been made. While the rights of the creditors, when executions preceded the bankruptcy, were properly adjudged to be superior to any which passed to the assignee by operation of law, the balance of the fund, after satisfying those executions, belonged to the mortgagee, and not to the assignee for the purpose of the trust. The latter,...