Clark v. Nat'l Citizens' Bank of Mankato

• Citation: 74 Minn. 58,76 N.W. 965
• Parties: CLARK v NATIONAL CITIZENS' BANK OF MANKATO.
• Decision Date: 31 October 1898
• Court: Supreme Court of Minnesota (US)

74 Minn. 58

76 N.W. 965

CLARKvNATIONAL CITIZENS' BANK OF MANKATO.¹

Supreme Court of Minnesota.

Oct. 31, 1898.

(Syllabus by the Court.)

1. In an action by an assignee in insolvency to set aside a bill of sale of personal property, and to recover back payments of money made by the insolvent to the defendant, on the ground that they constitute unlawful preferences, under section 4 of the insolvent law of 1881, held, that the evidence justified a finding that the bill of sale constituted an unlawful preference, as also the payments, in so far as they were not made out of the proceeds of some prior valid security for the debt.

2. If a mortgagee of chattel property files his mortgage, or takes actual and continued possession of the property or its proceeds under his mortgage, before any other right or lien attaches, it is good against everybody, if it was previously valid between the parties, although the mortgage was not filed or possession of the property taken at the time of its execution; assuming that the only objection to it is that the mortgage was not filed or the possession of the property delivered to the mortgagee at the time of the execution of the mortgage.

3. According to the findings of the court, prior to the execution of the bill of sale the insolvent had executed, as security for his indebtedness to the defendant, warehouse receipts for chattel property, some of which were afterwards also included in the bill of sale referred to. The defendant permitted the insolvent to retain possession of all the property covered by either the receipts or the bill of sale, to sell and dispose of it, and pay part of the proceeds to apply on the indebtedness for which the property was security, and to use part in his own business. The payments sought to be recovered back in this action were made out of the proceeds of property covered by either or both the warehouse receipts and the bill of sale, but the court did not find, except as to $700, what amount of such payments were made out of the proceeds of property covered by the warehouse receipts. Held that, under the circumstances, the burden was on the defendant to show what part of the payments was made out of the proceeds of property covered by the warehouse receipts, and hence that the findings, as made, justified an order for judgment against the defendant for the full amount of the payments, except the $700.

Appeal from district court, Blue Earth county; Francis Cadwell, Judge.

Action by George H. Clark, substituted for George Schwartz, as assignee of Oscar Cassidy, insolvent, against the National Citizens' Bank of Mankato, to set aside a bill of sale, and to recover payments made thereunder. Judgment was ordered for plaintiff, and defendant appeals. Modified.

Lorin Cray and A. R. Pfau, for appellant.

E. J. Cannon and William N. Plymat, for respondent.

MITCHELL, J.

This action was brought by the plaintiff, as assignee of one Cassidy, an insolvent, under section 4 of the insolvent law of 1881, to set aside a bill of sale executed by Cassidy to the defendant on April 5, 1895, and to recover payments made by Cassidy to the defendant between that date and the date of the assignment in insolvency, which was executed June 12, 1895. In plaintiff's complaint the sole ground upon which the bill of sale and the subsequent payments were assailed was that they constituted an unlawful preference, under the provisions of the insolvent law; and it is important to keep in mind throughout the consideration of the case the distinction between a security given or a payment made which is voidable as to other creditors solely as an unlawful preference under the insolvent act, and one which is voidable on common-law grounds, as being given or made with intent to hinder, delay, or defraud creditors, or because the security was not filed or recorded or the property not taken possession of by a mortgagee or pledgee as required by statute. An assignee of an insolvent may, as the representative of creditors, in a proper case, assail a payment made or security given on any of these grounds; but the grounds of attack are entirely different. The trial court found, in substance, that this bill of sale was given and these payments made by Cassidy with intent to give the defendant a preference upon a pre-existing debt over other creditors, that he was then insolvent, and that the defendant knew that fact. Assuming the bill of sale to have been the only and original security given on the property, and the subsequent payments to have been made out of the proceeds of the property covered by it, or the general funds of the insolvent, and not out of the proceeds of any prior collateral securities, we have no doubt that the evidence amply justified these findings. But the court found (and for the purposes of this appeal we must assume, as against the respondent, that they are correct) that on December 10, 1894, Cassidy borrowed of the defendant $9,500, and agreed to secure its payment upon meats then in his possession in his packing house in Mankato, and that on the next day, in pursuance of this agreement, he executed and delivered to the defendant a warehouse receipt for a large quantity of meats then actually in his warehouse, which he acknowledged, and agreed to put them in store, and hold on account of the defendant as security for the payment of the loan; that Cassidy, having in the meantime become further indebted to the defendant for overdrafts, on January 3, and again on January 26, 1895, executed to the defendant warehouse receipts for further quantities of meats then in his packing house. The court further finds that, the note for $9,500 given for the loan of December 10, 1894, being still wholly unpaid, on April 5, 1895, Cassidy executed to defendant the bill of sale described in the complaint, of a large quantity of meats then in his packing house, also “72,000 lbs. of hams now in the hands of Geo. W. Stone, Chicago, Ill., on which $4,000 has been advanced,” and that this 72,000 pounds of hams described as being in the hands of George W. Stone was a part of the hams mentioned and described in the warehouse receipt of December 11, 1894. No question is made but that these warehouse receipts and this bill of sale were given merely as collateral security for Cassidy's pre-existing indebtedness to the defendant, except that the warehouse receipt of December 11, 1894, was given to secure a present loan. The court also finds that after April 5, and prior to June 1, 1895, there was received by Cassidy and the defendant from sales of said meats described in and covered by said warehouse receipts and said bill of sale at...