Farmers Co-Operative Ass'n v. Kotz

• Decision Date: 14 June 1946
• Docket Number: No. 34197.,No. 34142.,34142.,34197.
• Citation: 222 Minn. 153,23 N.W.2d 576
• Parties: FARMERS CO-OPERATIVE ASS'N OF BERTHA, MINN., v. KOTZ.
• Court: Minnesota Supreme Court

23 N.W.2d 576

222 Minn. 153

FARMERS CO-OPERATIVE ASS'N OF BERTHA, MINN., v. KOTZ.

No. 34142.

No. 34197.

Supreme Court of Minnesota.

June 14, 1946.

Appeal from District Court, Todd County; Byron R. Wilson, Judge.

Action by Irja Mariin, as receiver of the Farmers Co-operative Association of Bertha, Minnesota, formerly Bertha Farmers Co-operative Association, against Fred Kotz to set aside a chattel mortgage and to have declared void the mortgage foreclosure sale record thereof. Judgment for plaintiff and defendant appeals.

Reversed and new trial granted.

Frank L. King, of Long Prairie, for appellant.

Jesse A. Schunk, of New York Mills, and Charles W. Kennedy, of Wadena, for respondent.

MAGNEY, Justice.

Plaintiff, Farmers Co-operative Association of Bertha, Minnesota, by its receiver, Irja Mariin, brought action to set aside and declare void and of no force and effect a chattel mortgage given by the association to defendant and to declare void and of no effect the mortgage foreclosure sale record thereof. Plaintiff prevailed, and defendant appeals from the order denying his motion for a new trial and from the judgment.

Prior to 1943, one B. W. Schimmelpfennig had been employed by the association as its manager. After his services had been terminated by discharge, he brought suit on May 25, 1943, against the association to recover commissions to which he claimed he was entitled. He was successful, and on October 14, 1944, judgment was entered in his favor for $544.55. On November 18, 1944, execution on the judgment was returned unsatisfied. Thereupon a petition for the appointment of a receiver of the association was made. On December 20, 1944, the present acting receiver was appointed and qualified.

For several years prior to September 6, 1944, defendant was a director and the treasurer of the association. At the time Schimmelpfennig ceased to act as manager in 1942, the association was in a bad way financially. Defendant had advanced and loaned to the association various sums of money aggregating at least $2,859.12 with interest, the greater part of it in 1943, in order that it might continue to operate. In 1944, about the time Schimmelpfennig was attempting to collect what he claimed was due him, defendant demanded of the directors, unsuccessfully, that his loans to the association be paid. His resignation as director and treasurer was accepted at a meeting of the board of directors on September 6, 1944. At the meeting of the board held on October 4, 1944, it was voted that a mortgage be given defendant on all merchandise, equipment, book accounts, and notes receivable as security for money then owing him. On October 6, 1944, a mortgage of $3,500 was thereupon given defendant as security for the indebtedness then existing and for future advances, the aggregate of which should not exceed $4,500. A provision of the mortgage required the mortgager to render monthly accounts of its business to defendant and to pay over to him the proceeds of the preceding month's business, whereupon he would advance to it sufficient funds with which to conduct next month's business. Defendant claimed that the association failed to make a full accounting to him of its business once a month as required by the terms of the mortgage, and on November 28, 1944, he instituted proceedings to foreclose the same. On December 11, 1944, pursuant to notice, the property was sold at public auction and bid in by defendant for $3,528.10, and the report of sale filed. The receiver succeeded in the court below in having the mortgage declared null and void, as well as the mortgage foreclosure sale record.

1. Defendant claims that the court erred in denying his motion to strike the case from the calendar. There is nothing in the record on this matter except the order of the court refusing the motion to strike and a note signed by the court stating that "defendant's counsel frankly in open court admitted receipt by copy of the notice of trial on the sixth day of March, 1945, that then being equivalent to personal service as of said date." With such a meager record, we cannot say that the court was in error.

2. Defendant made a motion for new trial on the minutes. It was not heard within the time allowed by law, nor was the time extended for hearing of it as required by the statute. It seems unnecessary to detail the situation. When heard, the motion for new trial could no longer be entertained by the court on the minutes, since its authority to hear the motion had ceased. Edelstein v. Levine, 179 Minn. 136, 228 N.W. 558; Smith v. Wright, 192 Minn. 424, 256 N.W. 890. As the order appealed from was a nullity, the appeal must be dismissed and our consideration limited to the question raised by the appeal from the judgment.

3. In the absence of legislation forbidding it, a debtor, even though insolvent at the time, may convey his property so as to give one creditor a preference over another. This is the rule in this state. Vose v. Stickney, 19 Minn. 367, Gil. 312; Smith v. Deidrick, 30 Minn. 60, 14 N.W. 262; In re Kahn, 55 Minn. 509, 57 N.W. 154; National Citizens Bank v. McKinley, 129 Minn. 481, 152 N.W. 879; Petersdorf v. Malz, 136 Minn. 374, 162 N.W. 474; Engemoen v. Lutroe, 153 Minn. 409, 190 N.W. 894; Nelson v. Poss, 172 Minn. 149, 214 N.W. 787. In Grager v. Hansen, 165 Minn. 317, 319, 206 N.W. 440, 441, it was held that the intention by a debtor to give one creditor preference over others does not constitute a "purpose to hinder, delay, or defraud creditors"; and in National Surety Co. v. Wittich, 184 Minn. 21, 237 N.W. 585, that the fact that a transfer in part payment of an antecedent debt results in a preference does not constitute fraud against general creditors. Of course, we are not here considering provisions of bankruptcy or insolvency statutes. In Aretz v. Kloos, 89 Minn. 432, 439, 95 N.W. 216, 219, 769, this court said: "* * * We have no domestic law which will prevent a debtor from preferring and securing a bona fide creditor, if he chooses so to do; and this was true when the state insolvency law was in force, for, except as forbidden by that law, debtors might prefer creditors, and, in the absence of actual fraud, such preferences were valid, and would be upheld. Davis v. Cobb, 81 Minn. 167, 83 N.W. 505." See, also, 24 Am.Jur., Fraudulent Conveyances, § 92.

4. Courts are divided on the question of the power of an insolvent corporation to prefer one general creditor over another. The prevailing view is that a corporation, though insolvent, may, where it has possession and control of its property and in the absence of fraud or statutory restriction, prefer one of its general creditors over the others by a deed of trust on its property or by a mortgage, sale, assignment, or otherwise in the same manner and to the same extent as an individual debtor, so long, at least, as such preferment does not deprive the corporation of the power to continue in its due course of business and render it necessary for it to suspend. 13 Am.Jur., Corporations, § 1268. Where the power is denied, it is based on the doctrine that the assets of an insolvent corporation are a trust fund for its creditors. The trust fund doctrine has not been adopted in this state. In an early case, Hospes v. Northwestern Mfg. & Car Co., 48 Minn. 174, 192, 50 N.W. 1117, 1119, 15 L.R.A. 470, 31 Am.St.Rep. 637, the court...