Glass & Bryant Mercantile Co. v. Farmers' State Bank of Ft. Morgan

• Decision Date: 27 December 1927
• Docket Number: 11895.
• Citation: 83 Colo. 193,265 P. 682
• Court: Colorado Supreme Court
• Parties: GLASS & BRYANT MERCANTILE CO. v. FARMERS' STATE BANK OF FT. MORGAN et al.

265 P. 682

83 Colo. 193

GLASS & BRYANT MERCANTILE CO. v. FARMERS' STATE BANK OF FT. MORGAN et al.

No. 11895.

Supreme Court of Colorado, En Banc.

December 27, 1927

Rehearing Denied Feb. 14, 1928.

Error to District Court, Morgan County; L. C. Stephenson, Judge.

Suit by the Farmers' Platt Valley Milling & Elevator Company against one Lebsock, defendant, and the Farmers' State Bank of Ft. Morgan, garnishee, in which the Glass & Bryant Mercantile Company and others intervened. Intervener named recovered nothing under the judgment, and it brings error and applies for supersedeas.

Affirmed.

Denison J., dissenting in part.

Munson & Jones, of Sterling, for plaintiff in error.

Arlington Taylor, of Ft. Morgan, for Farmers' State Bank.

Johnson & Robison, of Ft. Morgan, for Epstein and Peyton-Reinert Co.

ADAMS J.

Plaintiff in error was an intervener, and defendant in error was the garnishee, in an attachment suit brought January 27, 1927, by the Farmers' Platt Valley Milling & Elevator Company (no longer in the case) against one Lebsock, a renter who raised sugar beets in the year 1926 on a farm in Morgan county. Lebsock became involved financially, his assets were insufficient to satisfy all demands, and this action concerns disputes of four of his creditors, between themselves, as to their relative rights to certain moneys derived from the sale of sugar beets and other chattels belonging to Lebsock. The case is here on application for supersedeas, and the parties ask us to dispose of the entire matter now. For brevity, the claimants will be designated according to the abbreviations in brackets following their respective names. They are the Farmers' State Bank of Ft. Morgan [the bank], the Glass & Bryant Mercantile Company [Glass], Harry Epstein [Epstein], and the Peyton-Reinert Company [Peyton]. Glass is the plaintiff in error, and the others named are all defendants in error. Incidental reference is made to the landlord and the Great Western Sugar Company, but the landlord has been paid his share, and neither his rights nor those of the sugar company are here involved.

Lebsock in order to secure his notes, gave four chattel mortgages, as follows: On May 19, 1926, to the bank, covering live stock farm machinery, and certain crops, including a three-fourths interest in about 120 acres of sugar beets, to be grown on the land occupied by the mortgagor in Morgan county. On December 7, 1926, a second mortgage to the bank, covering certain personal property, including the sugar beets. On December 22, 1926, mortgage to Epstein, covering same property as in the first mortgage to the bank, except the sugar beets and other crops. This instrument was made expressly subject to the bank's first mortgage. Thereafter, on the same day, December 22, 1926, mortgage to Peyton, covering the same property as in the Epstein mortgage, and made expressly subject to the bank's first mortgage and the Epstein mortgage. Each of these four mortgages was recorded on the day it was given in the office of the county clerk and recorder of Morgan county, where the chattels were situate.

On January 28, 1927, the bank sold certain personal property (not including any beets) belonging to Lebsock, and applied the proceeds in part payment on its mortgage indebtedness. All or nearly all of Lebsock's second mortgage to the bank has been discharged by sale of certain chattels covered thereby; no rights intervened between the bank's first and second mortgages; the assignments of error mention only one, and so we shall hereafter treat only of the first one, executed and recorded on May 19, 1926.

The Glass claim is based upon a promissory note from Lebsock, dated August 19, 1926, for goods sold in 1925, and upon an assignment to secure the same, dated November 29, 1926, from Lebsock to Glass, of all his rights and claims 'in and to certain sugar beets delivered to the Great Western Sugar Company in the year 1926, and in and to any moneys due or to become due to him as bonuses, or otherwise.' The beets referred to were the same as those mortgaged to the bank. The Glass assignment was filed with the sugar company on the same day that it was given, November 29, 1926, but the bank did not have notice thereof until on or about December 17, 1926, and neither Epstein nor Peyton had notice thereof until after their respective mortgages were recorded. The Glass assignment was acknowledged, but not filed in the county clerk's office.

The beets were raised on the land mentioned in the chattel mortgage to the bank, harvested in season, and delivered to the sugar company at Ft. Morgan, Morgan county, between September 21, 1926 and November 20, 1926, inclusive. They were delivered to the sugar company, according to its custom, with the understanding on the part of all parties that checks were to be issued therefor, payable to the landlord, Lebsock, the tenant, the bank, and such other parties as appear to have an interest therein.

The sugar company paid for the beets in three checks, delivered to the bank on the several dates thereof: First, October 14, 1926; second, November 15, 1926; and, third, December 15, 1926. The name of Glass appears in the third check only; the sugar company then knowing of the assignment of Lebsock to Glass. The bank paid part of the first check to Lebsock, and applied the remainder on certain other unsecured notes that it held, signed by Lebsock. It applied none of the first check on its mortgage. It applied part of the proceeds of the second check on its mortgage, part on Lebsock's unsecured notes to the bank, and credited the remainder to Lebsock's personal account. No payments were made to Lebsock out of the proceeds of the sugar beets, nor upon any other indebtedness, after the bank had notice of the assignment from Lebsock to Glass. The third check, although in the bank's possession, had not been disposed of or apportioned when the action was commenced; it was tied up in this litigation. It was it the sum of $1,999. The bank claimed $920 of the amount as the balance due on its mortgage, and asked for an order of court as to the disposition of the remaining $1,079. Glass claimed that the bank's mortgage was void because, out of the proceeds of the first two checks for beets, the bank applied part on unsecured debts, and paid part to Lebsock.

The court held, however, that the bank had a right to apply the beet money on its chattel mortgage, or to any other debt of Lebsock to the bank, prior to the notice that the bank got on or about December 17, 1926, of the Lebsock-Glass assignment, and that the mortgage held by the bank was a valid and subsisting lien against the proceeds of the sale of the property described therein, to the extent of the balance of its claim in the sum of $920; that the bank was entitled to retain that amount; that, out of the balance of $1,079 in its hands, Epstein's mortgage should be first satisfied, and the remainder paid to Peyton; that the delivery of the beets to the sugar company completed on November 20, 1926, constituted an equitable assignment to the bank of the fund given in payment thereof, and that it took effect before the Lebsock-Glass assignment on November 29, 1926. The court also found Epstein and Peyton to be entitled to have the remaining assets marshaled, after the bank had been paid. This is more fully mentioned hereafter. The effect of all of the above was that the bank came first, Epstein second, and Peyton third. The money was thus exhausted, and so Glass got nothing, in consequence of which he brings the case to this court.

The first error assigned by Glass is that the bank, by its own acts, destroyed the lien of its chattel mortgage; and, second, that the court erred in directing the marshaling of assets in favor of Epstein and Peyton. The bank also objects to the last-named order.

1. The general rule in this state is that, if a mortgagee of chattels sells or voluntarily permits the sale of such chattels, without applying the proceeds upon the mortgage indebtedness, it is fraudulent as to creditors and third persons. City Nat. Bank v. Goodrich, 3 Colo. 139; Wilcox v. Jackson, 7 Colo. 521, 4 P. 966; Wilson v. Voight, 9 Colo. 614, 13 P. 726; Brasher v. Christophe, 10 Colo. 284, 15 P. 403; Wellington v. Terry, 38 Colo. 285, 88 P. 467; Hall v. Johnson, 21 Colo. 414, 42 P. 660; First Nat. Bank v. Shafer, 64 Colo. 388, 172 P. 1, L.R.A. 1918E, 636.

2. But the application of the above to the case at bar is qualified by another salutary rule, which we quote from our previous decisions:

'The weight of authority is that 'creditors or third persons' are not general creditors, but, as used in the Chattel Mortgage Act, mean only such creditors or persons as have acquired enforceable liens by execution or writ of attachment, or by contract, during the period of time that the mortgaged property remains in possession of the mortgagor.' Bogdon v. Fort, 75 Colo. 231, 235, 225 P. 247, 248; Brug v. Herbst, 78 Colo. 128, 130, 239 P. 868.

3. The requirement that one must have a lien or superior right, to entitle one to come between a debtor and creditor when the former pays a bill, is not arbitrary or capricious. No other rule would be sensible. If it were open to a general creditor to object, no merchant, however humble, could count his change at night with confidence. He would be beset with the fear that some other creditor, disappointed in not having his bill paid, might be allowed to take it away from him, or cause it to be divided. Any one can see the absurdity and impossibility of constituting the court into a clearing house or board of accountancy, to readjust the myriad business transactions of the world at the close of day, at the instance of a mere general creditor, or to take money from one...