Great Northern State Bank v. Ryan
| Citation | 292 F. 10 |
| Decision Date | 28 August 1923 |
| Docket Number | 6319. |
| Parties | GREAT NORTHERN STATE BANK v. RYAN. |
| Court | United States Courts of Appeals. United States Court of Appeals (8th Circuit) |
George Cahill, of St. Paul, Minn. (Harry H. Peterson and Harrison W Oehler, both of St. Paul, Minn., on the brief), for appellant.
R. R Barry, of South St. Paul, Minn., for appellee.
Before STONE and KENYON, Circuit Judges, and TRIEBER, District Judge.
The following state of facts has produced this controversy Leonard F. Schmid was engaged in the dairy business in the vicinity of St. Paul, Minn. He was a customer of, and borrowed money at various times from, appellant. In October 1917, he executed a chattel mortgage to appellant upon a number of cows to secure the sum of $700. September 10, 1919, he executed a new note and mortgage for $1,622, covering the former note of $700, additional notes paid by the bank for him, and cash advanced. This note became due on or about September 10, 1920, at which time said Schmid gave to appellant four promissory notes, aggregating $1,970, to cover all the past indebtedness, secured by a new chattel mortgage, which mortgage was not filed until March 30, 1921. On March 22, 1921, through an arrangement between the said Schmid, a creditor of his by the name of Bearth, an appellant, Schmid's dairy business was sold for $4,000. Schmid, the mortgagor, and appellant, the mortgagee, consented thereto, and both assisted in bringing about the sale, which was a very advantageous one. At that time there were no liens against the property of Schmid, except the chattel mortgages to appellant, before referred to. Out of the money received for Schmid's dairy business, appellant took $1,911.13 to pay the amount due on the notes given September 10, 1920, secured by the third chattel mortgage. This is the matter in controversy. The mortgage covered 31 cows, 12 of which had been exchanged for other cows at different times between the execution of the mortgage and the date of sale. The last mortgage was not filed for record until March 31, 1921. June 6, 1921, a petition in involuntary bankruptcy was filed against Schmid, and he was adjudicated a bankrupt on June 20, 1921. Appellee was appointed trustee of the estate August 22, 1921, and this action was brought by him as trustee to recover the $1,911.13, which the trustee claims the bank paid to itself out of the proceeds of the sale of the bankrupt's business.
As a starting point it is conceded in appellee's brief that the chattel mortgage on the 31 cows originally covered by it was valid, and no question is raised as to the validity thereof. It could not well be claimed otherwise, for in Bradley v. Robie, 266 F. 884, this court has held that, under the statutes and decisions of the Supreme Court of Minnesota, unrecorded chattel mortgages are void only as against creditors who have, prior to the filing thereof, acquired a lien by attachment or execution on the mortgaged property. No such situation arises here. The mortgage was given before the four-months period. Martin v. Commercial National Bank of Macon, Ga., 245 U.S. 513, 38 Sup.Ct. 176, 62 L.Ed. 441. Therefore the question of solvency on March 22, 1921, is not important. No question is raised by appellee as to the filing of this mortgage, but it is claimed that, notwithstanding the chattel mortgage was valid, appellant, by consenting to the commingling of the mortgaged chattel property with other property and the subsequent private sale, waived its lien and stood as to the proceeds of such sale exactly the same as the unsecured creditors. This clearly presents the issue.
Certain general propositions of law claimed to be applicable here may be conceded, viz.:
While the Minnesota statutes provide as to the method of foreclosure of a chattel mortgage, the parties may provide as to how the foreclosure shall be carried out, and such method is cumulative to the statutory one. As long as their agreement is not violative of the statutes, or against public policy, or fraudulent as to the rights of third parties, they may enter into any agreement they see fit for the foreclosure or turning over of the property by the mortgagor to the mortgagee. They can stipulate for foreclosure without the statutory public notice. The statutory requirements are for the benefit of the mortgagor, and may be waived if the rights of third parties are not involved. Callen v. Rose, 47 Neb. 638, 66 N.W. 639; Jones on Chattel Mortgages (2d Ed.) 773.
Irregularities in the method of sale do not make the same invalid. For instance, it has been held in some states that, where the statute provided the manner in which chattel mortgages could be foreclosed, provided for notice, also specified where the sale should be conducted, and that it should be in view of the property, the mode therein prescribed was not the only one mortgagee could pursue, and that the mortgaged chattels could be sold in accordance with the stipulations in the mortgage, though different from the mode laid down in the statutes. Lexington Bank v. Wirges, 52 Neb. 649, 72 N.W. 1049. See, also, Campbell v. Woodstock Iron Co., 83 Ala. 351, 3 So. 369; Rose v. Page, 82 Mich. 105, 46 N.W. 227; Callen v. Rose, 47 Neb. 638, 66 N.W. 639; Stevens v. Breen, 75 Wis. 595, 44 N.W. 645; Hutchins Hanks Coal Co. v. Walnut Land & Coal Co., 141 Mo.App. 251, 124 S.W. 1098; Dempster Mill Mfg. Co. v. Wright, 1 Neb. (Unof.) 666, 95 N.W. 806, 807; Reynolds v. Thomas, 28 Kan. 810; Denny and others v. Faulkner, Adm'x, etc., 22 Kan. 89; Harris v. Lynn, 25 Kan. 281, 37 Am.Rep. 253. The mortgage in question here provided for public sale pursuant to the statute. The legal title to the property was in the mortgagee. Powell v. Gagnon, 52 Minn. 232, 53 N.W. 1148; Forepaugh v. Pryor, 30 Minn. 35, 14 N.W. 61; Stromberg v. Lindberg, 25 Minn. 513.
The transaction of March 22, 1921, complained of, constituted an agreement that appellant, as mortgagee, should receive the money for the particular property covered by the mortgage, which was intended as a security for its debt, and apply it to the payment of the same. This was done. There was no fraud in the transaction. No creditor had acquired any lien. The property sold for its full value; no one was wronged. Two mortgages on the property in favor of appellant had been on record for some years. The sale was beneficial to the creditors, and more money was netted to the estate than would have been had the mortgaged property been sold separate, and it was all done under an arrangement between mortgagee and the mortgagor that the property should be so sold.
If the purchase price had not been paid, and creditors had secured a lien upon the balance, a different question would have arisen. In Fairweather v. Nelson et al., 76 Minn. 510, 511, 79 N.W. 506, 507, the court said:
'The mules having been sold with plaintiff's consent, the lien of his mortgage on them was discharged; and in such case it would only be by virtue of some agreement between the mortgagor and mortgagee that the property should be sold in the name of the latter, or that the property or money...
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