Hanson v. White
| Decision Date | 02 February 1899 |
| Docket Number | 11,454 - (212) |
| Parties | CHARLES M. HANSON and Another v. ENOS WHITE and Others |
| Court | Minnesota Supreme Court |
Action in the district court for Hennepin county by the assignees in insolvency of Austin F. Kelley and Louis E. Kelley copartners under the firm name of A. F. & L. E. Kelley and as individuals, to set aside as a preference a mortgage executed by Austin F. Kelley and wife to defendant White and by him assigned to defendant Evans. The cause was tried before Elliott, J., who found in favor of plaintiffs. From an order denying a motion for a new trial, defendants appealed. Reversed.
Insolvency -- Fraudulent Preference -- Findings not Sustained by Evidence.
Action to set aside a mortgage as a preference under the insolvency laws of the state. Held, that the evidence does not sustain the finding of the trial court to the effect that the mortgagee was a creditor of the mortgagor, and that the mortgage was taken to secure a pre-existing debt.
Young & Waite, for appellants.
To constitute a cause of action under G.S. 1894, § 4243 the relation of debtor and creditor must have existed, the mortgage must have been given with the intention of giving a preference to a creditor, and the mortgagee must have had reasonable cause to believe the mortgagor insolvent. Baumann v. Cunningham, 48 Minn. 292; Fisher v. Utendorfer, 68 Minn. 226. Here there was no pre-existing debt. The firm did not assume to make a collection of the mortgage debt as agent of White. See Herrick v. Mosher, 71 Minn. 270. Any disability applicable to A. F. Kelley applied to the firm. Deakin v. Underwood, 37 Minn. 98, 101. One cannot be a party and the agent for the opposite party in the same transaction. Mechem, Ag. § 68; Story, Ag. §§ 210, 211; Rhodes v. Webb, 24 Minn. 292; Fellows v. Northrup, 39 N.Y. 117, 122; Bank v. American, 143 N.Y. 559, 564. White's right to repudiate the purported collection on discovery of the facts is not dependent on showing actual damage. Tilleny v. Wolverton, 46 Minn. 256; Friesenhahn v. Bushnell, 47 Minn. 443; Lum v. McEwen, 56 Minn. 278, 282; Donnelly v. Cunningham, 58 Minn. 376; Conkey v. Bond, 36 N.Y. 427; Porter v. Woodruff, 36 N.J.Eq. 174. There was no ratification. Ratification must have been with knowledge of the facts. Seymour v. Wyckoff, 10 N.Y. 213; Owings v. Hull, 9 Pet. 607, 629; Ladd v. Hilderbrant, 27 Wis. 135, 144; Smith v. Kidd, 68 N.Y. 130. No ratification is to be implied from White's failure to satisfy the mortgage. Humphrey v. Havens, 12 Minn. 196 (298); Bryant v. Moore, 26 Me. 84; Martin v. Hickman, 64 Ark. 217; Clark v. Clark, 59 Mo.App. 532, 535. The acts set up as a collection not having been performed under any pretense of agency, cannot be turned into a collection by ratification. Mitchell v. Minnesota Fire Assn., 48 Minn. 278; Hammerslough v. Cheatham, 84 Mo. 13; Herd v. Bank, 66 Mo.App. 643; Crowder v. Reed, 80 Ind. 1; Condit v. Baldwin, 21 N.Y. 219, 225. The Thayer mortgage is still a valid lien. White having chosen the Kelley mortgage, if the court permits him so to elect, he surrenders the Thayer mortgage, not by way of ratification of any pretended collection, but by acceptance of a substituted security. Even if this would be in fraud of creditors, no advantage of the fact could be taken in this action. Cragin v. Carmichael, 2 Dill. 519.
If the alleged indebtedness is not shown, it follows that the alleged intent is not shown. See Ex parte Taylor, L.R. 18 Q.B.D. 295; Ex parte Caldecott, L.R. 4 Ch. D. 150, 156. If the funds paid by the Derbys to Kelley could be traced into the hands of the assignee, they would be impressed with a constructive trust in favor of the Derbys for payment of the Thayer mortgage. Herrick v. Mosher, supra. But if A. F. Kelley, with the purpose of executing what he conceived to be a trust, had given the mortgage in question to pay the Thayer mortgage, the transaction would not have been a fraudulent preference. Ex parte Stubbins, L.R. 17 Ch. D. 58; In re Frantzen, 20 F. 785.
Cobb & Wheelwright, for respondents.
On July 14, 1896, Austin F. Kelley and wife executed to the defendant Enos White a real-estate mortgage, on land then owned by Kelley, to secure the payment of a promissory note of $1,000, made as a part of the same transaction by Kelley to White. Kelley was insolvent at this time, and on September 12 following made an assignment in insolvency for the benefit of his creditors to the plaintiffs, who brought this action to set aside the mortgage as a preference. The trial court found that, at the time the mortgage was made, the firm of A. F. & L. E. Kelley was indebted to White on open account, then long past due and unpaid, in the sum of $1,000, and that White was then the creditor of the Kelleys, who were then, as a firm and individually, insolvent, to his knowledge, and that the mortgage was made and received with the intent to prefer White as such creditor. As a conclusion of law the court directed judgment to be entered for the plaintiffs, setting aside the mortgage as a preference. The defendants appealed from an order denying their motion for a new trial.
The appellants make 24 assignments of error, which challenge the correctness of the trial court's findings of fact and conclusions of law. We may cut the whole matter short by stating that, if White was a creditor of Kelley at the time the mortgage was made, the findings of fact and conclusions of law are sustained by the evidence. The validity of the mortgage is attacked solely on the ground that it was a preference, within the meaning of the insolvency law. To render this mortgage a preference, the mortgagee must have been at the time a creditor of the mortgagor, and the mortgage given to secure a pre-existing debt. If, in fact, there was neither a creditor nor a debt to be secured, there could be, in law, no preference of a creditor by giving the security. This case, then, comes down to this question: Does the evidence sustain the finding of fact that White was a creditor of Kelley, and that the mortgage was given to secure a pre-existing debt? There was practically no conflict in the evidence, which tended to establish the following facts:
On July 1, 1886, E. A. Thayer executed a mortgage on his land in Dodge county to White to secure the payment of...
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