In re Frey
Decision Date | 24 November 1926 |
Parties | In re FREY. |
Court | U.S. District Court — District of Minnesota |
Brown, Somsen & Sawyer, of Winona, Minn., for petitioner.
E. V. Knauf, of Winona, Minn., for trustee.
The bankrupt, on December 31, 1925, gave to F. E. Brown, the petitioner, his note for $700 payable one year after date, and to secure its payment executed a chattel mortgage upon all of his store fixtures and stock in trade, including certain radios. The mortgage, which was a Minnesota contract, contained these provisions:
The mortgage was duly filed for record and recorded the same day it was executed. Frey remained in possession of the mortgaged property and made sales therefrom in the usual course of business. He made only two small payments to the mortgagee of not over $4, disposed of all of the radio sets except two, but did not apply their wholesale price upon the mortgage.
The note and mortgage represented $700 actually loaned by Brown to Frey, and the note and mortgage were both given in good faith and without any intent to defraud the bankrupt's creditors. On June 19, 1926, Frey was adjudged a bankrupt, and thereafter Jacob L. Meyer was appointed his trustee. He took possession of the property claimed to be covered by the chattel mortgage, and petitioned the court for an order allowing him to sell the property at private sale, free of liens, and to adjudge the mortgage void as constituting a fraud upon creditors. The referee held the mortgage void, and authorized the sale of the property claimed by the mortgagee to be covered by it, free from liens. It is this order of the referee which comes before this court for review.
The rule in Minnesota for a great many years has been that a chattel mortgage with an agreement that the mortgagor may retain possession and sell or dispose of the property as his own, without satisfaction of the mortgage debt, is fraudulent as a matter of law and voidable as against the mortgagor's creditors. Dunnell's Minnesota Digest, 3885, citing the following cases: Chophard v. Bayard, 4 Minn. 533 (Gil. 418); Horton v. Williams, 21 Minn. 187; Stein v. Munch, 24 Minn. 390; First Nat. Bank v. Anderson, 24 Minn. 435; Mann v. Flower, 25 Minn. 500; Bannon v. Bowler, 34 Minn. 416, 26 N. W. 237; Filebeck v. Bean, 45 Minn. 307, 47 N. W. 969; Gallagher v. Rosenfield, 47 Minn. 507, 50 N. W. 696; Hayes v. Gallagher, 58 Minn. 502, 60 N. W. 343; Pierce v. Wagner, 64 Minn. 265, 66 N. W. 977, 67 N. W. 537; Pabst v. Butchart, 67 Minn. 191, 69 N. W. 809, 64 Am. St. Rep. 408; Clarke v. Nat. Citizens' Bank, 74 Minn. 58, 76 N. W. 965, 1125; Donohue v. Campbell, 81 Minn. 107, 83 N. W. 469; Citizens' State Bank v. Brown, 110 Minn. 176, 124 N. W. 990; Harris v. Spencer, 130 Minn. 141, 153 N. W. 125.
The most recent case is Secord v. Northwestern Tire Co., 159 Minn. 473, 199 N. W. 84. The mortgage there in question contained this provision: "It is expressly understood by all parties concerned that as any of the above stock is sold at least the amount of the wholesale price of that which is sold is to be deposited as payment on the attached notes."
And also: "So long as the conditions of this mortgage are fulfilled, the undersigned (mortgagors) shall remain in peaceful possession of said property, agreeing in consideration thereof to keep such property in as good condition as it now is without expense to the mortgagee."
With reference to this mortgage, the court said: ...
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