Kellogg v. Root

• Decision Date: 30 March 1885
• Citation: 23 F. 525
• Parties: KELLOGG and others v. ROOT and others.
• Court: U.S. District Court — Western District of Michigan

23 F. 525

KELLOGG and others v. ROOT and others.

United States Circuit Court, W.D. Michigan, Southern Division.

March 30, 1885

Smith Nims, Hoyt & Erwin, for complainants.

Norris & Uhl, for defendants, Root & Co.

Mitchell Bell & McGarry, for defendants, Stone & Porter.

WITHEY J.

Kellogg & Co., the complainants, are creditors of Ellen H. Stone who, on the tenth of March, 1884, signed two chattel mortgages covering her entire stock of goods, in Portland Ionia county: one to her father-in-law, Darius Stone, of that place, for $6,176.90; the other to the defendants, Root & Co., of Detroit, for $4,778.83, aggregating about $11,000. Her husband, Allen Stone, was her man of business, who, as her agent, managed the store and conducted her affairs. He had the mortgages prepared, took them to Mrs. Stone to be executed, and when she had signed them, they were handed back to him, one to be filed in the town clerk's office, the other to be handed to Darius Stone. Neither of the mortgagees were present, or knew that the mortgages had been prepared or signed until a subsequent day. Allen Stone had them in his possession until March 17th, at about 5 o'clock P.M., when he lodged them in the proper office to be filed. In the mean time he had caused to be prepared a common-law assignment for the benefit of Mrs. Stone's creditors; had conferred with the defendant Porter, and procured his assent to act as the assignee. From the clerk's office, after filing the mortgages, Allen Stone proceeded directly to the store, and within two hours the assignment was executed and delivered to Porter, together with the assigned property.

The bill of complaint sets up the facts in the case, and prays that the mortgages be declared void; that the assignee be enjoined from paying them; that a receiver be appointed to take charge of the assigned property, and enforce the trust. There is also a prayer for general relief. On the motion for an injunction and for the appointment of a receiver, both were refused, but the cause was retained for hearing upon the merits.

The statute of this state declares that all common-law assignments which give a preference to one creditor over other creditors shall be 'void.' How. St. Sec. 8739. The deed of assignment, on its face, is not open to the objection that it gives a preference; but it is claimed that the transaction of Mrs. Stone, touching the mortgages and the assignment, manifest an attempt to evade the statute, and should be considered as one transaction. The supreme court of Michigan has given construction to the statute in question as regards some of its bearings on this case: The provision already alluded to, 'that all assignments, commonly called common-law assignments, for the benefit of creditors, shall be void unless the same shall be without preferences as between such creditors. ' And the sixth section of the act, (How. Sec. 8744,) which reads:

'In case there shall be any fraud in the matter of said assignment, or in the execution of said trust, or if the assignee shall fail to comply with any of the provisions of this act, or fail or neglect to promptly and faithfully execute said trust, any person interested therein may file his bill in the circuit court in chancery of the proper county for the enforcement of said trust, and the court, in its discretion, may appoint a receiver therein,' etc.

The construction is that the general intent of the statute is to secure equal distribution of the property of insolvents among all their creditors, and if preferences are fraudulently attempted, the intervention of a court of equity to prevent it is authorized. Commenting on the first section, the court says:

'The statute declares the assignment 'void' if the bond is not filed; but this word is frequently used in the sense of voidable, and it must have that construction here if it shall be necessary to give other provisions of the statute effect. ' Fuller v. Hasbrouck, 46 Mich. 78; S.C. 8 N.W. 697.

The bill in the case at bar is filed on the theory that, although preferences were given, the assignment creates a trust, and is to be enforced, the preferences alone being void; and such view is upheld by the case referred to, and will be followed by this court as manifestly the correct construction of the statute, and which we must accept.

About two months prior to the time the assignment was made, Allen Stone, the husband of Mrs. Stone, applied to her creditors for an extension of their claims, among them to Root & Co. who were then informed concerning her financial condition: that she could not then pay all her creditors promptly, but if they would grant her an extension, he thought she would be able to pay them. Root & Co. refused, except on the terms that they should be secured, and Stone promised to give them security, in case his wife consented. Root & Co. then prepared and sent by mail to Mrs. Stone four notes, each for $887.55, payable in two, three, four, and five months, which she signed and returned, but gave no security at that time. On the tenth of March following, as already stated, she signed the chattel mortgage on her stock of merchandise, and wrote to Root & Co. the same day, 'I have this day made a chattel mortgage in your favor, on my stock of goods, for $4,778.83, which I will place on file for you. ' The letter was received on the twelfth of the same month, to which no reply was made. The mortgage, it is seen, was for an amount in excess of the indebtedness in January of $1,228.63, but it seems this...