Root v. Potter

• Citation: 26 N.W. 682,59 Mich. 498
• Court: Michigan Supreme Court
• Decision Date: 03 February 1886
• Parties: ROOT and others v. POTTER and others.

26 N.W. 682

59 Mich. 498

ROOT and others v. POTTER and others.

Supreme Court of Michigan

February 3, 1886

Appeal from Clinton.

Conely, Maybury & Lucking, for complainants.

A.D Griswold, Roger W. Butterfield, and John E More, for defendants.

CAMPBELL, C.J.

This proceeding in equity was brought by several creditors of the firm of Potter, Beattie & Co., composed of John A. Potter Adam. Beattie, and Evan M. Potter, formerly doing several kinds of business, chiefly in Ovid, but also in Hasty and Ashley station, in Gratiot county. On the seventeenth of July, 1884, this firm made a general assignment in favor of creditors to Charles M. Hagadorn. This bill is filed, in furtherance of the assignment, to subject to its operation a considerable amount of assets, in personalty, realty, and claims discharged, of certain securities executed to John Sowers and Edgar C. White, and to James C. Darragh as their general assignee, which are claimed to have been given to secure unlawful preferences in fraud of the assignment law. The circuit court for the county of Clinton granted a decree adjudging them void as against the assignment, and Sowers, White, and Darragh, who are the only parties injuriously affected by the decree, appeal. The members of Potter, Beattie & Co., and their assignee, Mr. Hagadorn, who are the remaining defendants, do not appeal.

A preliminary objection to the right of complainants to file this bill in their own name was urged on the argument. It is claimed that complainants, not suing as judgment creditors who have either levied on the property in question or exhausted their remedy at law, cannot attack the conveyances or securities executed by the debtors to third persons; and that, under the assignment law, the assignee, and not the creditors, should be the party complaining of frauds against the assignment, especially as the bill is not filed to remove him or disturb the assignment itself. This objection is properly taken, as, under the assignment law, by section 3, it is declared that "every such assignment shall confer upon the assignee the right to recover all property or right or equities in property which might be reached or recovered by any of the creditors of such assignor." It has always been held in this state that general creditors, having no judgment or lien on the debtor's property, cannot attack conveyances or other dealings for fraud. Tyler v. Peatt, 30 Mich. 63; Maynard v. Hoskins, 9 Mich. 484; Griswold v. Fuller, 33 Mich. 268. The assignment law regards the assignee as a trustee or representative of the creditors for all purposes auxiliary to the assignment, and if creditors could sue also, it would create great confusion. In the present case we have the assignee and all parties in interest before us, and there has been a full inquiry by testimony into the facts. We have deemed it better, under the circumstances, inasmuch as everybody is impleaded who could be brought in had the suit been by the assignee, and all parties will be bound, to overlook the irregularity, and decide the case upon all the rights appearing. We do not, however, regard the practice as one which should be approved, and, had the record been less complete as to parties and testimony, we do not think the objection could have been disregarded.

The testimony shows that, within a few days before the assignment, the assigning firm or its members made several securities and transfers to third persons which are not attacked in the bill, and which appear to have been fair and proper arrangements. The only securities assailed are several made for different sums to Sowers & White, making in the aggregate, as appears from the facts, security for not far from $30,000 of indebtedness. Upon the testimony this indebtedness is fully made out, and in our opinion it is an honest claim. The only question is whether the circumstances, and time of the execution of the securities, made them unlawful preferences. It is not very seriously urged, and we think it could not be, that the debts were fictitious, or that there was any other fraud in the transactions.

The securities attacked were these: Four chattel mortgages dated July 12 1884, actually handed over to the mortgagees, July 15th, and filed July 16th late in the evening; an assignment to Sowers & White of accounts and claims belonging to the firm, containing an inventory of not quite $5,000, and a general clause covering any claims not enumerated; a real-estate mortgage made July 16, 1884, for $3,000, to defendant Darragh, the general assignee of Sowers & White. The facts out of which these securities arose are substantially these: Potter, Beattie & Co. were, as before stated, engaged in several branches of business, and doing a considerable annual business. It was supposed by themselves, and the facts indicate, that they had accumulated property which, if they had been thorough business men in their methods, would have been much beyond their liabilities. But it is manifest that they applied to extensive and scattered transactions the book-keeping and other methods which would not have been appropriate to any but a small local business. Sowers & White were neighbors, and local bankers, who carried their paper,...