Shay v. Sec. Bank of Duluth

• Decision Date: 22 January 1897
• Citation: 69 N.W. 920,67 Minn. 287
• Parties: SHAY v SECURITY BANK OF DULUTH.
• Court: Minnesota Supreme Court

67 Minn. 287

69 N.W. 920

SHAYvSECURITY BANK OF DULUTH.

Supreme Court of Minnesota.

Jan. 22, 1897.

(Syllabus by the Court.)

1. Held, a chattel mortgage executed before, but not filed of record until after, the mortgagor makes an assignment under the insolvency law for the benefit of his creditors, is void as to such creditors.

2. Held the purchaser of the mortgaged property from the assignee has the same right as the assignee himself to avoid the chattel mortgage on the ground that it is fraudulent as to such creditors.

3. Held, such an assignee is presumed to represent creditors of the assignor, and the burden is on the party asserting the contrary to prove it.

4. Held, the burden is also on the party asserting it to prove that the creditors of the assignor had such notice of such unrecorded mortgage that they are not in position to take advantage of the failure to file it of record.

Appeal from district court, St. Louis county; S. H. Moer, Judge.

Replevin by T. J. Shay, doing business as T. J. Shay & Co., against the Security Bank of Duluth. From a judgment for defendant, plaintiff appeals. Reversed, with directions for plaintiff.

Start, C. J., and Buck, J., dissenting.

McGindley & Whitely, for appellant.

McCordic & Crosby, for respondent.

CANTY, J.

We will state the facts in chronological order. On January 6, 1896, Nellie Slater was the owner and in possession of a stock of goods, and on that day executed and delivered to defendant a chattel mortgage on the same to secure her note to defendant for $600. On February 6, 1896, she made an assignment for the benefit of her creditors, under the insolvency law of this state, to one Warfield, who qualified, and entered upon the discharge of his trust. On February 18th, defendant filed of record the chattel mortgage in the city clerk's office. On February 20th, Warfield, as assignee, sold and delivered said stock of goods to plaintiff. On February 23d, “defendant, without the permission or consent of plaintiff, took possession of said goods under and by virtue of its chattel mortgage.” Plaintiff brought replevin. On the trial before the court without a jury, the court found for defendant, and from the judgment entered in his favor plaintiff appeals. It will be observed that the assignment was made a month after the chattel mortgage was executed, and 12 days before it was filed of record.

1. It has frequently been held by this court that a chattel mortgage which has not been filed in the proper office until after an assignment for the benefit of creditors, under the insolvency law, is void as to the creditors of the assignor. Farmers' Loan & Trust Co. v. Minneapolis Engine & Machine Works, 35 Minn. 543, 29 N. W. 349;Merrill v. Ressler, 37 Minn. 82, 33 N. W. 117;Manufacturing Co. v. Foote, 46 Minn. 240, 48 N. W. 1019.

2. Respondent's contention that, while the assignee can avoid such a mortgage, the purchaser from him cannot do so, is not well founded. The purchaser at an execution sale of land conveyed away by the judgment debtor in fraud of his creditors may set aside the conveyance (Campbell v. Jones 25 Minn. 155); and, in our opinion, a purchaser of personal property from such an assignee has the same right as the assignee himself to avoid such a chattel mortgage as fraudulent as to the creditors of the assignor.

3. It does not affirmatively appear that the assignor represents any creditors, and respondent contends that it must affirmatively appear that he did, before plaintiff can recover. We cannot agree with respondent. Section 4233, Gen. St. 1894, provides: “That in all cases of general assignments for the benefit of creditors, the assignee or assignees shall be considered as representing the rights and interests of the creditors of the debtor or debtors making the assignment, as against all transfers and conveyances of property which would be held to be fraudulent or void as to creditors; and shall have all the rights which such creditors would have to avoid such fraudulent conveyances and transfers.” The legislature has declared that the assignee “shall be considered as representing” such creditors, which is equivalent to saying that he shall be presumed to represent such creditors. The above section of the old assignment law is made applicable to the insolvency law of 1881 by section 1 of the same (section 4240, Gen. St. 1894). The practice under the insolvency law has always proceeded on the theory that the assignor is presumed to have had creditors and to have been insolvent when he made the assignment. Any other theory would require the assignee, almost every time he went into court, to take all the creditors along with him as witnesses. The administration of insolvent estates is expensive enough without inaugurating any such an unreasonable practice. Of course, no such inconvenience in practice would arise under an assignment law under which the assignee does not represent creditors, because he would not be involved in litigation in which he could and should invoke the rights of creditors. But, under our insolvency law, assignees are almost continually invoking these rights. If, every time he attempts to repudiate a transaction of the assignor as an unlawful preference or as a fraud on creditors, he must show that there are creditors whom he represents, his authority is, indeed, very frail, and his duties very embarrassing. It is contended that he must show that he represents at least one creditor. Suppose he does this, and when he rests the opposite party shows that this particular creditor is not in position to assert that the transaction is fraudulent as to him, -as, for instance, in this case, that such creditor had notice of the unrecorded chattel mortgage from the time it was executed. What can the assignee do then? He will find himself defeated, although there were in fact many other creditors whom he represented, but as to whom he introduced no evidence. No, the assignee could not safely rest until he had proved every creditor's claim in every such case. The legislature never intended any such an unreasonable practice. It must, under the statute, be presumed that the assignee represents creditors, and the burden is on the opposite party to show that he does not. The case of Baker v. Pottle, 48 Minn. 479, 51 N. W. 383, is not, as respondent contends, opposed to this view. In that case, although the mortgage was not filed for two months after it was executed, it was filed ten days before the receiver in insolvency was appointed. The mortgage, having been filed of record before the mortgaged property was levied on by creditors, or sequestered for their benefit, was not void in law, under section 4129, Gen. St. 1894, as to all the creditors of the assignor, generally; and it does not appear from a reading of the whole opinion that the court intended to hold that it was. Under the circumstances, the agreement to withhold the mortgage from record, and the withholding it from record, were, as to creditors generally,...