Smiith-M'cord Dry Goods Co. v. Jno. B. Farwell Co.

• Decision Date: 30 July 1897
• Citation: 50 P. 149,6 Okla. 318,1897 OK 105
• Parties: SMIITH-M'CORD DRY GOODS CO. v. JNO. B. FARWELL CO.
• Court: Oklahoma Supreme Court

1897 OK 105

50 P. 149

6 Okla. 318

SMIITH-M'CORD DRY GOODS CO. v. JNO. B. FARWELL CO.

Supreme Court of Oklahoma

Decided: July 30, 1897

Error from the District Court of Logan County; before Frank Dale, District Judge.

Action by John B. Farwell & Co., et al., against Smith-McCord Dry Goods Company, et al. Judgment was rendered in favor of the plaintiffs below and the defendants appeal.

Syllabus

¶0 1. CHATTEL MORTGAGES--Insolvent Debtors--Preferring Creditors. Where an insolvent debtor makes conveyance of the whole of his property by chattel mortgage to one or more of his creditors in good faith for the security of a bona fide indebtedness, although in exclusion of other creditors, the transaction lacks the essential elements of a trust for the benefit of creditors, and cannot be brought within the range of the statutes relating to voluntary assignments. The statute regulating and permitting voluntary assignments by insolvent debtors for the benefit of creditors was not intended to and does not affect or qualify the rights of such debtors to make preferences among their creditors under sec. 4, ch. 37 of the Statutes of 1893.

2. SUBSEQUENT MORTGAGES--Estoppel. A creditor who accepts a second mortgage, which expressly recites that it is subject to a prior mortgage, or expressly recites the existence of a prior mortgage, is estopped from attacking such prior mortgage on the ground that it was made to defraud creditors, or from asserting that such prior mortgage, in effect, was an assignment for the benefit of creditors generally.

3. DEFEASANCE--Not Essential. Where a chattel mortgage provides for immediate delivery of the property to an agent of the mortgagee, with power for immediate sale of the property, such possession and right of sale is not inconsistent with a defeasance clause in the mortgage, nor is a defeasance clause essential to the validity of a mortgage. If, from the nature of the instrument, standing alone, or read in the light of the surrounding circumstances, it appears to have been given as a security, it must be considered as a mortgage, and equity will imply the right to redeem by the payment of the debt at any time before the property is applied to the purposes of the trust.

John H. Cotteral, for the plaintiff in error.

Wisby & Hornor and John D. DeBois, for defendants in error.

TARSNEY, J.:

¶1 This action involves a controversy between twenty-five mercantile corporations and co-partnerships over the distribution of the proceeds of a stock of goods, each and all of said corporations and co-partnerships being mortgagees named in a series of nine chattel mortgages on said stock of goods.

¶2 On November 14, 1894, John Jacobs, one of the plaintiffs in error, was engaged in the business of a retail merchant, dealing in dry goods, boots and shoes, clothing, and general merchandise at the city of Guthrie. On that day he was indebted to the other parties herein in a sum in the aggregate exceeding $ 20,000, of which said sum there was then due and owing to the defendant in error, John B. Farwell & Co., the sum of $ 1,500, and to the cross-petitioners, H. T. Simon-Gregory Dry Goods Co., $ 1,184; M. Rosentreter & Co., $ 3,833.30; I. Russack & Sons, $ 450; the Rosentreter Jewelry Co.,$ 195; Kemper, Hundley & McDonald Dry Goods Co., $ 2,324.55; and Stern, Lauer & Shohl Co., $ 1,533; that on said day he made and executed a conveyance in the ordinary form of a chattel mortgage on all said stock of goods, furniture and fixtures, to the said plaintiff in error, and to each of said cross-petitoners, they each being named therein as mortgagees, and to secure to each of them the said indebtedness due to each of said mortgagees respectively. All of said indebtedness was by the terms of said mortgage extended and made payable on the 15th day of February, 1895. The mortgage, in express terms, conveyed said property as security for the payment of such indebtedness, and that, if said indebtedness and the interest thereon was paid, as specified, the transfer of the property should be void; provided for the immediate delivery of the possession of the property mortgaged to John D. DeBois, as agent for said mortgagees, with power to said agent to sell said merchandise for cash in the usual course of trade; said agent to keep an accurate account of all such sales and the proceeds thereof to be applied, less actual and necessary expenses, to the payment of said indebtedness; provided that upon default in the payment of said indebtedness when due, or in case of attachments being levied or judgments rendered, said agent might declare the whole of said indebtedness due without notice and forthwith, sell said property in manner provided by the laws of the Territory of Oklahoma, for the sale of mortgaged property without suit; and that after satisfying the costs and expenses and the indebtedness and interest therein secured out of the proceeds of the sale of said property, said agent should return the surplus, if any, to the party of the first part.

¶3 This conveyance was duly filed for record and recorded the same day; and immediately said John D. DeBois, as agent for the mortgagees, took possession of the store, stock and fixtures and commenced selling and disposing of the same in the regular course of such business. Thereafter said Jacobs executed eight other chattel mortgages to secure the indebtedness due from him to the several plaintiffs in error herein, all of said mortgages being executed and recorded after said mortgage to Farwell & Co. and others had been executed, recorded and their agent had taken possession of the store and goods. No question of priority of mortgages is raised in this case, but the plaintiffs in error filed their cross-petition, praying that the said mortgage to said Farwell, et al., might be declared a conveyance or assignment in trust for all the creditors of said Jacobs, and that the proceeds of the sale of said stock of goods and property might be distributed pro rata to all the creditors of said Jacobs.

¶4 The court below found in favor of the validity of said first mortgage and that the mortgagees therein named were entitled to the proceeds of the sale of said property to be distributed pro rata among them in payment of the indebtedness due them respectively, and secured by said mortgage.

¶5 Jacobs, at the time of the making of this first mortgage, was insolvent and in failing circumstances; he knew that he could not continue in business, as attachments were being threatened and about to be levied, and all these creditors were threatening to levy attachments, if their respective claims were not secured by chattel mortgage. The stock of goods inventoried $ 7,594.64. DeBois, the agent, received the sum of $ 776.14 for the goods sold by him while in his custody, and a receiver appointed by the court sold the balance for $ 5,100. The indebtedness secured by said first mortgage amounted to $ 11,644.20. Each and all of the eight subsequent mortgages were made subject to the mortgage given to Farwell & Co., et al.

¶6 The principal contention of counsel for plaintiffs in error in this case is based upon the authority and reasoning in Straw v. Jenks, (Sup. Court of Dakota Ter., 41st N.W.) that:

"When an insolvent debtor makes a general distribution of all his property and effects whether to all or only a part of his creditors, thereby abandoning his business or putting himself in such situation that it is impossible for him to continue it, he has made a voluntary assignment

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