Straw v. Jenks
| Decision Date | 10 October 1889 |
| Parties | Straw et al. v. Jenks. |
| Court | North Dakota Supreme Court |
Appeal from district court, Grand Forks county.
Action by mortgagees to recover damages for conversion of mortgaged property. The alleged conversion consisted in defendant, who was sheriff, levying certain warrants of attachment against the mortgagors upon the mortgaged property, which had been taken possession of by the mortgagees. Defense, that the mortgagors were insolvent, and that the mortgage constituted an assignment for the benefit of creditors, and was void because it preferred the mortgagees, plaintiffs, to the exclusion of other creditors.
Moses & Newman, Noyes & Noyes, A. W. Bangs, and Stone & Newman, for appellant. Cy Wellington and Bosard & Corliss, for respondents.
SPENCER J., (after stating the facts as above.)
This action was brought to recover from the defendant the value of a stock of merchandise alleged to have been by him converted to his own use. The plaintiffs were mortgagees of said property, and in possession thereof, at the time of the alleged conversion. The defendant was sheriff, and levied upon such property by virtue of certain writs of attachment to him duly issued against the property of J. K. Johnson & Co., at the suit of certain of their creditors. The mortgage under which plaintiffs claim was executed by said firm of J K. Johnson & Co. The sufficiency of the attachment proceedings upon their face to justify the sheriff in making levy upon the property of the defendants therein (J. K Johnson & Co.) is conceded.
In April, 1883, J. K. Johnson and one M. J. Mendelson formed a special partnership for the purpose of conducting a general mercantile business, of which said Johnson was the general, and said Mendelson the special, partner. This partnership continued until the following September, when it was dissolved, Mendelson withdrawing from the firm. Thereupon said Johnson and one Harvey Boaz formed a partnership, either general or special, and of which it is claimed that Boaz was special partner, under the firm name of Johnson & Co., and consisting of Johnson and Boaz, and taking the stock of merchandise owned by the former firm of Johnson & Co. at an agreed price of $15,000; Boaz paying Mendelson $10,000 of this sum, and contributing that amount in the goods thus obtained from Mendelson's interest in the original firm, as his part of the capital in the new firm, as the agreement was, and the new firm of J. K. Johnson & Co. giving Mendelson their notes for the residue of his interest in the old firm. The new firm, (Johnson and Boaz,) under the same name as the old firm, continued the same business, at the same place, with practically the same stock of merchandise, until November 12, 1883. On that day the firm of J. K. Johnson & Co. executed several chattel mortgages, each on all the goods and merchandise of said firm, including the fixtures and furniture in their store, in the aggregate for the sum of $37,678.70, to several of the creditors of said firm; the first of which was for $10,373.46, to the Citizens' National Bank of Grand Forks; the next for $16,718.19, to the plaintiffs herein; and the third to certain other creditors, for $10,587.05. These mortgages were executed in the order named, a few moments' time only intervening between the execution of each, at a very late hour of the night of November 12, 1883. All of the mortgaged property was taken possession of by an agent of the several mortgagees, without objection on the part of the mortgagors, and on the same day they commenced the sale of such property with the consent of the mortgagors, and continued selling such goods at private sale under said mortgages for several days, when the remaining portion of such property was levied upon and taken possession of under an attachment issued against the property of the mortgagors in favor of certain of their creditors not secured by said mortgages. Such levy by the defendant upon said property under said attachments constituted the alleged conversion in this action. On the trial the plaintiffs recovered judgment for the amount of their mortgage debt and interest.
It is claimed by the appellant that the several mortgages executed by the firm of J. K. Johnson & Co. constituted an assignment for the benefit of creditors, under section 4660 of the Compiled Laws of this territory, and that such assignment is void because of preferences, and hence that said mortgaged property was subject to attachment at the suit of other creditors of said firm.
What interest or title to the property in question did the plaintiffs acquire under the chattel mortgage executed to them? In considering this question we shall assume, for the purposes of this case, that the mortgages were properly executed and filed after having been witnessed in proper form. Concededly, the mortgages were executed to secure the payment of actual bona fide indebtedness in favor of the plaintiffs, and each of the parties to whom they were given. The plaintiffs were actually in possession of the property at the time the defendant levied the attachments complained of, and this by the consent and with the knowledge of the mortgagors. The mortgagors had the right legally to execute the mortgage for the purpose of securing the payment of the debt thereby intended to be secured. These propositions are evident, and not disputed. But at this point other considerations enter into the case. By section 4660 of the Compiled Laws of Dakota it is provided: "An insolvent debtor may, in good faith, execute an assignment of property to one or more assignees in trust, towards the satisfaction of his creditors, in conformity to the provisions of this title; subject, however, to the provisions of this Code relative to trusts, and to fraudulent transfers, and to the restrictions imposed by law upon assignments by special partnerships, by corporations, or by other specified classes of persons: provided, moreover, that such assignment shall not be valid if it be upon or contain any trust or condition by which any creditor is to receive a preference or priority over any other creditor, but in such case the property of the insolvent shall become a trust fund, to be administered in equity in the district court, and shall inure to the benefit of all the creditors in proportion to their respective claims and demands."
We think the evidence shows conclusively that the mortgagors were, at the time of the execution of these several mortgages, insolvent, and unable to pay their obligations as they matured, and that by means of these mortgages they transferred, when they also surrendered possession of the property therein mentioned, as they did immediately upon the execution of the mortgages, substantially all of their property and effects. The aggregate of the amount of the mortgages executed by them was greatly in excess of the value of all their property. Johnson, the general partner of the firm, testifies that the property mortgaged was not worth to exceed $30,000, and that it was all the property owned by the firm. The mortgages are shown to have exceeded $37,000, and there was other indebtedness, amounting, in the aggregate, to a large sum. It is evident that, at the time of the execution of these mortgages, the members of the firm which executed them--the general partner, at all events--knew that the firm was hopelessly insolvent, and that there was no prospect or intention of resuming the business; that it was impractical and impossible to do so. So slight was the hope that the business could be continued by the firm that immediately the very next act that was done after the execution of the mortgages was to permit, if not to deliver, possession of the entire property to pass to the mortgagees, who began selling the goods, with the consent of the mortgagors, at the opening of the store in the morning following the night of the execution of these transfers. It is equally apparent that it was the intention of these mortgagors to give to these plaintiffs and others to whom these mortgages were given a preference over all other creditors. It cannot be successfully disputed that the execution of these mortgages was in pursuance of a scheme to appropriate the entire assets of this firm to the persons and firms obtaining the mortgages, to the exclusion of the other creditors of the firm, and that this method was adopted so as to escape the effect of a formal assignment containing such preferences. This was doubtless the design of all parties to these instruments.
The purpose of the section of the Compiled Laws before quoted is manifest. It is to make equal distribution of the assets of an insolvent debtor, who shall voluntarily assign all his property among his creditors according to their several debts. It renders an assignment containing preferences invalid, and, notwithstanding such preferences, gives to every creditor the absolute right to share ratably in the distribution of the assets of the insolvent. Its design is to prevent preferences among creditors at the mere caprice of the insolvent. It is remedial in its nature, and must be construed liberally, and so as to accomplish the purposes for which it was enacted. Insolvent debtors must not be permitted to evade its provisions merely by adopting the forms of other legal instruments, whether judgment by confession or mortgages, or by calling the instrument by which the transfer of all his property is effected to creditors of his choice to the exclusion of others of them, something--anything--less or different than an assignment. Under this statute, whenever an insolvent debtor makes a general disposition of all his property and effects, whether to all or only a part of his creditors, thereby abandoning...
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