The John Shillito Co. v. McConnell

• Decision Date: 26 February 1891
• Docket Number: 15,742
• Citation: 26 N.E. 832,130 Ind. 41
• Parties: The John Shillito Company v. McConnell et al
• Court: Indiana Supreme Court

26 N.E. 832

130 Ind. 41

The John Shillito Company v. McConnell et al

No. 15,742

Supreme Court of Indiana

February 26, 1891

Petition for a Rehearing Overruled Dec. 8, 1891.

From the Dearborn Circuit Court.

Cause is reversed, with costs for the error in sustaining the demurrer to the third paragraph of the complaint.

D. H Stapp and D. D. Woodmansee, for appellant.

H. D McMullen, W. R. Johnston, H. R. McMullen, G. E. Downey and A Zollars, for appellees.

OPINION

McBride, J.

The appellee Robert A. McConnell was a merchant, and appellant is his creditor. McConnell, being in failing circumstances, to prefer certain of his creditors executed to them a mortgage on his property, and, also, made a general assignment of his property for the benefit of his creditors, under section 2662, R. S. 1881. Thomas W. Sargent, one of the appellees, is the assignee, and the remaining appellees are the preferred creditors.

Appellant brought this suit to set aside the mortgage as fraudulent and void, making the debtor, the assignee, and the preferred creditors defendants. The only question in the record is, whether or not the mortgage is void. This question was raised by a demurrer, which the court sustained to the first, third and fourth paragraphs of the complaint. The ground upon which appellant insists that the mortgage is void is, that it was executed contemporaneously with and as a part of the deed of assignment. If the facts pleaded show this to be true, the mortgage is invalid as to the unpreferred creditors, and the court erred in sustaining the demurrer. The law is too well settled to require the citation of authorities that a debtor in failing circumstances may prefer certain of his creditors to the exclusion of others.

Such a preference, however, can not be made as a part of a general assignment under the statute for the benefit of all his creditors. Grubbs v. Morris, 103 Ind. 166, 2 N.E. 579; Henderson v. Pierce, 108 Ind. 462, 9 N.E. 449.

While an insolvent debtor can not, as a part of a general assignment prefer creditors, he may, with knowledge of his insolvency, and in contemplation of a general assignment, preface such assignment by a preference of certain of his creditors. Nor is it material how long or how short the time which intervenes between the execution of the preference and the making of the assignment. It is enough if there is a bona fide preference of bona fide creditors, which, in fact, precedes the making of the general assignment. So long as a man retains dominion over his property he may make such honest preference, and as an assignment of that character has no retroactive effect except upon property fraudulently conveyed, or preferences fraudulently made, he may make such preference at any time before the assignment is made. Gilbert v. McCorkle, 110 Ind. 215, 11 N.E. 296; Carnahan v. Schwab, 127 Ind. 507, 26 N.E. 67.

The bona fides of such transaction is, of course, always open to inquiry. It is always competent to inquire if the debt purporting to be secured is a bona fide debt; whether or not the transaction, while ostensibly to secure a debt of the insolvent, is not, in fact, a collusive attempt by the debtor and a pretended creditor to withhold the debtor's property from the operation of the assignment for the debtor's benefit, etc. We think that in the investigation of all such questions the length of time elapsing between the execution of the preference and the making of the assignment may properly be considered in connection with the other circumstances of the transaction.

The question comes to us on the pleadings only, and is to be determined from the facts averred by the pleader. So far as material to the controversy in this court, the averments of the first paragraph are substantially as follows:

That on the 12th day of October, 1889, defendant McConnell was in embarrassed and failing circumstances, and he "then commenced making an assignment of his property; and the plaintiff says that on said date the said Robert A. McConnell, in violation of the law relative to assignments, conveyed, by way of mortgage, to certain of his creditors all his personal property and real estate." The names of the favored creditors, with the amounts of their respective claims, are then set out. It is then averred that all of said claims thus secured are for pre-existing debts, but that said secured creditors are not all of the bona fide creditors of said McConnell, but that plaintiff, and others not secured by said mortgage, are also his bona fide creditors, and that the secured claims will more than exhaust all said debtor's property. It is then averred that "immediately after, and contemporaneous with the making of the mortgage conveyance above referred to, which is made a part of this paragraph of complaint, and marked 'Exhibit B,' the said Robert A. McConnell also executed a deed purporting to convey to the defendant Thomas W. Sargent, in trust, for the benefit of all his bona fide creditors, all his property, both personal and real. And the plaintiff says that, while said trust deed bears date October 14th, 1889, in truth and in fact it was made and executed contemporaneously with the mortgage conveyance above referred to, a copy of which deed is filed herewith and made a part of this paragraph and marked 'Exhibit C.'" The paragraph concludes with a prayer that the mortgage and the deed of assignment be adjudged as parts of one transaction, and as together constituting the indenture of assignment, and for judgment accordingly.

The statements in this pleading are so contradictory that it is difficult, if not impossible, to determine what the pleader means.

It is said that on a certain date the debtor "commenced making an assignment." The alleged commencement of the assignment consisted, it is said, in making, in "violation of the law relative to assignments," a mortgage preferring certain of his creditors. We confess our inability to understand how an act, which was done in violation of the law relative to assignments, was at the same time an act done pursuant to that law, and the commencement of an assignment in accordance with its terms.

It is then said that "immediately after and contemporaneous with" the making of the mortgage the deed of assignment was made.

We are also unable to comprehend how one act may be at the same time "after" and "contemporaneous" with another act.

We assume that the learned counsel who drew the complaint used these terms inadvertently. In the haste of active practice such unintentional lapses of the pen may be made by the best attorneys.

Copies of the mortgage and deed are made parts of this pleading. Whether correctly so or not we need not decide; but the notary's certificate of acknowledgment to the mortgage shows its acknowledgment to have been October 12th, 1889. The deed was acknowledged October 14th, 1889. This paragraph fails to show, either by express averment or by "fair intendment," that the mortgage and deed of assignment were contemporaneous in their execution, or that they were so connected in any other way as to make them parts of one transaction, and the demurrer thereto was correctly sustained.

The third paragraph of the complaint, after alleging the making of the assignment on the 14th day of October, 1889, contains the following with reference to the making of the mortgage:

"That at the time of executing the said assignment, and cotemporaneously therewith, the said Robert A. McConnell mortgaged all his property, including all his merchandise in his store and his real estate, not even exempting from said mortgage the amount of property that would be allowed him as exempt by law, to secure," etc., giving names of secured creditors, with the amounts of their claims.

The paragraph then proceeds: "That said mortgagor caused said mortgage securing the aforesaid debts to be dated October 12th, 1889, and to be placed on record in recorder's office on the same date, which was Saturday and caused the deed of assignment to be dated October 14th, 1889, the Monday following. That said two instruments were...