Thompson v. Fairbanks

• Decision Date: 01 August 1903
• Parties: THOMPSON v. FAIRBANKS.
• Court: Vermont Supreme Court

56 A. 11

75 Vt. 361

THOMPSON

v. FAIRBANKS.

Supreme Court of Vermont. Caledonia.

Aug. 1, 1903.

Exceptions from Caledonia County Court; Watson, Judge.

Action by Frank D. Thompson against Henry Fairbanks. From a judgment in favor of defendant, plaintiff brings exceptions. Affirmed.

Argued before TYLER, MUNSON, START, WATSON, and HASELTON, JJ.

Porter & Thompson, for plaintiff.

Harry Blodgett and Jonathan Ross, for defendant.

WATSON, J. Some time before June 22, 1886, the bankrupt, Herbert Moore, bought a livery stock and business in St Johnsbury village. In part payment therefor he assumed a mortgage then outstanding on the property. The business then was and continued to be carried on in buildings leased of the defendant Shortly before March 1, 1888, the defendant assisted Moore to pay the assumed mortgage by signing a note with him for $1,425 payable to the Passumpsic Savings Bank of St. Johnsbury. Defendant also signed other notes with Moore—one for $350, dated July 15, 1890, payable to the same bank; and two notes payable to the First National Bank of St. Johnsbury, one for $750 dated June 22, 1886, and one dated June 23, 1889. The sum for which this last note was given does not appear. On April 15, 1891, Moore gave the defendant, as security, a chattel mortgage on the livery property, and it was recorded on the 18th day of the same month. The description of the property in the mortgage is: "All my livery property consisting of Horses, Wagons, Sleighs, Vehicles, Harnesses, Robes, Blankets, etc. Also all Horses and other livery property that I may purchase in my business or acquire by exchange." The mortgage is conditioned for the payment of all that the mortgagor then owed the mortgagee, or might thereafter owe him, "by note, book account or in any other manner," and for the saving of the mortgagee "harmless and indemnified from paying any commercial paper on which he has become or may hereafter become holden in any manner for my [the mortgagor's] benefit as surety, endorser or otherwise." On May 5, 1891, defendant signed another note with Moore, payable to the Passumpsic Savings Bank, and on March 1, 1900, the three notes given to that bank by Moore with the defendant as signer, as before stated, were merged in a note of that date signed by Moore and by the defendant as surety, for $2,510.75, payable to the bank on demand. This note has not been paid, and, although specified in the condition of the mortgage assigned to the bank as one of the debts secured thereby, it has been proved by the bank as an unsecured claim against the bankrupt estate. The defendant signed other notes with Moore from time to time, in renewal and otherwise, payable to the First National Bank. After deducting payments made on the notes to the last-named bank, the aggregate sum due thereon was put into a new note dated November 21, 1892, signed in the same way. This note, amounting to $526.27, was paid by the defendant on June 4, 1900. These notes were all signed by the defendant to assist Moore in carrying on, building up, and equipping his livery stable and livery business, and as between them belonged to Moore to pay. On March 5, 1900, Moore gave the defendant another chattel mortgage on the livery stock. Later in the same month this mortgage was assigned by the defendant to the Passumpsic Savings Bank, by which it has hitherto been held and owned. On May 7, 1900, one John Ryan, a creditor of Moore, issued his writ against him, declaring in general assumpsit for $500 in damages, and caused the livery stock to be attached thereon. On the 16th day of the same month the defendant, acting under the advice of his attorney, and with the consent of Moore, took possession, under his mortgage of April 15, 1891, of all the livery property then on hand, and on the 11th day of June following he caused the same to be sold at public auction by a public officer in due form under the provisions of the statute. By arrangement between Moore's attorney and the defendant's attorney the property was thus to be sold, and the avails held by the officer in place of the property for the one who should prove to be entitled thereto; but neither Moore nor his attorney consented that the avails might be applied on the defendant's debts. On the 30th day of June, Moore filed his voluntary petition in bankruptcy. He was adjudged a bankrupt thereon, and the plaintiff was appointed trustee in bankruptcy of the estate, and he is now acting as such.

The petition in bankruptcy was filed within four months after the giving of the mortgage assigned to the Passumpsic Savings Bank; hence that mortgage became null and void under Bankr. Law July 1, 1898, c. 541, § 67e, 30 Stat. 564 [U. S. Comp. St. 1901, p. 3449]. For the purpose of defeating the effect of defendant's taking possession of the property under the mortgage, the plaintiff brought his petition to the court of bankruptcy, under the provisions of subdivision "f" of that section, 30 Stat. 565 [U. S. Comp. St 1901, p. 3450], for an order that Ryan's attachment might be preserved as a lien on the property for the benefit of the estate in bankruptcy; but, upon hearing, the petition was dismissed. Since the attachment was made within four months prior to the filing of the petition in bankruptcy, the lien created thereby could be preserved only by an order from that court for such purpose. Without such order the attachment, like the last-named mortgage, became null and void. Section 67f. With the bank's mortgage and the attachment thus invalidated, the defendant's rights under his mortgage of April 15, 1891, stood the same as though there had been no subsequent mortgage given nor attachment made. It is urged that with the annulment of the attachment the property affected by it passed to the trustee as a part of the estate of the bankrupt under the express provisions of section 67f. There would be more force in this contention were it not for the provision that, by order of the court, an attachment lien may be preserved for the benefit of the estate. If there is no other lien on the property, there can be no occasion for such order; for, on the dissolution of the attachment, the property, unless exempt, would pass to the trustee anyway. It is only when the property for some reason may not otherwise pass to the trustee as a part of the estate that such an order is necessary. We think such is the purpose of that provision, and that, unless the lien is thus preserved, the property, as in the case at bar, may be held upon some other lien and not pass to the trustee. In re Sentenne & Green Co. (D. C.) 120 Fed. 436.

The question then arises whether the defendant, by virtue of his mortgage and the taking possession of the property thereunder, had a lien on the property taken and sold, paramount to the rights of the plaintiff as trustee under the bankrupt law. The plaintiff contends that the defendant did not have a lien valid against creditors under that act, and he seeks to recover the amount received by the defendant from the sale of the property. The parties to the mortgage are described therein as of St. Johnsbury, etc. Beyond what may be inferred from this fact, there is nothing in the mortgage showing where the property was located. The referee found that at the time this mortgage was given it was agreed and understood by the parties thereto that the mortgagor should sell or exchange any of the livery stock covered by the mortgage as he desired, and should thereby, and by purchase or otherwise, keep the stock good, so that the defendant's security should not be impaired, and that all after-acquired livery property should be covered by the mortgage as security for the debts specified therein; that, pursuant to such understanding and agreement, the mortgagor made sales, purchases, and exchanges of livery stock to such an extent that on May 16, 1900, when the defendant took possession of the property under his mortgage, there only remained two certain horses of the property on hand at the time the mortgage was given; that these sales, exchanges, and purchases were made by the mortgagor, sometimes without communication with or advice from the defendant, and frequently after consultation with him; that the livery stock as it existed when the defendant took possession of it was all acquired by exchange of the original stock, or with the avails of the old stock sold, or the money derived from the business; and that all the property of which the defendant took possession was acquired by Moore with the full understanding and intent that it should be covered by the defendant's mortgage.

The plaintiff contends that the mortgage is void, because (1) the description of the property is insufficient; (2) in neither the condition nor the affidavit is the description of the debt as specific as the law requires; also that the mortgage was invalid as to the after-acquired property. However the law might be upon these questions if the mortgagor had retained possession of the property until after the filing of the petition in bankruptcy, there would seem to be but little doubt regarding it as the case stands. The property expressly described in the mortgage was the mortgagor's livery property, and the after-acquired property was, by the description, all horses and other livery property that he might purchase in his business or acquire by exchange. In principle there is no difference between a mortgage on such livery property with acquisitions by purchase or exchange to keep the property in quality and value equal to what it was when the mortgage is given, and a mortgage on a stock of goods with acquisitions by purchase to keep the stock from depletion by sales in the common course...