Summary
In Brown v. Guthrie the defendant and M. entered into a contract by which it was agreed that, in consideration of M.'s executing to the defendant his notes for twenty-four hundred dollars, secured by a chattel mortgage, the defendant would cancel certain notes held by him against M., loan him a sum of money, and pay his debts to such creditors as M. should thereafter designate, to an amount mentioned. This agreement was carried into effect.
Summary of this case from Delaney v. ValentineOpinion
Argued June 25, 1888
Decided October 2, 1888
A.J. Abbott for appellant. J.W. Taylor for respondents.
This controversy is a struggle between creditors of the same debtor for a preference. The defendant has obtained it by negotiation and agreement, and has had it wrested from him by the judgment of the court from whose determination he appeals.
The question turns upon the validity of his chattel mortgage, which was assailed as fraudulent. The finding of the referee was to the contrary, and has not been reversed by the General Term, which acted upon supposed errors of law, leaving the facts to stand as determined by the trial court. We must assume, therefore, that the transaction was not fraudulent if such an assumption is legally possible. And so, the circumstances of the allowance by the debtor of $200 for alleged services of the creditor, and the delivery of checks by the latter almost immediately returned, ceased to be material; for they were merely probative facts, bearing upon the honesty of the dealing, and while, to some extent, they may have been badges of fraud, their force is exhausted by the finding of honesty and good faith. We are confined to a study of the transaction itself, and to the inquiry whether, as matter of law, it was fraudulent and void against other creditors.
The view of the case which prevailed with the General Term was, that the mortgage, and the agreement which led to it, taken together, amounted to a general assignment by an insolvent debtor, which was void because it reserved to him a possible surplus at the expense of unpaid creditors, and the right to make preferences subsequent to the conveyance. If the basis of the reasoning be sound, the result reached was a proper inference; but we are not satisfied that the mortgage and agreement amounted to a general assignment by the debtor. In form it was an absolute sale upon a chattel mortgage given for a fixed and agreed consideration; and while, nevertheless, such a sale, in spite of its form, may be proved to be an assignment in trust ( Britton v. Lorenz, 45 N.Y. 51), yet in the present case we are unable to discover any such proof. The material and essential characteristic of a general assignment is the presence of a trust. The assignee is merely trustee and not absolute owner. He buys nothing and pays nothing, but takes the title for the performance of trust duties. There was no such element in the transaction between these parties. The purchaser became absolute owner and paid or secured the full amount of his mortgage. At first he had only the lien which it gave him. It did not cover the whole of the debtor's property. A quantity of beans were left unincumbered as the means in the hands of the debtor with which to pay the plaintiff's debt. The remainder of the property was included in the mortgage, the consideration of which was composed of several items, making, in all $2,400. Morrison owed Guthrie for money loaned the sum of $980.79, represented by promissory notes held by the latter. The evidence shows that to have been a subsisting and honest debt. These notes were surrendered to Morrison and canceled, and the debt they represented was discharged. There is no trace of any trust in that part of the transaction. Guthrie further agreed to lend and advance Morrison $600 in cash, and did actually advance him that money. It was agreed that Morrison owed Guthrie $200 for services previously rendered, and that debt was canceled. These items of actual indebtedness amounted to $1,780.29, and deducted from the $2,400, for which the mortgage was to be given, left a balance of $619.21; and the agreed manner of advancing this has furnished the principal ground of criticism. Guthrie stipulated to advance it thereafter by paying that amount to such creditors of Morrison as the latter should name. Of course, a mortgage may be given to secure future advances, and is not void or fraudulent for that reason. It simply does not operate, as a general rule, until the advances are made, and leaves the property exposed to execution until the loan is made and the lien accrues. The present mortgage, therefore, was good when executed for the amount already advanced; and, before the plaintiff's attachment was issued, became good for $600 more, or for $1,780.29; and that fact alone furnished a complete answer to plaintiffs's action, for it justified the taking and sale of the property by Guthrie, which is the ground of complaint. It further appears, however, that at the time of the transaction the creditors of Morrison to be paid up to the agreed amount were named, and the sums owing to them specified; and the referee so finds as a fact; so that the agreement did not leave to Morrison the right to dictate, after the transaction, what creditors should be paid. Guthrie became bound to pay them absolutely out of his own means, and whether his security proved ample or insufficient. He held no part of the property in trust for the debtor, but solely as mortgagee, entitled to its proceeds till his debt was paid, and then bound to restore any surplus realized to the mortgagor, or those claiming under him. Such provision never hinders creditors, for they may pay the mortgage and take the property, or fasten upon the surplus. Such was not only the form of the transaction, but also the actual fact; and there was in it no element adequate, in disregard of its form, to turn it into a general assignment by an insolvent debtor; for it did not cover all of the debtor's property, but contemplated leaving him in possession of his crop of beans, of $600 in cash, and any surplus in the property mortgaged beyond the exigencies of the debt; it involved no trust in Guthrie and no holding by him as trustee, but simply the ordinary lien of a mortgagee; and for the whole sum secured Guthrie either advanced the cash and rendered his services, or became liable to others for the exact amount.
The dealing, therefore, must be treated as a chattel mortgage by a debtor to his creditor, the consideration of which was evidenced and settled by the outside agreement. So regarded, the findings declare it to have been in good faith and not fraudulent. The arrangement for the sale on credit was made harmless by the stipulation that Guthrie should take the credits as cash, and himself bear the delay, and risk the solvency of the purchasers. ( Brackett v. Harvey, 91 N.Y. 214.) We see no just reason why this creditor who defends should lose the preference which he obtained.
The order of the General Term should be reversed, and that entered on the report of the referee affirmed, with costs.
All concur.
Order reversed and judgment affirmed.