92 P. 32 | Mont. | 1907
delivered the opinion of the court.
On May 28, 1902, J. N. Nevills executed and delivered to D. C. Smith his promissory note for $2,940, due June 2, 1902, and to secure the payment of the same executed and delivered to Smith a chattel mortgage upon a stock of goods in Butte. The chattel mortgage was not filed for record until June 3, 1902, when a certified copy was placed in the hands of the sheriff of Silver Bow county, and he directed to sell the mortgaged property to satisfy the note, no part of which had been paid. The property was noticed for sale on June 9th, but before the sale was commenced a restraining order was secured, the sale abandoned, and the possession of the property turned over to Smith. On June 9th a petition was filed in the United States district court for the district of Montana by certain creditors of Nevills, asking that he be adjudged a bankrupt. On the next day, upon petition, James L. Hamilton, was appointed receiver to take charge of the property of Nevills and qualified as such receiver on June 11th, made demand for the possession of the stock of goods, and, upon b'eing refused, commenced this action in claim and delivery on June 12th. In the meantime, on June 9th, a corporation called the “J. N. Nevills Company” was organized, and the articles of incorporation filed. On June 10th Smith and Nevills each transferred to the J. N. Nevills Company his interest in the stock of goods and received therefor shares of stock in the company. Afterward Nevills was adjudged a bankrupt, and Hamilton, who had been receiver, was now appointed trustee in bankruptcy, and substitution made in the proceedings. This action was commenced against Nevills, Smith, and the J. N. Nevills Company. Nevills defaulted, and upon the trial the plaintiff dismissed the action as against the defendant Smith. Upon the conclusion of the evidence the court granted a motion made by the defendant company and instructed the jury to return a verdict in its favor,.
Upon the trial the "plaintiff offered in evidence the files from the United States district court showing the filing of the petition in bankruptcy, the adjudication in bankruptcy, the petition for the appointment of a receiver, the order appointing the receiver, the oath and bond of the receiver, the bond of the trustee, the order approving that bond, and also the minutes of the Nevills Company showing the election of its officers and the transfer by Nevills and by Smith to that company; also the articles of incorporation of the company; and further offered evidence tending to show the value of the stock of goods'and the fact that a redelivery bond had been given by the J. -N. Nevills Company and the stock of goods returned to it after this action had been commenced. On behalf of the defendant company, evidencei was offered which tended to show that Smith, the mortgagee, was in possession of the stock of goods from the third day of June until the 10th of June; that on that day the possession was delivered to the defendant company; that Smith was the president of that company, its largest stockholder and its manager; and that Nevills was a director and secretary of .the company. The note and chattel mortgage given by Nevills to Smith were introduced. This was all the material evidence offered, and from this it appears that at the time of the filing of the petition in bankruptcy Smith was in the possession of the property under his chattel mortgage, and had he elected to continue to so hold it he could, so far as the record discloses, have successfully contested the claim of the plaintiff. But the rights of Smith were not adjudicated; in fact, the action was dismissed as to him and proceeded only as against the Nevills Company. That company and Smith were distinct persons, notwithstanding Smith was the largest stockholder in the company. The question for determination then was: "What were the relative rights of the plaintiff and the company to the possession of the property at the time this action was commenced, on June 12, 1902?
But even under the most favorable view which could be taken of the transaction — that Nevills sold his interest in the property, and Smith assigned his mortgage debt to the company — still the same result must be reached, for when the greater estate in the property, represented by the legal title which Nevills conveyed, and the lesser estate, represented by such mortgage lien so conveyed by Smith, coincided in one and the same person, the J. N. Nevills Company, at the same time and in the same right, the lesser estate at once became merged in the greater one, and the lien ceased to exist. This is the rule upon the showing made by this record. (20 Ency. of Law, 2d ed., 1064, and cases cited.) The sale to the company, after the filing of the petition, and before the final adjudication in bankruptcy, was voidable at the election of the trustee. Under the present Bankruptcy Act of July 1, 1898 (Chapter 541, 30 Statutes at Large, 544 [U. S. Comp. Stats. 1901, p. 3428]), as under the Bankruptcy Act of 1867, the filing of a petition to have one adjudged, a bankrupt is in effect a caveat, and, the proceedings being in rem, gives notice to all the world. (Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405; In re Weinger, Bergman & Co. (D. C.), 126 Fed. 875.)
For the reasons stated, the judgment and order are reversed and the cause is remanded, with direction to the district court to grant the plaintiff a new trial.
Reversed and remanded.