197 F. 274 | 8th Cir. | 1912
(after stating the facts as above). It is first contended that Alies was not a creditor of Johnson, and had no standing to defend against his adjudication.
Because, a secured creditor may prove, a debt in an amount in ex
Because the mortgage authorized the mortgagor to remain in possession of the stock of goods andl sell the same in the usual course of business without any obligation to apply the proceeds to the payment of the mortgage debt, it was a conveyance to the use of the mortgagor, and was constructively fraudulent and void in law as to creditors within the meaning of the Missouri statute governing fraudulent conveyances. Sections 2880 and 2881, R. S. 1909. These declare, in substance, (1) that any conveyance of goods and chattels in trust to the use of the person making the conveyance; and (2) that any conveyance of goods and chattels made with intent to hinder, delay, or defraud creditors is void as to creditors and purchasers. That this is the meaning of those sections and that a conveyance contrary to their provisions constitutes a constructive fraud at least is manifest by reference to the following Missouri decisions: White v. Graves, 68 Mo. 218; Kuh v. Garvin, 125 Mo. 547, 28 S. W. 847; Barton v. Sitlington, 128 Mo. 164, 30 S. W. 514; Bank v. Powers, 134 Mo.
A few quotations from the opinions in the foregoing cases will disclose the view of the Supreme Court on the subject. For instance, in Dobyns v. Meyer it is said:
“Notwithstanding the agreement that the manufacturing company [the mortgagor] might sell the stock in trade in the usual course of business, the deed of trust was valid as between the parties thereto. No actual fraud was intended by the parties, and it would seem that, if the objectionable parol agreement was abrogated before the rights of creditors attached, the deed of trust ought to be held valid from that time on, even as to creditors. An entirely new pledge, freed from such agreement, would have been valid. The effect of taking possession under the deed of trust for the purposes therein specified, with the consent of the assignee, was to abrogate the previous, objectionable parol agreement.”
In Petring v. Chrisler it is said:
“Where the mortgagee, in good faith, takes actual possession of the goods prior to the levy of the attachment, for the purpose of securing the payment of his debt, and continues to hold the actual possession up to the time of the levy, he will be protected, and will, in that event, hold the goods as against the subsequent attaching creditor, and that, under this state of facts, it is immaterial that the mortgage contains stipulations which render it void, except as between the parties.”
In Rubber Mfg. Co. v. Supply Co., the court says that the taking by the mortgagee of possession before a creditor’s seizure of goods, “would have cured the invalidity with which those dleeds of trust were
In Joseph, Nelke & Co. v. Boldridge the rule of the Supreme Court of the state was succinctly stated by the Court of Appeals as follows :
“It appears from the plaintiffs’ evidence that possession was taken by both Boldridge and Muldrow [the mortgagees] of the goods conveyed, in the instruments, now challenged for fraud, prior to any levy of plaintiffs’ attachment writ npon them (no such levy being ever made), and prior to the institution of the present suit in equity. These mortgages, therefore, although fraudulent in law as to creditors, were, in the absence of any fraud in fact, purged of the legal fraud by delivery of the goods, and validated even as against creditors.”
In Jackson v. Burgess the same court said: If a mortgage on personal property contained permission to the mortgagor to remain in possession and to sell at retail without accounting to the plaintiff foi the proceeds the mortgage was fraudulent as to the attaching creditors though the debt itself was valid, but, “if before an attachment was levied the property was taken into the actual possession of plaintiff, it gave him a valid lien thereon, and he had a right to the possession to the exclusion of the attachment creditors.”
These decisions would seem to indicate very clearly that a mortgagee in a mortgage made actually in good faith with no intent to hinder, delay, or defraud, but in which there was a constructive fraud like that in this case, may favor the mortgagor by permitting him to go on with his business in the usual course, subject only to the hazard or risk of creditors or purchasers seizing the property or otherwise asserting their right to it because of the constructive fraud!, before he, the mortgagee, takes actual possession. In other words, the decisions seem to confer upon the mortgagee the opportunity of curing or purging from the mortgage the objectionable provision and validating the same even as to creditors by actually taking possession of the property mortgaged pursuant to a power reserved in the mortgage enabling him to do so, before any creditors assert their right to it by seizure or otherwise. The mortgage in this case being of record, imparted, according to the laws of the state of Missouri, notice to the public, and, of course, to the creditors of the mortgagor, of all of its provisions. They at any rate had constructive knowledge of the mortgage and of its provisions, equally as certain of being real as the mortgagee’s constructive fraud was certain of being actual. They therefore knew that the mortgage was good as between the parties, and knew that they might proceed against it and fix a lien upon it for their claims superior to the right of the mortgagee if they desired to exercise the requisite diligence to do so. They knew that they must act if at all before the mortgagee should exercise his right to take possession of the property. Their failure to do so indicates their confidence in the honor and integrity of their debtor, and emphasizes what is apparent in this case, the solvency of Bieir debtor and the actual good faith of. his transaction with the mortgagee. There are, therefore,
Except for the suggestion that the constructive fraud! inherent in the mortgage itself constituted an act of bankruptcy as' soon as the mortgage was made and that it persisted until the petitioning creditors proceeded in this case, notwithstanding the possession taken by the mortgagee, we would not further protract this opinion. In answer to that suggestion we can only refer to the doctrine of the Supreme Court of the state of Missouri which in effect makes the act of taking possession cure or purge away any constructive fraud which may have persisted until the act of taking possession occurred. The right to take possession conferred by the mortgage itself and thus to cure the constructive fraud seems to be an antidote accompanying the poison, which if taken before creditors take action affords an effective remedy.
A critical consideration of the facts disclosed by the petition before us convinces us that no error was committed in declining to adjudicate Johnson a bankrupt. Therefore the petition to revise his action in so doing is dismissed.
HOOK, Circuit Judge, dissents.