258 Mass. 402 | Mass. | 1927
This is a bill by a partnership creditor of the defendant corporation seeking to have the amount of its indebtedness established and to have an indenture, called a trust mortgage, given by the defendant corporation to the individual defendants, declared null and void upon the ground that the mortgage was given primarily for the benefit of creditors who became parties to it and was intended to
In September, 1924, the corporation was unable to meet its liabilities. A letter, written by counsel for the corporation to the plaintiffs and'other unsecured creditors having claims of more than $100, indicates that a proposal was made to all of its creditors to accept in payment of their claims notes of the corporation to be paid in instalments. These notes were to be secured by a mortgage of real and personal property given by the corporation to the individual defendants as trustees. It appears that creditors holding claims amounting to approximately $100,000 out of a total unsecured indebtedness of approximately $122,000 accepted such notes. The plaintiffs were asked to take a note in payment of their claim as of September 22,1924, and to join in the extension plan of paying the indebtedness secured by the mortgage'. This they declined to do.
The trust indenture was dated September 22, 1924. It purported to be a mortgage by the corporation of real estate, machinery, merchandise, findings and other personal property to secure payment of the notes accepted by creditors. The habendum was to the grantees in trust “for the equal pro rata benefit and security of the lawful holders and owners of these said notes above described without any preference of one over the other by reason of priority or otherwise.” Until default, the corporation was to retain and use the property and to make profit from the same as fully and freely as if the indenture had not been made; and in the ordinary course of business to sell and dispose of the mortgaged materials, supplies, findings and merchandise. The indenture provided in substance that if the corporation should pay the notes at maturity, keep up the property, pay all taxes and insurance and perform its other agreements, then the mortgage would be void. Upon breach of condition the trustees were given the right to take possession of the property and run the business and receive income and profits for the benefit of the holders of the notes, or they might foreclose by sale, or in a certain event be entitled to a conveyance from the corporation of its interest in the property. After taking out ex
One of the contentions of the corporation was that it had sufficient property free from encumbrances which the plaintiff could attach. The trial judge in dealing with this matter in the findings of fact said, “I am unable to find what this said other property consists of or where it is located.” The corporation has continued in possession of the property described in the indenture, has made no default in the payment of notes, and has made no breach of the conditions or covenants in the mortgage. The amount found to be due the plaintiffs from the corporation, as agreed by the parties in an accounting October 10, 1924, was $2,719.18, and the corporation owes that sum with interest from October 10, 1924. The plaintiffs have waived any other claim of indebtedness or damage.
The trial judge found that “The purpose of this mortgage was not to secure all creditors but only those who assented to the proposition to take notes, and it prevented the other creditors from attaching the mortgaged property, so that it might defer paying them and at the same time continue its business. This tended to hinder, delay and defraud the
We interpret the finding to mean that because of the mortgage creditors were prevented from attaching the property and were thus hindered, delayed and defrauded, and in that way the corporation was enabled to defer paying them and to continue in business; and that it was the intention of both parties that by the mortgage the corporation would be enabled to accomplish this result. The decree seems to be based solely on this view of the facts and the law. The judge was in error in deciding that the mortgage prevented creditors from attaching the mortgaged property. Their right to attach mortgaged real estate is given by G. L. c. 223, § 42, and c. 236, § 1, and to attach personal property in the possession of the mortgagors, by G. L. c. 223, § 79. See Whitney v. Metallic Window Screen Manuf. Co. 187 Mass. 557. The rights of the attaching creditor are subject to those of the mortgagee. Rund v. Blatt, 170 Mass. 469. G. L. c. 236, §§ 9, 27.
There are no subsidiary findings which as matter of law make the mortgage fraudulent as to creditors. The indenture was in legal effect a mortgage to secure the notes given by the corporation to the fifty-seven creditors who accepted them in payment of its unsecured debts to them. Harriman v. Woburn Electric Light Co. 163 Mass. 85. Goodwin v. Cosmopolitan Trust Co. 248 Mass. 146. These notes represented an actual indebtedness of the corporation. When a mortgage is given to secure a debt, it may be valid even if the debtor did not intend to pay his other creditors and did intend to put his property where such creditors could not reach it. Lyon v. Wallace, 221 Mass. 351, 353. If the creditor merely obtains what is due him, there cannot be said to be fraud in the transaction. Giddings v. Sears, 115 Mass. 505, 508. Carr v. Briggs, 156 Mass. 78. A mortgage to secure a genuine liability is invalid only if the mortgagee
The decree having been based upon a view of the law which we do not adopt must be reversed and a decree entered dismissing the bill with costs.
So ordered.