6 Dakota 414 | Supreme Court Of The Territory Of Dakota | 1889
(After stating the facts as above.) This action was brought to recover from the defendant the value of a stock of merchandise alleged.to have been by him converted to his own use. The plaintiffs were mortgagees of said property, and in possession thereof at the time of the alleged conversion. The defendant was sheriff, and levied upon such property by virtue of certain writs of attachment to him duly issued against the property of J. K. Johnson & Co., at the suit of certain of their creditors. The mortgage under which plaintiffs claim was executed by said firm of J. K. Johnson & Co. The sufficiency of the attachment proceedings upon their face to justify the sheriff in making levy upon the property of the defendants therein (J. K. Johnson & Co.) is conceded.
In April, 1883, J. K. Johnson and one M. J. Mendelson formed a special partnership for the purpose of conducting a general mercantile business, of which said Johnson was the general, and said Mendelson the special partner. This partnership continued until the following September, when it was dissolved, Mendelson withdrawing from the firm. Thereupon said Johnson and one Harvey Boaz formed a partnership, either general or special, and of which it is claimed that Boaz was special partner, under the firm name of Johnson & Co., and consisting of Johnson and Boaz, and taking the stock of merchandise owned by the former firm of Johnson & Co. at an agreed price of $15,000; Boaz paying Men
It is claimed by the appellant that the several mortgages executed by the firm of J. K. Johnson & Co. constituted an assignment for the benefit of creditors, under section 4660 of the Compiled Laws of this territory, and that such assignment is void because of preferences, and hence that said mortgaged property was subject to attachment at the suit of other creditors of said firm.
What interest or title to the property in question did the plaintiffs acquire under the chattel mortgage executed to them ?
"We think the evidence shows conclusively that the mortgagors were, at the time of the execution of these several mortgages, insolvent, and unable to pay their obligations as they matured, a'nd that by means of these mortgages they transferred, when they also surrendered possession of the property therein mentioned, as they did immediately upon the execution of the mortgages, substantially all of their property and effects. The aggregate of the amount of the mortgages executed by them was greatly in excess of the value of all their property.
Johnson, the general partner of the firm, testifies that the property mortgaged was not worth to exceed $30,000, and that it was
It is evident that, at the time of the execution of these mortgages, the members of the firm which executed them — the general partner, at all events — knew that the firm was hopelessly insolvent, and that there was no prospect or intention of resuming the business ; that it was impractical and impossible to do so. So slight was the hope that the business could be continued by the firm that immediately the very next act that was done after the execution of the mortgages was to permit, if not to deliver, possession of the entire property to pass to the mortgagees, who began selling the goods, with the consent of the mortgagors, at the opening of the store in the morning following the night of the execution of these transfers. It is equally apparent that it was the intention of these mortgagors to give to these plaintiffs and others to whom these mortgages were given a preference over all other creditors. It cannot be successfully disputed that the execution of these mortgages was in pursuance of a scheme to appropriate the entire assets of this firm to the persons and firms obtaining the mortgages, to the exclusion of the other creditors of the firm, and that this method was adopted so as to escape the effect of a formal assignment containing such preferences. This was doubtless the design of all parties to these instruments.
The purpose of the section of the Compiled Laws before quoted is manifest. It is to make equal distribution of the assets of an insolvent debtor, who shall voluntarily assign all his property among his creditors according to their several debts. It renders an assignment containing preferences invalid, and, notwithstanding such preferences, gives to every creditor the absolute right to share ratably in the distribution of the assets of the insolvent. Its design is to prevent preferences among creditors at the mere caprice of the insolvent. It is remedial in its nature, a.nd must be construed liberally, and so as to accomplish the purposes for which it was enacted. Insolvent debtors must not be permitted to evade its provisions merely by adopting the forms of other legal instruments, whether judgment by confession or mortgages, or by calling the instrument by which the transfer of all his prop
Decisions to the same effect have been made by the courts of many of the states. Thus, in Burrows v. Lehndorff, 8 Ia. 96, the court construed a section of the Iowa Code which provides that no general assignment of an insolvent, or in contemplation of insolvency for the benefit of creditors of the assignor, shall be valid, unless it be made for the benefit of all his creditors in proportion to their respective claims. The defendant in that case, being insolvent, executed in the course of two days five chattel mortgages and a deed of trust for the purpose of securing some of his creditors, but not all of them. The court held that these instruments, though executed upon different days and to different parties, constituted an assignment by which some creditors were preferred to the exclusion of others; that it was invalid. See, also, Lampson v. Arnold, 19 la. 479.
In Winner v. Hoyt, 66 Wis. 227, 28 N. W. Rep. 380, several chattel mortgages were made and assignments of accounts by the various debtors. There was, however, no formal assignment. The court held that these instruments, construed together, constituted one paper, using this language: “ The mere fact that the transfer was effected by eleven different instruments, instead of one, did not prevent the transaction from being in substance and effect an assignment. It is not so much the form as the effect
The statute of Kentucky, upon this subject of insolvents making assignments, is somewhat different from that of this territory, but it is intended for the same purpose. And it was held in Thompson v. Heffner, 11 Bush, 359, that “if the facts are such as to show that, at the time of making a mortgage preferring one creditor over another, the debtor must have known he was insolvent, it will be within the statute.”
In Illinois it is provided, by section 13 of the voluntary assignment act of that state, that “ every provision in any assignment hereafter made in this state providing for the payment of one debt or liability in preference to another, shall be void, and all debts and liabilities within the provisions of the assignment shall be paid pro rata from the assets thereof.” The supreme court of that state, in Preston v. Spaulding, 120 Ill. 208, 10 N. E. Rep. 903, had occasion to construe this statute with reference to the effect of certain transfers of property made by an insolvent debtor, but not by formal assignment, by which certain of his creditors were preferred, and in doing so employed the following language: “ When he [the debtor] reaches the point where he is ready and determines to yield the dominion of his property, and makes an assignment for the benefit of his creditors, under the statute, this act declares that the effect of such assignment shall be the surrender and conveyance of all his estate, not exempt by law, to his assignee, rendering void all preferences, and bringing about the distribution of his estate equally among his bona fide creditors. And we hold that it is within the spirit and intent of the statute that when the debtor has formed a determination to voluntarily dispose of his whole estate, and has entered upon that determination, it is immaterial into how many parts the performance or execution of his determination may be broken. The law will regard all his acts having for their object and effect the disposition
By a statute of the state of Missouri, it is provided that “ every voluntary assignment of lands, tenements, goods, chattels, effects, and credits, made by a debtor to any person in trust for his creditors, shall be for the benefit of all the creditors of the assignor, in proportion to their respective claims; and every such assignment shall be proved or acknowledged and certified and recorded in the same manner as is prescribed by law in cases wherein real estate is conveyed.” Rev. St. Mo., § 354. The court, in considering the effect of this statute in a ease where the insolvent debtor had mortgaged all of his property to secure a part of his creditors, and surrendered the property so mortgaged to them, said: “ Tinder this provision of law, a merchant may give a mortgage or a deed of trust in part or all of his property to secure one or more of his creditors, thus preferring them ; but he cannot convey the whole of his property to one or more creditors, and stop doing business. Such turning over and virtually declaring insolvency brings the instrument or act by which it is done within the assignment law of Missouri, which requires a distribution of the property of the failing debtor for the benefit of all the creditors in proportion to their respective claims.” Kellog v. Richardson, 19 Fed. Rep. 10. This construction was approved by Mr. Justice Miller in Perry v. Corby, 21 Fed. Rep. 131; and in Kerbs v. Ewing, 22 Fed. Rep. 693, Judge McCrary, speaking in reference to the same statute, says: “No matter what the form of the instrument, where a debtor, being insolvent, conveys all his property to a third party to pay one or more creditors, to the exclusion of others, such a conveyance would be construed to be an assignment for the benefit of all the creditors.”
It is true that none of the statutes referred to are precisely like the one we are called upon to construe in this case. But their spirit and purpose are similar. It is evident that the object of this act is to prevent an insolvent debtor, by any form of instrument, from conveying or transferring all, or practically all, of his property to one or more of his creditors to the exclusion of all others. Any other construction would render the statute futile, and enable such a debtor, by the merest evasion, to accomplish an object forbidden by law.
What possible difference can it make what the form of the instrument is, if it be effectual to transfer the property and create the fund ? Of what avail is the statute if an insolvent debtor, notwithstanding its provisions against preferences in assignments, may, by means of a mortgage or a confessed judgment, secure to one'or more of his creditors all of their indebtedness against him, and leave the others entirely unprovided for 1 The object of the statute was to prevent and defeat preferences, and it must be so construed as to accomplish its purpose. It is unreasonable and absurd to suppose that the legislature, when it enacted that there should be no preferences in assignments of insolvent debtors, yet left it easy and convenient for such persons to accomplish the same object by designating the instrument by which it was accomplished
This view of the effect of this statute upon the several mort-. gages in question under which the plaintiffs claim does not, however, necessitate a reversal of the judgment appealed from. It will be observed that, while the statute of this territory before referred to, provides that assignments containing preferences shall not be valid, it does not make them absolutely invalid for every purpose. The mortgages themselves do not indicate that there are any other creditors, and it has only been demonstrated that there are others by proof independent of them. It will be further observed that by this statute it is also provided that, if such, assignment be upon or contain any contract or condition by which any creditor is to receive a preference or priority over any other creditor, the property of the insolvent shall become a trust fund, to be administered in equity in the district court, and shall inure to all of the creditors in proportion to their respective claims or demands. Under this provision of the statute, while the mortgages under which the plaintiffs claim must be considered as an assignment by the mortgagors, in view of all the facts in this case, and invalid as an assignment because of the preference secured by it, yet it was sufficient, when accompanied by the delivery of possession of the property, to pass the title from the moi’tgagors, and vest it in the plaintiffs and their co-mortgagees as a trust fund, of
The mortgages are valid instruments as such, as between the parties, and were based upon adequate .consideration. For the reasons that the moi’tgagors were insolvent at the time of the execution of the mortgages, and by that means conveyed and transferred substantially all their property, they were held under the assignment law of this territory to constitute an assignment. The law does not tolerate preferences in such instruments, and declares them invalid. But it does not effect a reconveyance of the property to the assignor. On the contrary, the assignor, by the execution of the instruments of assignment, has divested himself of-his property, and has placed it beyond his ability to direct or control it in any way. If it contain or provide for preferences, to that extent it is invalid; but it is still valid as an assignment of his property, and by operation of law the property so assigned becomes a fund in equity, discharged from the preferences created by the assignment, which is to be distributed ratably among the creditors of the insolvent. In other words, under section 4660 of the Compiled Laws of Dakota, an assignment by an insolvent debtor containing preferences is valid as an assignment of his property, though invalid as to the preferences contained in or secured by it, and operates to divest the assignor of the title to his property, and creates a fund in equity in which all his creditors are entitled to share equally in proportion to their respective claims. And the person or persons to whom such assignment- is made, whatever its form, became trustees of the fund for the benefit of all the creditors ; and the fund is to be administered under the direction of the court, and is to all intents and purposes in the custody of the law. The statute declaring such preferences void was not enacted for the purpose of enabling other creditors to gain a preference by attachment proceedings or otherwise against the assignor. On the contrary, its purpose was to prevent preferences, and compel an equal distribution of the assets of the debtor. The attaching creditors are in no better situation than the mortgagees. The
The facts of the case do not bring it within any of the provisions of the Code of Civil Procedure allowing attachments against debtor’s property, when considered with reference to those statutes. The property attached was no longer the property of the debtor; it had not been disposed of to hinder, delay or defraud his creditors, within the purview of the law in regard to attachments, and when they may issue, but, on the contrary, in payment of liabilities honestly owing by him. The acts of the insolvent in making the mortgages only became illegal when it was established that, being insolvent, they had conveyed all their property to some of their creditors to the exclusion of others, and then only when considered in the light of the statute in regard to preferences in assignments made by insolvent debtors. As mortgages, they were valid as between the parties. As an assignment, they were invalid as to the preferences secured, but valid to divest the title of the assignors in the property, and vest it in the assignees for the benefit of all the creditors, relieved from the preferences. The provisions of the statute became an element of the contract, which is to be considei’ed and given effect.
To permit the defendant to gain a preference by his attachment in this case would be to pervert both the statute in regard to when attachments may issue in this territory, and that forbidding preferences by insolvent debtors, to purposes for which neither of them were intended or designed. Such a construction would absolutely defeat the intention of the legislature in enacting the proviso contained in section 4660 of the Compiled Laws, and, instead of creating from the property of the insolvent a fund to be administered in equity for the benefit of all the creditors of any insolvent enable some who might be more conveniently located
The property became a trust fund in equity the moment the assignment was executed and delivered, and the defendant obtained no lien by levying his attachment. The property was at that time in custodia legis, and not the subject of attachment by creditors of the insolvent. The title had passed as absolutely from the assignor as though he had made a formal assignment without preferences. Under the statute they had in effect made an assignment of all their property for the benefit of their creditors without preferences. Such an assignment is not ground for attachment. Place v. Miller, 6 Abb. Pr. (N. S.) 178; Ebner v. Bradford, 3 id. 248. And as the same reasons apply whether the partnership be considered general or special, and an attachment under the facts and circumstances of this case will not lie under either conclusion, we express no opinion on that question.
Damages. Upon the question of damages, we think the trial court adopted an erroneous measure. By section 4603, Comp. Laws, it is provided that the detriment caused by wrongful conversion of personal property is presumed to be (1) the value of the property at the time of the conversion, with interest from that time; (2) where the action has been prosecuted with diligence, the highest market value of the property at any time between the conversion and the verdict, without interest. They could have adopted either of these rules. They did adopt the former, and the court has found, as a fact, what the value of the property was at the time of the conversion; that it was $22,260.33, subject, however, to a mortgage in favor of the Citizens’ National Bank of Grand Forks of $10,567.58, upon which they have realized, leaving, as the sum to which the plaintiffs would be entitled, $11,692.75. We are of opinion that this is the proper measure of damages to be applied in this case. It was so decided in Keith v. Haggart, 33 N. W. Rep. 465.
From these considerations it follows that the judgment in this action must be modified so as to limit the amount of the recovery to the sum of $11,692.75, that being the value of the mortgaged goods converted, as found by the trial court, after deducting the