May v. Tenney - 148 U.S. 60 (1893)
U.S. Supreme Court
May v. Tenney, 148 U.S. 60 (1893)
May v. Tenney
Argued December 22, 1892
Decided March 6, 1893
148 U.S. 60
A chattel mortgage of the stock of goods in a store in Colorado, given to secure the mortgagees for their liability as endorsers of notes of the mortgagor, is held to be a chattel mortgage, and not a general assignment for the benefit of creditors.
In Colorado, a general transfer of property by a debtor for the benefit of a preferred creditor does not, if found to be in violation of the policy of the state as expressed in its legislation, become a general assignment for the benefit of all creditors, without preferences, but is entirely void.
On March 24, 1887, Samuel Rich, a clothing merchant of Leadville, Colorado, executed to the appellants, May and Hirsch, an instrument conveying certain personal property, which instrument was called a "chattel mortgage," and was duly acknowledged and recorded. The instrument sets forth, in separate paragraphs, nine notes to the Carbonate Bank of Leadville, the payment of eight of which were endorsed of guarantied by May or Hirsch, severally. On the first note, neither May's nor Hirsch's name appears. After this description, which is full and specific as to each note, the instrument goes on further to recite:
"And whereas said notes are all now due, and, except as
hereinbefore stated, unpaid, and whereas the said Samuel Rich is legally liable to pay the whole amount due on said notes, and is unable to pay the same or any part thereof, and whereas the said the Carbonate Bank of Leadville, Colorado, threatens to commence suit by attachment against the said Samuel Rich on the note first hereinbefore mentioned, and do attach the property hereinafter mentioned of the said Samuel Rich, and whereas the said A. Hirsch and David May have assumed the payment of said note, and have become liable and responsible therefor to said bank, and whereas the said David May and A. Hirsch are legally liable and responsible for the amount due on the residue of said notes, each for a certain portion thereof, and have agreed to take up and pay the same: Now therefore in consideration of the premises, and in consideration of the sum of one dollar ($1.00) to the said Samuel Rich in hand paid by the said David May and A. Hirsch, the receipt whereof is hereby acknowledged, the same Samuel Rich has granted, bargained, and sold, and by these presents does grant, bargain, and sell, unto the said David May and A. Hirsch, all that certain stock of men's, boys', and children's clothing, hats, caps, and gents' furnishing goods, being and contained in that certain storeroom, in the City of Leadville, County of Lake and State of Colorado, known as 'No. 313 Harrison Avenue,' together with all and singular the show cases, counters, shelving, chandeliers, and all other property of every kind in said room pertaining to the business of the said Samuel Rich, which said stock of goods is the property of the said Samuel Rich, and now in his possession in said place; to have and to hold all and singular the said goods and chattels unto the said David May and A. Hirsch, their heirs, administrators, and assigns, forever."
And then, after a covenant of title, it adds:
"The said David May and A. Hirsch shall take the immediate possession of all of said goods and chattels and of the said room in which they are contained as aforesaid, and shall proceed to sell and dispose of the same with reasonable diligence at private or public sale, as they may deem best, and out of
the proceeds of such sale of said goods and chattels pay: (1) the amount due on said notes, with the interest thereon, and the costs and expenses of such sale; (2) rendering the surplus, if any, to the said Samuel Rich, his executors, administrators, or assigns: provided, however, that if the said Samuel Rich shall at any time before a sufficient quantity of said goods and chattels shall be so sold to realize a sum sufficient to pay said amount due and said expenses, pay to the said David May and A. Hirsch, or their assigns, the amount due on said notes or the balance which may be due thereon after deducting the net amount realized from such sale, then these presents shall be void, and the residue of said goods remaining unsold shall be delivered to the said Samuel Rich, and possession thereof restored to him. In witness whereof the said Samuel Rich has hereunto set his hand and seal, this twenty-fourth day of March, A.D. 1887."
"[Signed] Sam. Rich [Seal]"
The grantees in this conveyance took possession of the property, and, after a very brief attempt to sell it at retail, sold it in bulk to one Joseph Shoenberg for $20,100. A portion of this, $2,113, they were compelled to pay in satisfaction of a claim for goods wrongfully taken possession of and sold. The amount of the indebtedness of Rich to the bank, assumed by May and Hirsch, was about $18,400, including interest. It was admitted on the trial that this sum was owing by Rich to them. The appellee, Tenney, is a trustee for several creditors of Samuel Rich, in whose behalf he obtained judgment on April 25, 1887, for the sum of $13,665. Upon a hearing before the circuit court, this instrument was adjudged, in effect, an assignment for the benefit of creditors, and an accounting was ordered before a master as to the value of the property received by May and Hirsch under it, as well as the names of the various creditors of Rich, and the amounts due to them. Upon the report of the master, a final decree was entered --
"That the chattel mortgage mentioned in the defendants'
answer herein, given by the said Rich to the said May & Hirsch on March 24, 1887, is in legal effect an assignment for the benefit of the creditors of the defendant Rich; that the defendants May & Hirsch took the property conveyed by said mortgage as the assignees or trustees of the said defendant Rich, and as such assignees or trustees of the said Rich shall account to the said creditors for the value of said property as determined and found by the said master in chancery."
And then, after an adjudication of the amounts due to the various creditors of Rich, there followed:
"It is further ordered, adjudged, and decreed that the value of the property transferred, as aforesaid, on March 24, A.D. 1887, by the said Rich to the said May & Hirsch, and for which the said May & Hirsch are answerable and responsible as assignees for the benefit of the creditors of the said Rich by virtue of the said transfer, is the sum of $31,387, which sum of $31,387 the said defendants May & Hirsch are hereby ordered to distribute and pay to the parties in interest herein in the following proportions, to-wit."
And the distribution and payment ordered are to the various creditors in proportion to the amounts thus adjudged due to them. From this decree, May and Hirsch have appealed to this Court.