1. Under the statutes of Ohio authorizing chattel mortgages, a
seal is not necessary to their validity.
2. Where one partner, R. M., affixed his name and seal to an
instrument whose
testatum set forth that "R. M. &
Sons, by R. M., one of the firm, had thereto set their hands and
seals," the instrument may be regarded as the deed of all the
partners on proof that, prior to the execution, the others had
authorized R. M. to execute the instrument, and after execution,
with full knowledge acquiesced in what he had done.
3. The two clauses of the 35th section of the Bankrupt Act
differ mainly in their application to two different classes of
recipients of the bankrupt's property or means -- that is to say,
the first clause is limited to a creditor, a person having a claim
against the bankrupt or who is under any liability for him and who
receives money or property by way of preference, and the second
clause applies to the purchase of property of the bankrupt by any
person who has no claim against him and is under no liability for
him.
Appeal from a decree of the Circuit Court for the Southern
District of Ohio in a bill in equity filed by Warden & Ludlow,
assignees of Moore & Co., against David Gibson and against
Gaylord, Son & Co. and other defendants. The matter in issue
was the validity, in view of the bankrupt law, of two chattel
mortgages given by the bankrupt, one to the said Gibson and the
other to the said Gaylord, Son & Co. The mortgages were
asserted to be frauds on the bankrupt law as coming within either
the first clause or the second of the 35th section of the Bankrupt
Act. The first clause reads thus:
"If any person, being insolvent or in contemplation of
insolvency, within four months before the filing of the petition by
or against him, with a view to give a preference to any creditor or
person having a claim against him or who is under any liability for
him, procures any part of his property to be attached, sequestered,
or seized on execution or makes any payment, pledge, assignment,
transfer, or conveyance of any part of his property, either
directly or indirectly, absolutely or conditionally, the person
receiving such payment, assignment, transfer, or conveyance, or to
be benefited thereby or by such attachment,
Page 81 U. S. 245
having reasonable cause to believe such person is insolvent and
that such attachment, payment, pledge, assignment, or conveyance is
made in fraud of the provisions of this act, the same shall be void
and the assignee may recover the property or the value of it from
the person so receiving it or so to be benefited."
The second clause read thus:
"And if any person, being insolvent or in contemplation of
insolvency or bankruptcy, within six months before the filing of
the petition by or against him, makes any payment, sale,
assignment, transfer, conveyance, or other disposition of any part
of his property to any person who then has reasonable cause to
believe him to be insolvent or to be acting in contemplation of
insolvency, and that such payment, sale, assignment, transfer, or
other conveyance is made with a view to prevent his property from
coming to his assignee in bankruptcy, or to prevent the same from
being distributed under this act, or defeat the object of, or in
any way impair, hinder, impede, or delay the operation and effect
of, or to evade any of the provisions of the act, the sale,
assignment, transfer, or conveyance shall be void and the assignee
may recover the property, or the value thereof, as assets of the
bankrupt. And if such sale, assignment, transfer, or conveyance is
not made in the usual and ordinary course of business of the
debtor, the fact shall be
prima facie evidence of
fraud."
The court below decreed that the mortgages were invalid, and
secured no priority, and that the defendants stood on the footing
of general creditors. Gibson appealed, as did Gaylord & Sons;
the other defendants did not appeal.
MR. JUSTICE SWAYNE stated the case more particularly, and
delivered the opinion of the Court.
This is an appeal from the decree of the Circuit Court for the
Southern District of Ohio.
The appellees are the assignees in bankruptcy of Robert
Page 81 U. S. 246
Moore & Sons, and filed this bill to compel such of the
defendants as claimed to have liens upon certain effects of the
bankrupt firm to have their respective rights touching the property
in question ascertained and adjusted by the decree of the court.
The decree rendered disposed of the several cases litigated under
the bill. All the defendants acquiesced in the decisions made
except David Gibson and Gaylord, Son & Co. They have brought
the decree of the circuit court, so far as it affects them, here
for review by this appeal. Our examination of the case will be
confined to their respective claims.
On the 8th of March, 1868, Moore & Sons executed to Gibson a
chattel mortgage. It was conditioned that if the mortgagors should
pay to Gibson their promissory note to him of the same date with
the mortgage for $6,000, payable sixty days from date at the
Central National Bank of Cincinnati, the instrument should be void.
The
testatum clause set forth that Robert Moore &
Sons, by Robert Moore, one of the firm, had thereto set their hands
and seals. Robert Moore alone affixed his name and seal to the
document. The amount claimed by Gibson under the mortgage was
endorsed and sworn to by him, and the instrument was filed with the
proper officer on the 18th of the same month. On the 21st of that
month, Moore & Co. failed in business and made a general
assignment of all their effects for the benefit of their creditors.
On the 15th of September, 1868, a petition in bankruptcy was filed
against them under which they were subsequently adjudged bankrupts,
and the appellees were appointed their assignees in that
proceeding.
The note mentioned in the mortgage was endorsed by Gibson for
the accommodation of the makers. They procured it to be discounted,
and the proceeds went to their benefit. Gibson was compelled to pay
it. The amount thus paid, with interest, constitutes his claim
under the mortgage.
No statute of Ohio directs how a chattel mortgage shall be
executed. The statutes regulating such instruments are silent upon
the subject. Our attention has been called to
Page 81 U. S. 247
no local adjudication touching the point. In an elementary work
prepared by an eminent jurist of that state, the form given
purports a sealed instrument, and has a seal affixed to it.
[
Footnote 1]
Such instruments in Ohio are usually under seal. But the term
"mortgage" used in the statutes does not import or imply that a
seal is necessary. In regard to chattels, it is a
mortgage, and not a
deed of mortgage, that is
required. The distinction between real and personal property and
between the means which are necessary to affect them is well
settled. Personal property, according to the common law, could
always be transferred or encumbered without the use of a deed for
that purpose. A seal has never been held necessary to the validity
of a bill of sale. A chattel mortgage is only a bill of sale with a
defeasance incorporated in it. The presence or absence of that
formality is wholly immaterial. In the case before us, it may be
regarded as surplusage. [
Footnote
2]
There is another view of the subject that must not be
overlooked. There is proof in the record that the partners, other
than Robert Moore, authorized him in advance to execute the
mortgage, and after its execution, with full knowledge, acquiesced
in what he had done. If the law had required a seal, these
circumstances would have made the instrument the deed of the firm
-- as much so as if all the members had been personally present and
assented to its execution in that form. [
Footnote 3] This is not inconsistent with the
principle, which seems to be too deep-rooted in the law to be
wholly eradicated by judicial authority, that a sealed instrument
executed in the name of a firm by one of its members without the
proper authority, where a seal is necessary, is the deed of such
member only, and that he alone is bound by it.
Page 81 U. S. 248
The statute provides that every mortgage of goods and chattels,
where there is no change in the possession of the things mortgaged,
"shall be absolutely void" as against subsequent purchasers and
mortgagees in good faith "unless the mortgage or a true copy
thereof shall be forthwith deposited" with the proper officer. The
supreme court of the state has held that the omission to deposit
forthwith as directed does not avoid the mortgage
in
toto, but that, whenever deposited, it becomes effective from
that time. [
Footnote 4] That
court has also held that actual notice to a subsequent mortgagee
before his mortgage is taken is conclusive evidence of
mala
fides on his part. [
Footnote
5]
In cases like this, the assignees stand in the place of the
bankrupt; his rights are their rights, and theirs, like the liens
of judgments at law, are subordinate to all the prior liens, legal
and equitable, upon the property in question. [
Footnote 6]
This mortgage was deposited three days less than six months
before the filing of the petition in bankruptcy.
This raises a question under the bankrupt statute which it is
necessary to consider.
The first clause of the 35th section avoids certain acts of the
bankrupt touching his effects if done within four months before the
filing of the petition in bankruptcy. The second clause imposes the
like result if the transaction be within six months of that
time.
To bring a case within the first clause, the act must have been
done by a person insolvent or in contemplation of insolvency with a
view to give a preference to a creditor or person having a claim
against or who is under a liability for the bankrupt, and such
person must have reason to believe that the transaction is in fraud
of the statute.
The category of the second clause contains the same
requirement
Page 81 U. S. 249
of insolvency, or contemplation of insolvency, on the part of
the person doing the act. The recipient may be anyone who has
reason to believe him insolvent or acting in contemplation of
insolvency, and that the act was done by him to prevent the
property from coming into the hands of his assignee in bankruptcy
and from being distributed under the bankrupt law.
Upon comparing the two clauses carefully together, we are
satisfied that the first clause was intended to refer to the past
and the second to the present. The language employed in the first
clause imports clearly that the consideration must be one growing
out of a former transaction, and that the recipient must stand in
the relation thus created to the other party. It is equally clear
that the second clause, enlightened by this construction of the
first one, must be limited to cases where the transaction in
question was original and complete in itself at the time it
occurred, and had no reference for its consideration to anything
between the parties which had gone before it. It is only by this
construction that the two clauses can be made to harmonize and full
and distinct effect be given to each. Any other construction would
make them cover the same ground and obliterate everything by which
one is differenced from the other, except the limitation of time
which they respectively prescribe. It is not to be supposed that
such was the intention of the lawmaking power. This view of the
subject was taken by the circuit court for the District of
Missouri, and subsequently there by one of the justices of this
Court. We can see no answer to the conclusion at which they
arrived. [
Footnote 7] According
to this construction the mortgage to Gibson falls within the second
category, as to the time within which its validity could be
challenged. Is it therefore void? To this there is a conclusive
answer in the negative.
The statute of Ohio deprived the mortgage of effect until
"deposited" -- as to
creditors, subsequent purchasers, and
mortgagees in good faith. These assignees are neither. As
between
Page 81 U. S. 250
the mortgagor and the mortgagee and subsequent mortgagees and
purchasers with notice, the mortgage was valid and took effect from
the time of its delivery to Gibson, which was the 8th of March,
more than six months before the filing of the petition in
bankruptcy.
The mortgaged premises have been converted into money. But this
does not affect the rights of the parties. The lien of the mortgage
followed the fund into the hands of the assignees, and binds it
there in all respects as it bound, before conversion, the property
which the fund represents. [
Footnote 8]
Gaylord, Son & Co. endorsed for Moore & Sons to the
extent of $10,000, as early as May, 1867, which was repeated from
time to time. In May, 1868, Moore & Sons applied to them for a
definite arrangement for endorsements to the extent of $20,000, to
be secured by a chattel mortgage. After inquiry, they agreed to
endorse for $15,000, and possibly $20,000, their liability to be
secured as proposed. In pursuance of this arrangement, on the 23d
of January, 1868, they endorsed for $5,000, and afterwards made
other endorsements, amounting in all to $17,000. The first mortgage
was made on the 27th of January, 1868. It was held by Gaylord, Son
& Co., and not filed. Later -- probably in March -- Moore &
Sons pressed for further endorsements, which were refused. Shortly
afterwards Moore & Sons advised Gaylord that judgments were
about to be taken against them, but insisted they were solvent. The
mortgage was shown to counsel, who objected to it, but upon what
ground does not appear. He advised that another should be taken.
This was done on the 18th of March, and the mortgage was deposited
on the same day with the proper officer, but some hours later than
the deposit of the mortgage to Gibson. It appears by the face of
the instrument that the signature and seal of the firm were affixed
by one of the firm in the absence of the others. There was the same
prior authority and subsequent acquiescence as in the case of the
Gibson mortgage. It recited that Gaylord, Son & Co. were
liable
Page 81 U. S. 251
as endorsers and otherwise for certain debts of Moore &
Sous; that Moore & Sons were indebted to Gaylord, Son &
Co.; and that Moore & Sons were desirous to renew their paper
with the endorsement of Gaylord, Son & Co., and was conditioned
that if Moore & Sons should save Gaylord, Son & Co. from
loss by reason of said endorsements and debt -- Gaylord, Son &
Co. agreeing to renew for eighteen months -- then the mortgage was
to be void.
After the failure of Moore & Sons, Gaylord, Son & Co.
took up notes which they had endorsed for the mortgagors, amounting
to $17,000. The mortgagees also held a note of the mortgagors for
iron sold by the former to the latter, amounting to $400, making
the aggregate of the indebtedness of Moore & Sons to Gaylord,
Son & Co., exclusive of interest, $17,400.
We hold this mortgage also to be valid under the laws of Ohio.
The views we have expressed as to the Gibson mortgage, considered
with reference to the statutes of Ohio, apply equally to the one
here under consideration, and render it needless to say anything
further upon the subject.
Being founded upon a past consideration, it falls within the
first clause of the 35th section of the bankrupt law, which limits
the right of attack upon such instruments to those executed within
four months prior to the filing of the petition in bankruptcy. In
respect to this statute also, it must, therefore, be held valid. It
was upon the same property as the mortgage to Gibson. Like that
mortgage, its force and effect reach and bind the fund into which
the property has been converted.
It was contended with great ability by the counsel of Gaylord,
Son & Co. that as regards the limitations of time under the
35th section of the bankrupt law this mortgage must be regarded as
if it had been executed at the date of the prior one for which it
was substituted, and numerous authorities were cited to sustain the
proposition. The view we have taken of the case has rendered it
unnecessary to consider this point.
Page 81 U. S. 252
The counsel representing both mortgages, in the argument in this
Court, advised us that we need not decide the question of priority
as between the two instruments, they having made an agreement which
fixes their respective rights. We have not, therefore, considered
the question. If there be any surplus after satisfying these claims
it must be distributed to the general creditors.
So much of the decree of the circuit court, as is brought before
us by this appeal, is
Reversed and the cause will be remanded to that court, with
directions to enter a decree in conformity to this
opinion.
[
Footnote 1]
Swan's Treatise 692.
[
Footnote 2]
Milton v. Mosher, 7 Metcalf 244;
Tapley v.
Butterfield, 1
id. 515;
Despatch Line v. Bellamy
Manufacturing Co., 12 N.H. 234.
[
Footnote 3]
Story on Partnership, p. 212, § 122;
Purviance v.
Sutherland, 2 Ohio St. 478;
Cady v. Shepherd, 11
Pickering 405;
Gram v. Seaton, 1 Hall, 262.
[
Footnote 4]
Wilson v. Leslie, 20 Ohio 161.
[
Footnote 5]
Kendall & Co. v. Mason, 7 Ohio St. 199.
[
Footnote 6]
Lempriere v. Pasley, 2 Term 485;
Belcher v.
Oldfield, 6 Bingham's New Cases 102;
Doremus v.
Walker, 8 Ala. 194;
Peck v.
Jenness, 7 How. 612;
Fletcher v. Morey, 2
Story 555; Archbold on Bankruptcy 314.
[
Footnote 7]
Bean v. Brookmire, 10 American Law Register, N.S.
181.
[
Footnote 8]
Astor v. Miller, 2 Paige §§ 68-78;
Sweet v.
Jacocks, 6
id. 355.