First Nat. Bank of El Reno v. Salyer

First Nat. Bank of El Reno v. Salyer
1897 OK 66
50 P. 77
Decided: 07/30/1897
Supreme Court of Oklahoma

Supreme Court of the Territory of Oklahoma.

FIRST NAT. BANK OF EL RENO
v.
SALYER.

July 30, 1897.

Syllabus by the Court.

¶0 1. Under the laws of this territory, providing that a mortgage of personal property is void as against creditors of a mortgagor, unless the original, or an authenticated copy thereof, be filed by depositing the same in the office of register of deeds of the county where the property mortgaged, or any part thereof, is at such time situated, if the mortgagor makes an assignment for the benefit of creditors prior to the filing provided for in the statute, and before the mortgagee has taken possession of the property under his mortgage, the assignee will take the property exclusively for the benefit of the creditors, and free from any preference in behalf of the mortgagee.
2. A mortgage void as to creditors is void as against the assignee in trust for the benefit of creditors.

McATEE, J.

¶1 This cause comes here for rehearing upon the petition of the plaintiff in error upon the ground that the decision heretofore made is in conflict with a "controlling decision," and that such controlling decision has been overlooked by the court. The controlling decision referred to is that of Stewart v. Platt, 101 U.S. 731, which was cited in the briefs of the plaintiff in error upon the original hearing, and fully considered, but not treated of, in the opinion, for the reason that it was not regarded as a controlling decision. The case of Stewart v. Platt found its way into the supreme court of the United States for adjudication upon questions arising under the national bankrupt act. Leland & Co. were adjudged bankrupts upon the petition of one of their creditors on the 4th day of March, 1871. They had executed a chattel mortgage upon personal property belonging to the firm, which the statute of the state of New York required to be filed in "the office of the clerk or register of the town or city where the mortgagor resided." The mortgagors resided with their families in Westchester county, but the mortgages had been filed in the city of New York, where it was contended their firm residence was. In passing upon the question thus presented, the supreme court of the United States said that: "It is to be regretted that we are not guided by some direct, controlling adjudication of New York. But no such decision has been brought to our attention. With some hesitation we have reached the conclusion that the chattel mortgage executed by a firm upon firm property is void as against creditors, subsequent purchasers, and mortgagees in good faith, unless filed in the city or town where the individual members of the firm severally reside." The supreme court held that the decree of the circuit court was erroneous in directing the residue of the proceeds of the sale of the mortgaged property after satisfying execution creditors "to be paid to the assignee in bankruptcy for the purposes of the trust, and in charging that balance with the payment of the fees due counsel of the assignee." And in sustaining this view the supreme court said that: "Suppose the mortgagors had not been adjudged bankrupts, and there had been no creditors, subsequent purchasers, or mortgagees in good faith to complain, as they alone might, of the failure to file the mortgages in the towns where the mortgagors respectively resided. It could not be doubted that Stewart, in that event, could have enforced a lien upon the mortgaged property in satisfaction of his claim for rent. The assignee took the property subject to such equities, liens, or incumbrances as would have affected it had no adjudication in bankruptcy been made. While the rights of creditors whose executions preceded the bankruptcy were properly adjudged to be superior to any which passed to the assignee by operation of law, the balance of the fund, after satisfying those executions, belonged to the mortgagee, and not to the assignee for the purposes of his trust. The latter, representing general creditors, cannot dispute such claim, since, had there been no adjudication, it could not have been disputed by the mortgagors. The assignee can assert, in behalf of the general creditors, no claim to the proceeds of the sale of that property which the bankrupts themselves could not have asserted in a contest exclusively between them and their mortgagee. As between the mortgagors and the mortgagees, the chattel mortgages were and are unimpeachable for fraud, or upon any other ground recognized in the bankrupt law." It is thus manifest that the cause of the decision was a question arising under the national bankrupt act then in force, and that the supreme court, applying the rule of the common law, recognized the assignee in bankruptcy as the representative of the insolvent debtors, and occupying as to the mortgagee of an unrecorded mortgage on better position than the bankrupt did before him. The supreme court was thus occupied entirely in the construction of the national bankrupt act and of the statutes of the state of New York relative to the filing of chattel mortgages. And, thus interpreting the statute of that state, it must be accepted as a correct interpretation of it when the court said: "It could not be doubted that Stewart, in that event, could have enforced a lien upon the mortgaged property in satisfaction of his claim for rent." And when the court stated the proposition that, "although the chattel mortgages, by reason of the failure to file them in the proper place, were void as against judgment creditors, they were valid and effective as between the mortgagors and mortgagees," it simply stated the proposition of the New York authorities only, and then proceeded to apply the rule uniformly applied in bankrupt proceedings,--that the assignee in bankruptcy occupied no better position than his assignor. But we do not understand that in making this interpretation upon the statutes of the state of New York, and while the court "regretted that it had no interpretation of the courts of that state which would be controlling" in the interpretation of the statute then under consideration, in the contention between the chattel mortgagee and the assignee under the national bankrupt act, that the supreme court was announcing a rule which should, of necessity, be followed here under our own statute, when accompanied by and of necessity construed with our own law of assignment. We do not understand the rule of construction contended for is so broad as to require the adoption of its views upon a statute of general purport of the state of New York, and not identical with ours, and from which ours is not taken, when it is construing it together with and prescribing at the same time the limitations of right under the national bankrupt act. When in the case of Stewart v. Platt the supreme court recognized the assignee in bankruptcy as the representative of the insolvent debtor, and held that the assignee was in no better position than the bankrupt before him, it was simply adopting and acting upon a rule of the common law. It has been also pointed out and held by the supreme court of Ohio, in the case of Lindemann v. Ingham, 36 Ohio St. 1. in which it was distinctly declared that the enunciation made in Hanes v. Tiffany, 25 Ohio St. 549, that the rule was at the common law, that the assignee could stand in no better condition than the assignor, and that the correctness of this position was admitted, and was then in the case of Lindemann v. Ingham affirmed, and then declared that it was by the supreme court of the United States repeatedly held that the "common-law rule is applicable under the bankrupt law," and referred to the case of Stewart v. Platt, 101 U.S. 731, as one of the cases in which it had been so held, but then again proceeded to say that the decisions in Hanes v. Tiffany and approved in Kilbourne v. Fay, 29 Ohio St. 264-278, was a clear and distinct recognition of the principle that the mortgagee of personal property takes his mortgage subject to the provisions of our assignment laws in force at the time, and that under those laws the assignee stands in a better position than the assignor.

¶2 The case of Yeatman v. Savings Institution, 95 U.S. 764, is cited as an authority in behalf of the plaintiff in error, but does not sustain the position contended for, since it is declared that the assignee takes title subject to the equities, etc., "except in cases where the disposition of property by the bankrupt is deemed by law to be fraudulent and void." And an equivalent affirmation was made in the case of Schaller v. Wright, 70 Iowa, 667, 28 N.W. 460, in which, an invalid deed having been made by a husband to his wife, the husband upon the same day made an assignment, and it was held by the supreme court of Iowa that, the deed of the wife being void as to creditors, "the assignee does not stand in the husband's shoes as to his relation to the wife, but that he took the place of the husband as a debtor," and that the "trustee of the creditors chosen by him [the husband], whose action is recognized or controlled by law, is made an instrument by the law for awarding remedies to the creditors, and is not subject to the rules and doctrines to be applied as between the fraudulent grantor and grantee"; and the court proceeded generally upon the view that the position of the assignee is not identical with that of the assignor, but is a better one. And since the mortgage withheld from record was declared by our statute to be void as to creditors, and since in our assignment act (St. 1893, § 295) it is declared that such an assignment "shall not be valid if it be upon or contain any trust or condition by which any creditor is to receive preference or priority over any other creditor," it is therefore manifest that, since our chattel mortgage law and our assignment law must be construed together, the position cannot be sustained that the mortgage declared by the statute in one place void as to creditors can, by the mere fact that the mortgagor has, pending the fact that the mortgage is void, made an assignment, the effect of which cannot be known to the creditor who is the mortgage in the unrecorded mortgage declared by the statute to be void as to other creditors, is that he cannot "receive a preference or priority over the other creditors." This is the view which was sustained by the supreme court of Ohio in Hanes v. Tiffany, 25 Ohio St. 552, in which it was declared that: "It is, however, contended that as the mortgage is good against the mortgagor; it is also good against his assignee for the benefit of creditors; that the latter stands in no better situation than his assignor. The correctness of this position at common law is admitted, but not so under the statute. The mortgagee not having possession of the mortgaged property, the statute declares the mortgage void as against the creditors of the mortgagor. The assignee took the property under the assignment, and held it for the exclusive benefit of creditors. The mode of providing for creditors by way of assignment in trust for their benefit is recognized and regulated by statute; and we see no good reason why their rights may not be as effectually asserted through the assignee as they could be by judgment and execution in case there had been no assignment." The doctrine was reaffirmed in the case of Kilbourne v. Fay, 29 Ohio St. 264, to the effect that: "Where a chattel mortgage is declared void by the statute as against the creditors of the mortgagor, and the mortgagor dies in possession of the mortgaged property, leaving an insolvent estate, such property becomes assets in the hands of the executor or administrator of the mortgagor, whose duty, as well as right, is to defend his possession against the claim of the mortgagee, notwithstanding such mortgage was valid as against the mortgagor." And that: "The analogy between the duties of the office of an administrator of an insolvent estate and those of an assignee of an insolvent debtor are so perfect that we might at once affirm that the doctrine of Hanes v. Tiffany must control the decision in the present case." And that: "After a careful consideration of these cases, a majority of the court, both upon authority and reason, hold that, where a chattel mortgage is absolutely void as against the creditors of the mortgagor, who dies in possession of the mortgaged property, leaving an insolvent estate, such property becomes assets in the hands of the executor or administrator, to be administered for the sole benefit of such creditors, and disbursed ratably among them, notwithstanding such mortgage may be a valid lien as against the mortgagor during his lifetime, and against the distributees of his estate after his death, and that it is the duty as well as the right of such executor or administrator to defend his possession of such property against the claim of such mortgagee." The same principle was again reaffirmed in Lindemann v. Ingham (1880) 36 Ohio St. 1, and in Putman v. Reynolds, 44 Mich. 113, 6 N.W. 198, W. W. Kimball Co. v. Kirby (S. D.) 55 N.W. 1110, and in Kansas in Chapin v. Jenkins (1893) 31 Pac. 1084. The latter case arose upon the validity of the mortgage of a stock of merchandise, not recorded, which, by its terms, permits the mortgagor to retain possession and sell the stock without restriction, with no requirement that the proceeds should be used in the payment of the mortgage debt, and with no requirement of an accounting, and upon the statute of that state. And the case disaffirms the doctrine that the assignee has no better rights, and occupies no stronger position, than the assignor did at the time of making the assignment, but asserts the superiority of the assignee's possession, and his right and duty to assert the rights of the creditors as against any conveyance which is by the law declared to be void as to them, and says: "It is also true that the mortgage, although void as to creditors, could not be impeached by the mortgagor who made the assignment. If the assignee obtains all his right, title, and authority from the assignor, and represents him alone, then he cannot question the validity of the mortgage. If he succeeds only to the rights of the assignor, and stands in his shoes, he cannot impeach or set aside a conveyance which the assignor could not. There is much diversity of opinion with reference to the position occupied by the assignee, and his right to question a fraudulent conveyance prior to the assignment, made by the assignor. In general, it is held that the title obtained by him is derivative, and that, in the absence of statutory power, he will occupy no better position than his assignor, and cannot take or set aside a conveyance made by his debtor on the ground of fraud and invalidity. Under our statute, however, the assignee is not merely a representative of the assignor. The theory of the statute throughout is that he takes and holds property as a trustee for the benefit of the creditors of the assignor. He represents all of the creditors, and the property assigned must be managed and disposed of as the law directs, and for the benefit of all. The assignment, in the first instance, is voluntary, and the assignee appointed is selected by the assignor. After the assignment is made, however, the assignor loses all control of the estate, and no direction or limitation which he may attempt to give or impose will be effective. His selection of an assignee is only a temporary appointment, and the person appointed can exercise no other power than the safe-keeping and control of the property which may come into his hands. A permanent assignee is chosen at once by the creditors themselves. Gen. St. 1889, pars. 384-386. The person so chosen administers the trust under the direction of the court, and for the benefit of all the creditors. No reservation can be made by the assignor, no preferences are allowed, and any direction of the assignor with reference to the manner of distributing the assets of the estate is inoperative. Banks v. Sands, 47 Kan. 596, 28 Pac. 620. *** As the representative and trustee of these creditors, it is his duty to protect the estate, and defend the property assigned against adverse and unjust claims. If he was bound by the fraudulent mortgages made upon the property by his assignors, he would illy comply with the purpose of his trust, which is a just, pro rata distribution of the estate of the debtor among all his creditors. We think that under our statute an assignee, as the representative of the creditors of the debtor, may defend in the interest of the creditors against a mortgage made in fraud of creditors. Hanes v. Tiffany, 25 Ohio St. 549; Kilbourne v. Fay, 29 Ohio St. 264; Schaller v. Wright, 70 Iowa, 667, 28 N.W. 460; Pillsbury v. Kingon, 33 N. J. Eq. 287; Waters v. Dashiell, 1 Md. 455; Tams v. Bullitt, 35 Pa. St. 308; Freeland v. Freeland, 102 Mass. 475; Southard v. Benner, 72 N.Y. 424. See, also, Manufacturing Co. v. Wright, 22 Fed. 631. There are decisions not in harmony with the view that we have taken, but many of them are based upon statutes unlike ours, or in cases where there is no statute making the assignee the representative of the creditors. In some cases it appears to be held that an assignor cannot attack a fraudulent claim or conveyance, but may defend against one, and protect the property against all unjust and fraudulent claims, so that the property may be applied to the payment of the just debts of the assignor. Here the debtor assigned all of his property, and the statutes contemplate that it shall be distributed pro rata among all the creditors. The assignee represents the creditors who became such while the mortgage was withheld from the record, and in the pocket of the mortgagee. By the negligence of the mortgagee, these creditors were allowed to deal with the assignor on the theory and faith that there was no incumbrance upon his goods, but when the assignment is made they are confronted with a secret lien, which was uncovered about the time the assignment was made. One of the purposes of our statute making mortgages void that are not forthwith recorded, and where there is no change of possession, is to prevent the setting up of such secret liens and incumbrances as are disclosed in this instance." Chapin v. Jenkins (Kan. Sup.) 31 Pac. 1086. And the court again affirms the doctrine in the case of Withrow v. Bank (Kan. Sup.) 40 Pac. 640, where it is said that the statute declares the unrecorded mortgage void as against the creditors, which is therefore void as against the assignee, who is the representative of them all. Brigham v. Jones, 48 Kan. 165, 30 Pac. 113; Chapin v. Jenkins, 50 Kan. 385, 31 Pac. 1084. The judgment of this court is therefore reaffirmed.

¶3 All the justices concur.