Chapin v. Jenkins

The opinion of the court was delivered by Johnston, J.:

1. Replevin-demand-practice. The first point presented for decision is, that a demand was á prerequisite to the maintenance of the action, and that none was made. Proof of demand and refusal was not required. The findings show that the claim of title by the assignee was wholly inconsistent with the right of possession claimed by Jenkins. It appears that he knew all about the Jenkins mortgage, and that, after the assignment was made, an agent of hers complained of the action of the assignee, and then told him that Jenkins wanted the property. The assignee not only asserted a claim inconsistent with the right of possession of Jenkins, but in his answer he alleged title in himself, and that Jenkins had no valid claim against the property. Under these circumstances, the district court rightly held that proof of demand and refusal was unnecessary. (Shoemaker v. Simpson, 16 Kas. 43 ; Dickson v. Randal, 19 id. 212; Raper v. Harrison, 37 id. 243; Bank v. Bank, 46 id. 378; Cobbey, Repl., §§ 447-450; Wells, Repl., § 374.)

*391

2. Chattel mortgage, when a fraud upon creditors.

*390 The invalidity of the chattel mortgage given by Dinklage to Jenkins is the next contention of the plaintiff in error. It was executed on March 2, 1889, upon property described as follows: “All his stock of confectionery, goods of all kinds, show cases, fixtures, tools, etc., situated at 207 Market street, in the city of Fort Scott, Kas.” It was not placed upon record, however, for more than five months after its execution, nor until about 30 minutes before the assignment was made. It contained the following provision: “Mortgagor to have the right to sell goods in the regular course of business, but to replace goods sold with new stock, and this mortgage is intended to cover goods bought to replace those sold in course of business.” There was no provision in the mortgage with reference to what should be done with the proceeds of the sales, and no requirement was made as to paying the *391 proceeds on the mortgage debt. The stock which he was carrying was valued at about $1,500, and it is shown from the record that he owed at least $1,637.56, all of which indebtedness had accrued subsequent to the date of the mortgage, except the sum of $110. It thus appears that most, if not all, of the stock had been replaced by new goods while the mortgage was outstanding and unrecorded. By withholding the mortgage from record, and failing to take possession of the goods, Jenkins permitted the creditors to deal with Dinklage upon the theory that his property was unincumbered and subject to the payment of their debts. Dinklage was permitted to buy and sell goods as he had previously done, without accounting for the proceeds, or applying them upon the mortgage debt, or any other of his debts. In this way, all the property of Dinklage was tied up and withheld from the creditors, without providing for an accounting of the sales or provision for the payment of any debt. It operated to hinder and delay the creditors in the collection of their debts; and we think, under the facts and circumstances of the case, it rendered the mortgage void as against the creditors of Dinklage. (Leser v. Glaser, 32 Kas. 546 ; Rathbun v. Berry, 49 id. 735, and cases cited.)

The invalidity of the mortgage is not denied by defendant in error, but it is insisted that that fact is unimportant, for the reason that the assignee takes only such rights in the property as the assignor had at the time of the assignment, and that he cannot question the validity of the mortgage or complain of the acts and doings of the assignor before the assignment was made. May not the assignee defend against the foreclosure of a mortgage which is fraudulent and void ? And can he not protect the property of the estate committed to his trust against all unjust and adverse claims? In a general sense it is true that the assignee derives his title from his assignor, and takes the property as it is found, subject to the equities and incumbrances existing against it. It is also true that the mortgage, although void as to creditors, could not be im *392 peached 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 made by the assignor prior to the assignment. 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 the 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. Stat. of 1889, ¶¶ 384, 386.) The person so chosen administers thfe 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. (Bank v. Sands, 47 Kas. 595 .) In Brigham v. Jones, 48 Kas. 165 , it is said that—

“The distribution is controlled by the statute, and any pro *393 vision in an assignment inconsistent with the statute must be treated as a nullity. The assignment, however, is not avoided by such a direction, but it inures to the benefit of all the creditors. When the debtors in this instance made an absolute conveyance or assignment of their property to Eastman, their control over the same was ended. Then the statute comes in, and provides, in the interest of equity and justice, that the assignee is the trustee for all the creditors, and requires him to make a pro rata distribution among them. (Gen. Stat. of 1889, ¶ 342.)”

3. Assignment-rights of assignee. 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 assignor, 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 the creditors. (Hanes v. Tiffany, 25 Ohio St. 549 ; Kilbourne v. Keller, 29 id. 264; Schaller v. Wright, 70 Iowa, 667; 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. Rep. 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 statute contemplates that it shall be distributed pro rata among all the creditors. The assignee represents the creditors who became such while the mortgage was withheld *394 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. Not only was the lien a secret one, but by the agreement of the mortgagee the mortgagor was permitted to dispose of his stock in his discretion, and to do as he pleased with the proceeds of the same. He was not required to pay the mortgage debt nor the expenses of sale, nor yet to account to the mortgagor or to anyone else for the money derived from the sale. Clearly this was a fraud, at least as to all creditors who became such after the execution and before the filing of the mortgage; and the assignee, in behalf of the creditors for whom he acts, may dispute the justice and validity of such claims, and defend against them, when set up by the party through whose fault the fraud and invalidity arises. This right of the mortgagor to buy and sell at pleasure without accounting related only to the stock of merchandise, and probably most of the goods in existence when the mortgage was made were not in the stock when the assignment was made. The tools and fixtures, however, were not embraced within this provision, and hence what has been said as to the stock will not apply to them.The ruling of the court, however, that the mortgage being good as between mortgagor and mortgagee, it was also good between the mortgagor and the creditors represented by the assignee, and that the assignee would not be permitted to show fraud in the mortgage, is deemed to be erroneous, and therefore there must be a reversal of the judgment.

All the Justices concurring.