Case ID: ohio-st_57/html/0508-01.html
Source: Caselaw Access Project
Author: {"author": "Williams, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Besuden v. Besuden.
    
      Chattel mortgages — When void as against assignee in insolvency— Mortgagee creditor may prove claim as general creditor.
    
    1. Where chattel mortgages are void as against an assignee in • insolvency of the mortgagor, the creditors to whom they were given may prove their claims as general creditors, and as such, share in the fund arising from the sale of the assigned property, pro rata with other creditors of that class.
    2, A creditor to whom such a mortgage was given, is not entitled, on the ground of its priority before the assignment over another such mortgage, to appropriate any part of the dividend applicable to the debt proven by the holder of the latter mortgage: but the right of each to his dividend as a general creditor is unaffected by the mortgages.
    (Decided February 1, 1898.)
    Appeal was taken to the court of common pleas, from an order of the probate court, of Hamilton county, directing the distribution of a fund in the hands of the assignee of P. Wilson’s Sons & Co., an insolvent copartnership. In the appellate court the cause was submitted upon an agreed statement of facts concerning the matter in dispute, which is as follows:
    “The firm of P. Wilson’s Sons & Co. was a partnership, consisting of Chas. P. Wilson, John Wilson, Herman Besuden, and William II. Besuden, and having its place of business in Cincinnati, Ohio. The firm made an assignment in June, 1892, to F. Jelke, Jr. All of said partners lived in Cincinnati township, except Wm. H. Besuden, who lived in Millcreek township, Hamilton county, Ohio, On the 22d day of December, 1890, said firm made a chattel mortgage for $20,000.00, and one for $10,000.00, to Edwin Besuden•, and on the--day of June, 1892, it made a third chattel mortgage, for $25,000.00, to Henry Besuden; all of which mortgages were on the same property covered by the plant, machinery, tools, fixtures, stock, etc., of said firm. All of said mortgages were properly filed in the recorder’s office of Hamilton county; but none were filed or recorded with the clerk of Millcreek township. When the mortgage for $25,000.00 was made to Henry Besuden, said Henry Besuden had actual notice and knowledge of the prior mortgages which had been given to Edwin Besuden, which said notice was also had by all the general creditors of the firm; and all of said mortgages were received and given for money advanced to the firm at the time of the execution of said mortgages. It is further agreed that the property covered by said mortgages was sold by this assignee, and out of the fund realized therefrom a dividend of ten per cent, was ordered to be paid to all the creditors ox said firm. ’ ’
    The common pleas rendered the following judgment: “This cause came on this day to be heard and was submitted to the court on the transcript from the probate court of this county, the original papers in the case and the evidence, and on consideration thereof the court find the chattel mortgages on their stock, machinery, and fixtures, in Cincinnati, Ohio, given by the firm of P. Wilson’s Sons & Co. to Edwin Besuden, dated December 22, 1890, and filed oh the--in Cincinnati township, Hamilton county, Ohio, where three members of the firm reside, but never filed in Millcreek township, Hamilton county, Ohio, where the fourth member of the firm resided, and the chattel mortgage given by said firm on the same property to Henry Besuden, dated June, 1892, and filed on June, 1892, also in Cincinnati township, Hamilton county, Ohio, but never filed in Millcreek township, Hamilton county, Ohio, are all void; and that said Henry Besuden and other creditors had notice of the said existing mortgages to Edwin Besuden; and that said Henry Besuden and Edwin Besuden are each entitled to share equally and ratably with all other genera] creditors of said firm of P. Wilson’s Sons & Co. in the distribution of the fund in the hands of the assignee for the benefit of creditors of said firm of P. Wilson’s Sons & Co., which fund is the proceeds of said property covered by said chattel mortgages; and that said Edwin Besuden is entitled to no priority over said Henry Besuden in such distribution. It is therefore ordered that said assignee pay to said Henry Besuden on his claim the same dividend of 10 per cent, which has been paid to Edwin Besuden and to the other general creditors of the firm of P. Wilson’s Sons & Co. It is further ordered that the clerk of this court made out and filed in said probate court a transcript of the proceedings and judgment herein; to which said order the said Edwin Besuden excepts.”
    This judgment was affirmed by the circuit court; and error is presented here by Edwin Besuden, against Henry Besuden.
    
      Wright & Wright, for plaintiff in error.
    The first proposition is that a subsequent mortgagee with actual notice of a prior incumbrance is not a mortgagee in good faith, and consequently is not protected by the statute. Paine v. Mason, 7 Ohio St., 198; Day v. Munson, 14 Ohio St., 488; Sanger v. Eastwood, 19 Wend., 514; Gregory v. Thomas, 20 Wend., 19.
    
      Where a second mortgagee has notice of a prior mortgage, the latter will have preference, though not registered. Herman, sections 91, 145 and 152.
    The distinction, therefore, between creditors and subsequent mortgagees is plain. Creditors are not affected by notice (Houk v. Condon, 40 Ohio St., 574), but mortgagees are.
    It is a well recognized principle that a chattel mortgage is good against the mortgagor, although not recorded, and also good as against creditors until they obtain a lien by levy or attachment. Haynes v. Tiffany, supra; Kilbourne v. Fay, 29 Ohio St., 264; Freeman v. Rawson, 5 Ohio St., 10; Cass v. Rothman, 42 Ohio St., 380; Stephenson v. Colopy, 48 Ohio St., 247.
    A creditor at large, procuring a mortgage of his debtor’s property, can not claim as a creditor, or in the double capacity of creditor and purchaser, but only as purchaser. Tate v. Liggatt, 2 Leigh (84), 91; Tolbert v. Horton, 31 Minn., 318; Fox v. Wildes, 1 Mich., 321.
    The equity of the case is with the elder mortgage. Adams’s Equity, page 354 (star page 151).
    When equities are equal the oldest will prevail. Gronning v. Behn, etc., 10 B. Monroe (Ken.), 383 at 386.
    There is no doubt but that Edwin Besuden’s mortgage is prior to Henry Besuden’s, because the latter had notice of the former. Paine v. Mason, 7 Ohio St., 198.
    This must be obvious. If I have a chattel mortgage, a creditor of the mortgagor can not take the - mortgaged property from me without bringing suit and attaching it, or getting a judgment and levying execution. Wilson v. Leslie, 20 Ohio, 161; Kilbourne v. Fay, 29 Ohio St., 264.
    
      Now, for the benefit of those creditors who have not g-ot any lien on the property, the law says the assignee may represent them, as though they had. 29 Ohio St., 279.
    It might be observed that Jones cm Chattel Mort., sections 240, criticises Kilbourne v. Fay.
    
    The latest cases in New York hold that one not having a judgment or execution is not a creditor within the meaning of the statute, which declares that the omission to file a chattel mortgage makes it void as against creditors of the mortgagee, and subsequent purchasers, or mortgagees in good faith. Jones’ Chat. Mort., section 245; Jones v. Graham, 77 N. Y., 628; Kenealy Nat. Union Bank, 23 Hun., 494; Hayman v. Jones, 7 Hun., 238.
    This view is also held in other recent cases: Overstreet v. Manning, 67 Tex., 657; Grace v. Wade, 45 Tex., 522, 527; Ranson v. Schmeler, 13 Neb., 77 Cameron v. Marion, 26 Kansas, 612; Gill v. Pinery, 12 Ohio St., 38.
    Therefore it is that the assignee protects the rights of those who have no lien, or who have not got hold of the property by legal process. As to those who have a lien, their rights are not altered by the assignment, and, as Edwin Besuden is first, he must remain so. Tate v. Liggett & Matthews, Liggett & M. v. Morgan et al., 2 Leigh, 91.
    This case illustrates the difference between creditors and sub-purchasers and shows 'that Henry Besuden' is not of that class of creditors who acquire any right by virtue of the assignment; in speaking of “the seeming exceptions to this rule,” et seq., the court plainly means to dis-^ tinguish between creditors who acquire a lien by operation of law, by virtue of the assignment, and those creditors who acquire their liens by contract made by themselves — the latter take as subsequent purchasers and are not entitled to the protection of the statute. Shirley v. Long, 6 Raw., 735.
    
      F. G. Roelker, for defendant in error.
    The fair interpretation of the decisions under section 4150 of the Revised Statutes, is simply that a second mortgagee shall not be allowed to assert the lien of his second mortgage as against the first mortgagee where he had notice of such first mortgage. But there is not a word in the statute or in decisions to the effect that the first mortgagee shall be subrogated to the rights of the second mortgagee as a general creditor, and this is exactly what counsel for plaintiff in error ask to have done.
    Neither mortgagee having any lien whatever on the fund, it is held by the assignee in trust for the general creditors, and the statute of assignments declares that it shall be distributed equally between all creditors. Section 4150, Revised Statutes.
    Henry Besuden occupies a twofold position. He is both a creditor and holder of a chattel mortgage which has been set aside.
    There is only one interpretation consistent with the obligation of the court to maintain the whole statute, and that is to say to him: As you are not a mortgagee in good faith, even if you held a valid chattel mortgage, you can not assert a mortgage lien against this specific property in preference to the first mortgage, but to you as a creditor this first mortgage is void, and in the general distribution you may share as a creditor. Section 6351.
    There being no privity of contract between the parties, there can be no question of subrogation. for that is applied only in favor of one who has actually performed the obligations of another and thereby entitled himself to the rights and advantages incident to the discharge of such obligations.
    We do not claim to stand in a better position with a defective mortgage than with a valid mortgage with notice.
    The reasoning of Tolbert v. Horton, 31 Minn., 518; is directly in our favor.
    In Ohio the assignee makes it necessary. for the creditor to first obtain judgment and execution before setting aside the mortgage.
    
      Fox v. Wildes, 1 Mich., 321, decides that a mortgagee, to set aside a fraudulent conveyance under Ch. I, Tit. 6, part 2, Revised Statutes 1838, must first issue execution and levy on the property frauduently conveyed, that is, while he cannot set it aside as a mortgagee, hé may do so asa creditor, having first gone through the proper legal process. Southard v. Benner, 72 N. Y., 424; Jones v. Graham, 77 N. Y., 628.
    It is respectfully submitted that the plain interpretation of section 4150 limits the rights of the first mortgagee topreventingthe second mortgagee with notice from asserting his mortgage lien against the first mortgagee, but does not give him a right to the dividends of the general' creditor whose second mortgage has been declared void.
   Williams, J.

It is conceded by the plaintiff in error that both of his chattel mortgages, as well as that of the defendant in error, are void as against the assignee, because they were not filed as required by law. His contention is that, inasmuch as his mortgages were prior'to Henry’s, he is entitled to appropriate on the debt secured by them its pro rata share of so much of the fund as would' otherwise be applicable to the debt- due Henry. This would exclude the latter from participation in the fund. The grounds on which it • is sought to sustain this contention are, (1) that while the mortgages of the plaintiff in error are void as to the general, creditors of the mortgagor, they are good as against the subsequent mortgage made to Henry, because he had notice of their existence when his mortgage was received; and, (2) that, by so accepting his mortgage, the latter- impliedly agreed not to assert any claim to the property, or the fund arising, from its sale, until the two prior mortgages should be satisfied. Neither ground is tenable. If Henry were asserting- any claim under his mortgage, or if it were necessary to maintain the mortgage in order to establish his' right to share in the fund, that right might be subject to, or controlled by the relative positions and legal operation of the conflicting mortgages. But the mortgages all being void, both Henry and the plaintiff in error occupy the position of general or unsecured creditors, and each sustains that relation to the fund, and that only. The invalidity of their mortgages does not destroy the validity of the debts due them, nor affect their rights as general creditors; but as such, they stand upon an equality with each other, and with all unsecured creditors. The mode of distribution to such creditors by the assignee of the insolvent debtor, is regulated by law, which secures to each an equal pro rata share in the fund. The mortgages of Edwin Besuden being void, are none the less inoperative against Henry as a general creditor, than they are as against all other creditors of the same class, and are equally ineffectual to control the distribution to him, or diminish his right in the fund. His dividend accrues to him as a general creditor, independent of the mortgage, and not in virtue of it, and consequently, he is under no obligation to surrender it to Edwin who also shares in the fund as a general creditor simply, and takes nothing by virtue of his mortg-ag’e. Nor, did the mortgages give rise to an implied contract that Henry would surrender his dividend in the fund to Edwin. At most, the former was simply a second mortgagee, while the mortgages subsisted as liens. This would ordinarily be sufficient to enable the first mortgagee, as between the mortgages, to enforce the application of the property to the payment of his debt, leaving the surplus, if any, for the second mortgagee. This right arises by operation of law, from the relative positions of the mortgages, and not from any implied contract between the mortgagees, and extends no further than to secure priority of the first mortgage over the second where rights under them are involved. Rights of the second mortgagee which do not depend on his mortgage, or in the assertion of which the mortgage is not relied upon, are not affected by its subordinate relation to another mortgage on the same property. Unquestionably t'he second mortgagee may renounce or abandon his mortgage and sue on the debt; and, after judgment, levy execution on the mortgaged property. In such a ease he acquires the rights of an execution creditor, and the question of priority then becomes one between him as such creditor, and the prior mortgagee, unaffected by the fact that he had held a second mortgage; and if he thereby lawfully obtains a prior lien, he cannot be deprived of it upon any theory of implied agreement arising from the mortgage which had been previously made to him. Certainly there can be no implied agreement that he would not enforce collection of his debt by judgment and execution against any property of the debtor which could be lawfully reached by such process; nor does the law imply an agreement that he would relinquish or assign to a prior mortgagee the fruits of his proceeding, or of any that he might lawfully pursue. An assignment for the benefit of the creditors of an insolvent debtor is the equivalent, for the protection of their rights against prior mortgages, to the levy of executions on the property at the suit of each of the creditors, and operates as the seizure of the property by legal process in behalf of each and all of the creditors from the date of the assignment. Hence, if the mortgages are invalid as against execution creditors, they are so for all the purposes of the assignment, and as against all who were creditors at the time it took effect. They can have no influence whatever on the distribution of the fund arising from the sale of the assigned property. Both the plaintiff and defendant in error are therefore entitled to their respective dividends, as general creditors, in the fund here in controversy.

The cases cited by counsel for the plaintiff in error are not applicable to this question, but relate to priorities as between conflicting mortgages upon which the parties relied, and by which their rights were controlled.

Judgment affirmed.