Case Name: Charles Root & Co. and J. K. Burnham & Co. v. John Harl, George W. Stevens, et al.
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1886-07-15
Citations: 62 Mich. 420
Docket Number: 
Parties: Charles Root & Co. and J. K. Burnham & Co. v. John Harl, George W. Stevens, et al.
Judges: Champlin and Sherwood, JJ., concurred. Morse, J., did not sit.
Reporter: Michigan Reports
Volume: 62
Pages: 420–423

Head Matter:
Charles Root & Co. and J. K. Burnham & Co. v. John Harl, George W. Stevens, et al.
Assignment for benefit of creditors — Honest mortgage not affected became made on preceding day — Exemptions—Debtors have right to use as-they see fit so far as creditors a/re concerned— Unrecorded mortgage — Creditors have right to avoid who have, during its absence from record, given new credits — Or definite extensions of time on old debts-—Or renewed notes or other obligations — On basis of non-existence of such mortgage — Eorpropei distribution of assigned property, as between general creditors and prior mortgagees, see page 423 of opinion.
1. An honest mortgage is not affected by its proximity to a general assignment. Boot v. Potter, 59 Mich. 506-7.
So held, where a debtor executed an indemnity mortgage the day before he made a general assignment for the benefit of his creditors.
2. Insolvent debtors have a right, as against their creditors, to use their statutory exemptions as they see fit.
So held, where an insolvent firm, after a general assignment, applied their exemptions on a prior chattel mortgage given toa creditor..
3. An insolvent firm made a general assignment for the benefit of their creditors, August 7,1883. On April 13, 1883, they had executed a. chattel mortgage to secure a creditor, who did not record same until July 16, 1883, and on August 6, 1883, they had executed an indemnity mortgage to another creditor. Neither mortgage was actually fraudulent, but during the interim between the execution- and filing of the first mortgage other creditors had given credits by sales, liens, and extensions to the mortgagors, in good faith.
Held, that the second mortgage had preference over the general creditors, but was subject to the first one, and that the general creditors, except those who had given credits as aforesaid, took subject to-both mortgages.
4. Under our statutes any creditors have the right to avoid an unrecorded' mortgage who have, during its absence from the record, done anything material which they may be fairly considered to have done on-the basis of its non-existence. It is admitted that new credits given are acts of this kind, and so are extensions of time on old debts for any definite period, and renewals of notes or other obligations.
Appeal from Ionia. (Smith, J.)
Argued June 29 and 30;. 1886.
Decided July 15, 1886.
Bill filed for appointment of receiver of assigned property. •Complainants appeal.
Decree reversed, and new one entered for distribution on basis of opinion.
Webster & Millard {Geo. 8. Hosmer, of counsel), for complainants.
A. A. Ellis and 8. V. R. Trowbridge, for defendants.

Opinion:
Campbell, C. J.
Complaiiiants are among the creditors •of Harl & Stevens, who assigned to Just & Clark, August 7, 1883.
Rumsey obtained a chattel mortgage on April 13, 1883, which he did not record until July 16, 1883, for $1,900.
French obtained an indemnity mortgage August 6, 1883, for $500. Neither of these mortgages was actually fraudulent. Between the date and recording of Rumsey's mortgage complainants and others gave credit to Harl & Stevens •by sales, loans, and extensions.
On the fourteenth of March, 1885, a decree was made, and never appealed from, whereby the Rumsey mortgage was declared fraudulent and void as to creditors whose debts were contracted during the interval between the date and record of that mortgage, and a reference was ordered for proofs on that subject.
The commissioner returned proofs, which appear to us regular, and which have not been set aside below, whereby it appears that complainants and several others sold goods, lent money, and took new notes, or gave extensions on former demands, during that interval. We think these claims well proved. The only questions are upon their standing for preference over the mortgage.
Upon final hearing the court,allowed such a preference to •a part of the claims for entirely new transactions, but rejected the preference as to all the rest. The property seems to have been sold, so that, practically, the order made was for distribution. Under this order $500 for exemptions •was allowed to diminish the amount of the. Rumsey mortgage to be affected by the intermediate claims. This was correct, as tlie debtors had a right, as against creditors, to deas they pleased with their exemptions.
We are unable to comprehend the precise effect of the-decree as actually drawn, as it appears to be either defective- or inconsistent. But as the main questions are readily-reached, it is not important to examine its present operation minutely.
The first question of importance presented is whether the French mortgage, which is spoken of as subject to the Bumsey mortgage, is to be swept away, or only postponed to that,.
We held in Root v. Potter, 59 Mich. 506-7, that an honest mortgage was not affected by its proximity to a general assignment. We have no doubt that French's mortgage is entitled to preference over the general creditors after the $1,900 covered by Bumsey's mortgage is deducted from the assets. But French could not be allowed to profit by the avoidance of Bumsey's mortgage, because it was good against French when his own mortgage was taken, and it does not concern him whether Bumsey keeps the amount secured, or is obliged to give it up to any one else.
The same reasoning applies to the general creditors, who have no ground for, attacking either of these mortgages'. So-far as they are concerned, both Bumsey and French would be entitled to payment in full, and therefore the funds for general distribution must be diminished to that extent.
We have no doubt that under our statutes any creditors-have a right to avoid an unrecorded mortgage who have,, during its absence from the record, done anything material which they may be fairly considered to have done on the-basis of its non-existence. It is admitted that new credits-given are acts of this kind. But so are, also, extensions of time on old debts for any definite period, and renewals of notes or other obligations. Such renewals and extensions-would be regarded as valuable considerations for new prom ises, and they would not be given by any prudent creditor if he knew his debtor was preferring some one else.
We think, therefore, that the decree of distribution should be framed on these principles: It should, after making allowance for expenses and charges out of the general fund, and not out of the preferred fund, direct the amount of $1,900, and interest from the date of the Kumsey mortgage, to be paid as follows : Five hundred dollars to Kumsey for exemptions; the remainder to be divided ratably between complainants and the other creditors whose claims were made or affected, as before mentioned, during that interval, so far as it will go. Next, the French mortgage to be paid in full, if the fund arising from the sale of the mortgaged property will suffice.
Lastly, for the balance due Kumsey on his mortgage, and for any balances due the complainants and the other partly-paid creditors, as aforesaid, they will participate ratably in the distribution of the residue.
In drawing the decree, the preferred amounts will all be fixed and declared, to prevent any future mistakes; and, unless agreed on, it will be settled in this Court according tO' this opinion. The costs of the appellants in this Court will be paid out of the fund.
The decree is reversed, and a new decree will be entered accordingly.
Champlin and Sherwood, JJ., concurred. Morse, J., did not sit.
For valuable cases settling vtm'ious questions involved in this branch< of the law, see Farwell v. Myers, 59 Mich. 170; Barnum W. & I. Works v. Speed, Id. 372; Kimball v. Cannon. Id. 290; Parsons v. Clark, Id. 414; Root v. Potter. Id. 498; Chipman v Kellogg, 60 Id. 439; Wilhelm v. Byles. Id. 561; Angell v. Packard, 61 Id. 564.