Court Opinion

ID: 7969650
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:53:57.742333+00
Date Added: 2024-06-11T16:34:44.344478
License: Public Domain

CANTY, J.
(dissenting). I cannot concur in the foregoing opinion. In 1881, Seymour, Sabin & Co., a corporation organized under the laws of this state, was insolvent, and McKusick, one of its creditors, commenced the original action against it under G. S. 1878, c. 76 (G. S. 1891, §§ 5889-5911), to have a receiver appointed, its assets sequestered, and their proceeds distributed among its creditors. A receiver was appointed, and, pursuant to an order of the court requiring the other creditors to present their claims and become parties to the action, the appellant bank filed its claims, and became a party. The matter dragged along until 1891, when a trial was had on the claim before the court without a jury, and from an order disallowing the claim the bank appeals.
The appellant claims on three promissory notes aggregating $11,000 and interest, made to it by Seymour, Sabin & Co. The defense is that appellant held, as collateral security for the payment of these notes, 360 shares of the special preferred stock of Seymour, Sabin & Co., of the aggregate face value of $19,000, the payment or redemption of which stock was guarantied by the Northwestern Manufacturing & Car Company, another corporation; that this stock was concerted by appellant, and was of greater value than the amount of appellant’s claim. This the court below found to be true. Two days after this suit was commenced, a similar suit was commenced against *367the Car Company, and a receiver was appointed for it also. Thereafter, in February, 1885, appellant transferred and delivered such collateral so held by it to the Minnesota Thresher Manufacturing Company, a corporation then lately organized, and in consideration thereof received from the latter corporation its special preferred stock to the amount of $19,250. This is the transaction which the court finds to-be a conversion of the collateral.
Appellant contends that this exchange of stock was not a conversion, because the Seymour, Sabin & Co. stock was issued part in the name of one Seymour and part in the name of one Williams, and on the back of the Seymour certificates, as introduced in evidence, there appears the written transfer of Seymour to the Thresher Company, and with the Williams certificates appears his written power of attorney-authorizing appellant to transfer his stock to the Thresher' Company. I cannot agree with appellant.
It sufficiently appears from the evidence and admissions in the record that neither of these transfers of Seymour, nor this power of attorney from Williams, were made as a part of the original transaction of putting up this stock as collateral, but were all made after-wards. But conceding, for the purpose of the argument, that, as-appellant contends, and the majority holds, the record shows that Seymour and Williams are the owners of this stock, subject to the rights of the appellant bank, it does not follow that the consent of Seymour and Williams alone was sufficient to prevent the transaction from being a conversion of the collateral as to the other creditors of Seymour, Sabin & Co. It nowhere appears that Seymour and Williams, or either of them, put up this stock as collateral security without any consideration running to them, and for the mere accommodation of Seymour, Sabin & Co. No such suggestion or claim is made anywhere in the record. For all that appears, this stock may be the primary fund out of which the claim of appellant should be paid.
In the condition of this record it cannot be presumed that this stock was such a mere accommodation surety. When the latter corporation became insolvent, and its assets were sequestered by the court, an equity arose in favor of its other creditors that appellant should' exhaust its collateral security or surrender it to the receiver before participating in the fund in court. This equity could not be defeated, evaded, or modified by the independent action of the appellant and. *368Seymour and Williams. When the insolvent estate is thus sequestered, this equity becomes a fixed right, which cannot be defeated by the secured creditor releasing the security without the consent of the •other creditors. If he cannot release it, he cannot barter it off for something else, without being liable to be charged by the other creditors with conversion, when he comes to participate in the common fund in court. Then, as to such other creditors, appellant was guilty oí converting the collateral.
The majority hold that we must presume that this collateral was mere accommodation security. The effect of such decision will be that in every case where an insolvent estate is being administered in court for the benefit of all the creditors, a creditor holding collateral security may come in and participate in the fund equally with the unsecured creditors for the whole amount of his claim, though he has converted the security, or still holds it unexhausted, unless the other creditors are able to prove affirmatively that such collateral security was not put up by the third party owning the same, or the third party in whose name it was issued, as mere accommodation security, and without any consideration running to him. I cannot consent to such a shifting of the burden of proof on to the general creditors, who are total strangers to the whole transaction, and are not presumed to have knowledge of the facts. If the appellant bank desired to justify its conversion,- or apparent conversion, of the collateral, the burden was on it to show that such collateral was such mere accommodation security.
The majority seem to lay stress on the indefiniteness of the issues, and the failure of the receiver in his answer to set up the defense of conversion. It was not necessary for the receiver, or any one else in the case, to answer or reply to appellant’s pleading at all, but his claim stood denied by all other parties. See Pioneer Fuel Co. v. St. Peter St. Imp. Co., 64 Minn. 886, 67 N. W. 217.