Wylly-Gabbett Co. v. Williams

53 Fla. 872

• Court: Supreme Court of Florida
• Decided: January 15, 1907
• Status: Published

Opinion

Taylor, J.

(after stating the facts) : From the answers of the defendants in this cause and the testimony reported we are of the opinion that the complainants have failed to make out any case of actual fraud or fraudulent intent in the execution of the mortgage by the Wylly-Gabbett Company to George W. Owens, as trustee for the creditors named therein; on the contrary, we think that the case shown by the testimony is that the said instrument was made by the grantors therein in good faith to secure a large and hona, fide indebtedness due by them to their largest creditors, and for the purpose óf raising additional funds with which to pay off their other unsecured creditors and to enable them to carry on their extensive lumber and saiw-mill operations, with the object ultimately of paying all of their creditors in full. This being true the propriety of the decree appealed from depends upon the proper .solution of but two questions :

(A) Is the instrument executed by the Wylly-Gabbett Company to George W. Owens, trustee, under the circumstances in which it was made, either in fact or in law an assignment for the benefit of the creditors of said Wylly-Gabbett Company, or is it to be held and treated merely as a mortgage security to the creditors named therein?

(B) If it is construed to be merely a mortgage securing the claims of the creditors named therein, did the Wylly-Gabbett Company at the time and under the circumstances in which it was executed, even admitting that they were then in an insolvent condition, have the legad right thus to secure certain of their creditors, to the exclusion of others, by a mortgage upon substantially all of their property?

Section 2307 of the Revised Statutes of Florida of 1892, provides that “no assignment made for the benefit of creditors shall be valid in this state, except the same shall be made in writing and shall provide for an equal distribution of all the assignor’s real and personal property, except such as is exempted by law from forced sale, among the several creditors of the said assignor in equal proportion to their respective demands.”

It is clear that if the instrument under discussion is construed to be in legal effect and assignment for the benefit of creditors then it is voidYmder the provisions-of this statute because of its attempted preference of certain creditor to the exclusion of others. The purposes of this statute being to prevent the preferment of any creditor in an assignment made by a debtor for the benefit of his creditors. But should this instrument be construed to be in. legal effect an assignment for the benefit of creditors?

Section 2126 of the Code of Alabama of 1876, provides as follows: “Every general assignment, made by a debtor, by which a preference -or priority of payment is given one or more creditors, over the remaining creditors of the grantor, shall be and enure to the benefit of all the creditors of the grantor equally.” The courts of Alabama in construing this statute held in effect that where the conveyance or transfer is of all, or substantially all, of the debtor’s property, regardless of the form of the instrument by which it is made, whether in form of a mortgage or deed of trust, it falls within the purview of this statute, and will be held to be a general, assignment for the benefit of creditors, and that the preferences or priorities for which it provides will be held •to be nugatory, and will enure under the statute for the benefit of all the creditors equally in proportion to their respective claims, whether named in the instrument or not. Danner v. Brewer, 69 Ala. 191, and numerous Alabama cases there cited. And the decisions of that state are to the effect that a debtor cannot in the presence of their statute, secure a debt due to one creditor by a mortgage of all or substantially all of his property, to the exclusion of other creditors. That in such event the mortgage will be construed and held to be a general assignment for the benefit of creditors, and, under the statute, will be held to enure to the benefit of all the creditors generally in equal proportion. Such also seems to be the rule in North Carolina. Bank v. Gilmer, 116 N. C. 684, 22 S. E. Rep. 2. and in Ohio it is held that under their statute where a mortgage is given by a debtor, in contemplation of insolvency, it will be treated as an assignment enuring to the benefit of all the creditors of the mortgagor in equal proportion to their respective claims. Pendery v. Allen, 50 Ohio St. 121. This court also in Armstrong, Cator & Co. v. Holland, 35 Fla. 160, 17 South. Rep. 366, has held that when an insolvent debtor has determined upon an assignment of his property under the statute for the benefit of his creditors,'• and in pursuance of such determination first secures one creditor by giving him a mortgage on property subject to assignment, and then executes an assignment of the-same property for the benefit of all his creditors, both instruments will be considered as parts of one transaction, and if an equal distribution of the property among all the creditors is not thereby secured, it will be in violation of the statute and a fraud upon creditors.

The contention of counsel for the appellees is that the same construction put. upon their statute regulating assignments by the Alabama courts should be placed here upon our Florida statute on the sajne subject.^ That is, that where an insolvent debtor, or one in embarrassed circumstances, in good faith executes a mortgage upon substantially all of his property to secure the payment of a bona fide debt due to one or more of his creditors to the exclusion of others, that it is ipso facto an assignment for the benefit of his creditors with attempted preferences, and therefore void under out statute regulating assignments, and a fraud upon the unsecured creditors, whether the debtor at the time of its execution contemplated or had determined upon a general assignment for the benefit of his creditors- or not, or whether he in good faith retained the full possession and control of the mortgaged property .subsequently to the execution of the mortgage and with it or out of its proceeds in good faith hoped, expected and intended to work out, earn, realize and pay his indebtedness or not. We cannot follow the Alabama courts to this length, and for reasons founded in a sound public policy. If a man owning large and valuable properties,' but embarrassed for available cash, cannot make a bona fide mortgage upon the whole of it for the purpose of raising ready cash to pay debts, to carry forward business enterprises, or perhaps, to put the property mortgaged in profit yielding shape, or salable condition, without being held to have made an absolute assignment of it for the benefit of creditors; such a rule would in many, instances block the wheels of honorable business endeavor, and would go far towards damming up the current of commercial enterprise in all the occupations, trades and callings of life. We do not think that our statute on the subject of assignments for the benefit of creditors was exacted with any such intention, or that its design was to impose a rule so harsh and detrimental to the business interests of the country. We agree with that greater weight of authority which holds that even an insolvent debtor may in good faith mortgage the whole of his property to secure the payment of one or more tona fide debts due to preferred creditors, and that such a mortgage is not void as being an assignment for the benefit of creditors attempting preferences, if at the time it is made the debtor in good faith intended it to be only a security for the debt therein provided for, and had no design or intention at the time 'of thereby absolutely surrendering the dominion, control and ownership over the property, or of making a general assignment for the benefit of his creditors generally. Fromme v. Jones, 13 Iowa 474; Hudson v. Eisenmayer & Elevator Co., 79 Tex. 401, 15 S. W. Rep. 385; Stiles v. Hill, Fontaine & Co., 62 Tex. 429; Laird v. Weiss, 85 Tex. 93, 23 S. W. Rep. 864; Sandwich Manufg. v. Max, 5 South. Dak. 125, 58 N. W. Rep. 14, 24 L. R. A. 524; Warner v. Littlefield, 89 Mich. 329, 50 N. W. Rep. 721; Collins v. Sanger, 8 Tex. Civ. App. 69, 27 S. W. Rep. 500; Ingram v. Osborn, 70 Wis. 184, 35 N. W. Rep. 304; Bennett v. Wolverton, 24 Kan. 284. In Robson v. Tomplinson, 54 Ark. 229, 15 S. W. Rep. 456, it is said: “The instrument relied upon * * * is in form a mortgage, and not an assignment for the benefit of creditors. The presumption, until overcome by proof, is that the parties intended it to have the effect the law gives to a mortgage; that is, that it should stand as security for a debt. The fact that it provides that the mortgagor should surrender immediate possession to the trustee for the mortgagee does not convert it into an assignment. To accomplish that result, it must be shown that it was the intention of the parties that the debtor should be divested, not only of his control over the property, but also of his title. * * * If the equity of redemption remains in the debtor, his title is not divested, and an absolute appropriation of the property is not made. In arriving at the intent of the parties, therefore, the question is not whether the debtor intended to avail himself of the equity of redemption by payment of the debt, but, was it the intention to reserve the equity ? If so the instrument is a mortgage, and not an assignment.” To the same effect is Warner v. Littlefield, 89 Mich. 329, 50 N. W. Rep. 721,supra; Crow v. Beardsley, 68 Mo. 435; Lawrence v. Neff, 41 Cal. 566. See especially the opinion of Mr. Justice Field in Danna v. Stanfords and Deitz, 10 Cal. 269; Griffin v. Rogers, 38 Pa. St. 382. See the very similar case to the one tinder discussion of Austin v. Sprague Manufacturing Co., 14 R. I. 464. In the case of Walker v. Rose, 150 Ill. 50, 36 N. E. Rep. 986, it is said: “An absolute conveyance made directly to the creditor in payment, or any form of lien given as security for the payment, of a tona fide debt, though having the effect to give the creditor a preference, is not an assignment for the benefit of creditors, within the meaning of the statute. Wherever such instruments have been held void under section 13 of the assignment act, it has been upon the ground that, having been made in contemplation of an assignment in trust, afterward actually executed, they were deemed a part of it. The statute does not contemplate a constructive assignment.” Such was the case In Armstrong, Cator & Co. v. Holland, supra. It is said further in the Illinois case, supra: “A debtor, solvent or insolvent, notwithstanding the statute relating to voluntary assignments, may lawfully transfer any part or the whole of his property in payment, or incumber it by mortgage, deed of trust in the nature of a mortgage, judgment confessed, or pledge, as security for the paynient of such debts preferred.. By selling or mortgaging his property directly to his creditors, the debtor exercises a clear, legal right. His right, by such means, to prefer some creditors to others, is not affected by the statute.” Preston v. Spaulding, 120 Ill. 208, 10 N. E. Rep. 903; Verner v. McGhee, 26 S. C. 248, 2 S. E. Rep. 113; Magovern v. Richard, 27 S. C. 272, 3 S. E. Rep. 340; Cribb v. Hibbard, Spencer, Bartlett & Co., 77 Wis. 199, 46 N. W. Rep. 168; McBroom & Wood’s Appeal, 44 Pa. St. 92; Jaffrey v. Mathews, 120 Mo. 317, 25 S. W. Rep. 187; Gage v. Chesebro, 49 Wis. 486, 5 N. W. Rep. 881; Campbell v. Colorado Coal & Iron Co., 9 Colo. 60, 10 Pac. Rep. 248; May v. Tenney, 148 U. S. 60, 13 Sup. Ct. Rep. 491; Younkin v. Collier, 47 Fed. Rep. 571; Watterman v. Silverberg, 67 Tex. 100, 2 S. W. Rep. 578; Southern White Lead Co. v. Haas. 73 Iowa 399, 33 N. W. Rep. 657; 35 N. W. Rep. 494. In the case of Caldwell’s Bank v. Crittenden, 66 Iowa 237, 23 N. W. Rep. 646, the test as to when an instrument is to be considered a mortgage or as an assignment for the benefit of creditors is tersely laid down as follows: “Whether or not a disposition of property is to be regarded as an assignment for the benefit of creditors, or as a mortgage, is to be determined from the intention of the parties. If the conveyance is to a trustee, and the debtor intends to divest himself, not only of the title to the property, but of all control over it — if it is intended as an absolute conveyance of all his property, and is made for the purpose of securing a distribution of its proceeds among his creditors, or a portion of them — in legal effect it is an assignment for the benefit of creditors, no matter what name or designation the parties may give it. On the other hand, if the intention of the debtor is merely to secure his debt to one or more of his creditors, and the conveyance is not intended as an absolute disposition of his property, but he reserves to himself a right therein, the conveyancce will be treated as a mortgage, even though the debtor is insolvent at the time, and it cover's all his property, and but a portion of his debts are secured by it.” Kohn v. Clement, 58 Iowa 589, 12 N. W. Rep. 550; Farwell v. Howard, 26 Iowa 381. If, however, the debtor, in contemplation of his insolvency, and with a design to evade or defeat the statute forbidding preferences in volutary assignments for the benefit of creditors, executes any manner or form of instrument to effect such forbidden preference, thereby making an absolute disposition of his property, it will be held to be a fraud upon the rest of his creditors and void, as was held in Armstrong, Cator & Co. v. Holland, supra.

Section 1981 Florida Revised Statutes of 1892, declares that: “All deeds of conveyance, obligations conditional or defeasible, bills of sale or other instruments of writing conveying or selling property, either real or personal, for the purpose, or with the intention of securing the payment of money, whether such instruments be from the debtor-to the creditor, or from the debtor to some third person in trust for the creditor, shall be deemed and held mortgages, and shall be subject to the same rules of foreclosure and to the same regulations, restraints and forms as are prescribed in relation to mortgages.” Even without this explicit statute on the subject, we think it is clear on its face that the instrument under discussion executed by the Wylly-Gabbett Company to George W. Owens is a mortgage, but in, the presence of the quoted statute there can be no doubt that it is a mortgage, giving only a specific lien on the property therin described, even though it has no express defeasance clause. In the case of Cooper v. Brock, 41 Mich. 488, 2 N. W. Rep. 660, it is held that: “An instrument must be considered a mortgage if, taken alone or in connection with surrounding facts, it appears to have been given as a security; the mere absence of terms of defeasance cannot determine whether it is a mortgage or not.” This utterance of the Michigan court is particularly applicable in Florida under our statute quoted above as to what shall be deemed to be mortgages. This statute declares that all “deeds; obligations conditions or defeasible, bills of sale or other instruments of writing conveying -or selling property either real or personal for the purpose or with the intention of securing the payment of money * * * shall be deemed and held mortgages.” A deed or bill of sale has no clause or terms of defeasance, and yet if they can be shown to have been given for the purpose or with the intention of securing the payment of money they must, under this statute, be deemed and held to be mortgages, and this purpose or intention in their execution may be established by parol, as has been repeatedly held in this court. Chaires v. Brady, 10 Fla. 133; Shear v. Robinson; 18 Fla. 379; Franklin v. Ayer, 22 Fla. 654; Walls v. Endel, 20 Fla. 86; First Nat. Bank of Fla. v. Ashmead, 23 Fla. 379; National Bank of Texas v. Lovenburg, 63 Tex. 506; DeBartlett v. DeWilson, 52 Fla. 497, 42 South. Rep. 189.

There is nothing in the proofs to indicate otherwise than that this mortgage was executed in good faith for the honest purpose of securing the creditors therein provided for iñ the payment of tona fide detts then due them and to secure them in further advances of money then made ,or thereafter to be made, by them to the mortgagors to enable.them to carry forward their saw mill and lumber operations, and to enable them to pay off other unsecured debts. Neither do we think that there is anything in the proofs, -or on the face of the mortgage itself, to indicate that at the -time of its execution it was done with any intention, wish or design to hinder, delay, defeat or defraud any other creditor jn the collection of any claim against the mortgagors. Neither do we think from the proofs that the mortgagors had any intention or design at the time of the execution of this mortgage of making an absolute disposition of their property for the benefit of either the secured creditors or of their creditors generally, or of evading -or defeating the statute forbidding preferences in a general assignment for the benefit of creditors. On the contrary the proofs show that for nine months after the execution of the mortgage they retained possession and control of the mortgaged properties and endeavored during that time to work with and out of it the funds with which to pay their debts. The mortgage contains a clause attempting to empower the trustee therein named to take possession of tjhe property and to sell it, &c., upon any default in the payment of interest, principal, &c. Under our statute section 1982 of 1892, which provides as follows: “A mortgage shall be held to be a .specific lien on the property therein described, and not a conveyance of the legal title or of the right of possession,” this provision in the mortgage is nugatory, but does not vitiate the mortgage, and should be disregarded. Thompson v. Marshall, 21 Ore. 171, 27 Pac. Rep. 957. The mortgage contains- a provision authorizing the mortgagor “at any time before default, without the consent of the trustee, to sell 'or otherwise dispose of any of the mortgaged property which may become worn or damaged or otherwise unsuitable to be used in the conduct of its business, provided that property equivalent in value to the property thus sold or disposed of be substituted therefor, which substituted property shall immediately become subject t6 the lien and provisions of this instrument; provided that the company shall not, without the trustee’s consent, sell or dispose of at any one time property exceeding in value the sum of $1,000.” It is contended for the appellees that this provision vitiates the mortgage, and renders it fraudulent and void as to creditors.

It must bé borne in mind that the business of this corporate mortgagor was that of manufacturing lumber ■with saw mills and other machinery from the timber oh a large area of land, and in connection therewith operating a railroad for transporting both logs and manufactured lumber, and that the mortgage covered all of this property besides numerous mules, horses, timber carts and other appliances used in the conduct of such an enterprise. All of this property including the live stock, from the very nature of the business, was subject to weajr and tear and to become useless in the business, and constantly required replacement. Under these circumstances, the supreme court of Maryland in the case of Butler v. Rahm, 46 Md. 541, aptly answers this contention of the appellees in the following language: “However suspicious the. power here given might be in the case of a mortgage of ordinary goods, the very nature of its business, the means and power necessary to keep it up, the wear and tear of its iron, ties and rolling stock, the constant necessity of replacing injured or wornout appurtenances with newy forbade the interference of a fraudulent purpose which might arise from such a provision under other circumstances.” Coopers & Clark v. Wolf, 15 Ohio St. 523.

From the authorities cited our conclusion is that the instrument in question is not an assignment for the benfit of creditors either in fact or in its legal effect, but that it is a mortgage merely, and that the corporate mortgagor had the power and right to make it under the circumstances in which it appears to have been made, and that it has not been shown by the proofs to be either an actual or constructive fraud upon the other creditors of the mortgagor not provided for therein, and that it is a valid subsisting lien upon all of the properties covered thereby, having legal priority over the claims of the other creditors, appellees herein, not provided for therein. It follows that the decree of the court below appealed from herein must be and is hereby reversed, with directions to enter a decree dismissing the bill of complaint of the appellees, and making such disposition of the property involved or of its proceeds as that it shall be applied to the payment of the respective claims specifically secured by said mortgage pro rata, in proportion to their respective amounts, until such secured claims are paid in full. The costs of this appeal to be taxed against the appellees.

Hooker and Parkhtll concur; Shackleford, C. J., and Whitfield, J., concur in the opinion. Cockrell, J., disqualified.