U.S. Supreme Court
People's Savings Bank v. Bates, 120 U.S. 556 (1887)
People's Savings Bank v. Bates
Argued November 16-17, 1886
Decided March 7, 1887
120 U.S. 556
In Michigan, when a chattel mortgage is attacked as fraudulent against subsequent creditors or mortgagees in good faith by reason of the mortgagor's being permitted to remain in possession and to prosecute his business in the ordinary way, it is the province of the jury to determine whether such fraud is proved; but when the evidence is overwhelming and leaves no room for doubt as to what the fact is, the court may give the jury a peremptory instruction covering the issue.
In Michigan, a creditor at large cannot attack a chattel mortgage made by the debtor except through some judicial process whereby he acquires an interest in the property, as by levy of attachment or execution.
In Michigan, the mortgagee in a chattel mortgage given to secure a preexisting debt is not a "mortgagee in good faith" within the intent of the statute of that state which provides that every such mortgage
"which shall not be accompanied by an immediate delivery and followed by an actual and continued change of possession of the things mortgaged shall be absolutely void as against the creditors of the mortgagor and as against subsequent purchasers or mortgagees in good faith unless the mortgage, or a true copy thereof, shall be filed"
in the place or places indicated in the act.
The doctrine that the bona fide holder for value of negotiable paper, transferred as security for an antecedent debt merely, and without other circumstances, is unaffected by equities or defenses between prior parties of which he had no notice does not apply to instruments conveying real or personal property as security in consideration only of preexisting indebtedness.
This was an action of replevin involving conflicting claims under certain chattel mortgages executed by Freedman Bros. & Co., formerly merchants in the City of Detroit. The firm was composed of Merman Freedman, who managed its business in Detroit; Benjamin Freedman, who resided in Now York and had entire charge of the buying and of the firm's financial affairs in that city, and Rosa Freedman. At the beginning of the action, the mortgaged property was in the custody of Leopold Freud as agent of the People's Savings Bank, plaintiff in error. chanroblesvirtualawlibrary
Bates, Reed & Cooley, the defendants in error, who were the plaintiffs below, claim priority under a mortgage given by Freedman Bros. & Co., February 7, 1881, to secure both the past indebtedness of the latter, amounting to $45,000 and upwards for goods, wares, and merchandise sold and money loaned to them, and any future liabilities which might be incurred by the mortgagors for other goods purchased, or other moneys borrowed, from the mortgagees, the mortgage covering not only the goods, wares, merchandise, and other personal property then in the mortgagors' stores in Detroit, but also their notes, book accounts, and securities, and all future additions to or substitutions for such goods and merchandise. No part of said indebtedness was created at the time of the execution of the mortgage.
The People's Savings Bank claims under a mortgage made by Freedman Bros. & Co. on the 11th of February, 1881, to secure certain demand notes, aggregating $49,000, which were executed by that firm on the 7th day of February, 1881, and also "all other paper endorsed" by it and held by the bank, that mortgage covering all the goods and merchandise then in the mortgagors' stores, and all thereafter put into them. This last mortgage provided that Leopold Freud, the bank's agent, should take immediate possession and sell the goods in the ordinary course of business, applying the proceeds to said indebtedness until the same was paid. The said demand notes represented past indebtedness, for they were given in place of other paper of the mortgagors' then outstanding, and which had not then matured. Each demand note was accompanied by a cognovit or "confession of judgment," under which, however, no action was taken. The mortgage to the bank was the first one filed in the proper office in Detroit, though it was not lodged until after the bank had notice, through its agent, that Bates, Reed & Cooley claimed to be in possession of or to have rights in the mortgaged property. Whether the bank, before the mortgage to it was given, had actual notice of the prior mortgage to Bates, Reed & Cooley does not clearly appear.
By the statutes of Michigan relating to chattel mortgages, chanroblesvirtualawlibrary
it is provided that
"Every mortgage or conveyance intended to operate as a mortgage of goods and chattels which shall hereafter be made which shall not be accompanied by an immediate delivery and followed by an actual and continued change of possession of the things mortgaged shall be absolutely void as against the creditors of the mortgagor and as against subsequent purchasers or mortgagees in good faith unless the mortgage or a true copy thereof shall be filed in the office of the township clerk of the township, or city clerk of the city, or city recorder of cities having no officer known as city clerk, where the mortgagor resides, except when the mortgagor is a nonresident of the state, when the mortgage or a true copy thereof shall be filed in the office of the township clerk of the township, or city clerk of the city, or city recorder of cities having no officer known as city clerk, where the property is."
2 Howell's Annotated Statutes, pp. 1607, 1610, § 6193. chanroblesvirtualawlibrary