Adams v. Young , 200 Mass. 588 ( 1909 )

Sheldon, J.

The plaintiff’s first exception, to the master’s ruling that the plaintiff was entitled to no relief against the defendant, was well taken as an abstract proposition. As stated in Clark v. Seagraves, 186 Mass. 430, 435, a master’s duty is to find the facts, and it is for the court to say upon these facts whether any and what relief should be given. But as all the facts are reported by the master, and the only question now raised is as to the rights of the plaintiff upon these facts, this exception becomes really immaterial and need not be considered.

The sale made by the Wheeler Company to the defendants was doubtless as to the stock of goods sold, though not as to the furniture and fixtures, within the inhibition of St. 1903, c. 415. If nothing more appeared, the plaintiff would have the right to avoid that sale so far as it covered the stock in trade and to hold the defendants for the value of that stock. Gallus v. Elmer, 193 Mass. 106.

But we are not to disregard the master’s finding that in making this sale both seller and purchasers acted in good faith and with no actual intent to defraud creditors, and that the purchasers are to be charged only with such fraud and such fraudulent intent as the failure to comply with the requirements of the statute necessarily implies. The effect of the statute is to make this non-compliance conclusive of fraud as to the creditors of the seller. Kelly-Buckley Co. v. Cohen, 195 Mass. 585. It creates a decisive badge of fraud, such as according to the decisions of some courts is found in the retention of possession by a seller after an absolute sale of property. Although the usual doctrine is that such retention of possession is merely an indication of an intent to defraud creditors, to be considered in connection with the other evidence, yet it has been held in some jurisdictions that the absence of a change of possession after a sale of personal property raises a conclusive presumption of fraud not to be overcome by evidence of the actual good faith of the parties. See for example Hull v. Sigsworth, 48 Conn. 258; Rozier v. Williams, 92 Ill. 187; Greenebaum v. Wheeler, 90 Ill. 296, 298; Foster v. Grigsby, 1 Bush, 86; Jarvis v. Davis, 14 B. Mon. 529; Wilson v. Hill, 17 Nev. 401; Ziegler v. Handrick, 106 Penn. St. 87; Mason v. Bond, 9 Leigh, 181; Weeks v. Prescott, 53 Vt. 57; Rothschild v. Rowe, 44 Vt. 389. But one whose purchase of property has for that reason been avoided by the creditors of the seller, being himself free from any actual fraud, may stand in the place of creditors whose demands he has paid out of the property or in consideration of the transfer to himself. Loos v. Wilkinson, 113 N. Y. 485. Robinson v. Stewart, 10 N. Y. 189. Pond v. Comstock, 20 Hun, 492. Butler v. White, 25 Minn. 432. Our own decision in Crowninshield v. Kittridge, 7 Met. 520, accords with this principle. So if he has paid off debts which constituted liens or incumbrances upon the property conveyed to him, he may for his protection and reimbursement take by subrogation the rights of the secured creditors whom he has thus paid. Cole v. Malcolm, 66 N. Y. 363. Rhead v. Hounson, 46 Mich. 243. Merrell v. Johnson, 96 Ill. 224. Selleck v. Phelps, 11 Wis. 380. Tompkins v. Sprout, 55 Cal. 31. If instead of a discharge he has taken an assignment of such a mortgage or other incumbrance, it will not be treated as merged, but will be upheld in his hands as a charge upon the property. Crosby v. Taylor, 15 Gray, 64. Mead v. Combs, 4 C. E. Green, 112. Phillips v. Chamberlain, 61 Miss. 740. Fordyce v. Hicks, 76 Iowa, 41. Smith v. Grimes, 43 Iowa, 356. So his bona fide purchase under a valid levy or other prior lien will give him a good title. Lamb v. Smith, 132 Mass. 574. Arrington v. Arrington, 102 N. C. 491. The merely constructive fraud of a purchaser will not prevent him from being protected in this manner, if he has not himself actively participated in the fraud. There are many cases to this effect. Loos v. Wilkinson, 113 N. Y. 485. Robinson v. Stewart, 10 N. Y. 189. King v. Wilcox, 11 Paige, 589. Levi v. Welsh, 18 Stew. (N. J.) 867. Newman v. Kirk, 18 Stew. (N. J.) 677. Sullivan v. Tinker, 140 Penn. St. 35. McCaskey v. Graff, 23 Penn. St. 321. Jackson v. Summerville, 13 Penn. St. 359. Gilbert v. Hoffman, 2 Watts, 66. Williamson v. Goodwyn, 9 Gratt. 503. Wallace v. McBride, 70 Mich. 596. Burton v. Gibson, 32 W. Va. 406. Cook v. Berlin Woolen Mill Co. 56 Wis. 643. Grant v. Lloyd, 12 Sm. & M. 191. First National Bank of Tuskaloosa v. Kennedy, 91 Ala. 470. Pritchett v. Jones, 87 Ala. 317.

The application of these principles is fatal to the maintenance of this bill. The defendants have the right to rest upon the mortgage of which they took an assignment. If it were necessary to pass upon that question, it would not be easy to avoid saying that they could rest also upon the mortgage which was paid and discharged. It was their money that paid the mortgage debts. The fact that the money passed through the hands of the mortgagor and the form of the transfer which the defendants took cannot overcome the real effect of the transaction.

Nor can the plaintiff maintain his bill to recover for the value of that part of the stock in trade which consisted of goods acquired by the mortgagor after the execution of the mortgages. Apart from the fact that the bill sets out no such claim, the master has not found that the mortgagor made any additions to his stock before the sale to the defendants, and the plaintiff does not appear to have asked for any finding upon that question. Moreover, the mortgage which was assigned to the defendants purported to cover after-acquired property and the defendants took possession of everything immediately after their purchase, on June 10, 1904, more than three months before the petition in bankruptcy was filed against the mortgagor. These facts gave them a good title to the after-acquired portion of the stock in trade, if there was any such portion. Wasserman v. McDonnell, 190 Mass. 326. Chase v. Denny, 130 Mass. 566. Blanchard v. Cooke, 144 Mass. 207, 225, 227. Bliss v. Crosier, 159 Mass. 498.

The plaintiff has no equity to require the defendants to resort' first for the payment of their mortgage to the furniture and fixtures, which are not available to the plaintiff. It does not appear what the value of the furniture and fixtures is; and the plaintiff could have no equitable rights until the mortgage debt due to the defendants was fully satisfied. Quackenbush v. O'Hare, 129 N. Y. 485. Taylor’s appeal, 81 Penn. St. 460. And this claim of the plaintiff rests upon the assumption that while the furniture and fixtures belong to the defendants, the stock in trade belongs in equity to the plaintiff.. We do not think that in the absence of controlling equities the defendants could be required to resort first to their own property to obtain payment of an indebtedness which is secured also by property of the plaintiff. Wilcox v. Fairhaven Bank, 7 Allen, 270. It is the general doctrine that the equitable rule of marshalling assets for the protection of a junior creditor by compelling a senior creditor to resort first to a fund or security which the junior creditor cannot reach, will be confined to cases where two or more persons are creditors of the same debtor, and have successive liens upon the same property, while the creditor prior in right has also other securities belonging to the same debtor not available to the holder of the junior lien. It will not be enforced to the detriment of the prior creditor. Carter v. Tanners Leather Co. 196 Mass. 163. Emmons v. Bradley, 56 Maine, 333. Benedict v. Benedict, 2 McCarter, 150. Lee v. Swepson, 76 Va. 173. Robinson v. Lehman, 72 Ala. 401, 404. Peery v. Elliott, 101 Va. 709.

The plaintiff has not sought to redeem the property from the mortgages held by the defendants, and has not argued that he can maintain his bill for that purpose. We need not consider whether this could be done. Bushnell v. Avery, 121 Mass. 148.

The decree of the Superior Court overruling the plaintiff’s exceptions to the master’s report, confirming that report and dismissing the bill with costs, must be affirmed.

So ordered.