Cutler v. Huston/Opinion of the Court

A statute of Michigan provides 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 mortgage, 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 the city clerk, where the mortgagor resides.' How. Am. St. § 6193. The main question in the present case is whether Anna B. Huston, the defendant in error, is entitled as a creditor of one William Steele to the benefit of this act.

The facts of the case, under a stipulation of the parties, were found by the trial court, and sufficiently appear in the statement heretofore made. Some exceptions to those findings were taken and are pressed upon our attention, but they do not relate to the admission or rejection of evidence, nor is any failure alleged of the trial court to pass specifically upon any proposition submitted; and we are therefore bound to accept the facts as found, and are only to inquire whether they support the judgment. Norris v. Jackson, 9 Wall. 125.

On July 12, 1889, William Steele made and delivered to Dwight Cutler, defendant in error, a chattel mortgage covering a large amount of personal property, to secure certain notes and liabilities held and owned by Cutler and a bank of which he was president. Possession of the mortgaged property was not changed, and by an understanding of the parties the mortgage was not filed in the proper clerk's office until August 29, 1889. Between the time of the delivery and the filing of the mortgage, namely, on August 17, 1889, Anna B. Huston became, by assignment, in good faith and without any notice or knowledge of the mortgage, the owner of a promissory note given by Steele, on November 22, 1888, in the sum of $9,600, payable in one year from date, to the executors of Rigdon Huston's estate.

Two reasons areg iven for denying Mrs. Huston's right to assail the validity of Cutler's chattel mortgage.

It is said, in the first place, that she is not a bona fide creditor of Steele; that she gave nothing for the note; and that the note really belonged to her husband, Theodore Huston. This contention is sufficiently disposed of by referring to the findings of facts, wherein it is found that, in assigning the Steele note to Mrs. Huston, the executors acted in good faith and in the exercise of competent authority. In so finding we think the court below was clearly warranted by the evidence. It was not pretended that the note had not been given for a valuable consideration to the Huston estate, and with the action of the executors in assigning the note Cutler plainly had no concern.

Supposing that Mrs. Huston, as the assignee of the note, was a bona fide creditor of Steele, it is next objected that, as matter of law, she did not become such creditor, on August 17, 1889, within the meaning and intent of the statute of Michigan making chattel mortgages, not accompanied by change of possession, or not filed in the clerk's office, void as against other creditors of the mortgagor. It is claimed that the statute applies only to creditors who have become such during the interim between the making and the filing of the mortgage, or who have during such interim obtained a lien on the mortgaged property by levy of execution or attachment, or who have during such interim granted extensions or renewals of credit to the mortgagor; and that, as the note which was owned by Mrs. Huston had been issued by Steele before the making of the mortgage, it was not protected by the statute.

Of course, the construction put upon the statute by the courts of the state is to control the federal courts, in a case like the present, and we have accordingly examined with care the numerous Michigan cases cited by the parties respectively.

In Waite v. Mathews, 50 Mich. 392, 15 N. W. 524, it is said: 'It was distinctly intimated in Kohl v. Lynn, 34 Mich. 360, and Fearey v. Cummings, 41 Mich. 376, 1 N. W. 946, that in order to justify the application of the statute making mortgages, whether honest or not, absolutely void for want of possession or of filing, some act must be done, or some detriment sustained, during the interval; as against all such rights, a mortgage, without such possession or filing, is absolutely and not presumptively void.'

Root v. Harl, 62 Mich. 420, 29 N. W. 29, was a case where a chattel mortgage was given in good faith to secure a creditor, who delayed in filing it, and in the interval other creditors gave credits by the way of loans and extensions of payment. The court held the mortgage void, and said: '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 nonexistence.'

In Cutler v. Steele, 85 Mich. 627, 48 N. W. 631, where, at the suit of another creditor, this very mortgage was held invalid, it was said: 'We are therefore of opinion that the term 'creditors' used in the statute includes those who have entered into contracts with parties as indorsers, guarantors, or sureties. Such contracts in the commercial world are every-day transactions. It is impossible to believe the legislature did not enact this statute with a view to protect creditors against all those upon whose promises, whether principal or contingent, they had parted with valuable consideration.'

It is evident that, had the mortgage in question been filed of record on July 12, 1889, Theodore Huston would not, on August 17, 1889, have accepted the Steele note as part of his patrimony, nor have caused it to be assigned to the defendant in error.

Another objection urged is found in the fact that in the record of the original case of Huston v. Steele in the circuit court of the United States for the western district of Michigan it was not stated that Steele was a citizen of Michigan, and therefore it does not appear that the suit was between citizens of different states, and hence it is contended that the judgment obtained in that case could not be made the basis of an attachment against Cutler.

There are two answers to this position: One, that the proceedings in the present case contain averments that Anna B. Huston, the plaintiff, was a citizen of Illinois, and as such had obtained a judgment against William Steele as a citizen of Michigan, and this averment was not traversed, and hence must be deemed to have been conclusively established, and the defendant cannot be heard to raise such an objection for the first time in an appellate court; the other, that while said judgment remains unreversed it is not a nullity, and cannot be collaterally attacked. This was held in McCormick v. Sullivant, 10 Wheat. 192. That was a case where, to a bill brought in the circuit court of the United States to enforce a claim to real estate, the defendants filed a plea in bar to former proceedings in a United States court. To this there was a special replication alleging that the proceedings in such former suit were coram non judice, because the record did not show that the complainants and defendant in that suit were citizens of different states, and the court, through Mr. Justice Washington, said: 'This reason proceeds upon an incorrect view of the character and jurisdiction of the inferior courts of the United States. They are all of limited jurisdiction, but they are not, on that account, inferior courts, in the technical sense of those words, whose judgments, taken alone, are to be disregarded. If the jurisdiction be not alleged in the proceedings, their judgments and decrees are erroneous, and may, upon a writ of error or appeal, be reversed for that cause. But they are not absolute nullities.' Evers v. Watson, 157 U.S. 527, 15 Sup. Ct. 430. Accordingly the decree was held to be a valid bar of the subsequent suit.

In view, then, of the facts as found, and reading the statute of Michigan in the light of the decisions cited, we are of opinion that the court committed no error, and its judgment is affirmed.