SINGER v. FARMERS STATE BANK OF GOODRIDGE

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Docket Number

No. 24,323.

Attorney(S)

J.M. Bishop, for appellant. Theo. Quale, for respondent.

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Smart Summary

Factual and Procedural Background

John Eidelbes owned certain chattels and gave a chattel mortgage on them to Joe Eidelbes, which was properly recorded. The mortgagor, John, remained in possession of the chattels and later engaged the defendant, Farmers State Bank of Goodridge, to conduct a public sale of the mortgaged property. The sale was conducted, and the defendant applied the proceeds to a note it held against John Eidelbes. The mortgagee, Joe Eidelbes, assigned his cause of action for conversion against the defendant to the plaintiff, Stephen Singer. The plaintiff brought an action for conversion in the district court of Pennington County seeking to recover the value of the mortgaged property sold by the defendant. The trial court entered judgment for the plaintiff in the amount of $92.50. The defendant appealed the judgment.

Legal Issues Presented

Whether a chattel mortgage where the mortgagor remains in possession is presumptively fraudulent as to creditors and purchasers of the mortgagor.
Whether the assignee of the mortgagee's cause of action for conversion must prove good faith in the execution and delivery of the chattel mortgage to prevail against a creditor of the mortgagor.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
First Nat. Bank of Beaver Creek v. Wiggins, 154 Minn. 84, 191 N.W. 264	Chattel mortgage with mortgagor in possession is presumptively fraudulent as to creditors and purchasers.	Supported the principle that the mortgage is presumptively fraudulent, placing the burden on plaintiff to prove good faith.
Hogan v. Atlantic Elev. Co., 66 Minn. 344, 69 N.W. 1	Same principle regarding presumption of fraud in chattel mortgages with possession retained by mortgagor.	Reinforced the presumption of fraud applicable to the mortgage in this case.
Hazlett v. Babcock, 64 Minn. 254, 66 N.W. 971	Chattel mortgage not presumptively fraudulent as to parties other than creditors and purchasers.	Distinguished the scope of the presumption, clarifying it does not apply universally.

Court's Reasoning and Analysis

The court reasoned that, under Minnesota General Statutes section 6966 (1913), a chattel mortgage where the mortgagor retains possession is presumptively fraudulent as to creditors and purchasers of the mortgagor. Because the defendant was a creditor of the mortgagor and the plaintiff was an assignee of the mortgagee's cause of action, the plaintiff bore the burden of proving the mortgage was executed and delivered in good faith. The plaintiff failed to meet this burden. Consequently, the court concluded that the judgment in favor of the plaintiff could not stand without such proof and ordered a new trial.

Holding and Implications

The court REVERSED the judgment entered in favor of the plaintiff and ordered a new trial due to the plaintiff's failure to prove good faith in the execution and delivery of the chattel mortgage.

The direct effect is to require the plaintiff, as assignee of the mortgagee's cause of action, to establish the mortgage's good faith to prevail against a creditor of the mortgagor. No new precedent was established beyond reaffirming existing principles regarding presumptive fraud in chattel mortgages where possession remains with the mortgagor.

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STEPHEN SINGER v. FARMERS STATE BANK OF GOODRIDGE. Reported in 201 N.W. 414.

When chattel mortgage is presumptively fraudulent as to creditors and purchasers of mortgagor.

A chattel mortgage, where the mortgagor remains in possession, is presumptively fradulent as to the creditors and purchasers of the mortgagor, and the assignee of the mortgage of a cause of action for the conversion of the chattels suing a creditor on such cause of action must prove good faith in the execution and delivery of the chattel mortgage before he can prevail.

WILSON, C.J.

Action for conversion. John Eidelbes was the owner of certain chattels. He gave a chattel mortgage to Joe Eidelbes which was promptly filed for record in the proper office. The mortgagor remained in possession and later employed the defendant to conduct for him a public sale of the chattels. The sale was had. Defendant collected the proceeds of the sale and applied them upon a note which it held against John Eidelbes. The mortgagor and the mortgagee were brothers. The mortgagee assigned his cause of action against defendant to plaintiff. The case was tried to the court without a jury. Defendant has appealed from the judgment entered in favor of the plaintiff. Defendant was a creditor of the mortgagor.

Under section 6966, G.S. 1913, a chattel mortgage, where the mortgagor remains in possession, is presumptively fraudulent as to the creditors and purchasers of the mortgagor. First Nat. Bank of Beaver Creek v. Wiggins, 154 Minn. 84, 191 N.W. 264; Hogan v. Atlantic Elev. Co. 66 Minn. 344, 69 N.W. 1. But not as to others. Hazlett v. Babcock, 64 Minn. 254, 66 N.W. 971. In this case the plaintiff made no effort to meet this burden which the law placed upon him. Before he can recover he must prove the execution and delivery of the mortgage in good faith. This failure on the part of plaintiff necessitates a new trial which is ordered.