Gay v. Bidwell

Campbell J.:

The complainant having endorsed two notes for the accommodation of John S. Bidwell & Son, which were past due and dishonored, received from them, through his attorney, a chattel mortgage conditioned to pay the notes, and any judgments and costs, so that Gay should suffer no loss expense or costs by reason of their non-payment at maturity. There was a further clause as follows: “But in case of judgments recovered on said notes, and execution issued thereon, damages interest and costs thereon shall not, during the life of the execution or executions, be fully paid, or if the said parties of the. first part shall sell and dispose of said goods and chattels otherwise than in the ordinary course of their usual business, or assign the same to secure the payment of their just debts, without preferring the said Gay before any and every other creditor or creditors, then,” &c. (closing in the usual form). This mortgage was given August 23d, 1856, and filed in the clerk’s office September 15th. On the same day an assignment was made to Ambler, preferring Gay on account of this debt. October 1st, attachments were levied, and the bill is filed to have the goods sold by a receiver, and that this debt may be first paid.

Those defendants who resist complainant’s demand claim that the mortgage was void, by reason of the alleged permission or right secured to the mortgagors, to sell and dis■pose of the goods, and of the fact that they continued for a time to do business, the goods being their stock in trade.

There is one case in Ohio (Collins v. Myers, 16 Ohio, *522 547) in which it is declared that where a mortgage expressly reserves or .grants a right to the mortgagor to continue selling goods, the mortgage is entirely inoperative for want of certainty. In that case it contemplated future goods, and so far there was an uncertainty. But so far as present property is concerned, we do not perceive upon what basis the doctrine is founded. A defeasible estate is none the less an estate, until defeated. As to future goods, there may be good reason for holding that they can not be claimed without some further act done before adverse rights intervene. But the New York eases, so far as they sanction the idea at all, that a variable mortgage is inoperative of itself, confine their language to future acquisitions.

These New York authorities attack such mortgages upon the ground of fraud, and not because they deem them inoperative at all events. And holding, as we do, that such a mortgage is at any rate an operative instrument between the parties, to convey the property, we now proceed to examine into the rights of the mortgagee, in the case before us, against the opposing creditors.

The first question is whether the mortgage was fraudulent in fact. We are satisfied it was not. The case shows, beyond doubt, the reality and ¡good faith of the debt secured, and the liability of the complainant on the paper, as well as its satisfaction by him. The statutory liability to lose the benefit of a mortgage not filed, might have arisen if any claims had intervened before filing. But the delay in filing was not fraudulent, and no adverse claims did intervene. The amount of the security was not excessive, and the evidence is satisfactory that the whole arrangement was honest and reasonable. The debt was a confidential one, but if it were not, a debtor may secure or prefer any debt he pleases.

Were, then, the facts such as to create a legal fraud, notwithstanding the actual good faith of the parties.

There are instruments which upon their face contain *523 provisions which can not be made to stand without unavoidably leading to fraud. Such instruments have been held void as to creditors by many courts, and we are not inclined in the present case to discuss the propriety of such holding. The instruments against which this interference has been most frequently invoked, have been general assignments by insolvent debtors. As the rules applying to these require an unreserved surrender of property, with no resulting benefits to the debtor until his debts are paid, the assignment, if these primary rules are plainly violated, can not be reconciled with fairness. Courts may differ as' to whether particular phrases have that necessary tendency, as the decisions in this state have shown; but the assignment can always receive some interpretation from which it will appear whether it absolutely excludes the idea of honesty or not. And it has always been a cardinal rule, never to infer a dishonest meaning, if an honest one is possible, and consistent with the whole tenor of the instrument. — Nye v. Van Husan, 6 Mich. 329.

The law does not impose any specific duty concerning ■the provisions of other securities. A debtor may secure or pay any creditor at his option, and may use any property he pleases for that purpose. There exist therefore very strong reasons applicable to the construction of assignments, which do not apply to other instruments. And, while we are not inclined to lay down any rule of absolute exclusion, we are satisfied that, outside of assignments, the cases proper for declaring the existence of fraud in law, which can not be explained or disproved, are not frequent. And when •Judge Mullett, in Griswold v. Sheldon, 4 Comst. 580 (after demonstrating.that all the presumptions raised upon a chattel mortgage are disputable, and not conclusive) asks “ how then can a chattel mortgage be void upon its face, unless it contains an admission that it was made to defraud creditors?” he puts a question not easily answered.

Our statute (which is the same as that of New York), *524 avoids all dispositions of property “made with the intent to hinder, delay, or defraud creditors;” hut it also provides that “the question of fraudulent intent” “shall be deemed a question of fact, and not of law.” In the case of Oliver v. Eaton, [ante p. 108] we endeavored to explain the design of this statute. It was plainly designed to allow no facts, upon which there was room for difference of opinion, to be taken from the jury; and to leave also to the jury the duty of drawing all necessary inferences from facts. See also Gardner v. McEwen, 19 N. Y. 123.

This case is perhaps as good a one as any other to illus-, trate the statute. How can any one, from the face of this mortgage, and without reference to extraneous facts, draw any conclusion whatever, concerning either its intent or its bearing upon creditors ? It would certainly be valid under any circumstances if there were no creditors. It does not appear from the mortgage that there were any. It would not injure other creditors if they were abundantly secured. It does not show they were not. It would not be void if they had authorized it. And many other cases might be suggested, showing that, without proof of external facts, there could be no conclusive presumption at all. And of all those outside facts the jury are sole arbiters under any theory. The cases in New York cited by the defendants, in 4 Comst., 5 Seld., 6 Duer., and 3 Kern., are subject to the criticism of undertaking to declare rules of law upon facts not on the face of the instrument. And we are not disposed to accept them as authority; not only because they are far from unanimous, but also because, while recognizing the authority of the case of Smith & Hoe v. Acker, 23 Wend. 625 (a case which has been approved repeatedly in this state) they seek to evade its force by drawing untenable distinctions. Mortgages which contain express permission to continue the business of the mortgagor, have been repeatedly maintained in Massachusetts and in Maine, Jones v. Huggeford, 3 Metc. 515; Barnard v. Eaton, 2 *525 Cush. 294; Codman v. Freeman, 3 Cush. 306; Mitchell v. Winslow, 2 Story 630; Abbott v. Goodwin, 20 Me. 408; Melody v. Chandler, 12 Me. 282; Stedman v. Vickery, 42 Me. 132.

No court has given any satisfactory reason why such a provision should necessarily vitiate a chattel mortgage, although it is undoubtedly liable to abuse.

The recording law enables all vigilant persons to ascertain the existence of such securities. Many small merchants, especially beginners in business, have no other means of securing their creditors for the stock they purchase, and can only meet their debts out of current sales. If any creditor is likely to be injured by allowing the debtor to dispose of the mortgaged property, it is rather the creditor whose security is thus cut down, than the one who has no claim upon the specific property. To hold that a merchant can not mortgage his goods without closing his doors, would be to hold that no mortgage of a merchant’s stock can be made at all. We can not so hold until the statutes declare a new rule.

It is undoubtedly true that frauds may be practiced under the protection of chattel mortgages, by reason of the difficulty attending creditors who can not levy upon a mortgaged stock. But, if other property subject to levy can not be found, a court of equity would find no difficulty in reaching the case. Any equitable interest can be thus reached, and, whatever may be the limits attached to the rights of a mortgagor of chattels, after a mortgagee has seized them (a question which need not be discussed here) there can be no doubt of the right to redeem at any time before the mortgagee has acted, and a court of equity may not only reach and prevent a fraud, but it will compel parties to have their claims marshaled or enforced so as to save 'the interests of all concerned. If justice fails there, it will ■be for want of proof, and not for want of power.

We have disposed of the case upon the hypothesis that *526 the mortgage was properly subject to the conditions alleged by the defendants. We have done so, in order to decide a question which is frequently appearing. But inasmuch as the mortgage in controversy was given to secure a debt already overdue, even if a permission may be inferred to carry on business until interrupted, there is nothing in the mortgage to prevent the immediate assumption of possession by the mortgagee. The permission to remain was therefore a mere matter of forbearance, and not of contract. And in the evidence before us, we find no proof that when the mortgage was made, the defendants were creditors. For want of proof of this kind the plaintiff, in Williston v. Jones, 6 Duer, 504, was nonsuited, and we think very properly. The case therefore is not even within the New York decisions. The decree must be affirmed with costs.

Martin Ch. J., and Christiancy J., concurred.