Deering v. Cobb

SymoNDS, J.

The clauses in the two mortgages under which the defendants as mortgagees claim to hold the stock of goods in question — to the effect that the mortgagors while remaining in possession may sell from the stock at retail, appropriating the proceeds to replenish the stock with new goods which are to be held subject to the mortgage — are so far valid between the parties to the mortgage as to vest in the mortgagees the title to goods so purchased and put into the shop in pursuance thereof. Allen v. Goodnow, 71 Maine, 420; Jones’ Chat. Mort., § 138.

This is the law in this state, at least since the decision cited, in cases to which the rule applies ; where there is a power to sell at retail, accompanied with a duty to use the proceeds of sale in buying other goods to supply the place of those sold. It cannot be said to be the uniform rule declared by the authorities, but there is a somewhat general recognition in them of the validity of such stipulations between the parties; while at law the general rule is that so long as the mortgagors remain in possession such clauses are void against attaching creditors and subsequent purchasers.' It is this latter class of cases which has been most frequently beforé the courts. Jones v. Richardson, 10 Met. 481 , is a leading case — and similar authorities are numerous and repeatedly cited. As to the effect of this stipula- *335 lion reserving to the mortgagee control of the proceeds of the property sold by the mortgagor, see also, Williams v. Briggs, 11 R. I. 476, 480. In comparatively few instances has attention been directed to this precise provision. The fact that after the dissolution of the firm this power to sell was exercised, and the duty to rc-invest was performed, by one of the partners alone, without interference by the mortgagees, instead of by the firm to which the power was originally given, has no tendency to discharge the lien upon the goods, to the purchase of which the proceeds of the original stock were so applied.

Under each of these mortgages, the mortgagees had the right to take possession at will. They had in fact exercised this right and taken possession before the insolvency of the mortgagor. At that date -without fraud they were in possession, under mortgages which had the legal effect to transfer to them, as against the mortgagor, the title to the property, the original stock and the substitutions by purchase with the proceeds. TTkcn it is considered that in the absence of fraud the assignee in insolvency takes only the property, rights and interests of the insolvent, it follows that under such circumstances the title of the mortgagees was not defeated, in the interest of the creditors generally, when the mortgagor was adjudged insolvent. There was neither actual fraud nor constructive fraud against the rights of creditors under the provisions of the act of insolvency. The mortgage debts are not denied. The mortgages were given in 187(3 and 1877 ; the insolvency was in 1879. The assignee took only the title of the insolvent, against whom the mortgagees held by superior title, so far as that class of goods which we are considering is concerned.

It seems, also, that when as in this case, a mortgage is effective between the parties as a transfer of title to property to be subsequently acquired by the use of the proceeds of the original stock, and the mortgage contains a power to the mortgagee to enter and take possession of such future property when acquired, possession taken and retained in the exercise of that power makes the mortgage effective, without any new act *336 of’ the mortgagor, against third persons claiming under him by later attachment or conveyance.

A proposition at least as strong as this is sustained in Jones’ Chat. Mort.j §§ 160, 167, by a full citation of authorities, English and American, which there is no occasion here to examine more minutely. Hope v. Hayley, 5 El. and Bl. 830; Moody v. Wright, 13 Met. 17 , 32; Cook v. Corthell, 11 R. I. 483; Walker v. Vaughn, 33 Conn. 577, 583 .

But in a more recent case in Massachusetts, which has been one of the states to hold most closely to common law dtoctrines in regard to mortgages of this kind, it has been held that "if the after-acquired property is taken by the mortgagee into his possession before the intervention of any rights of third persons, he holds it under a valid lien by the operation of the provision of the mortgage in regard to it. Such taking of possession, though effected immediately before insolvency proceedings were instituted, and with full knowledge of the insolvency of the mortgagor, would not be the acceptance of a preference, but the assertion of a right which had been previously acquired by the mortgagee under an instrument in writing made when the parties to it were both competent to contract, and when there was no qualification of the right of either to deal with the other.” Chase v. Denny, 130 Mass. 566 . The facts of that case resemble very closely those in the case at bar in material points.

The present case may be easily distinguished in almost all essential particulars from Griffith v. Douglass, 73 Maine, 532. There was no power of sale with the duty to invest 'the proceeds for the benefit of the mortgagee. It ivas a mortgage of the furniture " now owned or to be owned” by the mortgagor, without limitation to articles procured by the re-investment of the proceeds of an original stock authorized to be sold. The questions in that case, too, arose between the mortgagee and the attaching creditors of the mortgagor, not as here between the parties to the mortgage or their representatives; and lastly, in Griffith v. Douglass, the mortgagee, having accepted a formal delivery of the after-acquired property at the time of its *337 pnrcba.se, allowed it to remain in tbc possession of the mortgagor where it was attached by his creditors.

Whether under such a mortgage as that, and between those parties, possession of the after-purchased property taken and retained by the mortgagee in pursuance of an authority given by the mortgage would or would not have given the mortgagee superior title by force of the mortgage itself, is a question not decided by that case, nor is it hero presented for decision. Not only in regard to the possession of the property, but also in regard to the parties and to the terms of the mortgage, the facts of this case are more favorable to the claim of the mortgagees, than they were in Griffith v. Douglass.

These mortgages convey the original stock and the replen-ishings made by the use of proceeds derived from sales. They do not purport to convey any thing more. Under the stipulations of the report a nonsuit cannot be entered, for the statement that the purchases since the date of the mortgages have been "in the ordinary way of trade’’might include additions procured by other means than the investment of such proceeds. At the date of the demand by the messenger, Cobb was in possession by arrangement with Sweetsir acting for him as well as for himself. There is no want of evidence of conversion of any property to which the mortgagees did not have title. A default must therefore be entered entitling the plaintiff to nominal damages at least. At the hearing for the assessment of damages the plaintiff will be entitled to recover the value of all goods in the shop at the time of the demand, which were not parts of the stock at the date of one or the other mortgage, nor purchased by proceeds of sales, according to the terms of either.

Judgment for plaintiff. Assessment of damages at nisiprius.

ArrLETON, C. J., WaltoN, Babko ws, Vibgin and Pjsteks, JJ., concurred.