Divver & Gunton v. McLaughlin

By the Court, Savage, Ch. 3.

There is less difficulty in laying down the rule of law in cases of this description, than in the proper application of it to the circumstances of each case. The possession of personal property by the vendor or mortgagor, inconsistent with the face of the deed, is prima facie evidence of fraud, but subject to explanation. In other words, such possession is, “ except in special cases and for special reasons, to be shewn to and approved of by the court, fraudulent and void as against creditors.” The mortgage in this case, after forfeiture without explanation, must be held fraudulent and void as against creditors. The only real question, therefore, is, whether the reasons shewn why the possession was not changed, are such as can be approved of by the court, under the special circumstances. The counsel for the defendant in error contends, that this is a question for the jury. Upon a conceded state of facts, fraud is a question of law. There is, in this case, no dispute about facts; it is a question for the court, therefore, to decide whether the mortgage was valid or void as against creditors. However honest the intentions of the parties may have been, their acts were such as, in my judgment, cannot be sustained against creditors of the mortgagor. The mortgage is for $800; whereas the indebtedness did not exceed $150, and was probably not over $ 100—the mortgagor did not know the amount; the mortgagee was security for the rent, but to what amount does not appear; and he was to make future advances, but how much does not appear. Nothing appears in this mortgage to shew that it was intended as a security for liabilities incurred, or advances to be made ; and it has been decided that a mortgage is no security for subsequent advances made on the strength of a paroi engagement. (1 Mer. 7. 2 Cowen, 293.) Under what circumstances a mortgage of chattels personal, to secure future advances expressed in the deed, would be valid, is a question not necessary now to be discussed. The mortgage, then, upon its execution, was void as against creditors, upon the principle just stated, for so much as was intended to cover responsibilities and advances. There are other circumstances in this case, which, in my *600 opinion, cannot be approved of by the court. 1. The deed itself gives a false account of the transactions it recites. It holds out that the plaintiff was a creditor of Stephens for $800, when in truth he was so for only $150. 2. The parties did not seem to know the state of accounts between them, till the levy was made on Divver’s execution. 3. Stephens’ whole stock in trade was mortgaged, and the mortgagor was permitted to sell it without rendering any account. This state of things continued after the mortgage became forfeited, from 1st January, 1825, till August, 1827, without any possession taken, or accounting of the parties, or any knowledge of these circumstances by any one, except by one person who drew, and by another who witnessed the mortgage.

In Paget v. Perchard, (1 Esp. 205,) a Mrs. Spencer, who kept a public house, gave the plaintiffs a bill of sale of her liquors, and all her effects and furniture, and an agent of the plaintiffs took possession, but permitted Mrs. S. to sell liquors that day without accounting for it. An execution was levied on the next day, and the bill of sale was held fraudulent. The case of Wordall v. Smith, (1 Campb. 332,) was very similar in its circumstances, and was decided in the same way. In the case of Benton v. Thornhill, (7 Taunt. 149,) the plaintiff’s agent took possession of the mortgaged property, and the mortgagor was permitted to sell some of it, and exercise other acts of ownership, but the sale was held valid, being shewn to be for a bona fide debt.

There are many cases in this country where mortgages of personal property were considered valid, though the possession remained in the mortgagor. But I have seen none like the present. The case of Bissell v. Hopkins goes as far as any in this court. There, however, there was an exact accounting between the parties, and a re-accounting but a few days before the levy; the claim of the mortgagee was publicly known, and the reason of leaving the mare in possession of the mortgagor was temporary, and to enable him to transact his business as a public officer; but in that case the mortgagor was not permitted to sell any of the articles mortgaged, and appropriate the money to his own use. There was no *601 secrecy ; no misrepresentation of the true state of the accounts between the parties.

It is very clear, and so it seems to have been understood at the trial in the court below, that the mortgage was void as to all the property except the standing casks. Is there any reason why the mortgage is good as to them, and not as to their contents 1 Surely the mortgagor had the same right to sell them, and take the money, that he had to sell the liquors ; and had he done so, the mortgagee could no more pursue them in the hands of a bona fide purchaser, than he could the 200 bushels of potatoes which were included in the mortgage, and which it was no doubt intended should be sold. A judgment creditor whose execution is levied, stands on similar ground with a bona fide purchaser, and has the same right to hold the property of his debtor.

To sanction a transaction like this, would open a door to frauds innumerable, and to an extent incalculable.

Judgment reversed. Venire de nova to N. Y. Com. Pleas.