Place v. Langworthy

By the Court, Oole, J.

Tbe respondents derive title to tbe stock of groceries and provisions in controversy, under tbe chattel mortgage given by James Harsbaw, on tbe 6tb day of January, 1859. Tbe controlling question in tbe case is as to tbe effect and validity of that mortgage. Tbe counsel for tbe appellant contends that tbe mortgage is fraudulent and void on its face on account of tbe provision therein contained that Harsbaw might retain possession of tbe stock of goods, and trade with and sell them in tbe ordinary and regular order of retail trade, applying tbe proceeds of tbe sale, after deducting therefrom all necessary store and business expenses, and tbe expenses for tbe support of himself and family, to tbe payment of tbe mortgage debt, so fast as such proceeds should come into bis bands in money or otherwise. It is insisted that this provision in tbe mortgage renders tbe instrument fraudulent and void on its face, so far as tbe creditors of Harsbaw are concerned. This view of that provision in tbe mortgage, we are disposed to adopt as tbe most satisfactory result at which we can arrive.

It must be admitted that tbe authorities are far from harmonious upon tbe question as to tbe effect of analogous provisions in chattel mortgages, when tbe mortgagor is authorized to retain possession of tbe goods mortgaged, and to make sales of such property in tbe ordinary course of business — some bolding such stipulations illegal, and to be conclusive evidence of fraud, while others consider them only as badges of fraud, which may be explained and reconciled with an honest and fair intent to tbe satisfaction of a jury. It is idle to attempt to reconcile these cases by any course of reasoning or upon any principle of law. Tbe following are some of tbe cases where a stipulation in a mortgage, permitting tbe mortgagor to retain possession of a stock of goods, and to make purchases from time to time, and to sell off in tbe ordinary manner, were held to be only prima fade evi- *632 deuce of fraud, wbicb might be rebutted by circumstances showing that the transaction was fair and honest. Briggs vs. Parkman, 2 Met., 258 ; Jones vs. Huggeford, 3 id., 515; Barnard vs. Eaton, 2 Cush., 294 ; Abbott vs. Goodwin, 20 Me., 408; Oliver vs. Eaton, 7 Mich., 108 ; Gay vs. Bidwell, id., 519.

The doctrine, I understand, is disapproved of in the following authorities, which hold that such a provision in a chattel mortgage in a stock of goods vitiates the instrument and renders it void in law. Divver vs. McLaughlin, 2 Wend., 596 ; Wood vs. Lowry, 17 id., 492; Griswold vs. Sheldon, 4 Coms., 580 Gardner vs. McEwen, 19 N. Y., 123 ; Collins and McElroy vs. Myers, 16 Ohio, 547; Freeman vs. Rawson, 5 Ohio State R., 1; Harman vs. Abbey, 7 id., 218 ; Jordan vs. Turner, 3 Blackf., 309 . While such provisions in assignments for the benefit of creditors have generally b een held to render such assignments void as to creditors. Brooks vs. Wimer, 20 Mo., 503 ; Walter vs. Wimer, 24 id., 63; Stanley vs. Bunce, 27 id., 269: Billingsley vs. Bunce, 28 id., 547 Davis vs. Ransom, 18 Ill., 396 .

We are not .aware that the supreme court of this state has ever had occasion to consider and pass upon the validity of a chattel mortgage, when the mortgagor was expressly authorized by the terms of the instrument to retain possession of the goods mortgaged — to sell the same in the ordinary course of business, and after paying the store and business expenses, and the expenses necessary to support himself and family out of the proceeds, then to apply the balance of such proceeds to the discharge of the mortgage debt. No such question was presented for adjudication in the case of Cotton et al. vs. Frear et al., 3 Wis., 221 , and of course was not decided. We are therefore unembarrassed so far as the decisions of our own courts are concerned, and are at liberty to adopt that rule on the subject which seems to us most safe, reasonable and proper. And we have therefore no hesitation in saying, notwithstanding the respectable authorities to the contrary, that a clause in a mortgage like the one under consideration, which expressly authorized the mortgagor to retain possession of the mortgaged goods, and to deal with *633 and dispose of them in the ordinary and regular course of retail trade, paying out of the proceeds of the sales all store and business expenses, together with all expenses for the support of the mortgagor and his family for an indefinite period^ so long as the excess, if any there was, was deposited to the credit of the mortgagees, is a provision directly calculated, in our judgment, to hinder, delay and defraud creditors, and therefore is strictly within the spirit of the statute of frauds. When the nature and character of a chattel mortgage is considered, there seems to be something incongruous and unnatural in the idea that it could attach to such variable and mobile elements as a stock of groceries and provisions, where the possession and power of disposition and of replenishing the stock remain with the mortgagor, and where the security cannot accurately be said to be a specific lien upon any particular property, but in the forcible language of Judge Bead, as used in the case of Collins vs. Myers, supra, “ the mortgage becomes a floating one, which attaches, swells and contracts as the stock in trade changes, increases and diminishes, or wholly expires by an entire sale and disposition at the will of the mortgagor.” Not to dwell upon this point, however, and assuming a mortgage upon property thus circumstanced to be good and valid in law, still it appears to be going farther than the conveniences of trade and commerce require, or than the interests, rights and protection of third parties will justify, to sustain stipulations like the one we are now considering. Eor it seems to us that a provision that the mortgagor may continue in possession, and deal with and sell off the goods mortgaged, paying the expenses of the business and all personal and family expenses out of the proceeds of the sales — thus placing his stock in trade beyond the reach of creditors — of itself furnishes a pretty effectual shield to a dishonest debtor. It matters not how large his own expenses may be, or how much it may cost to support his family, those expenses all come out of the stock in trade before anything is applied to the payment of even the mortgage debt. An arrangement of this nature ought not to be tolerated, and when it appears *634 upon tbe face of tbe instrument, it should render it void m , law.

it wag contended by tbe counsel for tbe respondents, that tbe court cannot pronounce tbe mortgage void upon its face, except where its provisions are necessarily injurious to tbe creditors of tbe mortgagor. But even within this strict and rigid rule, we think we are authorized in saying, that an agreement which permits tbe debtor to support himself and. family out of tbe proceeds of tbe business, must unavoidably be injurious to tbe creditors. Eor however extravagant and ■unreasonable those expenses may be, they are to be paid. Such stipulations, therefore, we deem fraudulent in law. And inasmuch as it appears on tbe face of tbe instrument itself, which tbe court must construe, tbe court can say and is authorized to pronounce tbe stipulation illegal.

We are therefore of tbe opinion that tbe circuit court erred in bolding that tbe mortgage was not fraudulent and void as to creditors on its face, but was a valid, legal and binding instrument. This was expressly ruled, both in refusing tbe instructions asked for on that point by tbe appellant, and in tbe general charge of tbe court.

Eor this reason tbe judgment of tbe circuit court must be reversed, and a new trial ordered.