Greig v. Mueller

Mr. Justice Eakin

delivered the opinion of the court.

1. It is first contended that defendant parted with no consideration for the mortgage at the time of its *30 execution. That contention may be briefly answered by the statement that a pre-existing debt secured by mortgage is a sufficient consideration for it: Currie v. Bowman, 25 Or. 364 ( 35 Pac. 848 ); Jolly v. Kyle, 27 Or. 95 ( 39 Pac. 999 ); Mendenhall v. Elwert, 36 Or. 375 ( 52 Pac. 22 , 59 Pac. 805 ); Hesse v. Barrett, 41 Or. 202 ( 68 Pac. 751 ).

2. It is next claimed that Ford made the mortgage for the purpose of hindering and delaying creditors. According to Ford’s own statement he feared trouble with the Oakland Motor Car Company, which held a claim against him for about $8,000; and for the purpose of getting a settlement with it he proposed to the Vale bank and to the Ontario bank that, in order to protect them, he would give them a chattel mortgage. He says that neither the Vale bank nor the Ontario bank requested the mortgage. The Ontario bank did not agree to accept it, but said they were satisfied with the paper they had; that Monroe, the cashier of the Vale bank, said, “He was willing to (accept it) if it was any benefit to me” — thus showing a fraudulent purpose on the part of Ford, which was acquiesced in by the Vale bank. Monroe admits knowledge of Ford’s purpose and acquiesced in the mortgage, and although the mortgage contains no reservation in favor of Ford, and is in form valid, it is clear that the Vale bank nominally accepted the mortgage to benefit Ford, and thereafter with a tacit understanding permitted him to continue the business unrestrained and for his own benefit. It is said in Sabin v. Columbia Fuel Co., 25 Or. 15 ( 34 Pac. 692 , 42 Am. St. Rep. 756 ): “Where a mortgage is designed and made for the benefit of the mortgagor* and to enable him to continue in business by placing his property beyond the reach of legal process, it is void as to creditors.” Where the mortgage on its face con *31 tains no evidence of being made for tbe benefit of the debtor, yet, as said.in Sabin v. Wilkins, 31 Or. 450 ( 48 Pac. 425 , 37 L. R. A. 465, note): “As it is a thing capable of modification by subsequent agreement, either expressed or implied by co-operative and willful disregard of its terms and conditions, it is a prerequisite to its continuing validity that good faith and fair dealing be maintained toward those whose interests may be affected by it.” If the parties by their subsequent treatment of it and of the property covered by it converted it into an instrument calculated to delay or defraud creditors, it will be thus rendered fraudulent and void from that time. In Orton v. Orton, 7 Or. 478 ( 33 Am. Rep. 717 ), it is held that where by the provisions of the mortgage, or by an agreement between the mortgagor and the mortgagee, the mortgagor is to remain in possession of the property and may sell the mortgaged property for the benefit of the mortgagor, the mortgage is void as to purchasers and attaching creditors. And in Bremer v. Fleckenstein, 9 Or. 266 , where there was a parol agreement between the mortgagor and mortgagee that the former might sell the goods at retail and use the proceeds for his own expenses, expense of the business, and to replenish the stock, it is said that such an agreement renders a mortgage void as to other creditors of the mortgagor. This court has recognized that by agreement or provision in the mortgage the mortgagor may remain in possession of the stock of goods and continue to make sales, strictly accounting to the mortgagee for the proceeds of the sales less the expense of making the sales; but by agreement and connivance in disregard of the terms of the mortgage Ford was permitted to use it to ward off his creditors, and yet to proceed to use the goods exclusively for his own benefit without paying the *32 mortgage debt therefrom. Thus with the acquiescence of the mortgagee the mortgage became an instrument to hinder and delay creditors,' in violation of the terms of the statute. To maintain his preference the mortgagee under such a mortgage must be diligent to require observance of its terms and spirit. This duty is well stated in Sabin v. Wilkins, 31 Or. 450 ( 48 Pac. 425 , 37 L. R. A. 465), and in Currie v. Bowman, 25 Or. 364 ( 35 Pac. 848 ). The Vale bank knew Ford was selling at retail and for credit as well as for cash, keeping no account of such sale nor of the receipts therefrom, although by the mortgage both the expense of making the sales and the purchase of new stock were to be made only on approval of the mortgagee. As beneficiary of the mortgage the Vale bank did not require nor receive any monthly account provided for, or payment to it of the receipts from sales, neither did it control the expenditure of the receipts. In fact, it acquiesced in Ford’s methods of conducting the business as he pleased, in total disregard of the mortgage or of its requirements and without even keeping an account of his doings.

We conclude that the mortgage was executed by Ford for a fraudulent purpose; that the Vale bank accepted it with knowledge of that purpose and for Ford’s benefit, and permitted him to conduct the business as he had formerly done and for his own benefit; and that as to other creditors the mortgage was void.

The decree is reversed and a decree will be rendered here adjudging the mortgage to be void.

Reversed : Decree Rendered.