| Wis. | Aug 15, 1877
The chattel mortgage and accompanying agreement, contemporaneously executed, to govern the same subject matter between the parties, must be taken together and dealt with as one contract. Elmore v. Hoffman, 6 Wis., 68" court="Wis." date_filed="1858-07-01" href="https://app.midpage.ai/document/elmore-v-hoffman-6597544?utm_source=webapp" opinion_id="6597544">6 Wis., 68; Norton v. Kearney, 10 id., 443.
So taken, they give a mortgage by a merchant to creditors of his entire stock of goods, licensing the mortgagor to remain in possession and dispose of the goods in the course of his trade, applying one-half of the proceeds of the sales towards his liability to the mortgagees. No provision is made in either paper for the disposition of the other half, which is therefore left
It is quite unnecessary to consider what may be the rule elsewhere, though it is very generally, if not universally, the same as here. The validity of such a mortgage is not an open question in this state. A chattel mortgage permitting the mortgagor to remain in possession, to sell and apply the proceeds or any part of them to his own use, is fraudulent and void in law as against creditors. Place v. Langworthy, 13 Wis., 629" court="Wis." date_filed="1861-05-15" href="https://app.midpage.ai/document/place-v-langworthy-6598430?utm_source=webapp" opinion_id="6598430">13 Wis., 629; Steinart v. Deuster, 23 id., 136.
There is another objection to the mortgage, which might be sufficient, of itself, to avoid it. Secret liens on chattels remaining in possession of the owner, are against the policy of the law. For this reason, when possession remains in the mortgagor, a chattel mortgage must be put on record to give it effect against creditors of the mortgagor. The mortgage should therefore fully disclose the consideration upon which it goes, and the nature of the lien given. It appears here that the mortgage itself was put on record, but not that the accompanying agreement was. It is quite evident that the mortgage, of itself, not only did not disclose the true nature of the transaction, but was calculated to conceal it, and to mislead, without notice of the accompanying agreement. The mort
But we prefer to rest our judgment on the ground first stated. The license given to the mortgagor, to retain half the proceeds and use them at his pleasure, makes the written contract of the parties fraudulent and void in law as against creditors; absolutely void as to them, beyond all aid from extrinsic facts. Parol evidence can make it neither better nor worse. Intent does not enter into the question. Fraud in fact goes to avoid an instrument otherwise valid. But intent, bona fide or mala fide, is immaterial to an instrument per se fraudulent and void in law. The fraud which the law imputes to it is conclusive. So a fraudulent agreement of parties, by parol, goes as fraud in fact to impeach a written instrument valid on its face. Fraud in fact imputed to a contract is a question of evidence; not fraud in law. And no agreement of the parties in parol can aid a written instrument fraudulent and void in law. Wood v. Lowry, 17 Wend., 492; Edgell v. Hart, 9 N.Y., 213" court="NY" date_filed="1853-12-05" href="https://app.midpage.ai/document/edgell-v--hart-3600687?utm_source=webapp" opinion_id="3600687">9 N. Y., 213; Robinson v. Elliott, 22 Wall., 513" court="SCOTUS" date_filed="1875-02-18" href="https://app.midpage.ai/document/robinson-v-elliott-89088?utm_source=webapp" opinion_id="89088">22 Wall., 513. We doubt whether the parol understanding as to the disposition of the other half of the proceeds, with which the respondent undertook to supplement the written contract, would have redeemed' it from the taint of fraud in law, if inserted in it. But it is very certain that the attempt to show it in aid of the mortgage, was an attempt to vary the written contract by parol. This appears too familiar to need even statement, much less discussion. And yet the elementary principle appears to have been overlooked in the court below.
Apparently apprehensive of its validity, the respondent tried to purge his title of the fraudulent mortgage. He undertook to show that the mortgagor voluntarily surrendered possession
The charge of the learned judge of the court below does not go upon any shift of the respondent’s title from under the mortgage. It recognizes the mortgage throughout as the foundation of the respondent’s right. But it appears inadvertently to confound fraud in fact and fraud in law, as affecting the mortgage. The learned judge charged the jury that the mortgage is void on its face; that is, void in law. But he proceeds, nevertheless, to submit the good or had faith with which the mortgage was executed, as a question of fact for the jury; instructing them that it is valid, if executed in good faith; invalid, if executed in bad faith.
Without expressly saying it, the charge seems to imply, as was argued here, that possession of the mortgagees, xmder the mortgage, would operate to cure the fraud imputed to it by law. It is a novel and startling proposition that possession under an instrument of title can be better than the instrument of title itself. But strange to say there is authority for the position. Read v. Wilson, 22 Ill., 377" court="Ill." date_filed="1859-04-15" href="https://app.midpage.ai/document/read-v-wilson-6949628?utm_source=webapp" opinion_id="6949628">22 Ill., 377; Brown v. Webb, 20 Ohio, 389. In each of these cases, a chattel mortgage appears to be held void in law, but possession under it good, as against creditors.
In neither of those cases, nor in this, would mere possession by the mortgagor, before maturity of the mortgage, projprio vigore, import fraud in fact or in law. And so the validity of the mortgage does not rest on the mere fact of possession in either mortgagor or mortgagee. It is the fraudulent provision for possession which taints the mortgage with fraud, and makes it void as against creditors. It is not because the fraudulent possession, remains in fact in the mortgagor, but be
It is true that, upon the default of the mortgagor, the legal title to the chattels mortgaged is held to vest in the mortgagee. But under a mortgage like that here, it is legal title sub modo. The mortgagee cannot apply the subject of the mortgage in absolute payment of his debt. He must sell it, applying the proceeds on his debt, and accounting for the surplus to the mortgagor. And so his title and possession are executory, very much like a sheriff’s upon execution. He must justify his possession and the execution of the duties of his possession, like a sheriff. And he can no more do so against creditors, upon a mortgage void as to them, than a sheriff can justify his possession and proceeding upon void process.
The radical error, perhaps, in the cases cited for the respondent, more apparently so in the case in Illinois, seems to rest upon the theory that provision for disposal of the mortgaged goods by the mortgagor to his own use, is indeed fraudulent and void in and by itself, hut does not taint the entire
If it were imputed as fraud in fact against a mortgage fair on its face, that the mortgagee had suffered the mortgagor to sell the goods mortgaged, and dispose of the proceeds to his own use, possibly subsequent possession taken by the mortgagee might go to uphold his good faith, and to rebut fraud in fact. But nothing which a party claiming under a title fraudulent and void in law can do, will go to better his title. While in possession under a void title, he may sometimes acquire another which is valid. But we recall no way in which possession is held to better the title under which it is taken, except by operation of the statute of limitations.
It is not necessary to comment on respondent’s sale to himself. It could not better his title, however made. As made, it appears to be a mere nullity.
As there seems to have been confusion in the case between fraud in fact and fraud in law, it is perhaps proper to add that our judgment, proceeding upon fraud in law, imputes fraud in fact to none of the parties.
By the Court. — The judgment is reversed, and the cause remanded to the court below for a new trial.