4 F. Cas. 840 | D. Ind. | 1877
The insurance company insists that, although on its face there was no objection to the mortgage, yet it was void, because there was a verbal agreement between Gibson and Burrows that the latter should continue his business just as he had done before, disposing of the mortgaged property for his own benefit. This was denied by Gibson, and the special master to whom this question of fact was referred, reported that the mortgaged property consisted of the stock, fixtures, furniture, etc., of Burrows’ confectionery store; that with the knowledge and consent of Gibson, Burrows continued his business, just as it had been carried on before the execution of the mortgage, using the proceeds of the sales as his own, and that this agreement extended to the stock on hand only, and not to the fixtures, furniture, utensils, or any other property described in the mortgage. -The master further reported that the value of the stock on hand at the time the mortgage was executed, compared with the fixtures, furniture, etc., was small, but what the proportion was he did not find.
It is insisted by the insurance company that the agreement that Burrows should continue to carry on the business, buying and selling in the usual way, and using the proceeds of the stock as his own, rendered the entire mortgage void; while, on the other hand, it is contended by Gibson that the agreement vitiated the mortgage so far only as the stock on hand was concerned.
A creditor has a right to take a mortgage from his debtor, if he can get it, to secure his own debt. More than that he is not allowed to do. If the mortgagee, not satisfied with getting security for his own debt, goes farther and agrees that the mortgage shall cover certain other property, which shall be used by the mortgagor as his own and for his own benefit, a fraud is committed against ■other creditors, and the entire instrument is void. Such an agreement necessarily hinders and delays other creditors. It will not do for the mortgagee in this case to say that so far as the fixtures, furniture and utensils were concerned, there was no evidence of an intent that they should be protected by the mortgage for the benefit of the mortgagor. It is enough that the object of the parties in part was to do what amounts to a fraud on ether creditors. That unlawful design, confined as it was to only part of the property, was sufficient to render the mortgage void in its entire extent. Entire good faith is necessary to uphold such instruments, and it cannot be said the parties have dealt fairly, when then- design, as to part of the property described in the mortgage, was to protect it in the hands of the mortgagor from levy and sale by other creditors. Russel v. Winne, 37 N. Y. 591; Thomas. Mortg. 487.
It is therefore ordered that the fund be applied to the payment of the execution of the Aetna Insurance Company, and an order will be made for payment of costs by Gibson.
[We know of no case reported in this state involving exactly the same points as the one above as to holding the whole mortgage void because a portion of the goods mortgaged was permitted to be held by the mortgagor and the proceeds thereof to be by him used as he saw fit; therefore, fraudulent per se, while if the mortgage had been on the fixtures alone it would, of course, have been valid. The last case reported involving this general subject, being that of Kleine v. Katzenberger, 20 Ohio St. 110, in which the mortgage contained the stipulation “that the mortgagees were to retain possession of the goods (a stock of clothing) on default of payment, or any attempt to sell (except in the usual retail way, and that he will then pay over the money received therefor to the mortgagees as the goods are sold”), etc.
[The majority of the court (Judges Brink-erhoff and Welsch dissenting) decided that the mortgagor was simply the agent of the mortgagees to sell the goods, and in thus selling the goods for their benefit was not necessarily in fraud of the rights of other creditors, and that such an arrangement raises only a question of good faith to be determined by the jury in the light of all the evidence, and is not per se fraudulent. Citing Ford v. Williams, 24 N. Y. 359; Miller v. Lockwood, 32 N. Y. 293; 1 Pars. Cont. 571.
[The law being, it seems, well settled that where the mortgagor is permitted to retain possession of the goods and sells them in the usual retail way for his own benefit, the act is fraudulent per se, and the mortgage as against other creditors is void. This was admitted to be the settled law of the state by the able attorneys, Messrs. Long & Kramer, who were the counsel for plaintiff in the case in 20 Ohio St. above referred to, and we think in this they were correct.]
[From 6 Am. Law Rec. 203.]
