Levy v. Welsh

2 Edw. Ch. 438 | New York Court of Chancery | 1835

The Vice-Chancellor:

The mortgage executed by the complainants and under which they claim, is, - • facie, fraudulent and void as against creditors: the execution of it not having been accompanied by a delivery of the possession of the goods. It is competent, however, for the complainants to repel this presumption I y proof of consideration, and the bona files of the transaction. The burthen of proof was upon them ; and I think they have succeeded in shewing that the mortgage was founded upon a good and valuable consideration, namely, an advance of money a m -a renewal and forbearance of notes—as well as that their motives were fair and honest.

It was consistent with the object and intention of the parties at the time, that the goods should remain in the possession of Welsh and Campbell. They held out the expectation of being able to go on with their business and pay their debts. In this, however, they failed ; and then they made the assignment to Rutherford: but it was before the mortgage had become forfeited according to the condition and before the complainants could enter and take possesion of the property. It is very different from the cases of Divver v. M'Laughlin, 2 Wend. 596, and M’Lachlan v. Wright, 3 Wend. 348, where the mortgagors remained in possession an unreasonable length of time, exercised acts of ownership long after the mortgages were forfeited, and where, from circumstances, it might easily be inferred the mortgages were intended as mere cover, and made for dishonest purposes. No such circumstances appear in the present case.

Although I consider the complainants’ mortgage not liable to be entirely destroyed, yet I am not satisfied that it can be allowed as effectual beyond the goods which the mortgagors had in store or on hand at the time of giving it. The purport of it is, to cover all they might subsequently acquire or have on hand.' If this effect were given to it, great injustice might be done to those who sold them goods on credit without any notice of the existence of such an incumbrance. A mortgage in this way might be productive of the grossest fraud. It is in proof in this cause that the defendant, Rutherford, sold to Welsh and Campbell, goods on credit, and lent them money after the mortgage was given, and without knowing of its existence. I shall, therefore, restrict the •operation of this mortgage to so much of the property, embraced by the assignment to Rutherford, as was on hand or in store at the time the mortgage was given and to such as may have been since purchased and paid for out of its proceeds.

The goods which the mortgagors owned at the time and which are included in the mortgage and the produce of those specific goods invested in others may be followed ‘f Bucknal v. Roiston, Prec. in Ch. 285; and the present mortgage is not to be effectual beyond this.

An account must be taken of these goods ; and the complainants are entitled to have them applied to the payment of the notes for which the mortgage was given as a security —while any surplus will belong to Rutherford, the assignee, to be held by him under the trusts of the assignment.

The complainants will be entitled to their costs of this suit out of the fund arising from the mortgaged goods : but not against the defendant Rutherford personally.