National Bank v. Lovenberg, Case No. 2028

Case No. 2028 | Tex. | Mar 17, 1885

Willie, Chief Justice.

We think it clear that the instrument executed by Carl Schwarz in favor of the bank is a chattel mortgage providing on its face for a lien upon a stock of goods and dioses in action, to secure the payment of an indebtedness due from Schwarz to the bank.

“The mere fact that an instrument does not contain terms of defeasance cannot be at all decisive in determining the question whether it shall be considered a mortgage or not. If from the entire instrument, either standing alone or read in the light of surrounding circumstances, it appears to have been given as a security, it must be considered as a mortgage.” Cooper v. Brock. 41 Mich., 490.

Whilst the present instrument does not provide that the conveyance of the goods shall be void upon the payment of a sum of money by the grantor, it does require the grantee to dispose of the goods within a specified time, and apply the proceeds to a debt due him from the maker of the instrument, and to return to the latter the remainder of the property then left undisposed of in the hands of the grantee. It is, in effect, a conveyance with power to sell for the payment of a debt, the grantee being required to proceed to foreclose by sale, as in case of failure to pay the indebtedness when due. The property is held by the grantee just as it is by a mortgagee, with power to sell at private sale, after default in payment of the debt secured by it has occurred.

The present instrument does not provide upon its face that the grantor shall continue in possession of the goods, and expose them to sale in the regular course of his business as a merchant, yet such is shown to have been the understanding of the parties at the time the deed was made, and the construction placed upon it by them. The goods did continue in the possession of Schwarz, with the consent of the bank, and were daily exposed to sale, the business being under the control of the grantor. To hold such an instrument valid because it did not itself provide for its own death blow would be to render the provisions of the act wholly nugatory.

The object of the statute would be defeated if, by a secret agreement between the parties, which they could not incorporate in a mortgage without invalidating it, creditors could be deprived of all recourse against the property mortgaged in fraud of the statute.

And so as to agreements that the mortgagor shall remain in possession and control of the business as agent of the mortgagee. The validity of a mortgage with such an agreement attending its execution must depend solely upon whether or not the effect is to allow the business to be continued under control of the mortgagor in the same manner as before the instrument was made. This is the result which the law proposes to prevent, and it cannot be thwarted of its object by any verbal agreement -that brings about practically the prohibited effect.

The present instrument, taken in connection with the agreement accompanying it, and taking into consideration the manner in which it was construed and carried out by the parties, is clearly within the prohibition of the seventeenth section of the statute of March 24, 1879, regulating assignments for t'he benefit of creditors. The intention of that statute was to encourage an equal division of all the assets of an insolvent amongst his creditors; and, with the consent of his creditors, to relieve him of the debts due them upon his making such an assignment fairly and honestly. To carry out these designs it was necessary that there should be no collusion between the debtor and any of his creditors, whereby any portion of his property liable to execution should be reserved from the assignment, either for the benefit of the assignor or of the creditor with whom he had colluded. Hence the statute in its ninth section renders void all conveyances made by the assignee previous to the assignment, and in contemplation of it, with intent to delay or defraud creditors, unless made to a purchaser in good faith for value who had no reason to believe that the debtor was conveying for the above purpose. The seventeenth section is enacted solely in reference to merchants, but it was passed with the same general design, viz., to prevent collusion between the debtor and one or more creditors to the prejudice of all others. A merchant, if embarrassed and unable to continue his business and pay his debts, must not bargain with some creditor for a continuation of his business anda control of his stock, upon an agreement to pay such creditor’s debt out of the sales of goods in the usual course of business. He must not continue business as before, protected by a mortgage which gives him the privileges of a merchant and saves his stock from being responsible for the debts of creditors generally.

If such a transaction is upheld, there will be no inducement for merchants to make general assignments for the benefit of creditors; nor any surrender of their stock in trade for the purpose of paying debts. They will prefer, at the expense of the payment of one debt, to purchase the privilege of continuing a business by means of which they will reap a portion of the proceeds, which could otherwise be used in the payment of their other indebtedness.

Such transactions are plainly in contravention of the general purposes of the statute. It was the evident intention of the law to avoid, in all cases, a conveyance made in contemplation of a general assignment with intent to prevent a portion of the debtor’s property from being administered for the benefit of creditors, when the grantee was aware of that intention; and in case of merchants, to avoid it under the circumstances mentioned in the seventeenth section of the statute, regardless of any contemplated design of making an assignment. By avoiding such transactions a statutory assignment could be compelled, or the law left to take its course in favoring the diligent and protecting the innocent creditor against collusion between the debtor and a former creditor for the sole and mutual benefit of these two alone. We think the deed from Schwarz to the bank was void under the above statute, and the court did not err in so declaring it.

We think, too, the amount of damages found by the judge is fully supported by the evidence; and there being no doubt as to the trespass committed by the appellant in its illegal seizure of the goods and taking them from the possession of the assignee, we can see no error in the judgment, and it is affirmed.

The appellant’s brief is thirteen pages in length, and is printed with a type-writing machine. Some of the copies are upon thin paper and almost illegible. The rules of the court are not complied with by printing briefs with a type-writer, when they consist of more than eight pages; and when badly copied and upon thin paper they are unacceptable, no matter what may be their length. Hereafter no brief of over eight pages will be received when printed in this way; nor even when of less length, unless the type-writing is clear and perfectly legible. Judgment affirmed.

Affirmed.

[Opinion delivered March 17, 1885.]