54 N.J. Eq. 182 | New York Court of Chancery | 1896
First. A reading of the instrument in question leads me to the conclusion that it is, in its essential features, a mortgage, and not, as was contended by counsel for defendants, a mere conveyance absolute with power of sale for the purpose of paying, pro
Second. The statute of New York relating to chattel mortgages is.substantially the same as ours, and instruments of that nature are absolutely void as against creditors unless recorded, or unless immediate and actual possession is taken under them. Here I find, as a matter of fact, that no sufficient possession was taken. There was proof offered of authority for the sons, or one of their clerks or salesmen, to take possession in the name of their mother; but it was so clearly colorable and contrary to the spirit of the act, that I conclude, as above stated, that there was no possession taken.
The result is that the instrument is absolutely void as against the complainant, who, it was admitted, was a creditor at the time the instrument was executed, for the very debt on which its judgment is founded.
Third. These propositions having, been resolved in favor of the complainant, its counsel take the position that, having executed .such a paper, and having purported to act under it, the moneys which were the proceeds of the sales of the goods covered by it may be followed by a judgment creditor into the hands of the mortgagee of the void mortgage. This position is taken in the face of the admitted proposition that it was entirely lawful for August Brothers to prefer their mother as a creditor by selling the goods in the ordinary way and paying her the proceeds.
The difficulty with the complainant’s position is apparent at once. It claims, in one breath, that the mortgage is absolutely void, and that, at the same time, it may derive a benefit from its, so to speak, negative existence.
There is a line of cases decided in New York, cited and relied upon by counsel, which hold that where the mortgagee of a
In the first case the defendant (Avery) was the holder of two chattel mortgages executed by one Beck — one to Avery directly and the other to a bank of which he was president, and by the bank assigned to him. The mortgage to the bank was the older of the two and was not recorded, and no possession was taken under it until the later mortgage was executed, when immediate possession was taken under both by Avery, who sold the goods. And it was held, reversing the supreme court, that the receiver appointed under a judgment recovered by one Ross, a creditor of Beck, could recover against Avery so much of the proceeds of the sale of the goods as was appropriated by him to the payment of the mortgage of the bank. At the bottom of page 385, the learned judge, speaking for the court of appeals, says: “ The general term based its decision [in favor of the bank] upon the ground that the debt to the bank having been a valid one, and having been paid out of the mortgaged property before any lien was obtained thereon, another creditor could not compel the mortgagee to refund the money, on the ground that, as against creditors generally, the mortgage given to secure the paid debt would have been adjudged void. Two classes of cases are cited by the supreme court to sustain this conclusion. [Omitting the first class.] ‘Second. That the objection that a chattel mortgage is void is not available, when, before any creditor had questioned its validity, the mortgagor delivered the chattels to the mortgagee and authorized an immediate sale thereof by him. * * *
As to the second [class], there is no doubt as to the right of a debtor to prefer any creditor and to pay his debt in full, either in money or property, to the exclusion of all others. But to
It will thus be seen that the decision was put upon the distinct ground that the claim of Avery rested upon the mortgage, and not upon a voluntary payment by the debtor.
In the next case — Stephens v. Perrine — the failing debtors, Aldrich & Company, had given a chattel mortgage to the defendant in the action, Mrs. Perrine, to secure her for money due her, but it was not recorded until a month after it was given, and the omission to file was intentional, and there was no immediate change of possession. On the day the mortgage was filed the mortgagee took possession, and after advertisement, sold the property and bought it as the highest bidder at the auction sale. Other creditors obtained judgment subsequent to the sale under the chattel mortgage, and upon executions being returned unsatisfied, a receiver was appointed. He brought this action to set aside the mortgage and recover the property or its value. Judg
The language of Judge Earl above quoted is quite in point.
Here it is plain that Mrs. August claimed and got nothing under the mortgage. The mortgagors remained in possession and sold the goods and voluntarily paid the proceeds to their mother.
In answer to the very able and ingenious argument of the counsel for complainant upon this point, I make this general remark: It seems to me that the complainant is in this dilemma: If Mrs. August did not take possession under the mortgage as is alleged, and as I find, then it was absolutely void; she claims nothing under it; and her sons had the right, as against complainant, to sell the property and pay her her debt out of the proceeds. If, however, the sons or any other person acting as her agent, took possession of the goods, it being admitted that whatever possession was taken, was taken immediately, then the mortgage was perfectly good; and I do not see how the complainant can say in this case that it was void for one purpose and good for another. In other words, the two sons were, in the actual possession of the goods, and such possession was either in their own right as owners and mortgagors, or in the right of their mother as mortgagee as her agents and representatives. In either ease they had the right to sell the goods, and she had the right, if her claim was just, to receive and hold the proceeds of sales as against their creditors not having actual liens. As between mother and sons this mortgage was good, though void as to creditors; and the right of the mortgagor and owner while in possession and before levy made to sell and dispose of the chattels with the consent of the mortgagee of a mortgage void as to creditors, and to pay the proceeds to the mortgagee, is conceded, not only by the two cases relied upon by the com
It follows that this last question of law I must decide against the complainant, and hold that if August Brothers did, in good faith, owe'their mother the moneys claimed, they had a right to sell the goods and pay the proceeds to her, and thereby prefer her as a creditor.
The argument that the instrument- in question was actually made use of to hinder creditors has not escaped my attention. The evidence indicates that the bulk of the goods was sold after complainant recovered judgment in New York. No proof was offered to show that the mortgage was at any time used to prevent the sheriff from making a levy. No proof was offered that he ever attempted to make one. The law governing the case being well known to complainant, it follows that the instrument could not stand in the way of the sheriff making a levy, except when set up by some one in the actual possession of the goods as the agent and representative of Mrs. August, the mortgagee, for, in order to satisfy the statute, the possession must not only be actual but continued. Now, there is no proof of any such claim made to the sheriff. On the other hand, it appears that the defendant Jacob was examined upon supplemental proceedings upon complainant’s judgment in New York, on the 15th of February, 1894. He then disclosed the whereabouts of the stock of goods, and the fact that it had been transferred to his mother in payment, or attempted payment, of her claim against the firm, and that he and his brother were in actual possession and engaged in selling the goods, and were paying the proceeds over to their mother. The general nature of the deed of transfer was stated by the deponent from memory, and its present possession and custody by his mother’s counsel in New York frankly and freely stated. Whether an effort was made at that time by complainant to see and ascertain its true nature does not appear. But it does appear that it was produced by some person and seen by counsel for complainant at the examination of the defendants held under the bill for discovery before a master, in May, 1894, and the true situation of affairs and the legal rights
No point was made that the complainant obtained a lien under the laws of New York upon the goods by the mere delivery of the execution to the sheriff without actual levy.
Fourth. This brings me to the question of fact in the cause, was there an actual debt due from August Brothers to their mother ?
The answer to this question requires us to go back to the original formation of the firm of August Brothers, in the year 1878, and to the situation of the family at that time.
Simon August, the father, who has died pending this suit and before the hearing, was for many years a merchant in the clothing trade in the city of New York, being the head of the mercantile house of August, Bernheim & Bauer, which was continued after his retirement under the name of Bernheim, Bauer & Company. The uncontradicted evidence of his wife and children is that he was at one time a man of considerable means, and of good commercial standing. They had four sons, whose names, stated in the order of their ages, are Elias, Jacob S., Abraham S. and Charles. Elias and Jacob formed the first partnership of August Brothers, in 1878. They had some little money of their own, and other moneys were given to them by their father and mother to use as capital. In addition to out-and-out gifts, their father and mother, as they allege, also loaned them money. The books of August Brothers show a credit to Henrietta August, on September 17th, 1878, of $6,000 cash. She is afterward credited regularly with interest on that sum, and charged with some small payments, apparently on account of interest. The first question is as to the origin of that $6,000.
On the 2d of January, 1880, the third son, Abraham S. August, was admitted as a partner into the firm of August Brothers, although he was not yet quite of age, and on that day his mother, as the defendants all swear, made him a present of $6,000, and his father made him a present of $4,000, to put in as capital, and his mother’s account on the books of the firm is, on that day, charged with $6,000, and his father’s account with $4,000, and both sums credited to Abraham S. August. . Then on the last day of that year, 1880, the account of Simon August, on the books, is charged with $10,000, and the account of Henrietta August is credited with $10,000 transferred from the account of Simon. This, the defendants swear, was a present from the father to the mother, perfected by a transfer by debit and credit from the father’s to the mother’s account, and' this is the real commencement of her claim. She is credited with interest on that sum from year to year up to the 31st of December, 1884, aud charged with some payments made on account. She is further credited, on the 19th of September, 1884, with the sum of $4,692.03. This sum, the sons explain, was not paid into the firm at that time, but was the accumulation of a series of loans in smaller sums previously from time to time made by their mother to the firm and carried on the petty-cash book, and then on September 19th, 1884, by her direction, transferred in a lump from that book to her general account, so that on the 31st of December, 1884, she stands credited with a balance of $15,372.58. She is credited with interest from time to time on that sum, and on the 17th of June, 1886, she is credited with the sum of $6,758.14, which, like the previous sum of $4,692.03,
The firm fell into difficulties early in 1893, and attempted to
The original books of the firm were produced in court, having been taken possession of by a receiver appointed under proceedings supplemental to judgment in the city of New York, and were inspected by the court. In addition to the entries on the books themselves, Mrs. August produced seven statements, purporting to be transcripts of the ledger, made from time to time, in the handwriting of some bookkeeper or member of the firm, which she said were sent to her from time to time for her satisfaction. They are dated, respectively, January 1st, 1885, January 22d, 1886, January 1st, 1887, November 1st, 1887, October 31st, 1888, November 1st, 1890, and November 1st, 1891. A comparison with the ledgers produced shows them to be true transcripts so far as the books are produced. They have the appearance of being genuine, and of having been made at the time they respectively bear date. No promissory note was ever given, or other evidence of indebtedness except these statements. She swears that she trusted her sons to take care of her money and pay her interest on it, and that the statements of account which she received from time to time were all the evidence that she required or desired. There is no room for doubt as to the authenticity of the books or the genuineness of the entries found therein. The statements of account produced by Henrietta supply documentary evidence of the existence of the balance in her favor on the missing Ledger No. 4.
If these facts are reliable, then the indebtedness is established.
Their reliability is attempted to be met and overthrown by the preliminary examinations, taken under the creditors’ bill, of the three defendants Henrietta, Jacob and Abraham. I have read those examinations with great care, and have compared them with the evidence of the same persons given orally at the hearing of the cause, and with the entries on the books, and I come
The conclusion that I have reached on this part of the case is contrary to my first impressions, and is made in full consciousness of the duty of the court to scrutinize these family accounts with great care. Notwithstanding these considerations, I am forced to the conclusion that the debt to Henrietta was a real one in one sense of the word — that is to say, it was not in any sense fictitious; the money was originally had and used by the old firm.
It was urged that even if that be so, and the old firm did actually have their mother’s money to the extent claimed, still it does not sufficiently appear that the debt was not, in fact, paid
Another circumstance relied upon as suspicious is that the entry on the ledger of the old firm of $25,481.22 as of November 1st, 1890, to the credit of Mrs. August, appears to .have been made at two sittings, the figures “ 25 ” at one time and the figures “481.22” at another time. How long apart the sittings were the expert was unable to state. I have already referred to the separation of these two component parts of the whole sum of $25,481.22 on the ledger of the later firm. The ledger upon which this difference was found by the expert was an extra ledger, called a pocket ledger, kept by the firm as a transcript of their regular ledger, and deposited each night in a neighbor’s safe for safety in case of fire. The one in question covered but a few of the last entries of the year 1890, which was the last year of the existence of the old firm of August Brothers. They seem to have made up their accounts each year to November 1st, 1890, and it may well be that the figures “25” were written first, and then,- after exact calculations of interest were made,
But counsel for complainant take the further point that these family accounts, including one not before mentioned, to Minnie August, the wife of Jacob, were so arranged and carried on the books as to work a fraud on the creditors, and should not be paid until after the creditors are paid, they being, in point of fact as against creditors, mere contributions to the capital and subject to the payment of all the debts. I am unable to find anything in the evidence to warrant that conclusion. It does not appear that representations were ever made by the firm as to their capital in which a fraudulent use was made of these loans, or that' their indebtedness to their relatives was ever denied or concealed. The fact that persons so engaged in business are liable to owe confidential debts is notorious, and creditors inquiring into the financial standing of their debtors, or proposed debtors, always make inquiries on that subject. These credits to their relatives were kept openly upon their regular ledgers, and I am unable to perceive upon what principle it can be held that they were capital and not debts.
' I think the bill should be dismissed, and will so advise.