Noyes v. Ross

23 Mont. 425 | Mont. | 1899

Lead Opinion

MR. JUSTICE HUNT,

after stating the case, delivered the opinion of the Court.

The contention of appellants is that the mortgage was void because it contained a provision for the use and benefit of the mortgagors, by providing that out of the proceeds of the sales of the property covered by the mortgage the mortgagors were permitted to retain the necessary living expenses of one of them, a,nd because it was provided that the mortgagors might sell the mortgaged property at retail, in the usual and general way of business, for cash, or on not to exceed thirty days’ credit to responsible parties. We glean from the record the following facts, which should be considered in the determination of the questions presented by the applicants:

1. A. E. Ross and A. A. Fenske formed their partnership to enter into the drug business in June, 1894. At the time they started they borrowed some money from the Yellowstone National Bank, and bought a stock of drugs from one H. T. Ramsey, paying him $1,500 in money, and giving him notes for the balance due him. They afterwards added to the stock of goods bought from Ramsey by purchases from wholesale drug houses. On February 16, 1895, an inventory was taken, and the chattel mortgage referred to in the statement of facts preceding this opinion was given to L. H. Fenske for the purpose of securing what they owed to Fenske, to the bank, to Ramsey and other parties. The firm ran the business * until June 24, 1895, purchasing goods from time to time with money taken in by them in their store. The mortgagor Ross drew out from the proceeds of the sales of goods about $100 a month for his living expenses. A. A. Fenske, the other partner and mortgagor, took no part in the conduct of the business, which never seems to have been profitable, owing to heavy expenses. On June 24, Í895, the mortgagee took possession, which was voluntarily surrendered to him by the mortgagors. At the time the mortgagee took possession the mortgagors were being pressed for payment by certain of their creditors, but the evidence is that the mortgage was executed to secure the notes which were assumed by the mortgagee, L. H. Fenske. The mortgagee testified that he saw that the business was not paying anything, and he' asked the mortgagors for a chattel mortgage, and took the mortgage to indemnify himself for moneys which he agreed to pay to the bank, and which were due by the firm, and for money due to Ramsey, and for the sum of $1,100 due by one of the partners to Ramsey. He said that he understood that an attachment was about to be served upon the property of the mortgagors, and in pursuance of advice by counsel he immediately took possession under the terms of his' mortgage, put one Hill in charge of the store and continued to run the business for a time. The expenses were so heavy, however, that he concluded to sell it all off. While he was running the business he sold in the usual course of trade, and finally closed the whole stock out at auction on November 24, 1895, and bought it in himself for $1,600. This sale was at public auction, and numerous persons were present, including a representative of these plaintiffs. Some sales on credit had been made while the mortgagors were in charge, and before the mortgagee took possession, but about 90 per cent, of the sums charged had been collected before this suit was commenced. At the time of the -execution of the mortgage in February, 1895, an inventory was taken and the goods and fixtures valued at $6,620.92, the stock itself being put at a little over $5,000. From the time of the execution of the mortgage, in February, and up to the time of taking possession by the mortgagee, in June, 1895, the firm’s receipts -were $3,054.9u. Of this sum $1,144.05 was deposited in bank. The firm also purchased $1,635.33 worth of merchandise during that time. The total credit sales for that time were $860.05. The mortgagor Ross drew out $385.35. The expenses (rént, clerk hire, etc.) amounted to $1,525.50. When the mortgagee took possession another inventory was taken, whereat the stock was valued at $3,872.52 and the fixtures at $900. From the time of the execution of the mortgage until the mortgagee took possession, monthly reports of the business were made to the mortgagee, and the $1,144.05 deposited in the bank by the firm was put to the credit of L. H. Fenske, the mortgagee, under the terms of the mortgage, and from such deposits there were paid considerable sums due for goods, by checks drawn by the mortgagee. 'When the inventory was made at the time the mortgagee took possession, it was computed upon the basis that if a man could be found who desired to go into the drug business in Billings, and invest in a drug store, and keep up the business, and was willing to pay for the good will and other appurtenances of such a business, the prices were fair and reasonable. The values were with relation to the wholesale price list plus the freight. It appears by a statement in the record that the mortgagee, from the time he took possession of the property, deposited in bank the sum of $1,518.55; and a recapitulation showing cash receipts since the execution of the mortgage disclosed that $7,125.01 had been received in that time, out of which there had been paid for merchandise and expenses the sum of $6,353.75, which with the sum of $27.78, representing a loan and cash balance in bank, left a balance of $743.48 to be applied to the mortgage debt. We notice that included in the expenses from the time the mortgagee took possession, in June, to November, 1895, he paid to Ross, the mortgagor, the sum of $515.35 for living expenses. The management of the store was in Mr. Hill, who had been a clerk in the employ of the mortgagors, Ross & Co. The purchaser, after the auction sale, testified that at the time he purchased the goods he thought they were worth about 50 cents on the dollar of the invoice, and that he believed he paid a fair market price for them in November, when he bought.

We believe that, upon consideration of all this evidence, the court was justified in finding no actual and intentional fraud on the part of the mortgagors and the mortgagee. The fact that a relationship existed between one of the mortgagors and the mortgagee cannot invalidate the mortgage. If the debt was one honestly due, the mortgagors had a right to secure it, whether ■ due to a relation or any one else, even though their action left nothing for their other creditors, provided, always, the transaction was in good faith, and entered into with honest intention. As evidence of fraud, and of an intent to hinder and delay creditors, plaintiffs also mention the fact that part of the amount included in the partners’ note to Fenske was an individual indebtedness of §1,100 due by one of the partners. This statement is correct, as the testimony shows that §1,100 was loaned by the mortgagee to one of the mortgagors, who used the money borrowed to buy an interest in the new drug firm of Ross & Co. at the time that the partnership between Ross and Fenske was formed. But the mortgagee took the note of the co-partners and the mortgage by the firm in good faith and for value. When the partners executed the mortgage, they had full possession of the- property, — no lien had attached to it, and, both partners consenting, their right to mortgage the stock in good faith can not be denied. The principle that the assets of a partnership are for distribution to their creditors does not obtain, without regard to rights already existing. Again, the right to have partnership property first applied to partnership debts is one primarily for the benefit of the partners, and, if they waive such right, firm creditors cannot invoke it to secure preferences over mortgage creditors. These rules rest upon the principle that the right of creditors of a partnership to have partnership debts paid out of partnership property before the debts of an individual partner is not a lien or trust, but is a derivative equity from the partner, and can be made effective only through the equity of an individual partner, to which the creditor is subrogated. It follows that, if such partner is in no position to enforce it, a firm creditor cannot. “So, if, before the interposition of the court is asked, the property has ceased to belong to the partnership,- — if by a pona pide transfer it has become the several property either of one partner or of a third person, — the equities of the partners are extinguished, and consequently the derivative equities of the creditors are at an end. It is therefore always essential to any preferential right of the. creditors that there shall be property owned by the partnership when' the claim for preference is sought to be enforced.” Case v. Beauregard, 99 U. S. 119, 25 L. Ed. 370. (See, also, Reynolds v. Johnson, 54 Ark. 449, 16 S. W. 124; Purple v. Farrington, 119 Ind. 164, 21 N. E. 543, 4 L. R. A. 535; Smith v. Smith, 87 Iowa 93, 54 N. W. 73; In re Estate of Edwards & Wigginton, 122 Mo. 426, 25 S. W. 904, 29 L. R. A. 681.)

2. The additional fact that the mortgagor was allowed to draw $100 per month from the date of the mortgage until the sale of the property by the mortgagee at auction is not of itself, or in connection with the other facts in evidence, conclusive of fraud. If the mortgagor was employed by the mortgagee after the latter took possession, he was entitled to compensation; if he was not, but was allowed to receive money, it was evidence tending to establish a fraudulent intent on the part of the parties to the mortgage. But, as the district court has found the issues generally in favor of defendants, and there is evidence sufficient to .justify the action of the court, we cannot now set aside the conclusions of the district court, as unwarranted by the evidence. The finding by the judge that the whole transaction was entered into in good faith, and for the purpose of securing defendant L. H. Fenslte and certain creditors whose debts were evidenced by the note for $4,500 made by the mortgagors at the time of the execution of the mortgage, is supported (Haggin v. Saile, 23 Mont. 375, 59 Pac. 154); and we shall therefore pass to the question of whether or not, as a matter of law, the mortgage was invalid, and operated as a fraud against the creditors of the mortgagors. To that we briefly address ourselves.

Involved in this inquiry is the assertion of appellants that the instrument under consideration is, in effect, an assignment for the benefit of the creditors of Ross & Co., and should be so regarded. The facts, however, will not bear out this statement, for they go to prove that Ross & Co. intended to keep up their business, if they could, and that they merely gave the mortgage to secure. Fenske for a debt due to him, and to indemnify him for coming to their relief when other creditors were demanding immediate payment, and threatening to attach their property. As far as we can gather from the evidence in support of the court’s finding, they had no intent to devest themselves of title and all control of their stock of goods by conveying the same to a trustee for the purpose of securing a distribution of its proceeds among a portion of their creditors, which would have made the instrument, in legal effect, an assignment for the benefit of their creditors, as.was held in Marshall v. Livingston Bank, 11 Mont. 351, 28 Pac. 312. Here we find the mortgagors retained possession, and intended to only give a lien on their property, preserving their equities as mortgagors, while in that case the mortgagor intended to make an absolute appropriation of property to his creditors by authorizing immediate possession, passing both the legal and equitable title absolutely beyond his control to the mortgagee, which was to sell, collect the proceeds, pay expenses, pay certain notes, and then account for any balance to the debtor.

The fact that a mortgage upon all of a debtor’s property operates to secure certain creditors does not of itself make the security an assignment, where the written contract and the acts thereunder show an intention to give a security only, although it becomes the duty of courts to examine into the circumstances of such transfers very carefully, lest a transaction be given an effect in express contradiction of the intention of the parties to it. Tested by these principles, we conclude that Ross & Co. mortgaged their stock to Fenske, and that the law of chattel mortgages and not that of assignments for the benefit of creditors must be applied to the contract in question.

3. A mortgage which authorizes the mortgagor to retain possession, with the right to sell a stock of goods mortgaged, in the ordinary and usual course of trade, if otherwise good, is on its face a valid instrument, provided it appears therein that such sales are to be for the benefit of the mortgagee, and he is to account to the mortgagee for the proceeds of the sales. To this extent the courts and text writers have advanced in later years. We must remember that, as a substitute for possession in the mortgagee, the mortgage must be filed in the office of the county clerk. Secrecy is thus obviated, and opportunity to perpetrate fraud is greatly lessened. The records are public,- and creditors are thereby constructively advised of the nature and provisions of the mortgage— they have a knowledge that the mortgagor has given a lien upon his stock of goods, and of the provisions of the contract granting the lien. It is the policy of the recording acts that has outweighed the policy of an older rule, under which, upon the theory of constructive fraud, mortgages with power to sell the mortgaged goods, in the usual course of trade were so often held void.

Mortgages of stocks in trade, with right to sell, cannot be said by judges to be the result of fraudulent intentions on the part of the parties to them, unless such intentions existed in fact; on the contrary, as Justice Brewer said of such transactions in Etheridge v. Sperry, 139 U. S. 266, 11 Supreme Court 565, 35 L. Ed. 171, the supreme court could not “be blind to the fact that the tendency of this commercial age is towards increased facilities in the transfer of property, and to uphold such transfers so far as they are made in good faith.” In our opinion, where the law requires the filing of a chattel mortgage with the county clerk, as it does in Montana, in cases where the mortgage provides that the property may remain in the possession of the mortgagor (Compiled Statutes 1887, Fifth Division, Sec. 1540; Civil Code, Sec. 3864), and where “any interest in personal property which is capable of being transferred may be mortgaged,” which was the law generally before the Codes were adopted, as it is now (Civil Code, Sec. 3860), the records give the requisite information to persons dealing with mortgagors, and .contracts by way of security upon a stock of goods, with power to sell, under an agreement to apply the avails of sales to the payment of the mortgage debt, should be upheld, as promoting, rather than retarding, business arrangements, for they are not only compatible with perfect honesty, but suffer many a business to be kept up which would otherwise fail, and afford many a debtor an opportunity to gain a solid foothold in a community where he might otherwise go to the wall. “It is to be observed,” say the supreme court of Vermont in Peabody v. Landon, 61 Vt. 318, 17 Atl. 781, “that the mortgagee in such a case places the avails of the sale wholly within the power of the mortgagor, and must trust him, to a greater or less extent, to pay them over on the debt secured. Yet, with the general power of sale, the parties, when the mortgage is made honestly, intend the property conditionally conveyed as security for.the payment of the debt; and use it for that purpose. There is no question in regard to the validity of such mortgages between the parties. It is contended that they should not be held fraudulent per se and void, because such mortgages furnish a convenient opportunity to cover the property away from the other creditors for the benefit of the mortgagor, when they may be honestly intended and used to secure the payment of the mortgagor’s debt in the most economical, and in such an inexpensive manner as to save something for the other creditors, or at least for the mortgagor. It seems to us that, so far as controlled by public policy, the question is for the legislature rather than for the court, and that the fundamental error of Mr. Pierce, and the authorities which hold such mortgages fraudulent per se and void, lies in assuming that the question is to be determined by the principles of the common law as propounded in Twyne’s Case, rather than by a fair construction of the provisions of the statute, and of public policy as indicated by the provisions of the statute.”

Jones on Chattel Mortgages, Section 381, regards such mortgages as valid, and rests his text upon the principle that the statutes authorizing chattel mortgages where the mortgagor retains possession would fail of their purpose in respect to an important class of property, — merchandise held in stock and for sale, — if the doctrine of constructive fiaud must obtain, and render such instrument void on their face. The authorities for the more modern rule impress us as sound in their reasoning, and we hold that the question of the good faith of a mortgage transaction like the one .before us is, on principle, not co be decided as one entirely of law, but is largely one of fact, and must be ruled upon accordingly. (Etheridge v. Sperry, supra.)

Leopold v. Silverman, 7 Mont. 266, 16 Pac. 580, decided by the territorial Supreme Court, followed the supposed doctrine of Robinson v. Elliott, 22 Wall. 512, 22 L. Ed. 758; but since those two decisions the Supreme Court of the United States, in People’s Savings Bank v. Bates, 120 U. S. 556, 7 Supreme Court 679, 30 L. Ed. 754, and Etheridge v. Sperry, already cited, has declined to accede to the doctrine of the case of Robinson v. Elliott, supra, as interpreted in Leopold v. Silverman, supra, while this Court has likewise modified, if it has not drawn away from, the views expressed in Leopold v. Silverman, by already putting itself in accord with the better rule. (Rocheleau v. Boyle, 11 Mont. 451, 28 Pac. 872; Heilbronner v. Lloyd, 17 Mont. 299, 42 Pac. 853.)

4. Pi or is the mortgage on its face invalid because it authorized one of the mortgagors to retain his necessary living expenses; for if there be no fraud in law by necessary implication from the mortgage of the stock in trade with power to sell to pay the debt due the mortgagee, and account for the sales to him, or generally from a chattel mortgage of all the goods of a merchant, with such powers and agreements contained within it, it is difficult to see how an agreement which allows the mortgagor to draw out enough for his subsistence necessarily has the effect to hinder, delay or defraud creditors and is a fraud upon them. It certainly is competent evidence to be considered in the determination of the question of the good faith of the parties to the mortgage, but if the whole transaction is honest, and has been entered into in good faith by all parties to the mortgage, the only way by which, in most instances, the provisions agreed upon can be effectually carried out, aud by which the stock can be sold, and the mortgagee paid, and the mortgagor’s business still allowed to continue, is to permit the mortgagor to manage the stock with regard to the rights of the mortgagee,‘and to draw a living from the proceeds while he is doing so. Indeed, if be has no other property or independent means, — and a merchant who executes such a mortgage in good faith is usually wholly without ways of living, outside of the net proceeds of current sales from his stock, — yet it is a fraud for him to draw out enough for him to live upon, such a mortgage is of no benefit to the mortgagor; for he simply cannot remain in possession to fulfill the agreement, if he can get nothing to live upon while performing the contract. Carried to its conclusion, it will readily be seen that, if such mortgages are to be held fraudulent on their faces because of such agreements, none may make them, except men of independent means or credit; but as we all know that such persons do not, as a rule, have to resort to these liens to protect their creditors, it is more just to establish principles which will give effect to such mortgages by consideration of that common knowledge which tells us that those who mortgage their stocks are too often without any other means at all, and yet by the law they have the power to mortgage whatever they have,, in an honest effort to pay their debts without resort to assignment for the benefit of creditors. All such agreements, however, whether in parol or included in the mortgage itself, should be closely scrutinized, for they force the transaction involved close to the line where the law will say the parties have adopted a means whereby creditors are hindered and delayed; yet, notwithstanding all this, such mortgages are not necessarily of such a character that the law will conclusively imply fraud, if none actually exists, but will leave the question of good faith to be tried as one of fact. (Frankhouser v. Ellett, 22 Kan. 127.) In Oliver v. Eaton, 7 Mich. 107, a provision whereby the mortgagor was to apply the proceeds of sales in the purchase of other goods, keeping up the stock, £ ‘and in the support of his family, ’ ’ and to pay a certain indebtedness, was held by Campbell, J., not to render the mortgage null and void, but that the intent was for the jury. (See, also, Gay v. Bidwell, 7 Mich. 519, and Sperry v. Etheridge, 63 Iowa 543, 19 N. W. 657.)

In the very recent case of Williams v. Mitchell, (Kan. App.) 58 Pac. 1025, the case of Frankhouser v. Ellett, 22 Kan. 127, supra, and Whitson v. Griffis, 39 Kan. 211, 17 Pac. 801, are affirmed in the following language: “It is further contended that the mortgage is void upon its face by reason of the following provision: ‘It is agreed that said R. Allen Hall shall remain in possession of store, subject to the prior provisions of this mortgage, and, after expense of store and living are deducted, the balance of money shall apply on debts secured.’ A chattel mortgage will not be declared void upon its face for the reason that the mortgagor retains possession of the stock, and is permitted to deduct his living expenses from the proceeds of the sales, ‘but will be upheld or condemned according as the arrangement is entered into and carried out in good faith or not. ’ ” We think, therefore, that on the face of the instrument this provision does not require the Court to treat it as fraudulent and void.

5. We disagree, too, with the contention that the authority ‘ ‘to sell at retail to regular and other customers in the usual and general way of business for cash, or on not to exceed thirty days’ credit to responsible parties,” per se renders the mortgage void. We would advise against a provision in a chattel mortgage allowing sales on credit, as its apparent tendency is to vest in the mortgagor a discretion in respect to his sales which may afford him an opportunity to collusively dispose of his stock with intent to delay and defraud unsecured creditors; but, while such a provision invites a challenge of the transaction involving it, on the other hand we are not prepared to say that a right to sell at retail only to customers in the usual and general way of business, for cash, or on credit of no more than 30 days, gives so great a latitude to the mortgagor that, as a matter of law, it destroys the security of the mortgage lien, and conclusively negatives all presumptions of good faith, and forbids any inferences other than those of a fraudulent intent. Having shown that mortgages upon stocks of goods, with power to sell therefrom in the usual course of business, are valid, it would seem to follow, where the mortgage may run for a year, that sales at retail (if the business is a retail one generally), for cash, or to responsible parties on a limited credit for 30 days, are not incompatible with the best of faith and perfect honesty, where the mortgage provides for accurate accounts of all sales, and that collections and deposits be applied towards the payment of the debt, less necessary and actual current expenses of conducting and maintaining the business. The usual and general way of conducting a drug business in a small town is probably to sell in part on a 30-day credit to responsible people, so that authority to extend such a credit may be but an agreement that sales can be made in the usual and general way of business.

Sales and application of proceeds of sales are strictly within the intended purposes of chattel mortgages of the kind before us, and, so long as the parties to them keep within the bounds of the lawful operations of such mortgages, they have a right to insert any reasonable provisions consistent with the intention of applying the stock mortgaged to the liquidation of the debt secured by it. Now, under the stipulation of the mortgage by Ross & Co. to Fenske, the accounts of all sales were to be made monthly, and at the accounting the proceeds of all sales and collections, less expenses, etc., as hereinbefore considered, were to be applied to the payment of the note to Fenske. This stipulation imputes no fraud to either party, for, so long as it was complied with, the mortgage was having its desired and lawful effect, and Noyes Bros. & Cutler were not injured; nor were they hurt by an extension of a credit for thirty days, because, as against them, or any unsecured creditor in like position, all sales, whether cash or for credits, .were to be accounted for; and we are of opinion credit sales should, as between mortgagors and mortgagee, all be deemed cash payments paid over to apply on the note of Ross & Co., although, as between Ross & Co. and Fenske, the credit may not have been collected, and may in fact have.been unpaid at the time of the accounting. In Brackett v. Harvey, 91 N. Y. 214, an agreement was entered into between a mortgagor and mortgagee, wherein the mortgagee agreed, among other things to “take business notes running sixty and ninety days, to be indorsed by said Frank E. Darrow, and apply the same' in payment of Dar row’s said notes as they fall due.” Thereafter a mortgage was executed pursuant to said contract, and, upon the question of the validity of the mortgage because of such an agreement, the court held that, under a stipulation allowing the mortgagor to sell the mortgaged property, but accounting to the mortgagee for the proceeds, and applying them to the mortgage debt, “the proceeds realized by the agent are to be deemed realized by the principal, and, as against an adverse lien, are to be applied on the mortgage debt, even though not actually paid over, ’ ’ and that under that doctrine it is impossible to impute fraud or injury to others in the agreement. The reasoning of the New York court appears to recognize an agency in the mortgagor who sells goods, whereby his act in selling for credit binds the mortgagee to treat the credit as if it were cash; and this way of looking at it finds support in Conkling v. Shelley, 28 N. Y. 360, Miller v. Pancoast, 29 N. J. Law, 250, and Frankhouser v. Ellett, supra, and other cases referred to hereafter. In the last case Judge Brewer, for the court, said that a mortgagor in possession, with authority to sell and apply the proceeds, acts in respect to the sales ‘ ‘as a quasi agent, at least, of the mortgagee.” We do not regard him as an agent in fact, inasmuch as the mortgagor is the owner of the stock mortgaged at least until steps are taken to foreclose his rights, yet he is an owner under an agreement to sell for the benefit of the mortgagee, and to account, and to reserve nothing beyond what is actually necessary to be reserved to carry on the business and live upon; and in carrying out this agreement, so far as the rights of third persons who are creditors are concerned, he occupies a relationship towards the mortgagee which should be deemed to bind the mortgagee to the extent of requiring that all credit sales made pursuant to the authority of the mortgage should be treated as cash, and applied on the debt secured by the mortgage. To this extent we concur with Jones on Chattel Mortgages, Sec. 422, who says the mortgagor in such cases ‘ ‘may well enough be regarded as the agent of the mortgagee in making the sales and in receiving the purchase price.” In People v. Bristol, 35 Mich. 29, decided before the last Kansas case cited, the court decided that a chattel mortgagor is an owner, and could not be the agent of the mortgagee; but notwithstanding this reasoning, which we think is exact, in a sense, the case is cited to support the text of Mr. Jones, that the mortgagor may “well enough be regarded as the agent;” and, moreover, it was before the Supreme Court of Kansas, in Frankhouser v. Ellett, supra, where the mortgagor was characterized as a quasi agent, for Judge Brewer cited the opinion as an authority on another point, but referred to it as sustaining the doctrine of agency, as he applied it. It can be said, therefore, that, while the mortgagor is the owner, yet by virtue of the mortgage he has contracted in good faith to conduct his business and sell his stock to liquidate his mortgage debt; and in order to do this, and still avoid suspension, he has agreed to turn over all moneys to the mortgagee, only reserving necessary expenses, and that in executing this agreement he will act for the interests of the mortgagee, and, in a measure, in his direct behalf. A mortgagor intrusted with this authority must possess the confidence of the mortgagee, and it is because of this confidence that he is permitted to sell under agreement to turn over and account. His position is, therefore, in this sense, that of an agent of the mortgagee; while as to third persons, in respect to credits, he is to be held an agent. (Gleason v. Wilson, 48 Kan. 500, 29 Pac. 698; Wilson v. Sullivan, 58 N. H. 260; Allen v. Goodnow, 71 Me. 420; Sawyer v. Long, 86 Me. 541, 30 Atl. 111.)

Lane v. Starr, 1 S. D. 107, 45 N. W. 212, is an interesting case upon the point just considered. The sheriff there levied upon a stock of drugs and other goods under attachments and executions against one C. J. Lane, then personally in possession. Starr claimed ownership by virtue of a chattel mortgage executed by C. J. Lane to him, and brought action. The question considered was the validity of Starr’s mortgage as against the creditors of Lane. The mortgage contained a clause authorizing C. J. Lane to remain in possession until the mortgage debt was paid, ‘as agent of W. A. Lane, ’ ’ and required* him to account to W. A. Lane, or his assigns, monthly, for all sales, until the debt was fully paid. There was a.further clause in the mortgage whereby the parties stated their intention to be that “the sale of the property should be absolute to W. A. Lane until the debt was fully paid, the said C. J. Lane acting only as the agent of said W. A. Lane in disposing of the goods, * * * and accounting * * * until the indebtedness was paid. ” The court held that the provision vs as a valid one, and that the means employed and consented to were consistent with the trust created to effect a direct and convenient conversion of the mortgaged property into money to be applied on the debt. The court said this, also: “In this treatment of this case we have not forgotten the theory of our statute, that the title to mortgaged property remains in the mortgagor, nor have we overlooked the apparent difficulty of making the mortgagor, who still owns the goods, the agent of the mortgagee, who does not own them; but this relation of the parties to the title to the property cannot affect the principle involved in this discussion, nor require nor justify the application of a different rule for the discovery of the true character or effect of the agreement. The quality of the transaction, as fraudulent or otherwise, is determined from its éffect, possible or probable, upon the interests of other creditors; and the effect of this agreement upon those interests would be precisely the same whether the title passed to the mortgagee, or whether it remained in the mortgagor. The presence or absence of vice in this agreement is tested by the inquiry whether the sales were to be made in the interest of the mortgagor, and the proceeds controlled- by him, so that they might or might not be applied upon the mortgage debt,,or whether they were to be made in strict and faithful execution of a real trust, so that every decrease'of the security should work a corresponding reduction of the debt.” (See, also, Felner v. Wilson, 55 Ark. 77, 17 S. W. 587; Crow v. Red River Co. Bank, 52 Tex. 362; Fink v. Ehrman Bros., 44 Ark. 310, and Adler & Bros. v. Claflin, Mellin & Co., 17 Iowa, 89.)

6. Appellants next argue that the court’s decision in favor of the respondents is erroneous, because the mortgagee, after he took possession, sold the mortgaged property in the ordinary course of business, and disposed of the same at auction, prior to the maturity of the debt, and without authority contained in the mortgage to make any sale at such time. Let us grant that this is all true, and, even so, the plaintiffs are not in a position to complain. The mortgage being a valid security, and possession thereunder having been legally taken, and plaintiffs, as we have shown, having had no lien upon the stock of goods, and the mortgagors having acquiesced in the acts of the mortgagee, as firm creditors plaintiffs have not shown that they were injured by any acts of the mortgagee done to make his lien effective. The property turned out to be inadequate security for the debt due Fenske, but there having been no fraud or illegality in his acts by which plaintiffs were injured, and plaintiffs having shown no title or right of possession to the property, they are without cause of complaint against the defendants.

Finding no error in the record, the judgment must be affirmed.

Affirmed.

---

Concurrence Opinion

Mr. Chief Justice Brantly:

I concur.

Mr. Justice Pigott: I am not entirely satisfied, upon the facts as they appear in this case, that the provision of the mortgage permitting the actual and necessary living expenses of one of the mortgagors to be paid out of the proceeds of the mortgaged personalty does not, of itself, invalidate the mortgage as to the plaintiffs; I am inclined to think, however, that the better reasoning supports the conclusion of the opinion, that such provision does not, per se, necessarily avoid the mortgage as to creditors, and I therefore concur. Upon the other points decided I concur also.