18 F. Cas. 918 | U.S. Circuit Court for the District of Indiana | 1878
On the 21st day of January, 1876, John H. Quick, administrator of the estate of John S. Roeka-feller, deceased, sold to Charles Brown, in pursuance of an order in the circuit court of tlie state, a certain lot of dry goods for five thousand two hundred and forty-four dollars,' for which sum the purchaser, on the day of sale, gave his four equal promissory notes, payable, in six, nine, twelve and fifteen months respectively. Payment of these notes was secured by a chattel mortgage executed by the purchaser at the time of sale on the stock of goods. Brown is a citizen of Upland. Giant county, Indiana, and the sale was at Brookville, Franklin county, Indiana, the residence of Quick. Before receiving the goods, Brown informed Quick that he was going to add them to his stock at Upland, and sell them in the usual course of his retail business. Brown agreed, before Quick parted with the goods, that he would apply the proceeds of the sale to the payment of the notes, even before maturity, if he realized fast enough. He also agreed to collect several outstanding claims due him, and apply the money on this indebtedness. But there was no agreement that the goods should be kept separate from other goods, of that the
The Indiana statute of frauds declares, that no assignment of goods by way of mortgage shall be valid against any other person than the parties thereto, when such goods are not transferred to the mortgagee or assignee, and retained by him unless such assignment or mortgage is acknowledged and recorded in the recorder’s office of the county where the mortgagor resides, within ten days after its execution; and the question of fraudulent intent is in all cases to be deemed a question of fact 1 Davis’ Rev. Stat. 505.
On its face there is no objection to this mortgage, but it is claimed that the verbal agreement allowing Brown to retain possession of the goods and mingle them with his stock on hand at Upland, and dispose of them in the usual course of business without keeping any separate account of sales, rendered the instrument void. The case of Robinson v. Elliott, 22 Wall. [89 U. S.] 513. which went up from this district, is cited in support of this position. In that case the mortgage was given to secure an antecedent debt, and by its terms allowed the mortgagor to retain possession of the goods and dispose of them in the usual course o" business, as before, for his own benefit, fine proceeds were not to be applied on the mortgage debt. The goods were to be sold for the benefit of the mortgagor, and not for the benefit of the mortgagee. The instrument, therefore, instead of being a security for the mortgagee, was simply a shield for the mortgagor against his other creditors. It could have no other effect. Such an instrument is not intended to perform the office of a mortgage, and is not a mortgage. In the case before us the mortgage on its face is free from objection; but after its execution, and before the goods were shipped from Brookville, it was agreed that the mortgagor should add them to his stock in trade at Upland, and sell them first for the benefit of the mortgagee.. The agreement was to apply the proceeds to the payment of the notes, even before maturity, if sales were brisk enough. If, in fact, that was the agreement of the parties, and there was no intention thereby to hinder or delay other creditors, the statutes of this state were not violated. It is not claimed by the plaintiff that there was any actual intention on the part of either Quick or Brown to defraud any one by this arrangement. The plaintiff’s position is that the agreement was in itself fraudulent, and that was the view of the master.
In delivering the opinion of the court in the case of Robinson v. Elliott [supra], Justice Davis said: “We are not prepared to say that a mortgage under the Indiana statute would not be sustained, which allowed a stock of goods to be retained by the mortgagor and sold by him at retail for the express pui'pose of applying the proceeds to the payment of the mortgage debt. Indeed, it would seem that such an arrangement, if honestly carried out, would be for the mutual advantage of the mortgagee and the unpre-ferred creditors.” Brown was, in effect, Quick’s agent for the sale of the goods; if he violated his agreement by neglecting to pay over to Quick the proceeds of the sales, and misapplied them, it is Quick’s loss. Brown’s creditors have no right to complain if the proceeds of the goods sold, are credited on Brown’s indebtedness to Quick. It was all the same to them whether Brown sold the goods and paid the money to Quick or misappropriated it. In either case Quick is charged with the value of the goods sold as between him and Brown’s other creditors.
Quick, in good faith, took a mortgage on the goods sold to secure the purchase money, at the same time authorizing Brown to sell the goods and account to him for the proceeds to the extent of the four notes. Brown sold part of the goods, but failed to account to Quick for the proceeds, and went into voluntary bankruptcy. Now, it would be manifestly inequitable to say that Quick should
I think the proceeds of the goods remaining unsold at the time the assignee came into possession should go to Quick, and that he should be allowed to prove against Brown’s estate as an unsecured creditor for the goods sold by Brown and misappropriated, on surrendering the notes and mortgage.