40 F. 394 | U.S. Circuit Court for the District of Indiana | 1889
(chargiag jury.) The essential question in dispute here, gentlemen of the jury, is whether or not the mortgage made by Vaughan on the 6th day of July to plaintiffs is a valid mortgage. Its validity is questioned on the alleged ground that it was made with intent to cheat, hinder, and delay the creditors of Vaughan. The statute of Indiana provides — quoting it as nearly as I can from recollection — that any conveyance or disposition of property made with the fraudulent intent to cheat, hinder, or delay creditors shall he void. It seems — and in referring to the facts I shall, at present at least, only refer to such as are undisputed — that, prior to the date of this mortgage, Mr. Vaughan had been in business at New Castle, in this state, as a retail merchant; that he had become largely indebted, his liabilities equaling or exceeding his assets, so that it may well be said that he was insolvent. He was indebted to these plaintiffs in the sum of $7,200, or thereabout. On ■ the day stated, (July 6th,) he made this mortgage to secure that indebtedness, evidenced by new notes given upon that day, due at different times, — at stated periods during five or six months from date. In addition to the $7,200 of indebtedness existing at the time, about which there seems to be no question, $800 was advanced on that day by plaintiffs to Mr. Vaughan, for the purpose of paying a debt that he specially desired to pay, and for the payment of which he used that money immediately; and that amount was secured by the mortgage, as well as by additional collaterals. On the same day, Mr. Vaughan disposed of other assets, by way of securing other creditors, — that is, on the same day and the following day, or in the early hours of the Monday following, the mortgage having been made on Katurday; and about 7 o’clock on Monday evening an assignment under the state statute was made by Mr. Vaughan for the benefit of all creditors, — -Mr. Thompson, the defendant in ibis case, being the assignee named in that instrument. The execution of this assignment, by reason of the terms of the mortgage, created a right on the part of the mortgagees, if the mortgage is upheld as valid, to claim possession of the goods at once. It is provided in the mortgage that the mortgagor shall retain possession of the goods, selling them in the ordinary course of business, accounting for the proceeds from week to week to the plaintiffs, — the mortgagees; and another clause of the mortgage shows that the phrase “to account” — or whatever the exact phrase in that connection is — means “to pay over the proceeds.” The phrase “to account” might be ambiguous; but a subsequent expression in the mortgage show's that the parlies meant that the proceeds of the goods should be paid over. After the execution of the assignment to Mr. Thompson, plaintiffs had some negotiations with the assignee, and, those negotiations failing, they claimed possession of the goods; and, possession being refused, they brought this suit, and, by virtue of the writ in the case, obtained possession of the goods, giving the bond required by the law. They then advertised the goods for sale; made a sale, the regularity of which is not questioned, so far as the forms of procedure, the notice, and so forth, are concerned. The sale was made at public auction, the plaintiffs themselves, in effect, becoming the pur
Further, it has been argued that the plaintiffs promised Mr. Vaughan, that they would sell him goods, and that that promise entered into the consideration of the mortgage, and that the plaintiffs, having broken this contract, are not entitled to enforce the mortgage. I instruct you that that is entirely immaterial. Such promises would not constitute a binding contract, if they were made; but, whether that would be so or not, whether they might have been so made as to constitute an element of the consideration of the mortgage, and a binding covenant on the part ■of the plaintiffs to furnish goods, that is not a matter that tends to establish a purpose to defraud creditors; and such breach of contract is ¡not the fraud charged.
Coming, then, to the question whether the mortgage was made with the intent to defraud, you will observe that it is not a question whether the mortgage would delay other creditors, — that is, not the sole question, —but the question is whether it was made with a fraudulent intent to
You have no right to infer a fraudulent intent without proof; and the rule is that fraud is not to be presumed upon slight circumstances. You are not to surmise fraud, or presume it without proof, either direct or circumstantial, of so convincing a degree as to produce a firm conviction in your minds of the fact that it existed. It is not required that it shall be proved beyond a reasonable doubt; but it must be proved clearly and satisfactorily. Then, I say, whether the parties meant to use the mortgage to cover up new goods that should be broughc into the establishment is a question of fact for you. The mortgage itself furnishes no proof of such intent, because it is perfectly evident that by honest conduct under the mortgage no such result would necessarily follow; and it is to be observed that, as a matter of fact, business was not continued under the mortgage at all. But, of 'Course, if, when the mortgage was made, they intended to do that, and the intention to make an assignment was formed afterwards, the making of the assignment would not affect'the purpose with which the mortgage was made. The argument of counsel — the last counsel who presented the case for the defense — is that there was a sudden change of intention, and that both intentions were fraudulent, — the original intention being to improperly use the mortgage in the way of carrying on the business; the second purpose, as claimed by counsel, being that the plaintiffs should ostensibly and formally foreclose the mortgage, advertise and sell the goods, buy them in themselves, and then turn them over to Mr. Vaughan, and he become indebted to them again, — practically reinstating the original status. Of course, if this had been the original intention when the mortgage was made, it would have been fraudulent; certainly, if the goods were worth more than the mortgage, and probably so even if the goods were worth only the amount of the debt. And upon this phase of the case the value of the goods cuts a considerable figure; because if the mortgage debt was equal to the value of the goods, once they were mortgaged and pledged for that debt, it would be immaterial to creditors what was done with them afterwards, because there would be nothing in them for creditors, no matter how the mortgage was handled. But if there was a probable valuable margin in the goods, over and above the mortgage debt, and the object was, through the mortgage, to transfer the title from Mr. Vaughan to the plaintiffs, and then back, either directly to Mr.
Another question — I have already indicated its importance as bearing upon the question of fraud — is the value of the goods, which you must state iu your verdict, if you find for the defendant. I believe it is not necessary to be stated, if .your verdict be for the plaintiff. The value of the goods is wbat they would fairly sell for in the condition they were in, taking advantage of the market as it was. You have heard all the testimony hearing on that subject, and will determine for yourselves what the amount should be. Of course, proof of what was made by the sale of the goods at retail, though it may aid you in determining what the wholesale value was, does not of itself determine that value. In other words, the retail proceeds are not, of course, to he treated as the value, although they may furnish you material assistance in determining what the wholesale value was. I shall not review the evidence. The questions at issue have been fully and ably discussed by counsel on both sides; and, witli the knowledge of affairs which you doubtless have, you will appreciate the force of the evidence upon the points in dispute.