| Iowa | Apr 11, 1861
This case seems to have turned chiefly upon a few propositions of law laid down by the court to the jury; to understand which more fully it may be well to state some additional facts disclosed on the evidence and admitted by the parties as making up a part of the history of this case.
. First. That all the land aforesaid sold and conveyed by plaintiff to Shelley & Grosvenor except one hundred and twenty acres, had been sold and re-conveyed by them to their creditors in payment of their liabilities at the rate of three dollars and a half to five dollars per acre.
Second. That the stock of goods mortgaged to secure the payment of $4,160, was estimated to be worth about $9,000. That Shelly & Grosvenor remained in possession after the execution of the mortgage, and sold with the knowledge of the mortgagee about one thousand dollars worth of books and stationery, between the execution of the mortgage and the levy of the attachments aforesaid, the proceeds of which were applied to their support and the rent and expenses of the store-
Third. The good faith or honesty of the transaction between the parties to the mortgage, was not impeached by any evidence whatever.
Upon the foregoing facts the court gave, among others, the following instructions to the jury, as applicable to the law of the case:
1. “ A mortgage of personal property which gives to the mortgagor the possession of, and the right to sell, the mortgaged property, and deal with it as his own, is fraudulent and void as against the other creditors of the mortgagor.”
2. “ If the power of disposition appear upon the face of .the mortgage, is fairly to be inferred from its provisions, or
3. “ Where there is a just debt, and no fraud manifest or inferrable, and the mortgage permits the mortgagor to retain possession, and to dispose of the mortgaged property for his own use, beyond what would pay' him, the mortgagor, a reasonable amount for his services, still it would be your duty to find that the transaction was fraudulent.”
4. “ If the jury believe from the evidence that at the time of the execution of the mortgage the parties thereto agreed that mortgagors should remain in the possession. of the property mortgaged and continue to sell and dispose of the same as their own, and appropriate the money to their own use, and that they in fact did these things in pursuance of said agreement, or with the knowledge and permission of the mortgagee, then the mortgage is absolutely fraudulent and void as to existing creditors, and they must find a verdict for the defendant.
The other instructions for the defense contain nearly the-same general proposition of law presented in different lan-. guage and form.
Although these instructions harmonize with the English common law doctrine, and have for their authority quite a number of American decisions, yet we have not been able to reconcile the principle they contain with the true meaning and object of our code; which in some respects is unlike the provisions of any other statute we have seen, and which we are inclined to believe wras intended perhaps to relieve the question involved of the difficulties that have always surrounded legal or presumptive frauds arising from the possession by the debtor of property mortgaged, and which has been the fruitful source of much discussion and of many and conflicting decisions.
It is very evident that the bare possession of mortgaged
Under such a, statute, making the possession of the mortgagor equivalent to that of actual delivery to the mortgagee, it is most difficult to conceive how the’retention of possession by the mortgagor can ever, under any circumstances, be regarded a fraud in law; for the plain reason that such possession is not only authorised, but explained by the statute itself, and therefore cannot be inconsistent with the rights of the parties or the nature and purposes of the transaction. >
.- On the other hand it is easy for us to conceive how such .a mortgage may be fraudulent in fact whether the possession • of the property be in one party or the other, and notwithstanding it may be regularly executed, duly recorded and all fair upon the face; yet such fact or fraudulent intent, must :be shown by extrinsic evidence and pronounced by the jury. Rut in doing so the jury could infer nothing from the possession of the property by the mortgagor, for this -would be entirely consistent with the authority of the statute, if the
Eor instance if a livery stock of horses and carriages is mortgaged for a sum very much less than their intrinsic value, and possession retained by the mortgagor, with the right of use, it will not follow, the first being lawful, that a reasonable use of that possession would be incompatible with an honest purpose, but rather a necessary incident flowing from the right of possession under the law.
Again, if a large and valuable stock of merchandise is. mortgaged for an inconsiderable amount, the mortgagor being in possession might dispose of quantities of these goods without in the slightest manner impairing the mortgagee’s security. As long as there is an abundance left to secure the mortgage debt, the mortgagee may permit the mortgagor to sell without forfeiting his rights under the mortgage. Such a use or such a sale of the mortgaged property, not materially affecting the value of the security is not necessarily inconsistent with a good purpose or the ordinary course of business; and the law, like the charities of our religion “ thinlceth no evil” as long as there is equal room to impute honest motives. Whether, therefore, possession with the right to deal with the property as Ms own is fraudulent in a mortgagor, is a question of intent, and will depend entirely upon the circumstances explaining such acts of ownership.
If a stock of goods is mortgaged to their whole value and the mortgagor is permitted to hold possession, sell and pocket the proceeds, such acts would be wholly irreconcilable with the object of the mortgage and the interest of the mortgagee; and the inference that the mortgagor had a
These illustrations show, as we think, to a limited extent, the soundness of the rule, that whether a chattel mortgage under our statute, when the mortgagor holds possession and deals with the mortgaged property as his own, is fraudulent or not, is a question of fact for the jury and not one of law for the court.
Now, the foregoing instructions were framed and given upon the theory that the consent of the mortgagee that the mortgagor should hold possession and deal with the mortgaged property as his own was a fraud in law against the rights of execution creditors, and as such the mortgage was void. These instructions have for their authority the law as it was pronounced in the cases of Collins and McElroy v. Myers, et al, 16 Ohio, 547 and Freeman v. Rawson, 5 Ohio St., 1" court="Ohio" date_filed="1855-12-15" href="https://app.midpage.ai/document/freeman-v-rawson-6752148?utm_source=webapp" opinion_id="6752148">5 Ohio State, 1.
These cases are specially referred to,because more directly in point than any of the authorities referred to by the defense in this ease, and for the reason that the very language of the doctrine laid dowrn in those cases is inccporated in these instructions.
The Ohio statute does not make the retention of possession by the mortgagor equivalent to an actual delivery of possession to the mortgagee, and hence the legal effect of possession by the mortgagor, there so far as the rights of third persons are concerned, must be somewhat different from what it is here. We conclude therefore that a decision in Ohio upon the points under consideration, or that of any other State having a statute so essentially different from ours, could not be very safely adopted as a rule for the interpretation of the law of chattel mortgages in this State.
In the case reported’ as above, in 16 Ohio, Judge Read, speaking of the legal effect of possession by the mortgagor coupled with the power of use and sale, uses the following
In a later case reported as above, in 5 Ohio State, Judge Ranney remarks: “ To hold such a mortgage valid would enable the debtor to do business upon a capital within the limits of the mortgage debt, at the will of the mortgagee, and would furnish a complete shelter under which a man could carry on trade for his own benefit, completely protected from the payment of his debts, and placed wholly beyond the reach of his creditors.
These are the prominent reasons assigned for holding in Ohio that a mortgage is invalid or fraudulent in law, where the right of sale is conferred upon the mortgagor, or such right is exercised with the permission of the mortgagee. If such really are the legal consequences that flow from the exercise of such a power under their system of laws, then no fault we apprehend can be found against the correctness of their decision. Rut as we understand it, the same consequences cannot follow under our system of remedial justice. It is true that if the mortgagor is permitted to deal .with the property as his own, the mortgage security is not altogether safe or certain; much is necessarily left to the honesty and good faith of the debtor, but if this confidence is abused, it is the misfortune of the mortgagee, andfurnishes no ground of complaint as to other creditors. They are no worse off than they would have been if no mortgage had ever been executed. To them it can make no difference whether the mortgaged property is in the possession of the mortgagor or mortgagee. In neither event is the property altogether beyond their reach or control, as it is stated to
Nor is this all. While the sheriff could not levy upon and sell any interest which the mortgagor may have in the mortgaged property, for the reason that he could not deliver possession, or take the possession from the mortgagee until his claim was satisfied, yet inasmuch as under the Code, section 1210, the title and right of possession in the case of the mortgage of personal property are both in the mortgagee ; and as section 1195 declares that after the record of such mortgage the legal effect of possession by the mortgagor shall be the same as though it had been accompanied by actual delivery of possession to the mortgagee, we can perceive no reason why the mortgagee, holding as ho does the legal title, which draws to him the possession which for that reason is under his control, may not be garnished and required to answer the amount of his claim yet unpaid, the amount and value of the property he holds as security for the same; and if above the amount of his claim, then that ho should be held responsible from the service of the garnishment for the sale or disposition of any property thus mortgaged, over and above the payment of his own claim.
This course of procedure would require, perhaps, the mortgagee to assert his rightful dominion over the property in order to protect himself. And it would be competent also in a case of this kind, we apprehend, if it would conduce to the rights of all the parties concerned, for the court to appoint a receiver whose duty it should be to take the custody of said property, and under the direction of the court to dispose of it, first liquidating the mortgage debt, and
If it should be said that whilst such a course of procedure might properly be pursued before forfeiture, yet it could not be after such forfeiture, for then the title vests absolutely in the mortgagee, the reply to this is, that after all a chattel mortgage is hut a security for a debt; and if in equity a creditor could compel a mortgagee after forfeiture and before sale under a foreclosure to receive his debt and release the property why may not a court of law, now brought into such intimate and close relations with a court of equity under our reformed system of remedial justice, exercise the same power in a more simple and direct process of garnishment. The rights of all the parties could he as well guarded and promoted in one jurisdiction as the other.
The remedies for the creditor, when the mortgagor retains possession with the right to dispose of or use the property, are suggested for the purpose of showing that under our system of jurisprudence, the hardships and injurious consequences which it is claimed result from possession in other States, whose decisions were followed by 'the court below, in this ease, do not necessarily exist under our law.
But in addition to this, it is conceded that if the parties to the mortgage had a fraudulent intent in creating the lien to hinder and delay other creditors, and thereby confer advantages upon the mortgagor which he would not otherwise possess, this would be a fraud in fact, which, when pronounced by a jury under the evidence, would render the mortgage void and enable the creditors at once to levy upon or attach the property.
This however presents a very different state of case from possession by a mortgagor in good faith, in accordance with the provisions of positive law. To deprive the creditor in such oase of his security simply because the debtor exercised the power of disposition would not only defeat the object and policy of. the law, but make the law itself
Possession by the debtor under such circumstances is on the other hand a statutory rigid founded upon the mutual convenience and interest of the parties, intended for a beneficial purpose, carrying with it as a logical sequence the use of the only means which he could employ by virtue of such possession to pay his debts 9 Iowa, 304.
Naked possession without the power of use or sale would be a barren right equally productive of mischief to both parties, tying the hands of the debtor and suppressing all effort to realize from the property the money requisite to extinguish the debt.
In the case before us it is conceded that there was no fraudulent intent to prejudice in any way the rights of the. creditors. So far from this the creditors had in fact been largely, benefitted by the arrangement. Some seven or eight thousand dollars of their claims had been satisfied out of the proceeds of the land which Shelly & Grosvenor had obtained from plaintiff, and for the purchase money of ■which they had mortgaged their stock of books, &c.
To permit this mortgage now to be defeated by a mere , inference- of legal fraud, which cannot in our opinion be indulged in under our system of remedial justice and law of chattel mortgage, would be unjust, illegal and oppressive.
Judgment reversed and cause remanded.