Martin v. Ogden , 41 Ark. 186 ( 1883 )

OPINION.

i. mokt^GA’"Postainea by go?. 11„ a Since the decision of Lund v. Fletcher et al, 39 Ark., 325, it must be taken as the settled doctrine of this court, that a mortgage of articles of merchandise containing a provjsj0Uj tjjg mortgagor may remain in possession and sell, and no provision that the proceeds of sale shall be applied to the mortgage, or so invested as to fix a continuing trust upon them for the purposes of the mortgage, is invalid save between the parties. The doctrine-in that case was cautiously qualified and guarded, because of the doubts which have perplexed other courts in analogous cases, and the multiplicity of conflicting decisions in different state and federal courts.

This case does not- come within the purview of that principle ; and we must now proceed further and determine whether or not, as against creditors having no notice at the time the credits were given, a mortgage of personal chattels can be sustained which, upon its face, presents no inherent vice, and concerning which there is no express allegation, nor proof of actual fraud ; but under which the mortgagees or trustees have taken no possession, and have allowed the mortgagor or grantor to remain in possession, and sell without giving any account of the proceeds. That is the case presented by this record. It is not conceived that, if recorded at all, the time of recording can, in this case, make any difference. If not valid against creditors if recorded in the lifetime of the grantor, it would not be so if recorded after his death. If it would have been valid if recorded in his lifetime, it would be equally so when recorded after his death, for general creditors have no special liens to be displaced ; and our statute, which makes all mortgages liens from the time they are filed for record, contains no provision that they shall be filed in the lifetime •of the grantor.

00,,^ fa? e°°a' It is no longer open to question in this State, that a mort■gage of real property unaffected with fraud, but unrecorded, ■creates a valid lien, remaining after the death of the gagor, against administrators, heirs, devisees, and general •creditors, and there is no reason why the same doctrine ■should not apply to personalty. See Haskill, adm’r., v. Sevier, ad., et al,25 Ark., 156. And this applies whether the debts of the creditors were in existence when the mortgage was made, or were created subsequently, upon the faith of the property, without notice of the mortgage, and regardless of the merits of the creditor’s claim. Upon the ■other hand it is as much closed from question that an unrecorded mortgage, however honestly made, is wholly invalid ■against attaching creditors, or persons obtaining a specific lien, or even subsequent purchasers who take with the full knowledge that they are defeating another’s lien, and who intended to do so. See 9 Ark., 112; 20 lb., 190; 18 Ib., 105; 33 Ib., 203; 37 Ib., 94.

These rules have now become so fixed that it would be unwise, in this court, to attempt their change or modification. Whatever in them there may be incongruous or shocking to a sense of equity, has resulted from efforts to-effect legislative intention, aud it devolves on the legislature to bring our equity jurisprudence in harmony with the-moral sense of the most civilized peoples. The simple question left for us here is, was this mortgage fraudulent, either in fact or by legal presumption ?

3. Samis: Pleading: Alleging írsiud. 4, Fraud: Presump tion of. 3. Samis : Mortgag o r remaining in possession. It was neither alleged nor proved to have been made with-[base motives, but may beheld fraudulent if the facts justify the conclusion. It has many of the indications of fiaud by presumption, which existed in the well known Twynne’s- ; case. That presumption may grow, not alone from the face of the instrument, but from concurrent acts, surrounding circumstances and subsequent conduct of the parties to the instrument, reflecting light upon their original intention, The more modern and better doctrine is that this is a presumption of fact, and that no conclusive legal presumption arises from the fact that the vendor remained in possession, and that even such a presumption of fact does not necessarily arise where the possession accompanies or follows the deed, or where there is a mere mortgage. It is a question for a jury, or, in equitj', for the chancellor, under all the-circumstances.

If the mortgage had been merely of articles, beneficial in the use, such as tools, agricultural implements, railroad equipments, horses, mules, etc,, then it would be natural and proper that the owner should remain in possession and have that use, not only for his own convenience, but the-better to enable him to pay the debt; and future acquisitions-of such property may be brought within the mortgage, and provisions for their change .and replacement as necessity or convenience may require, may be properly made. See case of Lund v. Fletcher, supra.

But drugs in stock are kept soleljr for merchandise and have no other use than for sale, and disappear on selling. The parties would not have been allowed to provide that the mortgagor might remain in possession and dispose of drugs in the course of trade, without applying the proceeds to the debt, or in some way attaching to them or their fruit, a continuing trust, and at the same time make continual additions to the stock, all to be protected by the mortgage against creditors. It is evident that one might continue business all his life that way, secretly investing all surplus profits for the benefit of himself and family, and always keeping enough in stock to satisfy the demands of his trade, with perfect impunity — that is if his mortgagee were allowed thus to protect and shield him. It is no answer to say that by this course the mortgagee’s security is diminished also. That would be his own business if true, but he would have no right at his own risk to enable his debtor to defraud every body else. That would violate the maxim of “sic utere tuo” etc. Besides it would be an easy matter to keep always in sight enough to satisfy the mortgage and not enough more to tempt other creditors to grasp after the surplus. According to ordinary human motives, a creditor thus favoring a debtor, might rely upon his complaisance to that extent.

Why should parties be allowed to do with impunity the very things which the law tells them they shall not agree to dof Yet it seems to us¿that the able counsel for appellants are urging upon us that they must be ; because, as they say, the mortgage contains no such stipulations and is not void upon its face, and that matters are not necessarily fraudulent when done, which the law would have held fraudulent in them to stipulate to do.

In this case it appears that when the grantor gave the deed of trust he was largely in debt, at least to one other creditor, who was his clerk; owing him not only by note, but for unpaid services ; that it was kept secret even from this clerk, who of all others would have been apt to know it, and was most interested to know it, and who in good faith ought to have been advised of it. That the grantor, with the assent, at least tacitly given, of the trustees, proceeded in the business as if he were true owner, for more than three and a half years, selling and replenishing, and rendering no account of the proceeds to anybody; that he went on availing himself of the services of his clerk, without paying him, that the clerk "relied upon his employer’s apparent ownership and increased his credit; that after the grantor’s death, the trustees, or one of them, accepted the administration of the estate, getting control and possession thereby of the stock; and then having all in their own hands, they advertised a sale of the property under the trust deed.

Whatever views the trustees and the grantor may have had of these transactions, we think the chancellor did right in enjoining the sale perpetually. Conceding honesty of intention, and the complainant' does not seem to desire to question that, this belongs to the class of cases in which courts hold transactions fraudulent from public policy.

The perpetual injunction is against Austin and Martin, in their charactar as trustees. It will not prevent Austin from proceeding as administrator with such sales as the probate court may direct.

Affirm.