Dutcher v. Swartwood , 22 N.Y. Sup. Ct. 31 ( 1878 )

Learned, P. J.:

On the 25th of September, 1875, one Gilbert executed a chattel mortgage to the plaintiff upon the goods and merchandise in Gilbert’s store to secure $1,147. By its terms, the mortgage was to cover all the goods and merchandise which Gilbert should buy or bring into his store before settling the demand. The learned justice who tried the case, charged that it was understood and agreed that Gilbert should take possession of the property, and go on and sell the same as in a retail store, notwithstanding the property was mortgaged; and that Gilbert did continue in possession of the property, and did engage in selling and retailing the goods mentioned in the mortgage.

No exception is made to this part of the charge; and, as the rest of the charge is based on this statement, it must be taken as correct, without examining the evidence. The mortgage contained the usual clause that, on non-payment of the debt, the mortgagee might take possession; and also, that he might take possession previously if he deemed himself unsafe.

One installment became payable October 18th, 1875; another January 18th, 1876. After the execution of the chattel mortgage, Gilbert purchased and put into his store goods to the amount of over $1,600, and he made sales to the amount of several hundred dollars.

On the 24th of January, 1876, the plaintiff employed a constable to foreclose this chattel mortgage, and that evening the constable went to the store and took possession. The constable took the key, locked up the store, and gave the key to the plaintiff. The next day the plaintiff went on and made an inventory, preparatory to selling under his mortgage. The plaintiff took possession as well of the goods bought by Gilbert after the execution of the mortgage, as of those in his possession when the mortgage was executed.

On the 27th and 28th days of January, 1876, four judgments were recovered against Gilbert, for indebtedness which arose prior to the 24th of January, 1876, and while Gilbert was in possession of the goods. Executions were issued on those days on the judgments respectively; and the defendant, the under-sheriff, on those days, levied upon the goods which the plaintiff had thus taken into his possession.

The defendant claimed on the trial, that as Gilbert was left in. possession of the goods, and continued to sell them under an agreement to that effect with the mortgagee; and as the mortgage was to have effect on.'subsequently acquired goods, the mortgage was void as to the creditors represented by the. defendant. But .the court refused so to hold, and stated that if the act of Dutcher in taking possession of the stock on January 24th, was in good faith, he was entitled to recover; but if that possession was taken fraudulently, the defendant was entitled to a verdict. To this the defendant excepted. ,

Subsequently the learned justice charged the jury, that' the ^mortgage was void as to creditors, and “the sheriff could sell, in case he had made a levy during the time the property was in that condition.” And. he further charged, that .‘.‘ the case simply presents the question, whether Gilbert or the plaintiff ivas the.owner ■of those goods; and the question turns .upon this simple point:. Did the plaintiff act in good faith when he took possession of those goods by virtue of his mortgage, or did he do it for the purpose’ of cheating or defrauding the creditors of Gilbert?”

To this the defendant excepted. The mortgagor remained in •possession, and therefore the mortgage ivas presumed fraudulent, .as against creditors (2 R. S. [m. p_], 136, § 5); and as there wgs. an agreement between the parties, that the mortgagor should .remain'in possession, sell .the property and appropriate the proceeds, the mortgage was held, by the learned justice, to be. void as to the creditors of the mortgagor. (Edgell v. Hart, 9 N. Y., 213; Russell v. Winne, 37 id., 595; Mittnacht v. Kelly, 5 Abb. [N. S.], 442; Griswold v. Sheldon, 4 N. Y., 580.)

• But the learned justice held'(and this,view appears more distinctly in his subsequent opinion) that the mortgage was void only as to such creditors as should make a levy oh the property before' the mortgagee had taken possession. The statute (2 R. S., m. p. 136, ■§ 6) defines avIio are meant by the Avord, •“ creditors.” They are all persons avIio shall be creditors of the vendor or assignor, at any time Avhile such goods shall remain in his possession or under' •his control. ■ ■ The statute-does not say that they must be judgment-creditors, but it declares, the mortgage void (presumptively or conclusively) as to all Avho are creditors. And this. Avord “creditors,” in a similar statute (2 R. S., m. p. 136, § 9), has received! this construction. (Thompson v. Van Vechten, 27 N Y., 581.)

It is, then, plain that the mortgage was (presumptively or conclusively) fraudulent as to the creditors represented by the defendant up to the 24th of January, 1876, when the plaintiff took possession. It is claimed by the plaintiff, and was so held by the learned justice, that the plaintiff, by taking possession under his mortgage on that day (unless he acted with actual intent to defraud), made the mortgage valid as to then existing creditors of the mortgagor who had not levied on the property.

The object of the statute, and of all similar law, is to prevent an obvious evil. Men who are in the actual possession and enjoyment of personal property necessarily obtain a credit thereon. They appear to be the owners, and are trusted accordingly. When, therefore, they have given a mortgage thereon, they obtain a credit to which they are not entitled. Now, if the doctrine of the learned justice is correct, the statute fails entirely to correct this evil. If the mortgagee, remaining out of possession, can allow the mortgagor to obtain credit and contract debts, and then, before ■the creditors sue, if he can take possession and thus defeat their claims, the statute becomes useless. The fraudulent nature of such mortgages consists in giving the mortgagor credit by allowing him to remain in possession. If the mortgagee, by taking possession, can defeat creditors who have already trusted the mortgagor, the arrangement becomes a trap, which the mortgagee may spring at any time.

In Frost v. Warren (42 N. Y., 204), a chattel mortgage was given; subsequently the plaintiff, the mortgagee, took possession, and a day or two afterwards the defendant, the sheriff, levied under attachment against the mortgagor. Two opinions were delivered, principally on the question of the validity or invalidity of the mortgage.. Neither suggests the idea that the possession taken by the plaintiff prevented a levy afterwards. Yet if that doctrine be correct, it would have disposed of the case in favor of the plaintiff.

The case of McCaffrey v. Woodin (65 N. Y., 459) does not touch the question of creditors. It was a controversy between parties to the instrument.

In Parshall v. Eggert (54 N. Y., 18), the court distinctly state that, in the case of a chattel mortgage., the time when the creditor became such fixed the rights of the parties; that a mortgage pot then filed was void as to him, though he should not then be in ,a position at once to attack its validity; and they say ' that a chattel mortgage unfiled could not afterwards be filed, wjtth effect, to cut off the right of an intermediate creditor. As remarked above, the language of the statute as to the filing of chattel mor-t- ■ gages is the same with that as to delivering of possession under such mortgages.

If there had been no mortgage to the plaintiff, .and if, on the 24th of January, .Gilbert had turned out to the plaintiff and deliyered to him goods in payment of a just debt, there is no reason to say that the plaintiff would not have obtained a good title .to the same as against the defendant. Perhaps -the same would be true if on that day Gilbert had delivered goods to the plaintiff in payment of a debt secured by chattel mortgage. But nothing of that Mnd was done. The plaintiff -was only mortgagee in possession after-the 2.4th of January, as he had been mortgagee out of possession before. No new transfer was made by Gilbert. The plaintiff took possession by no other title or authority than his mortgage. And the statute requires that the mortgage be accompanied by an immediate delivery — not -that it be followed by a subsequent delivery. The statute does not say that the .mortgage shall be presumed, fraudulent until delivery of possession.

If, then, the mortgage was fraudulent as to the creditors represented by the defendant when their debts -were contracted, the plaintiff cannot, under that mortgage, make to himself a title as against those creditors,

Some reliance is placed by the defendant on the case of Powell v. Preston (8 N. Y. S. C. [1 Hun], 513); but there are two inspects in which that case differs from the present. That was the case of a conditional sale. The plaintiff in that case, who .re-took the goods, >vas the original .owner, and Rad never made an absolute sale of them. The son, who had been in possession, had never been the owner, except conditionally. The son had not mortgaged the goods to the plaintiff. Again, the jury found that there was no fraud or bad faith in the plaintiff's title.

Now, in the present .case, the court held, as a matter of law, that the mortgage, under which the present plaintiff claimed, was fraudulent as to creditors of Gilbert; but, he practically' -held; that it-was relieved from the fraud by plaintiff’s-taking possession' in good faith'., - •

■ If the court' had held, or if thé jury had found, in th'e present case, that the mortgage- was, in fact, made in good faith and without intent to defraud,- that would- -have established' the plaintiff's rights! The difficulty is -that th'e- contrary-was held by the' court; and that this must be taken as the law of the case, because -the jury might have so found; if the -question had 'been! Submitted to them. 'Assuming, -then/that'the mortgage-ivas fraudulent as to creditors; we do not- understand -that Powell v. Preston holds that the taking ef possession uhcfeiha fraudulent hlortgalge',- gave the- mortgagee a good title,' évehtiioúgh the-act-of -taking possession ivas done in 'good faith. Fbr' the-court hfekl-that, owing to agreements in, and connected with the-mortgage; it'was fraudulent.' The plaintiff was a -party to - -these-Agreements; he-'-ivas, therefore, chargeable with knowledge'of théffáud.■■ He eámiot/then; obtain a good title under that mortgage, ás-a person 'acting in good faith; and we have already seen'-that he has no-title,' except under the mortgage.l- -The judg'mént and'-order should be-reversed and-a new trial ■granted,' costs to 'abide the event.' ‘ '■ ' •

Tarpan/J: •

"Plaintiff took possession upon the'mortgage, aiid noth'y virtue -of any other’or '-different' authority from, or agreement with Gilbert.- -'- ; •

I concur in the foregoing opinion of Justice Learned.-