Case ID: ind_114/html/0577-01.html
Source: Caselaw Access Project
Author: {"author": "Niblack, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

No. 13,304.
    Mayer et al. v. Feig et al.
    Chattel Mortgage. — Mortgagor in Possession. — Sale of Property. — Trust.— An agreement between the mortgagee and mortgagor in a chattel mortgage that the latter shall continue in possession and sell the property in the usual course of business, the net proceeds to be applied upon the mortgage debt, does not create a trust, under section 4921, B. 8.1881, in favor of the mortgagor.
    
      Same. — Application of Proceeds of Sales 'to Mortgage Debt. — When such an ■ agreement has been entered into, and the mortgagor fails, either- in whole or in part, to apply the proceeds as stipulated, the law will make the application when necessary for the protection of other creditors. Same.— When Trust is Created. — It is only when the mortgagor is authorized to dispose of the mortgaged property substantially for his own benefit that a trust is created for his use.
    
      Same. — Complaint by Creditors to Set Aside; — Evidence.■—-A complaint by creditors to set aside a chattel mortgage alleged to have been executed by their debtor with fraudulent intent, states a case under section 4920, B. S. 1881, but is not sustained by evidence that the transaction, by a subsequent agreement between the mortgagor and mortgagee, had been changed into a mere conveyance of the property in trust for the use of ■the former, thus making a case under section 4921.
    From the Elkhart Circuit Court.
    
      J. M. Vanjleet, for appellants.
    
      U. G. Dodge, for appellees.
   Niblack, J.

On the 9th day of October, 1884, Jacob Feig, of the city of Elkhart, in this-State, executed to his father, Isaac Feig, of the city of New York, a chattel mortgage on a stock of clothing and other merchandise kept for, ■sale in a particularly described building in said city of Elk-hart, to secure the payment of the aggregate sum of $3,-926.20.

The mortgage stipulated'that the mortgagor should remain in possession of the mortgaged property until some one of several enumerated contingencies might happen. The mortgage further stipulated that the mortgagor should keep an accurate account of all sales made by him of the mortgaged, property, and that, after deducting the expenses of caring for and selling the same, he should weekly pay over to the mortgagee what remained of the proceeds, until the mortgage-debt should be fully paid.

In April, 1885, Nathan Mayer, Burchard Engel and Isaac Livingston, composing the firm of Mayer, Engel & Co., and Isaac S. Straus and Henry Myer, constituting the firm of ■Straus & Myer, judgment creditors of Jacob Feig, commenced this suit against him and his said father, Isaac Feig, to set aside and cancel the mortgage executed as above, upon the ground that the same was executed for the purpose of hindering, delaying and defrauding the other creditors of Jacob Feig, and especially the plaintiffs, and that such mortgage was designed to be used as a “ cloak and cover for the benefit of him, the said Jacob Feig, in inducing his creditors to accept unfair terms of compromise in the adjustment of his indebtedness.

The circuit court, after hearing the evidence, came to the-conclusion that it did not support the material allegations of the complaint, and accordingly gave judgment for the defendants.

It was made to appear by the evidence that the mortgaged property comprised all the property owned 'by Isaac Feigwhen the mortgage was given, and that it was probably not sufficient to pay the mortgage debt; that, after the mortgage was executed, it was agreed between Jacob Feig and his father that he, the said Jacob, should remain in possession, and continue to sell and dispose of the mortgaged property, as he had theretofore done, being required to pay over from time to time to him, the said Isaac Feig, as the mortgagee, the net proceeds of all sales made in pursuance of such agreement ; that at the time of the trial the said Jacob had realized from sales made by him the gross sum of $1,681.25, out of which he had paid $400 on the mortgage; that he had re-tamed and applied to his own use sums as follows: In November, 1884, $23; in December, 1884, $21; in January, 1885, $40; in February, 1885, $8, and in March, 1885, $21; that he had used the remainder of such gross sum in the payment of expenses in taking care of and selling the property.

There was also evidence tending to show that Isaac Feig knew that Jacob Feig had no means of living without using some part of the proceeds arising from the sale of the mortgaged property.

In the prosecution of this appeal the only claim made is, that upon the evidence the finding and judgment ought to have been in favor of the plaintiffs below.

Sections 4920 and 4921, R. S. 1881, are as follows: '

“4920. All conveyances or assignments, in writing or otherwise, of any estate in lands, or of goods, or things in action, every charge upon lands, goods, or things in action, and all bonds, contracts, evidences of debt, judgments, decrees, made or suffered with the intent to hinder, delay, or defraud creditors, or other persons of their lawful damages,' forfeitures, debts, or demands, shall be void as to the persons sought to be defrauded.
“4921. All deeds of gift, conveyances, transfers, or assignments, verbal or written, of goods or things in action, made in trust for the use of the person making the same, shall be void as against creditors, existing or subsequent, of such person.”

Counsel for the plaintiffs impliedly admits that the evidence did not make a case against the defendants, under section 4920, above set out, but contends that it- did establish the fact that the mortgage was executed for the purpose of creating a secret trust in favor of Jacob Feig, and hence as a conveyance in trust for his use which, under the provisions of section 4921, supra, was void as against the plaintiffs, without reference to the question of fraudulent intent, and however just the mortgage debt may have been.

We are unable to concur in this latter view of the evidence. An agreement between the mortgagee and mortgagor in a chattel mortgage that the latter shall continue in possession of the mortgaged property, and sell ,and dispose of the same in the usual course of business, the net proceeds to be- applied in discharge of the mortgage debt, does not create either a secret or an open trust in the property in favor of the mortgagor. When such an agreement has been entered into, and the mortgagor fails, either in whole or in part, to apply the proceeds accordingly, the law will make the application, when necessary for the protection of the interests of other creditors. It is only when the mortgagor is authorized to dispose of the property substantially for his own benefit that, in such a case, a trust is created for his use. Muncie Nat’l Bank v. Brown, 112 Ind. 474; New v. Sailors, ante, p. 407; Wilson v. Sullivan, 58 N. H. 260; Gibbs v. Parsons, 6 Atlantic Rep. 93.

Filed May 19, 1888.

Then, too, the complaint upon which the plaintiffs relied at the trial made the gravamen of the suit depend upon the alleged fraudulent intent with which the mortgage was executed, thus making a case against the defendants under section 4920 of the statute.

Conceding, therefore, that the evidence tended to prove that, by some subsequent agreement or understanding between the parties, independent of and inconsistent with the stipulations of the mortgage, the transaction had been changed into a mere conveyance of the property in trust for the use of Jacob Feig, such proof did not support the gravamen of the complaint.

Evidence of such a subsequent agreement or understanding tended only to make out a case under the provisions of section 4921, to which we have referred, which, as has been seen, was a case essentially different from the one presented by the complaint. R. S. 1881, section 393; City of Huntington v. Mendenhall, 73 Ind. 460.

The judgment is affirmed, with costs.