Case Name: Arthur E. Perry vs. Frank R. Hadley
Court: Massachusetts Supreme Judicial Court
Jurisdiction: Massachusetts
Decision Date: 1888-11-28
Citations: 148 Mass. 48
Docket Number: 
Parties: Arthur E. Perry vs. Frank R. Hadley.
Judges: 
Reporter: Massachusetts Reports
Volume: 148
Pages: 48–50

Head Matter:
Arthur E. Perry vs. Frank R. Hadley.
Bristol.
October 23, 1888.
November 28, 1888.
Present: Morton, C. J., Devens, W. Allen, C. Allen, & Knowlton, JJ.
Insolvent Debtor — Mortgage — Fraudulent Preference — Evidence.
At the trial of an action by an assignee in insolvency to recover the value of a stock of goods in a store, as mortgaged in fraud of the insolvency laws, there was evidence that the debtor, prior to his insolvency, mortgaged the goods then in the store, and agreed to give a new mortgage to cover other goods bought to keep up the stock; and that such a mortgage, complete save as to date and signature, was taken ,by the mortgagee to the debtor after he became insolvent and when he was confined to his house by illness, and was there executed by him with intent to make a fraudulent preference. The mortgagee wps then permitted to testify that the debtor had no knowledge of the new mortgage until it was ready for execution, and that it was made at the suggestion of his counsel to keep up his security. Held,, that the evidence was admissible to rebut the inference that the mortgagee participated in the fraud.
Tort, by the assignee in insolvency of one Whittier, for the conversion of certain articles of personal property. Trial in the Superior Court, before Staples, J., who allowed a bill of exceptions, in substance as follows.
The plaintiff introduced evidence tending to show that the defendant, on January 31, 1885, sold to Whittier the stock of goods and fixtures of a drug store for a fair price, and to secure a part of the purchase money Whittier gave him his notes and a mortgage on the same; that Whittier thereupon entered into possession of the store, and sold goods at retail, and purchased other goods to replenish the goods sold in the usual course of the business; that on May 19, 1885, the defendant visited Whittier, who was confined to his house by illness, taking with him a mortgage, complete except as to date and signatures, to secure the same notes, and purporting to cover the goods in the store, and Whittier signed it; that at that time there was a considerable quantity of goods in the store not included in the first mortgage ; that Whittier was insolvent and in contemplation of insolvency on May 19, 1885, and executed the mortgage with a view to give a preference to the defendant; that the defendant, at the time of receiving the second mortgage, had reasonable cause to believe that Whittier was insolvent and in contemplation of insolvency; and that such second mortgage was made in fraud of the insolvency laws by Whittier.
The defendant, to show that the mortgage of May 19 was not made with a view to give a preference to him, and that he did not have reasonable cause to believe that Whittier was insolvent or was in contemplation of insolvency, testified, without objection, that at the time the first mortgage was given by Whittier it was verbally agreed between them that Whittier should give to the defendant a new mortgage whenever the same should be called for by him, to cover goods put into the store to replace goods sold by him in the course of trade, and to keep his security good ; and that just before the mortgage of May 19 was given to him by Whittier he had a conversation with Mr. L. T. Wilcox, an attorney at law, who had acted as counsel for him in drawing the first mortgage. The defendant was thereupon permitted to testify, that during this conversation, which related to Whittier’s affairs, Mr. Wilcox suggested, “ It is about time we had a second mortgage upon that stock, I think, as the substantial part of the stock is changed; in order to make your security good, it will require another mortgage ” ; and that he thereupon told Mr. Wilcox he had better draw up another mortgage, which he proceeded to do. The judge admitted this testimony solely as bearing upon the good faith and intent of the defendant in taking the mortgage of May 19.
The jury returned a verdict for the defendant; and the plaintiff alleged exceptions.
H. M. Knowlton, for the plaintiff.
F. A. Milliken, (J. M. Morton with him,) for the defendant.

Opinion:
Knowlton, J.
One of the questions for the jury, at the trial in this case, was whether John J. Whittier, when he made the mortgage, was insolvent, or in contemplation of insolvency; another was whether he made it with an intent to give the defendant a fraudulent preference; and the third was whether the defendant had reasonable cause to believe that he was insolvent or in contemplation of insolvency, and that he intended the mortgage as a fraudulent preference.
As furnishing an answer to the last of these questions, the mortgage itself was an important part of the evidence relied on by the plaintiff, and if, as appears, it was not made in the usual and ordinary course of business of the mortgagor, it would, if unexplained, have established the proposition which the plaintiff sought to maintain. Pub. Sts. c. 157, § 96-98. Metcalf v. Munson, 10 Allen, 491. For, upon the theory of the statute, the defendant ought reasonably to have inferred from it that the mortgagor was insolvent, and that he intended to give a fraudulent preference. It therefore becomes important for him to eliminate from the transaction, if possible, every element from which such an inference might legitimately be drawn.
For this purpose he was permitted, without objection, to prove that there was an agreement, at the time of giving the former mortgage, that the security should be kept good by making a new mortgage when new goods should replace those sold from day to day. It appeared by the plaintiff's evidence, that the mortgage in question, complete except as to date and signature, was carried by the defendant to Whittier's house, where Whittier was confined by sickness, and was there executed. But it might have been argued that this was presumably in pursuance of a request or suggestion of Whittier, from which the defendant ought to have inferred his insolvent condition and his fraudulent purpose. The defendant was, therefore, rightly permitted to go further, and negative the possibility of such an inference, by showing that the making of the mortgage resulted directly from the suggestions of the defendant's counsel, and that the debtor had nothing to do with it until it was ready for his signature.
The conversation with Mr. Wilcox was not admitted to prove the truth of the statement made by him, but only as a circumstance explaining the origin of the mortgage, and rebutting the natural inference from the unexplained making of such a conveyance, that the mortgagor had a fraudulent purpose, and that the mortgagee ought to have believed that he had it. In a case of this kind, facts known to the mortgagee, which tend to explain the making of the mortgage consistently with the innocence of the mortgagor, are competent, not only upon the question what inferences should have been drawn by the mortgagee in regard to the mortgagor's purpose and intent, but also upon the question what was in fact his purpose and intent.
Exceptions overruled.