Case Name: Collins and McElroy v. George Myers and others
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1847-12
Citations: 16 Ohio 547
Docket Number: 
Parties: Collins and McElroy v. George Myers and others.
Judges: 
Reporter: Cases decided in the supreme court of ohio : upon the circuit at the special sessions in Columbus
Volume: 16
Pages: 459–467

Head Matter:
Collins and McElroy v. George Myers and others.
A mortgage of personal property, where the mortgagor retains possession of the property mortgaged, with the power of sale, is void as against subsequent purchasers and execution creditors.
This is a bill of review, reserved in the county of Fairfield.
The bill is brought to reverse a decree of the Supreme Court of Fairfield county, rendered at the November term, 1846. The bill in the original case was filed by the present complainants; was answered by McCracken, one of the defendants; demurred to by the others, and, on hearing, dismissed.
The allegations in the original bill were that prior to January 1, 1842, the complainants and the defendant, Geo. Myers, wero partners in merchandising at Lancaster, in the name of Myers, Collins & Co. That at that time said ^partnership was dissolved by consent. That Myers, who continued business on his own account, took the stock in trade, the debts due the firm and other personal effects, and assumed the payment of the firm debts'. That on February 22, 1842, the defendant, Geo. Myers, to indemnify said complainants against said firm debts, executed to them a mortgage on certain personal property.
The mortgage, after reciting the facts above stated, states and enumerates the persons and amounts for which said firm are liable. The footing is §34,490.32.
It then transfers to complainants a great variety of personal effects, and among others, the following:
“ The entire stock of dry goods, lately belonging to Myers, Collins & Co., but now belonging to me, in my store at Lancaster, estimated at §14,500, together with all such additions as I may make thereto hereafter.”
The mortgaged property foots at its estimated value at §22,772.
The mortgage states that the property shall remain in the possession of Goo. Myers, until complainants, or either of them, are compelled to pay any of the above debts, or until they or either of them shall become fearful that they will have the same or some part thereof to pay, when it shall bo lawful for them, or either of them, to take possession of said property, and sell the same at public or private sale for cash, and pay said debts out of the proceeds, and the overplus after paying expenses to return to said Myers. The mortgage is duly signed and acknowledged before a justice of the peace.
The bill further states that a few months after the date of the mortgage, said Myers sold of the mortgaged property a stock of groceries, for the avowed purpose of paying paid debts, but whether the purchase money was so applied, complainants have no knowledge.
That about December 1, 1842, Myers purchased in New York an addition to his said stock of dry goods, amounting to $6,000; $3,000 of which was paid in *hand by said Myers; that the $3,000 thus paid were the proceeds, in part, of the stock of dry-goods above mentioned; and said goods consisted of every variety of goods adapted to the season, necessary to replenish and renew that part of the old stock still remaining unsold and in the store of said Myers; the old stock then being reduced so as not to invoice to exceed $5,000. That about January 1, 1843, and before said new goods had arrived at said Myers’ store in Lancaster, the place to which they were shipped and directed for the purpose aforesaid, said Myers, being in failing circumstances, made an assignment of all his property to Samuel F. Mc-Cracken and James D. Caldwell, who are made defendants for the benefit of his creditors generally, including therein the new and old goods aforesaid.
That shortly afterward said new goods arrived at Lancaster, and the sheriff of Fairfield county, who held executions against said Myers, in favor of King & Hunter, as assignees of the Lancaster (Ohio) Bank, and in iavor of Alfred Fahnestock, for the use of Wm. Slade, who are also made defendants, levied the same upon the above-described merchandise (among other property), new and old.
That said Myers’ assignees claimed said merchandise by virtue of their assignment, and the judgment creditors claimed the same by virtue of their levies.
That to prevent a sacrifice, it was arranged among the defendants that said merchandise should be retailed by agents, and the proceeds distributed according to their several rights. That the property was thus disposed of, and the proceeds, about $10,000, are now in the hands of Myers’ assignees, undistributed.
That complainants have paid of said debts $263.39; that a large amount of them remain unpaid, the most of which are reduced to judgments and levied upon the real estate of the complainant, Collins.
The prayer of the bill was that the defendants answer on oath; that an account be taken of the unpaid debts of Myers, Collins & Co., and of the proceeds of said merchandise, and *that the same be decreed to be paid over by said Myers’ assignees to discharge the above-mentioned debts of Myers, Collins & Co., and to reimburse complainants, and for general relief.
All the defendants except McCracken demurred to the bill.
McCracken answered, that the firm of Myers, Collins & Co. existed and was dissolved at the time alleged. He admitted the execution of the mortgage, and the purchase of the new stock of goods of about $6,000, as charged. He alleged that said now goods were never added to the stock once owned by Myers, Collins & Co., but that said goods were assigned to him and James D. Caldwell, prior to their arrival in Lancaster, the place of their destination. That said assignees, when said goods arrived in Lancaster, took possession of the same and paid the cbai’ges thereon. That Samuel Ewing, then sheriff of said county, having several executions against said Myers, levied the same on said goods and took them into his custody. That the stock of goods in the store, which were in like manner assigned, were in like manner levied upon. That all said goods were placed in the hands of an agent, to be retailed by consent of said sheriff and said assignees.
That said assignees brought a suit at law against said sheriff, alleging that he had unlawfully levied upon said property. That trials of said cause were had in the common pleas and Supreme Court, and it was adjudged therein (in both courts) that the levy upon the old stock should be sustained, and that the title to the new goods passed to the assignees by the assignment. That the agents employed to sell mingled the goods, new and old, and the proceeds of the same, so that accuracy can not be attained in the division. Respondent had no knowledge of the mortgage to complainants up to the time of the assignment, and that the rights of the assignees were not impaired thereby.
That said goods were first in the hands of John Latta, now deceased, and afterwai’d in the hands of F. A. Foster. *That said agents had not accounted with or paid to him any part of the proceeds of said sales, but respondent was advised that the funds were at interest until distribution should be ordered.
To this answer there was a general replication.
P. Van Trump and John T. Brazee, for complainants,
maintained that retaining possession by the grantor or mortgagor of personal property, was only prima facie evidence of fraud and might be explained or rebutted on the part of the vendee or mortgagee; that when so explained and proved to he a fair and honest transaction,’the conveyance would be sustained, and this was especially so with regard to mortgages, and cited the following cases: Edwards v. Harben, 2 Term, 587 ; Martindale v. Booth, 3 Barn. & Ald. 505; Bull. N. P. 258; Kidd v. Rawlinson, 2 Bos. 6 Pul. 59; Lady Arundel v. Philips, 10 Ves. 145; Brooks v. Powers, 15 Mass. 244; Fletcher v. Willard, 14 Pick. 464; Briggs v. Parkerman, 2 Met. 258; Putnam v. Dutch, 8 Mass. 286; Joy v. Sears, 9 Pick. 4; Haskel v. Greeley, 3 Greenl. 464; Reed v. Jewett, 5 Greenl. 46; Cutter v. Copland, 6 Shep. 127; Ulner v. Hills, 8 Greenl. 326; Ragan v. Kennedy, 1 Overt. 91; Cullen v. Thompson, 3 Yerg. 475 ; Young v. Pate, 4 Yerg. 164; Marcey v. Killough, 7 Yerg. 440; Hobbs v. Bibb, 2 Stewart, 54; Miller v. Thompson, 3 Porter, 196 ; Pauling v. Sturgis, 3 Stew. 96 ; Shepherd v. Twigg, 7 Missouri, 151; Ross v. Cartsinger, Ib. 245; King v. Bailey, 8 Miss. 332; Rogers v. Dare, Wright, 136 ; Burbridge v. Seeley, Ib. 359; 9 Ohio, 153; Jones v. Huggeford, 3 Met. 515; Abbott v. Goodwin, 20 Maine, 408; Blood v. Palmer, 2 Fairf. 414; Jones v. Robinson, 10 Met. 481; Meeker v. Wilson, 1 Gall. 414; Penttiplace v. Sayles, 4 Mason, 312 ; De Wolf v. Harris, 4 Mason, 545 ; Wheeler v. Sumner, 4 Mason, 183 ; Brooks v. Marbury, 4 Wheat. 79; Hamilton v. Russell, 1 Cranch, 309; United States v. Hooc, 3 Ib. 73; Conrad v. Atlantic Ins. Co., 1 Peters, *388; Fitzbugh v. Anderson, 2 Hen. & Munf. 289 ; Alexander v. Denealc, 2 Munf. 341; Robertson v. Ewell, 3 Munf. 7; Sydnor v. Gee, Leigh, 535 ; Burchard v. Wright, 11 Leigh, 463; Hundly v. Webb, 3 J. J. Marsh. 643; Head v. Hobbs, 1 J. J. Marsh. 280 ; Baylor v. Smithers, 1 Lit. 105; Davenport v. Thornton, 1 Scam. 295; Kitchell v. Bratton, 1 Scam. 361; Jordon v. Turner, 3 Blackf. 309; Watson v. Williams, 4 Blackf. 26; Coburn v. Pickering, 4 Blackf. 425; Case v. Winship, 3 N. H. 415; Parker v. Patten, 4 N. H. 176; Trask v. Bowers, 4 N. H. 309; Haver v. Low, 2 N. H. 13; Ash v. Savage, 5 N. H. 545; Smith v. Henry, 1 Hill, 16; Dupee v. Harrington, Harper, 319; Maples v. Maples, Rice’s Eq. 301; Reeves v. Harris, 1 Bailey, 563.
T. Ewing, H. H. Hunter, and W. Slade cited the following cases:
1 Term, 596; 1 Cranch, 317; 3 Cow. 189; 3 Blackf. 309; Wright, 190; 1 Smith’s Leading Cases, and authorities thero cited.

Opinion:
Read, J.
The whole question in this case depends upon the validity of the mortgage to Collins and McElroy.
The retention of possession on the part of the mortgagor is only a badge of fraud, which may bo removed by showing the transaction was honest. We regard it to be perfectly well-settled law, that on a sale or mortgage of personal property a continuance of possession by vendor or mortgagor, is only prima facia evidence of fraud, which may bo explained away or rebutted by showing that such possession was honest and fair.
But a continuance of possession, with a power of disposition and sale, either express or implied, is'quite a different thing. Such is the character of the mortgage under consideration. Myers, Collins, and McElroy had been partners in merchandising. On dissolution Myers assumed the debts of the firm, and to secure Collins and McElroy from responsibility, executed to them a mortgage of the entire stock in trade and such additions as might be made thereto, to retain possession of the stock for the ordinary purpose of barter *and sale, until the retiring partners should be compelled to pay some of the debts thus indemnified, or should become fearful that they would have to pay any or all of the debts of the late firm, when they might take possession and dispose of the stock thus mortgaged in the manner provided, and apply the proceeds to the discharge of the firm debts.
The object of a mortgage is to obtain a security beyond a simple reliance upon the honesty and ability of the debtor to pay, and to guard against the risk of all the property of the debtor being swept off by other creditors by fastening a specific lien upon that covered by the mortgage.
But a mortgage with possession and power of disposition in the mortgagor, is nothing at last but a reliance upon the honesty of the mortgagor, and in fact is no security, as it is within the power of the mortgagor, at any moment, to defeat the mortgage lien by an entire disposition of the whole property covered by the mortgage. Such a mortgage, then, is no security, so far as the debtor is concerned, and is of no benefit except as a ward to keep off other creditors. True, it may furnish a more specific remedy for the collection of the debt, but is not a specific and certain security at its inception. To hold such a mortgage valid, would enable a debtor to do business upon a capital within the limits of the mortgage debt at the will of the mortgagor, protected from all claims of other creditors; and in the present instance upon a capital of indefinite amount, as the mortgage is to extend to all additions to be made to the stock in trade. To hold that such a mortgage was valid, would furnish a complete shelter under which a man could carry on trade for his own benefit, completely protected against the payment of his debts, and placed wholly beyond the reach of creditors. That the mortgagee should thus permit the mortgagor to transact business for his own benefit, and not proceed to collect the mortgage debt, would not be evidence of fraud which would authorize the mortgage to be defeated, upon the ground that it hindered or delayed creditors, because the mortgage may have been honestly executed, and simple generosity or *good nature, or carelessness, in delaying the collection of a debt, could not be regarded as a fraud which would defeat an honest security.
The very nature of a mortgage is to fasten a lien upon specific property; and the court have gone far enough when they have permitted an honest possession in the mortgagor, because that opens up a door by which an honest vendee may be defrauded, by purchase without notice,.which shows that there was much reason in the rule established in the old case of Twyne. Butin this case there is no specific lien, but a floating mortgage, which attaches, swells, and contracts, as the stock in trade changes, increases and diminishes, or may wholly expire by entire sale and disposition, at the will of the mortgagor. Such a mortgage is no certain security upon specific property; it all depends upon the honesty and good faith of the debtor; and as he might dispose of it to a creditor at will, to satisfy a debt, we see no reason why a creditor might not seize it against his will, for the same object. In such ease the whole right to dispose of the property to pay a debt, depends upon the will of the debtor, not affected by the rights of the mortgagor; and what reason is there in permitting the will of the debtor to determine whether property shall legally go to pay a debt or not? If it be the will of the debtor to appropriate the mortgaged property to pay tho debt, it is binding as against the mortgagee ; but if it be not the will of the debtor, and the property is seized upon execution, the rights of the mortgagor fastens upon the property, and takes it away from the execution creditor. Then the property is not held by the mortgage, but the will of the debtor; because, if the debtor sees proper to dispose of it, he has the power under the mortgage. He may dispose of the property, defeat the mortgage, and put the money in his own pocket; but if he refuses to pay a debt, and you seize the property in execution against his will, the mortgage steps in and restores it to the debtor. The whole matter, then, appears to rest upon the option of the debtor to appropriate the mortgaged property to the payment *of his debts or not, and not upon the mortgage. No reasoning will change this result, if a mortgagor retains possession and the full power of disposition over the mortgaged property.
A mortgage upon a specific article, with possession and power of disposition left in the mortgagor, is, in truth, no mortgage at all; it is no certain lien. The power to hold possession and dispose of the property, is inconsistent with the very nature of a mortgage. It indeed would not, perhaps, be going too far to say that such an instrument was a nullity. It is next thing to a sale of a horse, with possession and power of disposition retained to the vendor. Except in the case of a mortgage, it would be contended that a time might happen when the mortgagee could assert possession ; but before condition broken and possession taken, it would be hard to discover any difference. But at all events we have not the slightest hesitation in saying that a mortgage which secnre3 possession and the full power of disposition in the mortgagor until condition broken, will not hinder creditors from seizing property thus mortgaged on execution, and applying the proceeds to the payment of debts. Nor will it prevent the mortgagee from assigning to pay debts, for he has the power of disposition by the instrument itself. As to all the world exeej)t as to the parties themselves, such a mortgage will be held void, as against the policy of the law.
But many respectable authorities have been cited, to show that a mortgage of a stock of goods, with power to sell, is valid. ¥o are-not disposed to adopt either their reasoning or conclusions. It is said by Judge Story, in support of a fact of this sort, that although the articles mortgaged may be sold that others may be substituted in their place, and this may be done by consent of parties. This is no answer, for it may be that others will not be substituted, and if we look to experience, in all cases, where a trader has felt himself bound to mortgage his whole stock, it is not the usual result.
The whole error in these cases appears to be in regarding *the word stock as a fixed thing, which must always remain, the same as a horse which preserves its identity, although in the process of time every particle composing him may be thrown off and renewed. And that the power of disposition in the mortgagor of stock in trade, is only the power to sell the old and replace it with new, and thus keep up the identity of the thing mortgaged, and then claim that such a mortgage is only the common case of a mortgage of a specific thing, with possession in the mortgagor until condition broken. The error is in treating a word as a thing, and mortgaging a word instead of a substance, and permitting the substance to be sold, while the mortgage attaches and remains fixed to the word. Except in the case of sale and resupply, or wear and resupply, with identity preserved under the noun stock, there is no confusion in the books. Because it is not held anywhere that a mortgage of a specific thing, as a horse, with possession and power of disposition in the mortgagor, is valid against creditors. But the word stock has been treated as permanent and fixed, and the power of disposition as attaching to the goods which made up the stock, and that the stock must necessarily be resupplied as fast as consumed.
Wo need not, under this view, consider whether the mortgage could attach to future additions to be made to the stock, or subsequent acquisitions, as no additions in this case were ever made, and if made, they would not have been protected by the mortgage—the mortgage itself being void as against creditor or purchaser.
Hence the court, in holding that this mortgage would not prevail against execution creditors, or against Caldwell & Mc-Cracken, assignees for the benefit of creditors, held rightly.
Demurrer sustained; bill dismissed.