Court Opinion

ID: 9301298
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:07:40.506912+00
Date Added: 2024-06-11T17:13:41.710110
License: Public Domain

DEADY, District Judge.
The material question in this case is involved in the first conclusion of law stated in the findings of the couit. Is the writing executed by Daly to the defendant, purporting to mortgage to the latter certain goods, when taken in connection with the contemporaneous oral agreement and understanding of the parties, a simple mortgage or a conveyance or transfer of the property in question, in trust, for the use and benefit of Daly, and therefore void as against creditors?
This question does not arise under any provision of the bankrupt act. While there is some reason for supposing that Daly was insolvent when he executed the so-called mortgage to the defendant, yet there is nothing in the case to show that he owed any other debts than the one due the defendant. Under these circumstances, even if Daly was insolvent, it could not be said that the wilting was either executed or received, with an intention to give or receive a preference, or to hinder or delay existing creditors, or to-evade or defeat any provisions of the bankrupt act [14 Stat. 534].
The question therefore turns upon the statute of the state and the general principles cf law applicable to such a transaction. By the former it is declared that a mortgage of personal property unaccompanied by immediate possession creates a disputable presumption of fraud as against the creditors of the moi’t-gagor, unless the same is duly filed or recorded as provided by law (Code Or. 339); and also that all conveyances and transfers of goods and chattels, in trust for the person making the same, shall be void as against the creditors, existing or subsequent, of such person (Id. 655).
A chattel mortgage is a pledge of personal property as a security for the performance of some act — such as the payment of an existing debt. The law allows the property *302pledged to remain in the possession of the mortgagor if. the mortgage is put on record as notice to the world. But if the mortgage be also coupled with a condition or agreement that the mortgagor may treat the goods as if he were the owner of them — may sell them at his option and receive the proceeds to his own use — such condition or agreement avoids the mortgage. The two cannot stand together. Such use of the mortgaged property by the mortgagor is utterly inconsistent with the idea of giving a pledge or security to the mortgagee. In legal effect it is a sham, a nullity — a mere shadow of a mortgage, only calculated to ward off other creditors — a conveyance in trust for the benefit of the person making it, and therefore void as against creditors.
In this case, it is shown by the finding of the court (and the testimony of the defendant was clear and unequivocal «pon that point) that by the understanding between the defendant and Daly, the latter was to continue, ■not only in the possession of the goods, but to sell and dispose of them in the course of his business, at his option, and take the proceeds to his own use — and so he did with the knowledge and consent of the defendant until the defendant took possession near the •close of the year 186S. As against the other creditors of the bankrupt, the defendant cannot claim anything in this property by such a transaction. In re Manly [Case No. 9,031], ■decided by Mr. Justice Leavitt of the southern district of Ohio, is a case on all fours with the one under consideration, and there the mortgage was held void as to creditors.
The case of Godchaux v. Mulford, 26 Cal. 316, cited by counsel for defendant, is not in point. In that case it was ueld, that in nil mortgages of goods and chattels, whether accompanied by possession or not, there is a trust created in favor of the mortgagor, as to the surplus, if any, and that the statute ■of frauds which declares all transfers of .goods made in trust for the party making the same, to be void as to creditors, does not apply to such a trust. That the trust as to the surplus is not the object of the transfer, but n mere incident, and does not bring the transaction within the purview of the statute. But in the case at bar, the trust created was something more than a mere legal implication that the surplus, if any, after paying the ■debt of the defendant, should be held by him for the benefit of Daly. As has been shown, it was an express agreement that notwithstanding the mortgage to the defendant, Daly might proceed to dispose of the goods as his ■own and receive the proceeds to iiis own use. This was an express trust in favor of Daly, as to all the mortgaged goods, which rendered the mortgage itself totally inoperative, so long as the goods were allowed to remain in Daly’s possession. .As the mortgage became forfeited within a month from its execution. for the want of payment of the first installment of interest on the debt, it was in the power of the defendant to have terminated this trust at any time thereafter, by taking the goods into his own possession. But he saw proper to leave them with Daly, with the power to use and dispose of them as his own, and now the law and good morals agree that the defendant should not be preferred to other creditors, who, it may be, trusted Daly upon the faith of this unqualified possession and apparent absolute ownership.
But it is said by the counsel for defendant, that the question of “fraudulent intent” under the statute is a question of fact (Code Or. 637), and that, as the court has found as a matter of fact that the defendant acted in the premises without any intent to defraud any one, the only conclusion of law proper to be drawn from the facts is in favor of the validity of the mortgage.
This argument, it seems to me. is based upon two erroneous assumptions. First, that the fraudulent intent of which the statute speaks as sufficient to avoid a mortgage is, in any case, the intent of the mortgagee; and, second, that the question of “fraudulent intent” is involved in this case at all.--
The “fradulent intent” which by section 32 of the chapter on conveyances (Code Or. 657) is made a question of fact in all eases arising under titles 2. 3, and 4 of that chapter, is the intent of the grantor or vendor, and not that of the grantee or vendee. It is not found in this ease whether Daly, the alleged mortgagor, acted in good faith or not It is possible that he acted in bad faith, notwithstanding the defendant acted in good faith. But the fact is not material. Nor does section 52 of the chapter on conveyances include the provision of the statute (Code Or. 339) which furnishes the special rule as to when a sale or assignment or mortgage of personal property is to be deemed fraudulent and void as to creditors, because not accompanied by an immediate delivery and a continued change of possession.
As to the second error of the argument under consideration, it is sufficient to say, that such a mortgage or conveyance as this — -a conveyance in trust for the party making it— is declared void as to creditors, as a matter of public policy, without reference to the intent of the parties thereto. The law assumes absolutely, and beyond doubt correctly, that in no circumstances can such a transaction be upheld in justice to creditors. That is this case, and whatever may have been the intention of the parties, the law for the protection of the general creditors of the debtor, declares the so-called mortgage void, because made in trust for Daly.
As to the second conclusion of law, the matter seems too plain for argument. The decree foreclosing the mortgage, at most only extinguished the right of redemption as between Daly and the defendant. There was no seizure or sale of the goods under the decree, and beyond extinguishing the *303right of redemption, as stated, it had no effect upon the property in the goods, even between the mortgagor and mortgagee. But more than that, the plaintiff was not a party to this decree and the writing upon which it is based, however valid between the parties to it, is void as to the general creditors whom he represents.
There must be a judgment for the plaintiff for the value of the goods.