Court Opinion

ID: 6602395
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:08:54.535978+00
Date Added: 2024-06-11T15:58:03.704387
License: Public Domain

Ryan, C. J.
The chattel mortgage and accompanying agreement, contemporaneously executed, to govern the same subject matter between the parties, must be taken together and dealt with as one contract. Elmore v. Hoffman, 6 Wis., 68; Norton v. Kearney, 10 id., 443.
So taken, they give a mortgage by a merchant to creditors of his entire stock of goods, licensing the mortgagor to remain in possession and dispose of the goods in the course of his trade, applying one-half of the proceeds of the sales towards his liability to the mortgagees. No provision is made in either paper for the disposition of the other half, which is therefore left *123at the absolute disposal of the mortgagor for his own use. It is vain for the respondent to say that the mortgage contains no express agreement for the mortgagor’s use of half of the proceeds. The silence of the mortgage gives him the right as effectually as express agreement could. Having applied one-half to the use of the mortgagees, and made no provision for the other, the mortgage leaves that absolutely with the mortgagor. He might hold it in money or lend it, or invest it at his pleasure, without breach of contract with the mortgagees, who take no right under the mortgage to it or over it. He made the mortgage for payment of one-half only of the proceeds, while he should remain in possession. He retained the other half as effectually as he would have retained half of the goods, had he mortgaged but half.
It is quite unnecessary to consider what may be the rule elsewhere, though it is very generally, if not universally, the same as here. The validity of such a mortgage is not an open question in this state. A chattel mortgage permitting the mortgagor to remain in possession, to sell and apply the proceeds or any part of them to his own use, is fraudulent and void in law as against creditors. Place v. Langworthy, 13 Wis., 629; Steinart v. Deuster, 23 id., 136.
There is another objection to the mortgage, which might be sufficient, of itself, to avoid it. Secret liens on chattels remaining in possession of the owner, are against the policy of the law. For this reason, when possession remains in the mortgagor, a chattel mortgage must be put on record to give it effect against creditors of the mortgagor. The mortgage should therefore fully disclose the consideration upon which it goes, and the nature of the lien given. It appears here that the mortgage itself was put on record, but not that the accompanying agreement was. It is quite evident that the mortgage, of itself, not only did not disclose the true nature of the transaction, but was calculated to conceal it, and to mislead, without notice of the accompanying agreement. The mort*124gage itself purports to cover the entire stock, for money lent to the mortgagor; while the agreement discloses that it is, in effect, a mortgage of half the stock, for indemnity against liabilities assumed by the mortgagees. This alone might avoid the mortgage as against creditors. Butts v. Peacock, 23 Wis., 359.
But we prefer to rest our judgment on the ground first stated. The license given to the mortgagor, to retain half the proceeds and use them at his pleasure, makes the written contract of the parties fraudulent and void in law as against creditors; absolutely void as to them, beyond all aid from extrinsic facts. Parol evidence can make it neither better nor worse. Intent does not enter into the question. Fraud in fact goes to avoid an instrument otherwise valid. But intent, bona fide or mala fide, is immaterial to an instrument per se fraudulent and void in law. The fraud which the law imputes to it is conclusive. So a fraudulent agreement of parties, by parol, goes as fraud in fact to impeach a written instrument valid on its face. Fraud in fact imputed to a contract is a question of evidence; not fraud in law. And no agreement of the parties in parol can aid a written instrument fraudulent and void in law. Wood v. Lowry, 17 Wend., 492; Edgell v. Hart, 9 N. Y., 213; Robinson v. Elliott, 22 Wall., 513. We doubt whether the parol understanding as to the disposition of the other half of the proceeds, with which the respondent undertook to supplement the written contract, would have redeemed' it from the taint of fraud in law, if inserted in it. But it is very certain that the attempt to show it in aid of the mortgage, was an attempt to vary the written contract by parol. This appears too familiar to need even statement, much less discussion. And yet the elementary principle appears to have been overlooked in the court below.
Apparently apprehensive of its validity, the respondent tried to purge his title of the fraudulent mortgage. He undertook to show that the mortgagor voluntarily surrendered possession *125to the mortgagees, his creditors, 'without respect to the mortgage. "Whether he claimed such surrender as a payment or as a pledge, is left uncertain. And the very uncertainty goes to disprove either. Indeed, there is a strong presumption that this was an afterthought. All the evidence of the circumstances of the transfer of possession exclude such a theory. The mortgagor appears to have been hopeless of going on. with his business, and willing that the mortgagees should take possession, but unwilling voluntarily to surrender it. He thought it would look better for him that the sheriff should take possession under the mortgage. And so the mortgagees employed the sheriff to take possession, giving him a copy of the mortgage; and the sheriff, with the copy and under it, demanded and received possession from the mortgagor, and delivered it over to the mortgagees. The act of the sheriff was of course unofficial; he was the mere agent of the mortgagees. So that, as matter of fact and of law, the mortgagees took possession under the mortgage, as was their right as between them and the mortgagor. Frisbee v. Langworthy, 11 Wis., 375; Huebner v. Koebke, 42 id., 319. We do not hold that the holder of a chattel mortgage may not relinquish his right under it, and accept the mortgaged goods from the mortgagor, in payment of his debt or as a pledge. Such a transaction might be upheld in a proper case. But we do hold that such a shifting of title must be open, express and explicit; as open, express and explicit as the mortgage itself; and that one who takes possession of chattels, apparently under a mortgage, cannot, when the mortgage fails him, shift his right of possession, by vague evidence of implied understanding, to payment of his debt or to a pledge for it. Both debtor and creditor must expressly be parties to either payment or pledge. And either must be established by the acts of the parties at the time, as expressly and satisfactorily as payment or pledge in any other case. Here there is no such evidence. And the subsequent course of the respondent in *126selling the goods under the mortgage, himself becoming the purchaser, for the evident purpose of changing his title as mortgagee in possession to title as owner, is quite inconsistent with previous possession upon either payment or pledge. The respondent fails to establish an j prima fade right of possession, except under the mortgage.
The charge of the learned judge of the court below does not go upon any shift of the respondent’s title from under the mortgage. It recognizes the mortgage throughout as the foundation of the respondent’s right. But it appears inadvertently to confound fraud in fact and fraud in law, as affecting the mortgage. The learned judge charged the jury that the mortgage is void on its face; that is, void in law. But he proceeds, nevertheless, to submit the good or had faith with which the mortgage was executed, as a question of fact for the jury; instructing them that it is valid, if executed in good faith; invalid, if executed in bad faith.
Without expressly saying it, the charge seems to imply, as was argued here, that possession of the mortgagees, xmder the mortgage, would operate to cure the fraud imputed to it by law. It is a novel and startling proposition that possession under an instrument of title can be better than the instrument of title itself. But strange to say there is authority for the position. Read v. Wilson, 22 Ill., 377; Brown v. Webb, 20 Ohio, 389. In each of these cases, a chattel mortgage appears to be held void in law, but possession under it good, as against creditors.
In neither of those cases, nor in this, would mere possession by the mortgagor, before maturity of the mortgage, projprio vigore, import fraud in fact or in law. And so the validity of the mortgage does not rest on the mere fact of possession in either mortgagor or mortgagee. It is the fraudulent provision for possession which taints the mortgage with fraud, and makes it void as against creditors. It is not because the fraudulent possession, remains in fact in the mortgagor, but be*127cause the mortgage provides that it shall so remain, that all courts, everywhere, we may say, hold the mortgage fraudulent and void as against creditors. The judgment of law goes upon construction of the paper, without inquiry of fact outside of the paper. As against creditors, the paper is void from the beginning, and remains void always. Ho change of possession can purge it of the fraudulent provision, or operate to make that valid which was void before. Before and after possession taken, the title of the mortgagee rests equally on his mortgage, and the question between him and creditors of his mortgagor is equally upon the validity of his paper title. The title accompanies the possession and enters into it, and the possession rests on the title. The mortgagee’s possession, under the mortgage, is just as good or as bad as the mortgage itself. And no court possesses power to transmute a void mortgage into a valid pledge. Robinson v. Elliott, supra.
It is true that, upon the default of the mortgagor, the legal title to the chattels mortgaged is held to vest in the mortgagee. But under a mortgage like that here, it is legal title sub modo. The mortgagee cannot apply the subject of the mortgage in absolute payment of his debt. He must sell it, applying the proceeds on his debt, and accounting for the surplus to the mortgagor. And so his title and possession are executory, very much like a sheriff’s upon execution. He must justify his possession and the execution of the duties of his possession, like a sheriff. And he can no more do so against creditors, upon a mortgage void as to them, than a sheriff can justify his possession and proceeding upon void process.
The radical error, perhaps, in the cases cited for the respondent, more apparently so in the case in Illinois, seems to rest upon the theory that provision for disposal of the mortgaged goods by the mortgagor to his own use, is indeed fraudulent and void in and by itself, hut does not taint the entire *128mortgage with fraud; and that possession, once taken by the mortgagee, operates to purge the mortgage of the fraudulent provision. We need not cite authorities to show that a fraudulent provision for possession and use by the mortgagor infects the entire mortgage, and avoids it wholly as to creditors.
If it were imputed as fraud in fact against a mortgage fair on its face, that the mortgagee had suffered the mortgagor to sell the goods mortgaged, and dispose of the proceeds to his own use, possibly subsequent possession taken by the mortgagee might go to uphold his good faith, and to rebut fraud in fact. But nothing which a party claiming under a title fraudulent and void in law can do, will go to better his title. While in possession under a void title, he may sometimes acquire another which is valid. But we recall no way in which possession is held to better the title under which it is taken, except by operation of the statute of limitations.
It is not necessary to comment on respondent’s sale to himself. It could not better his title, however made. As made, it appears to be a mere nullity.
As there seems to have been confusion in the case between fraud in fact and fraud in law, it is perhaps proper to add that our judgment, proceeding upon fraud in law, imputes fraud in fact to none of the parties.
By the Court. — The judgment is reversed, and the cause remanded to the court below for a new trial.