Court Opinion

ID: 9305000
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:16:09.178044+00
Date Added: 2024-06-11T17:13:51.843598
License: Public Domain

On Rehearing.
Shiras, J.
A petition for rehearing, and argument in support thereof, has been filed in above cause by Finkbine & McClellan, attorneys for certain attaching creditors. It is claimed that the court had not properly considered' the terms of the mortgages under which complainant’s rights arise, and that these mortgages are clearly void within the rule laid down in Robinson v. Elliott, 22 Wall. 513. In the argument for rehearing it is claimed that in the case of Robinson v. Elliott is established the proposition “that a mortgage or other conveyance of a stock of goods in trade, made to seem a bona fide indébtedness, if coupled with an agreement reserving to this mortgagor the potential control of the goods, with the privilege of disposing of them at discretion, in the usual course of trade, is fraudulent *579and void as to oilier creditors; a recognized, absolute legal rule resting upon this solid pedestal of the common law.” The argument of counsel is based upon the assumption that the foregoing proposition is absolutely correct, and contains an exact statement of the rule laid down in Robinson v. Elliott. Standing just as it does it omits ono very essential fact, and that is, that the disposition of the goods, in the usual course of trade, is for the benelit of the mortgagor. There can be no question, that, under the statutes of Iowa, a mortgagor of personal property may retain possession of the property, if the mortgage be recorded, at least until the maturity of the debt. He can, therefore, lawfully retain “potential control of the goods.” Can he sell them at retail in the usual course of trade ? The supreme court, in Robinson v. Elliott, 22 Wall. 524, answer:
“ We are not prepared to say that a mortgage, under the Indiana statute, would not be sustained which allows a stock of goods to be retained by the mortgagor, and sold by him at retail, for the express purpose of applying the proceeds to the payment of the mortgage debt. Indeed, it would seem that such an arrangement, if honestly carried, out, would be for the mutual advantage of the mortgagee and the unpreferred creditors.”
It is clear, therefore, tlmt the mere fact that the mortgagor remains in possession, and sells the goods at retail, does not ipso fado determine the question of the validity or invalidity of the mortgage. The query is, does he sell them for his own benefit or for benefit of the mortgagee ? Now, this query may be answered from the stipulation expressly stated in the mortgage, or from the information derived, from the acts of the parties. If from either or both sources it appears that the sales are made by the mortgagor with the consent of the mortgagee, for the benefit of the former, then the case is brought within the rule announced in Robinson v. Elliott. The court, in that case, construed the mortgage and its provisions in the light cast thereon by tlio acts of the parties, and, it appearing that the mortgagor had for 25 mouths remained in possession, selling the goods, using the proceeds for his own purposes, and not applying the same to the payment of the mortgage debt, the conclusion was reached that the mortgage was void. The mortgages executed by W. K. Bird contain provisions indicating that it was expected that the business would be continued and additions bo made to the stock, but upon the face of the mortgage there is no statement made which proves that it was tho intent to use the proceeds of the goods for any other purpose than for the payment of the mortgage debt. The terms used in the mortgage are open to either construction, in that it is not expressly stated what disposition was to be made of the proceeds; hut that does not justify the court in assuming that the parties intended to commit a fraud. There is nothing in the evidence showing that the proceeds of sales were used by the mortgagor for his benefit, with the consent of the mortgagee, either express or implied. If the evidence in this case, as in Robinson v. Elliott, proved *580that Bird, had been allowed to carry on the business for months,’buying and selling in the usual way of trade, and using the proceeds for his own purposes, but not paying therewith the mortgage debt, then the case would be similar to Robinson v. Elliott. It lacks, however, the essential element named, and therefore the court would not be justified in declaring the mortgages void as against creditors. The petition for rehearing is overruled.