Court Opinion

ID: 7969898
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:54:10.309947+00
Date Added: 2024-06-11T16:34:44.780119
License: Public Domain

MITCHELL, J.
I dissent, for the reasons: First, that the findings tendered by the appellant, if made, would not entitle it to recover; and, second, there was no evidence that would have justified any finding that would entitle it to recover. There was no evidence that the respondent had any actual intent to defraud any creditor of the lumber company by withholding his contract from record. It appears that respondent did not suppose that it was necessary to file such a contract. The most that can be claimed for the testimony of the lumber company’s manager, Poole, who is evidently in sympathy with the appellant, is that the reason which he gave to respondent for not wanting it filed was that it might interfere with his sale of the lumber, by clouding the title, and had no reference to enabling the lumber company to contract debts on any false basis of credit.
There is no evidence that the lumber company was then insolvent, or that respondent had any reason to anticipate that it was liable to become so. It is true that some of the creditors of the lumber company testify generally that in giving it credit they were influenced by the belief that it was the owner of the lumber which it was sawing and had in its yards; but it is evident that they relied mainly on the general good credit of the company, and its prompt payment of its bills, without any inquiry or investigation as to the title of the property in its possession. The most that can be claimed for the evidence is that respondent, holding the title to the lumber to secure the unpaid purchase money of the timber, without any actual intent to defraud anybody, refrained, at the request of the lumber company, to file the contract until the latter had become indebted to other persons; such other indebtedness not being in the mind of either party at the time of the execution of the contract, and the respondent hav*291ing no knowledge or suspicion that the lumber company was insolvent, or likely to become so; those who credited the lumber company having done so in ignorance of the source whence, or the contract under which, it acquired the timber which it was manufacturing, but assuming, without investigation, that it owned it.
Expressions are to be found in some of the cases to the effect that a mortgagee who refrains from filing or recording his mortgage is estopped to assert it as against subsequent creditors who give credit to the mortgagor in ignorance of the mortgage, and upon the faith of the mortgagor having an unincumbered title to the property; but I think that it will be found that, in every well-considered case in which the mortgage has been held void as to creditors, who had acquired no specific lien on the property before the mortgage was filed or recorded, it was so held on the ground of fraud, and not upon any principle of mere equitable estoppel, as, for example, where the mortgagor was known to the mortgagee to be insolvent, and where it was arranged between them that the mortgage should be kept secret in order to give the mortgagor a fictitious credit.
Such a device is clearly fraudulent and void as to subsequent creditors, without the necessity of invoking any principle of equitable estoppel. Such was the case of Blennerhassett v. Sherman, 105 U. S. 100, cited in the opinion of the court. Baker v. Pottle, 48 Minn. 479, 51 N. W. 383, was a case of the same kind. The mortgagor, being insolvent or hard up, a fact known to the mortgagee, gave a mortgage on his entire property and business, which, by agreement between the parties, was kept from file, so as not to hurt the mortgagor’s credit; in other words, in order to enable him to obtain credit on a fictitious basis. This constituted a clear case of actual fraud as to subsequent creditors, and the verdict to that effect was amply justified by the evidence on this ground. Standard v. Guenther, 67 Wis. 101, 30 N. W. 298, could have been properly decided, as it was, on the same ground; for we gather from the statement of the case that the mortgage was on the entire property and business of the mortgagor, which was known at the time by the mortgagee to be in a very embarrassed condition, and the mortgage was kept from the files so as not to injure the mortgagor’s credit.
There are cases where the decision holding the mortgage fraudu*292lent as to creditors was affected by the provision of the national bankruptcy act then in force, making void any preference given within four months before the commencement of bankruptcy proceedings, and whére the creditor kept his mortgage from record in order to keep his debtor afloat until the expiration of the four months. Folsom v. Clemence, 111 Mass. 273, was a case of this kind. But this can have no application, even under our insolvent law, to a case of a conditional sale, where the vendor retains the title to the property as security for the purchase money. I have found no well-considered case which holds that the mere withholding of a mortgage from rec'ord, even when it is done so as not to injure the credit of the mortgagor, has ever been held sufficient to avoid it as to subsequent creditors having no specific lien on the property, who have given credit to the mortgagor in ignorance of the existence of the mortgage.
It is not the mortgage, but the debt which it secures, which prevents creditors from getting their pay; and I can see no difference between concealing the existence of the mortgage and concealing the existence of the debt so as not to injure the credit of the debtor, and no one will argue that it is a fraud on other creditors for a creditor to conceal from the world the existence of his claim against his debtor. In brief, my opinion is that the ground upon which a mortgage can be thus avoided as to subsequent creditors is fraud, and not equitable estoppel; and, in order to render it so, there must be an actual intent to deceive and defraud prospective creditors, as, for example, a scheme to enable the debtor to incur debt which he has no reasonable prospect of paying, or at least, upon the principle that every one is presumed to intend the natural and probable consequences of his own acts, that the conduct of the mortgagee was such that he must be presumed to have intended such a result. For an exhaustive analysis of the cases on this subject, see Flemington v. Jones, 50 N. J. Eq. 244, 24 Atl. 928.