Court Opinion

ID: 6407781
Source: CourtListenerOpinion
Date Created: 2022-06-25 11:50:18.385174+00
Date Added: 2024-06-11T15:51:16.215511
License: Public Domain

Wilde, J.
This is a case of appeal from an order or decree of a master in chancery, made in pursuance of the 3d section of Si. 1838, c. 163, entitled “an act for the relief of insolvent debtors, and for the more equal distribution of their effects.” The general question to be decided is, whether the mortgage deed to the appellee from the insolvent debtor, made before his application to the master in chancery to be allowed to take the benefit of said act, is a valid deed in law, or whether the title to the goods mortgaged passed by the assignment of the debtor’s property to the appellant, the assignee, notwithstanding the mortgage.
■ At the trial of the cause in this court, it appeared that it was agreed between the parties to the mortgage, that Loring, the said debtor, should mortgage to the appellee the principal part of his stock in trade, and that the mortgagor should continue in possession of the goods mortgaged, and make sales of the said property in the ordinary course of business, and apply the proceeds to his own use : He at the same time representing, that he should not at that season make any large sales, and if he should, that he would add to the amount of the mortgagee’s security by other property.
The counsel for the assignee maintains, that this agreement vitiated the mortgage, and rendered it void as to the creditors of Loring; that such an agreement is fraudulent in law, or is conclusive evidence of fraud, not open to explanation, however fair and honest the intention of the parties may have been. In regard to the objection in relation to that part of the agreement respecting the mortgagor’s continuing in possession of the mortgaged property, the law, as it is considered in this Commonwealth, has long been well established, and it is no longer open to discussion. It has always been held by this court, that where a vendor continues in possession of the goods sold, after the sale, with the consent of the vendor, such a possession is only a badge or presumptive evidence of fraud, which it is proper to submit to a jury, and which may be explained, and the inference of fraud repelled by other evidence. On this question there have been many conflicting decisions in other courts; but the *264question is now settled in the State of New York, in conformity with the doctrine as held in this Commonwealth ; and such appears to be the doctrine as now held in England. Bissell v. Hopkins, 3 Cow. 166. Seward v. Jackson, 8 Cow. 406. Kidd v. Rowlinson, 2 Bos. & Pul. 59. Martindale v. Booth, 3 Barn. & Adolph. 498. Hinde v. Longworth, 11 Wheat. 199. Arundell v. Phipps, 10 Ves. 145. Latimer v. Batson, 4 Barn. & Cres. 652.
In the case of Bissell v. Hopkins, it was settled, after an examination of the principal authorities, that the possession of goods continuing in the vendor after the sale was only presump live evidence of fraud, which might be explained by other evi dence. And we do not understand the counsel for the assignee to deny the doctrine thus established ; but he relies on the othei part of the agreement, which he insists is not merely a badge of fraud, but that it vitiated the security and rendered it void per se as to creditors. But we consider the agreement as to the mortgagor’s continuing in possession of the goods mortgaged, after the mortgage, and the permission to sell a part of the property, and to apply the proceeds to the mortgagor’s own use, as evidence of the same character, and as tending to raise the same presumption ; the one part of the agreement may raise a stronger presumption of fraud than the other, but this is a difference only in the weight of the evidence. Both parts of the agreement tend to prove a fraudulent intent, but both may be explained consistently with honest intentions and fair dealing; and if they may be so explained, and the inference of a fraudulent intent repelled, there seems to be no reason for excluding the explanatory proof. It has been argued, that the necessary consequence of the agreement was to deceive and defraud the creditors of the insolvent debtor; and that a party must always be presumed to have intended that which necessarily must follow from his act. But it was not a necessary consequence of the agreement that creditors wrould be defrauded; and even if that were the necessary consequence of the agreement, it would not follow that such a presumption might not be rebutted by evidence.
The question to be decided is, whether the mortgage deed *265was given with the fraudulent intent to cover the property, and thus to delay or defraud creditors ; and this question is to be determined by the whole evidence, presumptive and explanatory. In Cadogan v. Kennett, Cowp. 432, Lord Mansfield says, that “ the statute does not militate against any transaction bond fide, and where there is no imagination of fraud. And so is the common law. The question, therefore, in every case is, whether the act done is a bond fide transaction, or whether it is a trick and contrivance to defeat creditors.”
The next question to be determined is, whether upon the whole evidence it appears, or may be reasonably presumed, that the mortgage in question was made with any fraudulent intent to defeat or delay creditors. This question is submitted to the court by the agreement of the parties.
If the mortgage deed to the appellee had been an absolute sale and conveyance, the agreement that the vendor should be allowed to sell any part of the property, and to appropriate the proceeds to his own use, would be strong presumptive evidence of fraud, and for aught that appears would be conclusive. But as the conveyance was only by way of security, and as the goods, according to the estimated value, were more than sufficient to secure the mortgage debt; and as it was agreed by the mortgagor that he would not make any large sales, or if he did, that he would add to the amount of the mortgagee’s security by other property — that he would pay half the note in thirty days, and at the end of thirty days the mortgagee should have a right to examine the amount of sales — we are of opinion, taking into consideration all these circumstances, that there is no reason for the inference of fraud arising from the agreement, but that it is repelled by satisfactory evidence.
The next question raised by the report of the evidence depends on the construction to be given to the 1st, 5th, and 6th sections of the insolvent law. St. 1838, c. 163. The 1st section provides, that the messenger shall take possession of all the estate, real and personal, of the debtor, excepting such as may be by law exempted from attachment; and this was done on the 15th of July, at thirty minutes past one o’clock, and before the *266mortgage to the appellee was duly recorded. The mortgage had been before recorded in Boston, but was not recorded in Roxbury, where the mortgagor resided, until thirty minutes past three o’clock of the same 15th day of July. By the 5th section, it is provided that the judge of probate shall assign an 1 convey to the assignees “ all the estate, real and personal, of the debtor, excepting such as may be by law exempted from attachment ; which assignment shall vest in the assignees all the property of the debtor, both real and personal, which ne could by any way or means have lawfully sold, assigned or conveyed, or which might have been taken in execution on any judgment against him, at the time of the first publication of the notice of issuing the warrant ” to the messenger. This publication of notice by the messenger was made on the morning of the 16th of July, the day after the appellee’s mortgage had been duly recorded. By the 6th section, the messenger is required, as soon as may be after his appointment, to demand and receive from the debtor, and from all other persons, all the estate in his or their possession respectively, which by the previous sections is ordered to be assigned.
There appears to be no difficulty in ascertaining the true meaning and construction of these sections, so far as they relate to the question under consideration. There is an apparent discrepancy between the 1st and the 6th sections, the 1st requiring the messenger to take all the debtor’s property, excepting such as may be by law exempted from attachment, and by the 6th section he is to take all the debtor’s property which was liable to be assigned. But this difference in the language of the two sections is not material; it must, we think, have been intended by the 6th. section to limit the generality of the provision in the first section, which thus limited corresponds with the provision in the 5th section. But however this may be, the question to be determined depends on the construction of § 5, in regard to which there can be no doubt. The language is express, and limits the assignment to the debtor’s property at the time of the first publication of the notice of issuing the warrant to the messenger. At that time, the appellee’s mortgage had been record*267ed according to law, and consequently the property in dispute could not vest in the assignee.
It is however denied by the counsel for the assignee, that the mortgage deed has been recorded according to law; because the mortgagee had notice, before he recorded his deed, of the application of the mortgagor to be allowed to take the benefit of the insolvent law, and of the proceedings had thereon, and that the messenger had taken actual possession of the goods mortgaged.
If the mortgage had been made after such notice, there would be great weight in the objection; but the mortgage deed was made before these transactions, was a bond fide conveyance, and unquestionably the mortgagee had a right to complete his title. At the time the deed was recorded, the assignee had obtained no title ; nor does the title since obtained reach back to the time of the record. So that the case of Cushing v. Hurd, 4 Pick. 2<-3, is in point, and is conclusive. Indeed there does not appear to be either law or equity in favor of the claim of the appellant in behalf of the creditors. The appellee paid to the debtor over five thousand dollars, which has increased the amount of the debtor’s assets, to be distributed among his creditors, and they claim also the mortgaged property, leaving the mortgagee to take his share with the other creditors, although he never trusted to the personal credit of the mortgagor. This we think is not an equitable claim, and to avoid it the mortgagee had a perfect right to record his mortgage. If this mortgage had been given to secure a prior debt, the equity of the case would have been different; and if it had been so made by the debtor in contemplation of his becoming insolvent, and of obtaining a discharge under the provisions of the insolvent law, the mortgage would be void as to creditors, by the 10th section of the act. But by a proviso, this clause is not to apply to any security given for the performance of any contract, where the agreement for such security is part of the original contract, and the security is given at the time of making such contract. This mortgage therefore would have been a valid security, although it had been made by the debtor, in contemplation of insolvency. *268and of obtaining a discharge from his creditors, unless that intention had been known by the mortgagee. And this provision seems to be founded on equitable principles and sound policy. Without this proviso, no one could rely on his security, however fairly and honestly it had been obtained.
Upon the whole matter, therefore, we are of opinion that the decision of the master was correct, and must be affirmed