Frost v. . Warren , 42 N.Y. 204 ( 1870 )

The exception taken to the refusal of the judge to direct a verdict for the defendant, can be sustained only upon the ground that the mortgage under which the plaintiff made title was, by the proof given, shown to be fraudulent as against the creditors of the mortgagor, in whose right the defendant justified the taking and conversion of the property; and that the proof in this respect was so conclusive that it was improper to submit any question arising thereon to the jury. In considering this question, it is necessary first to determine whether an agreement made by parol, at the time of giving a mortgage upon chattels, by the parties thereto, that the mortgagor might at any time thereafter sell and dispose of the chattels mortgaged, and appropriate the proceeds to his own use, the debt remaining unpaid, renders such mortgage fraudulent as against the creditors of the mortgagor; and, if so, second, whether the evidence proved that such agreement was made, or was so conflicting upon that point as to make the submission of that question to the jury proper. In Edgell v. Hart (5 Seld., 213), it was held by this court that an agreement, contained in the mortgage, that the mortgagor should retain possession of the property, and have the right of selling and disposing of the same on his own account, rendered the mortgage fraudulent as against the creditors of the mortgagor, and that, in such a case, it was the duty of the judge to dispose of the question as one of law, and that its submission to the jury was error. This was upon the principle that the agreement conclusively established that the mortgage was not taken in good faith for the exclusive purpose of securing the debt, but that other purposes were involved therewith. Upon principle this is clearly so. A mortgage given upon chattels with the right reserved by the mortgagor to retain possession and convert them at his pleasure to his own use, if any security to the mortgagee, could only be one of a very shadowy character; one that no creditor, designing only to secure his debt, would ever take, as it would be in the power of the mortgagor at any time to defeat it. In Gardner v. McEwen (19 N Y, 123), Edgell v. Hart is cited with approval, and the doctrine asserted that such an agreement, made at the time, though not contained in the mortgage or reduced to writing, would have the like effect. The point cannot be considered as determined in that case, as it was disposed of upon the ground that the evidence, as it appeared in the case, did not conclusively show that such an agreement was made. In Russell v. Winne (37 N.Y., 591), the point was not directly involved; but the discussion of the points involved in the case shows pretty clearly that such was the opinion of the court. Indeed, no distinction in principle exists between a case where such an agreement is contained in the mortgage or other writing, and one where it is made by parol at the same time. The latter, equally with the former, shows that it was not the bona fide intention of the parties, in giving and receiving the mortgage, to secure the debt. It is unnecessary further to examine the question, as it is thoroughly discussed in the cases above cited; and the authorities bearing upon it, cited and commented upon inConkling v. Shelley (28 N.Y., 360), contain nothing against this conclusion. There the mortgagee made the mortgagor his agent to sell the property for him, and it was held that the proceeds of all sales made must be applied as payment upon the mortgage debt, although not accounted for and paid over by the mortgagor to the mortgagee. The same remarks are applicable to Miller v. Lockwood (32 N.Y., 293). It remains to inquire whether the evidence established the making of such an agreement. It may be remarked that this agreement, like any other parol agreement, may be proved by direct evidence, or by proof of facts and circumstances clearly showing it. The mortgagor was the son-in-law of the plaintiff, and had, together with his wife and clerk, boarded in the family of the plaintiff prior to the giving of the mortgage, and continued so to board at the time and subsequently thereto. He was engaged in the business of selling groceries and some other goods at retail. This was known to the plaintiff, who had become responsible for him for goods purchased for about a thousand dollars. The plaintiff, according to his own testimony, told the mortgagor that he must have a mortgage or he would close the store. Thereupon the mortgage was given, covering all the goods and fixtures in the store of every description. Now, what did the plaintiff mean by saying to his son-in-law, engaged in selling groceries and other goods at retail, at a store occupied by him, that he would close the store unless he gave him a mortgage? I think that he designed to have him understand that, if he did give him a mortgage, he might go on and continue to sell and conduct his business as before, and that the mortgagor did so understand it. That there can be no doubt of this, and that a verdict finding the contrary, there being no conflicting evidence, ought not to stand. So far from there being any conflicting evidence, it was further proved that, with the knowledge of the plaintiff, the mortgagor did continue the business thereafter, and make sales of the property as before, the plaintiff himself making some purchases at the store and having them charged in his account. The mortgagor, his wife and clerk continued to board with the plaintiff. Indeed, the plaintiff's son was clerk in the store and boarded with his father. Under these facts, which were undisputed, a verdict negativing an agreement by the mortgagee that the mortgagor might continue to sell the property on his own account would be preposterous. Had the question arisen between the plaintiff and a purchaser of goods from the mortgagor, I can hardly conceive that there would have been any hesitation in directing a verdict in favor of the purchaser. The question between the plaintiff and defendant is precisely the same; that is, did the plaintiff, when he took the mortgage, agree with the mortgagor that he might go on with the business, making sales of the property, as before? I think the judge erred in refusing to direct a verdict for the defendant, as requested, and that the exception to such refusal was well taken. Nearly, but not precisely, the same question arises upon the exception taken to the refusal of the judge to charge the jury as requested. That request was, that if they should find that the plaintiff allowed the mortgagor to sell at retail on his own account, the mortgage is void as against creditors. This request, construed in the light of the evidence given in the case, might be understood as including the idea that he was so allowed to sell in pursuance of an agreement to that effect, made at the time of the giving of the mortgage. So understood, the exception was well taken. As an abstract proposition, its refusal was not erroneous. It may be true, in a certain sense, that a mortgagee allows a mortgagor to sell the property, without any agreement to that effect, and without assenting in any way to such sales, by merely abstaining from interfering to prevent them. This, while cogent evidence tending to show the mortgage fraudulent, is not conclusive, and may be explained consistently with good faith in the mortgagee. The latter remark is applicable to the exception taken to the refusal of the judge to charge that the mortgage was fraudulent as to creditors, by reason of the excess of the sum secured thereby over the liability incurred by and the indebtedness to the plaintiff. I have limited what I have said to the case of an agreement made cotemporary with the giving of the mortgage, because I regard this to be such a case. When a case arises where it appears that such an agreement was made subsequently thereto, but not at the time, it will be the proper time to determine whether there is any real difference in principle. The same remark is applicable to a case where the agreement was that the mortgagor might sell some specific portion of the property. The judgment should be reversed and a new trial ordered, costs to abide the event.

For affirmance, FOSTER, SMITH, LOTT, INGALLS and SUTHERLAND, JJ., and EARL, Ch. J.

For reversal, GROVER and HUNT, JJ.

Judgment affirmed.