Lane v. Starr
| Decision Date | 01 May 1890 |
| Citation | 45 N.W. 212,1 S.D. 107 |
| Parties | Lane v. Starr. |
| Court | South Dakota Supreme Court |
Syllabus by the Court.
1. In a chattel mortgage upon a stock of merchandise, an agreement between the mortgagor and mortgagee that the former shall remain in possession and make sales of the mortgaged stock as the agent of the latter, accounting monthly to him, until the indebtedness is paid, will not of itself render the mortgageprima facie fraudulent as to creditors.
2. In such case the sales are made for the mortgagee, and are charged against and reduce the mortgage debt as fast as made.
3. The fact that the mortgagor and mortgagee are brothers is not, in the absence of, and unconnected with, other facts and circumstances tending to throw suspicion on the transaction evidence of fraudulent intent.
Appeal from district court, Spink county; LOUIS W. CROFOOT, Judge.
C. T Howard and H. C. & T. J. Walsh, (John B. & W. H. Sanborn, of counsel,) for appellant. N. P. Bromley and A. B. Melville for respondent.
On the 7th day of June, 1888, the appellant, who was then sheriff of Spink county, levied upon a stock of drugs and other miscellaneous goods under attachments and executions against one C. J. Lane, then personally in the possession thereof. The respondent, claiming to be the owner of the property so taken by virtue of a chattel mortgage executed to him by said C. J. Lane, brought this action against appellant to recover the value of the property so taken; and the question in controversy is as to the validity of respondent's mortgage as against creditors of the said C. J. Lane. The mortgage contains the following provision: "And it is further agreed between the parties hereto that until the said eighteen hundred thirty-nine dollars is paid, according to the condition of said promissory notes, by said Charles J Lane to said William A. Lane, with interest at seven per cent., the said Charles J. Lane shall remain in possession of said goods as agent of said William A. Lane, and shall well and truly account to said William A. Lane or his assigns, monthly, for all sales made by him of the aforesaid property, hereby mortgaged, until said sum shall be fully paid and satisfied; the intention of the said Charles J. Lane and William A. Lane being that the sale of the property herein specified be absolute to said William A. Lane until said indebtedness shall be fully paid, with interest, said Charles J. Lane acting only as the agent of said William A. Lane in disposing of the goods hereinbefore mentioned, and accounting for the proceeds thereof, until said indebtedness is paid."
It is contended by appellant that this stipulation renders the mortgage at least presumptively fraudulent as against the creditors represented by appellant. To determine the effect of this provision, we must first ascertain its meaning. Does it mean that the mortgaged property shall remain in the possession of the mortgagor with a power of disposition on his own account, he undertaking only to account for the proceeds to the mortgagee? Or does it mean that the mortgagor's possession is really that of the mortgagee; that the power of sale is not a power which he reserves to himself, but a power with which he is invested as a means of executing the trust; and that the sales to be made out of the mortgaged goods are to be considered as made by the mortgagee? Reading the language employed in this provision with strict and judicial impartiality, with no inclination either to straighten or bend, but gathering the design of the parties from the words they have used, can there be any serious doubt as to what they intended? The mortgagor was to remain in possession, but as the agent of the mortgagee. He was to make sales of the goods, but only for and in behalf of the mortgagee, and he was to render an account monthly until the indebtedness was paid. These are the provisions. They are plainly stated, and the immediate inquiry is as to the effect of such an agreement upon the mortgage.
Appellant contends that the mortgage permits the mortgagor to remain in possession with power of sale for his own benefit, because he is not required to turn over the proceeds of sales to the mortgagee, but only to account for them monthly; that a written statement would quite satisfy the requirement as to accounting; and that the money derived from sales might never be turned over and applied upon the mortgage debt. If this were the legitimate or even possible effect of the agreement, we should regard it with great suspicion, but the very agreement complained of prevents such a result. The mortgagor is authorized to convert the goods, not on his own account, but on account of the mortgagee. The authority is express, definite, and limited. If the sales were made for the mortgagee, the proceeds were his, and applied to and extinguished the indebtedness pro tanto, whether ever actually turned over to him or not. To convert the mortgaged property into money for the payment of the mortgage debt was the proper office of the chattel mortgage, and the creditors could ask nothing more than that the debt be diminished as fast as sales were made; and this was just the legal effect of the agreement. The proceeds of sales becameeo instanti the property of the mortgagee and a payment upon the indebtedness; and it could make no difference to creditors whether the mortgagee required his agent, the mortgagor, to immediately pay over the funds or not. The money realized from sales had done all for creditors that they could ask when it was applied to and went to pay the mortgage debt; and it became so applied by the fact of, and simultaneously with, the sale. It was not possible, within the terms of this agreement, that any of the mortgaged goods or their proceeds should be diverted or misappropriated to the prejudice of creditors of the mortgagor. The monthly accounting may or may not have contemplated an actual transfer of funds between mortgagor and mortgagee. It surely meant a statement of sales, and consequently a monthly exhibit to the mortgagee of how much had been realized on, and was chargeable against, his debts secured upon the stock. Appellant's counsel argue that this view is inconsistent with the conduct of the parties, in dividing up and putting the total indebtedness into several promissory notes, and making them become due at stated times, but it does not so look to us. It is fair to suppose, for so it would ordinarily occur, that the parties divided the debt into such sums, and made them payable at such times, as that the sales of goods would be expected to take care of them; but the maturity of each note simply fixed a time within which such notes must be so paid, and beyond which the mortgagor's right to so make sales for the mortgagee in reduction of his debt did not extend. It may be that, as between the parties to the mortgage, the effect of the giving and the taking of the notes would be to prevent the mortgagee requiring the mortgagor to pay over the the funds realized from sales faster than the notes matured, and thus to extend to him a credit until that time. But the credit would be personal. It would not rest upon or bind the goods. As to creditors and as to the security, the debt would have been extinguished by and to the extent of the sales, and a corresponding result might have followed the contingency suggested in appellant's brief. He says: Suppose the first month's sales had amounted to enough to satisfy the entire demand of mortgagee. How could the mortgagee have compelled the mortgagor to turn over the funds and take up notes not yet due? or how, on the other hand, could the latter have required the former to accept payment of his notes before maturity? We think this presents no problem difficult of solution, if the views we have just expressed are correct.
It is also urged that the power to sell is unrestricted, either as to manner or terms, and that such an unlimited authority bounded only by the judgment or caprice of the mortgagor, is dangerous to the rights of other creditors. This might possibly be so, and we would be better satisfied with this mortgage if it allowed the mortgagor to make...
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