Leopold v. Silverman

• Citation: 16 P. 580,7 Mont. 266
• Parties: LEOPOLD et al. v. SILVERMAN et al.
• Decision Date: 07 January 1888
• Court: United States State Supreme Court of Montana

16 P. 580

7 Mont. 266

LEOPOLD et al. v. SILVERMAN et al.

Supreme Court of Montana

January 7, 1888

Appeal from district court, Custer county; BACH, Judge.

Leopold Bros. & Co. sued Isaac Silverman, Fanny Silverman, and A Block & Co., asking for the appointment of a receiver, and the setting aside of certain chattel mortgages. Judgment was rendered for defendants on the pleadings, and plaintiffs appeal.

Strevell & Garlock, for appellants.

A. F Burleigh, for respondents.

McLEARY J.

This is an appeal from a judgment on the pleadings rendered by the district court in favor of the defendants, Silverman et al.

The facts appear from the records substantially as follows: On the twelfth day of November, 1886, Issac Silverman and Fanny Silverman were merchants, doing business at Miles City Custer county, Montana; and on that day they mortgaged their stock in trade to the Stock Growers' National Bank, of Miles City, to secure their note for $3,500. The bank at once placed an agent in charge of the mortgaged property. That mortgage contained the following provision: "It is provided, however, that the said parties may continue to sell the said stock of merchandise in the usual course of trade accounting, however, as often as requested, and at least once a month, to the second party for the proceeds of all such sales." On the twenty-second day of November, 1886, and while the agent of the bank was in possession, and the goods were being sold in the usual course of trade, the said Isaac Silverman and Fanny Silverman executed and delivered to A. Block & Co., of Cincinnati, Ohio, a second mortgage to secure a promissory note for $3,049.92 upon the same property; and the agent of the bank, one Hedderick, was requested to act also as the agent of Block & Co. That mortgage contained the following provision: "Said first parties may sell said goods, wares, and merchandise in the usual course of trade. This mortgage is intended to be second to that now held by the Stock Growers' National Bank, of Miles City, Montana." On the eleventh day of December, 1886, the said Isaac Silverman and Fanny Silverman executed and delivered to the appellants, Leopold Bros. & Co., a third mortgage on the same property to secure their promissory note for $3,022.50, which was to fall due on the first day of May, 1887. The agent, Hedderick, who was already in possession under the first and second mortgages, was requested to act also as the agent of Leopold Bros. & Co., and consented to do so as far as he could without prejudice to the bank and to A. Block & Co. On the twenty-first day of December, 1886, the respondents, A. Block & Co., for $2,700 cash paid, purchased from the bank the first mortgage, and continued the agent in possession until the twenty-fourth or twenty-fifth day of December, when, it seems, A. Block & Co. put to one Newman Borchardt in possession as their agent, and Leopold Bros. & Co. put one T. J. Thompson in possession as their agent. All the while Isaac Silverman was in possession, also, and acting as salesman, receiving $15 a week and his house-rent from the proceeds of the sales. And it is alleged, in replication, that the bank, after pretending to take possession of the stock of goods under the mortgage, left Silverman in charge of them to sell them with Hedderick; and that Silverman received a portion of the proceeds with the consent of both the first and second mortgagees. It appears that the stock of goods was estimated to be worth from $4,000 to $9,000. On the twenty-fifth day of January, 1887, this suit was begun; and, on the twenty-seventh day of January, 1887, on the complaint of Leopold Bros. & Co., T. J. Thompson was appointed receiver, and soon after his appointment took possession under the receivership, and remained in possession until he was removed by order of the court. On the twenty-first day of February the order appointing the receiver was, on motion of A. Block & Co., set aside and vacated by the judge at chambers, and exception duly taken thereto. On the nineteenth day of April, 1887, during the session of the court, the defendants moved the court for a judgment on the pleadings, on the grounds "that it appears from the pleadings herein, on the part of the plaintiffs, that they had, at the commencement of this suit, and still have, a plain, speedy, and adequate remedy at law." On this motion judgment was rendered by the court, upon a full hearing, in favor of the defendants, on the twentieth day of April, 1887. From this judgment the plaintiffs appealed, and the case appears here on the judgment roll. It is contended by the appellants that the first and second mortgages are each void for fraud apparent upon the face thereof. This, being the principal question involved in the case, will be first considered.

1. At common law, delivery of the chattels mortgaged was necessary to the validity of the mortgage; but, from time to time, statutes have been enacted giving the mortgagor the right to retain possession on complying with certain requisites laid down in the laws in regard to affidavits of good faith, acknowledgments, registration, and the like. We have an act of this kind in Montana which reads thus: "No mortgage of goods, chattels, or personal property, shall be valid as against the rights and interests of any other person than the parties thereto, unless the possession of such goods, chattels, or personal property be delivered to, and retained by, the mortgagee, or the mortgage provide that the property may remain in the possession of the mortgagor, and be accompanied by an affidavit of all the parties thereto, or in case any party is absent, an affidavit of those present and of the agent or attorney of such absent party, that the same is made in good faith to secure the amount named therein, and without any design to hinder or delay the creditors of the mortgagor, and be acknowledged and filed as hereinafter provided." Comp. St. Mont. p. 1068, § 1538. But statutes such as this were not intended to validate any mortgage which was inherently defective. The object to be accomplished by such legislation is only to legalize the possession of the mortgagor on compliance with the statutes, and not to cure inherent defects in the mortgage itself. Wilson v. Voight, 9 Colo. 614, 13 P. 726; Robinson v. Elliott, 22 Wall. 520. The question whether or not provisions like those contained in the first and second mortgages given by Silverman render the mortgage void, and the further question whether or not this is a matter to be decided by the court or to be submitted, under proper instructions, to the jury, have been often and thoroughly discussed at bar, and received the earnest consideration of a great many courts of last resort, both in England and America. It is useless for this court to review that discussion, and to trace the current of authority from Tey's Case, 3 Coke, 80, decided in England in 1602, down to the case of Wilson v. Voight, decided by the supreme court of Colorado in March of last year.

The case of Robinson v. Elliott decided by the supreme court of the United States in 1874, reported in 22 Wall. 520, must govern us in the disposition of this case. It was held in that case, in effect, that any chattel mortgage upon a stock of merchandise in trade which permits, by its terms, the mortgagor to remain in possession of the goods, and to sell the same in the usual course of trade, at his discretion, and to appropriate the proceeds, or a part thereof, to his own use, until the maturity of the debt purporting to be secured by it or for any indefinite time, is fraudulent and void as to the other creditors, regardless of the good faith of the parties. It is not a question of intent, but of effect. Such a mortgage has the effect of hindering, delaying, and defrauding creditors, and all persons are presumed to intend the natural consequences of their own acts, so that the good faith or bad faith of the parties, as it actually existed, becomes immaterial. Such mortgages as this have the fraudulent effect and the fraudulent intent, if one is necessary, will be presumed by the court by the mortgage itself. Being self-evident, it is not necessary to call in a jury to determine the existence of fraud in this class of mortgages. The provision of the Montana statute (section 231, Div. 5, Comp. St.) that fraudulent intent shall be deemed a question of fact, and not of law, does not apply to a case like this, arising upon the face of the written instrument itself, in such a way as to require its submission to a jury. A similar statute exists in Indiana, where the leading case of Robinson v. Elliott arose, and was considered by the supreme court of the United States in that case. From this case of Robinson v. Elliott, referred to above, and from a great many other cases discussed at length in the able monograph of Mr. Pierce on Mortgages of Merchandise, we may deduce the following general principle: A mortgage of a stock of goods in trade, under which the mortgagor is permitted by the mortgagee to sell the goods at his discretion in the usual course of his business, is inherently and essentially fraudulent as to the creditors of the mortgagor; and this is so even though the agreement or understanding between the mortgagee and the mortgagor, permitting such sales, is not shown upon the face of the mortgage, but is proven by extrinsic evidence. The cases referred to, quoted and discussed by Pierce, show this to be the rule in the courts of the United States, and in the states of Colorado, Illinois, Indiana, Minnesota, Mississippi, Missouri, New Hampshire, New York, Ohio, Oregon, Tennessee, Texas, Virginia, West Virginia, and Wisconsin. The same rule is followed in the later cases of Wineburgh v. Schaer, 2 Wash. T. 333, 5 P....