Marquese v. Felsenthal

• Decision Date: 16 December 1893
• Citation: 24 S.W. 493,58 Ark. 293
• Parties: MARQUESE v. FELSENTHAL
• Court: Arkansas Supreme Court

24 S.W. 493

58 Ark. 293

MARQUESE v. FELSENTHAL

Supreme Court of Arkansas

December 16, 1893

Appeal from Ouachita Circuit Court in chancery, CHARLES W. SMITH Judge.

Decree affirmed.

Morris M. Cohn for appellant.

1. The mortgage is fraudulent and void. There was a secret agreement to secure and prefer the Camden Bank, thus allowing the debtor to make a show of assets and obtain a false credit. It was virtually taking a mortgage and withholding it from record. Secret understandings have the effect of secret liens, and are condemned when they injure parties who have no knowledge of them. 2 Verm. 261; 2 Johns. Ch. 35; 7 B. Mon. (Ky.) 374; 6 Paige, 526; 105 U.S. 100, 118; 73 Wis. 654; 41 N.W. 436; 67 Wis. 101; 30 N.W. 298; 69 Wis. 138; 123 Ill 381; 15 Neb. 320; 7 N.W. 873; 21 Ohio St. 547; Wait, Fr Conv. secs. 235, 236, 237; 12 F. 861-2; 28 id. 788.

2. The instrument was an assignment, and void under our statute. 31 Ark. 429, 437; 52 Ark. 30; Ib. 48; 53 id. 101; 54 id. 6; Ib 428; 53 id. 537, 544; 1 McCrary, 176. Such a provision, which contemplates a continuance of business, an indefinite delay in winding up the trust, clearly makes the instrument fraudulent as to other creditors. 7 Md. 380; 11 id. 73. Add to this the fact that the trust was closed up by the debtor's relatives and clerks, who had ample opportunity to appropriate proceeds, and a case is clearly shown of fraud as to creditors. Wait, Fr. Cony. sec. 241.

Bunn & Gaughan for appellees.

1. The promise by a debtor to secure one of his creditors when he may demand it does not invalidate an instrument afterwards made to secure the debt. 17 F. 705; 123 U.S. 440.

2. The deed of trust did not constitute an assignment. 53 Ark. 101; 54 id. 234; 57 Ark. 222.

OPINION

McCAIN, Special Judge.

Eva Felsenthal, an embarrassed merchant, mortgaged her stock of goods to a trustee to secure a debt owing by her to the Camden National Bank. Her other creditors, who are the appellants herein, attack this mortgage.

1. Appellants contend that the mortgage is really an assignment, and void for want of compliance with the assignment law. The general distinction between a mortgage and an assignment is well understood. The one is intended to secure, the other to satisfy, a debt. A mortgage contemplates a personal effort to pay the debt, or at least reserves the right, by doing so, to restore the mortgagor's title. An assignment on the other hand denotes the Appomattox of the grantor's business career, and implies a surrender of his property to his creditors without the hope of redeeming it.

The form of the two instruments is quite similar, and, where the conveyance is unskillfully drawn, it is sometimes difficult to determine to which one of the two classes it belongs. If, therefore, the instrument on its face is ambiguous, it may be read in the light of surrounding circumstances, to see whether it be really a mortgage or an assignment. It is the privilege of an insolvent person, however, to make either a mortgage or an assignment, as he may think proper; and if, upon its face, a given instrument is clearly a mortgage, the court has no right to convert it into an assignment. The fact that a merchant has become hopelessly insolvent suggests the appropriateness of an assignment, rather than a mortgage; but the law permits him to make either, and he may have reasons satisfactory to himself for making the one rather than the other. Taking the deed of trust in this case by its four corners, it is a mortgage pure and simple. True, the debt was payable on demand, the grantor was unable to continue business, and the trustee was authorized to take immediate possession; but these facts do not of themselves convert a mortgage into an assignment. This case is quite similar to that of Robson v. Tomlinson, 54 Ark. 229, 15 S.W. 456, in which Chief Justice Cockrill said: "Neither the possession of the goods, nor the unreasonableness of the debtor's expectation of paying the debt at maturity, nor his intent never to pay, is the criterion for distinguishing a mortgage from an assignment. The controlling guide, according to the previous decisions of this court, is, was it the intention of the parties, at the time the instrument was executed, to divest the debtor of the title, and so make an appropriation of the property to raise a fund to pay debts? If the equity of redemption remains in the debtor, his title is not divested, and an absolute appropriation of the property is not made."

In Penzel Company v. Jett, 54 Ark. 428, 16 S.W. 120, this court held: "To ascertain whether the parties intended the instrument as a security for debts, or as an absolute appropriation of the property described to raise a fund to pay debts, all its provisions must be read together. If, when viewed as a whole, the intent of the parties is found to be the former, the instrument must be declared a mortgage; if the latter, an assignment." To the same effect the law is laid down by Judge Sandels in State v. Dupuy, 52 Ark. 48, and in Fecheimer v. Robertson, 53 Ark. 101, 13 S.W. 423. If there are some expressions in Richmond v. Mississippi Mills, 52 Ark. 30, 11 S.W. 960, and in Goodbar v. Box, 54 Ark. 6, 14 S.W. 925 seemingly in conflict with the other cases cited, they may be reconciled by the consideration that either a...