McKibbon v. Brigham

• Decision Date: 20 October 1898
• Court: Utah Supreme Court
• Parties: JULIA B. McKIBBON, APPELLANT v. NAT M. BRIGHAM, MARSHAL, RESPONDENT

55 P. 66

18 Utah 78

JULIA B. McKIBBON, APPELLANT v. NAT M. BRIGHAM, MARSHAL, RESPONDENT

Supreme Court of Utah

October 20, 1898

Appeal from the third district court of Salt Lake county, Honorable A. N. Cherry, Judge.

Action by Julia B. McKibbon v. Nat. M. Brigham as United States marshal, to recover the value of certain personal property sold on execution. From a judgment for the defendant plaintiff appeals.

Affirmed.

H. J Dininny, Esq. and Charles Baldwin, Esq., for appellant.

A creditor at large of the mortgagor cannot attack the mortgage. He must first clothe himself with a judgment or execution or some legal process against the property. Jones on Chattel Mortgages, 3d Ed., Sec. 345; Cobbey on Chattel Mortgages, Sec. 774; Markham v. , 19 P. 394; Bank v. Bates, 120 U.S. 536; Thompson v. , 27 N.Y. 568; Frary v. , 41 Mich. 376; Newton v. , 2 Utah, 287; Leopold v. , 16 P. 584; Beckenshoff v. , 19 Cal. 109.

A chattel mortgage on a stock of merchandise is not fraudulent in law because the mortgagor is allowed to retain possession and sell the goods under an agreement to account to the mortgagee for the net proceeds of the sale.

To show the trend of modern decisions we cite: Klein v. , 20 Ohio State, 110; McFadden v. , 90 Ind. 590; Morse v. , 22 F. 501; Francisco v. , 54 Ohio State, 307; Wright v. , 35 Mich. 231; Ford v. , 24 N.Y. 359; Forbes v. , 16 Pick, 462; Hixon v. , 44 P. 222; Bank v. Bates, 120 U.S. 556; Clark v. , 55 Iowa 14; Jeffrey v. , 64 Iowa 492; Jewell v. , 123 U.S. 426; Howard v. , 13 P. 556; Ethridge v. Sperry, 139 U.S 266.

Messrs Stephens & Smith, for respondents.

Where the mortgage is fraudulent in its inception no subsequent possession can cure the fraud.

Had plaintiff actually taken possession of the mortgaged property and commenced an action for the foreclosure of the mortgage we could at any time before sale, have garnished her or issued execution and levied upon the property, and justified our proceeding by showing the fraud in the inception of the mortgage. Bump on Fraudulent Conveyances, 4th Ed., Sec. 120; Wells v. Langbein, 20 F. 183; Chenery v. Palmer, 6 Cal. 123; Delaware v. Ensign, 21 Barb. 185; Parshall v. Eggart, 54 N.Y. 18; Blakesley v. Rosmund, 43 Wis. 116; Stine v. Munch, 24 Minn. 390; Rathburn v. Berry, 31 P. 679; McKinney v. Wood, 43 Mo. Appeals, 152.

An agreement which allows the mortgagor to remain in possession and dispose of the goods as before the mortgage was given, makes the mortgage void per se. Wells v. Langbein, 20 F. 189; Lyon v. Bank, 29 F. 556; Robinson v. Elliott, 22 Wall. 513; Simmons v. Jenkins, 76 Ills. 479; Russell v. Winn, 37 N.Y. 591; Leopold v. Silverman, 16 P. 581; Bump on Fraudulent Conveyances, Secs. 115-120.

MINER, J., delivered the opinion of the court. ZANE, C. J. and BARTCH, J. concur.

OPINION

MINER, J.

It appears from the findings in this case that George J. McKibbon was the owner and engaged in keeping a drug store under the title of the Park Terrace Pharmacy, and for convenience the business was conducted by George E. Wright and he was the accredited owner of the business, so far as the public was concerned. The Nelden Judson Drug Company, a creditor of said pharmacy understood that McKibbon was the owner. About March 1, 1894, McKibbon sold his interest in the drug store to Wright for $ 700, and took his note therefor. At this time the Park Terrace Pharmacy was indebted to the Nelden Judson Drug Company in the sum of $ 426, which Wright assumed and agreed to pay. Wright continued to purchase goods of the Nelden Judson Drug Company, and on July 18, 1895, was indebted to them in the sum of $ 568. There was no change in the manner of extending credit. From the time Wright purchased until July 18, 1895, he paid the Nelden Judson Drug Company on account of the Park Terrace Pharmacy, $ 1800. In February 1895, McKibbon died in Iowa. This fact was not known to the Nelden Judson Drug Company until a chattle mortgage was afterwards filed covering the stock. On July 5, 1895, Julia B. McKibbon, the plaintiff, widow of George J. McKibbon, through her attorney, took a new note, in the place of the old one given to Mr. McKibbon, from Wright, payable to herself, for $ 694, due in 90 days and surrendered the old note. The note was secured by chattel mortgage on the stock of drugs. This mortgage purported to convey the same to plaintiff.

At the time the mortgage was given it was verbally agreed between Wright and the plaintiff that Wright should remain in possession of said mortgaged property and continue to sell the same in the usual closure of business; buy new goods, keep up the expenses of the store, and pay over the proceeds, if any, to the plaintiff, to apply on the indebtedness; and it was also agreed at the same time that it was not expected that the mortgage should be paid when due, and that the time should be extended from time to time in order that Wright could continue in business as before said mortgage was given; that thereafter Wright continued to sell said goods in the usual course of business; that his sales averaged about $ 4,000 per year, and that from July 5, to July 18, 1895, when the store was closed by attachment, Wright sold the average amount of goods, but did not account to the plaintiff for the proceeds of such sales or any part thereof; that on the 18th day of July, 1895, the Nelden Judson Drug Company commenced suit by attachment against the Park Terrace Pharmacy and Wright, to recover its account for goods sold amounting to $ 562, on the ground that said Wright had assigned and disposed of his property with intent to defraud his creditors; that defendant, as U.S. marshal, levied said writ upon said drugs and received the same into his possession; that on the 4th day of September, 1895, said attachment was set aside by the district court, on the ground that it was improperly and irregularly issued, and because the grounds stated in the affidavit of attachment were untrue in fact, but, that notwithstanding this the defendant continued to hold possession of said goods, until December 9, 1895, when they were sold by the defendant on an execution issued on a judgment obtained in said suit, by said Nelden Judson Company against the said George Wright; that the defendant did not deposit with the county recorder, or tender to any one the amount of the mortgage which covered said drugs, so sold on execution, and that plaintiff on the 23d day of July, 1895, notified the defendant that he would be held liable for said goods, unless he returned them, or paid the amount of the mortgage. This suit to recover the value of the goods was commenced November 20, 1895. Defendant's amended answer was filed November 30, 1897. The amended answer set up fraud and want of consideration for the mortgage.

As a conclusion of law the court found that the chattel mortgage was invalid, fraudulent in law and void; that defendant was not obliged to deposit the amount secured by the mortgage with the county recorder, or any one else, and had a right to levy on said goods of George E. Wright, under the execution, as though the said mortgage had never been executed and delivered. Judgment was thereupon awarded to the defendant.

After stating the facts, MINER, J., delivered the opinion of the court:

The appellant contends that the court erred in holding under the facts found. First, "that defendant was in such privity with the property in controversy as to be entitled to contest the validity of plaintiff's chattel mortgage.

Second, the court erred in holding that a chattel mortgage on a stock of goods is fraudulent in law because the mortgagor is permitted to retain possession of and sell the goods, under an agreement to account to the mortgagee for the proceeds."

One of the most difficult questions in the law of chattel mortgages arises where a mortgage is given upon a stock of goods which by its condition permits the mortgagor to remain in possession and sell the property mortgaged, in the usual course of trade. According to about an equal division of authorities, a provision of this character renders the mortgage fraudulent in law as to creditors and third persons, without reference to the bona fides of the mortgage, or the intention of the mortgagor as to fraud. Robinson v. Elliott, 22 Wall. 513, 22 L.Ed. 758; 5 Am. & Eng. Enc. of Law (2d ed.) p. 992; Cobbey on Chattel Mortgages, Sec. 307.

While according to other authorities representing about one half of the states in the union, such a provision does not render the mortgage fraudulent per se, and the existence of fraud in such case, is a question of fact to be submitted to the jury. Brett v. Carter 2 Lowell, (U.S.) 458, 14 N.B.R. 301, 4 F. Cas. 67; 5 Am. & Eng....