Smith v. Post — 8 N.Y. Sup. Ct. 516

Majority

p. 516

JUD SMITH, Sheriff, etc., Appellant, v. WILLIAM T. POST, Respondent.

Headnote

Chattel mortgage — when fraud of mortgagor does not affect lights of mortgagee — given to two persons to secure separate debts — when void as to one mortgagee, and good as to the other.

Where property covered by a chattel mortgage is in the possession of a third person, an immediate delivery thereof is not necessary.

The mortgage provided that in case of default in payment, or in case the mortgagees should at any time deem themselves unsafe, they might take possession of the property and sell the same. Held, that this provision was for the benefit of the mortgagees, and authorized therp. to take possession when, in their judgment, they deemed it best for the safety of their demands so to do, and that no proof was required to show that they considered themselves unsafe, as the legal presumption would be that such was the fact, when possession was taken before the mortgage was due.

The fraud of the mortgagor will not affect the rights of the mortgagee to the property mortgaged, unless he was a party or privy to it, and received the mortgage with the intent to hinder, delay or defraud the creditors of the mortgagor.

Where a mortgage is made to two persons, to secure separate and distinct debts, the knowledge and fraudulent intent of one of them, will not affect the rights

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therein of the other. The mortgage will he void as to the one and good as to the other.

Goodwin v. Kelly ( 42 Barb., 194 ) followed.

Appeal from a judgment in favor of the defendant, entered upon the verdict of a jury, and from an order denying a motion for a new trial, made upon the judge’s minutes.

The action was brought by the plaintiff to recover personal property, which he had levied upon by virtue of an execution against one Thomas Merritt, and which had been sold by virtue of a chattel mortgage in favor of the defendant and one Catharine McCutchen. The mortgage was executed July 30, 1869, and delivered soon afterward. On the fifth of August, the mortgage was filed, and the defendant claims that he took actual possession. The cause was tried at the Chemung Circuit, before Justice Mubbay and a jury, and resulted in a verdict in favor of thedefendant.

The defendant interposed two defenses. First, he claimed title to the property, under the chattel mortgage; and second, he denied that he had interfered with the property in any way, and claimed, that, before it was attached for the claim under which the plaintiff sought to hold the property, and, to secure which, it was attached, he had released all his interest in it, to Mrs. McCutchen, and that the sale was by her alone.

The principal question litigated upon the trial, was the good faith of the mortgage. The evidence showed that in July, 1869, the said Merritt was the owner of a farm and of a large amount of personal property thereon, and that, on the twenty-ninth of that month, the wife of said Merritt, having learned that her husband was in Boston, in trouble and needing money, came with a neighbor to the defendant and wanted to borrow some money and give the farm as security. The defendant declined to loan money upon the farm, but offered to buy it, which offer was subsequently accepted. The defendant, having learned of the existence of several debts, in Elmira, against Merritt, and it being claimed that he owed his mother-in-law, Mrs. McCutchen, $1,800, it was further agreed that the defendant should assume the payment of all the Elmira debts, provided that Merritt execute a chattel mortgage- to the defendant and Mrs. McCutchen, -upon a portion of the personal property on the place, to secure their respective debts.

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Mrs. Merritt went to Boston and brought back the deed and chattel mortgage, executed by Merritt, and delivered them to the defendant. Various exceptions were taken, and decisions made on the trial, which are discussed in the opinion.

P/rasfms P. Hart, for the appellant.

D. B. Hill, for the respondent.

The question whether there was an immediate delivery, and an actual and continued change of possession of the mortgaged property, was a question of fact, and properly submitted to the consideration of the jury, upon the trial. There was proof to show that an actual, formal possession was taken, and that the defendant assumed control, and gave directions concerning it, and exercised a general oversight over it. The question of fraud having been submitted to the jury, and they having found against the plaintiff, the verdict is conclusive on the point made.^[8] It may also be remarked, that the mortgaged property being at the time in the possession of a third person, an immediate delivery was not necessary.^[4] ■ The provision in the mortgage, that in case of default in payment, or in case the mortgagees should, at any time, deem themselves unsafe, they might take possession of the property and sell the same, was for the benefit of the mortgagees, and authorized them to take possession, when there was a default, or when, in their judgment, they deemed it best for the safety of their demand; and no proof was required to show that they so considered themselves unsafe, as the legal presumption would be, that such was the fact, when possession was taken before it was due. Especially does such a presumption arise, when no distinct point was made upon the trial, that there was a failure of proofs in this respect.

There was, I think, no error in the charge of the judge, in holding, substantially, that the defendant was not, nor were his rights to the mortgaged property, affected by the fraud of the mortgagor, unless he was a party or privy to it, and received the mortgage, with the intent to hinder, delay, or defraud the creditors

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of the mortgagor. And also, that to make the mortgage void, as to the defendant and Mrs. McCutchen both, they must have received the mortgage for the same fraudulent purpose, or, in effect, that even if Mrs. McCutchen knew of such fraudulent intent of the mortgagor, her knowledge could not affect the defendant, and he might be protected, while she would not. There appears to be no good reason why an innocent mortgagor should suffer for the fraudulent intent of his associate, of which he had no knowledge, and in which he did not participate. He stands in the same position, as if he had taken a separate mortgage to himself, and the fact that the same mortgage provides for his separate debt, does not infect the amount secured, with the fraud that taints the portion secured to another party. There are virtually two mortgagees instead of one, whose interests are distinct, and the fraud which vitiates the mortgage, relates to the substance and the subject-matter of the mortgage, and not to the parties. And even this general rule, as to the subject-matter, is not without exception, and it is held, .that if part of a mortgage is proved to have been a subsisting debt, at the time of its execution, the mortgage is valid to the extent of such debt.^[8] It may be valid as to part of the property described in it, and it is not rendered void, by reason of its professing to mortgage other property, as to which it is inoperative.^[4] So long as there was no original intention of the mortgagor, to hinder, delay and defraud creditors, within Russell v. Winne,^[5] or a fraudulent purpose, it can be upheld, as a valid and lawful security. Although two parties are secured separately, in one instrument, it must be considered as a transfer, separate and distinct, which enables each one to hold the property independently of the other, in proportion to the debt secured. The same rules apply to conveyances of real estate;^[6] also to the assignments of property.^[7]

It is said that the defendant did not take the mortgage for any debt, past or present, due or owing to him, and was merely a trustee for Merritt, and the property mortgaged to secure debts which were named, and, in this view, was in the condition of an

† † Gardner v. McEwen, 19 N. Y., 123 .

‡ ‡ 37 N. Y., 591 .

§ § Bump on Fraudulent Conveyances, 472.

ǁ ǁ Prince v. Shepard, 9 Pick., 176 .

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assignee, or trustee for the benefit of creditors, and his title was affected by the fraud of the mortgagor. I think that this position is erroneous, and the assumption of the payment of the debts by the defendant, rendered him liable for the same. It was, in fact, an absolute promise to pay, on his part: He was not to take the property, sell and dispose of the same, and apply the proceeds towards the payment of the debts, but was obligated to pay them, without regard to the property, or the amount realized upon any sale thereof. It was a promise made by an individual to a third person, for a valid consideration, to pay money to such person, by virtue of which, an action can be sustained by the latter, in his own name, against the promissor.^[8] It matters not, that the defendant did not pay before the attachment was levied, and it is sufficient, I think, that he was liable to pay, to uphold the amount secured by the mortgage to him.

I think there was no error in the charge of the judge to the jury, that in case they found the mortgage valid, under the rules laid down by him, then the verdict should be for the defendant, without going further. The judge had presented a statement of the leading features of the case, and the first defense interposed, which was that the defendant and Mrs. McGutchen had a mortgage, executed upon this same property, under which he was protected in taking the property, if he took it at all, and I am unable to discover-any ground, upon which it can fairly be claimed that this proposition was not a sound one. The argument of the plaintiff’s counsel, as I understand it, is, that it mattered not whether the mortgage was valid or otherwise, if. the defendant released all his right, or title, or interest,in the mortgaged property, under his mortgage, and gave it up to Mrs. McGutchen, and consented she might take it and dispose of it, without reference to the debt, and that his case was the same as if there was no mortgage at all. I see no good reason why the defendant could not justify himself, under his interest in the mortgage, if it was a valid one, as the judge charged; and the subsequent portions of the charge, were not inconsistent with this view, or liable to exception. Nor was there any error in any of the refusals to charge as requested.

* Lawrence v. Fox, 20 N. Y., 268 ; Hall v. Robbins, 61 Barb. 33 ; Hale v. Boardman, 27 Barb., 82 .

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There was- no valid objection to the evidence given, as to the amount of the treasury check, payable to the order of Mrs. McOutchen, in the hands of Merritt, which was all that the judge allowed to stand as testimony, when the motion was first made to strike out the same, and the subsequent evidence given, relating to the same matter, was, I think, competent. But even if incompetent, the error was cured by the charge of the com’t to the jury, that there was no sufficient evidence of indebtedness in the case to Mrs. McOutchen.

The evidence of Thomas Merritt’s declarations, as to what had been done with his property, was also competent, for the purpose of establishing a ratification of the act of his wife. It was also proper for the defendant’s counsel to read the balance of the motion papers, and, as held by the judge, such portions of them, as would qualify and explain anything that had been read. The other questions made, and exceptions taken, do not require examination.

After a careful examination, I am satisfied that there was no error upon the trial, and that, therefore, a new trial must be denied, and the judgment and order affirmed, with costs.

Footnotes

* Butler v. Miller, 1 Coms., 496.
† † Goodwin v. Kelly, 42 Barb., 194 .
* Wescott v. Gunn, 4 Duer., 107 .