Wilson v. Sullivan

58 N.H. 260

• Court: Supreme Court of New Hampshire
• Decided: March 5, 1878
• Status: Published

Opinion

Foster, J.

It would seem that the verbal agreement concerning the disposition of the avails of the mortgaged property was a collateral arrangement, independent of, but not inconsistent with, the terms of the indorsement upon the mortgage, and that if it had any tendency to explain that writing it was not inadmissible, but, on the contrary, was very properly received in evidence. George v. Joy, 19 N. H. 544; Hersom v. Henderson, 21 N. H. 224. But however that might be in the case of a controversy between mortgagor and mortgagee, the rule excluding parol evidence varying a contract is not applicable in this case, because the defendant was not and does not represent the mortgagor. The parties in this suit are not the parties in the written consent. Fu rbush v. Goodwin, 25 N. H. 425, 446, 452.

Tlie defendant claims that the facts disclosed establish a secret trust between the plaintiff and Gilbert Brothers in favor of the latter, or a fraudulent contrivance to hinder, delay, and defraud creditors; that this trust and fraud is an inference of law from the facts disclosed, and consequently the mortgage must be declared void.

The retention of personal property by the former owner, after a sale or mortgage, has never been regarded in this state as conclusive evidence of fraud, but only as prima facie evidence, capable of expía,nation (H aven v. Low, 2 N. H. 13; Coburn v. Pickering, 8 N. H. 415; Ash v. Savage, 5 N. H. 545); and since the enactment of June 22, 1832, — Rev. St., c. 182, s. 2, and Gen. St., c. 123, s. 2, — whereby a record of the mortgage is substituted for change of possession, the continued possession by the mortgagor cannot furnish even prim,a facie evidence of any fraudulent intent. So, also, it is not contrary to, but in accordance with, the policy of our law and the express provisions of our statutes, to permit a mortgagor to sell the mortgaged properly, the consent of the mortgagee being signified in writing and recorded. Gen. St., c. 128, s. 13. The law prescribes no limitation as to the character of the property, provided it be of a personal nature. It may be a single chattel, or a stock of goods in a retail store ; and the law does not require that the written consent should express the stipulations or the understanding of the parties with regard to payment of the proceeds of the sale.

An honest intention and understanding or agreement must certainly exist between the parties, that the proceeds of the sales shall be applied to the extinguishment of the mortgage debt; and any understanding that the mortgagor shall or may retain possession of the goods, continuing to sell them, as before, for his own benefit, without accounting to the mortgagee for the proceeds, is clearly a trust inconsistent with the legitimate purposes of the mortgage, and establishes a legal presumption of a fraudulent intent to protect the mortgagor in the enjoyment of the property, and to enable him to set his creditors at defiance. Such agreement or understanding, whether contemporaneous with or subsequent to the execution of the mortgage, will render the mortgage void as to lire mortgagor’s creditors. Ranlett v. Blodgett, 17 N. H. 298, 304, 305; Coolidge v. Melvin, 42 N. H. 510, 522; Putnam v. Osgood, 51 N. H. 192, 202; S. C., 52 N. H. 148. The existence of a secret trust may be a question of fact; tlie resulting fraud is an inference of law. But in the present case, as the mere fact of continued possession and subsequent sale of the property by the mortgagor is not even prima facie evidence of fraud, or a secret trust, neither is fraud to be conclusively inferred from an omission to declare, in the written permission of sale, that the proceeds are to be applied towards the extinguishment of the debt, and not retained for the use and benefit of the mortgagor. Such an inference would be contrary to the general presumption of innocence and lawful intent.

The principles which control this case are clearly recognized in Ranlett v. Blodgett and Putnam v. Osgood, before cited. The doctrine of those cases is, that the trust and fraud, which the law condemns, consist in the mortgagee authorizing the mortgagor to act as owner of the property, and not as agent of the mortgagee, in permitting him to appropriate the proceeds of sales to his own use instead of to the payment of the mortgage-debt. By manifest implication, those cases hold that authority to act as the agent of the mortgagee and not as owner, the mortgagor, as such agent, paying the money to the mortgagee as owner, instead of applying it to his own use, is not a fraudulent trust.

A careful examination of the cases cited by the defendant reveals distinctions so clearly defined as to render them inapplicable to the present case. Many of them, moreover, are controlled by local statutes which have no resemblance to our own, touching the subject under consideration. This want of analogy is particularly obvious in Collins v. Myers, 16 Ohio 547, 552, Bishop v. Warner, 19 Conn. 469, 470, and in the New York cases to which we have been referred, which latter are controlled by a statute declaring that “ every sale of goods and chattels, unless accompanied by an immediate delivery, and followed by actual and continued change of possession, shall be presumed fraudulent and void as against the creditors of the vendor.” Butler v. Stoddard, 7 Paige Ch. 165; S. C., 20 Wend. 507. A very plain distinction is recognized in Robinson v. Elliott, 22 Wall. 518, cited by the defendant, in which, considering the peculiar circumstances of the case, the mortgage was declared invalid ; but the court (Davis, J., p. 524) remarked, — “ We are not prepared to say that a mortgage under the Indiana statute would not be sustained, which allows a stock of goods to be retained by the mortgagor, and sold by him at retail for the express purpose of applying the proceeds to the payment of the mortgage-debt. Indeed, it would seem that such an arrangement, if honestly carried out, would be for the mutual advantage of the mortgagee and the unpreferred creditors.”

In Conkling v. Shelley, 28 N. Y. 360, the goods remaining in the possession of the mortgagor were to be sold by him and applied to the payment of the mortgage-debt. It was considered that the mortgagor was to be regarded as the agent of the mortgagee, and the proceeds of sales were regarded as applied, whether actually paid over or not; and notwithstanding the peculiar stringency of the New York statute; it was lield that the circumstances did not make the transaction fraudulent per se.

In cases of sales of personal property, it is undoubtedly true, that the retention of possession by the vendor is prima facie (and, if unexplained, conclusive) evidence of a secret trust — Kendall v. Fitts, 22 N. H. 1; and it is not a sufficient explanation to show that the sale was really in good faith. Coolidge v. Melvin, before cited; Putnam v. Osgood, 52 N. H. 148, 154.

In the case of a recorded mortgage, the retention of possession is, of course, unobjectionable; but the selling of the goods occupies the same position in respect to the mortgage, that the mere retention and use of the goods does in respect to an absolute sale. By our statute, a sale by the mortgagor is as permissible as retention of possession. Tlie permission undoubtedly raises a presumption, prim,a facie, of a secret trust, and the secret trust being shown, the fraudulent intent is conclusively presumed ; but as the intention may be explained in the case of retention of property by the vendor after sale, so may the sale of the goods by the mortgagor. Putnam v. Osgood, before cited. The explanation need not be expressed in the written consent. The settled rule, that the written consent may be explained, necessarily implies that it may be explained by evidence not contained in the writing itself.

The statute which forbids the sale, by a mortgagor, of mortgaged personal property, is prohibitory merely. Its infraction brings a penalty upon the offender (Gen. St., c. 128, s. 15), but neither the mortgage nor the mortgagee is affected thereby. There is nothing in the statute ss. 13, 15) indicating an intention of the legislature that the mortgage shall be void as against creditors, because the mortgagee’s consent indorsed thereon does not contain in its terms something more than the statute prescribes.

There is no secret trust, when it appears from all the evidence that the permitted sale is honestly made for the purpose of extinguishing the mortgage-debt, and not (except incidentally) for the advantage of the mortgagor. Such a sale and such an application of the proceeds has no tendency to hinder, delay, or defraud the unpreferred creditors.

Where the mortgagee, by written and recorded consent, permits the mortgagor, as his agent, to sell the goods as the mortgagee’s goods, and to receive the money as the mortgagee’s money, the proceeds thus received by the agent being the property of the mortgagee in the hands of his agent, the mortgagor, the transaction is lawful and valid. And an agreement that all this may be done (when a written consent to the sale of the goods is recorded) is a lawful agreement. In the case before us, if no actual fraud or secret trust is disclosed, if the mortgagor, in selling the goods and retaining the proceeds, is regarded simply as the agent of the mortgagee, and if those proceeds, as soon as they reach the hands of tlie agent, be regarded as applied, and the debt pro tanto extinguished, whether the money has actually passed from the hands of the agent to those of the principal or not, it is diffi cult to see how any legal inference of fraud or of a secret trust can be said to result from such circumstances.

If it is to be inferred from the language of the case that the shoes which were made by one of the mortgagors were manufactured from stock included in the mortgaged property, we also infer that the proceeds of that labor were added to the stock of goods in the substance of the manufactured article, and so became available for the use and benefit of the mortgagee, like the rest of the property; and we are unable to discover how the fact that the compensation for the maker’s labor, expended by him for his support, could diminish the mortgagee’s security, or tend to the detriment of other creditors, since an equivalent for the value of that labor was returned in the shape of the manufactured article which went into the general stock in trade.

Judgment on the verdict.

Stanley, J., did not sit.