Summary
In Reynolds v. Ellis (103 N.Y. 115) an action by an assignee in trust for creditors was maintained on the ground that the mortgage in question in that case allowed the mortgagor to retain in his hands and sell the mortgaged property.
Summary of this case from Sheldon v. WickhamOpinion
Argued June 3, 1886
Decided October 5, 1886
J.A. Stull for appellant. John M. Davy for respondents.
Upon this appeal the expectation of success seems to rest chiefly upon a supposed distinction between the clause in question and a chattel mortgage. It is upon the appellant's points styled a "lien clause," and the contention is that as it does not purport "to pass the title to the property, it cannot be said to be a mortgage, or a conveyance intended to operate as a mortgage," within the provisions of law in regard to the filing of chattel mortgages (Laws of 1833, chap. 279; Laws of 1879, chap. 418), or those which relate to fraudulent conveyances or transfers of personal property. (2 R.S., tit. 2, part 2, chap 7, p. 136, § 5.)
No question upon such supposed distinction appears to have been presented upon the trial, but on the contrary the complaint asks that payment "be made out of the mortgaged chattels; that the assignee be enjoined from disposing of said mortgaged chattels," and that "a receiver of said mortgaged chattels and the proceeds thereof be appointed." So, while it is impossible to tell from the record how much of the complaint is admitted or what is denied, it is apparent that such was the understanding of the defendants, for the instrument is repeatedly referred to as "a chattel mortgage lease," and the goods as "mortgaged goods," and want of filing of the instrument and the agreement made at the time of its execution, that notwithstanding its provisions the lessees might continue to deal with the property in all respects "as if no mortgage was in existence," are set up as affirmative defenses. In the same language the trial judge deals with the case in his findings, and there was no request for any different finding or interpretation. But I do not think it is material to inquire how the paper may be characterized. Its form was, no doubt, devised in order to give by contract to the landlord of the demised premises that priority for the collection of rent which once existed by statute, but which the legislature had at the time in question abolished (Laws of 1846, chap. 274), thus leaving the landlord to take his place with other creditors, and a debt for rent to be enforced like other obligations. What then is the effect of the contract as expressed by the clause lying at the bottom of this controversy. It cannot be doubted that it was, as between the lessor and lessee, good as a contract not only as to property in existence and on the demised premises when the lease was executed, but as to that afterward acquired and brought on to them. A similar agreement was examined in McCaffrey v. Wooden ( 65 N.Y. 459), and a taking by the lessor of property not in existence when the lease was made, justified upon the ground that in substance it had in equity all the characteristics of a mortgage, or of an equitable lien, which for the purposes of that case was said to be its equivalent. There the adverse party was the lessee. That doctrine was applied in a similar action ( Wisner v. Ocumpaugh, 71 N.Y. 113), against a person whose relation to the demised premises precluded him from acquiring any rights adverse to those of the lessor, and who, therefore, was in no better position than the lessee.
Here the question is in equity, and is raised by the lessor against an assignee for the benefit of the creditors of the lessee. In the cases cited the lessor had obtained possession of the things in dispute, and the first decision turned upon the validity of the agreement as to non-existent property; the other upon the priority of the plaintiff. So in Hale v. Omaha Nat. Bk. ( 49 N.Y. 626), there was an agreement for a future lien, and this was held to be sufficient against a defendant who made no title to the property as purchaser, creditor or otherwise, and had nothing but a naked possession tortiously acquired. In other words, the defendant showed no right to question the plaintiff's claim. Here the assignment to the defendant is conceded to be valid, and it is found that under it he had taken possession of the property and actually sold it without notice of the plaintiff's claim, or the agreement upon which the claim was made; but notwithstanding all this he has still the avails of the property in his hands, and if the appellant is right in his contention that the defendant's position is not better than that of the lessee, the plaintiff's lien will, upon general principles of equity, follow those proceeds.
We cannot agree, however, in that contention: (1) The defendant represents creditors, and may treat as void all agreements made in fraud of their rights. (Laws of 1858, chap. 314.) He has greater power for this purpose than the creditor himself. The creditor can assert no right until by judgment and execution he has a lien, or a right to a lien, upon the specific property; but in favor of an assignee for his benefit, the legislature have substituted a statutory right in place of these conditions. ( Southard v. Benner, 72 N.Y. 424.) The defendant availed himself of this right, and upon the facts found by the trial judge, his action in so doing must be upheld. There was not only no delivery or change of possession of the things covered by the agreement, but it was understood between the parties that there should be neither. It was, therefore, void both at common law ( Twyne's Case, 3 Coke, 80) and by statute. (2 R.S. 136, § 5.) It is true, as the appellant says, the clause is not in express terms characterized as a mortgage, nor are the words "sale," "transfer" or "assignment," to be found therein, but that does not matter. It takes effect as a mortgage, and the "lien as security" is given by agreement, or to take the exact words, "it is" between the parties "further agreed" to that effect. While its object may have been to give one creditor priority over another creditor, it also involves a secret trust in favor of the owner of the goods, and forms the very cover of fraud which the statute condemns by declaring that "every assignment of goods and chattels by way of mortgage or security, or upon any condition whatever," unaccompanied by delivery, "and followed by an actual and continued change of possession, shall be presumed to be fraudulent, as against the creditors of the vendor." Nor is it of any consequence when the debt provided for by the assignment was created, whether before or after the lease was executed. It is enough that the relation of debtor and creditor existed at some time whilst such goods and chattels remained in possession of the vendor or assignor. (2 R.S. 136, § 6.) It is inconsistent not only with this statute but with the principles of equity, that such a lien should be successfully set up, to the exclusion of bona fide creditors, and we are referred to no case where it has been done. The equity of the defendant as a mere representative of creditors is at least equal to that of the plaintiff, while the former has superadded to his equity the legal advantage of possession, and the statutory authority to treat as void a conveyance in fraud of the rights of creditors. In these respects his position is better than that of the lessee, and equal to that of a creditor with judgment and execution.
But the learned counsel for the appellant argues that there was no evidence to sustain the eleventh finding ( supra), viz.: that showing a fraudulent arrangement at the time of the execution of the lease, and, therefore, that the provisions of the act of 1858, as to the powers of assignees, are not brought into operation. Conceding it to be valid between the parties, as we have done, we think it fraudulent upon its face as to creditors, and, therefore, void as to the defendant, their assignee. The lessee was a retail merchant. The lease in terms permits him to sell his stock in the regular course of business, and relieves so much of it from the lien. He in fact carried on the business the same after the lease as before. The stock of goods fluctuated, and the plaintiff had notice that it would do so when he gave the lease; he also knew that the defendant was to, and did continue the business in that way. There was no restraint upon him in regard to it, or the disposition of the money when the goods were sold. We think the finding was fully justified by Edgell v. Hart ( 9 N.Y. 213), and Gardner v. McEwen (19 id. 123).
The argument for the appellant suggests no ground on which a court of equity can interfere in his favor.
The judgment should, therefore, be affirmed.
All concur, except MILLER, J., absent.
Judgment affirmed.