Summary
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.
Summary of this case from Wilson v. SullivanOpinion
September Term, 1863
The case of Gardner v. McEwen ( 19 N.Y. Rep. 123) is in point to show that the mortgage held by the plaintiffs was neither fraudulent on its face nor invalid by reason of the generality and indefiniteness of the descriptions. It was a mortgage of "all the dry goods, boots and shoes, millinery goods, and gentlemen's furnishing goods and stock in trade then in the store occupied by" the mortgagors. This, although general, could be rendered sufficiently definite by evidence of the facts as to the goods in the store at the time, and would convey whatever in fact answered the description.
Where a mortgage contains a clause permitting the mortgagor not only to remain in possession, but to dispose of the mortgaged property at his discretion and apply the proceeds to his own benefit, it will be void as a fraud upon creditors. ( Edgell v. Hart, 5 Seld. 213.) Where such agreement is made between the parties, outside of the mortgage but at the time of its execution, I should be inclined to agree with the idea expressed by Judge DENIO in Edgell v. Hart, and in Gardner v. McEwen, that it would invalidate the instrument, in the same manner as if it were written in its provisions. At all events it would be irresistible evidence of a fraudulent purpose. But this case differs from those in the very material fact that here the agreement was that the mortgagors, while permitted to continue in possession, might sell the mortgaged property, not for their own benefit, but for the mortgagees, accounting to them, and applying the proceeds of their sales to the satisfiaction of the debt which the mortgage was given to secure. It was to be implied from the opinion in Ford v. Williams, (3 Kern. 577,) and was expressly decided in the same case in 24 N.Y. Rep. 359, that such an agreement is not unlawful or fraudulent per se. It is, I think, in this case open to no such exception. The agreement is, first, that the mortgagors should continue in possession; and next, that while they did so continue, they should sell the goods from time to time and pay over the proceeds to the mortgagees. The continuance in possession of the mortgagors is evidence of fraud, by the statutes, and, unexplained, is conclusive. But that is a question of fact, and was properly submitted to the jury. The further agreement, that while so in possession they should make sales of the property for the benefit of the mortgagees, was simply creating them agents to do what the statutes and public policy require mortgagees themselves to do, or to excuse themselves for not doing, viz. to make immediate and direct application of property of this description when it is mortgaged, to the payment of the debt. If the retention of the possession by Mitchell Dewy is explained and excused as consistent with good faith, which we must assume upon the verdict of the jury to be the fact, sales by them for the benefit of the mortgagees and in satisfaction of the debt, were neither a fraud nor an injury to other creditors, but the contrary.
But the Supreme Court reversed the judgment, and ordered a new trial in this case, on the ground that the sales made and proceeds received by the mortgagors, under such an arrangement between them and the mortgagees, should have been applied in payment and satisfaction of the mortgage, whether the money was ever actually paid over to the mortgagees or not. In this I think they were right. Such an agreement made the mortgagors agents of the mortgagees. Their possession and their sales were in effect those of the mortgagees. It was as if the latter had taken possession and placed a third person in charge as agent to sell and account to them. They could not have escaped from crediting on their indebtedness the proceeds of sales made by such an agent, because he had fraudulently or dishonestly misapplied or employed the money. As far as this part of the transaction was concerned, Mitchell Dewy were the agents and not the debtors or mortgagors of the plaintiffs, and their acts must be regarded accordingly. The case does not resemble that of a mortgagor of real estate who receives the rents and profits under an agreement to pay them over to the mortgagee. The mortgagee of lands has no fixed real right or title to their rents and profits, and could not be charged with them if the mortgagee should voluntarily agree to account for them and then fail to perform his agreement.
It is true that the execution creditors can only levy upon the interest of the mortgagee in the goods. But the extent or amount of that interest depends upon the amount due upon the mortgage. All that remains after satisfying the mortgage belongs to the mortgagor, and is subject to the executions, and must be applied upon the judgments in the sheriff's hands. It is not a question between the mortgagees and the mortgagors, who of course could not take advantage of their own wrong, and who remain liable to the plaintiffs for the money received and misapplied by them. But the question here is between the mortgagees and other creditors who have obtained a lien or an interest in the mortgaged property after the satisfaction of the mortgage. The mortgagees have made the mortgagors their agents, and their dealing with the property under the agreement constituting them such, must be considered as the acts of agents and not of mortgagors, and will affect their principals accordingly. The moneys received by them from sales were in legal effect received by the mortgagees, not because the sales were a fraud upon their creditors, but because they were made by authority and for the benefit of the mortgagees, and the mortgagors in making them may be looked upon simply as their agents, as third persons would have been.
I agree with the view taken by the Supreme Court of this part of the case. Their order should be affirmed.
DAVIES, J. read an opinion in favor of reversal.
All the other Judges concurring with EMOTT, J.,
Judgment affirmed.