FIRST NAT'L BANK V. STEWART, 1906-NMSC-030,
13 N.M. 551, 86 P. 622 (S. Ct. 1906)
THE FIRST NATIONAL BANK OF ROSWELL,
Appellee,
vs.
M. C. STEWART, Sheriff, Appellant
SUPREME COURT OF NEW MEXICO
1906-NMSC-030, 13 N.M. 551, 86 P. 622
Appeal from the District Court of Eddy
County, before Wm. H. Pope, Associate Justice.
1. A mortgage of a stock of merchandise kept for retail trade
which provides that until condition broken, the mortgagor shall remain in
possession of and "use and enjoy," the same, and which contains the
further provision that if they "shall attempt to sell or remove the same
without authority or permission * * * in writing expressed" of the
mortgagee, the latter "may take immediate and full possession
thereof" can not be held as a matter of law to authorize the mortgagors to
make sales at will from such stock in the ordinary course of retail trade.
2. A provision in a mortgage of a stock of merchandise kept
for retail trade that until condition broken, the mortgagor shall remain in
possession and make sales from the stock in the ordinary course of retail
trade, does not, as a matter of law, render the mortgage void as against a
subsequent attaching or execution creditor, but is a fact to be considered in
connection with other evidence bearing on the question of fraud.
Freeman & Cameron & Fullen, for
appellant.
Where the mortgagor remains in the
possession of mortgaged goods which are in themselves perishable, either from
natural causes or by virtue of the use to which they are put, such mortgage is
void against attaching or execution creditors. That where such arrangement is
provided in the instrument itself; that is to say, where it is provided in the
mortgage that the mortgagor shall retain possession and use the goods as if
they were his own, the instrument is void on its face, and the court as a
matter of law will so declare, and that if such arrangement does not appear on
the face of the instrument, but is proven to the satisfaction of the court or
jury trying the case, the same result follows.
The same doctrine was announced in Butler
v. Stoddard, 7 page 163.
But the supreme court of the United
States has settled the question. We cite the case of
Robinson v. Elliott, U. S. Sup. Ct.
Rep. bk. 22.
In the American editor's note to Twyne's
case, Smith L. Cases, p. 52n, 7th Am. Ed., most of the cases in this country on
the subject are collected and classified. See also,
Mittnacht v. Kelly, 3 Keyes 407;
Yates v. Olmstead, 65 Barb. 43; Barnet v. Fergus, 51 Ill. 353; In re Manley, 2
Bond 261; in re Kahley, 2 Biss. 383, 11.
"But a mortgage of a stock of goods
containing a provision authorizing the mortgagor to retain possession for the
purpose of selling in the usual course of trade, and to use the money thus
obtained to replenish his stock, is invalid, and the court can as a matter of
law pronounce it void."
The whole question was settled by the
supreme court of New Mexico in the case of
Spiegelberg, et al., v. Hersh, et
al., 3 N.M. 185; Hangen v. Hochemeister, 114 N.Y. 566, 11 Am. St. Rep. 691; In
Peiser v. Petticolas, 50 Texas 638, 32 Am. Rep. 621; Place v. Langworthy, 13
Wis. 629, 80 Am Dec. 758; Orton v. Orton, 7 Oregon 478, 33 Am. Rep. 717; Kline,
et al., v. Citizens Company, 20 Ohio St. 110, 5 Am. Rep. 630; In Ranlett v.
Blodgett, 17 N.H. 298, 43 Am. Dec. 603; Johnson's Assignee v. Peterson's
Assignee, 2 Woods 443; Bank v. Hunt, 11 Wall. 391.
Richardson, Reid & Hervey, for
appellee.
The Compiled Laws of New Mexico, 1897, Sec.
2360, provides that personal property of every description is subject to
mortgage. The only exception being that growing crops shall not be subject to
mortgage. This statute, of course, allows the mortgaging of a stock of
merchandise. Under the law and the evidence before the court we submit that
there is nothing before the court from which fraud may be presumed or held as
proven. To hold that a merchant cannot mortgage his goods without closing his
doors would be to hold that no mortgage of merchandise can be made at
all."
Gay v. Bidwell, 7 Mich. 519.
"If the mortgagee allows the
mortgagor, who is a merchant or manufacturer, to remain in possession and sell
the property in the usual course of trade, the mortgagor will be considered as
acting as the agent of the mortgagee and receiving the money for him; but it
will be different if the stock is sold otherwise than in the usual course of
business."
Miller v. Pancoast, 5 Dutch (N.J.)
250; Clark v. Symann, 55 Iowa 14; Hughes v. Corey, 20 Iowa 399; Gardner v.
McEwen, 10 N.Y. 126; Peabody v. Landon (Vt.) 15 Am. St. R. 903 and Notes; Banks
v. Bates, 120 U.S. 501; Ethridge v. Sperry 139 U.S. 266; Huntley v. Kingman,
152 U.S. 533.
Neither are the cases in re Manley, 2
Bond 265; In re Kahley, 2 Biss. 383; Hangen v. Hochemeister, 114 N.Y. 566;
Peisre v. Petticolas, 50 Texas 683; Place v. Langworthy, 13 Wis., 629; Orton v.
Orton, 7 Oregon 478; Johnson's Assignee v. Peterson's Assignee, 2 Woods, 443,
in point as the essential element on which these decisions are based is that by
the terms of the mortgage the mortgagor should remain in possession of the
chattels and have power to sell them; whereas, in the mortgage now before the
court there is an express provision that if the mortgagor "should attempt
to sell or remove the same (goods) without authority or permission * * * in
writing expressed" the bank could take possession of the goods, etc.
"Where the court sits as a jury, the
same rules will be applied to a review of the findings as would be in a case of
a verdict by a jury. The supreme court will not disturb the verdict of a jury
where there is any substantial evidence to support it."
To the same effect is the case of
Abbott, J. William J. Mills, C. J., Edward
A. Mann, A. J., Frank W. Parker, A. J., John R. McFie, A. J., concur.
{*554} STATEMENT OF
FACTS.
{1} The firm of Clark
Brothers, doing a general retail merchandise business in Artesia, Eddy County,
New Mexico, was indebted to the Tootle Wheeler & Motter Company, a
corporation, for a balance due for goods sold and delivered to them in the
ordinary course of business, between April 24, 1903, and January 23, 1904.
Judgment for said balance was procured in the district court for said county.
Execution was issued, and, under it, a levy was made on a sufficient quantity
of the stock of merchandise of Clark Brothers to satisfy said judgment and
costs, and the sheriff of the county, who is the appellant, advertised the
goods so seized by him for sale. Thereupon the appellee, the First National
Bank of Roswell, brought an action of replevin against the appellant, to
recover said goods, which it claimed under a mortgage to it from Clark Brothers
dated July 1, 1903, duly executed and recorded. The defendant denied the right
of plaintiff in replevin to hold the goods in question against the execution
under which he had possession of them, on the ground that the mortgage to it
was fraudulent and void as to the execution creditors.
{2} The case was tried by the
court, without a jury, and judgment was rendered for the plaintiff, the court
finding that "the mortgage in question was not void as to the judgment
creditors" on whose behalf the sheriff was acting. The case is before this
court on appeal from that judgment.
{3} The appellant says that
the mortgage from Clark Brothers to the appellee, under which it claims title
and possession, is fraudulent and void as a matter of law, and on its face, as
against the execution
{*555} under which
he seized the goods in controversy. This contention rests on his construction
of this clause in the mortgage: "Provided, further, That until default be
made by the said parties of the first part in the performance of the conditions
aforesaid it shall and may be lawful for them to retain possession of the said
goods and chattels and to use and enjoy the same." To "use and
enjoy" he claims, as applied to a stock of general merchandise kept for
retail trade, must mean the sale of it in the ordinary course of business. It
is probable that the mortgage was prepared by filling out a blank form in which
those words were printed, as they are commonly used in such blanks, and it is
not unlikely that no special significance was attached to them. The same must
be said of the clause in the mortgage forbidding the sale or removal of the
mortgaged property without the written permission of the mortgagee.
Nevertheless they must be taken as they stand and construed with the other
paragraph named. The phrase "to use and enjoy" can not be held to
have necessarily the meaning attributed to it by the appellant, especially as
it appears that besides the stock of merchandise, three horses were included in
the mortgage to which the phrase "to use and enjoy" would apply,
without carrying even a suggestion that they must be sold in order to their use
and enjoyment. The appellant further claims that even if the mortgage did not
in terms provide that the mortgagors should retain possession of the stock of
merchandise and make sales from it in the ordinary course of retail trade, as
they would have done if no mortgage had been given, yet if such an arrangement
between the parties was proven to the satisfaction of the court or jury trying
the cause the mortgage is void as against the execution in question. The only
evidence of such arrangement or actual selling by the mortgagors was that of
the appellant, who testified that on the occasion when he took possession of
the goods in question under the execution above named, Clark Brothers appeared
to be making sales from their stock, in the ordinary course of trade. There
was, however, no evidence that this was known to the appellee. It does not,
therefore, appear from the evidence reported that the mortgage in
{*556} question on its face, or by the
construction of the parties to it, permitted the sale of the mortgaged goods by
the mortgagors, without the consent in writing by the mortgagees, or that such
a consent was given, and the court below was warranted in holding that the
mortgage was not void as against the execution on which the mortgaged property
was seized. The record does not show whether the finding of the district court
was one of fact or of law, and as the question of law involved in one of great
importance to the business interests of the Territory, and was ably briefed and
argued by counsel, we treat it as essential to the disposition of the case at
bar. Assuming for that purpose that the right to make sales in the ordinary course
of business from the stock of merchandise mortgaged was distinctly given, was
that in and of itself sufficient to render the mortgage fraudulent and void, as
a matter of law against attaching or execution creditors of the mortgagors?
This question is one on which the courts of last resort in this country are
hopelessly divided, and there are accordingly decisions by courts of the
highest standing on each side. It would be useless for us to attempt to
reconcile the conflicting decisions on the subject. We can not hope to do more
than adopt, for this jurisdiction that view of the law which is best supported
by reason. The appellant insists that the question has already been settled for
this court by Spiegelberg et al., v. Hersch, et al.,
3 N.M. 281,
4 P. 705,
following Robinson v. Elliott, 89 U.S. 513, 22 Wall. 513, 22 L. Ed. 758. It is
true, of course, that previous decisions of this court are not to be
disregarded, and that the decisions of the supreme court of the United States
are of peculiar and most weighty significance to this court. But in each of the
cases referred to, the court, while in effect declaring the mortgage then under
consideration void in law, went far afield in search of facts on which to base
the decision. There was abundant evidence in each case cited by the court,
aside from the provisions under consideration to warrant a finding of fraud in
fact, and indeed, except that the appellate court, in each instance, as the
necessities of the situation required, called its conclusion one of law, there
is little to distinguish the decision from the verdict which
{*557}
a jury might properly have rendered on the evidence recited.
{4} But, even if it be
granted that the rule of law contended for by the appellant was distinctly
adopted in the two cases named, we think it has been so far worn away by the
current of later decisions as to leave little if any more than that such a
provision as the one in question is admissible as evidence of fraud, to be
considered in connection with all the other evidence bearing on that point. To
hold that such a provision of itself renders void the mortgage in which it
occurs, no matter how fair and ample the consideration may have been would be
to declare in effect that a stock of merchandise intended for retail trade,
cannot be used as security for a loan, or for the purchase of necessary
additions to it, except by first making an end of the sale for which alone the
owner obtained it and on which its value chiefly depends.
{5} It is true that such a
provision as we are considering may be and often is made the cover of fraud,
but on the other hand it may be used in perfect good faith and with beneficial
results to all concerned. "The fact that fraudulent relations are possible
is hardly a sufficient reason for denouncing relations which are not
fraudulent. So if the question were open, or a new one, unaffected by any
settled law of the state, we incline to the opinion that the question is not
one of law, but one of fact and good faith," "and that the decision
of the supreme court of Iowa rests on sound principles." Brewer, J., in
Etheridge v. Sperry, 139 U.S. 266, 11 S. Ct. 565, 35 L. Ed. 171. This case is
approved in Huntley v. Kingman, 152 U.S. 527, 535, 38 L. Ed. 540, 14 S. Ct.
688. These cases, with Gay v. Bidwell 7 Mich. 519, Clark v. Hyman, 55 Iowa 14,
7 N.W. 386, and numerous others which might be cited, well support the
conclusion stated in Jones on Chattel Mortgages, Sec. 425, 435: "That the
doctrine of absolute fraud arising in a mortgage of merchandise, from the
mortgagors retaining possession, with the power of disposal in the usual course
of trade, is not supported by any preponderance of authority, that it is
contrary to sound principles of jurisprudence, * * * that the qualifications of
the doctrine made by leading courts, have, in a large measure destroyed its
force, and are indicative
{*558} that
these courts themselves wish to be rid of the whole of it."
{6} Whether under a mortgage
of a stock of merchandise, articles added to it by the mortgagor, after the
mortgage went into effect, can be recovered by the mortgagee from a subsequent
attaching creditor, actually in possession, we do not decide, as the question
was not raised in the trial court, and was only casually referred to in one of
the briefs submitted to this court. Judgment affirmed.