Leighton v. Morrill

Holmes, J. This is a bill brought by the assignees in insolvency of one Humphrey, to set aside a mortgage for $6,000 to the defendants, as a fraud on the insolvent law. The master found that the mortgage was made with a view to give the defendants a preference, mainly in respect of $1,500, parcel of the $6,000 secured, and also with a view to prevent the property from coming to the assignees, and that it was void. The single justice found for the defendants. The case comes before us on the evidence, and is wholly a question of fact. For that reason we shall not discuss it at length, but shall state the conclusions to which we have been led by reading the evidence. There is no doubt that the defendants actually paid over the $6,000, or that the mortgage was executed without any haste or secrecy, and with the knowledge and approval of at least the two principal creditors, parties not friendly to or co-operating with the defendants. The master declines to find that the fact that the insolvent’s property was insufficient to pay his debts was known to the defendants, and the evidence is that they were informed by the insolvent that the amount advanced would enable him to pay his debts and go on. For more than a month afterwards the debtor did go on with his business, and then, upon the defendants’ discovery that the conditions of the mortgage had been broken, and that probably a fraud had been practised upon them, he absconded. There is no evidence, beyond the fact of his absconding and the state of his assets, that he kept any property from his assignees. The indications are that he carried nothing away with him, and that he spent all that he got in paying debts, and in the regular course of his business, although we do not assume this to be proved beyond controversy. In view of the whole evidence, and especially of the undisputed facts, and of the master’s declining to find that the insufficiency of the insolvent’s property to pay his debts was [278] known to the defendants, it seems to us that his finding that the defendants had reasonable cause to believe that the mortgage was made in fraud of the insolvent law must have been based upon a proposition of law which is not disclosed in his report, but which is to be gathered from the report of the evidence, and of his rulings upon it. That proposition we understand to have been in effect, although not precisely so stated in words, that if the mortgage was given on Humphrey’s whole stock in trade at his only place of business, this fact not merely warrants a finding, but,, as matter of law, raises a prima facie presumption that the mortgage was not given in the usual course of business, and that the defendants had reasonable cause to believe that a fraud on the insolvent law was intended. We mention this because, if the master’s principal finding is explained by his supposing himself bound by a somewhat stricter rule of law than we should lay down, we should feel a greater freedom than we otherwise should feel in adopting a conclusion which seems to us more consistent with the subsidiary findings and the evidence than the one to which he felt himself forced to come. The proposition which we have stated narrows too much the function of the master as a judge of fact. Presumptions of fact generally are questions of fact. They are merely the major premises of those inferences which juries are at liberty to draw, in the light of their experience as men of the world, from the facts directly proved. Commonwealth v. Briant, 142 Mass. 463, 464. Doyle v. Boston & Albany Railroad, 145 Mass. 386, 387, 388. The question' whether a mortgage was not made in the usual and ordinary course of business of the debtor, within the meaning of Pub. Sts. c. 157, § 98, is a question of fact. Alden v. Marsh, 97 Mass. 160, 163. Buffum v. Jones, 144 Mass. 29. Peabody v. Knapp, 153 Mass. 242. Killam v. Peirce, 153 Mass. 502. Whether, if it was not so made, the inference shall be drawn that the mortgagee had reasonable cause to believe that a fraud on the insolvent law was intended, is another question of fact. Bridges v. Miles, 152 Mass. 249, 253. In view of what we have said, we regard the validity of the mortgage as set at large for our consideration. In our opinion, the evidence is insufficient to do more than to suggest a suspicion that the- insolvent kept, or intended to keep, his assets [279] from the hands of an assignee. We do not believe that he had such an intention in his mind. If he did, all the evidence shows that it was not shared by the defendants, nor do we see how we can say that they had reasonable cause to believe in the existence of an intention which, even after the event, we do not believe to have existed. Humphrey exhibited to the defendants a schedule of his debts — false, but believed by them to be true — and made a statement of his assets, according to which he was solvent. The defendants were informed and believed that there were large assets not embraced in the mortgage. To them the mortgage appeared as a perfectly natural step. A loan upon mortgage made to a debtor in embarrassed circumstances, for the purpose of enabling him to pay his debts and go on, is not necessarily a fraud on the insolvent law. Bush v. Boutelle, 156 Mass. 167, 171. Clark v. Sawyer, 151 Mass. 64. The defendants examined Humphrey’s books, and satisfied themselves that he was doing a profitable business. Unless it be assumed, as matter of law, that the mortgage was not in the usual course of business, and that therefore, also as matter of law, the defendants had reasonable cause to believe that a fraud on the insolvent law was intended, we see no such ground for doubting the validity of the instrument. There is no suggestion that the defendants intended to aid in giving a preference to any creditor other than themselves. The only question remaining, and the one most pressed, is whether they intended to prefer themselves. The details of the transaction, mainly as found by the master, are these. About the middle of January, the insolvent applied to the defendants for a loan of $6,000 upon a mortgage of his stock of goods. He told them that he needed $1,500 at once. This sum was paid to him on January 26,1889, and for it he executed a bill of parcels, afterwards exchanged for a bill of sale of his fixtures and certain watches, etc. One of the defendants put his hand on the articles, saying that he took possession of them, and told the insolvent that he left them with him as the defendants’ agent or bailee. After the defendants had examined Humphrey’s stock, and a full schedule had been made out, a mortgage of the greater part of his goods was made on February 25, 1889, for $6,000. The [280] defendants redelivered the goods covered by the bill of sale for $1,500 of this amount, paid $3,500 in cash, and agreed to give him the remaining $1,000 in goods which he purchased from them in the line of his trade, which goods he received. It seems to us impossible to discover any intent to give a preference in this transaction. Such an intent is disproved by the fact that neither party doubted that the bill of sale given for the $1,500, whether a sale or a mortgage, was valid. The master’s report says that the mortgage was given “ with a view to secure to them the payment of said $1,500, and of $119 for a watch sold to him by said firm before said mortgage was given, and $162, the amount of a protested note of Humphrey held by said firm, and thereby give them a preference.” In view of the undisputed testimony, the two small items hardly would have been mentioned had it not been for the large one. The note was taken up by the defendants, with Humphrey’s approval, some time in February, while the negotiations for the mortgage were going on. We see no sufficient ground for changing the decree appealed from in respect of costs. The defendants are not concerned with the fact that the plaintiffs are trustees. In this proceeding the parties are strangers. Hill v. Magan, 2 Molloy, 460. 2 Perry on Trusts, § 891. Moreover, as the decree on the merits is affirmed, we should be slow to disturb the discretion of the single justice on appeal. The Maggie J. Smith, 123 U. S. 349, 356. Decree affirmed.