City National Bank v. Goodrich

A. W. Stone, J. On the 5th day of April, 1873, Baxter & Hobson, being indebted to appellant in $2,700, executed to it a note for that amount, due in thirty days, and a chattel mortgage on one hundred and forty-eight pieces of suitings; sixteen pieces of black doeskin; eight pieces beaver; two hundred pieces of casimeres; twelve pieces velvet; seventy-two pieces vestings, and all and every the furnishing goods, trimmings and fixtures, in their store in Denver. The mortgage contained the usual covenants and provisos, and a special proviso, that the mortgagors might retain possession of the mortgaged property, and use and enjoy the same, until default made, in the conditions of the mortgage. The mortgage was duly recorded. The note was not paid at maturity, and on May 8th, 1873, the mortgagee, with the consent of Baxter & Hobson, took possession of the goods, then in the store of Baxter & Hobson, ostensibly under, and by virtue of this mortgage. On the 19th day of May, 1873, Baxter & Hobson were adjudged bankrupts, and this suit is brought by their assignee to recover the goods so taken by the appellant. The proof shows, that after the execution and delivery of the mortgage, the mortgagors continued in possession of the goods, and carried on their business in the ordinary course, manufacturing the goods mortgaged, and selling the same, as before the mortgage, up to the time that the mortgagee took possession, and that this was well known to the mortgagee. The law in such case is, that the mortgage is fraudulent, and void as to creditors. This rule is too well settled to re [142] quire argument. Davis v. Ransom, 18 Ill. 396; Read v. Wilson, 22 id. 377; Griswold v. Sheldon, 4 Comst. 580; Bank of Leavenworth v. Hunt, 11 Wall. 391; Barnet v. Fugus, 51 Ill. 352; Chain v. Herbert, 61 id. 126; Putnam v. Osgood, 52 N. H. 148; In re Eldredge, 2 Biss. U. S. C. C. R. 362. The mortgage being void as to creditors, the appellant acquired nothing by it. The other question to be considered is the effect of the delivery of the goods by Baxter & Hob-son to the appellant, on the 8th or 17th of May. Possession was taken on the 8th, but delivery was not perfected until the 17th' of May. The appellant assumed to take the goods by virtue of the mortgage, though it did not take the same goods described in it. If the mortgage was valid between the parties, the mortgagee acquired no rights as against creditors under it, until the delivery to it of the property described in it, and at that time the proof shows that Baxter & Hobson were insolvent, and appellant knew it. The effect of this transfer was, to secure the property to the appellant, and give it a preference, and that this effect was intended by both parties does not admit, upon the evidence, of any doubt. The transfer is in fraud of the Bankrupt Act, and void. Judgment affirmed, with costs. Affirmed.