Brace v. Berdan

Montgomery, J. I think there was error in the submission of this case to the jury. It appears that plaintiffs, through their agent, received a mortgage from Alexander R. McKenzie, covering his stock of goods, amounting to $7,500. There was due plaintiffs at the time $4,600, and there was testimony tending to show.that the mortgage was received as security for this sum, and for $2,900, •future advances to be made in goods to McKenzie. The •circuit judge charged the jury: “It appears from the evidence here, and I think I may ,say to you that there is no contention about it, — it is conceded, — that the actual indebtedness was about $4,600, the .actual indebtedness to Phelps, Brace & Co., on the 4th day of January. It is conceded that this mortgage was made to cover an amount of $2,900 in excess of that. * •* * It is not controverted here but that Mr. Greening was acting for them, as their attorney and agent, in securing this mortgage; ° * * * and if he, in this transaction, either with or without their knowledge or consent, secured an illegal lien, or attempted to secure this mortgage for the purpose of covering up the property of Me [358] Kenzie, and placing it beyond the reach of other creditors, or for the purpose of hindering and delaying other creditors, the plaintiffs would be bound by his action. * * * And I charge you, gentlemen of the jury, upon this branch of the case, that the giving of this mortgage, a mortgage which appears to be absolute upon its face, for an indebtedness of $7,500, a mortgage which is sweeping in its terms, and covers the entire property of McKenzie of a. certain class, and which undertakes to cover all property of such class which may be acquired by him in the future, the giving of such mortgage, and the receiving of it by the plaintiffs, would constitute a badge of'fraud. It would be a circumstance which, standing unexplained, would be, at least, a badge of fraud. Parties have a right to secure-their legitimate and honest indebtedness; and they have a right and under the laws of this State they may take a. mortgage or any other means of securing their indebtedness. If they take a chattel mortgage, the law requires,, in order that it may be notice to other people who may be interested in the property of the mortgagor, that it be filed. The filing is for a purpose. It is for the purpose of giving persons who are interested in the debtor’s property notice of the true condition of his business, and of the property upon which the mortgage is placed; and I say to you that, unexplained and standing alone, the fact-of taking a mortgage for $2,900 more than their actual indebtedness would be a badge of fraud. And if it was accomplished, if it was done for the purpose of enabling McKenzie to keep his other creditors from asserting their-rights and enforcing their claims, it would be an actual1 fraud, and would render the instrument void as to other-creditors who had existing claims then against McKenzie. Now, you understand this proposition. This question of' whether it was fraudulent or not as to other creditors is a. question of fact for you, to be determined from the evidence in this case, and from all the surrounding circumstances. * * * “Now, this mortgage is the basis of the claim of the plaintiffs, and it becomes their duty and the burden is upon them of establishing the fact that it was Iona fide, and taken in good faith, and not as a means of preventing other creditors from enforcing their claim. ■ The burden is upon them to show it in this case, they deriving their right and their claim through this instrument,— this mortgage.’’ [359] In another place the court said: “It was the duty of Phelps, Brace & Co., when they" sought to secure their claim, to take such an instrument', as when placed upon file would show a true state of facts.They had no right to put upon file an instrument which bore upon its face a false statement of the condition of’ their claim; and this circumstance you have a right to1 consider in determining the question as to the character of." this mortgage.” Plaintiffs’ counsel requested the court to charge the jury that— “If the jury find that the plaintiffs, at the time they obtained their mortgage from McKenzie, agreed to advance, in money or merchandise, to said McKenzie, the amount, of the note given to said McKenzie at the time of making; said mortgage, and the balance of said mortgage was a-valid, existing indebtedness due plaintiffs, then, the taking; of this mortgage for the extra amount of said note would not affect the validity of said mortgage.” This instruction was refused, and its equivalent is not. embraced in the charge. We think this was error. The-strong language employed by the court in asserting that-the plaintiffs had no right to put on file an instrument: which bore upon its face a false statement of the condition, of their claim would very naturally lead the jury to suppose that they had no legal right to incorporate in their claim any more than the sum then constituting an existing indebtedness from McKenzie to the plaintiffs. I also think it was error to charge the jury that the burden was upon the plaintiffs to negative fraud in the transaction. Fraud is never presumed, and the burden should never be imposed upon a party to show affirmatively that no fraud exists in a transaction. While the fact that the mortgage was given for a greater sum than the amount due is a circumstance which may be taken into consideration by the jury, and while admittedly, if it is made for a greater amount than the indebtedness owing, for the; [360] purpose of hindering or delaying creditors, it amounts to fraud in law, yet I do not understand that the burden of proof shifts. Such seems not to have been the view of the circuit judge, but he states that the burden of proof is upon the plaintiffs in the case, “they deriving their right and their claim through the mortgage.'” I think it is not the rule of law that a person deriving his claim through an instrument of conveyance or a security has the burden of proof to show that the instrument is not fraudulent. The judgment is reversed, and a new trial ordered. McGrath, C. J., Long and Hooker, JJ., concurred with Montgomery, J. Footnotes [1] See Ferris v. McQueen, 94 Mich. 367.