Merchants' & Mechanics' Savings Bank v. Lovejoy

PinNEy, J. 1. There can be no doubt but that the deed and agreement, -which were clearly given to secure the debt of Robinson to Lovejoy, constituted a mortgage. It is settled that whenever property is transferred, no matter in what form or by what conveyance, as a mere security for a debt, the-person to whom the transfer is made takes merely as a mortgagee, and has no other rights or reme — 608 — dies than the law accords to mortgagees. We have here an absolute deed, and a defeasance in a separate instrument, and the two constitute a mortgage. Howe v. Carpenter, 49 Wis. 702; Brinkman v. Jones, 44 Wis. 498; Schriber v. Le Clair, 66 Wis. 579; Starks v. Redfield, 52 Wis. 352; Hoile v. McCulloch, 58 Wis. 448; Phelan v. Fitzpatrick, ante, p. 240. Robinson remained the owner of the legal title, and Lovejoy had a mere security, not a title. He could acquire the title only upon foreclosure and sale, or by some arrangement with Robinson which would operate to extinguish his equity of redemption. It is impossible to hold that it was the intent that the deed and contract should so operate, and secure to Robinson merely a conditional right of purchase. There was no extinguishment of the pre-existing debt against Robinson. The amount he is to pay to obtain a deed is the precise amount of that debt, and Robinson still remains Lovejoy’s debtor,— a circumstance, in itself, usually held decisive. But the testimony of Lovejoy is conclusive, and is, in substance, that “ the taking of the contract was to get our pay for the debt he owed us,” and that the amount of the previous indebtedness is stated in the contract. He testified, in effect, that his purpose in making the provision in the agreement in regard to the title to the crops was to get security, and so no one could take the crops if he had any other debts. The stipulation was not for a general surrender of possession by the mortgagor to the mortgagee, but is special in character and purpose; and the possession was to remain in Lovejoy only until $1,000 of the principal sum, and all matured interest, should be paid. But it is clear that it was intended that Robinson should remain, as he did in fact, in possession as he had theretofore; for it is stipulated that in case of default on his part he “ would forthwith deliver up the said premises ” to the said Lovejoy. The provision in question, when fairly construed, amounts to no more — 609 — than an attempted mortgage or pledge of the crops that might be thereafter planted and raised on the premises, until the $1,000 and matured interest should be paid,— a right which would not be secured by an ordinary mortgage, and which was not to continue until the remainder of the debt should be paid. The objections to the claim set up by Lovejoy to the fund paid into court out of the crop planted and raised three years after the execution of the agreement are insuperable. 2. Bobinson could not grant or mortgage that which he did not actually or potentially own, either absolutely or by way of security. The crop raised on the farm by him in 1890 was not in existence when the agreement was made, either actually or potentially; and Bobinson could .not, therefore, grant it by way of security. The seed had not been planted and had not germinated so as to constitute a possibility coupled with an interest which might be the subject of sale or transfer. Conceding that, within some of the authorities cited by respondent, the agreement would be operative when the crop should come into existence (McCaffrey v. Woodin, 65 N. Y. 459), or would amount to a revocable license .to Lovejoy to enter on the premises and take the after-acquired crops according to the terms of the license, or that it might be made operative by a delivery or other equivalent of the crops after they were raised, still it is plain that in this view of the case the agreement, as a title or charge on the crops, was inoperative in law and invalid as to creditors. That the provision in question would be invalid as to crops thereafter to be planted was settled in Comstock v. Scales, 7 Wis. 159, and reaffirmed in Lamson v. Moffat, 61 Wis. 153. The subject matter not being in existence, there was nothing for the agreement to operate on until the crops were raised and delivered. The case of a lien reserved in like manner by a landlord in a lease, upon crops to be raised by a ten — 610 — ant for rent to accrue, has been thought to be an exception to the ordinary rule that a mortgage upon after-acquired property, without some further act to attach the property to it when it is acquired or comes into existence, would be void. Andrew v. Newcomb, 32 N. Y. 417; Reynolds v. Ellis, 103 N. Y. 115. The doctrine of Comstock v. Scales has been strictly adhered to in this state in many subsequent cases. Chynoweth v. Tenney, 10 Wis. 397; Single v. Phelps, 20 Wis. 398; Mowry v. White, 21 Wis. 417. In Hunter v. Bosworth, 43 Wis. 590, the court was appealed to strongly to reverse the rule of Comstock v. Scales, but without effect. Funk v. Paul, 64 Wis. 35, 38; First Nat. Bank v. Knowles, 67 Wis. 386. In Simple v. Phelps, 20 Wis. 398, where there was no subsequent act ratifying such security,— as delivery of the property after it came into existence, or setting it apart with intent that the mortgage should apply to and bind it,— it was held that the filing of such a mortgage in the town clerk’s office would be wholly inoperative, and would furnish no notice that any property had been subsequently acquired, or that any subsequent act had been performed, necessary to make it operative in respect thereto. It is plain, therefore, that such a mortgage, even though filed in the proper town clerk’s office, would be wholly inoperative as to creditors or subsequent purchasers, unless, before their rights attached, the property was delivered to the mortgagee, or the subsequent act necessary to make it valid was performed; and this would seem to render actual possession necessary by the mortgagee of such property, in order to be able to maintain his rights in respect to it. For want of such actual and continued possession of the property claimed to be affected by it, the agreement was absolutely void as to the creditors of Robinson, whether prior or subsequent to its date or to the time when- the crop was raised. R. S. sec. 2313.. It is sufficient — 611 — that the relation of debtor and creditor existed between the plaintiff and Robinson at some time while the goods were in the actual possession of the debtor. Reynolds v. Ellis, 103 N. Y. 115. The law does not favor secret liens on property, such as .the one asserted by Lovejoy to the crop in question, on account of the deceitful and fraudulent use that may be made of them, to the prejudice of creditors and subsequent purchasers. Robinson remained in possession of the premises, and of the crops raised from time to time thereon, and apparently as the owner of them, in like manner as before the execution of the agreement; and this fact furnished the ready basis of credit by which persons might be drawn in to deal with him on the faith of his ostensible ownership. And if it be conceded that the agreement was valid and operative as between Robinson and Lovejoy, it certainly was not as against the former’s creditors, either prior or subsequent, for reasons already stated. 3. In addition to the objections already noticed, as against Robinson’s creditors the stipulation in the agreement in respect to the crops was fraudulent and void in law, for the reason that there was reserved in it to Robinson, as mortgagor, the right to such portion of the crops raised from year to year as might be necessary to feed the stock on the farm, belonging to him, and such as he might use for food in his family, to be apportioned and set apart by the parties when the crop should be in readiness; thus reserving to him, as against his creditors, a substantial trust for his benefit in every crop that might be raised under this arrangement, and which it was at the time contemplated should continue at least ten years. The case, in principle, is not distinguishable from that of Blakeslee v. Rossman, 43 Wis. 116. The validity of such a security is not an open question in this state. It is not a question of intent, for the arrangement necessarily tends to hinder, — 612 — delay, and defraud creditors, and the fraud which the law imputes to it is conclusive, and no amount of evidence of good intent will suffice to remove the fraudulent taint imputed to it as a matter of law. Anderson v. Patterson, 64 Wis. 557. It is impossible to overlook or ignore the manifest fraudulent character of this agreement, as against creditors. If sustained, it would furnish an apt and ready device to cheat and defraud the creditors of every person engaged in similar pursuits, and in embarrassed circumstances, so that he might take to his own use a large portion of the annual profits of his lands, and hold them in defiance o.f creditors, if he happened to have a friendly mortgagee at hand, willing to enter into such an arrangement with him as the one disclosed by this record. Mr. Lovejoy had no right to use his debt and mortgage security for any such improper purpose, and his testimony shows that it was intended, in point of fact, that this instrument should have precisely the effect that we ascribe to it in law, namely, “ so that no one else could take hold of them [the crops] if he had any other debts. I allowed him to take out of the crops he raised a sufficient amount to feed his stock he had on the premises, and a sufficient amount, each year, to tahe eare of his family and to pay his expenses. We have never had any particular settlement. He has used all the crops that I did not get. I have no account whatever of what he used. ... I have allowed him to sell out of the crops, and buy other things with it.” It being incontestable that this provision was given by way of security, and has the effect of a mortgage on the crops to be thereafter raised, it is impossible to sustain it, as against the claims of the creditors of Robinson, either prior or subsequent, for manifestly it was aimed against both, and was .to be operative, as already observed, for the period of at least ten years. It is not only fraudulent in law, but the — 613 — evidence tends strongly to show that it is fraudulent in fact. It is but a fair inference that it was intended for the purpose for which the parties have used it, and is of such a mischievous and reprehensible character that we cannot hesitate to condemn it. For these reasons the judgment of the court, awarding the money paid into court by the garnishee to the defendant Lovejoy, was erroneous and must be reversed. By the Oourt.— The judgment of the circuit court is reversed, and the cause is remanded with directions to give judgment in favor of the plaintiff for the fund paid into court, or against the party to whom it has been paid, for the amount of his judgment and costs. Cassoday, J. I have no doubt a valid stipulation may be inserted in a real-estate mortgage, whereby the mortgagee may be deemed to be in possession, and the mortgagor, as his agent, continue to occupy, cultivate, and dispose of the crops, and, after paying the expenses for doing so, apply the net proceeds in payment of the mortgage debt. Especially may this be done where, as here, the old mortgage is overdue and inadequate security, and a hew equitable mortgage containing such stipulation is taken in lieu thereof. The difficulty with 'the stipulation in question is that Robinson thereby reserved to himself such portion of the crops raised on the premises as might be nec-cessary to feed his stock and support his family, without any regard to the expense of raising such crops. This seems to be a conveyance or transfer in writing, therefore, of goods, chattels, or things in action, made in trust for the use of the person making the same, and hence, under the statute, is void against the creditors, existing or subsequent, of said Robinson. Sec. 2306, R. S. It also appears to be in conflict with the statute which declares, in effect, that every conveyance or assignment, in writing, of any — 614 — estate or interest in lands or in goods, or of any rents or profits issuing therefrom, and every charge thereon, made with the intent to hinder, delay, or defraud the creditors of the person making the same, shall be void. Sec. 2320. For these reasons I concur in the decision in this case.