
    Quinn & Nolan B. B. Co. v. Hart, Sheriff.
    
      (Supreme Court, General Term, Third Department.
    
    May 17, 1888.)
    1. Chattel Mortgages—Transfer of Property to Mortgagee—Proof of Holding under Mortgage.
    In replevin for certain property which had been seized by a sheriff under execution, evidence that plaintiff had a mortgage on the property given by the execution debtor; that, prior to the levy, the mortgagor put plaintiff in possession, telling him to sell the stuff, and apply the proceeds on account; that plaintiff then made a list of the property; that plaintiff had no conversation with regard to the property before receiving possession; that plaintiff’s agent testified, in other proceedings, that he was to apply the proceeds on the mortgage, which fact he denied on trial,— is sufficient to support a finding that plaintiff held under the mortgage, and not by a sale; there being no valuation of the property, or application of it at a fixed price in payment of the mortgage.
    2. Same—Power of Sale—Liability of Mortgagee to Account.
    A chattel mortgage which permits the mortgagor to sell the mortgaged property, and apply the proceeds to his own use without accounting to the mortgagee, is void as to the other creditors.
    
      3. Same—Validity—Dealing with Property for Benefit op Mortgagee.
    Where a chattel mortgage is given, which is fraudulent as to other creditors because it permits the mortgagor to deal with the property for his own benefit, and the mortgagee, by virtue thereof, takes possession of the property, he cannot hold it against a levy of a creditor whose debt was incurred before the possession was taken.
    Appeal from Albany county court; John 0. Nott, Judge.
    Action of replevin brought by the Quinn & Holán Severwyck Brewing Company against John W." Hart, as sheriff of the county of Albany. On the 29th day of January, 1887, the defendant, as sheriff, under a judgment docketed September 29, 1886, in Columbia county, in favor of Frederick C. Herbs and Magnus D. Herbs against Peter McGowan, and docketed in Albany county, December 4, 1886, levied on the fixtures of a saloon formerly kept by said McGowan in the city of Albany. Plaintiff had a chattel mortgage on this property given by McGowan in May, 1885, and duly renewed in May, 1886. On the 8th of December, 1886, McGowan came to plaintiff’s office, and gave plaintiff’s manager the key to the saloon, and told him to take the stuff, sell it, and apply the proceeds on account. The manager took the key, and the next day went to the place and took a memorandum of what was there. The possession of plaintiff, as found by the county court, who tried the case without S jury, continued from December 8, 1886, until the levy by defendant. The deiendant (who defended through the judgment creditor, Herbs) contended that the delivery or turning over, and plaintiff’s title to the property, was void, because the chattel mortgage which it held was void. The court," adopting this view, gave judgment for defendant, and plaintiff appeals.
    Argued before Learned, P. J., and Landon and Ingalls, JJ.
    
      Rosendale & Hessberg, for appellant. Hanover <£• Cochrane, for respondent.
   Learned, P. J.

The learned county judge, who tried the case without a jury, found as fact that the taking possession of the property by the plaintiff on the 8th of December, 1886, and the possession had by the plaintiff till the levy, ahd all acts of authority by the plaintiff and delivery by the mortgagor, were taken, done, made, and executed solely by virtue of the chattel mortgage, and not by any other authority from or agreement with McGowan. Unless this finding is without evidence, or against the weight of evidence, it is conclusive. In support of this finding, there is the presumption that the possession of a mortgagee is under the mortgage. There is the fact that every power and authority and all possession exercised by the plaintiff after December 8th were fully authorized by the mortgage, so that nothing done on that day gave any greater rights to the plaintiff than it had before. The mortgage duly authorized plaintiff to take possession, sell at private sale, and apply the proceeds. The transaction of December 9th gave nothing more. There was no valuation of the property, and application of it at a fixed price as a payment. There was no release of the mortgage. Further, there .is a question by defendant of plaintiff’s agent: “After the mortgage was given, when did you and McGowan have your first- conversation in regard to it? Answer. The time that he delivered up possession to me. ” Similar testimony is given by McGowan. There is also the testimony of plaintiff’s agent, given on supplementary proceedings, and now offered to contradict his present testimony, in which he says he was to apply the proceeds towards the chattel mortgage. There is also the further circumstance that McGowan made no new transfer or bill of sale. He simply handed plaintiff the key of the saloon which he rented, and said: “I was going to give the place up, take the stuff that is there, sell it, and apply proceeds on account.” This was the act of a man surrendering mortgage property,—not that of one making a new conveyance.. We think there is no reason to reverse the judge’s finding of fact.

The mortgage given by McGowan to plaintiff, May, 1885, was duly filed, and was renewed May, 1886. It was not claimed to be void on its face. But it was held by the judge to be void on account of an agreement that the mortgagor might sell the mortgaged property, and apply the avails to his own use, without accounting to the mortgagee. Potts v. Hart, 99 N. Y. 168, 1 N. E. Rep. 605. Under the decision in that case, and on the testimony given in this, we think the learned judge was right in holding the mortgage void as to creditors. The facts in the two cases are quite similar.

The question thus remains, if a chattel mortgage is executed which is fraudulent against creditors by reason of an agreement to permit the mortgagor to deal in the property for his own benefit, and if the mortgagee subsequently, by virtue of that mortgage, takes possession of the property, can he hold it against a levy of a creditor, thereafter made, whose debt was incurred before the mortgagee took possession? It was distinctly decided that he could not, in Dutcher v. Swartwood, 15 Hun, 34. In Stimson v. Wrigley a similar question was discussed. There a person had sold goods without delivering them. Meantime he became indebted. Afterwards he delivered the goods, and subsequently a creditor (in that case an officer with a tax-warrant) levied. The same doctrine was applied at special term. The case was affirmed at general term, and was affirmed in the court of appeals, (86 N. Y. 332;) and in the opinion there, at page 339, the opinion of the special term, and also the opinion in Dutcher v. Swartwood, are approved. Both in that opinion, and in that of Dutcher v. Swartwood, the court do not decide on the effect of a delivery by the mortgagor of the goods in payment of the debt. In Sperry v. Baldwin, 46 Hun, 120, a chattel mortgage was held void by reason of an oral agreement that the mortgagor might sell for his own benefit. It was executed October 11, 1883. Three days afterwards the mortgagee took actual possession. In March, 1884, the plaintiffs recovered judgment on an indebtedness contracted prior to the mortgage, and levied on the mortgaged property. It was held that plaintiffs were entitled to satisfy their execution out of the mortgaged property. The plaintiff’s counsel cites Hauselt v. Harrison, 105 U. S. 401, in which, speaking of a lien without change of possession, the court say that, if followed by delivery of possession before the rights of third persons have intervened, it is good absolutely. How, the difficulty with that case, in application to our statute, is this:' that the rights of third parties interfere when they become creditors, and not merely when they recover judgment and issue execution. The creditors mentioned in the statute are simple contract creditors. Parshall v. Eggert, 54 N. Y. 18. Under that decision, therefore, the rights of Herbs intervened before the delivery of the goods to plaintiff, although it is true that Herbs could not enforce these rights till the recovery of judgmént and issue of execution. But the statute does not permit a person to cover up and protect his property by a fraudulent mortgage, and while so doing get credit and make purchases from others, and then give validity to the mortgage by a delivery of the mortgaged property, and thus defraud the creditors who have trusted him on the strength of his apparent ownership. "Judgment affirmed, with costs.

Ingalls, J., concurs.  