Putnam v. Reynolds

Putnam filed a bill in equity to foreclose a chattel mortgage given to him by the defendant Reynolds, and-which bore date April 9, 1879. It covered a stock of *115goods, and was given to secure a debt of $500. Permission was given to the mortgagor in it to remove the goods from Grand Eapids, where they were when the mortgage was given, to Stanton in Montcalm county, and the mortgagee •availed himself of this condition and made sale of the goods from time to time in the usual course of retail trade. Meantime the mortgage was not filed in the office of the city dark of Grand Eapids, or in the proper office at Stanton, and by reason thereof, it became, bj' the express terms of the statute (Comp. L. § 4706), “absolutely void as against the creditors of the mortgagor.” Fearey v. Cummings 41 Mich. 376. July 7, 1876, Eeynolds having become insolvent, made a general assignment for the benefit of his creditors to the defendant Fitzgerald, who had no knowledge of the mortgage, and the assignee took possession and proceeded to make sale of the goods in execution of his trust under the assignment. Two days thereafter Putnam filed his mortgage at Stanton, and a little later still at Grand Eapids, and demanded possession of the goods, which Fitzgerald refused to give. After such demand and refusal the present bill was filed.

It is insisted on behalf of complainant that his mortgage, notwithstanding the failure to file it, was perfectly good as against the mortgagor, and that the latter could not, by a voluntary assignment, transfer a right to assail it which he did not himself possess. The assignee is not a purchaser for value, and not a creditor; and even creditors, it is said, cannot attack the mortgage except indirectly through a seizure of the property by attachment or other suitable process. This is doubtless true where the invalidity of the mortgage arises from the fraud of the mortgagor, but whether the same rule will apply when the mortgage was originally valid, but is made void by the neglect of the mortgagee, may well be questioned. It would be easy to suggest weighty considerations arising in such cases, but not existing in the case of a fraudulent mortgage, and which it might well be thought should control. But we do not think the question fairly arises in this ease.

As matter of law the mortgage of complainant was void *116as to the mortgagor’s creditors, and it was made void for the reason that the conduct of the mortgagee, even when he had no such purpose in view, tended to defraud them. If the mortgage was purposely left off the record, it was an act of bad faith, which might justify its being declared void in fact irrespective of the statute (Shipman v. Seymour 40 Mich. 274); and there is reason to believe that such was the fact here, and that it was done to give the mortgagor a credit to which he was not entitled. But whether the mortgage was void in fact as against creditors, or merely void in law, it is plain that the mortgagee cannot have a shadow of equity to enforce it as against a trustee for the creditors who is proceeding to dispose of the property in good faith for their benefit. If any strict and harsh rule of the common law will enable the mortgagee to defeat the just claims of the creditors under the circumstances, he may be at liberty to take advantage. of it, and on the other hand the assignee may rightfully hold any legal advantage he may have obtained. But whatever may be the case at law, a complainant in equity must have a better standing than a security which the statute, because of his own treatment of it, has declared to be void as against the very parties from whom he seeks to withdraw property by its enforcement. The maxim applies here that a.tortious act can never be the foundation of an equitable right: McCredie v. Buxton 31 Mich. 383, 388.

The decree must be reversed and the bill dismissed with costs of both courts. The defendant Fitzgerald will be at liberty to withdraw from court the proceeds of assigned property paid in by him.