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W. S. McFadden, for appellants. F. D. Chamberlain, for respondent.

ty has given the mortgagor unlimited power and authority to dispose of the property in the usual course of trade, for his own use and benefit, the mortgage is void as to attaching creditors. Orton v. Orton, 7 Or. 478, and Jacobs v. Ervin, 9 Or. 52. In the latter of these cases there was a separate agreement between the mortgagors and the mortgagees concurrent with the execution of the mortgage that the mortgagors should retain possession of the stock, and sell the same, as they had done before, for their own use, in the usual course of business; and in the former case the disposition of the mortgaged property by the mortgagor for his own use was permitted without any explicit agreement to that effect at the inception of the mortgage. In a later case (Currie v. Bowman, 25 Or. 364, 35 Pac. 848) it was held that a chattel mortgage is valid which, by its terms, permits the mortgagor to retain possession with power to sell, but which requires him to account to the mortgagee for the proceeds, less expenses of sales. These cases indicate very fairly the policy and trend of the law in this state in so far as it is involved by the facts before us. The intent and purpose of the parties in giving and receiving a chattel mortgage is the test of its validity at its inception, but, as it is a thing capable of modification by subsequent agreement, either expressed or implied, by co-operative and willful disregard of its terms and conditions, it is a prerequisite to its continuing validity that good faith and fair dealing be maintained towards those whose interests may be affected by it. A chattel mortgage given primarily for the benefit of the mortgagor is void as against creditors from the beginning (Hill's Ann. Laws Or. § 3053), but, if given bona fide, and the parties, by their subsequent treatment of it, and the property covered by it, convert it into an instrument calculated to effectuate the same purpose, it is none the less fraudulent and void from the time such purpose is promoted. But where the mortgage has been seasonably and duly filed, want of good faith must be established by the party who attempts to overthrow it, as the presumption stands in favor of honesty and fair dealing. The mortgage in question is in the usual form, perfectly fair on its face, and permits the mortgagor to retain possession of the property, but expressly forbids any sale or disposal of it, or of any part thereof, by the mortgagor; so that, if there is any infirmity in the mortgage, it must be sought for in some extraneous agreement or subsequent treatment of it by the parties, from which we may infer a disregard of its conditions to the hindrance or detriment of creditors. The prior existence of the note, and that it was given for a valid demand, were practically conceded; but, if it were otherwise, we think the propositions are established by the proof. Mrs. Wilkins testified, in effect, that when the mortgage was given her husband told her that she could take charge of the store, and run it until she got her money out of it; that two days later, and after her

WOLVERTON, J. This is a creditors' suit to set aside a chattel mortgage executed by the defendant S. N. Wilkins to his wife, Mary A. Wilkins, and also an assignment subsequently made by Wilkins to the defendant Johnson. Plaintiff's contention, comprehensively stated, is that the mortgage is void upon the alleged ground that the mortgagor was allowed to retain possession of the mortgaged property, and to sell and dispose of the same for his own use and benefit in the usual course of trade; and that the execution of the mortgage was part of a preconcerted scheme to effect a general assignment for the benefit of creditors, but with a preference to Mrs. Wilkins; and hence that the assignment is also void. The facts underlying the contention are, in brief, as follows: On January 13, 1894, the defendant Wilkins was the proprietor of a furniture store in Corvallis, and largely indebted to sundry creditors. The representative of the Portland creditors called upon him at noon of that day for the purpose of obtaining security for the payment of their demands, and he was led to believe that unless he made a satisfactory settlement they would attach. During the interview Wilkins gave a statement of his assets and liabilities, but concealed the fact that he was indebted to his wife. Going home to lunch shortly after, he told his wife of his financial condition, and the requirement of these creditors, and it was agreed that he would at once give her a chattel mortgage upon the stock of furniture to secure the payment of a note for $600 executed by him to her August 1, 1892, and in pursuance thereof the mortgage was given, and delivered to her, and filed in the clerk's office at 3:45 p. m. The representative remained in Corvallis until the 15th, when Wilkins went with him to Portland, avowedly for the purpose of effecting a settlement with those creditors, but in the meantime said nothing about the chattel mortgage he had given his wife, of which the creditors had no knowledge until the next day, the 16th, when the fact was disclosed through a mercantile agency. On the 17th, Wilkins entered into a written contract with the plaintiff, acting in behalf of such creditors, by which he agreed to pay, and plaintiff agreed to accept, 75 cents on the dollar in full of such indebtedness, 25 per cent. payable in cash January 24th, and the balance, or 50 per cent., in secured notes. On January 23d Wilkins wrote to plaintiff that it was impossible for him to comply with his agreement. On the 24th, plaintiff caused the store to be attached, and on the 25th Wilkins made the assignment in question.

We will first consider the present status and legal effect of the chattel mortgage, and then the assignment. It has been decided in this state that when it appears either upon the face of the mortgage or by parol evidence aliunde that the mortgagee of personal proper

husband had gone to Portland, she did take charge of it by going in person to the store, and notifying the clerk of the condition of affairs, and assuming control. Thenceforth, and until the sheriff took charge on the 24th, she says she directed the management of the business, had charge of the receipts, and that they were disbursed only by her authority. When the sheriff attached, he found the clerk in charge, but Wilkins entered soon afterwards, procured some keys from the back end of the store, and gave them to him. The clerk, however, had one key, and Mrs. Wilkins another. All the witnesses who pretend to know anything about it concur in the statement that Mrs. Wilkins was about the store nearly every day from Monday, the 15th, until the attachment, and sometimes brought her lunch for noon, and remained continuously until evening. After Wilkins returned from Portland, on the 17th or 18th, he was also about the store until the attachment; but there is no testimony tending to show that he sold anything from the store himself, or that he obtained or used the proceeds of any sales. The business sign was not changed, and, barring Mrs. Wilkins' presence, the store was apparently conducted as it had formerly been. The evidence shows an understanding between the parties that Mrs. Wilkins should take charge of the property notwithstanding the condition that the mortgagor should remain in possession, and it may be said to be fairly established that she did actually assume possession and control, with the consent of her husband, and that she so retained it until the attachment. To say the least, it has not been established that he was permitted, with the knowledge or tacit consent of Mrs. Wilkins, to conduct the business in the usual course, as he had done before, or to use or appropriate the proceeds of sales for his own use and benefit, in disregard of the mortgage conditions. The creditors can only complain when the mortgage is executed or subsequently used as a shield for the special benefit of the mortgagor, and thereby hinders or delays due process of law in reaching the property, and subjecting it to the payment of valid demands. The mere fact that it may lessen their chances of realizing their claims in full does not of itself render the transaction fraudulent, if the mortgage is otherwise fair, and so treated; but it is the erection of a false muniment, not intended to secure the mortgagee so much as to ward off and defeat just demands, that works the iniquity, and to avoid which the law affords a remedy. The mortgage must be held to be valid unless it in fact constitutes a part of the general assignment subsequently made.

This court has several times, and quite recently, decided that a person in failing circumstances may prefer one creditor above another, and this he may do in any manner that he may see fit so long as he does not resort to a general assignment, or to devices which, being construed in unison, may be regarded as equivalent thereto, for the ac

complishment of the purpose, and this may now be regarded as the settled law of the state. Sabin v. Fuel Co., 25 Or. 15, 34 Pac. 692; Jolly v. Kyle, 27 Or. 95, 39 Pac. 999; O'Connell Hansen, 29 Or. 173, 44 Pac. 387; Inman, Poulsen & Co. v. Sprague (Or.) 47 Pac. 826. If, however, the execution of the mortgage to Mrs. Wilkins is so inseparably connected with the act by which the general assignment was effected as that they may stand together, and constitute in reality but one act or transaction, the assignment is void, as creating a preference. The statute expressly provides that no general assignment made by an insolvent debtor for the benefit of creditors shall be valid unless made for the benefit of all, and in proportion to the amount of their respective demands. Hill's Ann. Laws Or. § 3173. The preferment of one or more of the creditors, while assuming to make such an assignment, is in violation of the statute; hence it is that the assignment must fail, because the act by which it is sought to accomplish the purpose is unlawful. Nor is an act in disregard of law any less a violation thereof because accomplished by indirect or devious methods. See Inman, Poulsen & Co. v. Sprague, supra, and O'Connell v. Hansen, supra. In point of time, the instrument creating the assignment was executed 12 days later than the mortgage. This, however, is but a single circumstance attending the transaction. Before giving the mortgage, Wilkins told the Portland representative that if his property was attached he would have to make an assignment, while in Portland he told the creditors the same thing in purport, and, again, on the 24th,-immediately prior to the attachment,-that, if the creditors would give him time, he could pull through, but, if not, he would have to make an assignment; and seems he constantly foreshadowed the assignment as a result which he would be compelled to bring about if pressed by his creditors. With reference to the mortgage, he said in Portland that he owed his wife the money, was afraid the creditors "meant to jump him," and that he thought she ought to be secured. Finally the attachment came, and then the assignment, and it is urged that Wilkins contemplated an assignment from the first, and that each step was but a pavement of the way to that end, and ought to be so considered. But we cannot hold this, under the testimony. The threatened assignment, if such it may be termed, was always conditional, and made dependent upon the attachment of his property at the suit of his creditors, indicating that he had not formed a fixed purpose to assign unless the event happened, but it was evident that he intended to secure his wife in any event. Suppose he had said in the first place, "I owe my wife, and I mean to give her a mortgage on my stock of furniture at once, to secure her; but, if the other creditors attach, I shall assign"; and suppose the creditors had then insisted

upon the attachment, and Wilkins had made good his threat by executing the mortgage, and following the attachment with an assignment,-it would be quite apparent that there would be a matured purpose to assign with a preference to his wife, because, being apprised of the fixed intention of the creditors, his mind would have come to rest upon the scheme which would have resulted in the assignment. But suppose the creditors had, notwithstanding the announcement of his purpose to secure his wife, continued negotiations for a settlement, and the parties had proceeded with good intentions to accomplish the purpose without the attachment, and had actually entered into an agreement to that end, could it be said that the execution of the mortgage would be a part of a scheme to assign with preference to the mortgagee? This is, in effect, what really happened. The creditors, with full knowledge of the execution of the mortgage, and cognizant of the fact that Mrs. Wilkins claimed a lien "upon the stock for her security, entered into a contract of compromise and settlement with Wilkins, whereas they might have said, "No, we will attach, and if you assign we will break it up." The compromise agreement is entirely inconsistent with the idea of an assignment, and to our minds is conclusive against plaintiff's contention.

It is said that Wilkins did not intend to keep the agreement, but we cannot conclude that such was the case, with the light we have upon the subject. The fact is, he tried to make a similar arrangement for time with Walter Bros., one of the Portland creditors, only a few days prior to giving the mortgage and before his wife was aware of his financial condition. So that we are led to believe that Wilkins did not conclude upon making a general assignment until the attachment on the 24th, and therefore that it is not void. The decree will therefore be reversed, and the complaint dismissed, with costs to defendants, and a decree here entered accordingly.

(31 Or. 407)

CORBETT et al. v. CITY OF PORTLAND et al.

(Supreme Court of Oregon. April 12, 1897.) MUNICIPAL CORPORATIONS-CITY OF PORTLANDTAXATION-INTEREST ON INDEBTED

authorized the creation of the remainder, and no express provision was made for its payment.

NESS-SPECIAL TAX.

1. The charter of the city of Portland (Laws 1893, p. 819) § 36, empowers it to levy taxes for general municipal purposes not to exceed 8 mills on the dollar. Section 204 provides that during any fiscal year the rates of general and special taxes levied must not exceed, in the aggregate, 1% per cent. Held, that section 204 does not authorize a special tax to pay interest on indebtedness, in addition to the 8 mills authorized by section 36, and it is immaterial that under such construction the city cannot meet its current expenses and pay such interest.

2. Nor is such special tax authorized because the prior charter, creating the municipality, imposed on it a part of such indebtedness, and

Appeal from circuit court, Multnomah county; Loyal B. Stearns, Judge.

Action by H. W. Corbett and others against the city of Portland and others. From a decree dismissing the complaint, plaintiffs appeal. Reversed.

This is a suit to restrain the collection of a special tax levied by the city of Portland for the payment of interest charges on its bonded and other indebtedness. It is alleged in the complaint that on June 30, 1895, the common council of the city, by Ordinance No. 9103, levied a tax of 8 mills on the dollar for general municipal purposes, and on the same day, by Ordinance No. 9104, an additional tax of 2 mills for the payment of the annual interest charges on the bonded and other indebtedness of the city; that there is no warrant or authority of law for the passage of the latter ordinance, or for the attempted levy of such additional tax; and that all proceedings in reference thereto are void and of no effect. The complaint further alleges that in and by the act of incorporation of the defendant city it is provided that the levy of taxes for general municipal purposes shall not exceed, in any one year, 8 mills on the dollar, and out of the sum realized therefrom, and the other revenues of the city, it must pay the interest charges and all other general municipal expenses. It is also alleged that prior to the commencement of this suit the plaintiffs paid, or tendered and offered to pay, the full amount of the S-mill tax assessed against them by Ordinance No. 9103, and that the defendant Sears, as sheriff of Multnomah county, threatens, and will, unless restrained, attempt, by levy and sale, to collect the remaining 2 mills; and therefore an order is prayed for, enjoining and restraining the collection of such additional tax. The defendants filed an answer in which they admit the levy of the general and special tax as alleged, but deny that the latter was without authority of law, and, further answering, allege that it will be impossible to successfully conduct the affairs of the city, and meet the current lawful expenses and interest on the public debt, without the additional revenue which the special 2-mill tax is expected to yield, and that, in the opinion of the mayor and common council, both levies were indispensable to meet the public exigencies. A reply having been filed, the cause was tried, and a decree rendered dismissing the complaint, from which the plaintiffs appeal.

It appears that in July, 1891, the then cities of Portland, East Portland, and Albina were consolidated into one municipality, un der the name of the "City of Portland," by an act of the legislature filed in the office of the secretary of state February 19, 1891. Laws 1891, p. 796. By the terms of this act the title to all the public property belonging

to the municipalities referred to became the property of the consolidated city, and it was made liable for their indebtedness, amounting at the time, in the aggregate, to the sum of $681,000. This amount has since been increased by legislative authority until at the time this suit was commenced the entire bonded indebtedness, the interest of which is payable from the general revenues of the city, amounted to $1,181,500, and the interest thereon to $73,907.65. By the charter of the consolidated city, which imposed thereon the debts of its predecessors, and under which the additional bonded indebtedness was incurred, the common council was authorized and empowered to assess, levy, and collect a tax on all the taxable property in the city of 3 mills on the dollar for general municipal purposes, a special tax of 31⁄2 mills for the fire department, and a like tax for the police department, making a total of 10 mills on the dollar. In 1893 the charter of 1891 was repealed, and a new one enacted, which was in force at the time the tax in question was levied, and by which its validity must be determined. The portions of the latter charter material to this controversy are as follows:

"Sec. 36. The council has power and authority within the city of Portland-(1) To assess, levy and collect taxes for general municipal purposes, not to exceed eight mills on the dollar, upon all property, both real and personal, which is taxable by law for state or county purposes." Laws 1893, p. 819.

"Sec. 176. The board of fire commissioners shall, on the first day of January of each year, or as soon thereafter as practicable, report to the common council the estimated amount of salaries and other necessary expenses of the fire department for the ensuing year, together with the estimated cost of constructing and erecting cisterns and hydrants, and the erection and the repair of buildings, the purchase of lots for the purpose of erecting engine houses thereon, the purchase of engines, hose carts, hose, horses, feed, material, and apparatus for said department required for the ensuing year; and the common council shall, if they deem the same practicable, at the same time that other taxes are levied and collected, levy and collect a special tax sufficient to raise the amount so estimated by the board of fire commissioners, which tax shall be paid into a fund to be known as the fire department fund of said city of Portland, and shall be subject solely to the control of the said board of fire commissioners, and shall be paid out by the city treasurer upon warrants drawn by the mayor and auditor of the said city upon requisitions therefor made by the presiIdent of the board of fire commissioners, for claims duly allowed by said board; and the mayor and auditor are hereby directed to draw warrants on said fire department fund in accordance with the requisition of said

president of the board of fire commissioners, such requisitions to remain on file in the office of the auditor, and to be sufficient authority for drawing warrants as aforesaid." Laws 1893, p. 861.

"Sec. 204. The fiscal year of the city shall commence on the first day of January and end on the last day of December of each year, and during any such year the rates of general and specific taxes levied must not exceed, in the aggregate, one and one-half per centum." Laws 1893, p. 867.

W. P. Lord, Joseph Simon, and W. T. Muir, for appellants. Wm. M. Cake and R. Williams, for respondents.

BEAN, J. (after stating the facts). The principle is universal that, whenever a municipality or other governmental agency of a state seeks to impose the burden of taxation upon a citizen or upon his property, it must be able to show the grant of such power by express words or necessary implication. No doubtful inference from other powers granted or from obscure provisions of the law, nor mere matter of convenience, or even necessity, will answer the purpose. The grant relied upon must be evident and unmistakable, and all doubts will be resolved against its exercise, and in favor of the taxpayer. "Every municipal corporation, and every political division of the state, which demands taxes from the people," says Judge Cooley, "must be able to show due authority from the state to make the demand." Cooley, Tax'n, 474. Or, as Judge Dillon puts the same doctrine: "It is a principle universally declared and admitted that municipal corporations can levy no taxes, general or special, upon the inhabitants or their property, unless the power be plainly and unmistakably conferred. It has, indeed, often been said that it must be specifically granted in terms; but all courts agree that the authority must be given either in express words or by necessary or unmistakable implication, and that it cannot be collected by doubtful inferences from other powers, or powers relating to other subjects, nor can it be deduced from any consideration of convenience or advantage." 2 Dill. Mun. Corp. (4th Ed.) § 763. It is by the application of these fundamental principles to the granted powers of the defendant city that the case in hand must be determined, and in our opinion it presents no serious difficulty. It is admitted that there is no express power to levy taxes conferred by the charter, other than that granted by sections 36 and 176, and it is not claimed that the tax in question was levied under the provisions of either of these sections. The contention for the city is that section 204 confers, by implication, the power to levy taxes for special purposes in addition to the 8 mills authorized by section 36, to the extent, in the aggregate, of 15 mills. But we are unable to concur in this construction of the section. It is argued that the legislature having limited the rate of taxation for general purposes to 8

mills, and subsequently provided, in section 204, that the rate of general and special taxes must not exceed, in the aggregate, 12 per cent. in any fiscal year, it intended to and did thereby authorize, by implication, the levy of special taxes to the amount of 7 mills. In short, it is sought to imply the power of taxation from mere words of limitation; but manifestly the grant of a power by the exercise of which a citizen may be deprived of his property in invitum cannot be safely thus inferred. The section in question is found among the miscellaneous provisions of the charter, and was evidently copied from that of 1864 into each succeeding charter, without noticing that it did not conform to the actual limit on the power of taxation elsewhere provided in the respective charters. It was not originally intended as a grant of power, and obviously cannot be so construed. It does not declare that a special tax may or shall be levied. All that is said on the subject is that the aggregate rate of taxation in any one year shall not exceed a certain limit. It would be indeed strange if the legislature, intending to confer the important right to levy taxes in excess of the power already granted, should have left such intention to be ascertained by doubtful inference from a mere limitation on the power of taxation in a section of the charter relating to the beginning and ending of the fiscal year, and that, too, without any declaration or provision anywhere in the charter as to the purpose for which this special tax might be levied. The power to tax, and the purposes for which the money derived therefrom should be used, are to be found elsewhere in the charter; and, if it was intended to authorize the levy of an additional special tax to pay interest on the bonded indebtedness, it is hard to see why it was not done when the subject of taxation was before the legislature. It appears quite clear that section 204 cannot be so construed as to confer the power to levy a special tax for any purpose, but that all the power of taxation possessed by the defendant city under its charter must be found in sections 36 and 176, above quoted.

But it is strenuously insisted that under this construction of the charter the city will be unable to meet its current expenses and pay the interest on its outstanding indebtedness. If true, this argument might be a very persuasive one, if addressed to the lawmaking power; but it can have no weight with the judiciary, whose duty it is to interpret, and not make, laws. The power of taxation is a sovereign right, which belongs exclusively to the legislative branch of the government, and can only be exercised by subordinate governmental divisions in pursuance of laws passed by the legislature for that purpose. They are but instrumentalities of the state, brought into existence for public purposes, and have no authority beyond that conferred by the law creating them. They have no inherent power of taxation. Their right to impose burdens upon

persons or property is wholly statutory, and can be exercised only to the extent granted. And when the limit prescribed in the grant of the taxing power is reached the power is exhausted, and the courts cannot even compel the levy of a tax in excess of that limit at the suit of a creditor whose debt would otherwise remain unpaid, unless the limitation is such an abridgment of the right of taxation as it existed at the time the debt was incurred as in effect to impair the obligations of the contract. 15 Am. & Eng. Enc. Law, 1140; U. S. v. Burlington, 2 Am. Law Reg. (N. S.) 394, Fed. Cas. No. 14,687, and Judge Dillon's valuable note thereto; Portland Sav. Bank v. City of Montesano, 14 Wash. 570, 45 Pac. 158; Vance v. City of Little Rock, 30 Ark. 435; Supervisors v. U. S., 18 Wall. 71; Clark v. City of Davenport, 14 Iowa, 497; State v. Shortridge, 56 Mo. 126. If, under its granted powers, a municipality cannot provide sufficient revenue, in the opinion of its officers, for municipal purposes, the only alternative, if its limit of indebtedness has already been reached and its financial honor is to be preserved, is either an application to the legislature for more extended powers of taxation, or a reduction of expenses so as to bring them within the income. By the constitution the legislature is required, in granting charters to municipal corporations, to restrict their powers of taxation. Const. § 5, art. 11. In obedience to this provision of the fundamental law, it is provided in the charter of the defendant city that taxes for general municipal purposes-which, of course, include the payment of its outstanding obligations, unless otherwise provided in the law under which they were created-shall not exceed 8 mills on the dollar. The object of this limitation is manifestly to secure the property owner against onerous and excessive taxation, and to enforce economy in the expenditure of public money. It was the evident intention of the legislature that the amount of revenue derived from the 8-mill tax, and no more, should be raised by the city of Portland from the taxable property of its inhabitants in any one year for general municipal purposes, and no additional amount can be collected for that purpose by an unauthorized special levy for some item of general municipal expense. If the provisions of the charter could thus be avoided, it would afford no protection to the taxpayer whatever, would be no restraint upon official extravagance, and would utterly fail to accomplish the purpose intended by the legislature and the framers of the constitution.

But it is claimed that the act of 1891, creating the defendant municipality, imposed upon it a part of the present bonded indebtedness, and authorized the creation of the remainder, and, as no express provision was made for the payment of such indebtedness, it necessarily follows that it must be paid from money raised by taxation. No doubt, this is true, but it does not follow that a special tax in addition to the general tax authorized by the

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