Cameron, Hull & Co. v. Marvin ( 1881 )

The opinion of the court was delivered by

Valentine, J.:

This was an action of replevin, brought in the district court of Phillips county, for the recovery of certain grain, flour, and other property. The action was commenced and prosecuted by H. J. Cameron, Charles W. Hull,, and M. H. Johnson, partners doing a banking business at Kirwin, Kansas, in said county, under the firm-name of Cameron, Hull & Co., against T. A. Marvin, who was sheriff of said county.

It is admitted by the parties that all the property in controversy once belonged to A. J. Patterson, who was a dealer in grain, and kept a flour and feed store at Kirwin, Kansas; and all the parties claim under him. The plaintiffs claim under and by virtue of four chattel mortgages; and the defendants claim under and by virtue of an attachment issued in an action in which F. Goodnow & Co. were plaintiffs, and said H. J. Patterson was the defendant, and levied on the property by the defendant, as sheriff of said county.

The facts in the case are substantially as follows: On February 6, 1880, said Patterson executed an instrument which was in substance a chattel mortgage, to T. J. Templar statement of & Co., of Atchison, Kansas, on 1,400 bushels of wheat in one of Patterson’s grain houses, in Kirwin, Kansas, to secure a debt of $1,000. On February 20, 1880, Patterson executed another such instrument to T. J. Templar & Co., on 1,400 bushels of wheat contained in another grain house of Patterson’s in the same town, to secure a debt of $2,000. On March 2,1880, Patterson executed a chattel mortgage to the plaintiffs, Cameron, Hull & Co., on three grain houses and about 8,600 bushels of corn therein, one Fairbanks scale, and flour, feed, etc., contained in a flour and feed store — all in Kirwin, Kansas, to secure a debt of $2,000. On March 22, 1880, the plaintiffs loaned Patterson $1,000, taking no security therefor; and on May 17, 1880, loaned $1,000 more, and at that time took another chattel mortgage from Patterson to themselves on another grain house and 4,400 bushels of wheat, contained in this and in still another grain house — all situated in Kirwin, Kansas, to secure the last two loans. On April 13, 1880, F. Goodnow & Co., who were then engaged in the milling business at Salina, Kansas, sold to said Patterson a car-load of flour for $516, making such sale, as they claim, upon the credit of the property, grain, etc., which Patterson had and claimed at Kirwin,. Kansas; but which were mortgaged to said T. J. Templar & Co. and to the plaintiffs. Goodnow & Co., however, had no knowledge of such mortgages. On June 3,1880, the plaintiffs took possession of all of said mortgaged property, under their chattel mortgages. They also at the same time took possession of some other property belonging to Patterson, consisting of grain, flour, etc., which was mixed with the mortgaged property, but which Patterson did not have or own at the-time he executed the mortgages. The plaintiffs claim, and testified on the trial, that they took possession of all of this-property not only under their chattel mortgages, but that they took such possession of the additional property as additional security for their debt. The court below, however,, found that they took it all under their chattel mortgages. Patterson owed the plaintiffs at that time $4,000, all of which was then due except $1,000. The property was then worth $5,480.42. On June 11th or 12th, 1880, the plaintiffs purchased both of said mortgages executed by Patterson to T. J. Templar & Co. The evidence seems to show that the purchase was made on June 11th, and on the day before any attachment was served on 'the property; while the court below finds that, the purchase was made on June 12th;. but whether it was made before or after the service of the attachment, the court does not find. And perhaps it is not material, for all the property covered by these two mortgages is also covered by the subsequent mortgages, executed March 2d and 22d, 1880,. to the plaintiffs. At the time of the purchase of these mortgages executed to T. J. Templar & Co., there was then due on the same the sum of either $2,000 or $3,000. On June 11, 1880, F. Goodnow & Cb, commenced their action against. Patterson to recover their said claim of $516, and procured an attachment to issue in the case. On June 12, 1880, said, attachment was levied on all of said property by the defendant Marvin, as sheriff of said Phillips county, and the property was taken into his possession. On June 14,1880, the present, action of replevin was commenced by the plaintiffs, Cameron,. Hull & Co., against the defendant,, T. A. Marvin, for the recovery of all said property. None of the aforementioned, mortgages were ever filed for record, and it is claimed by E. Goodnow & Co. that they had no knowledge of any such mortgages when they sold said flour to Patterson; though it-is not claimed that they did not have knowledge of said mortgages at the time their attachment was levied on the property. It is also claimed by F. Goodnow & Co. that just before the time of said sale, C. W. Hull told the agent of F. Goodnow & Co., upon inquiry, that said Patterson was good. And it. is also claimed that said agent about the same time, but before consulting said Hull, had been told that Patterson was doing a good business; and as before stated, F. Goodnow &• Co. claim that they sold said flour upon the credit of the property which Patterson had in his possession. It also-seems that Patterson retained possession of all the property up to June 3, 1880, and continued to do business, buying and selling grain, flour, feed, etc., in the same manner that he had previously done. Some of the grain,-flour, feed, etc., that had been mortgaged, was sold by Patterson before the plaintiffs took possession of the property; while other property of' like kind had been purchased by Patterson after the mortgages were executed and before the plaintiffs took possession of the property, and had been mixed with the mortgaged property. Whenever Patterson sold any grain, flour or other-property, he deposited the money received therefor in the-plaintiffs’ bank, situated in Kirwin, Kansas; and when he wished to use any of said money for the purpose of purchasing other grain, flour, etc., he drew checks on the bank for the amount which he wished to use. All of said mortgages were executed for money loaned; and all the transactions between Patterson and the various other parties — T. J. Templar & Co., Cameron, Hull & Co., and F. Goodnow & Co. — were-in good faith, and not for the purpose of defrauding or injuring any person; also, the purchase by the plaintiffs of the-mortgages executed to Templar & Co. was in good faith.

The defendant claims that all these chattel mortgages were- and are void — first, because they were never recorded; second,. because one of them provided that the mortgagor should “have the right to buy and sell flour, grain and feed from” his flour, grain and feed store; third, because the mortgagees not only permitted the mortgagor to buy and sell flour, grain and feed, in connection with his grain, flour and feed store, which was provided for in one of the mortgages, but also in fact permitted the mortgagor to buy and sell such articles in connection with his several grain houses, which was not provided for in any of the mortgages. And he claims that none of the subsequent acts of the parties made any of these mortgages valid.

We shall assume, for the purposes of this case, that all the mortgages were void as against F. Goodnow & Co., and as against all other creditors of Patterson, and subsequent purchasers, up to the time when the plaintiffs took possession of the property, and. shall simply discuss the question whether they continued to be void after that time. Indeed, such mortgages, not being recorded and being of property not delivered, .are made void by § 9 of the mortgage act, which reads as follows:

“Sec. 9. Every mortgage, or conveyance intended to operate as a mortgage of personal property, which shall not be accompanied by an immediate delivery and be followed by an actual and continued change of possession of the things mortgaged, ■shall be absolutely void as against the creditors of the mortgagor, and as against subsequent purchasers and mortgagees in good faith, unless the mortgage, or a true copy thereof, shall be forthwith deposited in the office of the register of deeds, in the county where the property shall then be situated, or if the mortgagor be a resident, of this state, then of the county of which he shall at the time be a resident.” (Comp. Laws 1879, p. 557.)

While these mortgages would all be void because not recorded and the property not delivered, they could not all be void, nor could any one of them be wholly ..void, by reason of said stipulation authorizing the mortgagor to sell the mortgaged property; for none of the mortgages, except the one •dated March 2, 1880, authorized the sale of any of the mortgaged property by the mortgagor, and that one authorized such sales from only the flour and feed store. It is perhaps true that that mortgage also contained a stipulation in reference to thesale of wheat, etc., in a grain house; but neither this grain house nor any of its contents were covered by that mortgage; hence this stipulation could not have any force or •effect. And the mortgage also authorized the mortgagees to take possession of the property whenever they should deem ■the security inadequate or decreasing in value. And it is at least doubtful whether said mortgages were void merely because the plaintiffs permitted the mortgagor to sell some of the mortgaged property. (Frankhouser v. Ellett, 22 Kas. 127.) All the parties resided and did business in the same town — the mortgagor doing his business through the plaintiffs’ bank, depositing all his money therein, and the plaintiffs having the power to keep a continuous watch over the mortgaged property, the amount sold, etc., and to take possession of the same whenever they deemed the security inadequate or decreasing in value. We shall assume, however, that the mortgages were void for this reason also.

We now come to the question: Did the mortgages become valid when the plaintiffs took possession of the property under them? We think we must answer this question in the affirmative. (Dayton v. Savings Bank, 23 Kas. 421; Savings Bank v. Sargent, 20 Kas. 576; Nash v. Norment, 5 Mo. App. 545; Eastman v. Water Power Co., 24 Minn. 437; Read v. Wilson, 22 Ill. 377; Frank v. Miner, 50 Ill. 444; Chipron v. Feikert, 68 Ill. 284; McTaggart v. Rose, 14 Ind. 230; Brown v. Platt, 8 Bosw. 324; Brown v. Webb, 20 Ohio, 389; Chapman v. Weimer, 4 Ohio St. 481; Field v. Baker, 12 Blatchf. 438.)

Mr. Jones, in his work on Chattel Mortgages, says that “if a mortgagee takes possession of the mortgaged chattels before any other right or lien attaches, his title under the mortgage is good against everybody, although it be not acknowledged and recorded, or the record be ineffectual by reason of any irregularity. The subsequent delivery cures all such defects, and it cures any defects there may be through an insufficient description of the property. . . . Delivery of possession under a mortgage before rights have been acquired by others, will cure any invalidity there may be in the instrument, whether arising from an insufficient execution of it, omission to record it, or from its containing a provision which makes it void except as between the parties.” (Jones on Chattel Mortgages, §178.) .

This statement of the law is undoubtedly in accordance with the great weight of authority. It may be true that in some cases, where the mortgagee takes possession of the mortgaged property under a void mortgage without the consent of the mortgagor, that such possession will not make the mortgage valid. This, we think, was the case in the case of Blakeslee v. Rossman, 43 Wis. 116, the leading case referred’ to by counsel for defendant in this case. But in all, cases where there is a voluntary delivery of the possession of the property by the mortgagor to the mortgagee, under the mortgage, such delivery will render the mortgage valid as to all persons not then having any specific right to or lien upon the property, provided the mortgage was previously valid as between the parties thereto; and it must be remembered that in the present case the mortgagor voluntarily delivered the property to the mortgagees, and assisted them in making an inventory thereof.

Counsel for defendant in error seem to contend that where a chattel mortgage is not recorded immediately after it is executed, and the property is not immediately delivered to the mortgagees, it is absolutely void as to all creditors whose debts have been created subsequent to the execution of the mortgage and prior to its being recorded, and prior to the delivery of the property, without reference to any lien procured upon the property by virtue of an attachment, or an execution, or otherwise. That is, they claim that such a mortgage is so absolutely void as to general creditors, whose debts have been created after the execution of the mortgage and before the recording of the same, or before the delivery of the property, that they may obtain a lien upon the property after the mortgage is recorded and after the property is delivered, by virtue of an attachment or other legal process. Counsel cite two authorities which they claim sustain this doctrine: Fearey v. Cummins, 41 Mich. 376, and Bank of Leavenworth v. Hunt, 78 U. S. (11 Wall.) 391. The last case cited does not sustain the doctrine claimed by the defendant, and whether the first does or not, we can hardly tell. It says, however, that “a chattel mortgage cannot be questioned by a creditor at large, except by some proceeding against the property, as by garnishee process.” The decision is founded upon a decision made in the case of Thompson v. Van Vechten, 27 N. Y. 568 ; and whether that case sustains the doctrine of counsel or not, we can hardly tell. Probably it does not, for in the case of Jones v. Graham, 77 N. Y. 628, it is held that one not having a judgment and execution is not a creditor within the statute declaring that the omission to file a chattel mortgage renders it void as against creditors, etc. (See also Hayman v. Jones, 7 Hun, 238.) But whether the doctrine claimed by counsel is sustained by any authority or not, we do not think it is sound. Of course, a chattel mortgage not recorded of property not delivered is void as against all creditors who have no notice of the mortgage; but they have no right to or interest in any specific property until they have obtained this right or interest by some legal process. They have no more right to the property than the mortgagee has whose mortgage is void. They all have an equal right to the property — that is, they all have a right to procure a lien upon it or an interest in it by virtue of legal process, or chattel mortgage, or purchase; and the one who first acts will obtain the prior right in and to the property. If one of the creditors already has a chattel mortgage upon the property, he may file his mortgage or procure possession of the property; and if he has done this with the consent of the mortgagor, he has certainly obtained the prior right to the property. The mortgagor has a continuing right to mortgage his property to secure his debts so long as he acts in good faith and does not mortgage property already mortgaged to others. He has a right to prefer one creditor over another; and he may prefer any one of his creditors over any of the others. And if the mortgagee, whose mortgage is not recorded, and who does not have possession of the property, records his mortgage with the consent of the mortgagor, or takes possession of the property with the consent of the mortgagor, his mortgage then has the force and effect of a mortgage executed on the day on which it is filed for record, or on which the property.is delivered. It is the same then as though a new mortgage had been executed by the parties and recorded. The old mortgage is then given life and force and effect by the joint action of both the parties, and hence must be held to be valid from that time on, as against all persons.

As to what would be the rights of the parties in a case like the present if the mortgagee should file his mortgage for record without the consent of the mortgagor, or should take possession of the property without the consent of the mortgagor, we do not now wish to decide. That question is not in the present case. That is possibly the question which was decided in the case of Fearey v. Cummins, 41 Mich. 376.

The next question is, with reference to the rights of the parties to the property acquired by Patterson after the execution of all the mortgages. Of course this property was not included in the mortgages at the time of their execution. In fact, it could not have been included in the mortgages at that time, for it is not within the power of any person to mortgage property which does not exist or which does not belong to him. He cannot mortgage property which is afterward to be created, or purchased, or procured. He can only mortgage property which at the time is in existence, and to which he has a title. Parties may make contracts with reference to future acquired property, and contracts which will be legal and valid and will be upheld; but such contracts do not constitute chattel mortgages. They are simply executory contracts, to be performed in the future; and while they are binding upon the parties making them, they are void as to third persons who have no notice respecting them. They can never be treated as chattel mortgages affecting third persons. Such contracts, however, are always held valid as though they were chattel mortgages, as against third persons who have not in the meantime obtained any specific interest in the property when the mortgagee has obtained the possession of the property under the contracts. (Rowley v. Rice, 52 Mass. [11 Metc.] 333; Mitchell v. Black, 72 Mass. 100; Williams v. Briggs, 11 R. I. 476; Cook v. Corthell, 11 R. I. 482; Leland v. Collver, 34 Mich. 418; Chapman v. Weimer, 4 Ohio St. 481; Brown v. Platt, 8 Bosw. 324; McCafferty v. Woodin, 65 N. Y. 459; Gregg v. Sanford, 24 Ill. 17; Farmers’ Loan & Trust Co. v. Commercial Bank, 11 Wis. 207; Moore v. Byrum, 10 Rich. [S. C.] 452.

When a mortgagee takes possession of the future acquired property under such a stipulation in the mortgage, he then holds the property by way of pledge, but in the same manner as though the mortgage had been executed at the time he takes the possession of the property, and in the same manner as though he had taken the property under and by virtue of a chattel mortgage covering the property.

While these decisions are not entirely applicable to the present case, yet we think they must control the decision thereof. The only difference between the eases, is this: In the cases above referred to, the mortgagees took possession of the property under an executory written contract, made some time previously; while in the present case the mortgagees took possession of the property under a parol contract, made at the time they took the possession of the property, but in pursuance of an arrangement which evidently had been in contemplation of the parties for a considerable time before its consummation. The intention of the parties is in all cases precisely the same. They intend that the mortgagees shall take possession of the property as security for their debts, and in the same manner as though the property were covered by the mortgage. The mere fact that one is in writing and the other in parol, we do not think can make any difference; and neither do we think that the mere fact that one was made at the time the mortgage was made, and the other was not made until the time the property was delivered, can make any difference. In both cases the mortgagees took possession of the property and held it as against all persons who have no prior specific right or interest in oí to it. Of course we are now speaking entirely of bona fide transactions. Any fraud might vitiate the whole thing; but no fraud is charged or imputed to the plaintiffs in this case. Indeed, when they took possession of the property their claims against Patterson amounted to $4,000. There were already prior mortgages on the property to T. J. Templar & Co., amounting to $2,000 or $3,000, of which prior mortgages the • present plaintiffs at the time had notice, and could not consider as void; while all the property received by the plaintiffs from Patterson amounted to only $5,480.42. This property, after paying the mortgages of T. J. Templar & Co., would not pay the plaintiffs’ claim. The defendant would certainly not think that this amount of property was too great for the plaintiffs to take to secure their claim, for the defendant attached the whole of it to pay a claim of only $516.

The whole question, then, simply resolves itself into a question of vigilance between creditors, all acting in good faith; and from the time that F. Goodnow & Co.’s claim was created, on April 13, 1880, up to the time that the plaintiffs took possession of the property on June 3, 1880, the entire property was free from all of said mortgages, so far as F. Goodnow & Co. were concerned, and free from all other liens of every nature and description whatsoever, and. F. Good-now & Co. had the power to obtain valid mortgages upon it, providing Patterson was willing, or to commence proceedings to obtain an attachment lien or some other judicial lien, upon it. But they neglected to do so, and on June 3, 1880, the plaintiffs took possession of the property, and with the consent of Patterson appropriated it for the payment of their claims. This gave the plaintiffs a valid lien upon the property in the nature of a pledge independent of the mortgages; and the mere fact that mortgages had previously been executed, we do not think can destroy or invalidate the lien. Indeed, we think the mortgages determine the nature and character of the lien. If the mortgages had been executed at the time that the property was delivered, instead of prior to the acquisition of the property, the description of the property contained in the mortgages would have covered this very identical property, and the title to the property would have passed under and by virtue of the mortgages; and in one sense — and in a very material sense — the mortgages were executed and made effective at the time the property was delivered ; and the property, as the court finds, was delivered under the mortgages. We suppose that if the mortgages had never been executed, the defendant would admit that the plaintiffs obtained a valid lien upon the property in the nature of a pledge which could not be defeated by any attachment or other legal process levied upon the same by the defendant, for such is the law; and the mere fact that the mortgages had previously been executed, we do not think could prevent the plaintiffs from obtaining such lien.

We do not think that the conversation between C. W. Hull and the agent of F. Goodnow & Co. affects the rights of the parties in this case in the least, as there is no pretense but that all the parties acted in good faith.

It also seems that the plaintiffs, when they replevied the property, retained the possession thereof.

The judgment of the court below will be reversed, and the cause remanded with the order that judgment be rendered in favor of the plaintiffs and against the defendant, for the possession of the property.

All the Justices concurring.