Howard v. Rohlfing & Co. , 36 Kan. 357 ( 1887 )

The opinion of the court was delivered by

Horton, C. J.:

The issues in this case were submitted to the trial court with the request that it find the facts specifically, and state its conclusions of law thereon. This was done. An exception was properly taken to the conclusions of law, and error is assigned thereon.

The question is, whether upon the findings of fact the case of Frankhouser v. Ellett, 22 Kas. 127, or Leser v. Glaser, 32 id. 546, controls. In the former case it was decided that —

“The statute authorizes a stipulation in a chattel mortgage for a retention of possession by the mortgagor, and that a possession retained in accordance with the terms of such mortgage is not, when the mortgage is duly filed, per se fraudulent, or even prima facie evidence of fraud as against creditors or subsequent purchasers.”

And it was further decided in that case, that —

“Where a mortgage is given upon a stock of goods, and by agreement outside the mortgage the mortgagor is permitted to continue the business and dispose of the goods in the ordinary way, and use some portion of the proceeds in the support of his family, the transaction will be upheld or condemned according as it is entered into and carried out in good faith, or not. The mortgagor, if he may keep the possession, may as well make the sales as a stranger. He acts, in that respect, as a quasi agent at least of the mortgagee, and as such agent and salesman is entitled to compensation for his services.”

In the latter case it was held that—

“In the case of a chattel mortgage, where the mortgagor is permitted to have the entire possession of the property with the power to sell the same and dispose of the proceeds thereof as he may choose, the mortgage should generally be held to be void as against the mortgagor’s creditors.”

Case, followed. This case comes fully within the principle declared in Frank-Houser v. Ellett. By the terms of the mortgage and the oral agreement entered into between the mortgagor and mortgagees at the time ot the execution ot the mortgage, the mortgagor was to remain in possession of the mortgaged property until the maturity of the note, and sell the goods, wares and merchandise in the ordinary manner; but he was to apply the proceeds thereof toward the payment of the note secured by the mortgage.

In the case of Leser v. Glaser the mortgagors were not only permitted to continue in possession of the mortgaged property, and to sell and dispose of the same in the ordinary course of trade, at retail, but they were permitted to do this without accounting for the proceeds or applying the same in liquidation of the mortgage debts or any other debts.

gage, when not void. It is apparent from the findings, that at the time of the execution of the chattel mortgage in controversy, the parties entered into the same in good faith. Subsequently the mortgagor failed to account for the proceeds from his sales, as he ought to have done; but this does not' 7 ° . render the mortgage void. It may be possible that the mortgagees will be chargeable as against other creditors with the amount sold by the mortgagor, whether applied on their debt or not. (Herman on Chattel Mortgages, 247; Jones on Chattel Mortgages, § 425.)

It is unnecessary, perhaps, to say that the writer of this adheres fully to his views expressed in his dissenting opinion in Frankhouser v. Ellett, on the ground that mortgages of this kind open á wide door for fraud, and therefore should not be favored or upheld; but a majority of the court differ from him in these matters.

The other questions presented are not impoi'tant, and in no event afford any reason for vacating the findings or judgment. The mortgagor was not authorized by the mortgagees to turn over any of the goods to other creditors, or to sell the same in bulk.

The judgment of the district court will be affirmed.

All the Justices concurring.