Clement, Bane & Co. v. Hartzell , 57 Kan. 482 ( 1896 )

Martin, C. J.

1. Mortgage not fraudulent because property worth more than debt. I. The finding of the Court being general in favor of the defendant, the judgment based thereon must be affirmed if there is any evidence in the record fairly tending to impeach the validity of the mortgage executed by Latsbaugh to Clement, Bane & Co. ; otherwise it must be reversed. Counsel for the plaintiffs argue at length that the value of the property securing their claim was not excessive, and even if so, the validity of their chattel mortgage would not be affected by reason thereof. Counsel for defendant say that the question of excessive security was considered by the trial court only incidentally, and they do not seem to rely upon this point. It appears to be well settled that a chattel mortgage is not rendered per se either void or voidable because it covers more property than enough to secure the debt, in the present case Earhart supposed the value of the mortgaged property to be about double the amount of the past-due indebtedness upon the account and the promissory note just maturing; but, as the mortgage was intended also to secure the amount of the order for spring goods, placed at about $1,800, it could scarcely be contended that the security was excessive. It is a matter of common knowledge that a stock of goods closed out at a mortgagee’s or a sheriff’s sale will not generally bring anything near its cost price, and before the trial of this case the goods had been sold, presumably to the best advantage, for $4,040; a sum not greatly in excess of the past-due indebtednss to Clement, Bane & Co. after the payment of costs and expenses, and not nearly sufficient to secure them if the order for the spring goods had been filled as contemplated at the time the chattel mortgage was executed. In Miller v. Krueger, 36 Kan. 344, 348, the mortgagee supposed that the value of the property mortgaged was about double the amount of the indebtedness secured thereby, although on the trial the jury found the value of the property to be less than the amount of the debt; and it was held that the fact that the mortgagee overestimated tlie value of the property did not render the mortgage void. The mere fact that the security given is more than necessary does not of itself establish fraud. Some of the cases hold that it is not even a badge or indication of fraud; yet we are not prepared to say that the security might not be so excessive as to cast suspicion upon the good faith of the transaction to the extent of requiring an explanation. Downs v. Kissam, 10 How. 102, 108; Grand Island Banking Co. v. Costello, 45 Neb. 119, 140; Kilpatrick-Koch Dry Goods Co. v. Strauss, 45 id. 793.

II. It is said in the brief of the defendant’s counsel :

"The real contention by the defendant was that the giving of the mortgage for $1,800 of debt which did not exist, the concealment of such fact from plaintiff’s own attorney, and from Richardson and Stallard, officers of the Sedan National Bank, in connection with many other material facts and circumstances surrounding the transaction, showed bad faith on the part of the parties to the mortgage, and proved that Latsbaugh and Earhart cooperated and conspired together to hinder, delay and defraud the Sedan National Bank, and all other creditors of Latsbaugh.”

2. Not fraudulent because apparent debt covers future advances. The principal point relied upon by the defendant is that the chattel mortgage was given for a sum about $1,800 greater than the existing indebtedness. If the proof tended to show inclusion of this extra sum was fraudulent on the part of the plaintiff, and for the purpose of covering up Latsbaugh’s property with a pretended claim in order to hinder or delay other creditors, this would render the mortgage void as against him. Wallach v. Wylie, as Sheriff, 28 Kan. 138, 152, 153; Winstead, Sheriff, v. Hulme, 32 id. 568, 575. We fail, however, to find in the record any evidence of such fraudulent intent. The spring goods appear to have been ordered in good faith, and presumably would have been forwarded soon had it not been for the action of other creditors in pressing their claims. The fact that a mortgage given by an insolvent person secures a greater sum than is actually due is not conclusive evidence of fraud, but is subject to explanation (Bush v. T. G. Bush & Co., 33 Kan. 556, 567; Corbin v. Kincaid, 33 id. 649, 652); and a chattel mortgage may be lawfully given to secure future advances. Jones, Chat. Mort. §94, and cases cited. It cannot be extended as against a creditor of such mortgagor to cover advances not contemplated at the time of its execution (Sims v. Mead, 29 Kan. 124); but a mortgage on a stock of goods for $1,500 was sustained by this Court although the sum of $1,000 only was advanced at the execution of the mortgage, the remainder being paid soon thereafter. Mercantile Co. v. Burson, 38 Kan. 278. And in another case it was held by this Court that the giving of a mortgage for a larger sum than was loaned thereon and with a view of covering future loans up to the amount of the mortgage, is not conclusive evidence of fraud, but is open to explanation as to the good or bad faith of the parties to the transaction. Allen v. Fuget, 42 Kan. 672. And where a chattel mortgage was made to secure in part a valid debt and in part money advanced upon an illegal contract, this Court held that it might be enforced to the extent of the valid debt although void as to the residue, the illegal part being separable from that which was unobjectionable (Rathbone v. Boyd, 30 Kan. 485, 489); and, this being so, we see no good reason against the securing of an existing debt and a contingent liability by the same chattel mortgage.

Considerations of much weight have been suggested against the validity of chattel mortgages given to secure future advances without truly disclosing the nature of the transaction, or under an appearance of an existing indebtedness, as in this case. Doubtless much trouble and litigation would be avoided if chattel mortgages were so drawn as to state fully and explicitly the nature of the obligations that they are given to secure; but the weight of authority appears to establish the doctrine that it is only necessary that the debts secured be described with such certainty as to enable creditors to ascertain, either from the condition of the mortgage or by inquiry aliunde, the extent of the incumbrance; and that the mortgage may be in the form of a security for the payment of a certain sum, leaving the true nature of the transaction to be shown by parol proof. Jones, Chat. Mort., §96 and authorities cited; Berry v. O’Connor, 33 Minn. 29; Griffin v. New Jersey Oil Co., 3 Stock. (N. J. Eq.) 49. The Supreme Court of California held, in Tully v. Harloe, 35 Cal. 302, that a note and mortgage given in good faith for a greater sum than is due by the mortgagor to the mortgagee, to secure both a present indebtedness and future advances to be made by the mortgagee, is not fraudulent in law as to the creditors of the mortgagor because given for a greater sum than is due, even though the mortgage does not express upon its face that the excess is for future advances ; and that such mortgage need not express its object upon its face although it would be better that it do so.

3. Right of bonafide creditor. III. The knowledge of Earhart that Latsbaugh was largely indebted to the Sedan National Bank and others is imputable to the plaintiffs ; but it was permissible for them to secure a preference over all other creditors, and_ this they did by obtaining a chattel mortgage and having it filed for record. National Bank v. Ridenour, 46 Kan. 718. They were under no obligation to disclose to their attorney anything more than was necessary for his information in drawing the notes and the mortgage, nor to tell the officers of the Sedan National Bank what they had done or what they were going to do. No relation whatever existed between the plaintiffs and the Bank requiring any disclosure by the former to the latter. If the Bank had relied upon its chattel mortgage, it may be that Earhart had sufficient notice of its existence to put him and the plaintiffs upon inquiry as to its terms and thus cure its want of registry, and so the claim of the Bank might have been entitled to priority over that of the plaintiffs; but the Bank chose to rely upon an attachment lien of a later date than that conferred by the chattel mortgage of the plaintiffs, and we cannot consider what rights the Bank might have obtained under its chattel mortgage. This disposes of the only specific objections raised against the validity of the chattel mortgage given to the plaintiffs, and we need not. consider any other. We will say, however, that the evidence affirmatively shows that the indebtedness of Latsbaugh to the plaintiffs was bona fide, the order taken for the spring goods was in the usual course of business, and we see nothing whatever indicating any other purpose on the part of the plaintiffs than to secure the past indebtedness and that which would accrue by the filling of the order for spring goods.

4. Nothing covered not within terms of description. IV. The plaintiffs replevied, with the other goods, 437 pairs of men’s, boys’, women’s and children’s boots, shoes, slippers, rubbers and arctics, and some other articles perhaps not covered by the plaintiffs’ chattel mortgage. Earhart testified that boots axxd shoes did not come within the description of clothing or furnishing goods. The description of the stock in the mortgage is restrictive, and the plaintiffs obtained no right to goods not within its terms. On another trial this branch of the case will no doubt receive the further consideration of the trial court.

The judgment must be reversed, and the case remanded for a new trial.

All the Justices concurring.