Klaus v. Majestic Apartment House Co. ( 1915 )

Opinion by

Mr. Justice Mestrezat,

The facts are fully set forth in the case stated and summarized in the opinion of the court below. The discussion of the questions involved in the case by the learned judge in his opinion needs but little amplification on these appeals. The fund for distribution is the proceeds of personal property and we agree with the court’s conclusion that the execution creditors must be first paid out of it in preference to the mortgage creditors, and that the balance of the fund is applicable to the first mortgage.

The contention that the first mortgage covers the personal property in the hotel as part of the hotel plant and hence realty cannot be sustained. We have carefully examined all the decisions cited by th< appellant but they do not support the proposition as applied to the facts of the present case. Where the facts of those cases are at all similar to the facts of this case the decision sus-1 tains the conclusion of the trial court. ’After a very thorough examination of our decisions we do not find even a suggestion in any of them that would warrant us in holding with the appellant that as against execution , creditors the furniture, household furnishings, table- j ware, etc., used in the hotel, are part of the real estate ■ and as such bound by the lien of a mortgage on the;, premises. The doctrine of fixtures has not yet been carried to that extent in this State.

The contention that the Act of April 17, 1876, Sec. 36, P. L. 30, 2 Purd. 1847, .authorizes a hotel company to mortgage its furniture and other personal property is equally untenable. This clearly appears from the language of the statute. The act empowers a hotel company, inter alia, to take and hold “all thÉ buildings, lots of lands, premises and appurtenances necessary to the successful maintenance in carrying on of such business, ...... to hold and erect such buildings, fixtures and appurtenances, and procure such furniture and equipments, as may be necessary for the success of its business.” The act then provides that the company may borrow money, and “secure the same by mortgage upon the said lots, buildings and fixtures and appurtenances.” It is apparent that the act differentiates “fixtures and appurtenances” from “furniture and equipments.” While the act empowers a company to acquire “furniture and equipments” for the hotel, no authority is conferred on the company to mortgage or pledge the “furniture and equipments” to secure the payment of its indebtedness. The Act of May 21, 1889, P. L. 257, conferred no such authority, and hence the njortgage of 1902 created no lien on the company’s personal property.

We are of opinion that the Act of April 22,1905, P. L. 280, 5 Purd. 5340, does not authorize a mortgage of personalty by a corporation without change of possession of the property, and therefore the Security Trust Company did not have a lien on the personal property in the hotel of the Majestic Apartment House Company which gave it a preference over the execution creditors in the fund for distribution. The title to the act is “An act to amend section 1 of the act, entitled ‘An act to provide for increasing the capital stock and indebtedness of corporations,’ approved the ninth day of February, Anno Domini one thousand nine hundred and one; and authorizing corporations to increase their capital stock and indebtedness, and secure the payment of principal and interest of their indebtedness.” The act must be construed, as suggested in the argument, in the light of the law as it existed at the time of the enactment and in view of the settled policy of the State. While recent legislation has provided for mortgaging certain species of personal property, chattel mortgages have been generally regarded as inimical to the public policy of the State and void as to execution creditors. Prior to the act all mortgages of real estate were required to be recorded to give priority of lien, but the general recording acts do not extend to writings concerning personal property: Fitler v. Shotwell, 7 W. & S. 14. Statutes authorizing a mortgage on lumber, oil and other chattels disclose in clear and specific terms their purpose, and provide for recording the mortgages. The Act of 1905 is neither specific nor plain in its terms as to what may be mortgaged and makes no provision for recording the mortgage, and if it is to be considered as complete in itself a mortgage of real'or personal property or both of such corporation would be entitled to a lien as against other creditors without being recorded. There being no statutory provision requiring the recording of a mortgage of such personal property, the recording of the instrument would not be notice to any one. We think it was the legislative intent that the indebtedness of such company should be secured in the usual and established way as provided by existing law by recording a mortgage or deed of trust on real estate and by a pledge on. personal estate accompanied by possession taken by the pledgee. The language of Agnew, J., in Roberts’ and Pyne’s App., 60 Pa. 400, interpreting an act authorizing certain corporations to borrow money is applicable to the present case. He says (p. 403); “Chattel mortgages and sales which leave the property in possession of the debtor, are against policy and void against execution-creditors. Then what evidence have we in the act itself that it was the intention of the legislature to uproot this ancient and wise policy? Certainly none, but the use of a word of wide meaning, and which might have been readily used in reference to a kind of property in the mind of the penman which was the common subject of mortgages. On the other hand, the omissions of the act tell strongly against the wide meaning asked for it. There is no provision for recording such a mortgage, or for a remedy upon it.” We may conclude this branch of the case in the language of the learned trial judge: “This Act of 1905 by its title makes no pretense of changing the law on the subject of chattel mortgages and the rights of creditors, and does not purport to make any change in the policy of the law of Pennsylvania on this subject. The plain meaning of the act is that a corporation is relieved from the limitation heretofore existing upon the amount of the indebtedness as compared to this capital stock, and, second, that a corporation may borrow money upon a mortgage of its real estate, or by a deed of trust, or by a pledge or conveyance of any of its real or personal property. The necessary meaning of the act in view of the words of its title is,that it must do so in the manner now prescribed by law, to wit, if it is a mortgage of real estate, to be valid as against subsequent purchasers and judgment, that mortgage must be recorded. If, on the other hand, it is to be a pledge of its personal property, to be valid as against creditors the pledge must be made in accordance with the established law, and as the nature of the word implies, the possession of the personal property must be given to the pledgee.”

Our interpretation of the Act of 1905 does not require us to pass upon its constitutionality.

The learned judge of the court below correctly held that the balance for distribution in excess of the claims of the execution creditors was applicable to the first mortgage. He based his conclusion, as he says in his opinion, on the ground that the second mortgage was, in express terms, made subject to the lien of the first mortgage, the holders of the second mortgage bonds having waived any objection which might otherwise have been urged against the validity of the first mortgage bonds. By the case stated it appears that “said second mortgage, by its recitals, as well as by the granting clause thereof, showed that it was to be second in lien, however, to a prior mortgage of one million dollars, dated November 20,1902.”

The fund for distribution is the proceeds of personal property, which was included in both mortgages, but on which neither was a lien as against execution creditors. The pledges were good and enforceable between the mortgagor and mortgagees. When the second mortgage was taken, the mortgagee had notice that the property had been pledged by a first mortgage, and expressly agreed that the latter should have priority over the second mortgage. The manifest intention of the mortgagor and the mortgagee in the second mortgage, therefore, was that the first mortgage bonds should first be paid out of the real as well as the personal property included in the mortgage, a part of which was personalty and its proceeds are now being distributed. The second mortgage bondholders knew that the property had already been pledged to secure an indebtedness of the mortgagor, and accepted the property as a pledge for the debt subject to the prior indebtedness. The court cannot confer on these bondholders rights which they expressly waived. In the language of Williams, J., in Fidelity Ins. Trust & Safe Deposit Co. v. West Penn. & Shenango Connecting Railroad Co., 138 Pa. 494, 505; “The judgment of the court below left them in na^orse position than that which they voluntarily assume^ and they have no right to ask us to place them in a better one.”

Our conclusion is sustained by numerous authorities among which are Seldon’s App., 74 Pa. 323; Fidelity Ins. Trust & Safe Deposit Co. v. West Penn. & Shenango Connecting Railroad Co., 138 Pa. 494; 17 Cyc. of Law & Proc. 1168 and cases cited in the notes.

The judgment is affirmed.