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The case of Brackett v. Harvey, New York Court of Appeals, 1883,1 presents a very interesting point of law in relation to the right of the mortgagor, not only to sell the chattels conveyed by the mortgage, but to re-invest the proceeds of the sale of the mortgaged chattel, the property purchased therewith to be held by the mortgagor subject to the original mortgage.
It is there decided that, 1. "A chattel mortgage of a stock in trade which leaves the mortgagor at liberty to sell, is not necessarily void if the right to sell is conditioned upon the application of the proceeds to the mortgage debt. 2. Nor will the stipulation that the mortgagor may sell upon credit, taking good business paper at sixty or ninety days, render the security void, if it is accompanied by an agreement on part of the mortgagee to receive and apply such paper on the mortgage debt as cash. 3. Nor will a chattel mortgage which provides for periodical renewals be rendered void by the fact that by implication it allows the mortgagee to sell and use the proceeds of sale to replenish the stock, the provision for renewals being intended to cover such additions to the stock."
We will not review the above decision, but will refer to it in a subsequent part of this essay. It is proposed at this point of the subject to notice the history of adjudication,
On the Effect of Mortgages on Subsequently Acquired Property.-And in this connection, the right of the mortgagor, with the consent of the mortgagee, to re-invest in other personal property, to be subject to the mortgage. The history of this question shows some fluctuation in the current of decisions. "It being a rule of the civil law, that, while a mortgage is restrained to certain things, the lien of the mortgage will be extended to all such as may arise or proceed from the thing mortgaged."
The right to growing crops not sown or planted, may pass by the 'mortgage. A person may mortgage the wool that he may have a year hence from his flock of sheep, but not
1 17 Cent. L. J. 112.
Herman on Chattel Mortgages, 86.
on the sheep he afterwards may have. 3 A very eminent writer holds, "qui non habet, ille non dat," which being as fully recognized in the common law as in the civil, is of universal application. Yet the same writer remarks: "There have been of late several conflicting decisions in regard to the right of parties under a mortgage, as to property substituted for that originally encumbered by him as security for the mortgage debt."4 Nothing can be mortgaged which in not in esse.
At law, a mortgage of property, not then in existence, or not belonging to the mortgagor, but to be acquired in futuro, is void as to that property. The authority is ample on this point, and fully cited by Herman.5 There are cases exhibiting much research, learning and ability, in which it has been held that mortgages of after-acquired property are legal. Where the contract relates to particular property reasonably certain to come into existence, necessary to the use of something in existence, in which the mortgagor has an actual interest, so that there is a tangible basis for the contract, such a contract may be upheld in equity. 6
Covenants to Keep up Stock under a Mortgage.-A chattel mortgage upon a stock of goods in store, may covenant that goods shall be put in to keep up the stock, and it will. cover goods so put in. The grantor of a bill of sale assigned to the grantee the whole of the stock-in-trade,-chattels, goods and effects in certain specified premises, and also the stock-in-trade, goods, chattels and effects, which might at any time during the
4 Herman on Chattel Mortgages, 89.
5 Henshaw v. Bank, 10 Gray, 571; Bellows v. Wells, 36 Vt. 599; Gale v. Burnell, 7 Q. B. 850; Head v. Goodwin, 37 Me. 181; Pierce v. Emery, 32 N. H. 484; Otis v. Gill, 8 Barb. 102; Winslow v. Merchants' Ins. Co., 4 Met. 306; Hamilton v. Rogers, 8 Md. 301; Wilson v. Wilson, 37 Md. 1; Pettis v. Kellog, 7 Cush. 456; Barnard v. Eaton, 2 Cush. 294; Codman v. Needham, 3 Cush. 306; Chapin v. Crane. 40 Me. 56; Low v. Pew, 108 Mass. 847; Carpenter v. Simmons, 1 Rob. (N. Y.) 380; Yates v. Olmstead, 65 Barb. 43; Mitnacht v. Kelly, 3 Abb. (N. Y.) App. 301; Single v. Phelps, 20 Wis. 398; Farmers, etc. Co.. v. Commercial Bank, 11 Wis. 207; Chisholm v. Chittenden, 45 Ga. 213 Lunn v. Thornton, 1 C. B. 885; Moody v. Wright, Met. 7; and many other cases which may be found by reference to Herman on Chattel Mortgages, 89.
6 Wright v. Bircher, St. Louis Court of Appeals 1877-6 Cent. L. J. 197.
7 People v. Bristol, 35 Mich. 28; American Cigar v. Foster, 36 Mich. 368; Caldwell v. Pray, 9 Cent. L J. 199, decided June Term, 1879.
continuance of the security, be brought into
loaned them $10,000 additional, and took a deed of trust on the same property. She took these deeds with actual notice of the stipulations of the lease. Bircher entered and took possession of the property in the Bircher building, claiming a lien under the lease for rent in arrears, which was resisted by Nannie M. Wright on the ground that Bircher's lease failed to create a lien on the goods in law or equity. The judgment of the circuit court was in Bircher's favor, which was affirmed by the court of appeals. Held, upon an exhaustive review of the conflicting cases on the subject, that, on the facts stated, the stipulations of Bircher's lease gave him a valid lien on the property subsequently put into his building, which he was entitled to have enforced as a prior lien as against the deeds of trust for the benefit of Nannie M. Wright, taken with notice of such prior lien.9 A chattel mortgage on a stock of goods and fixtures, which provides that the mortgagor may retain possesion of the goods. and sell them in the ordinary course of trade, using a portion of the proceeds realized for
and accounting to the mortgagees for the residue, is valid and binding as to the fixtures, at least, and as to the rest of the goods, fraud will not be presumed; but the question of validity depends upon extrinsic facts, outside of the recitals in the mortgage itself. 10
A chattel mortgage may be made to include future acquisitions of goods to be added to the original stock of goods mortgaged, but the mortgage must expressly provide that such future acquisitions shall be held as included in the mortgage; so, where the mortgage recites that it also schedules and describes the mortgaged goods, the provision that the mortgagor shall keep up the stock of goods, is not sufficient to extend the terms of the mortgage or create an inference of what was intended.11
the annual rent received being $32,000, pay-paying expenses and replenishing the stock, able in monthly payments of $2,660.66, on the last day of each month. The lease contained this provision: "All fixtures, furniture and other improvements shall be bound for the rent and fulfillment of other covenants herein contained on the part of the lessees." And any forfeiture for non-fulfillment of conditions therein, might be enforced at any day or time, however distant, after such failure or default should happen. The concluding stipulation was: "This lease shall commence on the first of the month after the completion of said building, and the blanks shall be filled that day. It is further agreed that connections can be made with the Laclede Hotel." The building was completed August 1, 1873, and the blanks in the lease filled as of date, and the lease duly recorded. In the meantime, the fixtures and furniture in question were placed in the building. February 9, 1874, the Malins borrowed $25,000 of Nannie M. Wright, and gave her a deed of trust on all the personal property in the LacledeBircher Hotel, the name of the combined buildings, to secure it. May 26, 1875, she
8 Lazarus v. Andrews, Eng. High Ct., C. P. Div. 43; 11 Cent. L. J. 336.
We made reference in the beginning of this article, to the case of Brackett v. Harvey, decided by the New York Court of Appeals. in 1883. While it has been shown that large majority of decisions in England and the United States differ from this decision, yet
9 Wright v. Bircher, S. C. Mo., 1880, cited in 12 Cent. L. J. 44.-Opinion by Henry J.
10 Lockwood v. Harding, S. C. Ind., Feb., 1882; 14 Cent. L. J. 158.
11 Phillips v. Both, S. C. Iowa, June, 1882, 12 N. W. Rep. 481, cited in 15 Cent. L. J. 17.
there are many cases of the highest courts by which it has been sustained, and the principle appears a sound one, when no fraud is either apparent, or can be suggested or proven from the history of the case or the circumstances. Finch, J., delivered the opinion of the court, and argues the case with fairness, ability and learning. He does not refer to the abundant authorities on each side of the case, nor review them. He refers to the cases Ford v. Williams, 12 Conkling v. Kelley, 13 Miller v. Lockwood.14 He remarks, "These cases went upon the ground that such sale and application of proceeds is the normal and proper purpose of a chattel mortgage and within the precise boundaries of its lawful operation and effect. It does no more than to substitute the mortgagor as the agent of the mortgagee to do exactly what the latter had a right to do, and what it was his privilege and duty to accomplish. It devotes, as it should, the mortgaged property to the payment of the mortgage debt, and the further doctrine of one of these cases, that under such a stipulation the proceeds, realized by the agent, are to be deemed realized by the principal, and as against an adverse lien, are to be applied on the mortgage debt even though not actually paid over, 15 shows how impossible it is that any fraud, or injury to others, can be imputed to the agreement. " 16 The opinion of the court in the above case refers to the opinion of the same court in a recent case of Southard v. Benner,17 as not being in conflict with the opinion in the case of Brackett v. Harvey.
The application of the proceeds of a mortgage by the mortgagor, may from its face, purport fraud. It was held, a chattel mortgage permitting the mortgagor to remain in possession, and to sell and apply the proceeds, or any part of them, to his own use, is fraudulent and void in law as against creditors. 18
The point involved in the case cited above,
12 24 N. Y. 369.
13 28 N. Y. 360.
14 32 N. Y. 293.
15 Conkling v. Kelly, supra.
16 Cited from 17 Cent. L. J. 113.
17 72 N. Y. 424.
18 Blakeslee v. Bossman, S. C. Wisconsin, in 1878, 6 Cent. L. J. 289; Place v. Longworthy, 13 Wis. 629; Steinart v. Denster, 23 Wis. 136; Herman on Chattel Mortgage, 234, 240, where he cites a large number of cases.
and many of the cases referred to in the note, involves fraud on other creditors, if no fraud exist, however, there are many decisions making such mortgage de facto void.
This very interesting and important question has been so extensively discussed in England and the United States, and with so many conflicting decisions, we deem it expedient to call the attention of the profession to a decision made by the Supreme Court of the United States at the October term, 1874, in the case of Robinson v. Elliott. 19 This case, which arose under the Statute of Frauds, in Indiana, presents the law on this subject with so much fairness, and the opinion delivered by Mr. Justice Davis, being one of such learning and ability, it should be authoritative in every State, unless otherwise controlled by statute.
The Statute of Frauds in Indiana, enacts: Section 10. "That no assignment of goods by way of mortgage, shall be valid against any other person than the person thereto, when such goods are not delivered to the mortgagee, or assignee, and retained by him, unless such assignment or mortgage shall be duly recorded." And in,
Section 21. "That the question of fraudulent intent in all cases, shall be deemed a question of fact."
Held, "A mortgagor of chattel personal may, if the transaction be fair and the mortgage made by him be duly recorded, retain possession of personal chattel."
"But the effect of the statute is not to make every recorded mortgage, which, prior to the statute would have been held fraudulent in law, prima facie valid."
"The recording of the mortgage contemplated by the statute was meant as a substitute for possession, but was not meant to protect a mortgage from all illegal stipulation contained in it."
From the face of the mortgage it further appeared. "And it is hereby expressly agreed, that until default shall be made in the payment of some one of said notes, or some paper in renewal thereof, the parties of the first part may remain in possession of said goods, wares and merchandise, and may sell the same as heretofore, and supply their places with other goods, and the goods substituted by purchase for those sold shall, upon being put into said
19 22 Wallace 513.
store, or any other store in said city where the same may be put for sale by said parties of the first part, be subject to the lien of this mortgage."
"The instrument then concluding with power to the mortgagor upon any default to have the right to enter into said store of the firm and take possession of a sufficient amount of goods to satisfy, pay and discharge all paper due, and have full power and authority, upon ten days public notice, to sell at public auction such amount of said goods as should be necessary to pay said paper."
Held. 1. "That the court was the proper party to say whether, on its face the mortgage was void. 2. That it was void."
This second head note involves the great question connected with the legality of such mortgages. The Indiana statute was copied from 13 Elizabeth, which was recognized in most of the States.
The justice in delivering the opinion of the court in this case says: "If chattel mortgages were formerly, in most of the States, treated as invallid, unless actual possession was surrendered to the mortgagee, it is not so now for modern legislation has, as a general thing, (the cases to the contrary being exceptional) conceded the right to the mortgagor to retain possession if the transaction is on good consideration and bona fide. This concession is in obedience to the wants of trade, which deem it beneficial to the community that the owners of personal property should be able to make bona fide mortgages of it, to secure creditors, without any actual change of possession. But the creditor must take care in making his contract that it does not contain provisions of no advantage to him but which benefit the debtor, and were designed to do so, and are injurious to other creditors."
The court further remarked: "If the mortgagee goes beyond this, and puts into the contract stipulations which have the effect to shield the property of his debtor so that creditors are delayed in the collection of their debt, a court of equity will not lend its aid to enforce the contract."
In reference to the disposition of the property by mortgagor the court draws a very striking distinction which made the mortgage in the present instance prima facie void, without involving, under other circumstances, any feature of fraud, it was in the language of the
court thus: "But there are features engrafted on this mortgage which are not only to the prejudice of creditors, but which show that other consideration than the security of the mortgagee, or their accommodation ever entered into the contract. Both the possession and right of disposition remain with the mortgagors. They are to deal with the property as their own, sell it at retail, and use the money thus obtained to replenish their stock. There is no covenant to account with the mortgagee, nor any recognition that the property is sold for their benefit."
This was the substantial point in the case, here was prima facie fraud, the mortgage created no lien and was therefore no security.
This decision does not conflict with the principle recognized in other cases not cited that the mortgagor may retain possession of the chattels, sell the same and invests in other goods to be considered subject to the mortgage for the benefit of the mortgagee.
There is, if not made otherwise by statute, no conflict on legal or equitable principle in the case of Brackett v. Harvey, and the case of Robinson v. Elliott. The latter case makes a very clear and explicit reference to the case of Southard v. Benner, decided by the same court, which case recognizes the point of apparent fraud in that case, as in Robinson v. Elliott, where the mortgagors, not only retained possession of the chattels, but were allowed to sell them, and appropriate the proceeds of the sale to their individual and family support.
We may safely conclude that the case of Brackett v. Harvey, is not only in accord with the principle of modern decisions on this subject, but that it is sound in law and equity and being among the most recent, may on account of the learning and ability manifested in the opinion of the court be considered a leading case. WM. ARCHER COCKE. Florida.
LIABILITY FOR OVERHOLDING BY
In the contemporaneous cases of London, etc. Ry. Co. v. Hill, and Winans v. Mackenzie, overholding by sub-tenants and underoccupants, has recently given rise to contention, both in this country and in Scotland.
According to our law, where there is a demise of premises, the tenant is impliedly, if not expressly, bound to deliver up possession on the expiration of his term, and therefore, if his under tenants refuse to quit, he will be liable to his landlord for their overholding, as well as for the costs the landlord may incur in obtaining the clear possession.1 So, if the landlord lets the premises in reversion to another, and has to pay damages by reason of having been thus prevented from giving possession, the tenant is liable for damages and costs.2 And in a recent American case we find it held that a lessee can not have his lease set aside and be released from his covenants to pay rent, from the mere fact that a prior tenant, whose term has expired, holds over without right, the lessee, having the right of possession, should take legal steps to obtain possession against such prior tenant.3 Where premises are let to two persons, one of whom, at the end of the term, holds over with the assent of the other, both will be liable for the time during which the one holds over. But, while answerable for the act of his own undertenant, a tenant will not be liable to the rent incurred by the overholding of his co-tenant, if done without his consent, and if he has himself quitted the premises. 5
Now, in London, etc. Ry. Co. v. Hill, it appeared that John Hill had been tenant from year to year to the plaintiffs, and sublet a portion of the premises to a sub-tenant. John Hill died in October, 1879, and the defendant, his widow, having taken out administration to him, went into possession of the premises, subject to the sub-tenancy. The plaintiffs, having served a notice to quit, which expired on the 1st of February, 1880, demanded possession. The defendant was unable to give up possession of the sublet portion of the premises, as the sub-tenant refused to leave, his term not having expired, but she offered possession of the remainder, which the plaintiffs declined to accept, and the defendant
1 Henderson v. Squire, L. R. 4 Q. B. 170; 38 L. J. Q. B. 73; Ibbs v. Richardson, 9 A. & E. 849; 1 Per. & Dav. 618; Harding v. Crethorn, 1 Esp. 57; 23 & 24 Vic., c. 154, s. 42.
2 Bramley v. Chesterton, 2 C. B. N. S. 592; 27 L. J. C. P. 23.
3 Field v. Herrick, 101 Ill. 110.
4 Christy v. Tancred, 7 M. & W. 127; 9 Id. 438; Tan
cred v. Christy, 12 Id. 316.
5 Draper v. Crofts, 15 M. & W. 166.
6 Q. B. D., May 16, 1883.
thereupon, on the expiry of the notice to quit abandoned the premises. Possession was subsequently recovered by the plaintiffs, in an action of ejectment against the defendant and the sub-tenant. Thereupon the plaintiffs brought an action against the defendant to recover damages, including the costs of the ejectment, treating her as personally liable as a trespasser and wrong-doer, claiming substantially in the form used in actions of trespass for mesne rates, and not proceeding against her for use and occupation. The defense was based on the fact that the defendant assumed possession solely and properly in her administrative capacity; and, the plaintiffs having demurred, the question was whether the administratrix was liable in the same manner as the intestate himself would have been liable, by reason of the overholding of the sub-tenant. Clearly, he would have been liable for the damages arising from his landlord being kept out of possession and being put to the costs of an ejectment, on the authorities cited; and no doubt, as May, C. J., remarked, "if a tenant creates a sub-tenancy, which occasions loss and damage to his landlord, it seems perfectly just that he should be responsible for such consequences." And if the action had been brought against the defendant as administratrix, in order to recover damages out of the assets, the case would have worn another aspect. But then, the case of Henderson v. Squire,7 was pressed, as supporting the plaintiffs' right to recover. "It is to be observed," said Johnson, J., "that in that case the first count was in trespass for mesne rates, the second for breach of contract to give up possession; to the first count the defendant pleaded not guilty, but to the second count, payment into court of 40s. The plaintiff proceeded for damages ultra this 40s., and at the trial a verdict was directed for the defendant, with leave to the plaintiff to move to enter the verdict on the second, or contract count be it observed, for the increased damage proved at the trial; and accordingly, after argument, the verdict was entered for the increased damage, on the contract count, pursuant to the leave reserved." In the present case, he added, "the way in which this action is framed is matter of substance, not of form, and if the defendant was sued for breach of
7 Ubi supra.