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CHATTEL MORTGAGE STOCK IN TRADE-RIGHT OF MORTGAGEE TO SELL AND RE-INVEST UNDER THE MORTGAGE.
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
$ the premises, either in addition to or in sub- deed of trust on the same property. She took stitution for the stock-in-trade, goods, chat- these deeds with actual notice of the stipulatels and effects therein at the time of the tions of the lease. Bircher entered and took making of the bill of sale. Held, by Lopes, possession of the property in the Bircher J., that the property in the stock-in-trade building, claiming a lien under the lease for brought upon the premises subsequently to rent in arrears, which was resisted by Nannie making the bill of sale, passed by it to the M. Wright on the ground that Bircher's lease grantee. 8 The above was an ably-argued failed to create a lien on the goods in law or case, and decided after mature consideration. equity. The judgment of the circuit court
The following is a very striking case and was in Bircher's favor, which afdemands careful consideration, on the valid- firmed by the court of appeals. Held, ity of liens upon personal property to be upon an exhaustive review of the conflictafterwards acquired. Bircher was the owner ing cases on the subject, that, on the of a six-story building in St. Louis, adjoining facts stated, the stipulations of Bircher's the Laclede Hotel, and on February 7, 1873, lease gave him a valid lien on the property while work was in progress to convert it into subsequently put into his building, which he a hotel, leased it to John W. and Walter was entitled to have enforced as a prior lien Malin, to be used by them, when completed, as against the deeds of trust for the benefit of as a hotel. At that date, there were no fixt- Nannie M. Wright, taken with notice of such ures or furniture in the building, but they prior lien.9 A chattel mortgage on a stock of were to be put in thereafter by the Malips, goods and fixtures, which provides that the and were actually placed in the building in mortgagor may retain possesion of the goods July, 1873. The term of the lease was ten and sell them in the ordinary course of trade, years, commencing on the - of
- -, 187, using a portion of the proceeds realized for the annual rent received being $32,000, pay- paying expenses and replenishing the stock, able in monthly payments of $2,660.66, on and accounting to the mortgagees for the res.' the last day of each month. The lease con- idue, is valid and binding as to the fixtures, tained this provision: "All fixtures, furni“
at least, and as to the rest of the goods, fraud ture and other improvements shall be bound will not be presumed; but the question of for tile rent and fulfillment of other covenants validity depends upon extrinsic facts, outside herein contained on the part of the lessees.” of the recitals in the mortgage itself. 10 And any forfeiture for non-fulfillment of con- A chattel mortgage may be made to include ditions therein, might be enforced at any day future acquisitions of goods to be added to or time, however distant, after such failure or the original stock of goods mortgaged, but default should happen. The concluding stip- the mortgage must expressly provide that such ulation was: “This lease shall commence on future acquisitions shall be held as included the first of the month after the completion of in the mortgage; so, where the mortgage resaid building, and the blanks shall be filled cites that it also schedules and describes the that day. It is further agreed that connec- mortgaged goods, the provision that the morttions can be made with thc Laclede Hotel.” gagor shall keep up the stock of goods, is not The building was completed August 1, 1873,
sufficient to extend the terms of the mortgage and the blanks in the lease filled as of date, or create an inference of what was intended. 11 and the lease duly recorded. In the mean
We made reference in the beginning of this. time, the fixtures and furniture in question article, to the case of Brackett v. Harvey, were placed in the building. February 9,
decided by the New York Court of Appeals. 1874, the Malins borrowed $25,000 of Nan
in 1883. While it has been shown that a large nie M. Wright, and gave her a deed of trust on
majority of decisions in England and the all the personal property in the Laclede- United States differ from this decision, yet Bircher Hotel, the name of the combined
9 Wright v. Bircher, S. C. Mo., 1880, cited in 12 buildings, to secure it. May 26, 1875, she
Cent. L. J. 44.-Opinion by Henry J.
10 Lockwood v. Harding, s. C. Ind., Feb., 1882; 14
Cent. L. J. 158. 8 Lazarus v. Andrews, Eng. High Ct., C. P. Div. 43; 11 Phillips v. Both, s. C. Iowa, June, 1882, 12 N. W. 11 Cent. L. J. 336.
Rep. 481, cited in 15 Cent. L. J. 17.
there are many cases of the highest courts and many of the cases referred to in the note, by which it has been sustained, and the prin- involves fraud on other creditors, if no fraud ciple appears a sound one, when no fraud is exist, however, there are many decisions makeither apparent, or can be suggested or proven ing such mortgage de facto void. from the history of the case or the circum- This very interesting and important quesstances. Finch, J., delivered the opinion of tion has been so extensively discussed in the court, and argues the case with fairness, England and the United States, and with so ability and learning. He does not refer to many conflicting decisions, we deem it expethe abundant authorities on each side of the dient to call the attention of the profession to case, nor review them. He refers to the a decision made by the Supreme Court of the cases Ford v. Williams, 12 Conkling v. Kel- United States at the October term, 1874, in ley, 13 Miller v. Lockwood.11 He remarks, the case of Robinson v. Elliott. 19 “These cases went upon the ground that such which arose under the Statute of Frauds, in sale and application of proceeds is the normal Indiana, presents the law on this subject and proper purpose of a chattel mortgage with so much fairness, and the opinion de. and within the precise boundaries of its lawful livered by Mr. Justice Davis, being one of operation and effect. It does no more than such learning and ability, it should be auto substitute the mortgagor as the agent of the thoritative in every State, unless otherwise mortgagee to do exactly what the latter had controlled by statute. a right to do, and what it was his privilege
The Statute of Frauds in Indiana, enacts: and duty to accomplish. It devotes, as it Section 10. "That no assignment of goods should, the mortgaged property to the pay- by way of mortgage, shall be valid against ment of the mortgage debt, and the further any other person than the person thereto, doctrine of one of these cases, that under when such goods are not delivered to the such a stipulation the proceeds, realized by mortgagee, or assignee, and retained by him, the agent, are to be deemed realized by the
unless such assignment or mortgage shall be principal, and as against an adverse lien, are
duly recorded." And in, to be applied on the mortgage debt even
Section 21. “That the question of fraudu. though not actually paid over, 15 shows how lent intent in all cases, shall be deemed a impossible it is that any fraud, or injury to question of fact.” others, can be imputed to the agreement.” 16 Held, “A mortgagor of chattel personal
The opinion of the court in the above case may, if the transaction be fair and the mortrefers to the opinion of the same court in a gage made by him be duly recorded, retain recent case of Southard v. Benner, 17 as not possession of personal chattel.” being in conflict with the opinion in the case
"But the effect of the statute is not to of Brackett v. Harvey.
make every recorded mortgage, which, prior The application of the proceeds of a mort
to the statute would have been held fraudugage by the mortgagor, may from its face, lent in law, prima facie valid.” purport fraud. It was held, a chactel "The recording of the mortgage contemmortgage permitting the mortgagor to remain plated by the statute was meant as a substi- . in possession, and to sell and apply the pro- tute for possession, but was not meant to ceeds, or any part of them, to his own use, is protect a mortgage from all illegal stipulation fraudulent and void in law as against credi
contained in it.”
From the face of the mortgage it further apThe point involved in the case cited above, peared. "And it is hereby expressly agreed,
that until default shall be made in the payment 12 24 X. Y. 369.
of some one of said notes, or some paper in re18 28 Y. Y. 360. 11 32 N. Y. 293.
newal thereof, the parties of the first part 15 Conkling v. Kelly, supra.
may remain in possession of said goods, wares 16 Cited from 17 Cent. L. J. 113.
and merchandise, and may sell the same as 17 72 N. Y. 424. 18 Blakeslee v. Bossman, S. C. Wisconsin, in 1878,
heretofore, and supply their places with other 6 Cent. L. J. 289; Place v. Longworthy, 13 Wis. 629; goods, and the goods substituted by purchase Steinart v.
Denster, 23 Wis. 136; Herman on Chattel for those sold shall, upon being put into said Mortgage, 234, 240, where he cites a large number of cases.
19 22 Wallace 513.
store, or any other store in said city where court thus: “But there are features engrafted the same may be put for sale by said parties on this mortgage which are not only to the preof the first part, be subject to the lien of this judice of creditors, but which show that other mortgage.”
consideration than the security of the mort“The instrument then concluding with gagee, or their accommodation ever entered power to the mortgagor upon any default to into the contract. Both the possession and have the right to enter into said store of the right of disposition remain with the mortfirm and take possession of a sufficient gagors. They are to deal with the property amount of goods to satisfy, pay and discharge as their own, sell it at retail, and use the all paper due, and have full power and au- money thus obtained to replenish their stock. thority, upon ten days public notice, to sell There is no covenant to account with the at public auction such amount of said goods mortgagee, nor any recognition that the as should be necessary to pay said paper.” property is sold for their benefit." Held. 1. “That the court was the proper
This was the substantial point in the case, party to say whether, on its face the mortgage here was prima facie fraud, the mortgage crewas void. 2. That it was void.”
ated no lien and was therefore no security. This second head note involves the great
This decision does not conflict with the question connected with the legality of such principle recognized in other cases not cited mortgages. The Indiana statute was copied that the mortgagor may retain possession of from 13 Elizabeth, which was recognized in the chattels, sell the same and invests in other most of the States.
goods to be considered subject to the mortThe justice in delivering the opinion of the gage for the benefit of the mortgagee. court in this case says: “If chattel mortgages
There is, if not made otherwise by statute, were formerly, in most of the States, treated no conflict on legal or equitable principle in as invallid, unless actual possession was sur- the case of Brackett v. Harvey, and the case rendered to the mortgagee, it is not so now
of Robinson Elliott. The latter case for modern legislation has, as a general thing, makes a very clear and explicit reference to (the cases to the contrary being exceptional) the case of Southard v. Benner, decided by conceded the right to the mortgagor to re- the same court, which case recognizes the tain possession if the transaction is on good point of apparent fraud in that case, as in Robconsideration and bona fide. This concession inson v. Elliott, where the mortgagors, not is in obedience to the wants of trade, which only retained possession of the chattels, but deem it beneficial to the community that the were allowed to sell them, and appropriate owners of personal property should be able to the proceeds of the sale to their individual and make bona fide mortgages of it, to secure cred- family support. itors, without any actual change of posses- We may safely conclude that the case of sion. But the creditor must take care in Brackett v. Harvey, is not only in accord making his contract that it does not contain with the principle of modern decisions on this provisions of no advantage to him but which subject, but that it is sound in law and equity benefit the debtor, and were designed to do and being among the most recent, may on acso, and are injurious to other creditors.” count of the learning and ability manifested
The court further remarked: “If the mort- in the opinion of the court be considered a gagee goes beyond this, and puts into the con- leading case.
WM. ARCHER COCKE. tract stipulations which have the effect to shield Florida. 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 en- LIABILITY FOR OVERHOLDING BY force the contract.”
UNDER-TENANTS. In reference to the disposition of the property by mortgagor the court draws a very In the contemporaneous cases of London, striking distinction which made the mortgage etc. Ry. Co. v. Hill, and Winans v. Mackenin the present instance prima facie void, with- zie, overholding by sub-tenants and underout involving, under other circumstances, any occupants, has recently given rise to contenfeature of fraud, it was in the language of the tion, both in this country and in Scotland.
According to our law, where there is a demise thereupon, on the expiry of the notice to quit of premises, the tenant is impliedly, if not abandoned the premises. Possession was subexpressly, bound to deliver up possession on sequently recovered by the plaintiffs, in an the expiration of his term, and therefore, if action of ejectment against the defendant and his under tenants refuse to quit, he will be
the sub-tenant. Thereupon the plaintiffs liable to his landlord for their overholding, as brought an action against the defendant to well as for the costs the landlord may incur recover damages, including the costs of the in obtaining the clear possession. So, if the ejectment, treating her as personally liable as landlord lets the premises in reversion to an- a trespasser and wrong-doer, claiming subother, and bas to pay damages by reason of stantially in the form used in actions of treshaving been thus prevented from giving pos- pass for mesne rates, and not proceeding session, the tenant is liable for damages and against her for use and occupation. The decosts.2 And in a recent American case we
fense was based on the fact that the defendfind it held that a lessee can not have his lease ant assumed possession solely and properly in set aside and be released from his covenants
her administrative capacity; and, the plaintto pay rent, from the mere fact that a prior iffs having demurred, the question was tenant, whose term has expired, holds over
whether the administratrix was liable in the without right, the lessee, having the right of same manner as the intestate himself would possession, should take legal steps to obtain have been liable, by reason of the overholding possession against such prior tenant.3 Where of the sub-tenant. Clearly, he would have premises are let to two persons, one of whom,
been liable for the damages arising from his at the end of the term, holds over with the
landlord beirg kept out of possession and beassent of the other, both will be liable for the ing put to the costs of an ejectment, on the time during which the one holds over. 4 But,
authorities cited ; and no doubt, as May, C. while answerable for the act of his own under. | J., remarked, "if a tenant creates a sub-tentenant, a tenant will not be liable to the rent ancy, which occasions loss and damage to his incurred by the overholding of his co-tenant, landlord, it seems perfectly just that he if done without his consent, and if he has him
should be responsible for such consequences.” self quitted the premises.
And if the action had been brought against Now, in London, etc. Ry. Co. v. Hill, 6 it
the defendant as administratrix, in order to appeared that John Hill had been tenant from recover damages out of the assets, the case
would have worn another aspect. year to year to the plaintiffs, and sublet a
But then, portion of the premises to a sub-tenant. John
the case of Henderson v. Squire,? was pressHill died in October, 1879, and the defendant, ed, as supporting the plaintiffs' right to rehis widow, having taken out administration to cover. “It is to be observed,” said Johnson, him, went into possession of the premises, J., “that in that case the first count was in subject to the sub-tenancy. The plaintiffs,
trespass for mesne rates, the second for having served a notice to quit, which expired
breach of contract to give up possession; to on the 1st of February, 1880, demanded pos
the first count the defendant pleaded not session. The defendant was unable to give guilty, but to the second count, payment into up possession of the sublet portion of the
court of 40s. The plaintiff proceeded for premises, as the sub-tenant refused to leave, damages ultra this 40s., and at the trial a his term not having expired, but she offered verdict was directed for the defendant, with possession of the remainder, which the plaint
leave to the plaintiff to move to enter the veriffs declined to accept, and the defendant
dict on the second, or contract count be it
observed, for the increased damage proved at 1 Henderson v. Squire, L. R. 4 Q. B. 170; 38 L. J.Q. the trial; and accordingly, after argument, B. 73; Ibbs v. Richardson, 9 A. & E. 849; 1 Per. &
the verdict was entered for the increased Dav. 618; Harding v. Crethorn, 1 Esp. 57; 23 & 24 Vic., c. 157, s. 42.
damage, on the contract count, pursuant to 2 Bramley v. Chesterton, 2 C. B. N. S. 592; 27 L. J. the leave reserved.” In the present case, he C. P. 23.
added, "the way in which this action is 3 Field v. Herrick, 101 III. 110.
4 Christy v. Tancred, 7 M. & W. 127; 9 Id. 438; Tan- framed is matter of substance, not of form, cred v. Christy, 12 Id. 316.
and if the defendant was sued for breach of 5 Draper v. Crofts, 13 M. & W. 166. 6 Q. B. D., May 16, 1883.
7 Ubi supra.