Mower v. McCarthy

• Decision Date: 14 August 1906
• Citation: 79 Vt. 142,64 A. 578
• Parties: MOWER v. McCARTHY et al.
• Court: Vermont Supreme Court

64 A. 578

79 Vt. 142

MOWER

v. McCARTHY et al.

Supreme Court of Vermont. Chittenden.

Aug. 14, 1906.

Exceptions from Chittenden County Court; John H. Watson, Judge.

Action by Edmund C. Mower, as trustee in bankruptcy of one Arthur McCarthy, against James D. McCarthy and another. There was a verdict and judgment for defendants, and plaintiff brings exceptions. Affirmed.

Argued before ROWELL, C. J., and TYLER, MUNSON, POWERS, and MILES, JJ.

E. C. Mower and Rowell & Powell, for plaintiff. V. A. Bullard and R. E. Brown, for defendants.

TYLER, J. On August 15, 1901, defendant McCarthy loaned his son Arthur $5,000 with which to purchase stock of goods and establish a clothing business in Burlington, and afterwards loaned him $2,000 and $1,000 for the same purpose and took his promissory notes for the several sums. When the $5,000 was furnished Arthur gave the defendant a verbal mortgage upon the stock that was then to be purchased as security for the repayment of that loan and of all future loans that should be made, and it was understood between them that the mortgage should include the fixtures in the store and all goods that should be subsequently purchased to replenish or increase original stock, and that the defendant might, at any time, take possession of the store and goods under his mortgage. Arthur had no capital; he carried on the business with the money loaned him by the defendant from August, 1901, till April, 1903. The defendant and his wife held a lease of the store during the continuance of the business. Arthur paid most of the rent and managed the business in all respects as if it were his own. On April 3, 1903, the defendant, by Brodie, a deputy sheriff, took possession of the store, fixtures, and goods by virtue of his mortgage and upon a writ that be sued out against his son. All the notes were then due and nothing had been paid upon them but $321.82 on the $1,000 note. The defendant claimed that he took possession for the purpose of completing his mortgage, and that the property was rightfully in his possession by virtue thereof at the time it was taken from him by the plaintiff in this suit. The plaintiff claimed that the two McCarthys conspired to defraud the merchandise creditors and to obtain all the property for the defendant and thereby for their mutual benefit. A petition in bankruptcy was filed against Arthur on May 15, 1903, and he was adjudged a bankrupt on June 6th following. He was insolvent at the time of the adjudication and his liabilities were far in excess of his assets. The present action is replevin, in which the plaintiff, as the trustee in bankruptcy of the estate of Arthur, seeks to recover the property described in the writ as belonging to the estate, while the defendant claims it by virtue of his verbal mortgage. Neither of the McCarthys ever informed any of Arthur's creditors of the verbal mortgage nor of the existence of any lien upon the goods. The creditors had been pressing Arthur for payment before the defendant took possession, and the evidence tended to show that some steps had been taken towards making a sale of the bankrupt's stock and of a pro rata division of the proceds among the creditors, and that this was with the defendant's knowledge and sanction. Special verdicts were submitted and the jury found, in substance, as above stated, that by the agreement relative to the verbal mortgage the defendant was to be secured on the goods, furniture, and fixtures for the money advanced by him, also upon all goods that might be added to the stock until the advancements were repaid; that he was to have a right to take possession of the mortgage property whenever he saw fit; that he took possession under his mortgage by his agent, Brodie, April 3, 1903; that he was in possession of the mortgaged property when the writ in this suit was served; that $1,000 worth of the original stock was then on hand; that when the defendant took possession he had reasonable cause to believe that his son was insolvent, but that he did not have reasonable cause to believe that his thus taking possession was intended by his son to give him a preference over other creditors.

1. The agreement made by the McCarthys constituted a common-law mortgage, which is defined to be an absolute sale of the property by the mortgagor to the mortgagee, subject to be redeemed according to the terms of the contract. Hutchins v. King, 1 Wall. (U. S.) 53, 17 L. Ed. 544; Wood v. Dudley, 8 Vt. 430; Blodgett v. Blodgett, 48 Vt. 32. So it was held in Rice's Assignee v. Hulett, 63 Vt. 321, 22 Atl. 75, that the giving of security upon chattels, without delivery, is, in effect, a mortgage at common law and may be valid between the parties, though not in writing. Jones, Chat. Mort. § 2. An unrecorded mortgage is valid between the parties. Gilbert v. Vail, 60 Vt. 261, 14 Atl. 542. It is also held that where, as in the present case, it is stipulated that the mortgagor may, from time to time, sell portions of the mortgaged property and replace it with other property of similar kind and value, and the mortgagee takes possession of it, it is brought under the operation of the mortgage as of the date thereof. Peabody v. Landon, 61 Vt. 318, 17 Atl. 781, 15 Am. St. Rep. 903. And in McCloud v. Wakefield, 70 Vt. 559, 43 Atl. 179, It is held that if there is no stipulation to the contrary, the mortgagee may, at any time, take possession of the mortgaged property, and that, having taken possession of the goods covered by the mortgage hut purchased after its execution and delivery, such goods come under its cover and operation as of its date. Thompson, Trustee, v. Fairbanks, 75 Vt. 361, 56 Atl. 11, goes to the extent of holding that a chattel mortgage on after-acquired property, under which the mortgagee has taken possession of such property with the mortgagor's consent, is valid against the mortgagor's trustee in bankruptcy, in the absence of an express finding that such possession was taken for the purpose of affording a preference, though possession was so acquired within four months prior to the date of the mortgagor's petition in bankruptcy, and with knowledge that the mortgagor was insolvent and contemplating bankruptcy proceedings. This judgment was affirmed In 196 U. S. 516, 25 Sup. Ct. 306, 49 L. Ed. 577. This was the holding in Chase v. Denny, 130 Mass. 506. These decisions go upon the ground that the mortgagee's title to the after-acquired property relates to the date of the mortgage, and that his taking possession is not the acceptance of a preference, but the assertion of a previously acquired right. After the condition of this mortgage had been broken and the mortgagee had taken possession of the mortgaged property, the mortgagor had no interest in the property other than a right to redeem it, and the trustee in bankruptcy had no greater interest therein than the mortgagor. It must therefore be held that, unless the present case is distinguishable from the recent cases decided by this court, the judgment of the trial court must be affirmed.

The rule of law that one cannot convey property that is not in existence at the time of the conveyance, like fish to be caught in the sea (Low v. Pew, 108 Mass. 347, 11 Am. Rep. 357), does not apply here. The findings of the jury were that it was understood between the father and son that the former was to be secured on the goods for the money advanced by him, and that this included whatever goods were in the store at the time of the $5,000 loan and all goods that might thereafter be added to the stock; so it is not made clear whether or not all or any part of the original purchase had then arrived. But, assuming that none had arrived when the first loan was made, it was the intent of the parties that the mortgage should attach to the goods when they were placed in the store, and in this respect the goods originally and subsequently purchased stood precisely alike as being subject to the mortgage. It was held in Bryan v. Lewis, R. & M. 386, 21 E. C. L. 467, that a sale of good to be delivered at a future day, when the seller has not the goods nor any contract for them, but expects to go into the market and buy them, is not a valid contract. But this has been overruled in England, and in this country it is the rule that a person may sell chattels of which he is not, at the time, possessor. 2 Kent (13th Ed.) 468; 24 Am. & Eng. Ency. 1043 and notes. A chattel that has ceased to exist, or that never had an existence, is not the subject of a sale, though an article that has a potential existence, like the natural product or expected increase of property belonging to the seller may be the subject of an executory contract of sale. But no question is raised in the present...