Adams Machinery, Inc., In re

• Citation: 19 Wis.2d 340,120 N.W.2d 114
• Parties: In the Matter of the Voluntary Assignment of ADAMS MACHINERY, INC. HOME SAVINGS BANK, Plaintiff-Appellant, v. Paul L. MOSKOWITZ, Receiver for Adams Machinery, Inc., Defendant-Respondent.
• Decision Date: 05 March 1963
• Court: United States State Supreme Court of Wisconsin

Page 114

120 N.W.2d 114

19 Wis.2d 340

In the Matter of the Voluntary Assignment of ADAMS MACHINERY, INC. HOME SAVINGS BANK, Plaintiff-Appellant, v. Paul L. MOSKOWITZ, Receiver for Adams Machinery, Inc. Defendant-Respondent.

Supreme Court of Wisconsin.

March 5, 1963.

Glassner, Clancy & Glassner, Milwaukee, for appellant.

Herman E. Friedrich, Milwaukee, Michael, Best & Friedrich and Frank C. DeGuire, Milwaukee, of counsel, for respondent.

HALLOWS, Justice.

The question is whether the chattel mortgage covering these 3 pieces of machinery was a mortgage of a stock of goods within the purview of sec. 241.14, Stats. The receiver contends if specific personal property is in fact part of a stock of goods, the chattel mortgage thereon is a mortgage of a stock of goods regardless of how the property is described or designated in the mortgage and if the mortgagor is permitted to sell the property and apply the proceeds on the debt, sec. 241.14, applies.

All chattel mortgages of personal property are required by sec. 241.10, Stats., to be filed with the register of deeds of the county in which such personal property is situated, and when so filed are valid and binding upon all persons. Sec. 241.10(3), Stats. Additional statutory requirements may apply to mortgages which cover a stock of goods as distinguished from chattel mortgages covering specific personal property or personal property not constituting any part of a stock of goods. The mortgagor of a stock of goods of which he is in possession and from which he is permitted to make sales and apply the proceeds upon the indebtedness must from time to time not exceeding 4-months intervals file verified statements with the register of deeds giving the aggregate amount of sales from the mortgaged property, the amount of the proceeds applied on the mortgage debt and the total valuation of the stock of goods added to the original stock since the date of the mortgage of the last statement. Sec. 241.14, Stats. Failure to file the statements results in the mortgage becoming immediately due and payable and in the cessation or termination of the lien upon the stock of goods at the expiration of 30 days excepting as between the mortgagor and the mortgagee. Sec. 241.14(2), Stats.

A mortgage of a stock of goods need not expressly permit sales and the application of the proceeds by the mortgagor to the mortgage debt to call for compliance with sec. 241.14, Stats. It is sufficient if such conduct is permitted, acquiesced in or agreed to by the parties. Ross v. State Bank of Trego (1929), 198 Wis. 335, 224 N.W. 114, 73 A.L.R. 225; Morley-Murphy Co. v. Jodar (1936), 220 Wis. 302, 264 N.W. 926. The separate agreement outside of the mortgage found by the trial court to exist was sufficient to make sec. 241.14 applicable if the chattel mortgage was a mortgage of a stock of goods or of a stock in trade.

Nowhere, in ch. 241, Stats., is a chattel mortgage defined much less a chattel mortgage of a stock of goods. We construe sec. 241.14(1), Stats., as applying only to a mortgage which by its terms covers a stock of goods or a stock in trade as a class. Such a mortgage is general and its lien is in the nature of a floating encumbrance varying in extent as the stock of goods increases or diminishes. It is not the nature or intention of such a mortgage to describe the individual items separately so they may be identified individually. Nor is it necessary to identify each particular item of the stock of goods because generally in such a mortgage the hypothecated property is to be sold in the ordinary course of business.

The contents of the verified statements required by sec. 241.14(1), Stats., imply the personal property is dealt with or described as a class in the mortgage. These statements do not give information of what individual items are and what items are not covered by the lien but give information only of the aggregate amount of the sales made from the stock of goods, the amount applied to the mortgage debt and the total value of the stock added. By sec. 241.14(2), Stats., a mortgage of a stock of goods may be a valid lien upon after-acquired stock if the mortgage shall recite it is intended to apply and cover such additions. Obviously, after-acquired stock cannot be described in a mortgage excepting by general terms of a class. Individual identification of nonexistent goods is impossible.

These sections read together contemplate a mortgage upon property as a class constituting stock in goods and are inapplicable both in their purpose and content to a chattel mortgage of specific personal property described as such in the mortgage even though such property may in fact be part of the mortgagor's goods in stock or stock in trade. In the instant case, the three pieces of road machinery were specifically mortgaged and two pieces of machinery released from the lien under sec. 241.17, Stats. No purpose would be served in requiring verified statements to be filed in writing showing the amount of sales made of three pieces of machinery, the amount applied to the mortgage debt and the total valuation of property added to the mortgage since the date of the mortgage or the last statement. Such a requirement was aimed to provide some regulative measure respecting mortgages on merchandise stock. In re Thorson Bros. (D.C.E.D.Wis.1913), 209 F. 961.

The bank's contention the chattel mortgage cannot be a mortgage on stock of goods because the mortgage did not cover after-acquired property is without merit. Such element is not a distinguishing essential of a mortgage of a stock of goods. Cohen and Gerber, Mortgages on Merchandise, 39 Col.L.Rev. (1939), 1338, 1350. Nor can we agree with the contention of the receiver that every chattel mortgage on personal property which constitutes a stock of goods is a chattel mortgage of the stock of goods. To be a mortgage of a stock of goods, the mortgage must deal with the property mortgaged as a class.

The distinction between a chattel mortgage on specific property and one on a stock of goods permeates the distorical development of the chattel mortgage as a security device. From a secured creditor's point of view, a chattel mortgage on a stock of goods was an ugly duckling which had great difficulty becoming a swan. Skilton, Chattel Security Problems: Use of Personal Property as Security in Business Financing, Seminar for Wisconsin Lawyers, 1957; Mortgages on Stock in Trade, 1947 Wis.L.Rev. 453; Bunn, Financing Dealers: Existing Wisconsin Law and the Uniform Code, 37 Marq.L.Rev. (1953-54) 197; The After-Acquired Property Clause, 87 U. of Pa.L.Rev. 635 (1939); Gilmore and Axelrod, Chattel Security; I, 57 Yale L.J. (1948), 517, 534-537; I Jones, Chattel Mortgages and Conditional Sales (6th ed.1933), pp. 228-229, sec. 138, and II Jones, Id., pp. 142-144, sec. 409 and p. 150, sec. 415. The common law had no difficulty with the validity of a chattel mortgage on specific personal property. However, when the security device was used to deal with a stock of goods of a merchant, difficulties arose. A chattel mortgage of a stock of goods in the possession of a merchant from which he could make sales in the ordinary course of business and apply the proceeds in part to his own use and in part on the mortgage debt was viewed traditionally as a device to defraud, hinder or delay creditors. Place v. Langworthy (1861), 13 Wis. 629. It did not matter whether the mortgage expressly gave the mortgagor the power to sell and so use the proceeds if,...