Cumberland Nat. Bank v. Baker

• Decision Date: 27 July 1898
• Citation: 40 A. 850,57 N.J.E. 231
• Parties: CUMBERLAND NAT. BANK v. BAKER et al.
• Court: New Jersey Court of Chancery

40 A. 850

57 N.J.E. 231

CUMBERLAND NAT. BANK

v. BAKER et al.

Court of Chancery of New Jersey.

July 27, 1898.

(Syllabus by the Court.)

Bill by the Cumberland National Bank against Theodore P. D. Baker and others. Decree for complainant.

The bill in this case was filed by the complainant, the Cumberland National Bank, of Bridgeton, to foreclose a chattel mortgage given to it by the defendants Baker and wife to secure the payment of a pre-existing debt, owing by Baker to the bank, not yet due, and also several notes, not yet due, upon which Baker was bound as indorser, and which were held by the bank. The mortgagor was a farmer and seed raiser, and lived on his farm, in Cumberland county, N. J., where the mortgaged property was recited in the chattel mortgage to be located. The mortgage of the complainant was dated on the 5th day of March, 1895, and set forth the schedule of the chattels mortgaged, and, among other things, the articles giving rise to this dispute, in the following words: "And also all the seeds and crops, of whatever kind and description, now in the ground, or hereafter to be planted, upon the farm where we now reside." The chattel mortgage in question was duly acknowledged and verified, and was recorded on the day of its date in Cumberland county clerk's office, in the mode prescribed for chattel mortgages. It contained a clause whereby Baker agreed that it should, upon the property therein mortgaged, be a prior lien to the mortgage given the same day to Garrison & Minch. Afterwards, but on the same March 5, 1895, the mortgagors made to the defendants Garrison and Minch, trading, etc., another chattel mortgage upon the same goods and chattels, describing them in the same manner, but adding several lots of fertilizers in the warehouse of the mortgagees. This mortgage was also duly acknowledged, verified, and recorded as required by law. The consideration of this second mortgage was in part the securing the payment of an antecedent debt owing by Baker to the mortgagees, and in part the securing the payment of the purchase money for the fertilizers named in the mortgage, and sold by the mortgagees to the mortgagor co-incidently with the making of the mortgage. This later mortgage contained this clause: "It is hereby expressly covenanted and agreed by and between the parties to this instrument that this chattel mortgage is executed and delivered as a lien, subject to the priority of a chattel mortgage upon the same property bearing even' date herewith, and executed and delivered by the mortgagors herein named to the Cumberland National Bank, of Bridgeton." At the time when these mortgages were given, the mortgagor was in financial difficulty, by reason that he had indorsed commercial paper which was about being forced to judgment. He continued in possession of his farm, and in the conduct of his business as a farmer and seedsman, during the seasons of 1895 and 1896, and raised, severed, and disposed of the crops of those years without any interference from the mortgagees. He also continued in possession during the season of 1897, and had planted seeds and crops upon the farm where he had resided, named in the chattel mortgage of the complainant, and was then in the conduct, on his farm, of his business as a farmer and seed raiser, and had partly harvested his crop for the season of 1897. He had paid nothing on either of the mortgages. On the 30th day of August, 1897, he executed a chattel mortgage to the defendant William O. Garrison to secure him for a previous indebtedness arising from money loaned and goods sold, and on the same day executed to the defendants Garrison and Minch, trading, etc., an additional chattel mortgage to secure them for the indebtedness outstanding on their abovementioned mortgage, which yet remained wholly unpaid. These two mortgages were dated, acknowledged, verified as to consideration, etc., and recorded, on August 30, 1895; and each had annexed the same schedule of property mortgaged, Including the following clause, which is the basis of the claims of the defendants Garrison and Minch, trading, etc., and of William O. Garrison, who is a member of the firm of Garrison & Minch, of their right of priority to the complainant in the property in dispute: "All my crops, seeds, products of the soil, whether the same be now growing, or which I have grown and harvested in the course of my business as aforesaid, and are now in my possession. All manure and fertilizers, and generally all personal property, except household furniture, owned by me in connection with my business aforesaid." The complainant filed its bill to foreclose, and a receiver was appointed, who sold the crops grown in the year 1897; and the whole question in dispute is based substantially upon the contention of the defendants Garrison and Minch, trading, etc., and William O. Garrison, that their mortgages given on August 30, 1897, are hens upon the crops grown in 1897, and that the complainant's mortgage was not a lien on those crops; that the proceeds of the sale of them in the receiver's hands in this suit should not be paid in satisfaction of the complainant's prior mortgage, but to them on their later mortgages.

William A. Logue, for complainant.

Walter H. Bacon, for defendants Garrison & Minch and William O. Garrison.

GREY, V. C. (after stating the facts). The defendants suggest that the complainant's mortgage was intended to hinder creditors, because the mortgagor disclosed his threatened financial embarrassment to the complainant, and proposed giving the mortgage, and that the delay in foreclosing suffered the mortgagor to sell off crops of large value, and that this operated as a fraud upon creditors. The evidence did not lead me to believe there was any fraudulent purpose, either in the inception of the complainant's mortgage, or in its omission to foreclose it. So far as there was any delay in its foreclosure, the defendants themselves were in the same position as the complainant. They took their mortgage of March 5, 1895, at the same time, on the same property, and might themselves have foreclosed, had they chosen to do so. It is no answer to say that the complainant's mortgage was paramount. The defendants, if they recognized the complainant's mortgage, could have redeemed it, and thus forced a realization; or, if they disputed it, could have contested it, with the same result. In my view, there is no showing of a fraudulent intent on the part of the complainant to hinder or defraud creditors of the mortgagor, but the delay was rather for the purpose of giving the mortgagor a chance to pay off his indebtedness without legal steps, if that were possible. The testimony of the defendant Garrison stated that the defendants Garrison & Minch took their mortgage of March 5, 1895, in order that the mortgagor might not be annoyed by his indorsements of Ely & Co. paper, and might continue his business. This does have a color of hindering creditors of the mortgagor, but it is the defendants' mortgage, and not the complainant's, which is thus impugned. Any creditor who chose might have forced a sale, and neither mortgage appears to have been used to prevent others from proceeding against the defendants. Fraud is not shown merely by the fact that the debtor voluntarily secured the claims, and that the secured creditor did not sue as soon as he might; there being no proof of collusive action between the secured creditor and the debtor for the purpose of hindering or preventing other creditors.

The defendants contend that the complainant's mortgage, because taken to secure a pre-existing indebtedness, is invalid, as against the Garrison & Minch mortgage, which was given in part to secure a presently passing consideration; and Milton v. Boyd, 49 N. J. Eq. 142, 22 Atl. 1078, is cited in support of this contention. In that case Vice Chancellor Pitney made an elaborate examination of previous cases on this subject, and determined that a chattel mortgagee, whose mortgage was given to secure a pre-existing debt, is not a mortgagee in good faith, under the fourth section of the chattel mortgage act, as against whom an unrecorded prior mortgage is void by the terms of that section. The line of the earlier decisions is somewhat in conflict upon the point The supreme court, in a recent opinion (Loom Works v. Vacher, 57 N. J. Law, 500, 31 Atl. 306), reviews the same cases quoted by the learned vice chancellor, and takes the opposite view; holding that it is only under those statutes which require a mortgage to have been given for a valuable consideration, as well as in good faith, that a recorded mortgage securing an antecedent debt cannot supplant a prior unrecorded mortgage; that the chattel mortgage act only requires the mortgage to have been given in good faith, in order to bring its holder into the class as against which the unrecorded mortgage is void; and that a mortgage to secure a pre-existing debt is in good faith, and within the protection of the statute. Neither construction of the fourth section of the statute is of any avail to give a preference to the defendants' mortgages. Milton v. Boyd, so far as it has application to the case under consideration, is against the defendants' contention. Boyd's chattel mortgage, which was there Held to be supplanted by Milton's, was last in delivery, and was postponed, though first recorded, because held not to be within the class of subsequent mortgages in good faith, as against which an unrecorded mortgage was declared by the statute to be void. In the case in hand the complainant's mortgage was not only first recorded, but was also first delivered, so that, being untainted by fraud, it was a precedent lien to the mortgage of the defendants, under the doctrine expounded in Runyon v. Groshon, 12 N. J. Eq. 86, and other cases, irrespective of the record under the statute. On the other hand, if the rule laid down by the supreme court in Loom Works v. Vacher, su...